HC Deb 08 December 2003 vol 415 cc846-52

'(1) The Land Compensation Act 1973 is amended as follows.

(2) In section 52 (right to advance payment of compensation)—

  1. (a) after subsection (1) there are inserted the following subsections—

(1A) If the acquiring authority have taken possession of part of the land—

  1. (a) specified in a notice of entry, or
  2. (b) in respect of which a payment into court has been made,

the compensation mentioned in subsection (1) is the compensation payable for the compulsory acquisition of the interest in the whole of the land.

(1B) Notice of entry and payment into court must be construed in accordance with section 5A of the Land Compensation Act 1961.",

  1. (b) for subsection (6) there is substituted the following subsection—

"(6) If the land is subject to a mortgage sections 52ZA and 52ZB apply."

(3) After section 52 of that Act there are inserted the following sections—

52ZA Advance payments: land subject to mortgage

(1) This section applies if—

  1. (a) an acquiring authority take possession of land,
  2. (b) a request is made in accordance with section 52(2) for an advance payment, and
  3. (c) the land is subject to a mortgage the principal of which does not exceed 90 per cent of the relevant amount.

(2) The advance payment made to the claimant must be reduced by the amount the acquiring authority think will be required by them to secure the release of the interest of the mortgagee (or all the mortgagees if there is more than one).

(3) The acquiring authority must pay to the mortgagee the amount the acquiring authority think will be required by them to secure the release of the mortgagee's interest, if—

  1. (a) the claimant so requests, and
  2. (b) the mortgagee consents to the making of the payment.

(4) If there is more than one mortgagee—

  1. (a) subsection (3) applies to each mortgagee individually, but
  2. (b) payment must not be made to a mortgagee before the interest of each mortgagee whose interest has priority to his interest is released.

(5) The amount of the advance payment made to the claimant under section 52 and the amount of the payments made to mortgagees under this section must not in aggregate exceed 90 per cent of the relevant amount.

(6) Subsection (7) applies if—

  1. (a) the acquiring authority estimated the compensation,
  2. (b) it appears to the acquiring authority that their estimate was too low and they revise the estimate, and
  3. (c) a request is made by the claimant in accordance with section 52(2).

(7) The provisions of subsections (2) to (5) must be re-applied on the basis of the revised estimate.

52ZB Advance payments: land subject to mortgage exceeding 90% threshold

(1) This section applies if—

  1. (a) an acquiring authority take possession of land,
  2. (b) a request is made in accordance with section 52(2) for an advance payment, and
  3. (c) the land is subject to a mortgage the principal of which exceeds 90 per cent of the relevant amount.

(2) No advance payment is to be made to the claimant.

(3) But the acquiring authority must pay to the mortgagee the amount found under subsection (4), if—

  1. (a) the claimant so requests; and
  2. (b) the mortgagee consents to the making of the payment.

(4) The amount is whichever is the lesser of—

  1. (a) 90% of the value of the land;
  2. (b) the principal of the mortgagee's mortgage.

(5) The value of the land is the value—

  1. (a) agreed by the claimant and the acquiring authority, or (failing such agreement)
  2. (b) estimated by the acquiring authority.

(6) For the purposes of subsection (5) the value of the land is to be calculated in accordance with rule 2 of section 5 of the Land Compensation Act 1961 (market value), whether or not compensation is or is likely to be assessed in due course in accordance with rule 5 of that section (equivalent re-instatement).

(7) If there is more than one mortgagee, payment must not be made to a mortgagee until the interest of each mortgagee whose interest has priority to his interest is released.

(8) But the total payments under subsection (3) must not in any event exceed 90% of the value of the land.

(9) Subsection (10) applies if—

  1. (a) the acquiring authority estimated the compensation,
  2. (b) it appears to the acquiring authority that their estimate was too low and they revise the estimate,
  3. (c) the condition in section 52ZA(1) (b) would have been satisfied if the revised estimate had been used instead of their estimate, and
  4. (d) a request is made by the claimant in accordance with section 52(2).

(10) The provisions of section 52ZA(2) to (5) must be applied on the basis of the revised estimate.

(11) If—

  1. (a) the acquiring authority estimated the value of the land,
  2. (b) it appears to the acquiring authority that their estimate was too low and they revise the estimate, and
  3. (c) a request is made by the claimant in writing,

any balance found to be due to a mortgagee on the basis of the revised estimate is payable in accordance with this section.

52ZC Land subject to mortgage: supplementary

(1) This section applies for the purposes of sections 52ZA and 52ZB.

(2) The claimant must provide the acquiring authority with such information as they may require to enable them to give effect to those sections.

(3) A request under section 52ZA(3) or 52ZB(3) must be made in writing and must be accompanied by the written consent of the mortgagee.

(4) (Subsections (4) and (8) to (9) of section 52 apply to a payment which may be or is made under section 52ZA or 52ZB as they apply to a payment which may be or is made under section 52.

(5) The relevant amount is the amount of the compensation agreed or estimated as mentioned in section 52(3).

(6) If the land is subject to more than one mortgage, the reference in sections 52ZA(1) (c) and 52ZB(1) (c) to the principal is to the aggregate of the principals of all of the mortgagees.

(7) A payment made to a mortgagee under section 52ZA or 52ZB—

  1. (a) must be applied by the mortgagee in or towards the discharge of the principal, interest and costs and any other money due under the mortgage;
  2. (b) must be taken to be a payment on account of compensation and treated for the purposes of section 52(10) as if it were an advance payment made under section 52;
  3. (c) must be taken, with effect from the date of the payment, to reduce by the amount of the payment the amount in respect of which interest accrues for the purposes of section 11(1) of the Compulsory Purchase Act 1965, any bond under Schedule 3 to that Act or section 85 of the Lands Clauses Compensation Act 1845;
  4. (d) must be taken into account for the purposes of determining any payments (or payments into court) which may be made for the purposes of sections 14 to 16 of the Compulsory Purchase Act 1965.

(8) If the amount, or aggregate amount, of any payments under—

  1. (a) sections 52 and 522A, or
  2. (b) section 52ZB,

on the basis of the acquiring authority's estimate of the compensation exceed the compensation as finally determined or agreed, the excess must be repaid by the claimant.

(9) No payment must be made to a mortgagee—

  1. (a) if any of the circumstances mentioned in subsection (10) applies, or
  2. (b) if the compulsory acquisition is only of a right over land.

(10) The circumstances are—

  1. (a) payment has been made under section 14(2) of the Compulsory Purchase Act 1965;
  2. (b) a notice under section 14(3) of that Act has been given;
  3. (c) there is an agreement under section 15(1) or 16(1) of that Act or the matter has been referred to the Lands Tribunal under that section.

(11) The claimant in relation to settled land for the purposes of the Settled Land Act 1925 is the persons entitled to give a discharge for capital money."

(4) In section 52A (right to interest where advance payment made) for subsection (2) there is substituted—

"(2) If the authority make a payment under section 52(1) to any person on account of the compensation—

  1. (a) they must at the same time make a payment to that person of accrued interest, for the period beginning with the date of entry, on the amount of the compensation agreed or estimated under section 52(3) (the total amount), and
  2. (b) the difference between the paid amount and the total amount is an unpaid balance for the purposes of this section.

(2A) The paid amount is—

  1. (a) the amount of the payment under section 52(1), or
  2. (b) if the land is subject to a mortgage, the aggregate of that amount and the amount of any payment made under section 52ZA(3).".'.—[Yvette Cooper.]

Brought up, and read the First time.

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister (Yvette Cooper)

I beg to move, That the clause be read a Second time.

New clause 4 deals with a proposal that we were keen to introduce in the Bill, but for reasons of complexity we were unable to get a complete draft of it in time for our deliberations in Committee. We have, however, circulated the details to members of the Committee, and to the Council of Mortgage Lenders and others, to ensure wide consultation.

The new clause deals with situations where property is subject to compulsory purchase order, where agreement has not been reached about the final level of compensation, and where the owner has moved out but has a mortgage on the property. Currently, it is possible for advance payments of compensation to be considered and given. Acquiring authorities can pay up to 90 per cent. of the value of the compensation that they have proposed. However, if the owner has a mortgage, the situation becomes more complicated. The acquiring authority then has to withhold the amount that it estimates will be needed to pay off the mortgage. If the mortgage is still worth more than 90 per cent. of the estimated compensation, the acquiring authority cannot pay out anything at all. That is to protect acquiring authorities against having to pay out twice.

If the owner does not use the cash from the advance payments to pay off the mortgage, and then disappears, the acquiring authority may still have to pay off the mortgage in order to get the property. The trouble is that the consequence of such protection is that property owners can find themselves removed from their home and still paying the mortgage—including the interest—until the matter is finally resolved. If the case has to go to the Lands Tribunal, it takes time. In the meantime, such people will probably need to pay new accommodation costs as well.

New clause 4 aims to address those problems. It allows the advance compensation to continue to be withheld from the mortgage holder, but to be paid instead to the mortgage lender. The payments can go directly to the mortgage lender, and in many cases will pay off the mortgage entirely. Where they do not, they will still reduce the debt on which the owner has to pay interest. The new clause still distinguishes between cases where the outstanding mortgage is less than 90 per cent. of the estimated compensation, and those where it is more.

In cases where the mortgage is less than 90 per cent. of the value of the compensation, the acquiring authority can still pay advance compensation of 90 per cent. of the value of the compensation in total, divided between the mortgage lender and the mortgage holder accordingly, but where the mortgage is worth more than 90 per cent. of the value of the compensation, the acquiring authority will need to pay out 90 per cent. of the value of the land to the mortgage lender. There is a reason for this. Where the mortgage is very high in relation to the value of the compensation, other factors may need to be considered in resolving the final amount of the compensation to be paid to different parties. For example, if there is negative equity, section 15(1) of the Compulsory Purchase Act 1965 provides for the balance of what is to be paid to the mortgage holder and the lender to be determined, if necessary, by the Lands Tribunal, if it cannot be determined through agreement. We are not changing these provisions, so it is important that the advance compensation payments do not prejudge that process.

7.45 pm

I turn briefly to the detail of the new clause. Subsection (3)—the important part—inserts new sections 52ZA, B and C. The purpose of new section 52ZA is to deal with cases where the mortgage principal does not exceed 90 per cent. of the estimated total compensation due to the claimant. Subsection (2) requires the acquiring authority to reduce the advance payment to the claimant by the amount that it thinks will be required to secure the release of the mortgagee's interest. Subsection (3) requires the authority to pay that amount to the mortgagee if the claimant so requests, and if the mortgagee consents.

New section 52ZB applies where the land is subject to a mortgage and the principal exceeds 90 per cent. of the total. Under those circumstances, subsection (2) specifies that no payment is to be made to the claimant. Subsection (3) requires the authority to make an advance payment to the mortgagee if the claimant so requests and the mortgagee consents. Subsection (8) specifies that the total amount paid out to mortgagees must not exceed 90 per cent. of the value of the land.

New section 52ZC includes other provisions, such as a requirement for the claimant to provide such information as the acquiring authority may need to deal with a request for an advance payment to a mortgagee.

These proposals command widespread support, certainly from those whom we have consulted. This is a sensible measure that simply allows us to deal with the current unfairness and the difficult situation in which mortgage holders whose property is subject to compulsory purchase orders find themselves. I therefore commend the new clause to the House.

Mr. Clifton-Brown

This matter arose during the proceedings of the second Standing Committee. The right hon. Member for Streatham (Keith Hill) said that this clause would be introduced, and the Opposition welcome it. Where land is subject to a mortgage, whether it is above or below the 90 per cent. level, it is sensible that provision be made so that advance compensation of up to 90 per cent., depending on the circumstances, can be paid to the mortgagee or lender. Such a provision is eminently sensible and should be applauded. We also welcome new section 52ZC and the other measures. Provision should of course be made so that somebody who has information must provide it, be it the lender or the mortgagor. That way, we can see exactly what the situation is.

There is one matter on which I am not clear, however, and perhaps the Minister would like to say a little about it. Where the mortgage is less than 90 per cent. of the value and the mortgagee and mortgagor cannot reach agreement, who will arbitrate and decide where payment should be made to? Of course, that point also applies to cases involving negative equity. In such cases, both the mortgagee and mortgagor will suffer. Who will decide who is to suffer in what proportion? It would be helpful if the Minister could say something about the existing conciliation or appeal mechanisms in respect of these provisions. That said, this highly technical new clause is widely welcomed by the industry, and by the Opposition.

Matthew Green

I rise briefly to add our support to the new clause. The Government are clearly right to introduce changes in respect of land to which a mortgage is attached. However, the new clause does not entirely deal with the issue of negative equity, and some concerns remain.

Clearly that could cause considerable financial distress to the people concerned, so we should like to see further action on that. However, in so far as it goes, the new clause is welcome.

Yvette Cooper

I welcome the support given by hon. Members to the proposal. The hon. Member for Cotswold (Mr. Clifton-Brown) made two points. The first concerned what happens when the mortgage is less than 90 per cent. and agreement cannot be reached. That is exactly the type of case we are talking about: where a matter may have to go to the Lands Tribunal, agreement has not yet been reached or overall compensation is being withheld. Those are the circumstances in which advance payment should be made.

If the mortgagee does not consent to receive the money, there will he no advance payment. Advance payments can be made to the lender only if the lender and the holder agree that that should be the case. In many cases, that will be in the interests of the lender and the holder, so one would expect them to agree to the advance payments unless there were some special circumstances that required complex arrangements. Paying the advance payments to the lender requires the consent of both parties.

The second question was what happens when there is negative equity. There are arrangements under the 1965 Act that provide that the overall amount of compensation to be paid to different parties should be agreed between the lender, the holder and the acquiring authority. We are not proposing to change the current procedures. The only important matter in terms of changing the advance payment arrangements is that we do not prejudge the process under the 1965 Act of resolving the final amount of compensation and who should receive it.

Where there is a dispute about how much should be paid between the lender, the holder and the acquiring authority in a case where there is negative equity, the matter can go to the Lands Tribunal. The only additional relevance to the advance payment arrangements is that the amount paid out in advance to the mortgage lender will be restricted to 90 per cent. of the value of the land, rather than 90 per cent. of the value of the compensation, to ensure that we do not prejudge the final decision of the Lands Tribunal or the final negotiation and agreement between the different parties about the total value of the compensation and who should be paid.

The advance payment arrangements do not change the position in terms of negative equity: they recognise that this is a complex matter and try not to amend the arrangements. These are sensible proposals and will be in the interests of mortgage lenders and of holders who are in this situation.

Mr. Clifton-Brown

Does the decision to refer the case to the Lands Tribunal apply to the 90 per cent. advance payment as well as to the eventual payment, in circumstances where there is negative equity, or are we talking only about the eventual payment and the split between the mortgagee and mortgagor?

Yvette Cooper

Where the mortgage is worth more than 90 per cent. of the value of the compensation, only 90 per cent. of the value of the land can be paid to the mortgage lender; no money can be paid to the mortgage holder under those circumstances. The Compulsory Purchase Act 1965 applies to all circumstances in which the value of the mortgaged land is less than the principal, interest and costs secured on the land. Under those circumstances, the compensation payable is to be settled by agreement between the mortgagee, the mortgagor and the acquiring authority. Failing such agreement, the amount payable by the acquiring authority is to be determined by the Lands Tribunal. The tribunal should not he involved at the earlier stage in determining whether the value of the mortgage is greater or less than the 90 per cent. figure; that should be decided by the acquiring authority. The Lands Tribunal's role is to decide on the eventual payment if the parties concerned cannot reach agreement.

I hope that that clarifies all the points raised, and I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

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