HC Deb 21 April 1995 vol 258 cc485-91

Read a Second time.

Bill committed to a Committee of the whole House.—[Mr. Thurnham.]

Bill immediately considered in Committee; reported, without amendment.

Order for Third Reading read.[Queen's and Prince of Wales's consent signified].

2.1 pm

Mr. Peter Thurnham (Bolton, North-East)

I beg to move, That the Bill be now read the Third time.

There is time for us to have a short debate on Third Reading, and I start by thanking my right hon. Friend the Foreign Secretary for attending the House to give assent as a Privy Councillor, which is a vital part of the proceedings. I also thank my hon. Friend the Parliamentary Secretary, Lord Chancellor's Department for all the work that he and the Department have done, without which we would not be here. I also thank my hon. Friend for his evident sincerity in his belief that we need to rid this country of the iniquity of privity contract traps.

I am delighted that the Bill has got this far. I should like to thank my hon. Friend the Parliamentary Secretary for the work that he did during the consultation process following the agreement reached between the British Retail Consortium and the British Property Federation in November last year. My hon. Friend arranged for a consultation paper to be issued to assess opinion among both larger and smaller tenants and to ensure that their interests were kept in mind. That paper has shown that there is a wide measure of agreement, and the British Chambers of Commerce, the Forum of Private Business, the Royal Institute of Chartered Surveyors, the Property Managers Association and the British Council of Shopping Centres have given their support to the Bill in its amended form.

I should like to touch briefly on the amendments which have been proposed for the Bill, four of which we must pay attention to. First, we must introduce a new clause that would amend section 19 of the Landlord and Tenant Act 1927, thereby providing the opportunity for landlords and tenants to agree at the negotiation stage of a lease the terms under which future assignments can be made. In the absence of that amendment, it is likely that the majority of landlords would exercise their right to ban tenants from assigning their leases.

Under the current law, if landlords refuse to allow assignments, tenants can go to court if they believe that the landlord is acting unreasonably and is delaying or refusing consent to assign, but if assignments are subsequently granted, the tenants are required to underwrite the financial risk of assigning—in other words, privity in another form. By agreeing the terms for assignment at the outset, both landlords and tenants will be fully aware of their rights and duties.

Both the British Retail Consortium—which I thank for all the work it has done to make everything possible—and the British Property Federation are convinced that a sensible and measured approach will provide the property industry with the necessary control over future and current investment, which will boost confidence in the property market as well as ensuring a real future for the high street.

The first suggested amendment was modification of section 19 of the Landlord and Tenant Act 1927 by inserting the words: save where contained in an agreement to which the proviso to this subsection applies after the words "to the contrary" in section 19(1) and to add the following proviso at the end of section 19(1):

Provided that this sub-section shall not preclude the parties to a lease from entering into an agreement (whether contained in the instrument creating the tenancy or not and whether made at or after the creation of the tenancy) governing the circumstances in which consent to an assignment may be granted or withheld or stipulating the conditions which the landlord may require be fulfilled before consent to an assignment is applied for and sub-clauses (a) and (b) of this sub-section shall not apply to any such agreement. Three other amendments are proposed which would provide additional protection for tenants. The second is an amendment to reduce from nine to six months the notice period within which landlords have to notify former tenants and guarantors from whom they will require recompense for the default of rent or service charges to a period of six months.

Mr. Harry Greenway (Ealing, North)

I should like to ask my hon. Friend the Parliamentary Secretary, as this is a Third Reading debate, whether the amendments will be dealt with in the Lords. They are important and most welcome.

Mr. Thurnham

I am grateful to my hon. Friend for his support for the Bill and the support of my hon. Friends the Members for Reading, East (Sir G. Vaughan) and for Beckenham (Mr. Merchant) and many others who have shown their support.

The amendment would reduce the nine-month notice period within which landlords have to notify former tenants and guarantors to whom they will require recompense for the default of rent or service charges to a period of six months. That will mean that former tenants who have already signed leases and will continue to be caught under privity of contract obligations for the full term of that lease will now have regular notice of their financial liabilities for any subsequent default and will therefore be able to budget accordingly rather than face unexpected demands for debts which have accumulated over several years.

The third amendment aims to secure greater protection for tenants and ensure—

Madam Deputy Speaker (Dame Janet Fookes)

Order. I am sorry to interrupt the hon. Gentleman, but on Third Reading it is necessary to deal only with what is in the Bill. The hon. Member is straying outside that remit. I am sure that with a little ingenuity he can bring himself into order, but he will have to exercise that ingenuity.

Mr. Thurnham

Thank you for pointing out that need, Madam Deputy Speaker.

The Bill is in a form which was prepared last year before the conclusion of the consultation process which my hon. Friend the Parliamentary Secretary conducted. That process has now been completed. Part of the process of obtaining agreement in the House was an agreement that the amendments to which I refer would be included in the Bill when it reached another place. I hope that that will be an opportunity for Members of the other House to demonstrate what they can do.

I should like to touch on the points in the amendments. Without the agreement which has been obtained, it would be impossible to obtain the consensus needed for the Bill to proceed today. I hope that it will be in order for me to touch briefly on the other points to which reference was made in the consultation paper which my right hon. Friend the Minister issued in connection with the Bill in its present form.

Any increase in rents solely attributable to a variation in the original terms of a lease would not fall within the original tenant's privity of contract liability.

The fourth amendment which is needed will allow former tenants to call for an overriding lease once the tenant is called on to pay rent arrears or to perform covenants under his privity of contract obligation.

I am grateful to you, Madam Deputy Speaker, for allowing me to touch on the amendments. They are a fundamental part of the Bill, as it should be amended, to secure the full agreement of all the parties which have been consulted.

I pay tribute to the support of Opposition Members. I am delighted to see the hon. Member for Brent, South (Mr. Boateng) in his place. I thank those of his colleagues who have also offered me their support, in particular the hon. Members for Norwood (Mr. Fraser) and for Dumbarton (Mr. McFall), who have sponsored early-day motions and are sponsors of this Bill and a previous Bill which I attempted to introduce last year.

I thank members of the Liberal Democrat party and of Plaid Cymru for their support. I have also received the support of vast numbers of Conservative Members. The early-day motion tabled last year had more than 100 signatures and we were not far short of that number for our early-day motion this year.

I thoroughly commend the Bill to the House, with the amendments on which I touched. I hope that the other place will provide an opportunity to incorporate them in the wording of the Bill.

2.9 pm

Mr. Paul Boateng (Brent, South)

The Bill corrects a long-standing and manifest injustice and the hon. Member for Bolton, North-East (Mr. Thurnham) is to be congratulated on bringing it before the House.

The Bill is welcome on both sides of the House and will ensure that the existing injustice is rectified for all time. Generations of people who will benefit from this modest measure will have good cause to thank the hon. Gentleman for his perseverance. Those of us who have had the privilege of being associated with the measure for some years know just how much that perseverance has stood it in good stead. On behalf of the Opposition, I give the measure a fair wind and look forward to it proceeding to the other place and, shortly, on to our statute books.

2.10 pm
The Parliamentary Secretary, Lord Chancellor's Department (Mr. John M. Taylor)

I join all those hon. Members who have congratulated my hon. Friend the Member for Bolton, North-East (Mr. Thurnham) and the many sources of support that he has enjoyed, not least the hon. Member for Brent, South (Mr. Boateng), who is one of the signatories whose names appears on the back of the Bill.

When I was a law student, longer ago than I care to reflect, I studied the law on privity of contract and estate and I remember thinking how profoundly unfair it was. I little knew then that I should have the privilege of playing a small part in altering the law, but, as all the other contributors said, the main congratulation must emphatically go to our hon. Friend the Member for Bolton, North-East for promoting the Bill and for giving the House the opportunity to debate a very important issue.

Privity of contract is of great social importance and it goes to the heart of the relationship of landlord and tenant. That relationship is one of the key building blocks of the system of property ownership in this country, and the Bill, if enacted, will radically alter some of its most fundamental aspects. By doing so, the Bill might set in train a process of change, not only in the interpretation by lawyers of particular technical provisions in leases but in the very basis on which agreements for the occupation of property are entered into.

The Government are satisfied that the present system is seriously defective in respect of the rules governing privity of contract and estate. The Government's established policy is that the law in that area should be reformed. It seems to me to be quite wrong that a former tenant can be sued for arrears of rent and service charges, or for the cost of carrying out repairs to premises, perhaps many years after he has ceased to occupy them, as a consequence of a breach of covenant by the present tenant, who may not be the person to whom the lease was originally assigned and of whom the former tenant has no knowledge or connection.

In such circumstances, it seems absurd that the landlord should have a right of redress against the former tenant, especially when it is borne in mind that it is common practice, certainly in leases of commercial premises, for landlords to insist on approving the identity of each assignee of a lease. Consequently, the landlord is likely to have more control over, and connection with, the defaulting tenant than the former tenant, who is expected to pay compensation for breach of covenant.

I am pleased to announce to the House today that the Government accept that implementation of their established policy to abolish privity of contract for future leases should be subject to the addition of measures which have been proposed by the British Property Federation and the British Retail Consortium. I hasten to add, however, that I was keen to ensure that my Department canvassed more widely than those two important organisations and endeavoured to find the view of smaller retailers as well.

The big battalions have always been well protected in the world of property. Whether their interests are as landlord or tenant, the law is handled for them by professional practitioners of great expertise and their interests are protected at all times. But the smaller person in our society—a typical retailer operating from a lock-up shop—all too often signs a lease almost in circumstances of Hobson's choice, and with little professional advice available or affordable.

Mr. Boateng

indicated assent.

Mr. Taylor

I am glad that the hon. Member for Brent, South indicates his assent and agrees with the general approach that smaller, more vulnerable people should also have had their round of consultation. In the event, it has caused this measure to come before the House a week or two later than would otherwise have been the case.

As a qualification to my general remarks, the Government have decided, in response to opinion received in response to the consultation paper, to exclude purely residential tenancies and farm business tenancies from the proposals concerning assignment. Implementation of those policy changes will also be subject to any detailed adjustments that may be necessary in the process of preparing amendments. The package of changes is primarily directed at lettings of commercial business premises and it is right that its application should be limited accordingly.

My hon. Friend the Member for Ealing, North (Mr. Greenway), who had the courtesy to explain that he had to leave his place and be on his way to his constituency, asked me to reassure his constituents that the effect, in layman's terms, is to do away with the privity trap under which original tenants of leases could be held liable for default of subsequent assignees. That is the case and, in his absence, I wish to put that on the record. He also asked me to clarify whether changes would be made to the text before the House today. Some changes will be made and my right hon. and noble Friend the Lord Chancellor will ensure in another place that amendments, which have been reviewed and are fairly widely known, will be made. It is the Government's intention to make those amendments.

I am pleased to confirm to hon. Members that the Government support the Third Reading of the Bill.

Sir Gerard Vaughan (Reading, East)

My hon. Friend referred to the proposed amendments. Does he agree that reducing the period from nine months to six months would strengthen the Bill?

Mr. Taylor

Yes, it would strengthen the Bill and be fairer to the tenant on whom the burden falls.

Perhaps it is also fair to say—I share the opinion of my hon. Friend the Member for Reading, West (Sir G. Vaughan)—that we were finally persuaded that it would have tipped the balance too far in another wrong direction to remove the privity trap without giving any further consideration to the position of the landlord.

There must be a balance between the rights of tenants and the rights of landlords. Although we are attempting to improve a historic weakness of the position of the tenant, it is not an occasion to go overboard in strengthening the position of the tenant so that landlords' positions are perhaps imperilled or borne down on adversely and unnecessarily.

Very much of the property market which has to do with investments and people's pension funds and the like largely depends on what is perceived to be the strength of the covenant on the lease. We must, as a Government and a House, be mindful of the fact that the property market is important to us all—and to our savings, pensions and investments—and the Government would not wish to strike it a gratuitous blow. That is why, having accepted the obvious argument—which I think commends itself to everyone—that the privity trap should be removed, there has been and there will be a slight adjustment in the position of the landlord of commercial premises with regard to the mechanism for assignment.

Historically, in very many leases, the position between the landlord and tenant has been so set out that, on a request by a tenant for an assignment, the landlord has been unable unreasonably to withhold his consent to an assignment. Those are time-honoured words. The amendments that are anticipated to the Bill will allow the landlord some degree of care and some element of control and supervision of an assignment from one tenant to another. Inasmuch as the landlord has lost the unfair historic advantage of privity, the landlord will be compensated by a greater supervisory role in respect of assignment mechanisms.

Until now, and until my hon. Friend the Member for Bolton, North-East brought redress and reform, the position always appeared especially difficult to justify in cases involving a professional landlord and an individual or small business. Such a landlord may be a large company, experienced in property lettings, which also has the benefit of legal and financial advice before consenting to an assignment of the lease to the tenant now in default. The former tenant, against whom the landlord seeks to make a claim, may be an individual or small business with no specialist property knowledge, who certainly did not appreciate, at the time of entering into the lease—or, for that matter, on assigning it—that a primary obligation to pay the rent would endure for the whole of the term, irrespective of the identity of the current tenant.

In a two-year period since 1993, my mailbag has included 304 separate instances of right hon. and hon. Members writing to me on behalf of their constituents, and no fewer than 19 parliamentary questions have been asked on the subject. Anyone who might have attempted to say that that issue was not a cause of severe worry, requiring urgent action, would not have been taking the issue and the sector seriously enough.

Our proposals have altered slightly in the Government's hands, impelled along as we were by my hon. Friend the Member for Bolton, North-East, who has allowed no let-up or relaxation on the part of your humble servant, but it is important to make it clear that the origin of our proposals was the Law Commission. Parliament is now seriously intending to transfer the Law Commission's proposals, Bill by Bill, on to the statute book—in appropriate cases, using the so-called fast track of the Jellicoe procedure in the House of Lords and the Second Reading procedure in this place.

I do not believe that this measure was ever a candidate for fast tracking. Its very record and handling over a period in this Chamber show that there has been serious controversy and interests have been affected by it. I do not think that my hon. Friend the Member for Bolton, North-East will mind if I say that this is the second time that he has come to the Chamber with his measure. On the first occasion, it was opposed and he was unable to proceed.

It says much for his tenacity and determination that he kept the broad principle of his measure, while monitoring and, to a degree, supervising the reconciliation of conflicting interests that opposed him on the previous occasion. There has been some reconciliation and a degree of compromise, and some concessions have been made here and there, in return for the gaining of ground. I suppose that that is the way in which we work in this place—if one addresses a difficult issue in a complicated sphere where many people have vested interests, one ultimately has to settle for what can do the job as well as possible.

The origins of the reforming text "Landlord and Tenant Law: Privity of Contract and Estate" go back to Law Commission report No. 174. I think that nobody will mind if I say, in a spirit of candour, that the Law Commission is not getting exactly what it wanted, either; but there is some fidelity between the text that we hope will emerge from the parliamentary process and the Law Commission's original proposals.

As I recall, the Law Commission wanted to introduce an element of retrospection. The House has always shied away from any mention of retrospective legislation, which it has embarked upon only rarely. The House has stayed faithful to its long-held principles on retrospection. In this case, one has to say that with a note of sadness. We all know from constituency experience that, particularly during the period of recession and financial hardship, people were hit hard by the privity rule. Some of them even lost their own homes when they should have been expecting to enjoy a quiet retirement. I say with sadness that my hon. Friend's measure will not come to the relief and assistance of those who have already encountered that hazard with adverse effects.

The British Property Federation and the British Retail Consortium addressed the subject seriously and, on their own initiative, came to terms with a set of proposals that were different from my hon. Friend's original proposals and from the Government's original position. The Government have moved their position to accommodate the arguments that they have heard. I shall risk saying it twice because I think that it bears repetition: it was also considered extremely important to consult the numerous small tenants up and down our high streets that form part of the fabric and commerce of our lives.

This has been a valuable debate and I am happy to support the measure.

Question put and agreed to.

Bill accordingly read the Third time, and passed.