LEASEHOLD REFORM BILL (Hansard, 4 April 1979)

§ The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Baroness Stedman)

My Lords, I beg to move that this Bill be now read a second time. I must first explain to your Lordships that the notes on clauses of the Bill which were deposited in the Printed Paper Office for the convenience of noble Lords, and the Explanatory Memorandum to the Bill as it was introduced in another place, do not accord with the Bill which we now have before us. I apologise for the discrepancy, but last night the Bill was amended in many ways, which I shall explain, and I regret that there was no time to prepare fresh papers.

The need for the Bill arises from a judicial decision of this House in December in the case of Jones v Wentworth Securities Ltd. This showed the existence of a major loophole in the Leasehold Reform 1940 Act 1967. The aim of the Bill is to close that loophole and ensure that leaseholders will not be effectively deprived of the rights which Parliament saw fit to give them. It is a short Bill, and I will try not to take up too much of the House's time at this late stage, but we are dealing with a technical subject and I think I should explain the essential points. Because of the circumstances in which we now find ourselves, our consideration of this measure must perforce be telescoped if it is to receive Royal Assent before Parliament is dissolved, but I am keen that noble Lords should understand why we consider the Bill to be important and why we wish it to be enacted quickly.

First, I shall provide a little background. The Leasehold Reform Act 1967 gives a long leaseholder of a house the right, provided that certain conditions are satisfied, to buy the freehold of his house compulsorily. The terms setting out the compensation payable are favourable to the leaseholder, but they aim to compensate the landlord for the value of the land. The principle underlying the Act is that the building belongs to the occupying leaseholder and the land belongs to the landowner. This principle has now become widely accepted, although it has been necessary in both 1969 and 1974 to amend the original Act. At the same time landlords, not unnaturally, have sought to increase the price payable for freeholds.

In one case, Jones v Wentworth Securities Ltd., the landlords were held by this House, in its judicial capacity, to have created a device which was highly successful in increasing the price to be paid for the freehold. Indeed, it is no exaggeration to say that the central purpose of the Leasehold Reform Act—that a leaseholder should be able to acquire his freehold at a reasonable price—was successfully evaded. The transaction concerned was cearly devised in order to prevent the law from operating as Parliament had intended. It involved the granting of an intermediate interest, on disadvantageous terms, to a newly formed company connected with the freeholder. This resulted, by a series of steps which I will not detail, in the price payable being not £300, but £4,000. The device was upheld by the Lands Tribunal. That decision was reversed in the Court of Appeal, and then reversed again in this House.

1941 I will not trouble your Lordships by going over the detailed arguments underlying the decision, but I should like to quote sonic of the comments which the noble and learned Lords made when giving judgment in this case. The noble and learned Lord, Lord Diplock, said: It would seem most unlikely that either the draftsman of the Leasehold Reform Act 1967, or those Members of either House of Parliament by whose votes it was passed, had envisaged the possibility that any ground landlord would enter into an intermediate lease in the precise terms adopted by Wentworth and Wrotham, or in any other terms which would have the same economic consequences as between ground landlord and intermediate tenant. If it had been envisaged, it seems likely that the draftsman would have done something about it to prevent its having the effect of enhancing the price payable by the resident tenant for the freehold". The noble and learned Lord, Lord Salmon, said: This somewhat odd, possibly unique, and certainly ingenious transaction was not a sham: it was a reality. It was, however, admittedly, a device to discourage tenants from acquiring the freehold of their homes by exercising their rights under the Leasehold Reform Act 1967". He continued: I have no doubt that if it had ever occurred to the Legislature that a transaction such as the present might have been devised and put into operation, clear words would have been introduced into the Act, which would preclude such a transaction from affecting the market price which the tenant would have to pay for the freehold of his home. As it is, no such words appear in the Act; and accordingly it contains a gap". The aim of the Bill now before the House is to close that gap and to ensure that the price payable under the Leasehold Reform Act 1967 by a tenant claiming the freehold cannot be artificially increased by transactions involving the creation, transfer, or alteration in the terms of the lease, which take place, or have taken place, after 15th February 1979, the date on which the Bill was introduced.

I should like your Lordships to know that it was the Government's intention that the Bill should not only protect leaseholders from future arrangements of this kind, but should also restore to Mrs. Jones and her neighbours the benefits of the 1967 Act of which they have been deprived, thanks to the ingenuity of their landlords. The Bill as published would have achieved that. It was as a result of the case which Mrs. Jones fought through the courts that we introduced the Bill to close the loophole, and in the Government's view, it would have been 1942 wrong to have allowed the arrangements entered into by Wentworth Securities to continue to deprive the residents on that estate of the rights that Parliament clearly intended them to have. However, this was considered objectionable in another place on the grounds that it was too retrospective, and it was made clear that the only Bill which it would be possible to get through Parliament at this stage was one which would not affect any arrangements made before 15th February 1979; and consequently the Bill now before us will not benefit Mrs. Jones and her neighbours. This is a situation that we shall seek to remedy by legislation when we have been returned to office.

We do not accept the arguments as to retrospectiveness which have been advanced, and there are precedents for the Bill as published, in the way in which it would have affected existing arrangements, in the Leasehold Reform Act itself, in the Amendments to it made in the Housing Act 1969, and in the Amendments introduced by the Opposition in the Housing Act 1974. Furthermore, we consider it wrong, both in this case and as a matter of principle, that the victims of anyone who is ingenious enough to evade the operation of the law should be forever deprived of the further protection which amending legislation can offer to everyone else, and that the creator of such devices should be able forever to retain the considerable financial advantages of doing so.

Nevertheless, the Bill, even in its present emasculated form, will for the future close the serious loophole which has appeared in the Leasehold Reform Act, and to which our attention was drawn by the Law Lords. Without it there would be continued scope for landlords to defeat the intention of that Act, and with some reluctance we have brought the Bill before your Lordships in its present form. My Lords, I beg to move.