§ 3.10 p.m.
§ Lord FLETCHERMy Lords, I beg to move that this Bill be read a second time. In moving its Second Reading, I hope it will not be necessary for me to trouble your Lordships with any great details. The Bill comes to us from another place where it had a cordial reception. It had a considerable examination in the Committee stage and certain changes were suggested.
The simple object of the Bill is to prohibit the creation of land charges, either in law or in equity. The reason for the Bill is that for some time past it has been recognised that a rentcharge is anomalous. A rentcharge is defined as a payment made, issuing out of land in any 404 way other than a rent reserved by a lease or tenancy, or a sum payable by way of interest—as, for example, under a mortgage.
Your Lordships will appreciate that tenure of land is capable of various forms of ownership. Apart from the actual owner, the freeholder, there can be leases, either under a short lease or a long lease. There can be mortgage interest; there can be interest for life, there can be interest for remainder. A freeholder of land may have his land subject to certain rights of way: if it is arable land, it may be subject to various easements in favour of the local authorities, rights of drainage, sewage and so forth. But a person who owns a house in fee simple thinks of himself as being the absolute owner of that house, subject to any mortgage interest he has to pay.
In various parts of the country, particularly the North-West of England and the South-West of England, the custom seems to have grown up fairly recently of rent charges being created, obliging the owner of the land for the time being to make a payment in perpetuity to somebody who has no other interest in the land at all. It is felt that that is not only anomalous but also contrary to what one ought to consider as the philosophical approach to real property law. In addition to that, it creates a great deal of resentment, annoyance and inconvenience.
There are not only simple rentcharges; there are complicated rentcharges. A simple rentcharge arises in this way. If a builder builds a house and sells it to a purchaser, in the ordinary way he exacts a price, but sometimes, particularly, I gather, in the Manchester area, in addition to exacting a price, a capital sum, he asks the purchaser to pay an annual sum in perpetuity and that is called a rentcharge. When that purchaser comes to sell it, his purchaser finds it very anomalous that he should have to go on paying that rentcharge in perpetuity.
A more complicated set of circumstances arises where the owner of land sells his land to a developer, and the developer puts up perhaps four or five or half a dozen houses. The original owner exacts a rentcharge on the whole land. The developer or builder puts up five or six or more houses, and the purchaser of 405 each of those houses finds that he is liable, not merely for the part of the rentcharge applicable to the house he has bought, but for the whole of the rentcharge. It is true that there are possibilities of getting apportionment, and I will come to that later. But in practice it is found that where such a rentcharge exists, the owner of the rentcharge is content to collect his rentcharge from one particular person, leaving that unfortunate person to collect an appropriate proportion of the total rentcharge from his neighbours, which creates a great deal of trouble and sometimes involves loss. Therefore, the primary and the first object of the Bill is to prohibit in future creation of any rent-charges. I hope that that is a proposition which will commend itself to your Lordships without any elaboration.
The second problem is what to do with existing rentcharges. The whole of this subject was a matter of very deep inquiry by the Law Commission, and the Bill is based upon a Bill prepared by the Law Commission and on a very valuable report prepared and issued by them in August 1975. Here may I say, as one who had a relatively minor part to play in the establishment of the Law Commission, that I think we should recognise how indebted we are to the work of the Law Commission for dealing with a complicated technical subject of this kind and producing not only a Bill—which, I gather, has Government support, although it is not a Government Bill—but also an elaborate report justifying it.
As I was saying, the Law Commission, having recommended the prohibition of any future rentcharges, went on to consider what should be done about existing rent-charges, and they came to the conclusion that they should be abolished or extinguished. That was rather more controversial, but I hope it will not be controversial in this House. Obviously, to extinguish existing rentcharges could be tainted with expropriation unless safeguards are taken. Therefore, the solution provided is that rentcharges shall be extinguished after a period of 60 years.
The period of 60 years, about which there is no magic, is chosen for this reason. Most of these rentcharges are relatively small, perhaps £20 a year, sometimes more. It is felt that an obligation to pay or to receive £20 a year in 406 60 years' time, at the present rate of inflation, or indeed at any rate of inflation, will probably produce a position in which the amount involved is derisory. No one would like to hazard a guess what £20 a year will be worth in 60 years' time. It is felt, therefore, that no great hardship is being caused to the owners of rentcharge if, instead of having a rentcharge in perpetuity, it is limited to the next 60 years. So that is the secondary object of this Bill.
There are two other subsidiary but not unimportant objects of the Bill. As I have indicated, one of the great inconveniences of rentcharge is that it applies to the whole of the land on which it was originally created, although that land may have been divided and subdivided. Therefore, it has always been thought that anybody who is subject to a rentcharge but owns only a fraction of the land which is bound by the rentcharge should be able to apply to have his liability apportioned. Unfortunately, the procedure for apportionment under the existing law is complicated and not inexpensive. Therefore, this Bill contains provisions, which I need not elaborate, for simplifying the machinery under which anyone liable to a rentcharge may have it apportioned so that his liability in future is limited to the specific amount relative to the house or the amount of land he enjoys, part of what was a much larger area.
The second incidental object of the Bill is to simplify the provisions for redeeming a rentcharge. Those at the moment are not as simple as they might be. We have no experience as to how many people want to redeem rentcharges. It might be thought that there are not very many, because obviously it is no great temptation to exchange the liability of paying a small annual sum for that of paying a very much larger capital sum. However, there are those who want to redeem their rentcharges and under this measure the procedure for doing so is simplified.
I should like to draw your Lordships' attention to one other matter. As noble Lords will realise, an existing rentcharge—a perpetual rentcharge—can be redeemed under the existing law and its value can be ascertained by an appropriate actuarial calculation. Of course, the same is not 407 true in respect of a rentcharge which is not perpetual but which is extinguished after 60 years. Therefore, there must be some provision for calculating the appropriate sum to pay on redemption according to whether redemption takes place in one year, 10 years, 20 years or 50 years. That has been worked out. Noble Lords will find in Clause 10 an algebraic formula which will be more readily understood by those engaged in higher mathematics than by me and which I hope I shall not be asked to explain or justify. However, if I am pressed I shall do my best.
I need refer to only one other matter. Obviously some administrative arrangements will have to be made to give effect to the provisions in the Bill for simplifying the procedure for redemption and apportionment. It is very appropriate that it should have been left to the Secretary of State to make provision by Orders in Council for the machinery for dealing with that, rather than by attempting to include it in the Bill. As a result of those short few words I hope that your Lordships will find this Bill worthy of a Second Reading and one which removes an anomaly under the law which at the present time is the cause of a great deal of frustration, resentment and anger.
§ Moved, That the Bill be now read 2a.—(Lord Fletcher.)
§ 3.23 p.m.
§ Baroness ELLESMy Lords, the noble Lord, Lord Fletcher, has certainly led us through the intricacies of the Rentcharges Bill with some considerable skill. Indeed, we are grateful to him for doing so and for explaining the purposes of the Bill. The law of property has always been a rather closed area to most of us, even to students of the law, and here I take the opportunity to thank Professor Cheshire for his invaluable book which helped not only the majority of lawyers through their student days but certainly those who do not practise the law at all. As we know, the law of property is indeed a preserve which non-specialists, even lawyers, enter with great fear and trepidation. So it is with fear and trepidation that I speak today on this Bill. But our task has certainly been made much easier by the very clear explanation given by Report No. 68 of the Law Commission. It 408 has been an invaluable document in helping to explain the purposes up to now of rentcharges and the reasons why rentcharges should in future be abolished or extinguished.
However, I should like to put another side to the case which the Law Commission has advanced in its document, because the reason given in the document for abolishing a payment undertaken on the purchase of a freehold property, that a higher proportion of rent payers find perpetual rent charges "conceptually unattractive", I find singularly unattractive. I find those two words equally conceptually unattractive and I do not consider that that is sufficient basis for saying that rentcharges should be abolished. Perhaps it is fair to mention (and I do not think that this is emphasised in the report) that some very learned institutes—and I refer in particular to the institute which in common parlance has the name of the Institute of Conveyancers—submitted evidence in favour of retention of rent-charges as being a convenient way of paying for a transfer of title to land other than by raising mortgages. Indeed, it might even be quite beneficial in some cases where the capital value of a house might be reduced on the basis of paying a rentcharge in perpetuity. An appendix to the Institute's evidence by a solicitor of high repute and long-standing in the North West of England said that in all the 27 years of his practice he had only 10 cases which caused any difficulty at all in relation to rentcharges.
Therefore, it is not necessarily correct to state that conveyancing is made more complicated when there is a rentcharge to be considered. I believe that that is a fair statement to make in view of the very definite representations made in the Law Commission's report that there is very little evidence to show that they should be retained. I must confess, being of another part of the legal profession, that I was somewhat surprised to read in the speech of an honourable Member in another place that sometimes solicitors do not understand the system. That seems to be a very poor reason for abolishing something; it rather points to the fact that solicitors should be better trained before they enter the profession and serve the public.
Nevertheless, the criticism contained in paragraphs 29 and 30 explains the 409 difficulty of rent collecting by one plot owners to pay an overriding rentcharge. That seems to me to be a very much more realistic and practical reason for recommending abolition. It must make it extremely difficult—particularly with the mobility of the population and change of ownership—to get hold of present owners, and the usually very low sum to be collected is nowadays apparently, and it seems to me, completely out of proportion to the highly inflated costs which may be involved in its collection.
It was also made clear during the proceedings in another place, particularly by Members from the Manchester and Bristol areas, that a great deal of inconvenience, and indeed hardship, could be caused by the payment of such small sums, especially by the rent payer responsible for the overriding rentcharge. However, a rentcharge in perpetuity cleared several years ago is understandably of very little relevance to a new house purchaser today, as he probably paid a full price for his title and the amount of the rentcharge was probably not taken into account when the capital sum was paid over. However, regrettably, it seems to be some indictment on the legal profession—and I say that only in accordance with the evidence given in another place and not with any evidence that I have—that very often a purchaser is not even aware of having to pay a rentcharge and is taken by surprise when lie is asked for it. This, I believe, is something which has been carried on which is detrimental to the citizen.
To be fair, rentcharges are not quite so unacceptable either to the owner who receives the rentcharge or to some institutions. It was said in another place that builders in different parts of the country were beginning to introduce a system of rentcharges when selling off developed plots and, therefore, rentcharges should be abolished before new ones were created; and that to be done quickly. That may be convenient for conveyancers and for the registration of property, but it is not clear to me if a system is convenient, proving to be successful and is used by builders as a means of raising funds—after all, it presumably stops people from having to take out mortgages—that it is necessarily a reason to abolish rentcharges. Also, I am not convinced that charities—particularly long-estab- 410 lished charities, some of which I understand rely on rentcharges for their sources of income—will not suffer from the abolition of rentcharges.
I am not an expert on charges, and I do not pretend to be, and regrettably I have not had time to consult the Charity Commissioners or other charitable bodies, but I got the impression from the debate in another place that not sufficient care and attention was paid to this particular aspect because, as we know, rentcharges in the hands of a charity are able to be used for tax reclaim to that amount, thereby increasing the income of the charity. I do not know whether, on the abolition of rentcharges, a charity would be able to invest its income in the same way and get that rebate on tax. I very much doubt it. I think the abolition of rentcharges may have a deleterious effect on the net income of a charity, but perhaps somebody in your Lordships' House might be prepared to comment on that, if not now then at a later stage in the Bill. If, however, we are to accept the recommendation of the Law Commission, subject to one or two amendments, I support that if you are going to have abolition of rentcharges on the principle as accepted, it is quite right that the Government have removed from one of the exceptions paragraph 8 of Schedule 1 of the Leaseholders Act. I think that is a sensible step.
There are still one or two aspects of the Bill which could possibly be improved and in fact the noble Lord, Lord Fletcher, touched on those particular aspects. If the rentcharge is so unattractive and there are social difficulties—and I accept that there must be social difficulties in the areas where rentcharges are relevant, and it was manifestly explained in another place—then why is the period going to be 60 years and not a shorter time?—because the people who are suffering from it now quite clearly will never benefit from the effects of this Bill. Could not some more satisfactory way be found of terminating these rentcharges, especially for those who we are told suffer considerable difficulties in collecting equitably apportioned overriding rentcharges? It seems to me that this might be a procedural matter rather than one to be contained in the Bill, but obviously the department will have to think of some effective way of dealing with this particular inconvenience.
411 I think the Bill does not deal adequately with this particular aspect, nor as to the method by which a rentcharge can be redeemed. Surely, if it is a social and physical difficulty for one or other individual, the answer is that the matter should be dealt with locally. However much publicity or information there is to an individual, the very idea of writing to a Government Department must have a restrictive and frustrating effect on that individual. Certainly I believe that Members on this side of the House who have to give their minds to this particular problem would very much rather see either a local authority dealing with the request, or possibly it being dealt with through the Post Office. I know there are questions of public expenditure, but it seems to me that there might be some more satisfactory way of getting round this particular problem.
Finally, if this Bill is to be passed and to get on to the Statute Book—and I think the overriding conclusion is that it must get on to the Statute Book and ultimately rentcharges must be abolished—the sooner it is done the better. And for those solicitors who do not understand the system and for those solicitors who do understand it, I should have thought it would be very much more convenient if a fixed date could be announced early in the stages of the Bill through your Lordships' House so that they know that the abolition of rentcharges—covering 60 years—will start from 1st September or from the 1st October, whatever it might be, regardless of whichever Party will be in Government.