Leasehold Law Reform (Hansard, 26 January 1994)

§ Mr. Richard Page (Hertfordshire, South-West)

I beg to move, That leave be given to bring in a Bill to amend the law regarding privity of contract and estate for future but not existing leases; and for connected purposes. If the small—[Interruption.] If the hon. Member for Bradford, South (Mr. Cryer) would be quiet, he might learn something for the benefit of his constituents. If the small business sector compiled lists of restraints and barriers to trade, it would not be surprising to find commercial leaseholds and the law relating to them, if not at the top of the list, almost at the top. It is for that reason that my Bill concentrates on how smaller businesses might be helped by changes to commercial leasehold law.

Part of my effort is motivated by the fact that I and all hon. Members have recently seen more and more boarded-up shops and vacant shop fronts standing out like blackened teeth, disfiguring the towns and villages of our constituencies, and contributing to the rundown of community life. My Bill will help to reverse that decline, by giving small businesses a fairer deal when undertaking commercial leaseholds. It will give confidence to small business men who take the plunge and start a new business.

My Bill will enable consideration of upward-only rent reviews, privity of contract and compensation if rates are found to be too highly assessed. It is normal for a small business entering into negotiations with a landlord to be faced with a gross imbalance of power. While that imbalance has been partially corrected by the recession, there is no doubt that normal service will be resumed once the property market recovers. It is not surprising that small business men find themselves having to sign contracts, which normally they would be considered insane to sign.

Big businesses are big enough and ugly enough to look after themselves. They can employ lawyers and accountants to argue their case on leasehold negotiations. Smaller businesses do not have that strength. It is because of that imbalance of power that I believe that the Government should go further to introduce leasehold reforms to protect the interests of smaller business. That is the purpose of the Bill.

My greatest concern is over privity of contract—whereby an individual taking a lease assumes liability for rents due many years later from organisations with which he may have had no connection and for which he has no responsibility. I have heard of cases in which, decades later, individuals have been presented with demands for tens of thousands of pounds and, as a result, have been subjected to personal bankruptcy. The hand of the landlord can reach out literally to the edge of the grave. That unfairness should be redressed.

In addition to the proposed limitation of privity to the immediate successor, I recommend that the sword of Damocles be removed after a reasonable but specific time. Lease lives have diminished—the average lease life here is about 15 years, and in the United States it is much shorter. That is still far too long for the individual to be liable for rents—he may have moved on, sold up or even retired.

Therefore, for smaller businesses of less than approximately 3,000 sq ft, there should be a five-year limit, after which responsibility is diminished. That would prevent some of the worst cases of personal hardship 292 caused by privity of contract in commercial leases. Surely five years is long enough for the landlord to assess whether the new tenant is good enough or to find another tenant.

I am aware of the need to rebuild investor confidence in the commercial property sector, but I am concerned that such a consideration may override all others. As I said, commercial landlords are in a much stronger position than the smaller business man, which is reflected in the majority of leasehold agreements. The landlord has the ability to obtain agreements, not only on privity of contract, but on upward-only rent reviews.

It seems strange, to say the least, that landlords are content to set new rentals according to current market conditions, while future reviews remain blind to any change of circumstances that might affect property values. I cannot think of any other traded commodity that can only rise in price. Upward-only rent reviews should therefore be prohibited. Instead, rents should be adjusted according to market conditions.

The wholesale abolition of upward-only rent reviews would bring sense to a nonsensical practice. The commercial property market is not unique: other capital-intensive industries that have no plan for the long term. The fluctuations in the commercial aircraft industry make life in the property market seem almost secure. I do not accept, therefore, that commercial landlords need special allowances for their circumstances.

Together with privity, upward-only rent reviews inflict tremendous commercial and personal harm on small businesses and their owners. Even the industry's own representative, the Royal Institution of Chartered Surveyors, has acknowledged that real hardship is being suffered and that, in some cases, paying rents above market levels can be a contributory cause of insolvency. Limited compensation measures should be introduced to provide some redress for a small business that is driven from a property by an upward-rent review, only to see the landlord let that property at a lower rental. That compensation would be offered within a specific period of two years. A compensation scheme would encourage flexibility, and would surely benefit all concerned.

I speak with some experience, because I know of a constituent who was charged a rent of £13,000 a year. That was too expensive for him, and he went into bankruptcy. Within a few months, however, his landlord, who had refused to agree to a lower rent, relet the property for only £10,000 a year. My Bill would introduce changes that reflect current market conditions.

I accept that a deal is a deal, and that what is past is past. The measures contained in my Bill would therefore not be retrospective. The small business sector is the one that will provide jobs as the economy expands. It is the acorn from which the oak can grow. I sincerely recommend the Bill to the House, because it would amend commercial leaseholds to give small businesses a better chance of getting started and a fairer deal.