§ Order for Second Reading read.
§ 12.2 pm
§ Mrs. Jacqui Lait (Hastings and Rye)
I beg to move, That the Bill be now read a Second time.
It gives me great pleasure to move the Second Reading this morning. I pay tribute to the many hon. Members, past and present, who have spent so much time trying to reform our leasehold law. I refer especially to Sir Brandon Rhys Williams, who was one of the first pioneers in the area and who worked so hard on behalf of many leaseholders in his constituency.
His work was subsequently taken up by the present holder of the seat, my hon. Friend the Member for Kensington (Mr. Fishburn), who I am delighted to see in his place today. His solution to the problem of commonhold was described, in that wonderful and admiring phrase used so often by civil servants, as an elegant solution. I am also grateful to the sponsors of the Bill, many of whom have joined me today, and to the hon. Member for Greenwich (Mr. Raynsford) who has been a great supporter of commonhold over the years.
I begin by explaining why the Bill was called the Leasehold (Reform) Bill. When I was successful in the ballot, I was very concerned about the position of leaseholders, and I wished to do something to help them. I am glad that the Government took up my concerns, and that they have included some measures to help leaseholders in the Housing Bill which is currently in Committee. However, the issue of commonhold was not included. It is an unknown form of property law in England and Wales, and I wished to pursue it. That is why the Bill, although called the Leasehold (Reform) Bill, concentrates entirely on commonhold.
All of us remember that the manifestos of the three main parties contained a commitment to commonhold. The reason was that so many of us had, for a long time, been aware of the problems facing leaseholders. I had many meetings with leaseholders in the run-up to the general election, and, as soon as the election was over, at almost my first surgery, the real problems faced by leaseholders were brought home to me in case after case.
As a seaside town, Hastings is not full of the large mansion blocks with which so many of my colleagues have had to deal. We have many smaller properties, where the freeholders have often been families who have decided to move out of the family home, and have divided the home into flats. Inevitably, time passes and the original freeholder dies. The estate decides to sell the freehold, and suddenly, the leaseholders find that they have freeholders of whom they have no knowledge.
The first case that came to my attention was very obvious. On the sea front in Hastings, scaffolding had been erected outside a house several months before I was elected. That scaffolding is still there. The lady who owned the first-floor flat has now had to leave a derelict building. She has lost all her savings, and she has lost her property. The reason was that the freeholder behaved in the most disgraceful way; the problem has not yet been solved.
Similar problems were raised at surgery after surgery. For a while, a steady stream of leaseholders came to complain that their freeholder had instructed the building 589 society with which the leaseholder had a mortgage to increase the mortgage to cover the cost of repairs. Without a word to the leaseholder, the building society had agreed to the freeholder's request. People who had budgeted carefully to pay their mortgage were suddenly faced with huge increases in their monthly bills, yet there was no redress.
We also found that there were problems with insurance. In one case, the roof of a building was blown off in the 1987 storm. The freeholder got the insurance money, yet the flat is still not wind and waterproof. There are endless problems with maintenance and repairs. I will not go into the details of those problems, because I am sure that they are familiar to every hon. Member.
One problem faced by leaseholders as a group is that they have no control over the size of the bills for repairs that are presented to them. They often dispute the bills and get their own surveyors, who produce their own schedule of works, which is completely at variance with that of the freeholder. There is then an intransigent stand-off, which is of benefit only to the legal profession.
Because of the various problems that have emerged, our local evening paper, the Evening Argus, ran a series of articles. I am sure that London Members here could duplicate the campaign that was run in Hastings, and could give many more details.
One organisation based in Brighton controls 7,000 flats throughout the country. The residents of many of those flats are finding exactly the same problems as those I have described. When 7,000 flats are on one person's books, one is dealing with a major company, not just a small freeholder.
§ Mr. Toby Jessel (Twickenham)
My hon. Friend referred to London Members, and cases that had come up in her surgery. Has she carried out any comparison with London Members—perhaps with those who have been in the House quite a long time, such as my hon. Friend the Member for Chipping Barnet (Sir S. Chapman) and myself—to ascertain whether the extent of surgery cases about leaseholding, including leaseholding of flats, has at all diminished since the 1980s or the 1970s?
Despite the needs that she has described and that have given rise to her Bill, is it not possible that the number of surgery cases concerning leaseholding has diminished for the past generation? Perhaps in general the leaseholders' regime is already better than it was a decade or two back.
§ Mrs. Lait
If my hon. Friend speaks in the debate, I am sure that he will say whether his caseload has diminished. As a new Member, I have certainly not found any diminution in the number of cases on the subject.
In fact, I had a gentle disagreement with my local paper's editor, who is not from Hastings, about whether an article that I had written on my Bill for the paper should be published. I suggested that he might find it very interesting if he published the article, because I assured him that it was a problem in Hastings. Much to my amazement, let alone his, for the first time ever, my article prompted letters addressed to me rather than to the paper. I have, as a consequence picked up at least another half dozen leasehold cases.
§ Sir Sydney Chapman (Chipping Barnet)
I congratulate my hon. Friend on introducing this excellent measure. As my hon. Friend the Member for Twickenham (Mr. Jessel) has called me in aid, may I say that problems faced by leaseholders in my constituency have increased over the past year? The situation has no doubt been aided by the splendid campaign organised by the Evening Standard. I applaud my hon. Friend because, in a constructive way, she is trying to tackle problems, and I hope that she will get every support from Her Majesty's Government.
§ Mrs. Lait
I am most grateful to my hon. Friend for that very helpful support. The exchange between my hon. Friends and myself has shown that there is a problem not just in London but wherever leaseholding as a legal form exists.
One of the much more dramatic problems that has emerged since 1993 for small blocks of flats in my constituency is the leaseholders' difficulty in purchasing their freehold. I have referred previously to Doreen Slennett, who has been trying to purchase the freehold from the freeholder, who happens to share the same address as the managing agents. That is just one of the loopholes in the law that leaseholders are finding more and more offensive. I very much hope that we shall begin to see an end to leaseholders' difficulties in asserting their legal rights.
I have described the problems that leaseholders have faced in my constituency, and I am sure that we will hear many more. Taken together, they show that there is a great deal of dissatisfaction with long leasehold as a form of property holding. That is recognised not only by those of us with huge surgery caseloads but by all the main parties. As I mentioned, they all supported commonhold in their manifestos. I have also had support from the Council of Mortgage Lenders and the British Property Federation, which I understand has been reassured by some of the larger London estates it represents that they support the introduction of commonhold.
The Royal Institute of Chartered Surveyors also supports the Bill, as do leasehold organisations such as the campaign against residential leasehold abuse. I have received many letters from supporters—I know that some of them are here today—who are very keen that commonhold, as an alternative to leaseholding, is introduced, so that they can convert their leaseholds into a freehold in a commonhold association. Campaigns run by local and national papers have been mentioned—those run by the Evening Standard and The Times are known. It is accepted that the system of leasehold is under severe strain and that we should be introducing commonhold, which is the purpose of my Bill.
Commonhold exists in practically every other country in the world in one form or another. When I came south from Scotland, I was amazed to come across the leasehold system; it does not exist in Scotland. Scotland has managed for many years with a system of property law which operates in the notorious tenements of Glasgow as well as the blocks of flats in Edinburgh's New Town where I lived when I was first married—where, although 591 common parts are held individually, everybody is responsible for them and knows precisely the extent of their responsibility. It has worked very satisfactorily. It is therefore a shock to discover the difficulties in England.
There is commonhold in Australia. Mr. Tim Sebbage, who is working in Germany but has a leasehold on a flat in London, has given me a great deal of advice on how the German system works. It sounds very similar to the Scottish system, and works very satisfactorily.
My Bill, which is fairly slim as Bills go, but probably quite thick for a private Member's Bill, sets out the principles of commonhold. It goes no further than that, because I very much wanted to be able to debate the principles of commonhold. When commonhold is introduced into English and Welsh law, it will probably initially be of most use to those who are building new developments. One of the criteria for a commonhold association will be that it can apply not only to domestic developments but to mixed developments.
There is often contention in developments where shops are underneath leasehold flats and it is not possible to enfranchise. If a developer wishes in future to produce a mixed development and sets up a commonhold association, each person who buys a freehold in that development will be able to work with others in ensuring that the management of the block is undertaken by themselves. That is a sensible way forward. It will encourage a diversity of developments instead of a monolithic approach. Given the long-term disfavour into which leaseholding is falling, it may be a way forward for freeholders who decide to get out of leaseholding and to establish a mixed development themselves.
Let us say, for example, that a block has ground-floor shops. The freeholder can sell the freehold to shops and the leaseholders can acquire their leaseholds. They can then together establish a commonhold association. We shall see long leaseholding as a form of property ownership wither on the vine.
Existing and successful leasehold associations would not necessarily wish to move to commonhold. I suspect that, in practice, there is not a great deal of difference in the way in which they would carry out their business. My Bill, however, would give them the opportunity to make the move if they wished to do so.
A key feature of the Bill is that it provides for both the setting up and winding up of a commonhold association. We are all aware that neighbours sometimes fall out—there has been some local newspaper coverage of that subject recently. Should an association need to be wound up, it is crucial that provision should be made for that process.
The system set out in the Bill is probably the most sensible way forward. If it is necessary to wind up an association, the effect of the Bill would be to convert each freeholder's interest in the association in a share. When the association is sold, in whatever way, the commonholder will have a share of any assets realised. At the same time, they would have to be liable for any debts of the association. One hopes that most associations would be run in a way that ensured that there would be no such debts.
I am conscious that I have attracted a great deal of support for my Bill today. That being so, I shall not talk for much longer. I shall merely say that commonhold is the missing part of English and Welsh property law. 592 I accept that it represents a radical change. It may be regarded as unusual for a Conservative Member to introduce radical legislation—[HON. MEMBERS: "No."] I am glad to know that we are all awake. It is sometimes necessary, however, to produce a radical solution to a problem, and especially one that has dogged so many of us for so long.
I believe that commonhold offers hope to leaseholders. I hope that my hon. Friend will be able to promise me significant progress on commonhold. Not only many Members on both sides of the House but millions outside this place want to see the introduction of commonhold as soon as possible.
§ Mr. Piara S. Khabra (Ealing, Southall)
I congratulate the hon. Member for Hastings and Rye (Mrs. Lait) on introducing the Bill. It represents a progressive step forward, but, in my view, it is a conservative effort on the hon. Lady's part. I do not think that the Bill goes far enough in providing the rights that leaseholders need for their protection.
I shall comment briefly on the history of some of the legislation that has been introduced in response to the weaknesses of leasehold reform as embodied in the Landlord and Tenant Act 1987. In addition, the Leasehold Reform Housing and Urban Development Act 1993 was inadequate and ineffective. Many leaseholders have been disappointed by these reforms. High expectations have led leaseholders to demand clear and effective legislation from the Government.
Leaseholders are lobbying their Members to put pressure on the Government to introduce positive legislation. I have received many inquiries from my constituents.
Leasehold is a form of residential tenure. It is a throwback to feudalism, as every Member knows. It gives exceptional privileges and powers to landowners. It enables them to retain an interest in land and property, while at the same time selling leases for limited periods. At the end of each of these periods, the landowner can sell a further lease. By this means, a relatively few landowners have been able to accumulate substantial fortunes through the ownership of land. Leasehold has concentrated wealth in the hands of the few rather than the many.
The case for reform is overwhelming. Britain is almost unique in the world in retaining the leasehold system. In other countries, different and more modern arrangements have developed to achieve a better balance between the interests of landowners and those who occupy residential property and to enable individuals to enjoy the benefit of freehold, even where they live in blocks of flats.
Over recent decades, the weaknesses and injustices inherent in the British leasehold system have been increasingly highlighted, but reform has been a long time coming. The first—and to date the most effective—reform of the system was Labour's 1967 Leasehold Reform Act, which gave leaseholders living in houses the opportunity to buy out the freehold interest or obtain an extension of their lease. Many thousands of people have benefited from that Act. The 1993 Act involves such complex procedures and red tape that few, if any, leaseholders have benefited from it.
§ Mr. Peter L. Pike (Burnley)
Is it not tragic that, when the 1993 Act went through, Labour Members, with one 593 or two Conservative Members, repeatedly spelled out that it would not achieve anything like what the Government claimed that it would?
§ Mr. Khabra
I agree with my hon. Friend. That shows that we have been more concerned about giving rights to the leaseholder than have the Conservatives.
The 1993 Act made so many concessions to the interests of the big landlords that its whole purpose was effectively undermined. As a result, only a few leaseholders have been able to buy out freeholds. The present legislation is complex, and difficult for the public to comprehend. Many of the people who come to my surgeries do not understand the law, and have to go to solicitors. They find it difficult to get satisfactory answers, even after paying large fees. We need the new commonhold tenure, which will extend to leaseholders new opportunities to own and manage their homes.
The Government's current leasehold reform proposals are inadequate and likely to end in disaster, as did the previous ones. This is another feeble effort by the Government to mislead leaseholders. The Government do not have the courage to confront the vested interests of large landlords, who are known to make donations to Tory party funds.
§ Sir Sydney Chapman
I have been listening with great interest to the hon. Gentleman. I am sorry that he is trying to turn the debate into a partisan shouting match. Matters relating to commonhold and leasehold are necessarily complicated. It is not as easy as the hon. Gentleman suggests.
Will he comment on the Government's five specific amendments to the Housing Bill which in large measure deal with many of the problems about which he complains? They would close the loophole of the right of first refusal, separate forfeiture procedures because of the dispute on service charges—
§ Madam Deputy Speaker (Dame Janet Fookes)
Order. It would be better if the hon. Member sought to catch my eye to make a speech later, because this is meant to be intervention.
§ Mr. Khabra
I said at the beginning of my speech that I appreciated what was being introduced, but it does not go far enough, or provide the rights that leaseholders need. I am also aware that the five recommendations to which the hon. Gentleman refers have not yet been published.
Furthermore, the Government are adamant in their refusal to introduce commonhold as an alternative to the present rotten leasehold system. Although they pledged to do so in their last manifesto, that is yet another broken Tory promise. For too long, leaseholders have been treated in a shabby way. They have been right to demand that the Government take positive action to find a long-term solution to end their misery, rather than tinker with the present discredited system.
I am sure that many Members of Parliament have received letters from constituents who are worried about the demands made by unscrupulous landlords and managing agents for extortionate service charges. They 594 are being intimidated, and threatened with forfeiture of their properties. There is widespread concern among leaseholders throughout the country about the lack of protection and safeguards against abuse under the existing legislation.
Some constituents of mine have written me a letter about the problem that they are having with their landlord. I should like to quote the relevant parts of the letter. Mr. David Thompson and Miss Yasmin Mirza wrote:Dear Mr. P. Khabra,We are writing to you, as first time buyers who purchased the above property in November 1994, on a 125 year leasehold, with the hope that you may be in a position to help, or advise the best way forward with regard to us buying our freehold.We purchased the property from Dao Heng Bank Plc, who at the time were also the freeholders. At the time of purchase we had been informed by the acting Estate Agents that there would be an opportunity in the future for us to buy the freehold. This was one of the main contributing factors for our purchase of the above property.In June of last year, to our surprise we received notification from Dao Heng's solicitors … that the freehold had been sold to Cyril Freedman Ltd, alias our new landlord. Following on from this notification, we also received a letter from our new landlord, Cyril Freedman, requesting that we make an interim payment for the sum of £450.00, in lieu of 'service charges' …The above property is in a building comprising of eight individual flats, converted in 1989, and hence all tenants are recently new to the property. Having discussed our concerns regarding the freehold sale with fellow tenants, it was apparent that the majority of tenants were also led to believe that they should of had the opportunity or at least had an interest in buying the freehold. After further discussions one of the tenants approached her solicitor for further advice.The solicitor advised that, as tenants, we should have received 'First right of Refusal' for the purchase of the freehold, and that we should serve notice on Cyril Freedman Ltd under section 11 of the Landlord and Tenant Act 1987 … We were also informed by our solicitor that we had a requisite majority, ie) the names and signatures of four qualifying tenants, but if we wanted to formally respond under this Act we had to do so within 30 days of receiving notification of the sale.Unfortunately due to these timescales we were unable to gain further signatures, as some of the tenants were on holiday, and the notice had to be served in a matter of days.We have since received confirmation from the remaining tenants that, had they been available at the time, they would have been more than willing to put forward their names. Like most of the tenants we were at the time not aware of the Landlord and Tenant Act 1987, giving tenants 'First Right of Refusal'".I must emphasise that the new Bill should contain a provision that full information should be made available to all leaseholders who want to buy their freeholds.On the 31st July 1995, having issued follow up letters through our solicitor we had still not received a response from Cyril Freedman Ltd. At this point we were advised and actually issued through our solicitor court proceedings, for a 'Declaration Order' namely that we have the requisite majority in respect of Qualifying Tenants and an Injunction Order requiring the Landlords to serve us with the requisite information under the Act …The appointed management agent for Cyril Freedman Ltd is David Glass Associates (DGA), and for reference both Cyril Freedman and DGA reside at the same address!!We have since received various threatening letters from DGA, chasing up the outstanding payment of £450.00. In one of their more recent letters they stated that they 'will serve proceedings for forfeiture of the lease and possession' of our flat. On the advice of our solicitor we have responded to these letters, explaining that we are taking legal proceedings under the Landlord and Tenant Act 1987.595 What a scandal. I will not quote the rest of the letter, as it is not relevant.
I urge the Minister, therefore, to incorporate new clauses in the Bill, including: a right to manage; sanctions against the failure of landowners to abide by existing legislation; fairer and simpler valuation procedures; and streamlined rules for enfranchisement to cut through unnecessary red tape preventing leaseholders from buying the freehold of their homes.
Anything short of those measures will not give leaseholders the opportunity of freehold ownership. In other words, the so-called party of ownership should put its money where its mouth is.
§ Mr. Dudley Fishburn (Kensington)
Since I entered the House, eight years ago, I have introduced eight commonhold or leasehold reform Bills. In 1992, I was made "Radical of the Year"—to take up the phrase used earlier—because of that fact. "Bore of the Year" would have been a more appropriate title—[HON. MEMBERS: "No!"] It is certainly true that on none of those occasions did I match the eloquence and skill of my hon. Friend the Member for Hastings and Rye (Mrs. Lait) in bringing this legislation before the House.
My hon. Friend did not merely make a good speech—this is not an Opposition motion or the fluffing out of a ten-minute Bill—but presented a complete piece of well-thought-out, skilfully crafted legislation in a truly elegant Bill that shows many of the hallmarks of the work and effort put in by the Lord Chancellor's Department during the many years that we have been trying to get commonhold on the statute book.
I was slightly depressed by the previous debate on treasure trove, which was trying to put a mediaeval law right and bring it up to the late 20th century. We want a law on commonhold in the late 20th century to put an 18th-century law right—a single judgment on which all leasehold is based, which makes it impossible to enforce a positive covenant.
Now, some 200 years later, we are finally close to being able to allow the millions of our citizens who live in multi-occupancy flats and apartments to have the same rights of freehold as those living in suburban houses. The intention is to provide them with the rights that are enjoyed everywhere else in the world. It is extraordinary that, for example, the American system of a co-operative or condominium is not allowed under English or Welsh law. It is extraordinary that the way in which millions of Europeans live in apartment blocks—"copropriété" as it is called—is not allowed under English or Welsh law.
The Bill is in such a complete state that it could be passed as it is. It sets to rights the very real concerns expressed by many people living in leasehold property without the right of freehold. With only 38 clauses, it steers its way sensibly and clearly through a legal minefield—no other aspect of the law is more difficult than property law.
One has to ask why the Bill has taken so long and why, alas, we fear that it may take longer still. I hope that I shall not be described as cynical, but perhaps the answer is that the House enjoys adversarial politics so much that any measure that is not widely opposed does not get noticed. Perhaps if the hon. Member for Greenwich 596 (Mr. Raynsford), who has done so much to advance the cause of commonhold, were to say that the Bill was an evil Tory plot to extend the rights of home ownership, Conservative Members would get a little more excited about it. However, I know that the hon. Gentleman would not say such a thing. Perhaps the proposal has been in the doldrums for so long precisely because no one is criticising it.
In 1987, the Law Commission came up with its review. It was the result of problems that had existed for 10 or 20 years and whose ferocity was mounting. The problems did not start in 1987, but it was the first clear sign that our Law Officers were unhappy with the law.
In 1991, the then Minister for Housing and Planning, my right hon. Friend the Member for Ealing, Acton (Sir G. Young), made a speech that lightened the hearts of many of us. He said:The Government have decided to introduce for England and Wales a scheme providing for the freehold ownership and communal management of flats and other interdependent buildings with shared facilities. This new scheme, called commonhold, was proposed in 1987by the Law Commission. He went on:It is proposed that commonhold should be available for all types of land use—whether residential or commercial … In addition to providing for the freehold ownership of flats and other relevant properties, the scheme would establish standard democratic management arrangements".—[Official Report, 12 July 1991; Vol. 194, c. 1239.]That speech is a distant but clear echo of what my hon. Friend the Member for Hastings and Rye said today.
It is worth looking back to that 1991 debate because it underlines my point, which is that everyone is on the same side in this instance. The hon. Member for Hammersmith (Mr. Soley), who was then the Opposition spokesman on housing, welcomed the proposal; Sir Hugh Rossi, who was then the Member for Hornsey and Wood Green, welcomed it; the hon. Member for Southwark and Bermondsey (Mr. Hughes) welcomed it, as did my hon. Friend the Member for Eltham (Mr. Bottomley), the hon. Member for St. Helens, South (Mr. Bermingham) and the hon. Member for Norwood (Mr. Fraser), who has long had an interest in the subject. Mr. William Benyon, who then represented Milton Keynes and who was a fierce opponent of much leasehold reform, welcomed the commonhold proposals.
That was an early sign of the extent of the agreement. Then came the party manifestos. Both the Conservative party manifesto and the Labour party manifesto contained a clear commitment to commonhold. I know that the Conservative party's manifesto contained that commitment, because I put it in myself. The hon. Member for Greenwich probably placed the commitment in his party's manifesto.
The measure is favoured by the big estates, which were my bitter opponents during the process of leasehold reform. Credit should be given where it is due: the first organisation to float a commonhold paper—before even the Law Commission—was the Grosvenor estate. It has said throughout that it is a sensible, progressive and overdue reform of the law.
The measure has been favoured by Back Benchers who were opposed to leasehold reform. In my last feeble attempt to introduce a commonhold Bill into the House on 17 May last year, I carefully gained the support, in a 597 ten-minute Bill, of a number of hon. Members who had opposed leasehold reform, including my right hon. Friend the Member for Westmorland and Lonsdale (Mr. Jopling), who had spoken out with great effect against some of the measures in the leasehold reform Bill. He supported the commonhold measure, as did my right hon. Friends the Members for City of London and Westminster, South (Mr. Brooke) and for Chelsea (Sir N. Scott), my hon. Friends the Members for Fulham (Mr. Carrington) and for Carshalton and Wallington (Mr. Forman) and others.
It is important for Ministers to realise that there is a universal thrust in support of the measure. It is favoured not just by those hon. Members I mentioned but by Members of another place, who did so much to scupper the leasehold reform proposals. It is supported by academics and by building societies and the Council of Mortgage Lenders, which realise at first hand how much better it would be to be able to advance a mortgage on an apartment or a flat underwritten by a freehold—that is to say, a commonhold—than one underwritten by the dwindling asset of a complicated lease.
The measure is supported by developers—a point touched on by my hon. Friend the Member for Hastings and Rye—because developers who are building a project from scratch do not want to be left with a residual freehold once they have sold the leasehold; they want to be out of the property. They would much rather those people who had bought into the shops, the shopping mall and the flats above it were the owners of that property. The developers could make the development and be gone.
What went wrong? Why has the measure taken so long to reach this stage? There are two reasons: the first is that, the more the Bill was worked on—after the initial Law Commission report and the 1,000 replies, all of which supported commonhold, were sent to the Lord Chancellor's Department—the more complicated it became. I remember seeing the proposals for commonhold at one stage and they looked like two thick telephone books—they were, perhaps, bigger than the Scott report. Clearly, the matter had got out of control, as more and more people put in bells and whistles—80 pages were devoted to winding up commonholds.
It is quite remarkable that my hon. Friend has managed to produce a well-worked-out piece of legislation that extends to 38 clauses, in which the winding up of commonhold is reduced to 11 clear and legally apposite clauses. We have pulled back from the enormous wad of legislation that might have come out of the Lord Chancellor's Department had we adopted commonhold earlier. I know that the Cabinet Committees that look at these things always met the representative of the Lord Chancellor's Department with a sigh as he came in bearing the two enormous and heavy tomes that were to constitute such a simple new form of land tenure. This real difficulty has now been surmounted by the Lord Chancellor's Department, which has done so much work, and by my hon. Friend.
We also have not got as far as we should have because commonhold has been caught up with leasehold reform. My hon. Friend the Member for Hastings and Rye made it very plain this morning that, although we are here under the official title of the Leasehold (Reform) Bill, this is a commonhold Bill—therefore, it is a particular delight to see my hon. Friend the Parliamentary Secretary, 598 Lord Chancellor's Department in the Chamber, and not someone from the Department of the Environment. The Bill is about the law rather than about housing.
Commonhold is not a leasehold reform measure, although, in Standing Committee on the last Leasehold (Reform) Bill, the hon. Member for Greenwich and I made much play of the fact that we should have commonhold in it. We received many reassurances that it was not necessary to have commonhold in the Bill because it was to come along soon and would be on the statute book, perhaps even ahead of the leasehold reforms. However, that has not happened, and much progress is to be made.
As a result of the difficult battles over the leasehold reforms, when something comes to the Government's business managers with leasehold reform on it, they carefully—and quite understandably—shuffle it to the bottom of the pile and the danger signals flash. How many dukes will be leaving the Tory party if this measure goes through?
There are no such dangers in relation to this measure. As I said earlier, everyone—not least the landlords and the property industry—wants this measure. I hope that the message will go out clearly from this morning's debate that this issue should not make danger signals flash, but has the support of those who are interested in getting a proper form of property tenure.
The Bill has the support of the building society industry because it knows that commonhold is a better bet for lending money on than a diminishing leasehold. It knows that, once this measure is adopted, the market will work and that a commonhold flat that comes on to the market will command a premium over a leasehold flat. A first-time buyer will say, "Here are two similar properties—which would I rather have? Of course, I would rather have one that has a commonhold underpinning it, because I know that I will not have a diminishing asset." As Conservatives, we believe in the market—it is the market, not politicians, that will make this measure a huge success. It is our job to act as midwives and to ensure that it is legally possible.
The other great advantage will be that every commonhold property will have the same rights and—let us not forget this—the same responsibilities as every other commonhold property. Every leasehold property in the land has a different set of rights, responsibilities and small print. There will be an enormous simplification of the law.
§ Mr. Jessel
Can my hon. Friend make it clear whether he thinks that the Bill would diminish the choice of those who want purposely to select a diminishing asset? Supposing a man aged 75 wanted to move to a smaller home and preferred to buy a flat with just 25 years to run on its lease, so that he could spend more in the remaining years of his life on expensive holidays. Would the Bill diminish the range of flats available for such a man to choose from?
§ Mr. Fishburn
No, it would not. There will still be a variety of leaseholds available, particularly in the shorter-term market, because leaseholds under 21 years will not even be covered by the enfranchisement rights in the Bill. Therefore, all leases under 21 years would tend to remain as leaseholds and would not become commonholds.
599 For the reasons I have already made clear, no measure is better designed for the last year of a Parliament than the Bill. No measure is better for inclusion in the Queen's Speech in the autumn of this year in the months running up to the election. The Cabinet fixes the contents of the Queen's Speech in May and early June each year, so this debate is opportune and well timed.
If we are able to show the Minister that both sides of the House would be happy to see the well-worked-out commonhold measure on the statute book and that it could pass through the House of Commons and the House of Lords in the necessarily feverish atmosphere before the general election, it is highly likely that the Bill will be adopted in the Queen's Speech. I look to the hon. Member for Greenwich to reassure us that, should such a measure be included in next year's legislative programme, his party will do its best to see it reach the statute book.
The Bill is now ready to be adopted. It is ready—perhaps 200 years late—to become part of British law, and I hope that it will do so.
§ Mr. David Congdon (Croydon, North-East)
First, may I make it absolutely clear that I greatly welcome the Bill? Although it is unusual to be keen to be here on a Friday morning, I was pleased to have the opportunity to listen to the speeches of my hon. Friends the Members for Hastings and Rye (Mrs. Lait) and for Kensington (Mr. Fishburn), who made a good case for commonhold.
Like many hon. Members, I have had to deal with the great difficulties of constituents who have experienced problems with the leases on their properties. From earlier debates, it is clear that, in many parts of London, the only way in which to buy property is to buy one on leasehold. That in itself is a reason for reform. Many of my constituents have come to my surgery and recounted the great difficulties they have had through high service charges and in buying their freehold under previous legislation. Like my hon. Friend the Member for Chipping Barnet (Sir S. Chapman), I greatly supported the campaign by the Evening Standard to introduce further changes to the law.
I must confess, however, to a great sense of deja vu. When I first came to the House in 1992, one of the great measures of that Parliament was the Leasehold Reform, Housing and Urban Development Bill. It was an enormous Bill, and my impression was that it would solve all leasehold property problems almost at a stroke, and would give many rights to leaseholders. It is a matter of great regret that the experience of my constituents since then has revealed that, for various reasons, that Act has not succeeded in achieving its objectives.
I am not a lawyer, so I cannot say why the Act has failed its objectives in law. I know that there have been all sorts of debates about the extent to which the Upper House decided to dilute that legislation. Perhaps its Members should share much of responsibility for the failure of that legislation's objectives.
I re-read the Second Reading debate on 3 November 1992 to remind myself what was then promised. There was great optimism that the leasehold reform measures would achieve the desired objective. In that debate, the Secretary of State promised that there would soon be a commonhold Bill. My hon. Friend the Member for Kensington alluded to that. Why have we not had on the 600 statute book a measure with such universal support? I echo the plea to the Government seriously to address that issue.
On Second Reading, the Secretary of State said that half of all leaseholders found problems with their freeholders. That is an astonishing proportion. If the measures in that Bill and in the current Housing Bill, which may be amended to strengthen the rights of leaseholders, and the measures in this Bill, take effect, they will go a long way towards redressing the imbalance.
I am not a lawyer, and I do not profess to understand the intricacies of property law. My hon. Friend the Member for Kensington spoke about two big volumes that almost equal the size of the Scott report and deal with one aspect of commonhold. I congratulate him on producing a Bill that is at least small. I confess that I do not understand every clause, because lawyers have a wonderful way of drafting legislation that makes it difficult for us mere mortals to understand. I suppose that that is why we pay so much when we seek their advice.
I understand that the property tenure of leasehold is unique to England and Wales. There is debate about why there is such a property tenure at all, but I understand that the Bill does not seek to abolish the tenure—perhaps it should. The Bill provides the opportunity in law for the right to have commonhold as a tenure, and that must be right, because the public are greatly confused. Many of those who first enter the property market buy a flat or a maisonette, and there is often no choice between a freehold and a leasehold property.
Back in the long distant days of 1972, when I got married, I sought to buy a property at a time of gazumping. What a difference there was in the property market at that time: I should not like to see the return of gazumping. Property prices were going up fast, and our only choice was a recently built maisonette in south Norwood. It was leasehold, and we paid ground rent. Fortunately, there were no problems, but we did not have the choice of buying freehold.
People come to my surgery and say, "I own my property but I have a terrible problem. I have a bill of £2,000 for repairs, and I do not understand it." When I hear that, I think, "Hang on, this person owns his property." I have to pinch myself to appreciate that, although he owns it, he does not, because someone else can put difficult obligations on him. That is why I strongly oppose leasehold tenure as a form of property ownership: it is neither one thing nor the other.
My hon. Friend the Member for Kensington introduced a ten-minute Bill last year, and I have read the excellent speech that he made then. His speech today was also excellent. My hon. Friend said that, if his ten-minute Bill had been passed, within a generation there would be no leasehold. I am not sure about the length of a generation, but I am sure that my hon. Friend was absolutely right.
I have a brief comment about a matter that is part of the general debate about leasehold reform. The Bill does not tackle the difficult problem facing the limited group of leaseholders who decided to purchase their local authority flats. I urge my hon. Friend the Member for Kensington to consider whether there might be a way of dealing with the problem.
601 In some ways, such leaseholders are in a much more difficult position than people who lease private flats. One of the distinct differences is that, when they lease a flat from the local authority, they are often in a minority in the block of flats; the others remain local authority tenants.
Unlike a private landlord, a local authority often spends large sums of money refurbishing the block of flats. I have two serious examples. In the first, the council is doing the usual work—putting in new windows, central heating, kitchens, bathrooms and the like—at a cost per flat of roughly £8,000 per year. For someone who has bought a £40,000 council flat for, say, £24,000 after the discount, to spend £8,000 against one's will on the property's refurbishment is an enormous burden.
The other example is even worse. In blocks of flats where, understandably, the local authority wants to put overcladding on the outside to keep flats totally watertight, with all the refurbishment, the cost ends up at a staggering £22,000 per flat. Some of my constituents are faced with such a bill. They cannot afford to pay that £22,000. It is unlikely that they will secure a mortgage, because the property is not worth much money. They are often in a worse position than leaseholders of private property.
Although it might be possible in law to strengthen their position dramatically and to give them many more rights, the matter needs to be considered, because, for leaseholders, such bills are unacceptable and make the concept of owner-occupation meaningless.
§ Mr. Congdon
I am grateful to my hon. Friend for that bit of optimism. It could be a big bit of optimism if the Housing Bill achieved that effect. I was pleased that, on 18 January. the Secretary of State for the Environment announced that he would introduce, I think, five measures to strengthen leaseholders' position. I do not mind whether changes to the Housing Bill or to a commonhold Bill achieve the desired objective, which must be that anyone who aspires to home ownership is encouraged to own a home, and, having acquired it, really owns it. They must not be in the crazy position whereby bills of a magnitude that they cannot afford can be imposed on them.
Those people have no control over those bills and, to all intents and purposes, the ownership of the property is meaningless to them. That must be changed. In that spirit, I warmly welcome my hon. Friend's Bill and hope that the Minister will be able to say when the Government will introduce a suitable measure to deal with that serious anomaly.
§ 1.8 pm
§ Sir Sydney Chapman (Chipping Barnet)
Madam Deputy Speaker, I am grateful to be called. I apologise for an overlong intervention on the hon. Member for Ealing, Southall (Mr. Khabra) and will do penance by making a short speech.
602 I join my hon. Friends in congratulating my hon. Friend the Member for Hastings and Rye (Mrs. Lait) on introducing this important and radical Bill. For reasons that she explained, she calls it the Leasehold (Reform) Bill. She need not worry. It has nothing to do with leasehold reform; it involves the new concept of commonhold.
The other week, the Government Whip on duty instigated a debate by moving the Adjournment of the House. At the end of the debate, the Government's supporters were encouraged to vote against the Adjournment of the House. We did. If my memory serves me correctly, we won the Division by one vote, and the Government Whip on duty immediately moved the Adjournment of the House. I am trying very hard to learn about the procedures of this House.
Constituents have raised three particular grievances about this area of the law. First, a number complained that they thought that, under legislation, they had the right of first refusal to buy their freeholds. In fact, the owner went over their heads and sold the ownership to another party. It is absolutely right that, as a matter of urgency, we should reinforce part 1 of the Landlord and Tenant Act 1987 to deal with that problem, through stiffer penalties or whatever.
The second principal concern that has been expressed to me by constituents is that there are sometimes two freeholders who affect the property in which they live. In one case, the building itself is owned by one freeholder, while the ground immediately in front of it—if the leaseholders do not get control over that ground, living in the property is nonsense—is owned by another freeholder. That problem should be addressed.
Perhaps my strongest criticism concerns cases in which a leaseholder tries to deal with a freeholder when he or she has been presented with what he or she regards as unfair service charges, and is then immediately threatened with forfeiture procedures. That is quite wrong. There are other problems, but those are the main ones.
I am especially pleased—my hon. Friend the Member for Croydon, North-East (Mr. Congdon) mentioned this—that, on 18 January, the Secretary of State for the Environment announced that he would table five amendments to the Housing Bill. The hon. Member for Greenwich (Mr. Raynsford) has reminded us that they have not yet been dealt with. Whether those amendments will be dealt with on Report or in Committee I do not know. I hope that my hon. Friend the Minister can enlighten us on that point. I know that the Government have acted.
I take up one point made by the hon. Member for Southall. Introducing legislation in this complex area means that we may find that there are still loopholes, or areas that have not been covered. I think that the Government are going about the matter in the right way.
My hon. Friend the Member for Croydon, North-East said that he would like the leasehold concept to disappear. I think that there is a case for leasehold, and I pray in aid my own humble property. I occupy the ground floor of a very modest property, and somebody else occupies the first floor. I would rather deal with a managing agent representing the freeholder than with the person upstairs. [HON. MEMBERS: "Name him."] That is not a reflection on the person who lives upstairs, whose sex I will not give. He—[Laughter.] He could equally say, "I do not want to 603 deal with the gracious gentleman who lives downstairs, because he is not there 52 weeks in the year, and I may not know where to get hold of him." There is a case for leasehold; it has an important part to play. More importantly, leaseholders should have the right to buy the freehold or to enter the new concept of commonhold.
The Bill has 38 clauses. I very much took to heart what my hon. Friend the Member for Kensington (Mr. Fishburn) said about the complexities of these matters. They are difficult, and we must look at the whole matter carefully.
I join my hon. Friends—and, I am sure, the hon. Members for Greenwich and for Southall—in paying tribute my hon. Friend the Member for Kensington. I am told that he is not standing at the next election. That will be an undoubted loss for the parliamentary Conservative party, as I would like to think it will be for the whole House. I pay tribute to his skill and perseverance in proposing all the commonhold Bills over the past eight years. I am glad that his surrogate, my hon. Friend the Member for Hastings and Rye, looks as if she will achieve the aim of his hard work.
I back the Bill. It is timely. I hope that it is not the last year before the next election, to take up the point made my hon. Friend the Member for Kensington. I am very happy to remain in the House until well into May next year, and see a new Session, but that is not matter for me. I commend the Bill to the House.
§ Mr. Piers Merchant (Beckenham)
I very strongly support the concept of commonhold and therefore the Bill. As far as I am concerned, the sooner commonhold is introduced the better. I regard it as a piece of unfinished business, not only because there is a clear and extant Government pledge to bring in commonhold but because I do not regard leasehold enfranchisement, important though that is, complete without commonhold. Indeed, I originally very strongly supported leasehold enfranchisement on the understanding that commonhold would be swift on its heels to make it a more effective and manageable innovation.
I am greatly impressed by the initiative shown by my hon. Friend the Member for Hastings and Rye (Mrs. Lait) in promoting the Bill. She is very assiduous in the House and is known to be so in her constituency. It is typical of her to use this opportunity to introduce a measure that will directly benefit her constituents and that springs from her experience of constituency case work.
To an extent, I have experienced the problem of heavy constituency case work arising from leasehold problems. It is somewhat ironic that in the first case that I handled—an elderly lady who faced a one year's service charge bill of more than £20,000 because of major works planned for the property in which she lived—the freeholder's company happened to be based in the constituency of my hon. Friend the Member for Hastings and Rye, which of course I do not at all hold against my hon. Friend. The Bill is excellent and she is doing the House a great favour by introducing it.
There are two principal reasons why I support commonhold. The first springs from the cases that I have mentioned—Showing the clear inadequacy of leasehold and the necessity to find measures that can overcome such problems. The introduction of commonhold is therefore 604 very important to the success of enfranchisement. It is also important to bear in mind the sort of problems that are increasingly emerging as a result of leasehold. Incidentally, I find that the weight of case work and other problems caused by it are increasing.
I certainly accept some leasehold arrangements work perfectly satisfactorily. Indeed, I was a leaseholder in a very happy arrangement with a managing agent and a freeholder who owned the property. The problem is that happy arrangements are dependent not so much on the operation of the law on the good will of the landlord. If that good will is not present, or if a bad landlord purchases the freehold, the whole happy arrangement collapses.
There are two particular sorts of unhappy consequence. One is where a rapacious freeholder simply buys properties to use leaseholders as milch cows to generate cash. There are many easy ways in which they can load unreasonable charges on leaseholders. There are many complex arrangements available to freeholders, which I shall not go into, to enable them to raise money from leaseholders. In such cases, it is not surprising that leaseholders wish there to be a remedy. It is unsatisfactory that the law as it stands cannot easily provide that remedy.
The arrangement goes wrong also when the freeholder is essentially a property speculator and buys a property because he or she—or it, if it is a company—sees an advantage in developing it. There was an especially good—or bad—example of that in my constituency. The firm of managing agents and the freeholder had a close relationship. Indeed, it was suggested by some that they were the same people. They bought properties because they saw the possibility of extending them upwards and downwards—in other words, developing basements and attics and adding on, as it were, to increase capital values and to generate the extra income that would ensue.
The only way of overcoming such problems is by radically changing leasehold law. Commonhold is one important way of achieving that.
My second reason for supporting the concept of commonhold so strongly is that I believe that English property law needs a new form of tenure. Commonhold answers that demand. I rather agree with my hon. Friend the Member for hon. Friend the Member for Croydon, North-East (Mr. Congdon), who said that he would like to see leasehold disappear. I regard it as an anachronistic form of tenure. Perhaps it should have withered on the vine along with socage, frankalmoin, serjeanty, copyhold and other forms of mediaeval property holding which eventually disappeared in 1660 or 1925, or at some stage in between.
As my hon. Friend the Member for Kensington (Mr. Fishburn) said, leasehold has been under a question mark for 200 years. Its origins, however, date back even further than that. It is necessary to bring the law up to date and tidy it by doing away with such a form of tenure. The introduction of commonhold would be a major step in that direction and would considerably improve and clarify the law.
There is another problem that might be taken up as we examine the Bill or through the tabling of amendments to it. It might also be taken up in another form of leasehold reform. The problem is that leaseholders may remain as a minority in a building, and are therefore unable to enfranchise and unable to take advantage of commonhold. In that situation, there remain significant weaknesses that 605 we must try to remove. I compliment the Government on their planned amendments to the Housing Bill, which to an extent will address the problem. There are, especially, the problems of forfeiture and the ability of leaseholders to challenge unreasonable service charges that are imposed on them by freeholders. That is one of my basic reasons for supporting commonhold.
I remain extremely concerned about leaseholders of local authorities or, in the case of my constituency, of Broomleigh housing association, which took over the property in question from the council. That association has imposed extremely high service charges on a number of leaseholders—in some instances in excess of £25,000 for one year—for capital works. Such sums are often considerably more than the property's original purchase price. The people involved are incapable of paying such service charges, which are completely unreasonable. The matter has been handled badly. There is some evidence that, while the handling has been improved, the law behind it has not yet been adjusted accordingly.
Mechanisms are needed to prevent unreasonable service charges from being levied. Last year, I introduced a ten-minute Bill which proposed measures to deal with that. Some of them have been taken up by the Government's amendments to the Housing Bill. I was especially keen on capping the charge that could be imposed in any year. Reasonably set, that would enable landlords still to carry out their duties and exercise their freedoms but would also have protected leaseholders. I hope that that, too, can be considered as part of the overall reform of leasehold law, of which I believe commonhold is an important part.
For all those reasons, I strongly support this reform, which I regard as part of a package of leasehold reform measures, some of which have already been carried out and some of which are yet to come. It is a complex matter; property law always has been. My hon. Friend the Member for Hastings and Rye has made a valiant attempt to make it as simple as possible, on which I congratulate her. I hope that by this Bill, or through other means, commonhold will be introduced into law as quickly as possible.
§ Dr. Ian Twinn (Edmonton)
I am grateful for the chance to speak in the debate and support my hon. Friend the Member for Hastings and Rye (Mrs. Lait) who has introduced this Bill to put right a wrong about which many hon. Members have spoken. The problems that leaseholders face are difficult, and often make their lives hell. It is right that the House should, as a matter of urgency, put that right. I congratulate my hon. Friend the Member for Kensington (Mr. Fishburn) on his patience and determination in bringing up this matter in a sort of Brandon Rhys Williams memorial Bill. We owe it to our former colleague to ensure that Brandon's ideas are brought into law in full. That the matter is set out so simply in the Bill is a credit to all concerned.
It does not matter whether this is part of a great radical reforming agenda or rampant conservatism. I would take being accused of being a Conservative by the Opposition and of being a radical by a Conservative Member both as compliments. I can happily live with both. It does not 606 matter whether this is part of leasehold reform or establishes a new agenda or form of land tenure. I regard it as reforming the leasehold land tenure system.
Hon. Members have come to the debate because they recognise that leasehold is not working in the way that it should. That has been going on for a long time. As hon. Members have said, the Government first recognised the problem officially in the late 1980s. Draft Bills of one sort of another have been appearing for nearly 10 years. Even lawyers should be able to reach agreement among themselves in that time. However, nothing astounds me about lawyers and they may want to argue about whether it is 10, nine or eight years. That could make it take longer for them to sort it out.
It has been said, rightly, that the Government are making valiant efforts to put right some of the wrongs. We know how leaseholders have been treated. It is sad in a way, because leaseholding can work perfectly well where there is good will on both sides. There would no need to detain the House if all landlords behaved reasonably, but it is clear that they do not. We need reform to make sure that people who are being abused by freeholders are protected.
I am impressed by the Bill. I started my London political career in Dulwich. Lewis Silkin had brought forward the Leasehold Reform Act 1967. I was the chairman of Dulwich constituency Conservative party—after it was brought in, but not that much after. My party gave up that seat because it put forward a candidate—who later represented another seat in the House—who supported the leasehold system. That was a lesson in my political life, and it should be a lesson to my colleagues in the Government that there is a need to take action. There are political consequences when we do not put right a wrong, and this is a wrong that must be put right.
In my constituency, I have seen the way in which the relationship between freeholders and leaseholders has broken down. Like other hon. Members, I have had case after case of abuse by people who have bought up freeholds so that they can squeeze the last drop of money out of innocent home owners who never expected that to happen to them.
One such example is Chapel court in Bush Hill Park in my constituency. Linkproud Ltd, Empress Management and the solicitors Paul Chevalier and Linda Malthouse deserve to have their names mentioned as much as possible, especially under the cover of parliamentary privilege in connection with their disgraceful activities. They have threatened and abused leaseholders and extorted money in the most disgraceful way. It should make us ashamed that our law allows people to behave in that way. They have used bullying tactics and threatened the full force of the law to try to seize properties when small parts of bills have not been paid, and have tried to load up mortgages behind home owners.
The Evening Standard in London has given publicity to that bunch of swindlers—that is the only thing that lawyers and solicitors protected by the Law Society can be called when they behave in this way. I am surprised that the Law Society, with its new management, has not decided to look carefully at the operations of swindlers who pretend to be respectable solicitors. I hope that the Law Society will try to redeem its reputation by looking into cases such as Chapel court.
I shall not detain the House, because other colleagues wish to speak today. It does not seem sensible to detain the Government in getting their act together any longer.
607 We have heard that other countries are perfectly capable of operating a system that is fair to home owners who want to own a flat. Australia, the United States and countries on the continent of Europe do so, as does Scotland. If Scotland can do it, surely England and Wales can get its act together and put matters right. I hope that we can. As an Englishman with a little Welsh blood, I do not like to see the Scots getting away with it. The Scots can be insufferable when they have got things right. The Scots can be insufferable anyway, as anyone can, but when they have got it right they are even worse, because we know that we should be doing the same as them.
I hope that, when the hon. Member for Greenwich (Mr. Raynsford) speaks on behalf of the Labour party today, he will give a commitment that Labour will support the measure and give full backing to the Government either by supporting the Bill today or by coming back as soon as possible with their own suggestions. The Government should do so before a general election. Opposition Members' reasons for wanting to reform the law are just as honourable as ours and they believe just as sincerely as we do that the law must be changed. There is cross-party feeling in the House that something must be done. We do not want to have to come back in the new Session to ask why commonhold is not included in the Queen's Speech. It must be included.
It has been shown that it is easy to introduce commonhold and that it is not controversial. We are not confiscating freeholders' rights. Commonhold is an alternative. If they wanted to, freeholders could sell their rights by agreement to existing leaseholders and form commonhold associations. We are not expropriating anything from anyone. We are trying to set a fair system for land tenure that encourages owner-occupation in our society and stakeholding—whatever we want to call it, it is a good thing, and we should all support it today.
§ Mr. Nirj Joseph Deva (Brentford and Isleworth)
I am grateful to catch your eye, Madam Deputy Speaker. I pay tribute to my hon. Friend the Member for Hastings and Rye (Mrs. Lait) for bringing this important measure to the House. I was impressed by the detail, care and attention that she has put into the arrangement of the clauses of the Leasehold (Reform) Bill. She must have spent much time on the minutiae of the Bill, for which we should all commend her.
I also congratulate my hon. Friend the Member for Kensington (Mr. Fishburn), who was my Member of Parliament at one time, on having brought such a measure before the House on eight separate occasions. I only regret that he will not carry on, like Fox, to the 21st occasion, until he gets his Bill through. I commend him for his efforts and for his care and attention in trying to look after his constituents and other people who have been affected.
The hon. Member for Ealing, Southall (Mr. Khabra) made a thoughtful speech, but tried—without great success—to turn this into a party political issue, which fortunately it is not. If he is so concerned about protecting tenants from large landowners, why did the Labour party oppose our home ownership policies when we tried to sell council houses to tenants? After all, we are the party of home ownership—the party that believes in people owning their own properties—and our record in the past 16 years or so has proved that. We have put about 608 3 million people in possession of their properties at the expense of some large owners—council landlords who have not looked after their tenants as well as they should.
I want my hon. Friend the Minister to take great note of the Bill. I hope that he will either support it today or bring forward similar legislation in the next Queen's Speech—certainly before the next general election, as my hon. Friend the Member for Edmonton (Dr. Twinn) said. It is an important issue, both for the Conservative party and the people of Brentford and Isleworth, and it is, therefore, important for the Minister to assure us that it will be a matter of major legislation and concern for the Government before that election.
I have worked on behalf of leaseholders in my constituency, particularly those in Brentford dock, where tenants have had enormous problems because their freehold has been sold underneath them, so to speak, several times; they have reached the point where they do not know who owns it. They have also had problems with, among other things, service charges, management costs, repairs and lifts. That leads me to believe that commonhold is the way forward.
Commonhold is a freehold development in which two or more people can come together and form an association to achieve home ownership, which is an important consideration. I shall take this opportunity to explain in some detail how the system will work. A commonhold is a freehold development of two or more units which share services and facilities and so require a system for communal management and for the ownership of the common parts.
The promoter of a commonhold—the person who establishes it—might be the developer of a new development. Many new developments are being built, new properties are being taken up, construction is taking place and the economy is reviving. Today, interest rates came down, which means that more properties will be purchased. People will want to go into the market and buy—the market is reviving. Not only the Conservative party but the Labour party should encourage that trend, and we should talk up the economy. I am rather disappointed by Labour Members, because they are always talking down the country. We want to revive confidence in the economy and the property market, and it is absolutely futile for the Labour party to talk it down, creating a sense of gloom where there is no gloom.
A block of flats is the most obvious example of a commonhold, in which the flats would be owned on a long leasehold basis. There would be nothing in commonhold legislation to prevent commonhold from being established for non-residential purposes. Equally, the system might be adopted for commercial or mixed-use developments, and the units would not have to be horizontally divided like flats. Therefore, the system could also be used for housing, industrial estates and even shopping precincts, with flats or offices above. It could also be applied to agricultural buildings and surrounding farmlands.
The owner of a commonhold flat or other unit—the unit owner—would, unless and until the commonhold was brought to an end, own the freehold in his unit. That ownership would automatically carry with it the right to essential passage—such as for access to gas, water and electricity—and the right to perform any communal service, such as for cleaning, maintenance, use of the 609 common parts and insurance of the structure. If a building had other communal facilities—such as parking, gardens or recreational facilities—the right to use them would go with the unit.
The commonhold association, for which the Bill provides, would be a corporate body established under the commonhold legislation and run exclusively by the unit's owners, who would then own and manage any common parts as well as the services and facilities. The commonhold association would have the benefit of a charge against each unit in respect of any arrears of service charge, to give it comparable protection to that which applies to service charges under current leases.
On the winding up of commonhold, the freehold in the individual units would automatically be transferred to the commonhold association, and the owner's right to his unit would be converted into a share of the association's net assets. The commonhold share would be calculated according to the proportions laid down for each unit when the commonhold was established. That arrangement would ensure that the value of the commonhold property, as a whole, could be realised by a single person, such as the liquidator of the association, thereby avoiding the problem that would arise if all unit owners continued to own their units.
I should like briefly to speak about the commonhold association. The commonhold system would include a self-contained scheme for the establishment, conduct and—in conjunction with the winding up of the commonhold itself—dissolution of the commonhold to run the commonhold. The corporate body would not be established under the Companies Acts, although similar procedures would apply where appropriate.
The creation of a corporate body would be considered appropriate for a number of reasons. The most important are: the aims of achieving a high level of standardisation; the fact that some of the more stringent requirements of the companies legislation are considered inappropriate to mutual organisations of that kind; and the restriction of the special rules about the liability of each individual, as we have seen in certain schemes set up under the Companies Acts and Friendly Society Acts.
This measure is long overdue. As many hon. Members have said in this debate, in some ways it puts right some of our more antiquated leasehold laws and brings a new form of common ownership into its own that is in keeping with the times and the conditions in which we live. More and more young people leave home and find jobs. They want to live by themselves until they get married and to have an equity stake in property. If they are allowed only leasehold tenure, as commonly happens, it will lead eventually to conflict, as has been explained. Commonhold, however, will enable young people in particular—those who are in the job market, especially in urban areas, and flat dwellers—to have a stake in common ownership. That is highly commendable and very much in line with the Conservative party's home ownership policy. I support the Bill.
§ Mr. Nick Raynsford (Greenwich)
I congratulate the hon. Member for Hastings and Rye (Mrs. Lait) on her success in the ballot and her decision to introduce a Bill 610 on commonhold. We believe that commonhold is a key concept for future housing policy in Britain, and the hon. Lady has done the House a service by giving us an opportunity to debate it. She moved the Second Reading of the Bill with conviction, clarity and good humour, despite the frustration that she must have felt, sitting here earlier this morning watching the clock ticking away and thus watching its prospects of progressing beyond this place today fade, too.
We heard several valuable contributions from hon. Members on both sides of the House, all of whom have direct constituency experience of the problems of leasehold tenure. My hon. Friend the Member for Ealing, Southall (Mr. Khabra), who stayed with us until literally a moment ago and then apologised to me and, I think, the Minister for the fact that he had to return to his constituency, made the case for a more far-reaching reform. Like many other hon. Members, he highlighted constituency examples of the injustices currently faced by leaseholders.
The hon. Member for Kensington (Mr. Fishburn) started elegantly by admitting to eight previous attempts to introduce legislation on this subject. I acknowledge and pay tribute to his commitment over many years—like his distinguished predecessor in the Kensington seat, he has campaigned for leasehold reform and the introduction of commonhold. It is a sad comment on the reluctance of some people in his party to make progress that we are still debating the issue rather than seeing commonhold in effect. I hope that it is not that which explains his decision to leave Parliament at the coming election.
The hon. Member for Kensington asked about my party's approach to next year's legislative programme. I have great pleasure in assuring him that the Labour party will be only too pleased to introduce a comprehensive leasehold reform Bill in the next Queen's Speech.
The hon. Member for Croydon, North-East (Mr. Congdon) expressed disappointment with the failings of the Leasehold Reform, Housing and Urban Development Act 1993 and articulated concern about the problems associated with leasehold tenure. He highlighted the case for more safeguards for leaseholders of councils and other social landlords, and I think that he was speaking for many hon. Members in doing so.
The hon. Member for Chipping Barnet (Sir S. Chapman) made the case for sanctions against landlords' failure to offer first refusal to tenants under the Landlord and Tenant Act 1987 and sought safeguards against forfeiture of the lease being used as a weapon to coerce leaseholders into paying extortionate service charges and repair costs. I think that he spoke for many people who have similar views.
The hon. Member for Beckenham (Mr. Merchant) said that leasehold was simply an inadequate form of tenure and that he was looking to commonhold as a new form of tenure that he saw as a replacement for leasehold. I shall have more to say about that in due course.
The hon. Member for Edmonton (Dr. Twinn) also highlighted the extent to which leasehold was not working. He gave several examples of the problems confronting leaseholders and the potential abuse of the system. Rather intriguingly, he referred to the dangerous political consequences of not acting to remedy wrongs against leaseholders. Given the size of his majority, I am sure that he has every reason to raise that concern.
611 The hon. Member for Brentford and Isleworth (Mr. Deva), after making some rather over-optimistic comments about the state of the housing market—views which will not, I suspect, be shared by the millions trapped in negative equity or the 1,000 households a week which are losing their homes through repossession—gave us the benefit of his views on the complex arrangements for the establishment of commonhold associations and on other aspects of the Bill. He ended intriguingly by arguing the case for common ownership and associating it with Conservative party policy. I shall not explore that concept any further, as those with a long memory on the subject will know that it could possibly bring us into interesting territory.
As is widely known, England and Wales are almost unique in the world in retaining a system of leasehold tenure for residential lettings. The system has many drawbacks: it gives unique advantages to landowners, who are able to accumulate and retain substantial property holdings while securing repeated capital gains through the sales of new leases as the old ones come to the end of their term. The leaseholder bears most of the costs of maintaining and improving the fabric of the property while the freeholder benefits from that investment. Not surprisingly, leaseholders have increasingly protested when the odds appear to be weighted so unfairly against them and in favour of landowners.
In recent years, there has also been growing evidence of disgraceful abuses of the leasehold system by some unscrupulous freeholders and their managing agents. They have sought to pressurise and intimidate leaseholders, with threats of large service charges or repair costs, into meeting unreasonable demands or forfeiting their lease. The Evening Standard and its assiduous property correspondent, Mira Bar Hillel, deserve praise for exposing those shameful malpractices and for pressing the case for further leasehold reform.
A series of leasehold reform Acts has been passed by the House. The most effective by far, as my hon. Friend the Member for Ealing, Southall stressed, was the Leasehold (Reform) Act 1967, which gave leaseholders in houses the right to buy out the freehold of their homes. It saved many thousands of leaseholders from the prospect of homelessness as their leases came to an end. It ensured an orderly transfer of large numbers of leasehold houses into the freehold tenure—the natural tenure for owner-occupation.
Subsequent leasehold reform measures have focused primarily on the position of leaseholders in flats, but they have, sadly, proved less successful than the 1967 Act. The Landlord and Tenant Acts of 1985 and 1987 were supposed to give redress to leaseholders against unreasonable demands by the freeholder and against the inefficient or incompetent management of their blocks. The Leasehold Reform, Housing and Urban Development Act 1993 was supposed to give leaseholders in flats a similar right to enfranchise their homes as the 1967 Act had given to leaseholders in houses.
All three Acts have failed to make a substantial impact. Landlord abuse remains rife, as the antics of Messrs. Bebbington and their colleagues Malthouse Chevalier and Co. have revealed. Those abuses have rightly been exposed by the Evening Standard. The sanctions supposedly available in the 1967 Act proved hopelessly cumbersome and ineffective—as the hon. Member for Chipping Barnet highlighted in his speech. We have also 612 seen how, in the past year, a large landowner, Smith's Charities, was able to sell a substantial estate over the heads of its leaseholders, with impunity and without offering the leaseholders first refusal. Ministers have been unable to point to a single case of leaseholders securing effective remedies through the 1987 Act.
At the same time, the number of leaseholders in flats who have succeeded in buying the freehold of their homes has been small. The restrictive rules of the 1993 Act—which reflected, more than anything else, the influence of large landowners in ensuring that the Act was not effective—together with the costs of the process, which can be high, and the unbelievably byzantine rules that have to be circumnavigated by any leaseholder aspiring to acquire the freehold of their block, have provided all too many opportunities for reluctant landlords to frustrate the aspirations of leaseholders. As my hon. Friend the Member for Burnley (Mr. Pike) highlighted in his short intervention, as we warned as the 1993 Act was passing through Parliament, those loopholes and problems have prevented leaseholders from obtaining, on any significant scale, the benefits of enfranchisement that they were promised.
Why have all the measures failed? The answer is not hard to find, and I have already hinted at it. It lies in the uncomfortably ambivalent attitude of the Government and the Conservative party towards leasehold reform. Ministers know that a radical reform package to give leaseholders effective redress against landlord abuse and the right to buy their homes is necessary. However, as Ministers remain beholden to the big landed interests, they have not been willing to give leaseholders simple, effective and cheap remedies or to introduce simple machinery to enable leaseholders to buy their freehold at a fair price.
I am afraid that the surrender to the big landowners' interests in the Leasehold (Reform) Act 1993 was a sad example of those influences stopping a process that everyone in the leasehold field believed was right. The concessions that were made to the big landowners during that Bill's progress through Parliament produced a bureaucratic nightmare of red tape and hidden loopholes, with endless scope for escalating costs to frighten off all but the most determined leaseholder.
What ought to be done to assist leaseholders? The Labour party published its proposals for leasehold reform last October in a policy paper entitled "An End to Feudalism". The proposals set out in that paper included, first, the introduction of commonhold as a new form of tenure for home owners living in flats. I do not claim any originality in this regard—this is a tenure that is widely welcomed by people across the political spectrum; indeed, it was contained in the manifestos of the Labour party and the Conservative party at the last general election.
Secondly, we advocated the simplification of the enfranchisement rules to make it easier for leaseholders to buy out the freehold of their homes. Thirdly, we argued for a fairer and simpler valuation procedure to cut unnecessary costs and to safeguard leaseholders from unreasonable demands from the freeholder. Fourthly, we argued for a ruthless pruning of the complex red tape and the bureaucratic procedures implicit in existing legislation to make it easier for leaseholders to get through the process.
613 Finally, we argued for effective remedies for leaseholders against landlord abuse, the charging of unreasonable service charges or costs for repairs, and inefficient management. We advocated the right to manage for leaseholders so that they could take over the management of their homes if they wished to do so. These proposals have been warmly welcomed by a large number of leaseholders who have responded to our consultation and we have no doubt that they form the basis for a fully effective leasehold reform package.
The introduction of commonhold as a new tenure for people living in flats is an important part of this package. Therefore, we obviously welcome the initiative of the hon. Member for Hastings and Rye in introducing her Bill. As she pointed out, although it is called the Leasehold (Reform) Bill, it establishes the concept of commonhold and does not set out proposals for the reform of leasehold. We support the concept of commonhold.
There is very little disagreement about the merits of a commonhold framework as against the existing leasehold system. As the hon. Lady explained in introducing her Bill, it enables people to own the freehold of their home while, at the same time, through the commonhold association owning a share in the freehold of the whole block. It gets rid of the need for a separate freeholder, and it gives the occupiers of the block proper control over the management of their homes.
Few people, other than those who hanker nostalgically for a feudal system of landholding or who have a vested interest in retaining the status quo, will object to the concept. Indeed, my only surprise today—which has been shared by a number of hon. Members who have spoken—is that it has taken so long for legislation to introduce commonhold to pass through the House. As I have already mentioned, there were unequivocal pledges to introduce commonhold in the 1992 Conservative party and Labour party manifestos. However, as with so many of the promises made in the Conservative party's 1992 manifesto, the pledge to introduce commonhold has not been honoured.
The hon. Lady has done her bit to try to rescue her party from the embarrassment that it must feel about this. She has arrived like a knight in shining armour at the eleventh hour, and she should be congratulated for that. Given the lack of parliamentary time available for consideration of a measure of this complexity and importance, one has to ask: why have the Government not introduced the Bill as a Government measure? One also has to ask: why are the Government not prepared now to give Government time for the Bill to enable it to progress further?
Ministers can hardly claim that they have not had time—the manifesto pledge to which I referred was made four years ago, and a draft Bill has been floating around in the Lord Chancellor's Department since at least 1990. Ministers cannot claim that other legislative measures have kept this measure out, as we have one of the lightest legislative programmes for many years. In addition, in this very light programme, we are currently considering two Bills on housing, either of which would have been a suitable vehicle for the Government to include commonhold measures if they had wished. The only conclusion that can be drawn is that, as with so many of 614 the other leasehold reform proposals in 1985, 1987 and 1993, the Tory Government really do not have the political will to grasp the nettle.
If the concept of commonhold has such wide support, why have the Government been so slow? Apart from the usual forces of inertia, and reluctance to admit that anything can be better than the British tenure system—a reluctance that I fear is rather strong in the legal profession, and presumably is quite well entrenched in the Lord Chancellor's Department—I suspect that the main force for delay is the reluctance to grapple with the central issue of commonhold as a replacement for leasehold.
If commonhold is, as we believe it should be, a tenure that will take over within a relatively short period as the main form of tenure for people buying flats, there must be an effective mechanism to enable existing leaseholders to convert their leaseholds to commonhold. Such a mechanism would, however, once again threaten the vested interests of the big landowners. Is it therefore any surprise to see the outcome in the form of the Bill that we are debating today—I do not blame the hon. Member for Hastings and Rye, because she clearly inherited the Bill—ducking the issue of conversion from leasehold to commonhold?
The Bill essentially provides for the establishment of a commonhold framework in new developments where the occupiers agree a commonhold framework from the outset. The provisions of clause 6, which set out the initial conditions for establishing a commonhold, are clearly most easily met in the case of a new development. They appear to have been drafted with that prospect in mind. Conversely, when we look for the arrangements for conversion from leasehold to commonhold, it appears from subsections (3) and (4) of clause 8 that that will be possible only where 100 per cent. of the occupants of the block, and indeed 100 per cent. of those holding any interest in the block, are in favour.
I would welcome confirmation from the Minister on whether my interpretation of those provisions are correct. If it is, it will be difficult for leaseholders in existing leasehold properties to meet that condition. It only requires one occupier in the block, perhaps an elderly person who simply does not want the hassle of a change of tenure, to put an insurmountable obstacle in the way of establishing a commonhold.
More to the point, it provides an easy loophole for any freeholder who wants to prevent his leaseholders from being able to convert to the commonhold tenure. All that that freeholder has to do is to retain just one room in the block, even if that constitutes one hundredth or one thousandth of the total accommodation, or to let it on an assured shorthold tenancy. That is all that is required to frustrate the hopes of all the other leaseholders in the block to convert to commonhold. That cannot be right.
Once the commonhold has been established, the provisions of clause 8(7), as I understand them, allow major decisions affecting the commonhold to be taken provided they command the support of 80 per cent. of the units in the commonhold. That sensible measure is designed to prevent a single or unrepresentative voice from preventing the commonhold association from managing its affairs expeditiously. There may be questions about the choice of the 80 per cent. figure as the threshold. That could create problems, for example, in 615 a block of four flats where just one occupant would retain a veto over the actions of the other three. The principle of a threshold below 100 per cent. must, however, be right.
As I understand the Bill, however, the option for overriding a simple or unrepresentative objection does not apply before the commonhold is established. That will come as a severe disappointment to many leaseholders who would like to convert to commonhold.
Chas Johnson of CARLA—the Campaign against Residential Landlord Abuse—which has done so much in recent months to support and mobilise leaseholders who have been the victims of unscrupulous landlords, has written to me to say that the Bill does nothing to deal with the existing leasehold system and merely provides an alternative in the form of commonhold. He writes:Commonhold as an optional alternative is of no real use. As a mandatory form of tenure for new and converted multi let residential property in the future (with the abolition of leasehold) it would provide an elegant form of property ownership and would be welcomed. If it is to be an option then clearly the rogues who work the leasehold scams will be more than happy to opt for leasehold.This dilemma is at the heart of the Bill. If it is an option only for new developments, it will play only a marginal role for many years, and may never replace leasehold as the main form of tenure for flat owners.
A more effective measure allowing scope for easy conversion from leasehold, and with the clear objective of replacing it within the reasonably near future, will clearly be necessary, but, of course, that threatens the vested interests of the big landowners, and the Government are clearly not prepared to take on those interests.
David Marcus, a partner in Franks, Charlesly and Co., and widely recognised as one of the country's leading experts on leasehold and related matters, makes the same point. He writes:I think all those in favour of commonhold have been working on the basis that it will be a substitute for the leasehold system; this Bill is drafted on the basis that it will be an alternative system; frankly I cannot see that unless it is made compulsory that it will have any effect. It is a completely new system and I cannot see that any of the large landlords will be prepared to accept it unless they are compelled to do so. My scenario would be that it would be compulsory after a particular period of time. Once the major house builders start adopting it then a lot of others will follow in their footsteps.
§ Mr. Raynsford
Plainly, the hon. Gentleman has not been listening closely to what I have said: the Conservative party is not prepared to introduce a scheme involving an element of compulsion which will enable leaseholders to transfer from existing leasehold properties to commonhold properties, because that would threaten large landowners to whom the hon. Gentleman's party is still financially beholden.
David Marcus makes another valid point about the lack of reference to experience elsewhere. In Australia, the strata title system has been operating for many years with considerable success. One had hoped that those responsible in the Lord Chancellor's Department for 616 drafting proposals for the commonhold system, which operates on similar principles to strata title, would look closely at the Australian experience.
One of the conclusions to be drawn from that experience is that an appropriate body to provide advice and help with the resolution of disputes about the establishment and operation of strata titles is essential. I can see no provision in the Bill for such a service, and the only body that provides expert specialist advisory services in this field, the Leasehold Enfranchisement Advisory Service, has no guarantee of funding beyond the end of this year. I hope that the Minister will tell the House how he expects the need for advice and assistance on the resolution of disputes will be handled. I assume that his Department would neither welcome nor be equipped to handle the scale of inquiries that are likely if commonhold takes off as a viable tenure. The Australian evidence suggests a figure of about 20,000 inquiries a year on issues relating to strata title.
Clauses 3 and 5 give the Lord Chancellor's Department extensive powers to make rules and regulations. Although it may be sensible to have some of the detailed provisions—in particular, those regulations that may need to be varied in the light of experience—made by order rather than included in primary legislation, that in itself has probably helped to keep the Bill down to a manageable size compared to some of its draft predecessors. Nevertheless, it would be helpful to have an indication of how these powers will be used. Will the Minister outline the scope and main features of the commonhold constitution rules that will be made under the provisions of clause 3 and of the regulations that may be made under clause 5?
Will the Minister clarify one of the provisions in clause 16 on the recovery of service charges? That clause specifies that service charges are recoverable from the owner of a commonhold unit, or from the person who is registered as the owner where ownership has not yet been changed on the register, or from the person who is a tenant under a long lease of the unit.
Although I understand the first two provisions, which cover the owner or the previous owner, I am puzzled by the reference to a leaseholder. As I have stressed, the Bill appears to require 100 per cent. unanimity before a commonhold can be set up and specifies that only owners of units within the commonhold can be members of the commonhold association.
How, then, do leaseholders come into picture? If it were possible to convert from leasehold to commonhold with less than 100 per cent. participation, we could envisage circumstances in which some residual leaseholders might remain, but that is not provided for in the Bill. If the Bill envisages the prospect of leaseholds being created by owners of commonhold units, surely, over time, that should undermine the integrity of the commonhold. I would welcome clarification on that point.
We would want to consider further other points of detail if the Bill were to progress to Committee, but I fear that that will not happen. Although the Bill is welcome in so far as it raises the issue of commonhold—a form of tenure that we view as an appropriate framework for home ownership in flats—unfortunately, as presently drafted, it is not the right way forward if we want to open the door to a significant number of commonholds.
617 The hon. Member for Hastings and Rye should be congratulated on having raised the issue. In doing so, she has helped to reinforce the case for a thoroughgoing range of leasehold reform measures. Unless substantially amended, however, the Bill would not be the right vehicle in the long term for a thriving and successful commonhold sector, replacing leasehold as the main tenure for owner-occupied flats.
We must wait for the return of another Government, with a real appetite and commitment to leasehold reform, to ensure not just appropriate commonhold measures that will allow the tenure to become the norm and to replace leasehold, but more thoroughgoing and effective remedies for leaseholders who have suffered too many abuses under the current system.
§ The Parliamentary Secretary, Lord Chancellor's Department (Mr. Jonathan Evans)
In the short time that the hon. Member for Greenwich (Mr. Raynsford) has left me to respond to the debate, I begin by congratulating my hon. Friend the Member for Hastings and Rye (Mrs. Lait) not just on her success in introducing this important matter today, but on the manner and content of her speech. She demonstrated that, in dealing with complex property law issues, she had a command of detail and could convey the essence of the Bill's proposals. I commend her for that.
I was pleased to note that speeches were made by a number of my hon. Friends. They included my hon. Friends the Members for Chipping Barnet (Sir S. Chapman), for Kensington (Mr. Fishburn), for Edmonton (Dr. Twinn), for Beckenham (Mr. Merchant), for Twickenham (Mr. Jessel), for Croydon, North-East (Mr. Congdon), and for Brentford and Isleworth (Mr. Deva).
I wish especially to single out my hon. Friend the Member for Kensington. He referred to his illustrious predecessor, Sir Brandon Rhys Williams. I am pleased that the bouquet was given to Sir Brandon. My hon. Friend will be unaware that my first experience in politics was as a schoolboy campaigning for Sir Brandon when he fought against Michael Foot in the by-election following the death of Aneurin Bevan. Sir Brandon played an immense part in the House. My hon. Friend has lived up to that in his time here.
Let me make the Government's position clear. They are firmly committed to the implementation of commonhold. As my noble and learned Friend the Lord Chancellor reaffirmed in the other place less than two weeks ago, it remains our firm intention that appropriate legislation should be introduced as soon as possible. Before I outline the steps that are being taken to advance the implementation of commonhold, it would be helpful to remind hon. Members of some of the background to the issue, most especially because of some of the comments on the period that has elapsed since the concept was first introduced.
In a nutshell, the purpose of commonhold is to provide owners in multi-occupier developments with the means of owning the freehold interest in their homes and, at the same time, to furnish them with a system for the efficient management of the development. That will have the dual 618 advantages of affording owners a measure of control and security that is often believed to be lacking in long leasehold developments, although avoiding the difficulties of so-called "flying freehold" schemes. The emphasis of the commonhold system will be on co-operation between owners in the development that forms the commonhold. So long as the commonhold continues, the owner of each unit is the freeholder, and the commonhold will be managed by an association comprising the unit owners.
The commonhold association will own any common parts and will be responsible for their repair and maintenance. That will be financed by a service charge payable by the unit owners. In certain circumstances, it will be possible to bring the commonhold to an end, in which case the ownership of the unit will automatically be converted into a share, fixed in advance, of the ownership of the entire property within the commonhold. Statutory rules will govern the conduct of the commonhold association and the rights and obligations of the unit owners in relation to each other.
Clearly, the success of any multi-occupied building or development will depend on the existence of a satisfactory and enforceable regime of mutual rights and obligations between the people who live in it. However, that is not provided by the present law governing the ownership of freehold land. It is, of course, possible for the subdivision of a building to be organised by means of a leasehold structure, and there are doubtless many developments that operate on a perfectly satisfactory basis, especially where the tenants also have effective control of the freehold estate by means, for instance, of a jointly owned management company.
Neither commonhold nor any other form of land tenure will ever eradicate the possibility of disputes between neighbours, as we have been reminded during the debate. However, commonhold can have considerable advantages over the leasehold system.
The first and most obvious advantage of the commonhold system is that it will enable people to own the freehold in their homes in developments that would otherwise necessitate a leasehold structure. People naturally resent what they regard as the temporary nature of ownership that a lease confers in a property for which they regard themselves to have paid full value—an observation made by my hon. Friend the Member for Croydon, North-East. People also resent having to pay a ground rent, which may be high, seemingly for nothing. In addition, there is no such thing as a standard lease. The wide variation in lease terms presents pitfalls and uncertainties for an intended purchaser, and does nothing to simplify or reduce the cost of conveyancing.
Furthermore, a lease is a declining asset and leases that are coming towards their expiry cease to be mortgageable. The security of a building society or of any other lender ultimately rests on its ability to sell the mortgaged property and to recoup the amount owing to it. Lenders rightly act with caution in advancing mortgage funds. Typically, a lease that has less than 40 to 45 years to run will frequently not be regarded as satisfactory security for a loan. It also follows that, where a lease is nearing expiry, the value of the interest that it confers will diminish. Those problems will not apply to the ownership of a unit that is a commonhold.
A further advantage is that the commonhold system will automatically provide a statutory framework of rights and obligations which is directly enforceable by and 619 against each unit owner in the commonhold and which will be standard from one commonhold to the next. The unit owner's position will no longer depend on the vagaries of the terms of the lease under which the property is held or on the willingness of the landlord to co-operate in enforcing the unit owner's rights.
As my hon. Friend the Member for Hastings and Rye has pointed out, one major problem with leases is that important decisions on repairs and on the provision of services are often left in the hands of landlords whose interests may be opposed to the interests of the tenants. That tension can be exacerbated, especially when the financial value of the landlord's interest in the building is negligible when compared with that of the tenants. As we have heard, there have been a number of well publicised cases. I will not go over them now, because they have been touched on by so many of my hon. Friends and by the hon. Member for Greenwich.
The Government are acutely aware of the problems that can be caused by bad landlords. For the future, the problem would be addressed by a commonhold system which would put the management of property in the hands of a democratically run commonhold association. In those circumstances, the interests of the unit owners and the commonhold association would clearly be identical. In addition, the requirement for fundamental decisions affecting a commonhold to be made unanimously will protect the interests of minorities. That has, of course, to be subject to certain measured provisions to prevent the operation of the commonhold from being thwarted by a few recalcitrant unit owners.
The Government also recognise that the problems caused by the abuse of the leasehold system by bad landlords have to be tackled immediately for the protection of existing tenants. It is not merely enough to rectify the problem for future generations by enacting legislation on commonhold. To that end, my right hon. Friend the Secretary of State for the Environment has brought forward a package of additional rights for tenants in the Housing Bill. My hon. Friend the Member for Chipping Barnet asked when my right hon. Friend would be dealing with the detail of the five proposals that he intends to bring forward. It is my understanding that my right hon. Friend intends to table those amendments in Committee. We therefore do not have very much longer to wait.
The genesis of commonhold can be traced back at least as far as 1965, when the Wilberforce committee on positive covenants affecting land recommended the introduction of an optional basis for new, large, multiple developments of a modified strata title system, similar to what had been introduced a few years earlier in New South Wales.
Matters developed further in 1984, when the issue was referred to the Law Commission. In its report "The Law of Positive and Restrictive Covenants", it recognised that the law is defective in imposing mutually enforceable property rights and obligations. The law allows only restrictive covenants to be enforced between successors in title of the original landowners, and there is no direct way in which to enforce positive covenants, such as rights of support or an obligation to keep a fence or a wall in repair.
Those problems are of course accentuated in blocks of flats, where each flat often depends on its neighbour for support and shelter. The very stability of the building depends on proper maintenance and repair of the individual flats and the common parts.
620 The commission recommended the creation of a new interest in land—the land obligation—that is capable of subsisting as a legal interest like an easement, and which would impose a burden on the owner of one piece of land, either for the benefit of the owner of another piece, or as part of a development scheme. Those recommendations were accepted by the Government, then superseded to an extent by the commonhold proposals that were put forward, and therefore required some substantial revision to take account of the fact.
The commission recommended the adoption of some form of condominium legislation similar to that in America, Australia and various other jurisdictions. In response to the report, the Government established an interdepartmental working group, under the chairmanship of a law commissioner, to produce proposals for similar legislation in England and Wales. It reported in July 1987 and recommended commonhold as a new way in which to own property.
In fact, the Lord Chancellor published for consultation a draft commonhold Bill, as my hon. Friend the Member for Kensington said, which the Law Commission had prepared. Following the favourable responses that he received to the general principles, he announced the Government's intention to bring forward the necessary legislation.
The original draft of the Bill was, however, incomplete in various respects, and that is no secret. It has become clear in this debate that specific problems need to be addressed in many areas. The implementation of commonhold will mark a major milestone in the development of property law. The Government are determined that their proposals are implemented on the basis of technically sound legislation that will provide a firm bedrock for the establishment of what will amount to an entirely new system of land tenure. For that reason, the Government have not seen fit to proceed with their proposals until the draft legislation has been fully thought through and reworked to make it as effective as possible.
It is especially necessary in property law reform to ensure that the details of legislation are correct, since it may be very many years before land tenure problems become apparent. By the time that the need for reform manifests itself, the job of rectifying the problems without unravelling the complex arrangement of rights and obligations based on the original legislation will have become a major undertaking. That is even more important when the reforms concern people's ownership of their own homes.
The great property law reforms of 1925 illustrate how long major pieces of property legislation may be expected to last. Indeed, it is a tribute to the thoroughness with which the 1925 legislation was prepared that so much of it is still in force today, although a Government Bill is going through the House at the moment to adjust arrangements for trusts for sales of land.
§ Mr. Evans
I will not give way to the hon. Gentleman, because I know that my hon. Friend wants the Government's full response. In fairness, the hon. Gentleman cut into my time to some extent.
The benefits of our approach can be seen in the steady and continuing progress on property law reform over past years. All measures have proceeded, or are proceeding, 621 with general support. That is in large part due to the lengthy consideration that they received before they were introduced into Parliament. Proposals that eventually found fruition in the Landlord and Tenant (Covenants) Act 1995 were transformed through that process from matters of deep controversy to a measure supported by all political parties and a wide range of interests of all sizes and types in the property industry.
I was hoping that during the debate we would see consensus across the Floor of the House on the need to proceed with commonhold. As anyone who has considered the original draft Bill will be aware, the aims and purposes of commonhold can be stated easily enough but the legislation required to implement the scheme will necessarily be complex.
I shall explain the reasons for the necessary complexity. Before I move on from the original consultation on commonhold, however, I should say something about one of the issues at the forefront of the consultation exercise. I refer to the circumstances in which conversion to commonhold will be compulsory.
The Government's consultation paper was issued prior to the enactment of the Leasehold Reform, Housing and Urban Development Act 1993. That measure fully implemented the Government's proposals for a leasehold enfranchisement scheme. It enabled tenants to acquire collectively the freehold of the building in which their flats were situated. When the proposals for commonhold were first mooted, they were closely associated with leasehold enfranchisement. Indeed, I expect that, following the implementation of commonhold, the two schemes will be complementary. However, commonhold is to be a stand-alone scheme.
In implementing commonhold, the Government have no plans to extend the right of tenants compulsorily to acquire the freehold of their buildings. To attempt to do that and to re-open the issue of leasehold enfranchisement in that way would, in our view, muddy the waters and introduce unnecessary controversy into the implementation of a reform that I believe is supported on both sides of the House. That point has been made with some force by my hon. Friend the Member for Kensington. In that regard, he was absolutely right.
The implementation of commonhold will necessarily involve the passing of detailed technical legislation.
§ Mr. Evans
It is not that the basic principles of commonhold are particularly difficult to define. I have indeed endeavoured to touch upon most of them.
The Bill makes a creditable attempt to cover the main planks of the scheme. The difficulty with legislation will be in ensuring that commonhold schemes—they will 622 represent one of the most fundamental changes in property law—will work efficiently and fairly, and without anomaly, in the context of the greater mass of the law generally, and of property and company law in particular.
The newness of the concept of commonhold has great advantages but great care must be taken to ensure that it does not bring with it outweighing disadvantages. It is necessary to provide comprehensively for a system that is superior to leaseholds while things are going well and to ensure that the same system does not result in a worse situation if things go wrong.
In my view, most landlords are decent, honest and competent. The problems lie with those who have not become such, so as to require legislative intervention. Great care must be taken, therefore, to ensure that the commonhold scheme is able effectively to deal with bad cases. Commonhold should not be capable of being used a vehicle for fraud. Nor should it be possible for continuing incompetent or dishonest operations to be hidden from view in a commonhold association.
Propositions such as these are simple to state but great care will be necessary to put them into practice. We must ensure that legislation meshes with existing law, and that the necessary protections and safeguards are reproduced as required.
I am pleased to report to the House that my officials, with the assistance of officials from other interested Departments, have been engaged in detailed work on these matters for some time and are in the course of preparing a commonhold Bill that will set out the complete regime for implementing commonhold. I hope that it will be possible for the Bill to be published for consultation during the summer so that hon. Members and others will have the maximum opportunity to consider the Government's proposals in detail.
The Government are determined to proceed with their task of preparing commonhold for implementation and will introduce the new Bill as soon possible to ensure that this important reform reaches the statute book. The issues that are being addressed to prepare the new commonhold Bill include corporate status. One has only to consider the implications arising from the fact that commonhold associations will be corporate bodies with legal personalities quite distinct from that of their individual members. Commonhold associations will therefore be different from, for instance, residents associations in existing leasehold developments, while their corporate status would afford them significant advantages in managing—
§ It being half-past Two o'clock, the debate stood adjourned.
§ Debate to be resumed upon Friday 12 July.