§ 8.30 p.m.
§ Lord Coleraine
My Lords, I beg to move that this Bill he now read a second time.
This Bill is that appended to Law Commission Report No. 161, Leasehold Conveyancing, laid before Parliament in the spring of this year under the Law Commission Act. It is the Bill as printed but with the correction of two small printing errors. The Bill is intended to ease and improve the conveyancing of leasehold properties. It applies to all commercial and residential leases containing what is generally referred to as a,fully qualified covenant against assignment",That is, a covenant,not to assign without the landlord's consent",such covenants being subject to the stipulation that the landlord's consent shall not unreasonably be withheld.
The Bill imposes on landlords the statutory duty to give consent to assign where it would be unreasonable to withhold consent. I should explain at once that where I refer to "assignment" the Law Commission Report and the Bill refer not only to "assignment" but to both sub-lettings and charges on leases as well as to partings with possession of land included in leases. The Bill does not apply to all leases. Some leases, including some leases of flats originally let on long leases on consideration of a premium, contain no covenant against assignment. Such leases are not touched by the conveyancing problem that this Bill deals with, and the Bill does not apply to them. A few other leases contain an absolute covenant against assignment and this Bill does not apply to leases which contain absolute covenants against assignment.
As I said, the provisions of this Bill apply to the many leases which contain fully qualified covenants against assignment. Such covenants generally start with the words of absolute prohibition:The tenant shall not assign the benefit of his lease".806 They continue with words of qualification:without the landlord's consent".To bring such a qualified covenant within the scope of the Bill it must be fully qualified by a stipulation in such words as,but such consent is not to he unreasonably withheld".Such a stipulation is deemed, except in the case of agricultural tenancies, to be included in covenants not to assign without the landlord's consent by Section 19 of the Landlord and Tenant Act 1927. I should add that the 1927 Act applies to leases of land belonging to the Crown, the Duchy of Cornwall and to government departments—a point to which I shall need to return later. Thus, the position is that, with the exception of those agricultural tenancies where there is no stipulation as to the unreasonable withholding of consent set out in the agreement, a qualified covenant not to assign without consent is in all cases subject to the stipulation that consent may not unreasonably be withheld.
Nevertheless, a landlord under a lease where the covenant against assignment is fully qualified incurs no liability to his tenant if he fails either to give or to refuse consent within a reasonable time; if he unreasonably withholds consent; or, which amounts to the same thing, if he gives consent subject to unreasonable conditions. As the law stands at present a tenant faced with an apparent wrongful refusal on the part of his landlord, or with inaction, has two courses of action open to him neither of which is entirely satisfactory.
First, he may assign without consent. That course of action is hazardous because neither the tenant nor the proposed assignee can be certain that the landlord is being unreasonable. In the normal course of events neither will be fully apprised of the landlord's reasons. To assume the landlord's unreasonableness and to assign without consent runs the risk of forfeiture of the lease. There is a way round this risk. It is to take the other course of action and apply to the appropriate court for a declaration that the landlord is unreasonably withholding consent. In practice, the delay which such an application would involve rules it out as a practical or convenient remedy in the real world of buying and selling property.
I am glad to say that usually no serious problems arise. References are submitted to landlords' agents and consents to proposed assignments are given as a matter of routine. Exceptionally, but unfortunately not uncommonly, things go badly wrong and the whole conveyancing process fails. To illustrate what can go wrong I can do no better than quote the extract from a 1986 judgment of Lord Justice Dillon, set out in the footnote to paragraph 1.3 of the Law Commission report:One of the difficulties that arose in this case and arise in many cases where there is a sale of leaseholds subject to landlords' consent to assign is that neither the vendor nor the purchaser has any real leverage on the landlords to give their consent or even to act speedily in going through any necessary formalities. What so often happens is that landlords take a very long time before giving their minds to the matter. Surveyors or managing agents have other things to do and are in no hurry. Ultimately the matter is passed to the landlords' solicitors to prepare a formal deed of licence or consent, and rather a large meal is made of it over a considerable period of time at the expense ultimately of the vendor or purchaser of the leasehold interest.807 There is a legal maxim that where there is a right there is a remedy whereby it may be enforced. No wrong should be without a remedy. Unfortunately, in the case of these fully qualified covenants to assign the courts, while recognising the wrong, have failed to find an effective remedy. The Law Commission, with the strong support of the Law Society, whose concern dates back over many years, has now recommended that Parliament intervene to put matters right. This Bill is intended to provide something to concentrate the minds of landlords and their agents on what should be the matter in hand.
It would become a statutory duty of landlords, under which a landlord would have within a reasonable time to give notice of his consent or of his reasons for refusing consent. Breach of such a statutory duty would be a tort and would render the landlord liable to compensate the tenant for such damage as the tenant might have sustained as a result of the wrongful refusal.
Clause 1 sets out the statutory duty and the circumstances in which it arises. The duty extends to oblige a landlord to give the reasons why he has refused consent. The clause also imposes on the landlord the burden of proof to show that he has acted reasonably. Clause 2 deals with the case where the lease in question is an underlease and the consent of a superior landlord may also be required. Landlords are put under a statutory duty to pass on tenants' applications to superior landlords whose consents are required.
Clause 3 provides for those leases where a tenant is covenanted not to consent to an assignment by a subtenant without his landlord's consent, and the lease includes the stipulation.such consent is not to be unreasonably withheld.In that case the statutory duty not unreasonably to withhold consent is imposed on the landlord. It is Clause 4 that provides that breach of the statutory duty shall be actionable by the tenant as a tort.
Clause 5(4) provides that the Bill is to apply only to applications for consent served after the coming into force of the Act, which, under Clause 7, will be two months after the Bill has received Royal Assent.
I come now to Clause 6—the Crown application clause—which I should discuss at slightly greater length. The effect of the clause is that the Bill will bind the Crown in its public capacity but will not bind the Crown in its private capacity. It seemed to me, for the convenience of the House, that I should introduce the Bill in the form in which it was appended to the Law Commission's report. Nevertheless, the inclusion of this clause would necessitate lengthy consultations within government and additionally the consent of Her Majesty. I concluded that it was not altogether appropriate for this clause to be included in a Bill introduced by a Private Member. Therefore, I propose in Committee to table an amendment to omit the clause.
The Law Commission, as they write in paragraph 2.9 of their report, did not consider whether the provisions of the Bill should bind the Crown; they 808 merely saw no reason, in principle, why the Crown should not be bound. They concluded in their report:We have therefore had drafted a clause which would make the Act bind the Crown in its public capacity. The clause can be deleted if it is not agreed, at a later stage".I would only add that this is a conveyancing Bill designed to simplify conveyancing. The report was submitted by the Law Commission in the context of their programme for the codification of the law of landlord and tenant. It is not suggested that government departments and other agents of the Crown commit the mischiefs which this Bill is designed to correct.
I agree with the Law Commission that there is no reason in principle why the Crown application clause should not be in the Bill. They point out that the Landlord and Tenant Act 1927 applies to the Crown. Nevertheless, for the reasons which I have already outlined, I shall be asking for it to be deleted in the hope that, with your Lordships' approval, this may enable the Bill to pass speedily to another place for consideration there.
I should like to add that before coming to this House today I took informal soundings of the Law Commission and I understand that it would be in agreement with my decision, for the reasons which I have already given your Lordships. The Law Society is also of the opinion that the Crown application clause, in the context that this is a conveyancing Bill, is not a significant part of the whole and would therefore agree that the Bill went forward without it.
It only remains for me to point out that this Bill, as regards landlords' duties, imposes no more obligation on landlords for the giving of consent—or the refusing of consent—than under the law as it exists at the moment. It is a modest Bill and I would commend it to your Lordships. I beg to move.
§ Moved, That the Bill be now read a second time.—(Lord Coleraine.)
§ 8.42 p.m.
§ Lord Meston
My Lords, this brief and clear Bill deserves a welcome. It attempts to deal with the mischief of the landlord who delays either through dilatoriness or for tactical reasons. If a tenant keeps his side of the bargain by asking for consent in the proper way, it ought to be incumbent upon the landlord to give his answer within a reasonable time.
Of course landlords are entitled to take some time to investigate the financial status of the proposed assignee or sub-tenant and to consider the various ramifications of what is proposed. However, the fact is that some landlords— and often, but not always, they are corporate or trustee landlords—take too long. The result of this is that the tenant loses the deal when the proposed assignee or sub-tenant will not wait because he finds other premises or decides that he does not like the look of' such a dilatory landlord. Third parties will also suffer in some cases because a whole chain of transactions can be lost.
As the law is at present the tenant who does not lose the prospective assignee or sub-tenant but is not prepared to wait any longer for the landlord to make up his mind has a very difficult choice of either going to the court for a declaration, which means more 809 delay and more expense, or going ahead with the transaction thereby risking an action by the landlord, which again just means more expense.
This Bill seems to alter the common law position in that it places the onus on the landlord to justify his reasons. But again I suggest that that is right because, as I understand it, it is consistent with the reforms introduced by the Housing Act 1980. However, I hope that it will also be clear that a landlord who initially gives inadequate reasons for refusing his consent can, as the law is at present, give better reasons at a later date, if only at the court hearing, provided they are genuine.
Various means have been suggested for dealing with the problem of delayed decisions which were discussed in 18 very closely reasoned pages in the Law Commission's report on codification of the law of landlord and tenant in 1985. It is gratifying to see that this Bill is the preferred solution of the Law Commission.
There is, however, one practical problem which it seems to me is not addressed by the Bill. Often the tenant who wants to assign will want to assign to someone who proposes to change the user of the premises. A landlord is in this position. He is obliged, if not unreasonably, to withhold his consent to an assignment or sub-letting but he is not obliged under the present law to be reasonable about consenting to a change of user; in that respect he can be arbitrary and unreasonable. He can thereby frustrate what would otherwise be a perfectly reasonable transaction from the point of view of all concerned.
That leads one to think that it would perhaps have been preferable to have this Bill as part of the wider reforms proposed by the Law Commission's codification report 1985. However, one understands that that is not to be. But to that extent this Bill introduces a piecemeal reform and does not seem thereby to prejudice future legislation which might come before Parliament, one hopes sooner rather than later. To that extent the Bill is a very useful step along the way.
§ 8.46 p.m.
§ Lord Silkin of Dulwich
My Lords, I have long been of the view that a tenant who wishes to dispose, in one way or another, of his interest is at a disadvantage which cannot be justified, even when the lease creates the form of protection by prohibiting unreasonable refusal to consent to the disposition. If the tenant, having applied for consent and not received it, boldly goes ahead to carry out the disposition, he is at risk of forfeiture, as is the person to whom he disposes. His alternative to seek a declaration is expensive, productive of delay and risky. The burden of proof of unreasonableness is on the tenant. As the noble Lord, Lord Meston, has pointed out. Reasonableness is viewed through the eye of the landlord. The landlord is not obliged to give reasons in reply to the tenant's application for consent or even, I think, to reply at all.
Faced with those difficulties, and an obdurate landlord, the tenant is not unlikely to agree to some financial way out of his difficulties, whether or not 810 that be lawful—that is to say, if that is within his means—or otherwise it may he necessary to surrender his interest. That places too heavy a weight upon him and gives too great a means of pressure to the landlord.
This Bill is intended to go some way towards redressing the balance. The Law Commission, from whom the concept originated, originally intended to wait until a much broader reform of conveyancing law was effected, of which this would form part. I think on the whole, despite what the noble Lord, Lord Meston, said, that the Law Commission was right to yield to strong pressure from various quarters to give priority to this area, although I appreciate it may create certain difficulties. It, and the noble Lord, are therefore to be thanked for taking up this burden.
Achieving the object of the Bill has plainly not been without controversy. There seems to me to be four main questions which give rise to difficulty. First, will the Bill's solution be sidestepped by the use of absolute convenants? The Law Commission hopes that that will not be so on the ground that it would not be generally acceptable to tenants. I wonder whether that is perhaps not understating the normal difference in bargaining power between the landlord and the tenant. It goes on to say that if it is wrong in that supposition, it would be an additional reason for implementing the remainder of its main report. That report recommends that absolute disposition covenants should take effect as fully qualified covenants. That is an entirely sensible idea. I wonder whether there is any reason that the Bill should not so provide.
The second problem is that the Law Commission considered the best way to enforce the Bill's objective. In particular, it considered whether the penalty for unreasonable refusal or failure to consent should be deemed a grant of consent as the Law Society strongly advocated. The Law Commission rejected the idea of a deemed consent with obvious regret. It had no doubt that would have real advantages if it could be framed satisfactorily. The Law Commission rejected the idea because it thought that the objections, taken as a whole, ruled it out although none of those objections alone did.
The arguments are persuasive, but I am not sure whether they are, as the Law Commission suggested, conclusive. The benefits seem to be so great that the idea should not be rejected unless the objections are unchallengeable. The alternative of a claim for damages is not a satisfactory remedy. I hope that we shall hear the views of the noble and learned Lord the Lord Chancellor on that important issue.
The third problem, although perhaps not of the same weight of principle, is that the Law Commission rejects the idea that application for consent should be made on a prescribed form. There are advantages in the greater simplicity which would be achieved by the use of prescribed forms. The Law Commission takes the more cautious line of advising against that suggestion. That is virtually driving the tenant to the lawyer to draft his letter of application for him. I should be happier if the Bill at least enabled the Lord Chancellor to prescribe forms so giving further scope 811 for consideration as to whether they should be brought into operation.
The noble and learned Lord the Lord Chancellor indicated in relation to his Bill yesterday that he has no ideological opposition to the use of enabling powers so as to move by degrees. This is an opportunity to use them which could not be justifiably attacked.
The fourth problem is the one to which the noble Lord, Lord Coleraine, referred—the applicability to the Crown. I am bound to say that I hope that in due course the Crown will form part of the Bill in the manner which is broadly contained in the present draft. There are problems, although so much time has elapsed that one might have hoped that they would have now been resolved. No doubt that matter will be considered at a later stage.
I again thank the noble Lord for bringing the Bill before the House. It will be a most valuable piece of legislation especially for tenants.
§ 8.55 p.m.
§ The Lord Chancellor
My Lords, I too should like to congratulate my noble friend Lord Coleraine on his initiative in bringing the Bill before the House and on the clarity and eloquence with which he presented it to your Lordships. I also wish to express my gratitude to the Law Commission for producing the valuable report upon which the Bill is based. The consideration which has gone into the formulation of the Bill is typical of the thoroughness with which the Law Commission addresses its task, and I therefore feel that the solution which it has proposed is probably wise in the circumstances.
I have no doubt that my noble friend will consider whether the Bill should be amended to take account of at least some of the matters which the noble and learned Lord, Lord Silkin of Dulwich, raised. I confirm that whatever else may be true of me, I am consistent in being willing to consider delegated legislation as a way forward in this case.
The point I wish to take up in a little more detail is that of applicability to the Crown. The Law Commission report states:The Report did not consider the question of whether these provisions should bind the Crown. We recognised that further consultation would be necessary if the Crown is to be hound. As a matter of normal and convenient practice, this consultation is best undertaken by your Department".That was addressed to my predecessor as Lord Chancellor to whom the report was delivered.
The problem I face is that those consultations are not complete. It is likely that the consultation process will not be completed for some little time. All land-holding government departments require to consider that point and they obviously have other things to do apart from considering it. The priority may not be as high as that required if the Bill is to be urgently considered.
There is another aspect to the matter. As I said, consultation is required to determine whether a clause binding the Crown in its public capacity should be put in or remain in the Bill. The consultation that the land-holding departments of the Crown would require to carry out in relation to 812 the many types of property and lettings that exist throughout the civil and defence estates of the Crown may well throw light on the problems that the noble and learned Lord and others have raised. I feel it preferable that the Bill should not go forward until the consultation has been completed. If it is completed, the two benefits that I mentioned may flow; otherwise, if my noble friend Lord Coleraine follows the course that he has indicated and to which, as he said, the Law Commission has not objected, the result will be that this aspect of the matter will be left unresolved. The principal Bill of course contains provisions in relation to the binding of the Crown.
I therefore hope that my noble friend will feel able, even if your Lordships give the Bill a Second Reading, which I hope you will do, to await the outcome of consultation by the Crown's landholdings departments before proceeding further.
§ 9 p.m.
§ Lord Coleraine
My Lords, I am grateful to noble Lords for the support that they have given the Bill. The noble and learned Lord, Lord Silkin, had four points on which he found ground to query the Law Commission report and the conclusions which followed from it. First, he felt that the Law Commission was too ready to assume that landlords would not be able to sidestep absolute covenants by automatically including in leases prohibitions against assignment. My experience leads me to believe that the Law Commission is right on this point, although it is a matter to which we may return at a later stage. I believe that the question of the right to assign is so fundamental to most tenants who are taking leases that the normal imbalance and bargaining power between tenants and landlords—to which the noble and learned Lord referred and with which I agree—in this case does not apply. I feel sure that landlords would find it extremely difficult in most cases to be able to dispose of their land on terms that the tenant could not assign.
The second point made by the noble and learned Lord concerns the comments of the Law Commission on deemed consent. This was the proposal put forward by the Law Society. This may be a point to which we shall need to refer.
The noble and learned Lord also referred to the question of prescribed forms. My feeling is that the Law Commission has got it about right. To try to prescribe forms to cover all the various types of application that are needed is not practical. If this provides more work for solicitors, it is nevertheless possible for law stationers to produce the forms that will cover the multitude of cases and which anyone can pick up at a law stationer, W. H. Smith or some similar outlet.
The final point to which the noble and learned Lord referred was Crown application. I have already dealt with that, as has my noble and learned friend. I shall return to it later.
I am grateful to the noble Lord, Lord Meston, for his support of the Bill. He took up one point that interested me. If a landlord gives inadequate reasons, should he be precluded from bringing forward better reasons if the tenant brings an action against him? 813 Under the law as it is at the moment the landlord has no obligation to give reasons. When and if the law changes, clearly landlords will have, in addition to the need to give reasons, the need to act in reasonable haste. I feel that if a landlord who is under compulsion to act hastily ascertains genuine reasons after he has given his first refusal, he should not be impeded from bringing those reasons before a court, or wherever may be appropriate. This is a matter that may need to be further considered.
I am grateful to my noble and learned friend for his reception of my initiative in bringing forward the Bill. As I made clear in my speech, I should also like the question of Crown application to be further considered. He very kindly suggested that this might occur. He also suggested that if the Bill received a Second Reading I might defer taking further steps until his department had the chance to take soundings and undertake the necessary consultations. I think that this is a very reasonable suggestion and one which I feel is the best way to proceed at the present time. I commend the Bill to the House.
§ On Question, Bill read a second time, and committed to a Committee of the Whole House.