§ 12.22 p.m.
§ Order of the Day for the Second Reading read.
§ LORD STONHAM
My Lords, I beg to move that this Bill be now read a second time. The idea about leasehold enfranchisement embodied in this Bill simply means the right of a leaseholder to purchase the freehold of the land on 647 which his home has been built, and of course it is not a new one. This is the 25th Leasehold Enfranchisement Bill which has been introduced to Parliament in the last 75 years, and it differs from its predecessors merely in that it is more comprehensive and that it is the first which has come in the first instance to your Lordships' House.
Of course, leases as a means of conveying an interest in land, as distinct from ownership, have been known in England for more than a thousand years. Their use was encouraged by the peculiar requirements of an English land law which prohibited certain ecclesiastical and other corporations from selling the fee simple of their land. This practice differs widely from the land system in the rest of Europe, with the result that the English law of leasehold is without parallel anywhere else in the world. Private landowners soon saw the advantages of a system whereby they could not only always eat their cake and have it, but also have it returned to them with full possession, together with all the embellishments made and paid for by others. It is small wonder, therefore, that leaseholds increased as towns expanded and populations grew.
From the beginning, the leasehold system has been harsh to tenants. In theory, of course, while the lease endures, the holder should enjoy similar rights to the freeholder. In practice, the status of the leaseholder has always been inferior. This arises from the feudal conception of land ownership. The landowner and the leaseholder were regarded as entering into a personal contract; so that leasehold land was treated as personal property, in the same way as cash or stocks and shares. But freehold land was "real" property, surrounded by a complete system of succession based on law and custom. From this inferior status of leasehold possession spring the anomalies and injustices which this Bill seeks to redress.
The injustices are not only financial. The Industrial Revolution, of course, compelled people to live in the expanding towns, and in most cases, the land available for building was in one or two hands. The owners refused to sell the land, but agreed to grant building leases. They drew their ground rents but took little or no interest in the buildings on 648 the land or the people in the houses. Thus, in 1884, the Royal Commission on the Housing of the Working Classes reported thatthe evils of overcrowding, especially in London, were still a pious scandal.Ten of the fifteen members of the Commission, including Cardinal Manning, signed a supplementary recommendation saying that the system of building on leasehold land was a great cause of many of the evils of which they were complaining. And the recommendation concluded with these words—and remember that they were written 75 years ago:Legislation favourable to the acquisition on equitable terms of the freehold interest on the part of the leaseholder would conduce greatly to the improvement of the dwellings of the people in this country.In that same year, 1884, Mr. Henry Broadhurst introduced in another place the first of the 25 Bills which I have previously mentioned. It was entitled the Leasehold (Facilities or Purchase of Fee Simple) Bill. Its main features were that it applied only to leases with at least 20 years unexpired; that after acquiring the freehold the leaseholder must continue the use of the premises for the same purpose, and that in disputed cases the county court should decide on questions of prices and covenants. In his Second Reading speech Mr. Broadhurst who was a Liberal, said:Those in favour of the existing system argued that leaseholders had no just cause for complaint, as they were free to decline entering into the contract. That was an absolutely misleading view—landlords possessed the monopoly of a commodity, which could not be enlarged, and the use of which was essential to the human race. Therefore he dictated his own terms to the house occupier, who was bound to accept them or go homeless. It was a mere fiction to call that state of things freedom of contract. The only freedom that existed was for the landlord to impose such terms as he thought proper; and generally those terms were limited only by the highest price, and the most irksome conditions for the use of the land which he could find a desperate people willing to submit to. He contended, therefore, that the theory that the leaseholder was a free agent would not hold water.I have quoted that argument, my Lords, not only because I entirely agree with it, but because it effectively disposes of the one argument which has always been advanced against leasehold enfranchisement—namely, the sanctity of contract. In this particular case, to call such contracts sacred is humbug. There can be nothing sacred about a contract which 649 is harsh, unconscionable and extortionate, and which was, moreover, frequently imposed on persons whose poverty and ignorance prevented a clear understanding of the limited character of the interests they were acquiring and of the obligations involved. English law has not, like Shylock, always enforced every contract, however harsh. The equitable doctrines of the Court of Chancery spring from the desire to modify harsh bargains, especially where the parties did not start on equal terms; and in any case, the present Government disregarded the so-called sanctity of contract in the Landlord and Tenant Act, 1954, which, in certain circumstances, permits tenants to stay on after leases have expired.
Mr. Broadhurst's Bill was strongly supported by Lord Randolph Churchill who, for his pains, was described by the Attorney-General of the day as "the first bud of democratic Toryism," and by another Member as having uttered "rank Socialism." But, of course, we are familiar with the truth of the fact that language of that kind was uttered seventy-five years ago about many things of which we are all to-day the staunchest supporters. So I am quite sure you will not be put off by the fact that seventy-five years ago the Bill failed to get a Second Reading. But it induced the Government to appoint another Committee, which sat for no less than eight years. It is true that the whole seventy-five years' history of this effort has been one of delaying tactics and inaction, despite many impartial confirmations of the inherent injustices of the leasehold system.
In 1912 the Liberal Government of the day set up yet another Committee but, although its recommendations would have revolutionised leasehold tenure, the First World War intervened before they could be implemented. In 1920 the first real advancement came when the Places of Worship (Enfranchisement) Act was passed. By this Act, retrospective in effect, trustees have the right to enlarge their leasehold interest into a fee simple, and obtain the freehold and any intermediate reversions. The Act applies irrespective of any purpose for which the building was originally let and irrespective of whether the buildings are used exclusively as a place of worship. The lease must have been originally for at least twenty-one 650 years but it applies irrespective of the term unexpired.
But perhaps most important are the provisions for compensation. These stipulate that the value of buildings erected, or improvements made, by the trustees, are excluded from the price of the freehold, even if they were originally erected as a condition of the lease and even when the reversioner had bought the reversion at a price which included the value of the buildings. Therefore, in its most important provisions the Places of Worship (Enfranchisement) Act is identical with my Bill. If it is argued that the amount of land is small, I would mention that in 1920 the Attorney-General said that a single one of the four religious organisations in Wales had, on leasehold land, 347 chapels, said then to be worth £730,000. For nearly forty years this Act has worked well, and remedied undoubted grievances affecting religious communities. That fact is a convincing and final answer to any suggestion that may be made that leasehold enfranchisement is not completely practicable.
Unfortunately, no further progress was made during the inter-war years, despite the introduction, or attempted introduction, of fifteen Bills. But after the war it was found that the problem in some areas had become acute. In 1948 a Departmental Committee was set up under the late Lord Uthwatt, to consider whether and in what circumstances an occupying tenant of residential property should be given the right to purchase the freehold compulsorily. When it reported in 1950 the Committee spoke through the divided voices of a Majority, two Minority and one Supplementary Reports. The Majority Report rejected enfranchisement and its advice was accepted by the Government in 1953, mainly because of the alleged difficulties of application; difficulties which, as I have already indicated, were satisfactorily solved thirty-nine years ago. I would say also that the Government confirmed this by offering to Scotland what is the equivalent of leasehold enfranchisement. One of these days perhaps we shall have a debate and list things where in Scotland they enjoy so very much better rights and advantages and amenities than in England and discover what the reason is. Unquestionably, a similar formula 651 could have been found for enfranchisement in England and Wales had the Government wished.
Instead they introduced the 1954 Landlord and Tenant Act which, for residential property, gave the sitting ground lessee, subject to certain conditions, the right to remain as statutory tenant. In addition, the protection of the Rent Acts was extended to cover tenancies previously outside the Acts because the rent was less than two-thirds of the rateable value. The chief weakness of the 1954 Act, however, lies in the severe qualifications on the lessee's right to remain as a statutory tenant. Indeed, there is far more protection for leaseholders of business premises, which is not dealt with in this Bill. For example, if the freeholder requires the property for his own or near relatives' use, or if he requires it for re-development, he can obtain possession; or if the tenant is in breach of the tenancy agreement, he can be deprived of possession. I could quote many cases illustrating the unreasonable nature of many of these agreements.
But the prime difficulty for many of the kind of people—old age pensioners, for example—who live in these old leasehold properties is that they simply cannot afford to pay the vastly increased rents which can be demanded if they are to exercise their right to stay on. As "new" tenants, although they may have been there fifty years and the property will never be theirs, they are called upon to pay hundreds of pounds for so-called "initial" repairs. These can be paid by instalments, which may amount to £1 a week in addition to a rent of £3 a week: and all this is paid to an owner who neither built, maintained, nor even bought the dwelling as such.
These are the conditions in which the occupants of some 700,000 dwellings find themselves to-day—chiefly in South-West and North London, Wales, especially Cardiff and Pembroke, Lancashire and some Midland areas. All their families are in a state of acute anxiety, particularly during the last few years of their term. Will the freeholder grant a renewal, and, if so, can they pay his price? If not, can they stay as tenants, or will the freeholder be able to take all—house and improvements? They are absolutely 652 at the landlord's mercy and are often made acutely conscious of it. Often they are told that they cannot buy or let at any price. Everything will be taken away lock, stock and barrel. Everything they have done and their father has done before them is the landlord's according to the law.
To give just a single example, in the Pembroke Dock area about 75 per cent. of the houses are leasehold. Prior to the 1954 Act they were estimated to produce in ground rents a gross income of £5,190 a year. Under the 1954 Act—and at no cost to the landlord—they would yield, at a low estimate, £69,000 a year. Surely this sort of thing is offensive to the public conscience. Surely after seventy-five years it is more than time we ended it and gave nearly three-quarters of a million families surcease from anxieties.
The Bill now before your Lordships will give it to them and, in my submission, will give justice to all concerned. May I briefly recount its provisions? Clauses 1 and 2 confer on tenants of dwelling-houses let on leases of more than twenty-one years at a rent less than two-thirds of the rateable value, or statutory tenants under Part 1 of the Landlord and Tenant Act, 1954, the right to purchase the freehold, including any reversions, at any time before their lease expires. In order to be in a position to exercise that right the tenant or a member of his family must be residing in the house or prove to the satisfaction of the court that he intends to do so.
I would point out particularly that the restriction of this Bill to properties let at less than two-thirds of the rateable value means that we are dealing only with properties where the building content of the rent is very small indeed, or where there is a special reason for that low rent. If it were found that there were any cases of harshness, borderline cases, I am quite sure we should be prepared to find a formula to deal with them, but not a formula which allowed so many years' purchase and would only be an encouragement to speculators who chase after the "fag-end" of leases. Under Clauses 3 to 6 the tenant will exercise his right of purchase by giving six months' notice in writing, which notice shall serve as a contract. The purchase price will be settled by agreement between the parties 653 or, failing agreement, by the court. In cases where the rateable value is less than £100 that means a county court; in cases above £100, the High Court.
Where the court has to decide the price, It will fix a just price for the restricted value of the site only and exclude the value of any buildings standing on it and exclude also the rent of the tenancy, any consideration paid at its commencement or any term unexpired. The court may, at the tenant's request, decide that the price shall be paid by instalments. It is also provided that, if the tenant does not exercise his right of purchase, his lease on expiry will be replaced automatically by a lease for a term of 999 years, and he will be able to exercise the right of purchase at any time. During this period the landlord's right to enforce covenants is restricted to the obtaining of an injunction, and the Leasehold Property (Repairs) Act, 1938, applies irrespective of the length of the unexpired portion of the lease.
Under Clause 8 the tenant is permitted, subject to planning permission, to alter, demolish or erect buildings without the consent of or giving notice to the landlord. He is also allowed to insure with a responsible fire office of his choice, subject to production on demand of the receipt for the annual premium. Finally, Clause 10 excludes from the provisions of the Bill Crown properties or those belonging to Government Departments in cases where they are reasonably required for the exercise of their distinctive public functions; and in all such cases the Minister's certificate to that effect will be deemed conclusive evidence.
My Lords, I hope that, as briefly as possible, I have indicated not only the need for this Bill but also its purpose and that I have made the intentions of the Bill clear. Its language, I believe, is sufficiently straightforward for my lay understanding, and I hope it will commend itself to you, my Lords, above all, for its justice; because when it reaches the Statute Book this measure will remove an injustice which has marred our law of property for hundreds of years. Above all, it will remove the anxieties and hardships suffered, or likely to be suffered, through no fault of their own, by hundreds of thousands of people. As such, it not 654 only deserves but will, I am sure, receive your sympathetic consideration and support. I beg to move.
§ Moved, That the Bill be now read 2a.—(Lord Stonham.)
§ 12.43 p.m.
§ THE LORD CHANCELLOR (VISCOUNT KILMUIR)
My Lords, I am sure that all your Lordships are indebted to the noble Lord, Lord Stonham, for that very clear enunciation of his point of view. With many important matters before the House to-day, I am sure that the noble Lord will forgive me if I reply rather briefly and confine my remarks to pointing out what, to my mind, are the defects in the approach to leasehold enfranchisement which the noble Lord has chosen in this Bill, without entering on a more general discussion of the merits and demerits of the present leasehold system. The noble Lord is, of course, conscious, as I am, that at this late stage in the Session a Bill introduced can have no prospect of success, but I should not be doing justice to the trouble he has taken in bringing this Bill before your Lordships if I did not examine its provisions and point out my objections to them.
As the noble Lord told us, the Government's policy on leasehold property was set out in the White Paper entitled Government Policy on Leasehold Property in England and Wales, which I presented to Parliament in 1953, following the very full examination of all aspects of the problem undertaken by the Leasehold Committee between 1948 and 1950, whose majority recommendations as the noble Lord said, were generally accepted. My Lords, the two points which struck the Government at that time were, first, that the predominant need of the long leaseholder at the end of his lease was for security of tenure; and, secondly, that the difficulties of enfranchisement were many and we could see no easy way to overcome them. May I say, in parenthesis, that I hope we shall continue to examine these difficulties? I am grateful for any suggestion. I do not want to close the door, but I want to maintain certain principles which I shall put, very shortly, to the House.
I should like just to say one word on the working of the 1954 Legislation. Your Lordships will remember that by 655 the Landlord and Tenant Act of 1954 we conferred security of tenure, and I have every reason to believe that it is working well. The noble Lord, Lord Stonham, said that it was severe on the tenant, and I should like him to consider the figures that have been given to me, because they are rather striking. The House will remember that under the terms of the Act a ground lease does not come to an end on the expiry of the term, but runs on until the landlord either obtains from the county court an order for possession or settles terms for the continuation of the tenant's occupation on a statutory tenancy. The grounds for possession are the same as those under the Rent Acts, with an additional ground where the landlord wishes to demolish or redevelop the premises.
In the four years to the end of 1958, only nine orders for possession were made in the whole of England and Wales; so very few tenants were dispossessed at the end of the ground lease. If the landlord wishes to convert the ground lease, on or after its expiry, into a statutory tenancy he must take the initiative and seek to agree the terms with the tenant, and in default of agreement refer the matter to the county court. The number referred to the courts are very small: 27 in 1955; 20 in 1956; 12 in 1957, and 4 in 1958. So here again the indications are that landlord and tenant have no difficulty in coming to amicable arrangements. No case has been brought to the notice of my Department, to which all complaints relating to the law of leasehold are channelled, where a tenant has been forced to leave his home because he could not afford to remain on the terms of the statutory tenancy.
I have mentioned those figures because leasehold enfranchisement is often put forward as a means to protect the leaseholder against the risk of losing his home and I wanted to show that that risk is very slight indeed. If, on the other hand, the object of leasehold enfranchisement is only to enlarge the occupying tenant's rights into complete ownership, or, in other words, to make it easier for some persons to acquire the freehold of the house they live in, one is entitled to demand that the method of doing so should be one which is, first, fair to the interests of landlord and tenant alike; 656 second, which does not produce gross anomalies; and, third, which adequately safeguards the interests of the rest of the community. When I apply these tests I am driven to the conclusion that the Bill offends against all of them.
To my mind, the most important provision of the Bill is Clause 7, which automatically turns every lease to which the Bill applies into a 999-year lease when the ground lease expires. Converssion into a 999-year lease cannot be excluded by agreement, and in fact can be prevented only by previous enfranchisement. The effect of the clause is to expropriate the reversionary rights of the landlord and to present them, free of charge, to the tenant who occupies the house at the time of the enactment of the Bill. Such a result is bound to be unfair, and I should like to illustrate it by examples which would be by no means uncommon.
First, a tenant who happens to have bought the "fag-end" of a long lease—perhaps the last two to five years, which can often be bought for a mere token payment—will be presented with a long lease of a considerable capital value. He could sell it immediately at a large profit. Now let us take the case of a landlord who has bought the property near the end of the lease and has probably paid a sum approaching the vacant possession value of the house. He would lose the greater part of his asset; if he sold it, he would obtain only the capitalised value of the rent. My Lords, in my view the automatic conversion into a 999-year lease under Clause 7 leaves little point in providing for a purchase price for enfranchisement in Clause 5, which takes into account the value of the site and other terms of the ground lease. As the value of the tenancy to the landlord is the capital value of the ground rent, and no more, a tenant would surely be able to strike a bargain by paying that capitalised value and paying nothing for the value of the site.
However, assuming that the house was enfranchised at the price provided in Clause 5, the price would still be very unfair, because the Bill provides that the value of the buildings is to be ignored. The erection of the building, as Lord Stonham mentioned, way well have been, and probably was, part of the original 657 bargain, and may well account for the smallness of the ground rent. The ground rent is made smaller on the condition that the building is erected on the ground. Moreover, it may be that the landlord has only recently bought the reversion at a price which included a large sum for the value of the building; and he would now be compelled to sell it to the tenant at a price ignoring that value. I also consider the guidance which the clause gives to the court for fixing the price too uncertain and ambiguous to be workable.
I should like to put this point to Lord Stonham, because, if he remembers the events of six years ago, I think he will do me the justice of agreeing—and so will the noble Lord, Lord Granville-West—that I tried very hard to deal with practical points; and these are the points that we have got to meet. In fixing the price, regard is to be had, inter alia, to the rent reserved by the terms of the tenancy and to the length of the unexpired term. Now, frankly I do not know the answer to this. Where the rent is large, should the price be larger, reflecting the value of the rent, or smaller because the tenant has already paid more? Taking my other point: if the unexpired term is long, should the price be higher because the landlord can expect to receive the rent for a long time, or lower because lie will have to wait a long time before the reversion falls in? My Lords, these are not debating points. This is an instruction to the court. I frankly do not know the answers to these questions, and they are very difficult ones.
Then there is the question of the late purchasers. I have already mentioned the arbitrary results which spring from leasehold enfranchisement if there is no provision to exclude the late purchaser. Allowing for the cost of dilapidations, there is little difference between the man who buys a seven-year lease of a house and the man who buys the seven-year remainder of a ground lease. The price would be the same, apart from dilapidations; and there is no reason why the latter should have a right to enlarge his lease into a 999-year lease or to buy the freehold at an artificially low price. I would put it to the noble Lord, Lord Stonham, that the need to exclude late purchasers was recognised by the minority of the Leasehold Committee who advocated enfranchisement. I will 658 not mention names, but they were colleagues of ours in another place for whom we have great affection and respect. They recommended the exclusion of persons who had bought the "fag-end" during the last ten years of the lease. In our view, it would also be unfair not to protect the landlord who has bought his interest in the last ten to fifteen years of the lease against enfranchisement because he will have paid a substantial sum on account of the reversion. The Bill, my Lords, contains no exclusions at all.
Now, my Lords, time is going on. I ask the noble Lord, Lord Stonham, to believe that I could deal with the other points very fully; but I only want to put them in his mind. First of all, in regard to repairing covenants, I think the Bill would lead to undesirable results, because subsection (3) of Clause 7 provides that a landlord may not enforce the covenants of the lease (other than covenants for payment of rent, or against user for business purposes or illegal or immoral purposes) by forfeiture, reentry or an action for damages. The right to obtain an injunction is preserved, but as this will not avail to enforce positive undertakings like covenants to maintain and repair, these would in effect become unenforceable.
My Lords, the second point is that the Bill contains no exclusion in regard to flats. As noble Lords will know, it has become a well-known method of dealing with flats to sell them on long leases containing covenants for the maintenance of the building, surrounding ground and gardens, the cleaning of staircases and windows, and the upkeep and repair of drains, water tanks, et cetera. That method operates to the benefit of all concerned. As I say, the Bill has not the exclusion which has been recommended, as noble Lords are aware, by those who have considered the subject.
The next difficulty is the difficulty of apportionment. I found that that was a great difficulty when I was examining the problem six years ago, because a ground lease frequently covers more than one house; and if each tenant is to be entitled to enfranchise his home it is necessary to apportion the various interests—and it is almost impossible to devise a formula which will fit the infinite variety of tenancies which may 659 have been created. There is also the question of the break-up of larger estates. This is not from a feudal point of view, as the noble Lord, Lord Stonham, suggested: it is from the point of view that there are often covenants designed to preserve the amenities of the estate for the benefit of all the tenants; and it would be most unjust to his neighbours if one leaseholder were to be allowed, as he would be under the Bill, to enfranchise his house and to extinguish the covenants. I need not go into the other problems presented by large estates. I set out these difficulties in the White Paper, and I am sure that the noble Lord has them in mind.
I do not want to tire your Lordships with further objections, but I could not devise a scheme of enfranchisement which would operate fairly, overcome the many difficulties, some of which I have stated, and still be sufficiently simple in its operation and general in its application to be worthwhile. Regretfully, in my view, the noble Lord, Lord Stonham, has not found a solution. I was in charge of operations in 1953 and 1954 and I do not want your Lordships to think that I have any amour propre in the matter; nor am I saying that, because I produced that legislation it is the last word. I hope that your Lordships know enough of me to know that among my many faults, that is not one. I would be pleased to consider the difficulties and try to find a solution.
Therefore, in the particular circumstances, I suggest that we adjourn the debate on this Bill, so that the noble Lord will have an opportunity of dealing fully with the many difficulties. I should like to have a general debate, not only on the points the noble Lord mentioned to-day, but on other aspects of the problem, which I should like to hear debated and which I am thoroughly ready to examine. I hope that the noble Lord will not take what I have said to-day as the end of the story. What I said was bound to be negative, because I was bound to produce the difficulties I saw in the way of this Bill in the shortest time I could. But let us continue to examine the problem, to consider my points, and the answers which the noble Lord will no doubt have to them, and any alternative suggestions which he may think may 660 fit the difficulties. I hope that the noble Lord will believe that it is in a mental attitude of reasonableness, though my words may seem negative, that I approach his problem. If I may say so, I am truly grateful to the noble Lord for the able, clear and restrained way in which he deployed his argument. I suggest that a convenient course is that the debate on this Bill be adjourned sine die.
§ LORD STONHAM
My Lords, if I may be allowed, with leave, to acknowledge the noble and learned Viscount's suggestion, I should like to thank him for the manner in which he has dealt with this subject. I think that his suggestion is the only possible one in the circumstances. This discussion has been of great value. I am sorry that my noble friend Lord Granville-West, because of lack of time, could not reply to some of the points made by the noble Viscount. I am sure that his suggestion is the only one possible and I accept it.
§ Moved, That the debate be now adjourned sine die.—(The Lord Chancellor.)
§ On Question, Motion agreed to and debate adjourned sine die accordingly.