HC Deb 14 July 1995 vol 263 cc1236-50

Lords amendment: No. 1, in page 1, line 6, after ("Sections") and insert ("(Transmission of benefit and burden of covenants), (Transmission of rights of re-entry),")

11.52 am
Mr. Peter Thurnham (Bolton, North-East)

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

Madam Deputy Speaker (Dame Janet Fookes)

With this, it will be convenient to discuss also Lords amendments Nos. 10, 11, 16, 23, 28 to 30, 39, 61, 62, 74 and 88.

Mr. Thurnham

Today is a day that has been looked forward to by many tens of thousands of small business men and shopkeepers up and down the country, who long to be free of the worry of landlords pursuing them many years after they have vacated their premises.

I give thanks to my noble Friends the Earls of Courtown and of Northesk, who assumed stewardship of the Bill in another place. My noble Friend the Earl of Courtown introduced the Bill so successfully that he was quickly promoted to the Whips Office, leaving the Bill to be ably carried through by my noble Friend the Earl of Northesk, who also helped with another Bill that we have already debated today.

I am immensely indebted to my noble and learned Friend the Lord Chancellor who has been so instrumental in introducing the 89 amendments to my Bill, all of them useful and many crucial to the Bill's success. I hope that the amendments will commend themselves to the House.

I thank the Law Commission and parliamentary counsel for their enormous assistance, without which the Bill would certainly be a much less effective reform and would probably not have been able to progress this far. I am immensely grateful to my hon. Friend the Parliamentary Secretary, Lord Chancellor's Department for the excellent and inestimable work that he and his Department have done in securing agreement and in helping Bill on its way.

Finally, I thank the British Retail Consortium, which sponsored the Bill, and with its legal advisers, and the British Property Federation for all that it did in working out the package of additional changes that enabled the Bill to proceed on the basis of agreement and support on all sides, without which, as the private Member's Bill not drawn in the ballot, it could never have got off the ground.

When the Bill was last before the House, on 21 April, I expressed delight that it had got as far as Third Reading and I am overjoyed that we are now in the final stages of a difficult, but immensely valuable undertaking. The reforms that it will enact will benefit all sorts of tenants by removing the spectre of privity of contract liability from new tenancies, and will also introduce changes to help tenants under existing tenancies, changes for which tenants have been crying out for a long time. They will also provide for new tenancies a sensible and balanced modification that will provide the property industry with the necessary control over investment to maintain market confidence, without the need for harsh restrictions.

The House would be assisted by an overview. Although the number and complexity of the amendments may appear daunting, none of them affects the policy aims of Bill which the House agreed earlier this year. The amendments will ensure that those aims are effectively met. Hon. Members will recall that the Bill proceeded in the House on the clear basis that changes would be incorporated in another place and the purpose of many of the amendments is specifically to make the necessary provision for those changes.

I shall stick closely to my notes because I appreciate that what is reported in Hansard can be referred to later by the courts. As was explained in the other place, the amendments fall into two categories. The first category comprises amendments that are necessary to give affect to the various elements of the agreed package put forward by the British Retail Consortium and the British Property Federation and accepted by the Government after consultation. Those amendments were tabled by my noble Friend the Earl of Courtown. The second category comprises amendments that are necessary to ensure that the Bill is complete and that it gives full effect to the recommendations of the Law Commission, which, it should be remembered, are at the heart of the reforms. Those amendments, many of which are technical, were tabled by my noble and learned Friend the Lord Chancellor. Amendment No. 1 and the others with which it is particularly linked fall into that second category.

Clause 1 makes it clear that certain provisions are to apply only to new tenancies and that others are to apply to both new and existing tenancies. Subsection (1), which amendment No. 1 alters, lists the provisions that are to apply only to new tenancies. The change is necessary because a number of extra provisions are needed to carry through effectively the Law Commission's recommendations and it is accordingly necessary to add them to the list, which amendment No. 1 does.

Amendments Nos. 10, 11, 30, 61, 62 and 88 in particular, together with amendments Nos. 23 and 28 and 29, which make provision for certain special cases, are aimed at ensuring that the Law Commission scheme, which the Government accepted for new leases, will work effectively in practice and are accordingly very detailed. I shall explain the framework and I believe that my hon. Friend the Minister will be better placed than me to clothe that framework with greater detail if necessary.

Mr. Eric Pickles (Brentwood and Ongar)

Perhaps my hon. Friend or my hon. Friend the Minister will comment specifically on amendment No. 10 and in particular on the idea both in subsection (2) and in subsection (3) that the concept of covenants is void unless "immediately before the assignment" was specified. I have had a case in my constituency where negotiations have been protracted and in many ways took place in two specific parts. Will my hon. Friend or the Minister clarify exactly what is meant by "immediate"? Would it have to be just before the assignment and just before the tenancy, or earlier in the negotiations, and if so, what is the limit?

Mr. Thurnham

I am interested to hear my hon. Friend's point. Nearly every right hon. and hon. Member in the House has had constituents' cases that have given them concern. I am coming on to further detail on amendment No. 10. If those points do not cover my hon. Friend's question, I am sure that my hon. Friend the Minister will he able to cover his point.

This important group of amendments is necessary to avoid potential problems arising from the interface of the new regime with existing law governing the transmission of benefit and burden of covenants and their enforcement under privity of estate, which is contained in a unsatisfactory mixture of statutory provisions and common law rules. The amendments will provide a proper framework for new tenancies in the Bill rather than attempting the extremely difficult task of amending existing law consequentially.

Amendment No. 10 introduces a new clause that sets out the basic principle for the transmission of the benefit and burden of covenants for new tenancies. It includes provision originally contained in clause 7, which is accordingly deleted, and certain parts of sections 78 and 79 of the Law of Property Act 1925, which are to be preserved for tenancies—those sections not being affected otherwise than in relation to tenancies. Together with the new clause introduced by amendment No. 11, it also replaces sections 141 and 142 of the 1925 Act, which will accordingly not apply to new tenancies. Amendment No. 88 does the job of disapplying these statutory provisions in the case of new tenancies.

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The basic principles of the Law Commission's scheme, contained in subsection (1) of the new clause introduced by amendment No. 10, is that the benefit and burden of all landlord and tenant covenants of a new tenancy are annexed to the whole and to each and every part of the lease and reversion as appropriate and shall pass on an assignment of the whole or any part. There is, as the Law Commission recommended, no distinction between covenants which touch and concern the land and those that do not. The annexation to each and every part ensures that, in the case of an assignment in parts, all covenants are enforceable by and against each of the assignees.

The assignee of a lease or reversion respectively will be bound by the burdens and entitled to the benefits of the covenants, except where they did not bind the assignor—for example, because the covenant was limited in duration or the assignor had been released from it. Where only part of the interest is assigned, the assignee will be bound by the burdens and entitled to the benefits of the covenants only to the extent that they relate to the part assigned to him. There is a saving for cases where the assignor was not bound when he assigned only because of a waiver that was expressly personal and was not intended to benefit anyone else. In such cases, it will be appropriate for the assignee to be bound by the covenant in question. There is also a saving to enable the parties to a lease to provide expressly for covenants to be purely personal and for the benefit or burden not to pass on assignment, notwithstanding the basic principle above.

The new clause introduced by amendment No. 11 reproduces for new leases the existing rules governing the transmission of the landlord's rights of re-entry under a tenancy, which would not otherwise fit into the framework for new leases, as they arc not landlord covenants or tenant covenants.

Amendment No. 30 inserts a new clause which makes clear who may enforce the covenants benefiting either a landlord or a tenant under a new tenancy. Mortgagees of the reversion who are in possession and lessees of the reversion will, where they are entitled to rent and profits under the tenancy, be able to enforce and, as a corollary, have enforced against them the various rights and obligations of the landlord. Concomitantly, a mortgagee of the lease who is in possession will be able to enforce, and have enforced against him, the tenant's rights and obligations.

Amendment No. 61 introduces a further new clause to provide for another element of the framework to give full effect to the Law Commission's recommendations. This new clause makes it clear that an assignee shall have no rights or liabilities under a covenant of the tenancy in relation to anything occurring before the assignment. The new clause makes a saving for cases where the assignor expressly assigns his accrued rights to the assignee, which may be convenient in some cases as part of the bargain for the assignment. It also preserves the present position in respect of the landlord's rights of re-entry.

Amendment No. 62 ensures the completeness of clause 15, which makes provision for new leases concerning the effective release from any covenant occurring on assignment by virtue of the Act. Release on assignment will not affect any liability of the assignor for breach occurring before the assignment or any accrued rights of the assignor relating to a breach of the other party occurring before assignment. Where any person has taken on a liability parallel to that of the tenant, release on assignment to the tenant will release that person to the same extent.

Amendment No. 62 covers the case where a landlord or tenant assigns the whole of his interest but is not released, making it clear that any such assignment does not affect any liability of the assignor arising before the assignment.

Amendments Nos. 23, 28 and 29 provide—as I mentioned earlier—for the operation of the Law Commission's scheme in certain special cases. Amendments Nos. 23 and 29 cover the possibility that there may be another party to the tenancy other than the landlord and tenant—that is to say, a management company. Amendment No. 23 ensures that the procedure of clause 8 concerning apportionment of liability on assignment of part is available where it is a third party who is entitled to enforce the covenant in question. Amendment No. 29 introduces a new clause to make provision for the position of management companies in relation to the Law Commission's scheme, ensuring that the benefit and burden of covenants with management companies will pass and the provisions for releasing assignors and binding assignees will operate on assignments of the lease or reversion.

Amendment No. 28 introduces a new clause to make effective provisions for cases where an assignment is not lawful or voluntary, but takes place in breach of a covenant against assignment or by operation of law, such as passing to personal representatives on death of the landlord or tenant.

The Law Commission recommended that such assignments should not have effect to release the person parting with the interest from his rights and obligations under the lease, the possibility for misuse or unfairness to the other party being obvious. Such assignments should, however, as is the case at present, be fully effective to pass the estate and accordingly to bind the assignee. The assignor will be released only on the next assignment that is not an assignment in breach or by operation of law.

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

I want to start by congratulating my hon. Friend the Member for Bolton, North-East (Mr. Thurnham) on his Bill's progress into the final straight, which is in no small part due to his tireless efforts in holding to the essential principles of the reform, while facilitating and maintaining the reconciliation of conflicting interests whose clash prevented his earlier Bill from making progress. I also congratulate him on the determination and considerable persuasive skills that he has deployed in keeping this reform high on my agenda.

Before I move on to add some detail to the framework of my hon. Friend's explanation and, I hope, to add to our understanding of the amendments, I must put on record my appreciation of the Law Commission's enormous contribution in getting the Bill to this stage. Commissioners, officials and parliamentary counsel at the Law Commission have all given unstintingly of their time and expertise in assisting with the amendments that we are now considering. I am sure that my hon. Friend will not take it amiss if I say that the result of that work is a vastly improved measure, which comes to the House with the support of all sides in another place and which is thoroughly deserving of similar support in this House.

In order fully to understand the amendments and the way in which they fit into and enhance the Bill, it is necessary to have an overview of the scheme that the Law Commission has recommended and that is the underlying basis of this reform in relation to new tenancies. That scheme is full and detailed and, as a result, the amendments have also had to be full and detailed. Therefore, to proceed without a full explanation of the principal amendments would be to do the Bill and the House a disservice.

The guiding principle of the Law Commission's scheme is that all covenants and obligations between lessor and lessee should be enforceable between the landlord and tenant for the time being, with no distinction being drawn between covenants which touch and concern the land and other covenants. Thus, when the landlord's or tenant's interest is assigned, the assignee should become bound from the assignment by the whole package of rights and obligations as it bound his predecessor, including any variations. The assignee should not, however, take on any rights or liabilities in respect of any breach of covenant occurring prior to the assignment.

The corollary of this is that the assignor should cease to have any rights and obligations as from the assignment, but should not lose any accrued rights in respect of a breach by the other party prior to the assignment, and should likewise remain liable for any breach on his own part occurring prior to the assignment. The Law Commission did, however, recommend a difference in the position of landlords, which the Government accepted and which both Houses have agreed.

A landlord under a new tenancy who assigns the reversion will be released by a simple notice procedure which gives the tenant the right to argue that it would be unreasonable in the circumstances for the landlord to be released, with the final decision lying with a court in the case of a dispute. That is because tenants have no way of vetting the landlord's assignee and preventing assignment to a weak or nominee assignee. The assignee's ability to perform the landlord's obligations might, in some cases, be very important.

Where only part of the landlord's or tenant's interest is assigned, the assignee is to become bound by the package of rights and obligations only to the extent that it relates to the part assigned, and is not to take on any rights or liabilities in respect of any breach of covenant which occurred prior to the assignment. Once more, the corollary is that the assignor should cease to have prospective rights and obligations in respect of the part assigned, but should retain any accrued rights relating to that part, and should also remain liable for any breach of his own in relation to that part before assignment. The assignor is, of course, to remain bound by the package of rights and obligations to the extent that they relate to the part retained by him.

Covenants do not always operate separately in respect of separate parts of the interest. In particular, covenants to pay money, such as rent or service charge, are commonly charged out of the whole of the property, and cannot, except in special circumstances, be identified as operating in respect of any one part or another. In the case of such an unattributable covenant, to use the Law Commission's term, the assignor will not be released from the covenant to any extent and will remain jointly liable with the assignor in respect of the whole of the property, albeit with the right of contribution between them.

The answer in such a case is for the assignor and assignee to agree an apportionment of liability between them and the Bill makes special provision for making such apportionment binding on the other party to the lease. The Bill also makes detailed provision for defining and identifying unattributable covenants. The original draft was difficult to understand in that respect, and there are several amendments to make it clearer.

That is the basic scheme which the original Bill set out to implement. Unfortunately, for a variety of reasons including the fact that all sides were agreed that the changes could not have retrospective effect, the original draft fell a long way short of implementing the scheme effectively. There were a number of matters which were not addressed, and as my hon. Friend the Member for Bolton, North-East said, many potential problems in the relationship of the new regime to the existing law concerning the transmission of the benefit and burden of covenants and their enforcement under privity of estate.

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The existing law is to be found not in one place but in a mixture of statutory provisions and common law rules, some of which date back to the 14th century. The law contains both gaps and duplication and has been criticised as being inconsistent, unclear or uncertain in several areas. Some amendment was vital for the Bill to be effective, and the choice was between leaving the existing law in place for new tenancies but undertaking consequential amendments or disapplying the existing law for new tenancies and amending the Bill to provide a complete and self-contained framework for new tenancies, giving full effect to the principles of the Law Commission's recommendations to replace the existing law. With the inestimable assistance of the Law Commission, the latter course has been chosen, so that, for new tenancies, the law will be found in one place.

I hope that the measure as amended will enjoy the whole-hearted support of the House.

Mr. Pickles

I apologise to my hon. Friend for interrupting his flow but I should like to return to the point I raised earlier. Given that the transmission of covenants is a serious matter and that negotiations can be protracted and, by their nature, can be abandoned and started up again, can he say exactly what is meant by "immediate"?

Mr. Taylor

My hon. Friend need not have feared that I would not address his point. I do not blame him for returning to it, because all too often Ministers at the Dispatch Box sit down without adequately discharging the inquiries of their hon. Friends. I would wish to discharge properly that of my hon. Friend.

The use of the expression "immediately before" is meant to address the circumstances that actually prevailed at the time of the assignment. If I, in the next moment, effected an assignment of a lease from party to A to party B, the expression "immediately before" would define the circumstances as they prevailed at that instant. I am prepared to give way if I have not dealt with my hon. Friend's inquiry. If he remains sedentary, I shall assume that he is content.

Mr. Pickles

I am content but I thank my hon. Friend for his courtesy.

Mr. Taylor

I am grateful.

Rather like my hon. Friend the Member for Bolton, North-East, I have rather stuck to my text today. In such a technical area, I am rather nervous of the case of Pepper. ?.Hart, recently decided by the Judicial Committee in the House of Lords, which suggests that in highly technical disputes such as those between landlord and tenant, lawyers may be scurrying for Hansard to read what hon. Members and Ministers said when a measure was being taken to the statute book. I have therefore been swayed by caution this morning and stuck to my text.

I extemporise only to say that I should like to thank among others, and in no particular order, the hon. Member for Brent, South (Mr. Boateng) who is here and has been a faithful supporter of the measure through all its stages. I would like to place on record my appreciation and that of my hon. Friend the Member for Bolton, North-East.

I also note the contributions of various parties who have worked with great good faith and assiduity to bring the matter to the stage that we have reached—very close to the statute book. The British Property Federation and the British Retail Consortium have worked heroically to close gaps, if I may put it that way. The smaller business community has also been extremely helpful in sounding out the many small shopkeepers and similar small traders with leasehold premises as to their views. The self-employed and small business organisations have been very helpful. I know that the big battalions will not mind the particular care that I wanted to take in making sure that the small battalions were also consulted.

I hope that the measure as amended will enjoy the whole-hearted support of the House. It remedies a position that, although of long standing, has increasingly become regarded as unfair and does so in a way that will maintain investment confidence while extending extra assistance to those who would not otherwise have benefited.

Mr. Paul Boateng (Brent, South)

The Minister, kind and courteous as ever, expresses his thanks for the small part that I have played in the smooth progress of the Bill. Let me in turn thank him for that and thank my noble friend Lord Irvine of Lairg for his role in the passage of the Bill through the other place. I also thank my hon. Friend the Member for Norwood (Mr. Fraser), who sadly is absent today but to whose heart I know the matter has long been especially close. He has been particularly co-operative in recent weeks to ensure its smooth passage.

Above all, the thanks of the House and of many generations to come who will be spared the injustices that have characterised this aspect of the law must deservedly go to the hon. Member for Bolton, North-East (Mr. Thurnham), who has worked assiduously on this subject for many years. There is not a soul present who has not at some time been approached by the hon. Member in order to have his ear, although never his arm, bent. We owe him a great debt of gratitude. I wish the Bill well in its remaining stages and look forward to its early introduction into law.

Lords amendment agreed to.

Lords amendment: No. 2, in page 1, line 7, after ("13") insert ("and section (Restriction of liability of former tenant where tenancy subsequently varied)")

Mr. Thurnham

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

Mr. Deputy Speaker (Sir Geoffrey Lofthouse)

With this, it will be convenient to discuss also Lords amendments Nos. 4 and 57.

Mr. Thurnham

As I have already said, the Bill passed through the House earlier this year on the basis of a clear understanding that amendments would be tabled in another place to give effect to the four elements of the package agreed between the British Retail Consortium and the British Property Federation. This group of amendments gives effect to one of those elements, and I think that it would be helpful if I were to explain the package in outline before dealing with the amendments themselves as it is the spirit of realistic compromise and desire to make early progress represented by the package that has enabled the Bill to reach this advanced stage.

The package may be described as having two parts. The first enables landlords under new leases to have that degree of extra control over assignment of the lease which will enable investment confidence to be maintained without resort being made to the draconian instrument of absolute covenants against assignment. The second comprises three changes aimed principally at assisting former tenants under existing leases who will not be released from privity of contract. As I said, the package of changes has attracted support from all parts of the property industry and Parliament. I hope that its translation into provisions of the Bill will commend itself to the House.

The first element comprises the amendment of section 19 of the Landlord and Tenant Act 1927 to enable landlords and tenants to agree in advance the terms under which future assignments can be made. It is aimed at ensuring that landlords will be able to preserve covenant strength which underpins investment value and will apply only to new commercial tenancies. The other three elements of the agreement are aimed at assisting tenants under existing leases rather than addressing a particular need for new commercial leases. They will accordingly apply to new and existing tenancies of all types.

The second element improves protection under clause 13 which requires a landlord to give notice to his former tenant or the former tenant's guarantor within a fixed period of certain sums falling due if he is subsequently to have the right to enforce payment of such a sum against the former tenant or guarantor. That period was fixed in the Bill as originally drafted at nine months but is to be reduced to six months.

The third element limits the liability of the former tenant in respect of payments due to certain types of changes in the lease taking place after the former tenant parted with it. The final element will enable the former tenant who is made to pay for another's default to call for an overriding lease so that he may have some measure of control over his position.

The group of amendments will give effect to the third element of the package that I have just outlined. While amendment No. 1 added provision to the list in clause 1 of those applying to new tenancies only, amendment No. 2 adds to the list a provision applying to new and existing tenancies. The provision in question is the third element of the package dealing with liability in respect of subsequent variations in the lease. Amendment No. 4 simply changes the word "applies" in subsection (2) to "apply" to reflect the fact that there will, as a result of the amendments to give effect to the package, be more than one provision applying to new and existing tenancies. The substantial amendment for which they pave the way is amendment No. 57.

Amendment No. 57 introduces a new clause immediately after clause 13 of the Bill as it left this place. The new clause builds on clause 13, which opens by setting out the circumstances in which a former tenant may be liable in respect of a tenancy that he has assigned. The new clause provides that where a former tenant is under a liability in those same circumstances and the terms of the lease have been varied after he assigned the lease and after commencement of the Act, the former tenant shall not be liable to pay any sum to the extent that it is referable to that variation, provided that the variation was one which the landlord had the absolute right to refuse to make when it was made.

There may be cases where the landlord originally had an absolute right to refuse certain types of variation but where an intervening variation of the lease has taken away that absolute right. In such cases, it would not be fair for the tenant to be liable to pay any additional sum referable to the subsequent variation which was one that the landlord did have the absolute right to refuse when the tenant parted with the tenancy.

The provision turns on whether the landlord had the absolute right to refuse to make the variation, because it is not reasonable for a tenant to be expected to have in contemplation that after he assigns the lease, the landlord will change its terms so as to allow something that the tenant was absolutely prohibited from doing. On the other hand, where the variation is one which the landlord had only a qualified right to refuse to make, it is reasonable to expect the outgoing tenant to realise that the lease may be so varied after he has parted with it and to hear that in mind when making contingent provision.

In deciding whether the landlord's right to refuse the variation was absolute, it will be necessary to have regard not only to the terms of the lease but, for example, to the law generally, including in particular any statutory provision. For example, while the terms of the lease may absolutely prohibit certain tenant's improvement which the tenant is nevertheless allowed to make by virtue of the Landlord and Tenant Act 1927, any such changes, even though the rent may be affected, cannot be said to be variations coming within this clause as the landlord could not refuse to allow them.

The clause will accordingly cover such matters as variations to the nature of the premises, user, extra space for an increased rent and so on, but it will not prevent the landlord from being entitled to recover from a former tenant an increase of rent on a rent review for which the lease made provision when the former tenant held the lease, except to the extent that the increase refers to a variation of the sort covered by the clause.

I have further comments to make but, in view of the time, I shall conclude my remarks on this group at this point.

Mr. John Fraser (Norwood)

I back the Bill and want it to reach the statute book as soon as possible. Indeed, I once presented an earlier version of the Bill. I do not intend to speak again, but the hon. Member for Bolton, North-East (Mr. Thurnham) described the compromise that has been reached and I wish to place on record one aspect of that compromise with which I am not happy. I am sorry that my hon. Friend the Member for Brent, South (Mr. Boateng) is not here to listen to what I have to say.

Mr. Boateng

I am behind my hon. Friend.

Mr. Fraser

I beg my hon. Friend's pardon. Obviously, he will hear what I have to say.

The foundation of my concern is that there is not equality of power between landlord and tenant. Where a property company or a pension fund has a whole portfolio of properties and one lease goes bad and somebody does not pay, the risk can be spread across the pension fund or the freeholder's investment. When original lessee liability arises, it is not usually in relation to only one person and it cannot be laid off in the same way as the vast interests of most property developers. Therefore, the balance of power is not equal.

If I were in charge of the matter or if Labour were in government, I would not have contemplated the modification of section 19 of the Landlord and Tenant Act 1927. That section has served the commercial world very well indeed and leases are freely assignable without much restriction. In my view that should continue. It is good for the function of the market and for the rights of tenants.

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There is, however, a compromise, and I do not wish to stand in its way. If it does not work, I expect the next Labour Government further to amend section 19 of the Landlord and Tenant Act 1927 so that there is no unreasonable restriction on the way in which tenants can assign. I can envisage landlords abusing that right if the market allows them to do so. If it is a seller's market, there will be abuses and conditions will be built into assignment that will be unduly onerous and may be impossible to achieve. I hope that does not happen, but if it turns out that way, I hope that the next Labour Government will correct that malfunction.

Mr. Boateng

My hon. Friend the Member for Norwood (Mr. Fraser) speaks from enormous personal and professional experience as a diligent constituency Member of Parliament and a practising solicitor. His concerns about the disparity of power between the parties to a lease were well expressed and well taken by the Labour party.

My noble and learned Friend Lord Irvine of Lairg has expressed elsewhere a real understanding of the concerns of my hon. Friend the Member for Norwood, who can be assured that we shall be monitoring carefully that aspect of the Bill in terms of ensuring that the inequality in the relationship between landlord and tenant does not lead to injustice. However, we take the view that it would be wrong to prejudice the speedy passage into law of the legislation at this stage by seeking to do anything that would imperil it, although I well understand the concerns expressed by my hon. Friend in that regard.

Mr. Fraser

I wish only to place on record that I had not realised that my hon. Friend was behind me when I raised the matter, and I am grateful to him.

Mr. Boateng

There is no way that I would ever be absent from the Chamber while my hon. Friend was raising a matter of concern to me and to the Labour party, and I am grateful to him.

Mr. John M. Taylor

I sympathise with the remarks of the hon. Member for Norwood (Mr. Fraser) about the mismatch between the big property landlords and the small tenants of lock-up shops who are often granted leases on the basis of take it or leave it, sign here and pay the landlord's costs as well. I accept that, but the hon. Gentleman, in the generosity of his spirit and the breadth of his experience will agree that the mismatch was the burden of privity that is removed in the context of the compromise to which he referred.

It is my opinion and I put it to the House that the compromise itself was not unreasonable. One is often restrained to what is possible and what we have here is possible. It represents a great deal of reconciliation of interests and good faith.

I am grateful to my hon. Friend the Member for Bolton, North-East for his full and helpful explanation of Lords amendments Nos. 2, 4 and 57. I cannot better explain their detailed operation, so I shall be brief. I very much welcome the group of amendments which effect a change that tenants and their advisers have been seeking for a long time. It has been generally accepted that abrogation of the privity-of-contract doctrine could be undertaken only for new tenancies, but for many that acceptance was tinged with regret that former tenants, under existing tenancies, would thereby be left exposed.

That, and the other elements of the property industry package aimed at existing tenancies, represents a significant advance for existing tenants without any adverse effect on investment confidence. I do not think that hon. Members will be surprised to learn that, when the Lord Chancellor's Department consulted on the package, there was unanimous support for that element.

As my hon. Friend the Member for Bolton, North-East (Mr. Thurnham) has outlined the package as a whole, I should also say that the package as a whole was supported by the great majority of consultees, who considered it to be balanced and reasonable. That view has been fortified by the Bill's progress.

Mr. Ken Livingstone (Brent, East)

On a point of order, Mr. Deputy Speaker. May I ask you to use your power to suspend the sitting to allow a senior Minister to be brought here to answer grave allegations? I have been given a series of confidential letters from the leader of Brent council, Councillor Blackman, to Ministers at the Department of the Environment and officials at No. 10 Downing street, which thank the Government for rigging the council's grant assessment for 1994 to aid it in the election, and asking them to do the same in 1995 so that the party can hold Brent in the event of a by-election.

Mr. Deputy Speaker

That is not a matter for the Chair, but I have no doubt that the hon. Gentleman's comments have been noted.

Lords amendment agreed to.

Lords amendment: No. 3, in page 1, line 7, after ("13") insert ("and sections (Right of former tenant or guarantor to overriding lease) and (Overriding leases: supplementary provisions)")

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. 6, 58 and 59.

Mr. Thurnham

This is another group of amendments giving effect to an element of the agreed package of changes that has gained across-the-board support for the Bill. They introduce the final element of the package that I outlined earlier, giving former tenants and their guarantors, under both new and existing leases of all types, the possibility of gaining a degree of control over the liability when they are called on to make good the default of a subsequent tenant, by calling for an overriding lease. Lords amendment No. 3 does the same as Lords amendment No. 2, but in respect of that different element of the property industry agreement, making it clear that the element is to apply to both new and other tenancies.

Lords amendment No. 6 is necessary to maintain the agreed policy that privity-of-contract liability is to be abolished prospectively and not retrospectively. It makes it clear that the definition of a new tenancy—which is dealt with in Lords amendments Nos. 5 and 7—is to be subject to a special rule that is part of the overriding lease provisions. That rule states that an overriding lease will derive its status from the lease under which the person claiming it has been called on to make good the default of the subsequent tenant. The overriding lease will not be a new tenancy if the tenancy under which the former tenant finds himself having to pay is not the new tenancy. The amendment is necessary to prevent inconsistency between clause 1 and the overriding lease provisions, which would cause significant practical problems and would cut across the policy of limiting the abolition of privity of contract to new tenancies.

The two substantial amendments for which the others pave the way are Lords amendments Nos. 58 and 59, which introduce two new clauses after clause 13 and immediately after the new clause introduced by Lords amendment No. 57. This element of the property industry agreement addresses a particularly difficult problem, and a way in which the doctrine of privity of contract can be seen to operate especially unfairly.

At present, although a former tenant may have to pay, and continue to pay, sums in respect of a lease that he signed long ago, he may be unable to regain possession, and may thus have nothing to show for his payments—unless he was sophisticated enough to reserve some kind of right of re-entry when negotiating the lease, or the defaulting tenant becomes insolvent, the lease is disclaimed on bankruptcy or liquidation and the former tenant is able to have the lease revested in him.

The provisions introduced by the amendments address the problem by enabling a former tenant or guarantor who has to pay in respect of a subsequent tenant's default to call for an overriding lease to be granted to him so that he can pursue remedies directly against the defaulting tenant if he is still in occupation, or take over possession and make use of the property so that he can set off the return against his liability. Former tenants will thus have some means of gaining a measure of control, rather than the helplessness which they so often feel in the face of such unexpected liabilities.

Amendment No. 58 introduces the first new clause, which sets out a former tenant's right to call for an overriding lease, the circumstances in which it arises and the terms of the overriding lease and the mechanics for its grant. Amendment No. 59 introduces the second new clause, which makes supplementary provision including such matters as the special rule to which I have referred governing whether an overriding lease is a new or existing tenancy, the question what happens if there is an unjustifiable delay in granting it and more technical matters as the land registration position.

I have further notes on this group of amendments, but in view of the time and as a courtesy to the House I shall conclude here.

Mr. John M. Taylor

I am grateful to my hon. Friend for his full and clear explanation of these important amendments. This element of the property industry package will deal with what are some of the hardest cases caused by the privity of contract doctrine. Hon. Members have on numerous occasions asked me what might be done for constituents who have found themselves paying rent for another's occupation where the landlord is unconcerned and the premises may be going to wrack and ruin with no prospect of the constituent even being able to go into possession to stop the disrepair getting worse. The amendments will provide the remedy which, it must be admitted, was lacking, and I am grateful to the property industry bodies for coming forward with them. I commend the amendments to the House.

Lords amendment agreed to.

Lords amendment No.4 agreed to.

Lords amendment: No. 5, in page 1, line 8, leave out from ("if") to end of line 12 and insert ("it is granted on or after the date on which this Act comes into force otherwise than in pursuance of—

  1. (a) an agreement entered into before that date, or
  2. (b) an order of a court made before that date.")

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 Lords amendment No. 7.

Mr. Thurnham

The amendments in this group are much shorter and simpler than those which the House has so far considered, but they are very important. Clause 1 concerns which provisions of the Bill are to apply to new tenancies and which to both new and existing tenancies, so it must also define a new tenancy.

The definition of a new tenancy which was in the Bill as it left this House came in for trenchant criticism, and amendments Nos. 5 and 7 accordingly carry out extensive revision. Amendment No. 5 makes clear that a new tenancy is one granted on or after the date on which the Act comes into force, unless it is granted in pursuance of an agreement entered into before that date or a court order made before that date.

Amendment No. 7 replaces subsection (4) of the original draft of the Bill with three new subsections which put beyond doubt certain matters which the draft either does not cover, or does not cover satisfactorily. The first new subsection covers the variations of leases which change the nature of the demise and so take effect as a surrender and regrant and produce a fresh tenancy. The basic principle of subsection (3) is applied so that the fresh tenancy will be a new tenancy for the purposes of the Act if the agreement for the variation is entered into after the Act came into force, but an existing tenancy if the agreement predated commencement.

The next new subsection applies the same principle to tenancies granted in pursuance of options, the treatment of which in the existing draft was particularly criticised. If the option was granted before the date on which the Act comes into force but is exercised after that date, the tenancy which is granted pursuant thereto will not be a new tenancy. The final new subsection covers a tenant's rights of first refusal to the grant of a new tenancy which might not necessarily otherwise be included in the "option", and ensures that the same basic principle will apply.

Mr. John M. Taylor

As my hon. Friend said, this group of amendments is important. I would go so far as to say that they are pivotal. The part of clause 1 which they seek to amend essentially makes transitional provision which is necessary because of the decision that it would not be possible to implement the Law Commission's recommendations for existing leases. That decision was based partly on the need to avoid considerable damage to confidence in the property market and to investments held by such investors as pensions funds, unit trusts and the like, with which not only bigger concerns but many individuals' fortunes are bound up.

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The decision was also based on the principle that agreements freely entered into should be interfered with as little as possible. That principle underlies the detailed approach to defining a new tenancy. Had the definition simply stated that a new tenancy was one granted after commencement of the legislation, it would have ignored the fact that in a significant number of cases the essential agreement that should not be interfered with was entered into before commencement. In the case of new tenancies granted pursuant to court order, the court order is analogous to the concluded agreement. I support the amendments.

Lords amendment agreed to.

Lords amendments Nos. 6 and 7 agreed to.

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