Commonhold (Hansard, 12 July 1991)

§ Lord Mackay of Clashfern
My Lords, with the leave of the House, I should like to make a Statement about commonhold and related matters. My right honourable friend the Minister for Housing and Planning is making a corresponding Statement in another place.
The Government have decided to introduce for England and Wales a scheme providing for the freehold ownership, and communal management, of flats and other interdependent buildings with shared facilities.
That new scheme, called commonhold, was proposed in 1987 in a report of a working group of officials chaired by Mr. Trevor Aldridge, a Law Commissioner. After arranging in 1988 for draft legislation to be prepared at the Law Commission to give effect to those proposals, the Government issued a consultation document in November 1990 inviting comments on the draft legislation. That document also raised a number of issues of major principle relating to commonhold and leasehold enfranchisement. More than 1,000 replies were received, and the Government are grateful to all those who commented.
It is proposed that commonhold should be available for all types of land use—whether residential or commercial. Conversion of existing premises to the commonhold system will be optional, although it may be necessary to make provision to override the objections of a small minority of leaseholders.
In addition to providing for the freehold ownership of flats and other relevant properties, the scheme would establish standard democratic management arrangements, though with scope for variations, and that in turn would simplify conveyancing. There would also be a scheme for orderly winding up for use where, for example, the commonhold property is damaged beyond repair or has reached the end of its useful life.
The Government have also decided to give long-leaseholders of residential flats collectively the right to buy from the freeholder, at market value, the freehold interest in their block.
It is proposed that that right will apply to properties containing two or more flats held by qualifying long-leaseholders, where at least two-thirds of the flats are held by qualifying long-leaseholders, and where not more than 10 per cent. of the internal floor space, excluding common parts, is used for non-residential purposes.
If at least two-thirds of the qualifying long-leaseholders vote in favour of purchasing the freehold, and the number voting in favour comprises at least 1602 two-thirds of all householders ordinarily residing in the block, the landlord will be obliged to offer the freehold for sale to them.
In conjunction with the commonhold proposals, the Government have decided to implement, with modifications, the main recommendations in the Law Commission's Report on Transfer of Land - The Law of Positive and Restrictive Covenants (Law Com. No. 127). Those recommendations are designed to produce satisfactory arrangements for the imposition on freehold land of positive and negative obligations which can be enforced against successors in title to the original owner of the land.
Those changes will benefit at least 1.5 million leaseholders of flats. They underline our commitment to home ownership. They will greatly extend many people's freedom to take responsibility for their own affairs. I am confident that they will be widely welcomed.
Legislation to implement those proposals will be introduced as soon as parliamentary time for it can be found.

§ Lord Mishcon
My Lords, I thank the noble and learned Lord for making the Statement and assure him that it is much welcomed on this side of the House. I believe it is correct that we are the only country in Europe which still has the leasehold system. Even where countries have adopted our legal system, they have seen to it that the leasehold system is either abandoned or much reformed.
The legislation could not come at a more welcome time. Many of us urged that it should have come sooner. There is genuine concern in the country about the way in which maintenance and service charges have spiralled over the years to become almost intolerable. One hopes that this will be alleviated by the suggested legislation which has been forecast by the noble and learned Lord.
Will the noble and learned Lord indicate where the recommendations of the Law Commission are not being followed? The reason I ask is that I gathered from the Statement that the Government would implement the main recommendations of the Law Commission, but with modifications. It would be helpful if the noble and learned Lord would indicate which proposals of the Law Commission have been rejected.
I pay tribute to the department of the noble and learned Lord for the way in which its consultation document contained the draft Bill with explanatory notes. That draft Bill made up the major portion of the consultation document, occupying over 300 of its 340 pages. Am I right in thinking that because the Bill is in existence we ought to be able to ensure that the legislation flows speedily? The noble and learned Lord said that it would come into the programme as soon as possible. One hopes that he can obtain precedence by virtue of the fact that the draft Bill already exists.
The noble and learned Lord may be able to help me. I am not clear what will happen where unreasonable prices are sought by the freeholders. Will the noble and learned Lord consider the problem? Will there be the possibility of independent valuation where it is thought that the demands of the 1603 freeholder are exorbitant? What will be the legal position of those leaseholders who do not choose to buy the freehold or literally cannot afford to buy it?
The noble and learned Lord said that, it may be necessary … to override the objections of a small minority of leaseholders". Can he be more specific as to how those objections could be overruled?
As your Lordships will appreciate, these questions seek clarification. They do not in any way seek to oppose what the noble and learned Lord outlined in his Statement. I repeat that the proposals are most welcome on these Benches.

§ Lord Ezra
My Lords, I too welcome the Statement which the noble and learned Lord has just made to the House. The measures he announced are the result of a painstaking process of consultation. I join the noble Lord, Lord Mishcon, in congratulating the noble and learned Lord and his officials on the way in which the inquiry has been conducted.
The need for those who have long leases on flats to have the opportunity of buying them is overdue. As the noble Lord, Lord Mishcon, pointed out, ours is the only country in Western Europe and perhaps in the world that has this system. It is about time that it was changed.
I wish to put two questions to the noble and learned Lord. The first touches on the point raised by the noble Lord, Lord Mishcon. When the law comes into operation, in the case of disputes between leaseholders and the owners of the property, will some simple arbitration system be set up in order to avoid recourse to expensive legal processes? The noble Lord referred to disputes about the valuation of the property, but there could be disputes on other aspects of the transfer of the property under the new arrangements.
Secondly, I draw attention to the Leasehold Reform Act 1967 which facilitated the enfranchisement of houses which were held on long leases. That legislation contained certain anomalies and although it was subsequently modified, they remain and limit the value of the houses which could be enfranchised to the level of rates then chargeable on those houses. That seems an unreasonable anomaly, particularly since, as I understand it, there will be no such limitation on the value of flats which will be subject to the commonhold proposition. Therefore, the point I wish to put to the noble and learned Lord is whether the opportunity will be taken under the commonhold legislation to correct the anomalies under the previous legislation which affected the enfranchisement of houses.

§ The Lord Chancellor
My Lords, I am grateful to both noble Lords for the welcome they have given to the Statement I thank them also for what they said about my officials, which I strongly support.
As is obvious, this is an extremely complicated and technical matter. I felt that it was wise to expose as fully as possible the draft legislation on the commonhold so that many who have great experience in these matters could give us the benefit of their 1604 comments. We have received a great deal of useful comment and I believe that that is a good way of proceeding.
On the changes in relation to the Law Commission report, the noble Lord, Lord Mishcon, referred to the passage in my Statement when I said that we propose to implement the positive and restrictive covenants report with modifications. We have moved on somewhat from the position at the time of the report. The Law Commission proposed a land obligation and a development obligation with a manager in respect of the second. Bringing forward the commonhold proposals may obviate the necessity for that second approach. Therefore, rather than departing from the Law Commission's proposals, we are modifying them in the light of later developments.
As to disputes about the value of the property, we anticipate using the leasehold valuation tribunal to deal with them. The expertise of that tribunal would be useful in this matter. Disputes about entitlement might conveniently be referred to the county court. However, it is to be hoped that in the light of the comments we have received we may be able to draw up the legislation so as to minimise disputes on entitlement. Disputes on value can never be completely resolved; it is therefore more likely that disputes will arise in that quarter.
The noble Lord, Lord Mishcon, asked me about the part of the Statement which says that in respect of commonhold, it may be necessary … to override the objections of a small minority". I wish commonhold to be a consensual matter. I hope we shall be able to demonstrate that commonhold will be an extremely useful form of tenure. Therefore, people will want to acquire a commonhold tenure. However, it has been pointed out to me that even in the best regulated circles there can be a small minority of tenants in a block who for no good reason may refuse to consent to a commonhold scheme. I am leaving that matter open for discussion as regards the size of the minority involved and other such matters. I have tried to set out the principles that we have so far agreed to. The details are open for discussion and will remain so until a Bill is drafted. I welcome discussion with anyone who wishes to raise points on these matters.
At present, where a minority of leaseholders do not wish to purchase a freehold the majority that wishes to do so has to pay for that freehold. The aspect of compulsion with regard to the purchase of a freehold interest will take on a different aspect under our proposals. I am grateful for the comments of the noble Lord, Lord Ezra. I believe I have dealt with the first point he raised. He also referred to the 1967 Act. We have built on the ideas of that Act in our ideas for enfranchisement under these proposals. My colleagues in the Department of the Environment have the primary responsibility in relation to the policy followed under the 1967 Act. I understand that they have undertaken to consider whether anything needs to be done as regards the terms of that Act. However, no decision has yet been taken to make any changes in these proposals as regards that Act.

§ Lord Annan
My Lords, is there not an anomaly where one house in a terrace is composed of three leasehold flats, the tenants of which may be enfranchised, whereas the adjoining leasehold house is occupied by a single tenant who cannot be enfranchised? I hope I have interpreted the words of the noble and learned Lord correctly. Should not that anomaly be removed at this stage?

§ The Lord Chancellor
My Lords, I shall be glad to refer that comment to my colleagues in the Department of the Environment. However, there is a limit to the number of considerations that one can deal with at any one time. We are trying to deal with the extremely complicated subject of flats. We would be wise to adhere only to that subject for the time being.

§ Baroness Phillips
My Lords, was it not the case that under the previous legislation leasehold tenants could already purchase their freeholds?

§ The Lord Chancellor
My Lords, that depended upon the conditions of the lease. We are not proposing to apply the same provisions to the commonhold scheme as applied in the 1967 Act. The noble Lord, Lord Annan, will be well aware that the freeholds of houses can be purchased subject to certain conditions. The noble Lord pointed out that if the same provision did not apply to flats there may be an anomaly. As I said, I shall draw that matter to the attention of my colleagues, but here we are really discussing the matter of flats. That is a difficult enough subject by itself. We must be careful not to attempt to deal with too many different aspects of the matter at one time. Your Lordships will appreciate that this is a highly technical subject—the matter of flats alone occupied us fully—and I do not wish to complicate matters by trying to deal with too many other aspects.

The Earl of Selkirk
My Lords, do the new proposals apply to the tenants of freeholders or to the tenants of tenants of freeholders? Are both categories of tenants included in the new proposals or just one category?

§ The Lord Chancellor
My Lords, we are discussing qualifying leaseholders. The mere fact that between them and the ultimate freeholder there may be superior leases does not impede the rights of the qualifying leaseholders. Clearly regulations will have to be drawn up to decide how the value of the scheme in question will be split between the ultimate freeholder and the superior leaseholders. That matter may involve a degree of complexity but our proposals will cover that situation.

§ Lord Ardwick
My Lords, has the problem of the management of blocks of flats been solved, particularly as regards services and structural repairs, in relation to the freehold tenants?

§ The Lord Chancellor
My Lords, that central problem is addressed by the commonhold proposals. It is proposed that there should be commonhold associations which would in effect own the common parts of the building and have responsibilities in that 1606 connection. I hope that as a result of all the consultation that we have undertaken we shall be able to produce model clauses for the commonhold associations. Those model clauses would, we hope, apply in most cases.
As I said in the Statement, we have taken into account the possibility that modifications may be required to meet particular situations. However, I hope that we shall be able to produce a satisfactory general provision which would, so to speak, give a structure as regards the management of blocks of flats. The opinions of the owners of the flats would predominate in that provision in accordance with the machinery to be set out in legislation.

§ Lord Boardman
My Lords, will my noble and learned friend confirm that the style, dignity and beauty of many of the London squares and terraces will be preserved under the new system? Those attributes have been safeguarded by private landlords as freehold owners for a long time.

§ The Lord Chancellor
My Lords, obviously the provision we are discussing constitutes an important change. The decision of leaseholders to adopt this new arrangement will be influenced by their opinion of the present arrangements. Leaseholders who live in the kinds of property that my noble friend has just mentioned will carefully consider the implications of the new proposals. As regards the valuation arrangements, there will need to be procedures for dealing with the consequential effects on other land held by the freeholder of a particular acquisition. That may well have a bearing on the point raised by my noble friend.

§ Lord Monson
My Lords, exactly 24 years ago this week your Lordships' House debated in Committee the provisions of the Leasehold Reform Act 1967, which was introduced by a Labour government. About a fortnight prior to that event that respected Conservative statesman, Lord Brooke of Cumnor, speaking from what was then the Opposition Front Bench, described the leasehold system as decidedly beneficial. He said that it had enabled his family to live in a much better house than otherwise would have been the case, given that the price of leasehold houses was considerably lower than the price of freehold houses as the former are a slowly wasting asset. Of course, much has changed in the past 24 years. There was terrible inflation in the 1970s coupled with tax breaks which, rightly or wrongly, make investment in freehold property more advantageous than almost any other form of investment.
It is a sad fact that many, though by no means all, mansion blocks have been acquired by absentee landlords, many of whom are based overseas and many of whom behave badly and even unscrupulously towards their tenants. From the practical point of view the Government are probably doing the right thing in the present circumstances. The leasehold system may in the present circumstances be no longer a practical system on the whole, but it is not an inherently immoral system. I hope the noble and learned Lord can assure the House that in contrast to 1607 the iniquitous provisions of the 1967 Act—many members of the Labour Party were uneasy about that Act—there will he no element of confiscation in the prices fixed when the freehold compulsorily changes hands.

§ The Lord Chancellor
My Lords, as I said in the Statement, it is proposed that the value should be the market value. What is required is an effective system for the ownership of flats which is not leasehold. That does not mean that leasehold would not be perfectly suitable in some cases depending on what the parties want. The purpose of the commonhold proposals is to produce a workable solution to the ownership of flats. As the noble Lord, Lord Mishcon, commented earlier, many systems in other parts of the world which have adopted the general principles of the common law have already introduced methods of dealing with the matter. We seek to do that now.

§ Lord Desai
My Lords, does the proposal also apply to Crown properties?

§ The Lord Chancellor
My Lords, it would not be the intention to apply this measure to Crown properties in general. Crown properties and properties which are owned by charitable housing trusts would not be subject to the compulsory aspect of the measure. As regards tenure, the form of land tenure which we propose would be open to anyone who wanted to use it. The idea is to introduce a new system which would be available and capable of being used where the parties want it and there are interdependent properties of the kind one finds with flats. That proposal stands apart from the proposal for enfranchisement which I have described.

§ Lord Rippon of Hexham
My Lords, your Lordships will remember that when the 1967 legislation was considered there was a great deal of discussion about its implications as regards the European Convention on Human Rights. As a result a compromise was reached and protection given for the larger estates which have served the country very well in many ways. Are the Government satisfied, bearing in mind that there will not be any confiscatory element, that there will be no question of the new legislation contravening the European Convention on Human Rights, which precludes taking property from one person to give it to another person?

§ The Lord Chancellor
My Lords, we have taken the view that, for the reasons which my noble friend has mentioned, the proposal is in accordance with the convention. We have the benefit of certain decisions of the European Court since the introduction of the 1967 Act which help in the exposition of the jurisprudence of the convention.

§ Lord Stallard
My Lords, can the noble and learned Lord clarify some points for me? First, in his Statement he mentioned the management arrangements. That is the area in which most of the problems have arisen. Even in those flats where small companies have had to be set up to take over the flats there have been d faculties in collecting dues, maintenance fees and so on. Will such existing companies be able to opt 1608 into the commonhold arrangement? Secondly, will the rights of pensioners and people who cannot afford to buy a freehold or participate in the proposal be protected in the commonhold arrangement? Thirdly, how will the proposal apply to those former council tenants who are now owner occupiers? Although the council is the owner of the property can new owner occupiers in council blocks apply to buy the freehold?

§ The Lord Chancellor
My Lords, so far as concerns the question of management, the noble Lord is perfectly right. One of the difficulties is to establish a satisfactory management structure. That is precisely what the commonhold association is designed to achieve. However, no structure can eliminate completely the difficulties which arise when one is dealing with human beings who have different views. With the help of all those who have experience of these matters we have tried to devise a structure of management for blocks of flats which is the most satisfactory that we can obtain.
Secondly, so far as concerns pensioners or people who cannot afford to buy, if they do not wish to participate in an attempt to purchase the freehold they would not be obliged to do so. If such people were in a minority in the block, if the freehold was purchased the pensioner would have as his freeholder the other people in the block who had made the purchase. They would have responsibilities towards that pensioner or other such person in the same way as the previous freeholder.
The third point which the noble Lord mentioned concerned the situation of a tenant who had acquired a lease from a public authority such as a local authority. The situation there would be that the local authority would be subject to the same general rule as I have described. People with secure tenancies would not be prejudiced by being required to have a change of landlord. In such cases we would arrange that the purchasers of the freehold would give an appropriate lease to the local authority.

§ The Earl of Kinnoull
My Lords, my noble and learned friend will appreciate that the uncertainty that will exist between his Statement today and the introduction of legislation could be very harmful to many people. The early introduction of legislation will be vital. The noble Lord, Lord Mishcon, asked whether my noble and learned friend could say anything further about the introduction of legislation. Can he say whether it will be a matter of months?

§ The Lord Chancellor
My Lords, I cannot add to what I said in the Statement. Obviously there is a good deal of detailed work to be done. My right honourable friend in another place and I thought it necessary to say how far we had progressed on the question of principle. There is a good deal of detail to be settled, on which we need considerable help from those with experience in this area. This reform has been in progress for a long time. The time has not been wasted because it is a difficult matter. I would not wish to rush it and get it wrong. I am anxious to have it in effect as soon as possible but on the assumption that we have allowed sufficient time to take account of what people 1609 feel about the best way forward, particularly in relation to the type of detailed matters which have been raised by your Lordships.

§ Lord Mishcon
My Lords, on behalf of the whole House I congratulate the noble and learned Lord on the way in which he has dealt with the bombardment of questions on his Statement.

Noble Lords
Hear, hear!

§ The Lord Chancellor
My Lords, I am extremely grateful to the noble Lord. I would hope that that is the kind of service which the House would expect of me.