§ 3.43 p.m.
§ Second Reading debate resumed.
The LORD CHANCELLOR (Lord Elwyn-ones)
My Lords, may I now move to a domain a little more technical. While its origins do not go hack to Roman law they certainly go back a long time. I should like first of all to pay a number of compliments in relation to the Rentcharges Bill, first, to the Law Commission itself. Indeed, it has been fitting that my noble friend Lord Fletcher, who was in some ways the midwife of the Law Commission, certainly in another place, should be introducing into this House one of its measures of law reform. It has produced an excellent solution to the problems created by the rentcharge system.
Secondly, I should like to thank the honourable Member in another place, my old friend Mr. Fred Evans, who so gallantly undertook the piloting of this difficult Bill through another place. Thirdly, I should like to thank my noble friend Lord Fletcher himself for the clarity with which he has expounded the practice and machinery of rentcharges. On the whole, in another place the Bill received general approval from all sides of that House. While the noble Baroness, Lady Elles, has properly pointed out 416 some matters which do not give her full satisfaction, the effect of her speech has also been broadly to support the Bill.
I think it is now generally accepted that the rentcharges system is outmoded, socially burdensome, and a legal anachronism. There are at least four objections which I think can be levelled at the system. I do not think they are merely conceptual; I think they are very real. Indeed, the noble Baroness herself identified some of the real objections. First, I think it serves no useful purpose now. As a method of financing the purchase of land, it has been overtaken by the mortgage system, and is of course subject to the impact of inflation. The curious thing is that it is prevalent only in the areas of Greater Manchester and Bristol. I understand that in Bristol it is called the "Bristol twist", which is no doubt typical of the open-mindedness of the occupants of that great city.
Next, the system militates against the concept of freehold ownership. The owner of the rent is not a landlord, with some stake in the land and some obligations to the tenant. The vast majority of rent-charges are perpetual, and one can reasonably ask, "How can I be the outright owner of my house when I have to pay a perpetual rent to someone else?". I have had a number of letters from people who are utterly bewildered by having to pay a rent exacted by someone who is not a landlord, and indeed to have to pay it for ever. The purchasers of land loaded and burdened with rentcharges are, more often than not, taking on a burden negotiated in the 19th century, and they are lumbered with them and it is not surprising that they are unpopular.
Thirdly, when land subject to a rentcharge is sub-divided, as my noble friend pointed out, the rentcharge remains attached to the land and the rent owner can collect the whole of the rent from anyone he chooses. The person he does choose has then the embarrassing and sometimes impossible task of reimbursing himself from the other affected householders one by one. Of all the defects in the system this is perhaps the worst, and I have had correspondence from elderly and infirm householders who have suffered great hardship when they have found themselves having to become rent collectors. Fourthly, rentcharges compli- 417 cate conveyancing and increase its cost. I think the explanation of why that should be so in paragraph 25 of the Law Commission's Report is convincing, although I understand from the noble Baroness that some concerned have not found it so.
Those are the main defects of the system. Of course the existing law provides some relief, for there are provisions in the Law of Property Act 1925 and the Landlord and Tenant Act 1927—and I am bound to say that I share the trepidation of the noble Baroness in exposition of any matters connected with the law of property—which enable rent payers to have their liability to the rent owner quantified by means of apportionment, and to get rid of the rent altogether by means of redemption. The machinery of apportionment and redemption is administered by the Department of the Environment, and in Wales by the Welsh Office. I think it is well administered. But applications for apportionment and redemption are now comparatively rare in relation to the total number of rentcharges, and the reason for this is that the machinery itself is very cumbersome and the expense of making an application is heavy.
I now turn briefly to the provisions of the Bill itself. Its pattern is simple and it can be explained, as indeed it has been already, under four headings: prohibition; extinguishment; apportionment; and redemption. By prohibition I mean the provision in Clause 2 which prevents the creation of new rentcharges in the future. I do not think that there will be any serious dispute about the need for that, bearing in mind the defects of the system that I have mentioned. I should, however, mention that there are many types of rentcharge which fall outside the mischief at which the Bill is directed. The right to create these special kinds of rentcharge is preserved in Clause 2(3). I think it is fair to say that, but for the need to be precise, these rentcharges would never have been included in the Bill at all. All of them serve a useful purpose and none of them is open to the objections which I have mentioned.
Secondly, extinguishment. It is, I believe, unthinkable that existing rentcharges should go on for ever. But the Government take the view that it is also unacceptable that they should be abolished at a stroke, to mention an old expression. 418 Rentcharges are a form of property and are not simply to be confiscated without compensation. The Law Commission examined this problem in detail and their solution is given effect to in Clause 3 which provides, broadly speaking, that all existing rentcharges are to come to an end after 60 years unless they have an earlier termination date.
The Law Commission worked out how much, given a certain rate of interest, would have to be set aside every year out of £1 in order to produce an income of £1 at the end of a given period; their calculations are set out in paragraph 58. They show that if the period taken is 60 years and the rate of interest is 10 per cent., the total amount needed to be set aside of £1 each year to produce an income of £1 is 0.33p. That, I admit, involves a technical loss to the rent owner, but it comes into the category of de minimis. I do not think charities are likely to suffer in any substantial degree from what is proposed. Charities are in no different position essentially from other trustees, and it may well be that they should sell their rentcharges as a wasting asset or avail themselves of their right to compel redemption, which is a privilege owned only by charities; but no doubt we can return to this subject if any matters arise in regard to it.
I accept what the noble Baroness, Lady Elles, said, that a slightly larger sacrifice could be made and a slightly shorter period introduced, or a smaller sacrifice and a longer period; but on balance I believe that the Law Commission's conclusion is correct and I take comfort from the fact that this was the view in another place. It is, I am afraid, inevitable that some existing rentcharges may continue for some time, but I hope that the provisions of the Bill, to which I will refer briefly, will result in the disappearance of a substantial proportion of rentcharges long before the 60-year period has expired.
§ Baroness ELLES
My Lords, perhaps the noble and learned Lord will permit me to interrupt on this point, which was one I raised about the income tax position of charities. As I understand it at the moment, the rent that is received by a charity in the form of a rentcharge can be used to reclaim tax from the Inland Revenue on that sum, whereas presumably, 419 if they were to set up a sinking fund under the present scheme, they would lose that benefit. Is that a correct interpretation of the present position?
§ The LORD CHANCELLOR
I should like notice of that question before answering it, my Lords, and I will, with permission, refer to it at a later stage. I cannot with confidence give the noble Baroness an immediate answer, but I will certainly have it looked into.
I was about to turn to the question of apportionment, which is dealt with in Clauses 4 to 7. In substance those clauses do not differ greatly from the existing machinery for apportionment. There are, however, two matters to which I would draw the attention of the House. First, the procedure will be very much simpler for the applicant, who will not, as at present, need to bring in the other rent payers. It is also proposed that new regulations, to be made under Clause 5, will provide simple application forms and virtually eliminate the need for legal advice. I hope that, as a result, the applicant's costs will be very low indeed. Moreover, he will not, as at present, be liable for any costs which the rent owner may incur in supplying information about his title, and that is dealt with in Clause 15 (2).
Then the question of redemption. The right to redeem a rentcharge, the procedure for redemption and the price of redemption are dealt with in Clauses 8 to 10. Here again, as in the case of apportionment, the procedure is considerably simplified and I hope that this will encourage rent payers to rid themselves of their burdens. My noble friend referred briefly to Clause 10, which sets out the alarming formula for redemption, but I hope your Lordships will not be unduly alarmed; one does not like algebra in a Bill, but it is perhaps better that it should appear there and be faced rather than be in regulations. However, it is a tried formula. It is not an original invention for the purposes of this Bill; it appears in the Land Tenure Reform (Scotland) Act 1974, dealing with feu duties, which I understand are somewhat similar to rentcharges, and I understand that the algebraic formula has not presented any particular problems there. It is also comforting to know that its operation will be a matter for the Department of the Environment and the Welsh 420 Office, and will therefore not impose on applicants the burden of working out their liability.
The Law Commission recommended that the administration of the machinery for apportionment and redemption should be undertaken by district councils, and I gather that the noble Baroness is inclined to take that view also. I think there is a good deal of merit in it, but as it would involve extra public expenditure and added manpower, and as there is in existence, within the Departments, the present machinery and administration, to which I referred, I do not think we should embark on that additional burden at this stage, but we will see how the matter works out.
On the question of commencement, the position is that for some of the clauses to which I have referred regulations will have to be drafted, and that will be done as soon as possible. However, I am afraid I cannot today give a firm date for commencement. Some of the Bill's provisions, for example Clause 2, come into force one month from Royal Assent, and I think that applies to one other clause as well. That is all I think I need say about the Bill, which I commend to the House as a valuable measure of social and law reform.
§ 3.58 p.m.
§ Lord FLETCHER
My Lords, I am grateful for the warm welcome which the Bill has received and for the comments made by my noble and learned friend the Lord Chancellor, and the noble Baroness, Lady Elles, was kind enough to give general approval to the Bill. I am also glad to note that the noble Baroness made a number of detailed points which she thought required further examination; I will deal with some of them and, on others which I am not able to deal with now, I will, having made a note of them, contact her if I am able to obtain further information.
At one stage I thought the noble Baroness was making some unnecessarily critical remarks about members of the legal profession in Manchester and elsewhere and was doubting whether they were sufficiently well-educated to be able to deal with some of the complicated problems that arise as a result of existing rentcharges. I do not think that is true. In my view a number of solicitors practising there are so well-educated and are 421 well able to deal with these problems but find considerable difficulty in explaining the present complicated legal position to their clients; and often, when they do, their clients, generally purchasers of houses, become much more irritated at the existing legal procedure. That is one reason why I hope we shall be able to remove that grievance by passing the Bill into effect.
The noble Baroness also expressed doubt as to whether the figure of 60 years was the most appropriate and pointed out that, in many cases, it would not affect the payers of rentcharges who are now alive. I have great sympathy with that view. Had the matter been left to me, I should have preferred the terminal date to be 30 rather than 60 years. However, this is a minor point; the Bill passed in another place with a figure of 60 years and, although I should prefer 30 years, I do not think it worth while amending the Bill in that particular, though I have sympathy with what the noble Baroness has said.
The noble Baroness also made what I thought were some very pertinent observations about the phrase in the Law Commission's report which said that these rentcharges were "conceptually unacceptable". I believe that my noble and learned friend endorsed that comment. When I read the report of the Law Commission, I was a little puzzled by this phrase. What I believe it means is that a member of the public, if he owns a house which is freehold—if it is leasehold, the question does not arise—expects to pay rates on it and to pay mortgage interest if, as in the majority of cases, he has had to raise a mortgage. However, he finds it very difficult to understand under what system of jurisprudence he or his successors can be expected to pay in perpetuity a sum of money to somebody who has no interest whatsoever in the land. I myself find that not only conceptually unacceptable but also philosophically and legally unacceptable.
As the noble Baroness and my noble and learned friend upon the Woolsack will know, this was something that this House attempted to correct in 1290 with a Statute passed in the reign of Edward I and designed to stop what was then called 422 "subinfeudination" and to lay down the maxim that, although one could assign a fee simple, one could not create a fee simple. It was due to the ingenuity of certain mediaeval lawyers that they were able to circumvent the intention of the legislature of the time by creating these perpetual rentcharges. I feel that this is another sound reason why, at this belated stage, we should try to remove what was thought conceptually unacceptable as long ago as 1290.
The noble Baroness raised another question to which I attach great importance and to which my noble and learned friend upon the Woolsack has referred. That is the effect of the Bill upon charities. In this House, we have on a number of occasions, as my noble friend the right reverend Prelate will know, expressed a great deal of sympathy with charities. I, like the noble Baroness, should feel disturbed if I thought that the provisions of this measure would have a serious adverse effect on charities. It is perfectly true that some charities have found it convenient to invest their funds in the purchase of rentcharges and that they have enjoyed certain tax benefits by virtue of doing so because, as I understand it, the person who pays a rentcharge is entitled to deduct tax. He is then enabled to pass on that tax payment if the beneficiary is a charity to the charity, in which case the charity can obtain some additional benefit. I am not sure whether that particular benefit to charities is confined to payments that they receive by way of rentcharges, but I hope that the charities will be able to find some equally convenient method of investing their funds so as to enable them to get commensurate advantage. As my noble and learned friend upon the Woolsack has said that he will investigate the matter, I feel that it would be better not to pursue it further at this stage.
Finally, questions have been raised about the administration of this Bill. Technically, as I understand it, that does not arise under the Bill itself because the administration, whether it is through district councils, local authorities, the Post Office or the Department of the Environment, is a matter which is left to orders to he made by the Secretary of State. Having said that, can I endorse 423 what the noble Baroness has said by saying that I hope that whatever administrative machinery is introduced, everything possible will be done to simplify that machinery, so as to enable those people who now have to suffer by paying rentcharges to get them apportioned and redeemed in the simplest possible way without any unnecessary bureaucratic red tape, if I may say that without sounding offensive. With those words, I hope that we can pass the Bill. If there should be any other questions they can no doubt be dealt with at the Committee stage.
§ On Question, Bill read 2pap, and committed to a Committee of the Whole House.