HL Deb 24 July 1967 vol 285 cc626-30

3.30 p.m.

Report of Amendments received (according to Order).

Clause 9:

Purchase price and costs of enfranchisement, and tenant's right to withdraw

9.—(1) Subject to subsection (2) below, the price payable for a house and premises on a conveyance under section 8 above shall be the amount which at the relevant time the house and premises, if sold in the open market by a willing seller, might be expected to realise on the following assumptions:— (a) on the assumption that the vendor was selling for an estate in fee simple, but subject to the tenancy, and if the tenancy has not been extended under this Part of this Act, on the assumption that it was to be so extended;

LORD KENNET

My Lords, this Amendment paves the way for the next one, so it might be a good thing if I said what the second Amendment is about. Amendment No. 2 is to remove a doubt about the meaning of this clause, this being the clause which provides that the price paid by the leaseholder for the freehold is to be the open market value of the freehold interest on the property subject to a 50-year extension. There might have been a doubt whether this value should be taken as being diminished by the leaseholder's very right to enfranchisement at all, thus constituting a vicious circle. I do not expect that the Lands Tribunal would have accepted that, but they presumably might just have done. That is the reason for my putting down the Amendment. I beg to move.

Amendment moved— Page 14, line 29, leave out ("but").—(Lord Kennet.)

LORD BROOKE OF CUMNOR

My Lords, I hope that your Lordships will agree to this Amendment. I do not suppose it will make very much difference to the valuations which are eventually arrived at, but it is, at any rate, something that the seller, who is indirectly described in the Bill as a willing seller, should not be, even by implication, an obligatory seller. The change that this pair of Amendments appears to me to make is to establish beyond doubt as between valuers, and for the information of the Lands Tribunal, that the seller is genuinely a willing seller; and that the requirements in the Bill which would oblige him in certain circumstances to grant the request for enfranchisement are not to be taken into account in settling the value.

On Question, Amendment agreed to.

LORD KENNET: I beg to move Amendment No. 2.

Amendment moved— Page 14, line 29, after ("tenancy") insert ("but on the assumption that this Part of this Act conferred no right to acquire the freehold").—(Lord Kennet.)

On Question, Amendment agreed to.

LORD BUTLER OF SAFFRON WALDEN moved, in subsection (1)(a), after the first "tenancy", to insert: ; and on the assumption that, during the period commencing on the date 25 years before the original term date, or at the relevant time (whichever is the later), and ending on the original term date, the rent payable under the tenancy was to be the letting value at the commencement of that period ascertained in accordance with section 15(2)(a) below;".

The noble Lord said: My Lords, I beg to move the Amendment in my name on the Paper. Clause 9 lists a number of assumptions which are to be made in calculating the price of the freehold in compulsory enfranchisement, and the purpose of this Amendment is to add one other assumption. It is an extremely simple one, namely, a review of the ground rent in the present lease. I have taken an interest in this Bill from the start and accompanied by the Bursars of two of our Cambridge colleges, have been on a deputation to the Minister in the other House on the subject. We take a very great interest in this Bill. My Amendment is, however, of a general character, applying to all freeholders. All I ask for, in simple terms, is a rent review in the present lease. In detail, the assumption is that the ground rent was to be the current market value of the site, either from an effective date 25 years before the end of the present lease, or with effect from the time when the leaseholder gives notice of his desire to acquire the freehold, if that time is less than 25 years.

The reasons for the Amendment are extremely good ones. I have here the White Paper, Leasehold Reform in England and Wales. Clause 1 of the Bill, in addition to the White Paper, states that the compulsory sales of freehold will be on "fair terms"—those are the exact words—and the sole object of this Amendment is to try to create fair terms as between freeholder and leaseholder. For example, paragraph 4 of the White Paper says: … the land belongs in equity to the landowner and the house belongs in equity to the occupying leaseholder. Paragraph 11 states: The price of enfranchisement must be calculated in accordance with the principle that in equity the bricks and mortar belong to the qualified leaseholder and the land to the landlord. All I am seeking to achieve by this Amendment is to make the circumstances for the landlord a little more fair than they are in the Bill as it stands at present, and to ensure that in fact fair terms are carried out by the Bill.

Since the start of the existing midterm lease, values would have risen considerably—both the value of the land and the value of the bricks and mortar. The leaseholder in the mid-term lease—I do not mean a 999 year lease but anything up to 99 years—will have benefited fully from this rise in values. The freeholder has received no benefit whatsoever. His ground rent is still the original figure of, for example, £10 a year, whereas the current ground rent of the plot may be £100. There may have been various other additional factors known as the "marriage value" for short. Under the Bill, however, the freeholder of a midterm lease would get a very unreasonable price for his land, and this is an attempt, by amending Clause 9, to affect the enfranchisement price.

Some will say that the freeholder has granted a long lease at a low fixed rent and must suffer the consequences. The short answer to that objection is that it postulates an intolerably one-sided approach. The Bill proposes to nullify completely one of the most vital provisions of the lease in the freeholder's favour—his right to the bricks and mortar. That is the principle upon which the Government's policy is based and I am ready to accept it. But if we accept that, equity must not be one-sided. Equity demands fair treatment for both sides. If the chief benefit for the freeholder is to be swept away, equity demands that the Bill must also sweep away the chief drawback for the freeholder. If the calculation of the enfranchisement price is to ignore the reversion of the bricks and mortar, it must also ignore the freeholder's obligation to go on letting the land at a low fixed rent. We must review the whole lease and not just that part which it suits the tenant to tear up.

No reasonable person, familiar with property investment, would nowadays regard it as fair for a freeholder to be forced to let a site for, say, 99 years where his return was to be only a fixed ground rent. In the past the quid pro quo for the fixed rent was the ultimate reversion of the house erected by the lessee. Now that reversion is to be abolished and the freeholder is to be left with only the land. So the enfranchisement price for the land must, in my opinion, be based on the assumption that the present lease contains a rent review. That is the object of the Amendment. It must not be unduly depressed by the substantial unexpired term at a low fixed rent. The Bill itself recognises the necessity for rent reviews in the new 50-year extension leases, and this only serves to emphasise the inequity of Clause 9(1) regarding the enfranchisement price where, without this Amendment, there would be no rent review.

It is plainly unjust for this enfranchisement price to be depressed by the capitalisation of a new derisory ground rent which was fixed for a very long period without regard to changes in the value of money. A building lease is a two-sided bargain where the two sides are intimately related. It is patently unjust to make a part change in one side without adjusting the other, and the obvious adjustment is a rent review. That, then, is the purpose of the Amendment which I am moving, and I take for example a typical mid-term lease, not of 999 years but of 99 years or less.

As regards the effect of this Amendment, it will be simply to give the landlord a price for the sale of his freehold rather closer to the current value of the land with which he is parting. This is not an extreme Amendment. In no case will it lead to a price higher than the current value of the land and in many cases the price which it produces will still be far far below the current value of the land. I have tested it against some properties that have come to my attention. This appears to be the result. For example, in one of the properties that I have examined the price might be one-fifth of the site value, instead of one-tenth. Can the Minister, or indeed anyone, maintain that in the sale of a freehold on fair terms it is unreasonable for the lessee to pay one-fifth of the value of the land which he acquires, leaving aside altogether the bricks and mortar?

I maintain that this is an Amendment which is according to the spirit of the White Paper and according to the spirit of the Bill and I hope that it will be pressed to a conclusion. I wish to emphasise that the Amendment does not give the freeholder any part of the value of the bricks and mortar. It seeks merely to give him a larger share of the value of the land, which the White Paper repeatedly tells us is his, and it does so by means of assuming a rent review, a conception which is itself drawn from the proposal of the Government for extended leases. I beg to move.

Amendment moved— Page 14, line 29, after "tenancy" insert the said words.—(Lord Butler of Saffron Walden.)