AGREEMENT VOID IF IT RESTRICTS OPERATION OF THE ACT (Hansard, 14 July 1995)

§ Mr. Thurnham
I beg to move, That this House doth agree with the Lords in the said amendment.

§ Mr. Deputy Speaker
With this, it will be convenient to discuss also Lords amendments Nos. 64 to 67.

§ Mr. Thurnham
The amendments are technical, and they revise and refine the provisions of clause 16 as it left this House. The amendments are important, as they contain anti-avoidance provision to stop the reforms simply being circumvented. The amendments do not change the approach of the original provision or the approach recommended by the Law Commission, but refine the provisions so that they are properly effective. They will also prevent arguments to the effect that they outlaw certain other matters which the Act elsewhere envisages being permitted.
The Law Commission, aware of the boundless ingenuity of those in the property industry, recommended provision in general terms to catch any device aimed at subverting the Act. Subsection (1) contains the principal provision which is, in accordance with that recommendation, in general and all-embracing terms.
Amendments Nos. 63 and 64 amend the wording of subsection (1) to ensure that it is sufficiently all-embracing to catch various devices which might be attempted as ways of circumventing the Act. Amendment No. 65 deletes subsection (2) of clause 16 as it left the House. The subsection makes cross-reference to provisions which authorise and guarantee the agreements, and it is necessary to delete it to make way for a revised and refined provision to similar effect which is made by amendment No. 67.
Amendment No. 67 inserts a new subsection after subsection (3) which makes it clear that an agreement is not outlawed to the extent that it is an authorised guarantee agreement, but that anything in an authorised guarantee agreement which falls foul of subsection (4) of clause 12 as amended is void to the extent that it does so.
Amendment No. 66 deletes subsection (3) of clause 16 as it left this House, and replaces it with a revised and refined version. The subsection was originally inserted to reflect concerns that it might be argued that absolute or qualified covenants against assignment amounted to provisions which would modify the operation of the Act as far as release on assignment is concerned, which would therefore be held to be void. The new subsection makes it clear that such a covenant against assignment is not void by reason of this clause, but goes on to make clearer than the original draft that any conditions which might be attached to consent or required to be fulfilled before 1266 consent is given would not survive scrutiny under this clause if they were such as to subvert the operation of the Act.

Mr. John M. Taylor
As my hon. Friend has said, the amendments are technical and I do not propose to detain the House for any length. However, there are two points on which it would assist the House if I offered a brief explanation, since questions have been asked in some quarters. First, it has been suggested in some quarters that subsection (1)—both in its original form and as amended—might render void any agreement between parties to a lease that certain covenants should be expressed to be of limited duration, such as—to take an obvious example—a time-limited undertaking.
This is argued on the basis that such limitation would modify the operation of the provisions providing for an assigner to be released on assignment. I wish to reiterate what was said in another place on this matter—that that will not be the case, since time-limited covenants, once the period has expired, will not be covenants which bind the assignor immediately before assignment. It is thus not possible to say that the limited duration in any way falls foul of clause 16.
The second point demonstrates the ingenuity to which my hon. Friend referred. It is suggested that an avoidance device for landlords might be to abuse the provisions concerning excluded assignments by insisting that tenants cannot assign but must instead sublet for a longer term than the tenant's own term. It is argued that this will take effect not as a sub-letting but as an assignment by operation of law so that the tenant will not be released and neither will any of his assignees.
The degree of lateral thinking in that suggestion is remarkable, but this is precisely the sort of device at which clause 16 is aimed. The point was in the minds of those who produced the provisions in question. Such a device would be a clear sham aimed at subverting the effect of the Act. I am sure that the courts will be quick to spot such shams as the Act is tested and to strike them down.