Lords amendment: No. 115, before clause 85, to insert the following new clause—Application of right of first refusal in relation to contracts—
.—( 1 ) After section 4 of the Landlord and Tenant Act 1987 (relevant disposals) insert—
§ "Application of provisions to contracts.
§ 4A.—(1) The provisions of this Part apply to a contract to create or transfer an estate or interest in land, whether conditional or unconditional and whether or not enforceable by specific performance, as they apply in relation to a disposal consisting of the creation or transfer of such an estate or interest.
§ As they so apply—
- (a) references to a disposal of any description shall be construed as references to a contract to make such a disposal;
- (b) references to making a disposal of any description shall be construed as references to entering into a contract to make such a disposal; and
- (c) references to the transferee under the disposal shall be construed as references to the other party to the contract and include a reference to any other person to whom an estate or interest is to be granted or transferred in pursuance of the contract.
§ (2) The provisions of this Part apply to an assignment of rights under such a contract as is mentioned in subsection (I) as they apply in relation to a disposal consisting of the transfer of an estate or interest in land.
§ As they so apply—
- (a) references to a disposal of any description shall be construed as references to an assignment of rights under a contract to make such a disposal;
- (b) references to making a disposal of any description shall be construed as references to making an assignment of rights under a contract to make such a disposal;
- (c) references to the landlord shall be construed as references to the assignor; and
- (d) references to the transferee under the disposal shall be construed as references to the assignee of such rights.
§ (3) The provisions of this Part apply to a contract to make such an assignment as is mentioned in subsection (2) as they apply (in accordance with subsection (1)) to a contract to create or transfer an estate or interest in land.
§ (4) Nothing in this section affects the operation of the provisions of this Part relating to options or rights of pre-emption.".
(2) In section 4(2) of the Landlord and Tenant Act 1987 (relevant disposals: excluded disposals), for paragraph (i) (certain disposals in pursuance of existing obligations) substitute—
(i) a disposal in pursuance of a contract, option or right of pre-emption binding on the landlord (except as provided by section 8D (application of sections 11 to 17 to disposal in pursuance of option or right of pre-emption));".
§ (3) In section 20(1) (interpretation), in the definition of "disposal" for "has the meaning given by section 4(3)" substitute "shall be construed in accordance with section 4(3) and section 4A (application of provisions to contracts)"."6.30 pm 73
§ Mr. Deputy Speaker (Mr. Michael Morris)
With this, it will be convenient to take Lords amendments Nos. 116 to 121, 248 and 287, Lords amendment No. 287, Government amendment (a) thereto and Lords amendment No. 321.
§ Mr. Clappison
These amendments on the right of first refusal caused some controversy in another place but I hope that I shall be able to do justice to the changes. They would make significant changes to part I of the Landlord and Tenant Act 1987 and are necessary to accommodate three important elements.
First, they would make it a criminal offence for the landlord of a block of flats to fail to offer his interest to the tenants when he wishes to sell. The criminal offence was introduced as the Bill proceeded through this House, but was extended by Lords amendment No. 118 to cover a landlord's contravention of any prohibition or restriction imposed on him, such as when a landlord serves a notice but goes ahead with a sale without waiting for the tenants' response.
The second element provides for certain special cases, such as sale by auction, which was the subject of a commitment given in the House, and deals with grants of options or right of pre-emption and how to manage when the landlord's price includes a non-monetary element.
Thirdly—this precipitated some significant changes, especially through Lords amendment No. 287—there is the need to specify when a relevant disposal takes place, especially in view of the criminal offence. When a transaction includes an exchange of contracts., that exchange will be the relevant disposal. That will crystallise the offence if the landlord has not offered his interest to the tenants by that stage.
The necessity for changing substantial parts of the measure also gave the opportunity to recast other parts of the Bill so that it will be easier to follow and to use. It was the accommodation of the principle that an exchange of contracts can be a relevant disposal that required the amendments.
§ Mr. Raynsford
We are dealing with a third category of leasehold problems—the failure of the Landlord and Tenant Act 1987 to provide the supposed opportunity for leaseholders to acquire the freehold of their homes when the freeholder chooses to dispose of it. That was the intention of the 1987 Act, but it has not in practice proved an easy or problem-free route for leaseholders seeking to acquire the freehold of their homes.
The most notable case that demonstrated the failure was that involving Smith's Charity which, despite its benevolent-sounding name, acted malevolently to its leaseholders when it chose to dispose of its freehold interest last summer to a another landowner, the Wellcome Trust, without offering its leaseholders the right of first refusal that it was supposed to offer under the 1987 Act. That prompted a wave of public protest and pressure for changes in the law, which has undoubtedly influenced the Housing Bill towards the changes in the amendments.
The charity's action also prompted a case against it by the leaseholders affected, which partially overcame the problem but left a highly confusing judgment that suggested that the applicable date for the duty to notify the leaseholders of their right to first refusal was not the 74 date at which the contracts were exchanged but that at which the sale was completed. Given that the circumstances of many property sales could mean their not being completed for several years, and that during that time leaseholders would have no opportunity to exercise their rights, that was nonsense.
Equally, even where the sale occurred without a protracted period before completion, it would be nonsense if leaseholders were not entitled to receive a notice of the proposed disposal at the time at which the contract was entered into. The problem was brought to public attention as a result of the court case, and the issue exercised us considerably in Committee.
The Minister and other Conservative Members commented on the Opposition's objections to the large number of amendments. We have no objection to the changes being made to improve the Bill; we object only to the procedure, which has involved an enormous raft of amendments being presented to us at very short notice. The Lords Third Reading was last Wednesday. It was only mid-morning on Thursday that we received the list of amendments—329 of them, some very long. To comply with the normal requirements of the House, notice of amendments to the amendments had to be with the Clerks by the end of business that very day.
To go through such a volume of amendments, seek to make intelligent observations and table amendments to them was quite a process. Lords amendment No. 287 is a new schedule of 21 pages and contains significant changes, many of which were entirely new. While it built on comments made in Committee, it involved forms of legislation that were not already in the public domain. There are new concepts that require careful scrutiny, and we have been unable to give them the scrutiny we would normally like to give them. It is the procedure and the timetable to which we object rather than the fact of the Bill being amended and improved—we welcome the fact that it is being improved.
There have been a series of last-minute changes to remedy some of the problems of the present procedure and make it easier for leaseholders to exercise their right of first refusal as and when a landowner decides to dispose of a property. We welcome that change and will not oppose any of the amendments in the group, because they take forward a process that should have been completed in 1987, but has required a great deal more attention because of the failure of the 1987 Act.
We are concerned about the scope that still exists for landlords to abuse the system by devious means, even when notionally complying with the letter of the law. I have received representations from leaseholders living in Connaught mews in the London borough of Greenwich. They live not in the constituency that I have the honour to represent, but in the borough of Greenwich. They have had the most appalling experience when trying to acquire the freehold of their homes.
I have corresponded with the Minister about the case, so he will be familiar with it. I shall not go through the details now. Suffice to say that, when the leaseholders eventually prised out of the freeholder details of the price that they had to pay to acquire the freehold and got to the stage that they believed they could proceed with the purchase, the freeholder came up with a disreputable device to prevent them from exercising that right, by claiming that they were out of time. While the 75 leaseholders sought the information to enable their application to proceed, the clock had continued to tick and the time scale for exercising the right of first refusal had passed.
Such exploitation of the loopholes by unscrupulous freeholders is characteristic of the problems that leaseholders have confronted; we have exposed them and want to block them. I fear that a loophole that allows freeholders to get around the legislation will not be closed by the measures that we are agreeing. It will be astonishing if legislation that has been prepared in such a hurry, with so little opportunity for detailed scrutiny, proves to be entirely problem-free.
I remind hon. Members that the 1987 Act was passed in a great hurry, just before the 1987 election, to give the impression that the Government were acting on behalf of leaseholders—and that its failure is the cause of the amendments. That Act was put together in too great haste. There was not proper time for detailed scrutiny, so, sadly, it was not put on the statute book in a form that made it possible for leaseholders to take full advantage of it. It is riddled with loopholes, has proved unsatisfactory and now has to be amended.
Although what we are doing in this group of amendments is, in principle, the right thing—making it easier for leaseholders to get the right of first refusal so that they can buy the freehold of their home when the freeholder chooses to dispose of it—the way in which we are doing it, through a huge mass of last-minute amendments and without the proper time for scrutiny, will inevitably result in loopholes or legal difficulties, which will prove problematic. I fear that this is yet another area of leasehold reform that will require revisiting. Having said that, we will not oppose the amendments, because they make legislation that is thoroughly unsatisfactory better.
§ Lords amendment agreed to.
§ Lords amendments Nos. 116 to 121 agreed to.