§ Order of the Day for the House to be put into Committee read.
§ Moved, That the House do now resolve itself into Committee.—(The Lord Chancellor).658
§ Question, Motion agreed to.
§ House in Committee accordingly:
§ [LORD DENMAN in the Chair.]
§ Clause 1 [Determinations under s. 4 (1) of 4&5 Geo. 6. c. 12 to be by reference to prices current at 31st March, 1939]:
VISCOUNT HAILSHAM moved to add to the clause:
(3) Where war damage has been occasioned to leasehold property and by reason thereof the tenant has disclaimed his lease and the landlord has accepted such disclaimer the payment to be made under the principal Act shall be a value payment.
§ The noble and learned Viscount said: This Amendment is designed to meet a point which I raised on the Second Reading of this Bill. When I raised the point I had hoped that the Government would have seen their way to put down an Amendment dealing with it. This was not only because they have far greater facilities for deciding what are suitable Amendments, and far greater facilities for passing them, but also, because, as I explained on the Second Reading, I am in a very invidious position in moving this Amendment seeing that I am personally interested. I am afraid the Government have not seen fit to put any Amendment down, so I have to bring it up myself.
§ I hope that the Committee will bear with me if I have to refer to certain elementary facts which are within the cognizance of all your Lordships. First of all, I should remind your Lordships that a great deal of the urban property in this country is held on ground leases, both residential and business. These ground leases have been largely acquired by their possessors by very substantial premiums. Secondly, I should remind your Lordships that by war legislation every property owner, both landlord and tenant, is compelled to insure against war damage, with the Government. That has no doubt been enacted with the very laudable intention of spreading the loss occasioned by enemy action over the whole community. I should like also to remind your Lordships that under the War Damage legislation a tenant when his property has been damaged by enemy action is given the right to serve a notice of disclaimer on his landlord, provided he acts promptly. If the landlord accepts the notice the lease is at an end. If the landlord does not want to accept he has to serve a counter-notice expressing his willingness to do the necessary repairs 659 himself. The last fact of which I should like to remind your Lordships is that by the War Damage Acts the War Damage Commission is empowered to decide whether any specific damage is to be compensated for by means of a value payment—which is normal in cases of total loss—or on a cost-of-works basis.
§ This Bill is primarily designed to simplify the task of the Commission in deciding, in any given case, whether to proceed by means of a value payment or by means of a cost-of-works payment. In the case of the Commission deciding to proceed by means of a value payment then no question arises. The value of the property, before and after the damage, is assessed and the difference is distributed between the various interests affected in proportion to the loss which they have sustained. But in the case of the employment of cost-of-works basis very different consequences ensue. In that case the tenant who has given up a valuable lease gets nothing. The Government repairs the property at the expense of the Commission, and the landlord is left with the property repaired by the Commission, freed from the lease, and makes a profit out of the tenant.
§ I do not think that that is an equitable position. I realize that it may be said that it is the tenant's own fault if he gives notice of disclaimer when he has got a valuable lease. But I think the answer to that criticism is this. Under the Act the tenant has to act promptly after the damage—I think he has got about a month in which to decide whether he is going to give a notice of disclaimer or not—and if he does not act he loses his right to disclaim. In many cases, indeed in the majority of cases I think, the tenant cannot tell what damage has been done to the property before a detailed examination has been made. Still less can be tell whether the Commission is going to decide to proceed on a value or on a cost-of-works basis. I think that reasoning must have appealed to the Government and to Parliament when they passed an Amendment Act called the Landlord and Tenant (War Damage) (Amendment) Act, 1941. That Act gave to the tenant a right to give a conditional notice of disclaimer, and, in effect, gave him the right, if the Commission ultimately decided to proceed on a value payment basis, to disclaim, or if it proceeded 660 on a cost-of-works basis, to retain his lease. I can imagine your Lordships saying: "What more does a tenant want?" I quite agree; what more would he want? Unfortunately that Act was passed in 1941. It received the Royal Assent on August 7, 1941. Your Lordships will remember that the Battle of Britain and the great fire of London happened in September, 1940. The bombing of Coventry occurred in November, 1940. I think that it is no exaggeration to say that the bulk of the damage so far sustained had been incurred before August 7, 1941. Therefore the bulk of the damage is within the mischief that that Amendment Act was designed to meet, but outside the remedy which it provided.
§ May I give you a simple illustration of how it works? Let us assume that there are two properties—No. 1 and No. 2 Blitz Parade. Both are held on ground leases and the ground leases are worth, say,£5,000 each. These two houses, No. 1 and No. 2 Blitz Parade, are hit by enemy bombs and are largely demolished. The tenants cannot tell actually how much damage has been done, but they know that it is far beyond what it is permissible to expend under the existing Government rules, and they both give notice to disclaim. They both file their claims to the War Damage Commission and claim the £5,000 which they have lost. When the Commission ultimately comes to decide what is to be done with these two places, they decide, let us say, in the ease of No. 1 Blitz Parade, to proceed on a value basis. That is all right. The value basis is assessed, the tenant gets his £5,000 and the rest goes to the landlord. But in the case of No. 2 Blitz Parade the Commission decided to proceed on a cost-of-works basis. In that case the tenant gets nothing at all, although he has lost the £5,000. The landlord gets the shop, repaired by the Government, freed from the lease, and in fact makes a profit of £5,000 out of the tenant. I do not think it is possible to justify that.
§ I have read in The Times a number of letters criticizing the Government's attitude in this matter, and using very strong language. Some of the writers said that the Government were guilty of sharp practice or double dealing. I am not associating myself with that language, because I have worked in terms of too close intimacy with many members of the 661 present Government to imagine that they would be guilty of conduct justifying that description; but I am still frankly puzzled to know why the Government adopt this attitude. My suggestion is that the Bill shall provide that in all cases where a tenant has disclaimed, and the disclaimer has been accepted, the Commission shall treat it is a value payment. In other words, as the tenant has suffered a total loss, he shall be compensated as for a total loss. I am quite prepared, however, to accept any suggestion from the Government, either to limit my Amendment to cases occurring before August 7, 1941, when the Amending Act received the Royal Assent, or to accept any form of words which deal with this injury. I beg to move.
Page 1, line 25 at end insert the said new subsection.—(Viscount Hailsham.)
§ THE LORD CHANCELLOR (VISCOUNT SIMON)
My noble and learned friend mentioned this matter in the debate on the Second Reading, and he asked that those responsible should look into the point which he made, in order to see whether it would seem to them right to try to meet it. I need not assure my noble and learned friend that I have not only looked into it, but looked into it with every desire to make a proper proposal, and not solely because, as he has told us most candidly, in the case of a property in which he was interested things had worked out badly, but on the general ground that we all want, as far as may be, to frame this legislation in a way which is just. I am sorry to say, however, that I do not think it is possible to make an Amendment along these lines. The Government could not recommend the Committee to adopt this Amendment, and could not accept it. I think that what my noble and learned friend said makes it clear that he makes this proposal with a view to its being retrospective.
§ VISCOUNT HAILSHAM
No. My words provide that, when the Commission come to decide in any case, this shall be done. It is when the Commission hereafter come to decide in any case between the cost-of-works basis and the value payment that I wish it to be provided that it shall decide on value payment if the lease is being disclaimed and the landlord has accepted the disclaimer.
§ THE LORD CHANCELLOR
I am not concerned with any question of drafting or form at all; I merely want to understand what is proposed, and I certainly thought that the proposal was intended to be retrospective. If it is not to be retrospective, we shall have a sharp contrast between what has already been done in tens of thousands of cases by the War Damage Commission, and what will be clone in future, and I think it will be manifest that that would not be right. I want the Committee to realize, if they are taking an interest in this point, which is rather a complicated and technical one, that there are innumerable cases in which the tenant, after the property has been damaged by war action, has disclaimed his lease, and in which the landlord has then repaired the premises, the War Damage Commission providing the money necessary for that purpose, and in which the landlord, having the property, has dealt with it by letting it, selling it, mortgaging it, or in some other way. There is not the slightest reason why that should not happen.
Take the ordinary case of a shopkeeper who has perhaps seven years of his lease to run, and who is holding the property at a rack-rent—because that is the best case to take. If the property is being held at a rack-rent, and the property happens to be destroyed, the shopkeeper, the tenant, does not suffer, provided he has to pay no more rent at all, apart from the possible expense and inconvenience of moving to another place. The rack-rent is the full annual value of the property, and the fact that his occupation of it comes to an end does not do him any harm, because the law provides that he has not to pay any more rent if the place is rendered unfit for habitation. That has happened in tens of thousands of cases; in every one of those cases the tenant holding at a rack-rent has disclaimed, as he was perfectly entitled to do, his tenancy, and has gone away, moving somewhere else. Thereupon the landlord, out of his resources, has repaired the property. He receives from the War Damage Commission the expense of so repairing it—the cost-of-works payment—and deals with the property as his own. That has been happening for the last two and a half years.
This Amendment would provide that if it was a leasehold property (and in my 663 instance it is), and if the tenant has disclaimed the lease because of war damage (and in my instance he has), and if the landlord has accepted the disclaimer (as in my instance he has accepted it), then the payment to be made under the principal Act shall be a value payment. No one will suggest that these two kinds of payment are to be made in respect of the same property. The War Damage Commission have to decide in each case which is the proper sort of payment to make, and no one will suggest that they should make both. The broad policy is to make a value payment only where the property is not worth making good; if the property is worth making good, a cost-of-works payment is made. Tens of thousands of such instances have already been dealt with and disposed of by the Commission during the last two and a half years, and I am at a loss to understand how it could be right to provide that the making of a value payment, which is really in the nature of compensation instead of rebuilding the property, is not to depend, as it has done from the beginning, on whether the War Damage Commission find that the property is not worth making good, but is to depend on whether the tenant chooses to disclaim or not. That is the proposition.
I am most unwilling to discuss, and I do so most diffidently, the particular kind of case which moved my noble and learned friend to consider this matter specially, although we all know very well that he has produced his suggestion now purely in the public interest. As a matter of fact, however, when my noble and learned friend's own property was damaged, there was no provision in the law by which the ground lessee could surrender his lease as of right at all; he would have had to go to the County Court and get leave to do it under the Act as it then stood. But what happened, unless I have misunderstood the position, is that my noble and learned friend was advised—it is not for me to criticize the advice, but I am surprised at it—that, although he had a valuable lease, he should offer to his landlord to surrender it, and the landlord accepted the offer. I am extremely sorry that that has worked out badly for anybody, most of all for my noble friend, but that is the real situation. The landlord in such a case accepts the offer; thereby he acquires for him- 664 self what I am afraid is a valuable leasehold. It may be that that was not a very good bargain to make, but it has nothing to do with the question whether there should be a value payment or a cost-of-works payment, because that depends not upon the judgment of the tenant as to whether he would like to surrender his lease, but upon the judgment of the War Damage Commission as to what is the proper way to treat a particular damaged property.
Some people have thought—I heard the observation made on the Second Reading—that if a house is seriously damaged it must be right from the tenant's point of view to disclaim the lease. There could not be a greater confusion. That does not follow at all. If the expense of making good the property will result in the property being worth more than what is spent to repair it, it will always be right to make a cost-of-works payment and to rebuild it. We are engaged in rebuilding a portion of England by this process and you can see it going on in various places. It is not, therefore, for the tenant to say: "I think I would like to disclaim my lease and now I insist that there must be a value payment." It is for the War Damage Commission to say whether there should be in the circumstances a value payment or a cost-of-works payment. And I am very much afraid that in the instance which my noble friend has in mind—I regret it most heartily—the matter has worked out badly.
Now my noble friend says he does not wish his proposal to be retrospective. I misunderstood him so far. Then the question is whether there is anything wrong in the law as it stands now. I do not quite agree with the way he stated it. Let me, therefore, state it as I understand it, because it seems to me to be a perfectly fair law. The present state of the law is this, that the War Damage Commission have to decide in each case, as I have said, if a property has suffered war damage, whether the payment to be made is to be a cost-of-works payment or a value payment. The broad policy is to make a value payment only where the property is not worth making good. If the property is worth making good, well then make a cost-of-works payment. There will be cases in which a cost-of-works payment will be the better course, even though the property has been substantially destroyed. 665 It depends simply on whether the value of the building will be greater than the cost of making it good. That is the whole policy of this branch of the law.
If the tenant surrenders his lease to his landlord (which is a matter of agreement) or if he chooses to disclaim his lease under the war legislation—which he could not originally do in the case of a ground lease without the leave of the Court—then he has no further interest in making good the property; and if it is decided that there should be a cost-of-works payment that of course goes to the party that makes good the property; in the ordinary case it would be the landlord. If, on the other hand there is a value payment to be made, the existing law provides that the tenant, even though he has disclaimed his lease, may in some cases have some share in it. As I pointed out, he would not in fact have a substantial share if he was holding at a rack-rent, because he does not suffer since he has not got any more rent to pay. It seems to me that is all quite right, and that is the way in which it is being worked. A value payment is really nothing more than cash compensation paid after the end of the war to the various parties interested in the property at the time when it was damaged, in proportion to the injury they have suffered. I hope I have made that plain.
It is an extremely technical matter and I apologize for keeping the Committee, but I am most anxious to show my noble and learned friend—I know he will believe it of me—that I have really looked into this thing as closely as I can. I have no prejudice in the matter and I should be delighted if we could make a change in the law which would be satisfactory to him. But there is no call for a change in the law; it is entirely just and right, as I have described. And if there was a case in which a lease was voluntarily given up, that is most regrettable if it does not turn out to be good policy. But it is not due to anything that this Statute contains. Therefore I am bound to say I do not think it possible for us to say to the War Damage Commission at this time of day, after they have dealt with tens of thousands of cases and actually paid the money for rebuilding or reconstructing property, that that was all on a wrong principle, and that the right principle is that whenever a tenant chooses to surrender his lease he must be entitled to insist that the premises shall not be built up 666 again but that there shall be instead a value payment in which he is to have a share. I cannot say how much I regret having to give this answer, but I have seen no alternative. I really have no doubt at all that the tenant should not give up a valuable lease without the most mature consideration, and now, as my noble and learned friend has pointed out, that is made abundantly plain because he is able, if he likes, to give what is called a conditional notice of retention, in which case he will be able to see how it works out. For these reasons I am afraid I cannot recommend the Committee to make this Amendment
§ VISCOUNT HAILSHAM
My Lords, I am obliged to my noble and learned friend for his explanation. I did not discuss my own case at all. I was discussing the broad principle which has been not only noticed by myself but noticed by other property owners. I am a little surprised to hear my noble friend say that there were tens of thousands of cases which have been dealt with heretofore because I hold in my hand a copy of a letter written on February 15, just a month ago, to the National Federation of Property Owners, from the Treasury, signed by Mr. Usher, and there he demurs to the National Federation of Property Owners' proposal. Their proposal was that in cases where this present Bill made a difference between cost-of-works and value payments that should be dealt with by this legislation. Mr. Usher explains why he does not want to do that. He said:Further, it has been felt that, having regard to the fact that determinations have been taken in only a very small number of cases and of those cases only a few will be cases in which conditional notice of retention has been served, legislation of the complexity that will be required could not be justified.
§ THE LORD CHANCELLOR
I was not using any rhetorical expression. I took care to find out. It may be that the expression tens of thousands was not quite accurate. But there have been many thousands of cases in which a tenant has disclaimed his lease and a cost-of-works payment has been made. It would be quite impossible to rip up these thousands of settlements. I got the information direct from the War Damage Commission.
§ VISCOUNT HAILSHAM
I thank my noble friend very much, but it is rather odd that the Treasury took such a 667 different view and made that an excuse for not dealing with this particular case. Of course I accept my noble friend's explanation. Then my noble friend says that lots of cases have been dealt with. Be it so. They have been dealt with, and they will not be affected by any Amendment which now empowers or directs the Commission, in cases where they have to make determinations in the future, to act according to the directions which I suggest should be put into the Bill. That does not involve that the Commission ought to alter or rip up any decisions which they have made, but it only decides that in future the Commission, when they decide questions between value and cost of works, would act on the direction of my Amendment. I only want to point that out to my noble friend. I do not think, therefore, that is a good point.
§ On Question, Amendment negatived.
§ Clause 1 agreed to.
§ Clause 2 [Minor amendments as to rentcharges]:
§ THE LORD CHANCELLOR
The Amendment to this clause is just a drafting Amendment. The words in the Bill are too narrow, and a wider expression is required.
Page 2, line 23, leave out ("the owner of") and insert ("any person entitled in respect of ").—(The Lord Chancellor.)
§ On Question, Amendment agreed to.
§ Clause 2, as amended, agreed to.
§ Remaining clause agreed to.
§ THE LORD CHANCELLOR
Perhaps, my Lords, without being too much out of order, I might be allowed to say, as my noble friend (Viscount Hailsham) is here, that I have ascertained about Mr. Usher's letter. His letter related to formal determinations of value payments. The Commissioners' thousands of determinations are cost-of-works payments. The whole of my observations about tens of thousands were in relation to cost of works.
§ The Schedule [Amendments consequential on Section One of this Act]:
§ THE LORD CHANCELLOR
The words appearing on the Paper, which I move to insert in the Schedule, are a necessary adaptation to Scotland and 668 ought to have been in the Bill as originally drafted.
Page 3, line 32, after ("incumbrance") insert ("or, in the case of a hereditament in Scotland, from any ground annual or other incumbrance and any liability to pay feuduty").—(The Lord Chancellor.)
§ On Question, Amendment agreed to.
§ Schedule, as amended, agreed to.