§ Order of the Day for the Third Reading read.
§ Moved, That the Bill be now read 3a.(The Lord Chancellor.)
§ LORD PARMOOR
My Lords, before the Motion is put there are one or two points in this Bill to which I should like to call the attention of your Lordships. I mentioned some of them on the Second Reading. So far as those who act with me are concerned we desired that the Bill should pass and we took no part in Committee because we did not wish that there should be any difficulty as regards time in the ultimate passage of the Bill during the present Session of Parliament. But there are one or two matters appearing on the face of the Bill to which I think attention ought to be called. In Clause 4 of the Bill the suggestion is to compensate in respect of goodwill a tenant to whom notice to quit has been given. The tenant's goodwill is a property which belongs to him and which, I think I may say in all cases, has either been built up by his energy or skill or is a property which he has bought from his predecessors. I think everyone is agreed that not only is it of public importance that these businesses should be built tip to a maximum of efficiency but, if this Bill is to be operative, it is also important that fair compensation should be paid.
What do you mean by fair compensation in the case of tenant's goodwill? I may say that I have been engaged in a very large number of these cases in old days and it is simply this. Premises are taken—that arises chiefly under the compulsory powers of a statutory company—and if the tenant has to leave the 1138 premises of which he is in occupation he is entitled to compensation, which in some cases is as much as the total value, for the injury done to his goodwill. I agree with what the noble Marquess, Lord Reading, said. We all understand what is meant by goodwill and when you want to ascertain the amount due to the tenant you first of all look into his business accounts and find out the right figure. It may be, say, £ 1,000. Then you consider how many years' purchase it is worth. From three to five years generally is the period, and therefore the amount would be in a case of total value from £3,000 to £5,000. The whole consideration is to what extent is the goodwill of the tenant who owns the business injured by his removal from the premises? If your Lordships will look at Clause 4 you will see that in respect of goodwill it says the tenant shallbe entitled at the termination of the tenancy on quitting the holding to be paid by his landlord compensation for goodwill"—and so on. Then there are a series of provisos which have nothing to do with the injury to the tenant or the loss of the tenant. The amount payable for goodwill is made to depend on the advantage which the landlord may obtain.
That of course is a very different thing and it should not be mixed up with the idea of compensating a tenant who, by his skill and energy, has built up what is known in law as goodwill in connection with his business. Of course when he leaves the premises he takes that goodwill with him. In some cases it may not be injured, but it some cases it may be practically lost. I will take the very simple case of a tenant whose goodwill would be practically destroyed by having to leave certain premises. If he were to have compensation for his loss of goodwill it would be some such sum as, say, £5,000. Why should he be deprived of that because the landlord gets no corresponding benefit? If you are not going to give him anything when the landlord gives notice to quit, well and good, but do not call it compensation for goodwill. It is nothing of the kind. The tenant's goodwill may be injured whether the landlord's interest is affected or not. There is really no connection between the two things. If you are proposing on the one hand to give compensation and on the other hand to take it away by bringing 1139 in irrelevant factors as regards the position of the tenant, it seems to me that this is not a Bill for giving compensation to the tenant but a Bill to preserve every right of the landlord. It seems to me the effect will be to give protection to the landlord whatever the loss to the tenant may be.
That is not what is said in the Bill, and I should imagine that it is not the principle underlying the Bill. Clause 4 says that if the landlord can use the premises for a different and more profitable purpose the tribunal are to have regard to the effect of such change of user on the value of the goodwill to the landlord. There is no goodwill to the landlord. It is a perfect misnomer, a perfect misuse of the term, in cases where the tenant is carrying on a business. Why should a tenant be deprived of compensation because on his going out a landlord can make more profitable use of the property? I should have thought that the tenant should be compensated. He is turned out because the landlord can use the property for a more profitable purpose. I am not dissenting from the landlord's action, he has to consider what are his own reasonable interests, but why should you deprive a tenant of compensation when he is turned out in order that a landlord may get a higher rent for use of the premises for more profitable purposes? As the noble and learned Viscount on the Woolsack knows very well there has been quite properly added to the Bill a definition of what "more profitable purposes" indicate. I can see no principle there. You say that a man should have the benefit of what is due to his skill and energy—that is what goodwill is—and yet on the face of the Bill he is to be deprived of it because the landlord gives him notice so that he can use the premises for more profitable purposes.
The notion that tenant's goodwill adds to the value of the premises is, of course, absurd. In nine hundred and ninety-nine cases out of a thousand tenant's goodwill has nothing whatever to do with the value of the premises. There is no relation between the two things. He goes away with it and the question is whether, if it is injured, he shall be compensated. There are pages of limitations and all I can say from my long experience of compensation cases 1140 is that they appear to be wholly irrelevant if you are going to give compensation. You may have two tenants side by side. Both are turned out and in each case there is a goodwill worth £5,000. I am taking a very normal sum. One of the landlords has to pay the whole of that sum, quite rightly, but another who wants to put the premises to more profitable use escapes liability. I have read this through several times, and with some knowledge of these compensation cases I regard the scheme as really unworkable if the main purpose of it is to give compensation to the tenant.
There are one or two other matters which were mentioned on which I should like to say a word or two at the present time. A good deal was said in the course of the debate on Second Heading and in the course of discussion on the clauses of the Bill in Committee, as regards expert evidence. I want to say only a few words to show how impossible it is without expert evidence to carry on a very large proportion of the business of the Courts. The Courts are deeply indebted to the assistance they get from expert witnesses. I will give illustrations with which I am very familiar. Of course on the question of valuation the Court must obtain assistance from an expert surveyor. It is obvious that a man does not, because he is a Judge, know the value of property, say, in the East End of London, or in Birmingham, or in some other place. Let me give another illustration to show the advantage of expert witnesses. Expert witnesses ought not to be run down. They ought to be welcomed, because their evidence is the only means by which a large part of the business of the Courts can be effectively carried on. When I was at the Bar I was engaged in a large number of chemical patent cases of an extremely technical character, heard before Judges who had no notion—after all they need have no notion—of the most elementary principles of chemistry. How could they determine questions connected with chemical patents without expert evidence? Two of the greatest Judges in my time were Mr. Justice Parker, afterwards Lord Parker, and Mr. Justice Warrington, now a member of your Lordships' House. I wish Lord Warrington had been here to-day. I should like anyone who has experience in these 1141 matters to tell your Lordships' House how, without expert evidence which is to be trusted, matters of this kind could possibly be decided fairly in any Court of law.
There is one other matter to which I wish to refer. I have no objection to make to the tribunal. The noble and learned Viscount on the Woolsack has produced a tribunal to which certainly I do not object, but it was suggested that there was a Constitutional right to go to the Law Courts on questions of this kind. It is exactly the contrary. The whole principle of taking land, for instance for public companies, has been to call in arbitrators, as under the provisions of the Railways Clauses Acts. Judges cannot deal with questions of this kind. The principle is, surely, that when you introduce some new right or obligation which involves such questions as valuation, an appropriate Court is set up, just as an appropriate provision is made in this Bill. There is no Constitutional right whatever. When a landlord's property was taken under the Lands Clauses Act, reference was made to an arbitrator under the terms of that Act. Immense sums were involved and there were very great difficulties regarding legal obligations, with several cases coming up to your Lordships.
I beg to say that, in my view, the principle is this. When you are dealing with matters of this kind, I will not say that it is the duty of the Government, but at least is is a fair way of initiating such legislation to give the people whose property is affected the power of resort to a court instituted for the purpose, at which they can get fair treatment and justice without enormous expense. As for the number of cases that will arise under this Act, they will be nothing either in amount involved or in principle as compared with those arising under the Railways Clauses Acts and similar Acts. As for the suggestions regarding the choice of arbitrator, in this particular Bill it is proposed that the arbitrator shall be appointed in the most careful manner and in a way which everybody admits should have our confidence, whereas in many other cases you merely have two men selecting a third. In complex modern legislation of this kind, when you are often interfering with proprietary rights, 1142 surely it is far better and less expensive to adopt the principle of the Lands Clauses Acts than to go to the Courts themselves. I cannot understand how an allegation to the contrary can be made. The Lands Clauses Act is a particularly well-drafted Act, which many Acts of Parliament are not nowadays. It was really a Consolidation Act, taken from a number of Private Acts which had led to a thorough discussion and consideration of the matter.
Although the noble and learned Viscount has not yet moved his proposed Amendment as to premises subject to the Rent Restrictions Acts, I should like to refer to it now, as I do not want to trouble your Lordships again. The effect of the Amendment would be, to consider only the question of goodwill, that compensation should not be given where a tenant is tenant of premises under the Rent Restrictions Acts. I think that puts it quite shortly and accurately. Why not? It is the same old principle. So far as the goodwill has been created by the energy of the tenant himself, why has he not the same right in these cases as in all other cases? This is really bringing back an incomprehensible principle regarding the law of compensation, which declares that you give compensation, not on the loss to the person who is injured or damaged, but in consideration of whether some other person may have suffered some loss or gained some advantage.
My general criticism of the Bill, in addition to those points, is the old-fashioned one which, I am afraid, has been expressed so often that it does not seem to be very effective. I speak of its drafting. I hope that some day—I address this particularly to the noble Marquess opposite—there may be an opportunity in this House of appointing a Committee to consider the whole question of drafting. It is becoming worse than a scandal. We are getting an enormous amount of legislation which it is impossible even for a lawyer to understand. I know that at home, where I have a law library and references to old Acts of Parliament, it is quite impossible to make my way through modern drafts, and how the ordinary layman is to do it I am sure I do not know. This is a matter of great importance. Drafting is a very difficult thing. I remember a learned Judge saying that it was "putting your 1143 brains down on paper." To do that accurately means a great deal of care, and I hope that some day the noble Marquess who leads the House will consider whether, instead of having this constantly reiterated complaint, we cannot have some Committee, or something of that kind, appointed to inquire whether our system of drafting might not be enormously improved. I do not intend to oppose the Third Reading of the Bill, but I was anxious to call your Lordships' attention to these points.
§ LORD DYNEVOR
My Lords, I should like to say a few words on this Motion. I am afraid that this Bill is going to create a great shortage of trade and business premises and that no one will let or lease in the future if he can avoid it, but will only sell the premises. There is an unknown liability in the future, and the result will be that rents will go up. I ask myself who in future is going to build business premises. So far as I am aware, nobody will do so, unless it is to sell. They will not build to let. To a great extent this Bill puts an end to the leasehold system. There are many people who want to lease premises. They do not want to wrap up their capital at 4 per cent., 5 per cent, or 6 per cent., but to utilise it in their business. Big firms in particular do not want to buy but to lease. One trader well put it that under the leasehold system he was able to use his landlord's capital instead of his own in obtaining premises in which to carry on his trade.
We know that the Lloyd George Land Taxes had the effect of creating a shortage of houses. I believe that this Bill will have the same result in regard to trade and business premises. Mortgages will be called in and trustees will not lend money because of this unknown liability at the end of the lease or letting. Litigation is written on the whole face of this Bill. People will be inclined, where they cannot sell, to give short lettings in order to avoid a large claim for the loss of goodwill. Insurance companies and friendly societies have largely invested in ground rents and reversions. Their security will now be diminished, and they will no longer invest in what has been considered a first class security. In fact one might say that no one will want to purchase a lawsuit. I am afraid, as I mentioned a 1144 moment ago, that mortgages will be called in on trade and business premises, since the landlord may be compelled to lower his rent to avoid paying a large sum as compensation for goodwill.
Let me take a concrete instance. Supposing a shop is let for £150 a year, that the owner has mortgaged it and that the interest on the mortgage amounts to £120 a year. At the end of the tenancy the tenant claims for loss of goodwill, let us say £2,000. The lease is fixed by the tribunal for thirteen years at £110 a year, to wipe out the £2,000 claimed; for the Bill says in Clause 4, Subsection (1) (b):—at such rent and for such terms … as … the tribunal may consider reasonable.Then the owner may not be able to pay the mortgage interest, and then, if the mortgagee forecloses, the mortgagee can get only the rent fixed by the tribunal. No one would object to a Bill which would redress the grievances of tenants of business premises, nor would legislation to bring all landlords up to the level of the best landlords have been opposed, but the present legislation goes far beyond that. I believe it would have been quite possible to have had an agreed Bill. This Bill has been rushed through the House, giving us no time to consider it properly in detail. Time can only show what its full effects will be, but I greatly regret that a Bill drawn on the lines of the present measure has been introduced, and is about to become the law of the land.
§ THE LORD CHANCELLOR (VISCOUNT CAVE)
My Lords, points of principle have been raised, and raised rather late in these debates, but I think that, out of respect to the two noble Lords who have spoken, I must say a few words in answer to each of them. Dealing first with the points of principle raised by the noble and learned Lord, Lord Parmoor, he complained that under Clause 4 of this Bill compensation is paid to the tenant, not on the loss of the tenant when he moves at the end of his lease, but on the gain to the landlord. That is exactly what the Bill is intended to do. The noble and learned Lord has, I think, been misled by his familiarity with compensation cases. Those cases arise when there is compulsory expropriation of some man by some corporation and 1145 there, quite properly, the corporation is made to pay the full loss accruing to the person expropriated by reason of that act. That is quite right. In those cases, of course, the tenant gets full compensation for loss of goodwill.
This Bill deals with a totally different case. It deals with cases where a tenancy comes to an end by agreement between the parties, and where the tenant leaves behind him either some unexhausted improvement, or some goodwill attached to the land or premises, which will immediately enure to the benefit of the landlord when he comes in. The landlord is only made to pay, not what the tenant loses but what the landlord gains, and I can see no reason why he should pay more. Of course, the tenant may take some goodwill away with him, or some may fall entirely to the ground, but unless it remains attached to the land, house, shop or building, the landlord ought not to be, and is not, called upon to pay for it. I think that is exactly what the Bill intends, and I think it does justice. My noble and learned friend also descanted upon the value of expert evidence. No one denies that it is not only valuable but expensive, and it is not very edifying to see a long series of experts called on one side or the other. The only manner in which this Bill deals with experts is in subsection (4) of Clause 20, where it says that only one expert on either side shall be heard, unless the tribunal otherwise determines.
With regard to the Rent Restrictions Acts Amendment I would ask leave to deal with it when it is moved. Lord Dynevor takes another line. He takes a rather gloomy view of the effects of this Bill on the leasehold system. I beg to remind him that the Select Committee, on whose Report this Bill is to a great extent based, was in favour of the leasehold system, and was of opinion that it would be for the good of that system if these cases of injustice could be remedied. They recommended, in substance, the main clauses of the Bill as really supporting and assisting the maintenance of the leasehold system, and with great respect to the noble Lord I do not share his misgivings. The Bill only calls upon all landlords to do what good landlords do to-day. It gives the landlord an option of either compensating in proper cases or renewing the lease, and it provides full 1146 safeguards. I do not think that the noble Lord's prophecies will come to pass. I believe that leases will be granted in the future as much as they have been in the past, and that the Bill, while redressing injustice, will do no harm to good landlords.
§ On Question, Bill read 3a.
§ THE LORD CHANCELLOR moved to insert the following new clause after Clause 7:—
§ Provisions as to premises subject to Rent Restrictions Acts.
§ " .—(1) The tribunal shall not entertain an application under section three of this Act if at the time of the application the applicant is a person in possession of the premises by virtue of the Rent and Mortgage Interest (Restrictions) Acts, 1920 to 1925.
§ (2) No compensation shall be payable for goodwill attaching to any premises if and so far as such goodwill is attributable to the trade or business carried on thereat during any period during which possession of the premises has been retained by virtue of the Rent and Mortgage Interest (Restrictions) Acts, 1920 to 1925, and such period as aforesaid shall be excluded in computing for the purposes of this Part of this Act the length of time during which the trade or business has been carried on at the premises."
§ The noble and learned Viscount said: My Lords, I have to move my first Amendment after Clause 7, to insert the new clause printed on the Paper. We had in Committee, and on Report, discussions on this matter, and I took the view, and I think your Lordships' House as a whole took the view, that it was rather hard on the landlord when his tenant remains in possession against his will, and becomes a statutory tenant under the Rent Restrictions Acts, that the tenant should be enabled to make improvements, or pile up goodwill on the premises, against the landlord's will and desire, and then claim compensation. I promised to deal with the matter by Amendment after the Third Reading, and therefore I have put down this Amendment, which I think will satisfy the views of noble Lords who raised the point.
After Clause 7, insert the said new clause.—(The Lord Chancellor.)
§ LORD DYNEVOR
My Lords, I should like to express to the noble Viscount on the Woolsack my great gratitude to him for having put down this Amendment. He has gone at least six-sevenths of the 1147 way, if not the whole way, to meet me, and I repeat that I am grateful to him
§ LORD PARMOOR
My Lords, I do not wish to argue the Amendment at any length, but I would like to ask the Lord Chancellor one question. It has been already pointed out that the limitation of the tenant's claim is an advantage to the landlord. Supposing—and it is a supposition which is likely to be proved—a tenant who is in occupation under the Rent Restrictions; Acts has in fact, by his skill and energy, improved the landlord's interest in the premises; that is, the value of the premises concerned. I do not quite follow the argument why, in those circumstances, he should be deprived of that advantage because he happens to be under the Rent Restrictions Acts. He is not asking any special advantage. The words here are:No compensation shall be payable for goodwill attaching to any premises if and so far as such goodwill is attributable to the trade or business carried on thereat during any period during which possession of the premises has been retained by virtue of the Rent and Mortgage Interest (Restrictions) Acts, 1920 to 1925.What difference does that make? Assuming, as I suppose one may assume, that the rent is a low rent, that is not a reason for taking away whatever is the right compensation. It is a matter, I agree, which may be considered in fixing the amount, but that is a different thing. Here it is said that the tenant is to have no compensation, although the assumption is that, but for the Rent Restrictions Acts, he would have had compensation. I do not see the logic of the distinction myself, and I am sorry this Amendment has been introduced.
§ THE LORD CHANCELLOR
I do see a great distinction. A landlord has voluntarily let his properly to a tenant, and the tenant during the tenancy builds up a goodwill—that is one case; the other is the case where a tenant holds in spite of the landlord and then claims compensation. Others may take a different view, but at present that is my view.
§ On Question, Amendment agreed to.
§ THE LORD CHANCELLOR moved, after Clause 8, to insert the following new clause:—
§ Restriction on contracting out.
§ Provided that if on the hearing of a claim or application under this Part of this Act it appears to the tribunal that such contract as aforesaid, so far as it deprives any person of any right under this Part of this Act, was made for adequate consideration, the tribunal shall in determining the matter give effect thereto."
The noble and learned Viscount said: My Lords, on the Report stage of the Bill your Lordships cut out altogether Clause 9, which was intended to prevent contracting out. Well, it appeared to me that it was undesirable that the Bill should go to another place just as it stands to-day, with the total omission of that clause, because no House of Commons could accept the omission of that clause. Its omission would make the Bill purely nugatory, because probably in every case there would be a contract made that the Act should not apply, and I thought it very undesirable that this House should be put in the position of sending to another place an Amendment which no reasonable person would consent to accept. The Commons would certainly restore the clause, and every impartial person would say that the Commons were right and that this House was wrong. I have therefore put down on the Paper a modified provision against contracting out. I propose to provide that—
This Part of the Act shall apply notwithstanding any contract to the contrary, being a contract made at any time after the thirtieth day of March, nineteen hundred and twenty-
that is to say, the date when the Bill was introduced.
§ The effect would be that the Act would not be excluded by a future contract, nor by any contract made after the date of the introduction of the Bill. I do not think your Lordships would really wish that in those cases the parties should be at liberty to exclude the operation of the measure. It is true, that leaves in effect any contract which might have been made before the Bill was introduced and which might by anticipation exclude any Bill of this character. But I suppose that sort of case is very rare. There must be few, if any, landlords who looked forward and inserted a clause in a lease excluding the operation of the Bill. I take the risk, 1149 therefore, of leaving those contracts in effect. I feel sure that this clause meets the point reasonably taken against the old Clause 9.
After Clause 8, insert the said new clause.—(The Lord Chancellor.)
§ THE EARL OF HALSBURY
My Lords, as one who voted against the old Clause 9 I should very much like, if I may without seeming impertinent, to express my gratitude to the Lord Chancellor for introducing this new clause. I entirely agreed with the speech of the noble and learned Viscount, Lord Sumner, and, while admitting frankly that there must be some clause of this kind preventing contracting out, nevertheless I could not agree with the old Clause 9. The Lord Chancellor in this new clause has in my opinion met us most reasonably on all the criticisms that were made on the old Clause 9.
§ On Question, Amendment agreed to.
§ Clause 20:
§ Provisions as to tribunal.
§ (7) Rules of the Supreme Court may be made regulating proceedings under this Act commenced in or transferred to the High Court and those rules may provide that on the hearing of a summons for directions, the court or a judge thereof may, without any application for the purpose being made by any party, order the matter to be referred for inquiry and report to such one of the said panel of referees as may be selected by the court or a judge thereof; and in any such case the referee so selected shall be deemed to be a special referee within the meaning of section eighty-eight of the Supreme Court of Judicature (Consolidation) Act, 1925.
§ THE LORD CHANCELLOR moved, in subsection (7), after "thereof," where that word secondly occurs, to insert "subject to such directions (if any) as the court or judge may think fit to give." The noble and learned Viscount said: My Lords, this Amendment is put forward in reply to a point made by the noble and learned Lord, Lord Phillimore, and gives the High Court power to give, special directions.
Page 23, line 31, after ("thereof") insert ("subject to such directions (if any) as the court or judge may think fit to give").—(The Lord Chancellor.)
§ On Question, Amendment agreed to.1150
§ LORD DYNEVOR moved to insert the following new clause after Clause 23:—
§ ". No amount payable for compensation under this Act, whether secured by charge or not, shall rank in priority as against any sums or interest secured by a mortgage or other charge on any premises subject to the provisions of this Act, whether such mortgage or charge were created either before or subsequent to the date of the passing of this Act, unless at the date when the mortgage charge were entered into the charge for compensation had been registered."
§ The noble Lord said: My Lords, this Amendment deals with the question of mortgages. I put it down again as I gave notice that I should when discussing the question on the Report stage. I am extremely anxious that it should be stated in the Bill that mortgages take priority over the charges imposed by the tribunal, so that individuals and mortgagees may see at once what the position is. I have been told more than once by the Lord Chancellor and my noble friend Lord Peel that mortgages do take priority over the charges imposed by the tribunal, but I want to see that actually stated in the Bill. I am sure it would be best so.
Page 25, line 24, after Clause 23, insert the said new clause.—(Lord Dynevor.)
§ THE LORD CHANCELLOR
My Lords, I am afraid this Amendment is something more than unnecessary and that it might really prove mischievous and injurious to landlords. The Amendment suggests that there is a charge for compensation. There is no such charge in any part of the Bill. The liability to compensation will be merely a simple contract debt between the landlord and the outgoing tenant and will create no charge at all upon the land. The only case in which a charge can arise is where the landlord is a limited owner, a tenant for life or something of that kind, and where he pays compensation and gets it charged upon the land. In that case he can create a charge. But he can only create a charge on what he is the life tenant of, namely, the land subject to any existing mortgage. He cannot possibly do more, and no lawyer would for a moment say that he could create a charge in priority to an existing mortgage. The Bill follows the precedent of the Agricultural Holdings Act, which has been in force for 50 years, and 1151 during that time there has never been any question of a mortgagee's interest being affected by the liability of the landlord to pay compensation. No one has been bold enough to suggest it, and I am unwilling to add anything to the Bill which would have the effect of suggesting a doubt. If those words were inserted the Courts might feel bound to try to give some meaning to the clause, and it is possible that they might infer from the language of the clause that it was intended to give a charge for compensation, and in that case it might have an effect adverse or injurious to the landlord's interest.
This is the third occasion on which this Amendment has been put on the Paper. On the second occasion it was not moved, but it is moved to-day. I hope the noble Lord will accept the statement I have made and will not press his Amendment.
§ VISCOUNT YOUNGER OF LECKIE
My Lords, we were told during the course of the proceedings that if the mortgagee entered into possession he would then be liable for all the compensation payable by the landlord and that the only way of avoiding that was by not entering into possession. Is that so?
§ THE LORD CHANCELLOR
That would be so. If the mortgagee goes into possession he becomes for all purposes the owner and is in the position of a reversioner and it is quite right that he should pay.
§ VISCOUNT YOUNGER OF LECKIE
In that case in order to avoid his being put under that obligation it would be necessary for him to appoint a receiver and not to enter into possession?
§ LORD DYNEVOR
I am much obliged to the noble and learned Lord Chancellor for his explanation and I hope that what he has said about mortgages will be very widely read. In the circumstances I ask leave to withdrawn my Amendment.
§ Amendment, by leave, withdrawn.
§ Bill passed, with the Amendments, and returned to the Commons.