§ 2.57 p.m.
§ Lord Strathclyde
My Lords, I beg to move that this Bill be now read a second time.
It is rare that a Bill should come to this House which has already had quite so much discussion outside the House. But I am glad to say that the discussion which has taken place both in another place and outside this House has certainly created a great deal of interest.
The Bill has had a long gestation. It fulfils no fewer than 10 separate commitments given in the Conservative Party's manifesto. It will give many more people the opportunity to own and control their homes; it will bring much needed improvement in the management of local authority housing; it will give council tenants the right to a decent standard of service from their landlord; and it will help to revitalise our inner cities.
Part I will give most long leaseholders of flats the right to purchase collectively the freehold of their building; and it will extend the right to buy the freehold at a fair market price to the owners of high value long leasehold houses. The first Bill to provide a right to enfranchise was introduced in 1884. The Conservative Party promised enfranchisement on fair terms in 1966, although it was of course a Labour Government who introduced the Leasehold Reform 86 Act 1967. That gave most long leaseholders of houses the right to enfranchise. The Conservative Opposition welcomed the principle of that Act, although we had grave concerns about the basis of the compensation which it introduced. In 1974 the Conservative Opposition moved amendments which brought medium value houses within the scope of the 1967 Act but on a new and fairer valuation basis. However, leaseholders of flats and of high value houses remained unable to enfranchise.
People who buy long leases at low rent are generally thought of as owner occupiers, even though they are tenants in the eyes of the law. This contradiction produces two distinct problems for the leaseholder. The first is that a lease is a wasting asset. A new long lease is equivalent in price to a freehold but its value declines inexorably as its term expires. This makes a lease increasingly difficult to mortgage, since building societies are usually only prepared to lend on an unexpired lease of at least twice the mortgage term. This problem is now becoming acute because so many long leases of flats date from the new owner occupiers of the 1950s. As they have become unmortgageable, so the urgency for this reform has increased.
The second problem is that because a leaseholder remains legally a tenant, control remains with the freeholder. This is a particular problem with flats where the communal nature of repair, maintenance and insurance gives control of the block to the freeholder. Yet all the costs fall to the leaseholders. Research by the Consumers' Association found that two-thirds of leaseholders reported problems with their landlords, nearly half of which they considered to be serious. Typical problems identified included overcharging for services, misuse of funds, suspected non-payment of insurance and harassment.
This Bill addresses these problems. It is one more stage in the Government's commitment to encourage owner occupation and to enable an estimated 750,000 long leaseholders to take full responsibility for their own property.
I have explained that the Bill will give most long leaseholders of flats the right to purchase collectively the freehold of their building. To qualify, a leaseholder must have a long lease—with an original term of over 21 years —at a low rent in a building in which two-thirds of the flats are let on long leases. This will provide a test of whether the main equity in the property has passed to the leaseholders.
A majority of at least two-thirds of those qualifying long leaseholders in the block will have to agree to enfranchise. Properties with more than 10 per cent. commercial use or of four or fewer flats with a resident landlord will be excluded.
I know that there is concern that landlords will not receive proper compensation for the loss of their asset. I am happy to reassure your Lordships that there is no element of confiscation in our proposals. Landlords will receive the full market value of their asset plus reasonable costs. The price will include at least half the marriage value, which is the extra value created by bringing the leasehold and freehold interests together. This extra value can be released only by a sale to tenants and will be capital gain to the landlord. These 87 terms are designed to replicate the free market value of the property. As such, there will be many occasions when it will be appropriate for the landlord to receive more—perhaps even substantially more—than 50 per cent. of the marriage value.
I am also happy to reassure your Lordships that public sector renting tenants will be protected. The Bill obliges public sector landlords to lease back the flats of their tenants, thus safeguarding their right to buy. Long leaseholders who do not wish to enfranchise, and renting tenants, will continue to be protected by the contractual rights in their leases or tenancies.
Where a block is not eligible for enfranchisement, the Bill will give long leaseholders the right to individual lease extensions at the market price. This will tackle the problem of diminishing leases. Extension will be for a 90-year term and at a peppercorn rent.
The Bill will allow higher value houses to be enfranchised by removing the rateable value limits. It will also provide an additional low rent test for houses. We consider it right that we should not exclude this very small group of house leaseholders.
Chapter IV of the Bill will protect the well-managed, large estates by providing for estate management schemes. A scheme will be approved if it is in the general interest that an estate retains powers of management in an area. Many areas have already benefited from a similar provision in the 1967 Act: Belgravia and Dulwich are two such examples. I am sure that your Lordships will welcome that provision in the Bill.
This Bill has been given careful consideration in another place. The Government have accepted amendments in the interests of fairness and to prevent abuses. These will ensure that head leaseholders cannot speculatively enfranchise and that broom cupboards cannot be used as units to prevent enfranchisement. The Government's own amendments ensure that mews houses are within the scope of this Bill or the 1967 Act, and that a "Prince of Wales clause" in a lease will not prevent enfranchisement.
The Government will be bringing forward further amendments for your Lordships' consideration in fulfilment of promises made by my right honourable friend the Secretary of State in another place. These will ensure that severance can be paid to the landlords of high value houses which are enfranchised and that the right to new leases will be subject to a residency qualification. In addition, I am sure that in Committee we shall have the opportunity to discuss these Part I provisions in great detail. I am aware of the great concerns of some of my noble friends, but I hope that during the passage of the Bill I shall allay some of those fears.
I should now like to turn to the public sector housing provisions in Part II of the Bill and, first, to the new rent-to-mortgage scheme. In 1980 we gave council tenants the right to buy. It gave them choice and the opportunity to take responsibility for their housing. Over 1.1 million tenants have taken up that challenge and now own their own homes. But there are still nearly 1.5 million local authority tenants who pay their full rent unaided.
88 The rent-to-mortgage scheme will offer a new deal to those tenants who have the right to buy but cannot afford to buy outright. They will have the option of taking on a mortgage with repayments the same as their current rent. In return for this initial payment they will become the full legal owners of their homes, with a further payment to be made to the landlord if they sell or on their death. Rent to mortgage will complement the existing right to buy and provide new impetus to the drive to home ownership that has already benefited more than 1 million council tenants.
But the Government are also committed to ensuring that those who remain as tenants in the public sector receive a decent level of service from their landlord. The new right to repair will ensure that tenants can get urgent minor repairs carried out with a minimum of bureaucratic complication, and the right to improve will enable them to claim compensation for certain improvements they carry out to their homes when their tenancy ends.
The Bill also introduces more fundamental change to the management of local authority housing. It sets a clear framework for local authorities to delegate their housing management and prepares the way for the extension of compulsory competitive tendering to that function. Local authorities will be required to consult their tenants fully about levels and quality of service and to involve them fully in the monitoring of a manager's performance.
For those tenants who want to go further, the Bill provides a new right to manage. Local authorities will be required to transfer the management of estates to tenant organisations where tenants are willing and able to take it on.
With the introduction of compulsory competitive tendering, the present tenants' veto power on management delegations will cease to be relevant. In its place the Bill will give tenants real and direct influence over the management of their homes.
The Government are also taking the opportunity of this Bill to empower local housing authorities to provide the full range of welfare services to their tenants who need them and to account for the cost of those services in their housing revenue accounts if they wish. Part II also restores a power to contribute to loan charges arising from expenses incurred by local authorities before 1st April 1989 in assisting owners of defective housing.
During the consideration of this Bill in another place, the Government added two further public sector housing provisions in Part II. The first will enable my right honourable friend the Secretary of State to run a programme for large-scale voluntary housing transfers within an agreed cash limit and comprising those disposals which best meet the pre-set criteria described in the Bill and to impose a levy on the sale proceeds. The second will provide a right for all tenants of a housing action trust to transfer to the local housing authority when the HAT disposes of their property.
The Scottish provisions in Part II stem principally from the Tenant's Charter for Scotland. Several of them mirror provisions that I have already described for England and Wales. These include the statutory 89 rent to loan scheme, the right to repair, the right to compensation for improvements and the right for tenants to manage their homes. In addition, they give effect to a manifesto commitment to prevent housing allocation decisions being taken on arbitrary or subjective grounds. The Scottish provisions in the Bill will strengthen and improve quality and choice in housing for public sector tenants in Scotland.
Part III of the Bill establishes the urban regeneration agency. There are 150,000 acres of vacant and derelict land in the towns and cities of England. Just as important are the large sites outside urban areas which formerly had an industrial use but now lie derelict. Such land is at best unattractive and unproductive; at worst, hazardous. It is often in prominent locations and can depress the whole local economy.
The URA will tackle those problems. It will work in partnership with local authorities, the private sector, voluntary bodies and others involved in the revitalisation of vacant and derelict land. It will encourage the whole spectrum of development, including retail and office space, new industrial premises, housing, green space and recreational facilities.
The agency will incorporate derelict land grant, city grant and the English Industrial Estates Corporation, a sponsored body that provides or aids the provision of commercial and industrial premises in areas of need. It will replace those programmes with a new more flexible grant regime, supported by a range of powers including the power to buy land by agreement or compulsory purchase.
Wherever possible the URA will act as an enabler for the private sector to carry out development rather than develop land itself. It will build on the success of city grant, which at present attracts about £4 from the private sector for every £1 of public money devoted to it. It will thus bring to run-down urban areas vital private investment. It will also be able to operate outside urban areas to continue the existing work of derelict land grant and English Estates.
The URA will seek to work in partnership with local authorities wherever possible. In the past, however, not all authorities have shown a willingness to make the most of our inner cities programmes. The Bill therefore enables the Secretary of State to give the agency development control and some highway powers within limited areas designated by order. In some cases local authorities may ask for areas to be designated, as happened with the UDCs in Birmingham heartland and Plymouth. Designation without agreement will be used only as a last resort.
The agency will operate within the framework of the planning system at all times. It will take account of local authority development plans and planning policy guidance. Even where it has development control powers it will still be expected to work within development plans unless material considerations indicate otherwise.
We have announced that we intend to appoint my noble friend Lord Walker of Worcester as the first chairman of the URA. His track record speaks for 90 itself. He is clearly the right man for the job. He will head a small, dynamic board, picked not for whom it represents but for what it can achieve. The URA will have the power and the vision to transform our view of vacant and derelict land. Such land need no longer be an obstacle to growth. Instead, it will be an exciting opportunity for wider renewal.
Part III will also introduce a single flexible grant-giving power for urban regeneration. That will simplify the operation of City Challenge which has already succeeded in bringing together local authorities, the private sector and local communities in a new spirit of enterprise and vision.
Finally, Part III will also simplify the procedure under which my right honourable friend the Secretary of State can direct a public body to dispose of surplus land and make minor amendments to the legislation governing urban development corporations.
I commend this Bill to your Lordships on behalf of the 750,000 leaseholders who will be given the chance to control their own homes. I commend it on behalf of the 1.5 million council tenants who will have a new opportunity to buy their homes, and the further 2.5 million who will be given the right to a decent standard of service from their landlord; and I commend it on behalf of all those who stand to gain from the regeneration of our inner cities.
Moved, That the Bill be now read a second time. —(Lord Strathclyde.)
§ 3.14 p.m.
§ Lord Williams of Elvel
My Lords, the House will be grateful to the Minister for introducing the Bill and explaining its contents, even though some of your Lordships may think that, from its size, let alone the content, it is a rather heavy burden to place before the House on a fine spring afternoon.
First, I should—indeed, it is my duty—declare an interest. I, together with my wife, am the holder of a lease which will qualify under the terms of the Bill as at present drafted and if enacted in its present form. Despite that, and upon advice, I do not feel myself disqualified from speaking for the Opposition since I imagine that being one of the some 750,000 or so who the Government claim will be affected, my personal pecuniary advantage is minimal. Of course, as I look down the list of speakers, I note that certain noble Lords opposite may well be in a position somewhat analogous to mine, but perhaps with a rather greater pecuniary interest. Equally, I have no doubt that —in the true traditions of the House in which we all speak on our honour—they will each, in his or her turn, wish to declare the extent of his or her pecuniary interest.
The Bill which the Minister has set before us this afternoon is, if the truth be told, at least three Bills in one. I have no particular objection to that. Indeed, I am quite used to the procedure of the Government in compressing several Bills into one omnibus measure. However, the Short Title of the Bill, as your Lordships will be aware, is the Housing and Urban Development Bill. That Short Title is, I am bound to say, wholly misleading. None of the Bills compressed into the measure has anything to do with the real housing problem, and precious little to do with the real 91 problem of urban development. Despite the sometimes stupefying complexity and immense size of the whole exercise, not one extra house will be built as a result of it, nor will one homeless person be taken off the streets. So our first objection to the Bill is that it represents an opportunity for action in the middle of our housing crisis, admitted on all sides to be of extreme gravity, which has been seriously missed.
When we come to the meat of the Bill, we can discern some merits, and some, perhaps more serious, demerits. In evaluating those, I have to tell your Lordships that I am fortunate enough to have had the advantage of a brief prepared by the Conservative Central Office. It has, if I may say so, been extremely informative, and I should like to compliment a Mr. George Bridges, who appears as the author of this brief, on his work. In the rest of what I have to say, I shall be bearing in mind, and commenting upon, what Mr. Bridges, if he is indeed the author, writes, and, I am afraid, dissenting from it with increasing vehemence as I move through the Bill.
In Part I, as the Minister described it—or as I would say the first Bill of three—our differences with Mr. Bridges of Conservative Central Office and with the Minister are on matters of scope rather than principle. In our view it simply does not go far enough, and that is a matter that we shall attempt to rectify. But Mr. Bridges is right to claim that the measures contained in Part I are a continuation of the Leasehold Reform Act of the Labour Government in 1967, although he fails to mention that it was also the Labour Party that first proposed the extension of that right to flat dwellers in evidence to the Aldridge Committee. But he is also right in saying that leasehold reform was a manifesto commitment of the Conservative Party —and in this House we must pay attention to those matters —receiving its final endorsement from the present Prime Minister on the last day of the election campaign of April last year.
So far, as it were, so good. But we move into muddier waters when we look at some of the realities. Now there is one with which I can deal straightaway. Judging from the list of noble Lords opposite who are due to speak, I imagine that there might be some resistance to the idea of leasehold enfranchisement on the grounds that it is improper for a government to legislate in a manner that cuts across the law of contract. Now here I and Mr. Bridges are at one. It is up to the Government to keep forms of contract under review; and Mr. Bridges instances examples, which he calls numerous, such as in the privatisation of nationalised industries or the abolition of the closed shop, when—to use Mr. Bridges' own words—the Government has overturned contracts and reformed the whole system.Quite so! Of course, there is nothing wrong with the principle. Government—any government—have to do those things; it is only how and in what manner the principle is applied that matters. In the present case, we believe that the principle is being applied justifiably. Therefore, in so far as the noble Lord, Lord Strathclyde, presses the principle of leasehold enfranchisement he will have the support of these 92 Benches; and we will support him even though, as I suspect, some of his noble friends may try to do him down. On the scope, of course, the noble Lord may find us in disagreement, since we believe that the provisions are too narrowly drawn.
There will be other Committee points—for instance, the future position of housing associations; in particular, those which provide sheltered accommodation. We shall be concerned about the position of local authority tenants remaining in blocks where the freehold is purchased from a local authority. We shall probe the whole question of how enfranchised estates are to be managed and, indeed, who should be enfranchised or how lease renewal should operate. There will be other matters on which we shall be moving amendments.
These are matters to be considered in Committee, and they will be. But I wish to be clear to the House —and I repeat what I said, "for the avoidance of doubt", as the lawyers say—that we shall support the Government on the principle of leasehold enfranchisement. On that point there should be no misunderstanding.
There is, however, one matter on which I seek an equally clear statement from the Minister. Whatever happened to the principle of commonhold? It is my understanding that a Bill has already been drafted. If that is the case, why is it not being introduced? I believe that we need some answers and I hope that in winding up the debate the Minister will provide them.
Part II of the Bill—or the second Bill, as I would prefer to call it—deals with a wholly different matter; that is, the position of local authority tenants. It has nothing to do with leasehold enfranchisement and I dare say that noble Lords opposite who are due to speak this afternoon may be unable to devote as much time as they would like to the proposals about which Mr. Bridges of Conservative Central Office is more enthusiastic than I am.
In the event that noble Lords opposite wish to spend their time analysing Part II of the Bill with the diligence it deserves, we shall be glad to hear their views on the rent-to-mortgage scheme, on the new right-to-repair scheme for council tenants, on the clauses which give local housing authorities temporary powers to provide housing welfare services, on the extension of compulsory competitive tendering and on the abolition of tenants' veto over the management of their homes. My noble friend Lady Hollis will be listening attentively to the contribution of noble Lords opposite on these matters—which are of the greatest importance to those members of our society who are least able to fend for themselves—and will put our view when she winds up. All I propose to say is that we have serious objections to this part of the Bill. I believe that at this stage Mr. Bridges has started to slide—elegantly, I admit, but decisively—off whatever rails he was on.
The slide becomes much more pronounced when we consider the third Bill, or Part III of the Bill, as the Government would have us believe. Part III of Mr. Bridges' brief is entitled "Help for our Cities". "Help", my Lords, "for our ciites". Now what on earth have a Conservative Government, in office for nearly 14 93 years, been doing to our cities that provokes Mr. Bridges' cri de coeur? Why do our cities need such "help"?
I will tell your Lordships why. Many of our once proud cities have become so run down that in places they are wholly blighted. There is poverty in our cities such as Members of this House, sitting as we do on these elegant red Benches, would never dream of. There is a new culture of drugs and drink, of mindless violence, of crooked deals and of shifty law enforcement. That is what has happened to our cities after 14 years of Conservative government, and that is why they need help.
So what are the Government now proposing? It is something, as your Lordships will have seen, called the urban regeneration agency. It was, of course, an election gimmick at the time and nothing in the Bill suggests that it will last even as long as the previous election gimmick. Do your Lordships remember the enterprise zones, the Enterprise Initiative, the derelict land grant, the urban development grant, the city grant, the City Challenge, city action teams, or the inner city task forces? We have had a succession of such initiatives from the Government and they have turned out to be little more than a public relations exercise.
So what is the essence of the new proposal? It is a new quango headed, of course, by a former Tory Minister with—as we are now accustomed to expect —almost certainly six other Tories as members. The new quango will operate only in England but it will not be committed to any regional structure or to the involvement of local authority elected members. Not only that, but the quango will actually remove powers from local authorities, particularly in the area of planning. The result, of course, will be a series of futile public relations initiatives, uncoordinated development and expenditure of scarce resources on non-priority issues.
Nor is it even certain what the whole object of the exercise is. We hope to find out that in Committee. The Bill gives the new quango wide powers, but in another place the Government said that it is a limited body dealing only with land.
Until I am persuaded otherwise, I believe that the new body is just one more politically-motivated initiative, repackaging existing schemes, with limited resources and, in general, not doing very much more than the existing schemes. I also believe that the situation will persist until the next general election when there will be another glorious initiative, announced with the usual fanfare of trumpets, to supersede the proposal for the quango that we now have before us. I have equally no doubt that, the dutiful Mr. Bridges of Conservative Central Office —unless the poor man has been sacked by the new management there—will be wheeled out again to write a brief. And the title will undoubtedly be "Help for our cities".
I shall now try to sum up our views on this multi-faceted and complex Bill. We shall not oppose it. Parts of it are, after all, manifesto commitments and there are parts of it with which we agree. Perhaps I 94 may say in passing that there could be more of the Bill with which I might agree if only I could understand its draftsmanship, which is difficult. But it is something of a mish-mash; a hotch-potch of ideas thrown together without logical sequence. As such, we shall take each idea as it comes along and subject it to the scrutiny that your Lordships quite properly expect of the Opposition in this House.
Although, from what I hear, some noble Lords opposite may wish to occupy a certain amount of time in Committee, that will not deter us from moving amendments of our own on the issues on which we wish to concentrate. If the Government are faced with a rebellion on their own side that is their problem, not ours. We shall give our support on those matters which we believe to be right. That is our position and we shall stand on it. If the Government wish more from us, because of their failure to convince their own supporters of their arguments, we shall have to see what they are prepared to offer. But for the moment we stand our ground and will play the role that we have always played—that of tough but constructive opposition to what is, when all is said and done, at best something of a curate's egg of a Bill.
§ 3.30 p.m.
§ Baroness Hamwee
My Lords, I too thank the Minister for his introduction of the Bill, and not least for his improvisation when many of your Lordships were caught by the Second Reading being introduced rather earlier than expected—although the exit was not such as some of us have been accustomed to see when we reach this type of business.
I know that the Bill is causing many of your Lordships a great deal of heart-searching. After all, the issues raised in the first part of the Bill are food for hours of philosophical discussion on the rights of ownership, on agreements freely entered into and on other aspects of property. I hope that in the heat of the debates those parts of the Bill concerned with public sector housing and urban regeneration will not receive less attention than they merit for it seems to me that there are common issues which we should do well to remember throughout the course of the Bill.
Perhaps the theme of the Bill is the extent to which each individual in our society has the right to live his own life, to take his own decisions and to control his own property. At what point do the rights of all those with an interest in a property conflict? Should leaseholders be entitled to acquire freehold rights? What price is a fair price? Can any price be enough? Should certain leaseholders be excluded? Are freeholders thereby disentitled, subject to some form of compulsory purchase and liable to be stripped of their rights?
Public sector tenants are to have a new right to buy. Their landlords—the local authorities—do not argue that they are being stripped of property, although they might well do so. That they hold it in trust for their communities does not invalidate that argument. At the same time, the management of local authority housing is to be subject to what the Bill calls delegation, although that implies a degree of freedom of decision and discretion. The local authorities will 95 have no discretion and, although one might assume that that is because discretion and the responsibility for their own lives pass to the tenants, it will not be open to the tenants to veto new management arrangements. In that case, the state knows best.
The third part of the Bill creates a new agency. The theme continues. Should an arm of the state, a new creature, be imposed over a democratically elected and accountable body? Where the writ of the urban regeneration agency is to run, will local authorities have their discretion fettered, their freedom and its concomitant responsibility curtailed? Are we really presented with the recipe for a partnership, which the Government have promised?
In commenting on some of the detail of the Bill I shall start with the urban regeneration agency, although it features last. That is not out of perversity but because of my concern that the last should not be regarded as the least. What do we mean by regeneration and for whom? The lesson of experience must be that regeneration must not be imposed on local communities but that the local community must be part of the process.
I welcome comments made by Ministers about partnerships with local authorities and the role of representing communities. However, we must ensure that there is a real partnership. I will not be alone in having a natural distaste for an unelected body which is unaccountable directly to the people whose lives it affects. The only valid reason for centralisation of local affairs is if the centralised body can do better. Will the new quango harness talents which have not found expression in the current system? Will it build on the skills of those whose skills are not now well used? I hope so. I hope that it will not be the dead hand of central government—although we heard earlier this afternoon that quangos exist as the arm of government—because the health of local democracy is vital to the health of the community. Perhaps a little humility is needed on all sides to accept that it is not healthy to create a ghetto of dependency among our communities as some local authorities have done, nor that it is healthy to stifle the freedom of expression of that community.
I cannot help but note the term in the consultation paper at paragraph 11 that the agency should act entrepreneurially to encourage redevelopment by bringing together all parties with a role to play—an entrepreneurial approach which has not been encouraged among local authorities. Nor can I help but note the words of the Minister, Mr. Redwood, on 10th February at col. 1021 of Hansard. When commenting on the end of designation provisions, he talked about restoring local democratic accountability. Therefore, we are right, are we not, to understand that democratic accountability will have been lost?
My anxieties are not limited to structure and accountability. Is this the best way to regenerate and is regeneration just a matter of land? Urban regeneration needs to be co-ordinated across a wide and varied front covering a range of land use and non-land use matters. We need to recognise the potential contribution of housing as well as 96 employment and the role of affordable housing. We must show imagination in recognising the role of leisure and community facilities.
The agency may become the local planning authority in effect and I have considerable reservations about the displacement of local authorities. On Second Reading the Secretary of State described them as "obstructive" local authorities. I have reservations about the imposition of another system. At the very least we must ensure that the agency cannot override the unitary development plan or the structural local plan.
We have what is now called a plan-led system; that is, that development decisions are taken in the context of a plan constructed by a democratically-elected body with wide community input. Having reached that point in planning law, let us not jeopardise it. Let us ensure that the agency has express environmental duties. We should not leave that to merely an expression of good intent. There may be a difficulty as regards agreeing a definition of "sustainable development", but because we cannot arrive at a perfect definition does not mean that we do not know what the aims should be and we must ensure that those aims are being achieved. Local authorities increasingly see the need to co-ordinate land use and transport matters. Often transport infrastructure is vital to regeneration. How is that to be achieved?
As regards funding, the agency will take over the derelict land grant and city grant. That is not new money, nor is it complete co-ordination. There are at least 20 government initiatives operating in London alone.
We understand that we are in difficult times, but we understand also the role which investment can and should play in regenerating the economy as well as particular areas of land. I await with keen interest government announcements on how the East Thames corridor will be dealt with as an obvious candidate. The fact that the decision seems to be stuck somewhere in Whitehall makes me fear that it is stuck not at the Department of the Environment but at the Treasury.
Efficiency and effectiveness should be criteria which apply to the agency just as they do to local government. It is ironic perhaps that in considering the Bill we have recently heard reports of poor performances by development corporations in the year 1991–92. The Local Government Chronicle called it a miserable performance. It states that six out of eight failed to meet their targets on land reclamation; four out of seven failed to secure the number of home completions for which they were aiming; six out of nine failed on industrial and commercial development, and so on. It states:The UDCs had a bad year. No council would have been let off as lightly by the hawk eyed ministerial team. The government should do as it preaches".The second part of the Bill dealing with public sector housing introduces a new rent-to-mortgage scheme, even though the take-up in pilot schemes run in Milton Keynes and Basildon have been low. I had thought that we were taught in the last election that we should regard Basildon as typical. Perhaps we have 97 not learnt that lesson. The present right-to-buy scheme will continue to offer bigger discounts and the new scheme will have only a minority appeal.
The Government have been criticised for seeking to extend home ownership to financially vulnerable households, especially during a recession. That is not a view that I necessarily share. I believe it is up to the tenants to decide what is best for each one of them. But why exclude tenants who are on housing benefit? If they are excluded because they cannot afford to buy, or cannot afford a mortgage, that constitutes imposing a nanny state. I do not subscribe to that view. Why exclude those whose rent, as a mortgage, would buy more than an 80 per cent. share of the home? That will mean that in many authorities tenants of over five years' standing will be excluded.
There are concerns, too, among non-charitable housing associations whose secure tenants will have a right to acquire property on a rent-to-mortgage basis. They are worried about the erosion of their asset base. They are right to be concerned. Having seen off local authority housing, are the Government starting down the same road with housing associations? On the subject of disposals, I agree with the district councils which are concerned that increasing restrictions on the voluntary transfer process will inhibit the freedom of local authorities to make their own decisions regarding the management and ownership of their housing stock.
I shall now deal with the CCT regime as applied to housing management. We have said before that we are not opposed to competitive tendering. Indeed, we support measures to improve local authority services, but we are opposed to compulsion. We are especially opposed to compulsion which rides roughshod over those it affects most. Currently tenants have the right to be consulted to veto the extension of CCT to housing management. While I welcome the delegation of approval of management agreements to the local authority instead of the Secretary of State, surely the tenants themselves should have a right to say no. That right is not irrelevant. The Minister said that it was irrelevant this afternoon. If the Government refuse this right because they think they know best, that is paternalism of the worst kind.
The current consultation document, Tenant Involvement and the Right to Manage, was launched in December. It was claimed to be a significant advancement of tenants' rights. How are we to regard the statement in it that it should be for tenants and tenant organisations themselves to choose from a wide range of options the model for their level of involvement? The housing Minister has said that tenants deserve the best. However, it is not easy to determine what the Government's consultees think is the best way forward. The Department of the Environment tells us there were more than 450 responses to last summer's consultation on CCT for housing management. No doubt the Government will, as they say, take account of the results of that consultation. I always treat with caution that formula because one can take account of something while not 98 acting on it. As the department has not published the details of the responses, how are we to know what they are? That does not constitute open government.
I now turn to that other right to buy: leasehold enfranchisement and extension. I deliberately use the term "right to buy", as used in the Bill, to remind your Lordships that there are similarities in the issues raised. Broadly we, too, support these measures. The argument that an agreement freely entered into should not be overturned is a powerful one. I recognise that. But often it is the case that, while the agreement itself was freely entered into, the choice of the property was not. It is simply not the case that every long leaseholder could have bought a freehold property.
I, like many other noble Lords no doubt, must declare an interest in this matter as regards Chapter II of the Bill. I will potentially have a right to extend my current lease. In considering that interest, I realise I have owned—in the sense that that term is normally understood—only leasehold properties and never freehold properties over a period of 20 years because those were the properties that were available. Some 20 years ago one raced to buy any property and certainly at that time building societies considered that those who lived in leasehold properties owned their properties. That is still the case now. I understand the concerns of the good landlords of the great estates. Why should they be prejudiced by the action of bad landlords? However, it is the neglect, exploitation and fraud of the bad landlords that are at issue. That has meant that many leaseholders have less choice and less control over the enjoyment and security of their homes and less protection for their investment.
If we accept the underlying premise of the right to enfranchise or the right to extend, why are there restrictions in this area? Why exclude premises if more than 10 per cent. of floor space is non-residential? Many leaseholders will be excluded by that provision. The low rent test has attracted much criticism. The separate treatment of those entitled to enfranchisement and those entitled to extend their lease also seems to stop short of putting the principle into practice. In the real world rights will not be available because of the unwillingness of some tenants in a block to enfranchise. Should those tenants be in a position to scupper the right of other leaseholders? We should not permit a "pick 'n' mix" approach.
Whether some specialised types of housing should be exempt is a matter that needs to be explored. Charitable and non-charitable housing associations are concerned at the inclusion of sheltered housing schemes for elderly people. They are concerned that over time the specialised warden and care provisions may be discarded to save costs and the loss of an important housing provision will follow.
I am sure we will hear about conservation areas and other measures open to local planning authorities. Certainly those measures are better than they were, but they are not strong enough in their current form because planning authorities do not have the necessary resources or powers. However, that is an argument for ensuring that the powers are sufficient and not for exempting certain properties.
99 Poor management and the neglect of buildings in leasehold tenure are often apparent from the outside as well as the inside. We must ensure that provisions which address heritage concerns are appropriate. The frequent comment that is heard as regards so many aspects of this Bill is, "I simply want a good landlord". It is salutary to remind ourselves that the right to buy, in whatever sector, is not a solution to our current housing problems, neither for those who are without a home, nor for those in whatever sector who rightly say that the Government's actions and inaction have meant that, although they have the right to buy, they have no right to sell. Those people may well regard this Bill as interesting and not irrelevant but they will not regard it as a Bill that deals with the most urgent housing priorities.
§ 3.47 p.m.
§ Lord Peyton of Yeovil
My Lords, the noble Lord, Lord Williams, has promised your Lordships tough and constructive opposition. We will, if I may say so, particularly welcome the constructive part, if and when it is forthcoming. Perhaps the noble Baroness will forgive me if, in the interests of time, I do not follow her in any detail. However, I welcome her broad and balanced approach to the problems.
I am neither landlord nor tenant but I am not unaware of the problems and difficulties that beset tenants. I wish particularly to stress that I am not unaware either of the ghastly problems and conditions which prevail in our inner cities. Those who use those conditions as a background for accusation should at least bear in mind that the dereliction has been growing up over many years.
My objection to the Bill and indeed my distaste for it spring from the fact that the Government seem to have adopted a broad brush approach to what is, admittedly, a very complicated and complex problem. They seem to be decreeing that this should be the end of long leases, no matter how or when they were arrived at, between whom, or under what circumstances. The noble Baroness made the point, and I agree, that governments should be more careful before they trample over agreements freely entered into simply on the very doubtful premise that they know best. If agreements freely reached are to be put on one side, and if the Bill registers a lack of concern as to the direction in which the benefits which result will fall, then I believe that the Government deserve some criticism.
I appreciate that my noble friend has the unwelcome task of representing others who decide policy, but I look forward during the passage of the Bill to hearing him expound the views of his right honourable friends on the future of leasehold property in this country. I had previously understood that the Government attach some importance to the survival of leaseholds but I now find it difficult to understand how anyone will be encouraged to let property in the future. There must surely be some apprehension that, whatever the Government may say now, this is far from being the last word on the subject.
I would have been able to overcome my distaste for the measure if it had paid more attention to the 100 question of the main home and the length of time a tenant had occupied that home. In the event, however, it is my impression from reading accounts of the Bill's progress in the other place that the Government seem to have put those considerations on one side.
I turn now to the question of charities. I am a governor of a charity which has a well run estate. The charity will lose a few houses but it is not a serious matter in the particular case. However, I seriously question whether the Government are right in not excluding charities from the operation of the Bill. We live in a time when generosity should be encouraged, and any indication from the Government that they are prepared lightly to put on one side the wishes of benefactors would be very undesirable and dangerous.
In the presence of a right reverend Prelate, who am I to speak? However, I should like to hear how the Government view the future of our beautiful cathedral closes, which have been preserved over hundreds of years. They are oases of beauty and calm in a world sadly short of both. I wonder what the future holds and what people will say if, as a result of the Bill, the beauty of those precincts is sacrificed at the whim of this particular Administration.
I wish also to raise the question of estate management. In London there are many examples of streets, crescents and squares whose beauty has been well preserved by good estate management. I expect my noble friend may say—and doubtless the answer will be found in the words of Mr. Bridges whom the noble Lord, Lord Williams, built up into such a figure —that there is full provision in the Bill. There is extensive provision, but I question whether it will work. Which landlord, having already lost the bulk of his estate to his tenants, will be prepared to stay on and engage in all the hassle of enforcing a complex management scheme? He will have neither the power nor the interest to do so. I sometimes suspect that governments have ears only for ornamental purposes, but I hope that the Government Front Bench will digest that concern and not treat it merely as ammunition flung at them from behind by someone who wants to be nasty. That is very far from my purpose.
I should like to offer more than the conventional apology. I am afraid that I shall not be here at the end of the debate. I know that practice and courtesy demand that one remains, but I have a very long-standing engagement tonight and I hope that I may be forgiven.
I should like to conclude on this note. If the aim of the Bill were simply to curb greedy landlords, to enforce the obligations of negligent landlords, or to give comfort to tenants who have long occupied the same premises as their only residence, then my approach to the Bill would be very different. As it is, I repeat the objection with which I opened my remarks, namely that the Government have taken a very broad brush to a highly complicated problem.
§ 3.57 p.m.
§ Lord Boardman
My Lords, I was somewhat surprised that the noble Lord, Lord Williams of Elvel, thought it necessary to remind your Lordships to 101 declare an interest. In my experience noble Lords always do so. I make it clear that I have no such interest to declare.
I propose to confine my remarks to Part I of the Bill. I do so because it not only affects the great estates which have been mentioned but because it has a tremendous impact on tens of thousands of other landlords and tenants throughout the United Kingdom.
Reference has been made to contracts. My noble friend Lord Peyton has just done so, as did the noble Baroness, Lady Hamwee. One of my reservations about the Bill is that it appears to disregard one of the fundamental aspects of Conservative philosophy in regard to contracts in that it does not recognise the sanctity of contracts unless—which I accept—there is an overriding public interest which requires it. In parts of this Bill there is no such overriding public interest.
The Bill contains provisions for the compulsory sale of flats by a private freeholder to a private, non-resident, leaseholder. That appears to me to offend the principle. It offers a benefit to one private individual over another private individual, and there is no public interest of which I am aware in the case of non-residents.
The argument which has been put forward in an attempt to justify the measure by those lobbying in support seems to rely on very thin precedents. One which has been prayed in aid is the 1833 slavery Act. I believe that we would accept that there was a public interest in that case, but times have changed. The noble Lord, Lord Williams, referred to the 1967 Act, but that Act enabled purchases to be made by resident occupiers—people who lived in the premises. There was clearly a public interest in that being permitted. This is different, and I shall try to develop it shortly.
Following what has been said earlier in this debate, may I make one reference to the position of long leaseholders under contract. First, when they entered into those leases they knew the terms that were on offer. They knew the period of the lease, the amount that was going to have to be paid, and they knew all the provisions. There is no doubt they took wise advice, and on wise advice they probably set up sinking funds. There is no sudden hardship on those terms for breaching that contract purely on the ground that they have a wasting asset. I wonder whether freeholders should be compelled to bale them out, and to give them, as well, a bonus.
The Bill does not, as the Conservative manifesto clearly did, confine the right to buy to those living in flats. I fully accept the Conservative manifesto. Certainly I support the increase in home ownership for which it aimed, and I would not dream of suggesting that there should be any reneging on those undertakings and pledges, but I ask what they were. The manifesto promised that the right to acquire the freehold of their block of flats at market rate would be given to "residential leaseholders living in such block." Leaseholders who live in a block which does not qualify will have a new right to buy an extended lease.
102 The whole emphasis in the manifesto and in the Conservative commitment has been to extend the benefits of home ownership. But the Bill appears to disregard completely the requirements for "living in" or "home ownership" so far as flats are concerned. The right to purchase is given to a leaseholder who may never have lived in the flat, may never have seen it, and has no intention of doing so.
I have been given an example—I do not know whether or not it is true—of a Libyan holding a long lease as an investment. He has never resided as a tenant in the flat. The tenant is someone on a short lease, although she has lived there for some 15 years. But under this Bill the Libyan will have the right to buy, not the resident who is living there. I am sure that that was never contemplated by those who read the manifesto. Under the 1967 Labour Act it was not possible. That Act provided that the purchaser should be resident, and have lived in the flat for three years or five years, or something like that.
There is also an equally unfortunate consequence of this Bill as it stands at the moment as regards those residents in a block of flats who do not qualify, or do not want the right to buy. They can become tenants of some unknown landlord. It may be their fellow tenants, or it may be the Libyan gentleman to whom I referred. It may be a Mr. Rackman who turns up from somewhere representing the 44 per cent. of the leaseholders, the minimum number, who are able to buy the flats, none of whom may ever have lived in the block of flats concerned. I ask, is that the intention of the Bill?
Are the tenants living there under this unknown, absentee landlord going to be better off than they are under the present landlord? Will they have better service agreements? Better management contracts than they have at the moment from those from whom the premises will be acquired? I wonder whether it is not a case of better the devil you know than the one you do not. I ask whether justice would be better done, and the terms of the manifesto fully implemented, if the right to buy were limited to long leaseholders with a resident qualification, as in 1967? It should permit too those who are disqualified to be able to buy an extension to their lease. That would be fairer to all.
The media—and I suspect the noble Lord, Lord Williams, from his opening speech—seem to suggest that these objections that I am airing are made on behalf of large central London estate owners. Of course, as will be raised in Committee, the arguments apply to them as they do to a number of others, such as National Heritage. But my concern is for the thousands of small freeholders who are going to be seriously affected. I have a letter that I received today, and with your Lordships' permission I shall read it. The letter says:I am a resident freeholder of a building divided into eight flats, and thus not covered by the 'resident freeholder' exemption in the Housing and Urban Development Bill.Most of the eight flats in the building are not lived in by home owners. They are owned by investors—by professional landlords and people not resident in the UK. One lessee used her flat for one week last year.This is my only residence. I know of two other neighbours in my sort of position. One is a widow of over 80 who has 103 owned the freehold of her building (seven flats) for forty years. Another in this square divided her own home into nine flats. She too is an elderly widow.I am a middle-aged single woman, an Oxford graduate, with poor health, who has been unemployed since my business had to close 12 years ago. I do not need this worry. I was advised to buy the freehold when it was for sale in order to secure the building's long-term good repair. I do not see why I should have to sell when a majority of the owners in the building are not even resident in the UK, and/or professional landlords.I have had other letters, but that is an illustration of the hardship that will come upon people against whom I am quite sure the Bill was not intended to act, and certainly were given no warning under the manifesto that this would be so. There are many other special cases which do not appear to have been contemplated when compiling the Bill, and I am sure they can be ironed out in Committee. There are such cases as leaseholds which are nominally residential but which are in fact used for business purposes. Harley Street is a case in point. We can get round to those cases in Committee. Despite the title of the Bill, which suggests that it is purely an urban problem, there are also those who will be faced with considerable problems that will arise in the countryside. Houses there that will have been let on long leases in circumstances that will give persons who may, or may not be, resident there the right to buy. Again, that is a matter we can deal with in Committee.
I support the Bill in so far as it carries out pledges that we gave in the manifesto. I find grave difficulty in accepting some parts of the Bill outside those pledges, because I believe they will cause much unfairness.
§ 4.7 p.m.
§ Lord Macaulay of Bragar
My Lords, in making my contribution to this Second Reading debate on the Bill may I first apologise to the noble Lord the Minister for my absence from my place. He may not have noticed it, but in fact I was dealing with a telephone call from the Law Society of Scotland. Therefore, I did not hear what he had to say about the Scottish element in the Bill, if indeed he said anything about it, but I shall look at it in due course in Hansard.
§ Lord Strathclyde
My Lords, of course I accept the noble Lord's apology. I can say to him that I certainly dealt with the Scottish provisions in the Bill.
§ Lord Macaulay of Bragar
My Lords, I am grateful to the Minister for that intervention. I shall look with care at what he said.
It will be fairly obvious from the list of speakers in this debate that I shall be speaking to the purely Scottish element—or tartan element, as you like to call it down here—of the Bill. In so doing I lodge, not for the first time, a protest at the manner in which Scottish interests are dealt with in legislation. The main thrust of this Bill —and it has become perfectly obvious from the speeches we have heard so far—is to deal with English and Welsh matters, and is completely alien to the Scottish legal system, housing system, and so on. Scotland has been slotted into a Bill containing 171 clauses. Fifteen of those 171 clauses deal with Scotland, plus three others which are of little significance.
104 Any legal practitioner in Scotland looking for guidance to find out what the housing law in Scotland will be would not easily find it by looking at the Long Title of this Bill. My noble friend Lord Williams referred to the Short Title, but in the Long Title there is only one reference out of 26 lines to the Housing (Scotland) Act 1987. That is quite a preposterous situation. It again emphasises this Government's inability to prepare legislation for Scotland so that Scottish people can have their own way of dealing with it, and, where a Bill makes major changes to the Housing (Scotland) Act 1987, their inability to have it properly considered outwith the context of English and Welsh legislation.
I ask the Minister why no identifiably Scottish Bill has been introduced, rather than putting a Scottish element, almost in passing, into the Bill. In another place the Minister described it as a "United Kingdom Bill". Looking at the list of speakers, up to this point, anyone will readily see that it is not a United Kingdom Bill; it deals with a particular situation south of the Border. It is wrong in principle that Scottish legislation should be dealt with in this off-hand way. Of Course, if the Government have problems in another place they should face up to them and do something about them.
Once again the Government give fuel to those who cry out for devolution and a break from the United Kingdom so that Scottish legislation which does not affect the UK can be properly discussed and dealt with. The process followed in this Bill should make the Government think again, as part of the so-called "taking stock" exercise of Scottish legislation, about what is the proper procedure for dealing with legislation purely relating to Scotland. Whether that amounts to giving the Scottish Grand Committee full legislative powers, or otherwise, is a matter for them.
The principle behind the Bill—and here I reach the point of the Bill; namely, the rent-to-loan scheme—will plainly not be defeated. What has to be faced is the scrutiny of the proposed legislation with a view to improving it.
Having examined the provisions relating to Scotland, and having glanced through the others, I must say that as a lawyer—let alone as a layman affected by the Bill—this is nothing more nor less than a welter of legislative terms, many of which are not readily understandable even to a lawyer. Phrases such as "the initial capital payment", "the "deferred financial commitment", "the resale value of the house", "the initial notice of delay", "the response period", "the operative notice of delay", "the qualifying improvement work", "the qualifying person" and many other terms in the Bill, even with the attempted definitions, are almost impossible to understand. It has been pointed out to me that in Clause 127, amending the Scottish Bill, the proposed Section 73C is like a bad mathematics lecture in statutory form. Those are typical examples of a legislative nightmare even with the definitions, which are not readily understandable to anyone.
There will be many criticisms of the Bill in due course, as my noble friend Lord Williams of Elvel has already said. I take Clause 131 as an example. It 105 concerns the right to have repairs carried out, but nowhere in the clause does the citizen appear to have any right to specify the contractor. The Bill refers to "the usual contractor", but nowhere does the Bill state that a tenant can choose his own contractor. What happens if a tenant finds out who the usual contractors are and they turn out to be a bunch of building bandits or cowboys? The tenant may not trust any of those people. Does he have the right to say, "You may have your list of contractors, but here's the man I want to do the job and I'll abide by the work that he does"? I wonder where the Citizen's Charter fits into all this. Perhaps the Minister will tell us in due course.
The nonsensical style of the Bill is epitomised in Clause 132, at page 140. I give an example of legislative gobbledegook:(3) Compensation shall not be payable if—
- (a) the improvement is not of a prescribed description; or
- (b) the tenancy comes to an end in prescribed circumstances; or
- (c) compensation has been paid under section 58 in respect of the improvement; or
- (d) the amount of any compensation which would otherwise be payable is less than such amount as may be prescribed;and for the purposes of this subsection a prescribed description may be framed by reference to any circumstances whatever".If any noble Lords can tell me what that means I shall be glad to meet them outside during the course of the debate, having in due course heard the Minister. I believe that that typifies the style of the Bill which has already been referred to by other noble Lords. It just does not make any sense.
In passing, perhaps I may also observe that in Clause 127—and I hope I refer to the right copy of the Bill—there is a reference to passing on property to a partner. The partner appears to be envisaged in the Bill as only the husband or wife. I wonder how that fits in with modern social structures. What happens, for example, in relation to the so-called stable homosexual partnerships or stable lesbian partnerships? What happens where property is passed between a father and son, mother and daughter, brother and sister? No provision is made in the Bill for that to take place.
It may be that the Government will wish to have another look at that clause in the Bill. So far as I can see, there is no definition of "husband/wife" for the purposes of the Bill. That could create social and legal confusion in due course. It may be—indeed, this was suggested by the Law Society of Scotland—that the Government will wish to take the advice of the Law Commission.
Most of the legislation as concerns Scotland is politically designed to put pressure on local authority landlords to move quickly to ensure the transfer from tenant to owner in mortgage terms. It punishes the local authority financially by reducing the price payable by rent offsetting provisions. It takes no account of staff costing within an authority acting under pressure. I should like to know whether the 106 Government will give an undertaking to entertain applications from local authorities to offset the cost of administering the Bill.
Optimistic views are expressed on the assessment of the financial effects of the Bill, suggesting that they will be "minimal" and "neglible", but it is noticeable that no figure is put on its possible financial effects. With local authorities under severe pressure it seems to me that it is putting an additional financial burden on the local authority for which the Government should pay, because the Secretary of State has a hand in everything that is happening.
When it comes to the publication of standards and performance, local authorities have to publish each year their view of their standard and performance. Since the Secretary of State obliges local authorities to do that, will he undertake to meet the cost—independent of any other local authority business—of funding the publication and its distribution?
Before I conclude, I refer to Clause 138, which is the most obnoxious clause in the Bill as it stands. I believe that your Lordships should hear it in full because it makes an amendment to the Housing (Scotland) Act 1987 It states:A member of a local authority shall be excluded from a decision on the allocation of local authority housing, or of housing in respect of which the local authority may nominate the tenant, where—
- (a) the house in question is situated; or
- (b) the applicant for the house in question resides,in the electoral division or ward for which that member is elected".I pose this question: if that is the approach of the Government, why on earth do we elect local councillors at all? Who best to know who should get a house? Who best to know who the anti-social tenant may be who should not get a house within the ward?
In Committee in another place the Minister stated:It is undesirable for allocation decisions to be taken in that way. We believe that such decisions should normally be made on the basis of clear and objective rules. That can be achieved by excluding from the decision those members in whose electoral division or ward in which the applicant currently resides. The intention of that provision will be generally welcomed".—[Official Report, Commons, Standing Committee B, 15/12/92; col. 729.]Unfortunately, the Minister did not say from whom the welcome would come. In considering the terms of the clause (which then had a different number) he went on to say:On one hand, we needed to draft the provision tightly enough to prevent individual councillors from exercising unreasonable powers of patronage; on the other hand, we needed to ensure that councillors could continue to perform their proper role of representing their constituents' interests". —[Col. 730.]How on earth can those two objectives be achieved? They are self-contradictory. Either the councillor performs his functions within his ward or he does not. The Minister went on to say that the proposal,will achieve its aim of preventing blatant examples of unreasonable patronage, yet continue to recognise the important role that councillors rightly have".—[Col. 730.]What on earth was the Minister saying? I do not understand it. How can a councillor fulfil the important role that he rightly has and not have an interest in the allocation of housing?
I should like to ask the Minister whether he can tell us, either now or later, on what factual basis the 107 observations made by the Minister in another place were made? Which councillors are we talking about? Which areas are we talking about? Which towns are we talking about? The noble and learned Lord, Lord Fraser of Carmyllie, smiles to suggest that perhaps I know the answer. I know the answer but in some places there have been rumours—and confirmed instances—of councillors who have acted dishonestly. The Palace of Westminster is not immune to corruption and deceit. No doubt in the past Members of both Houses have and in future will succumb to that. But to put a blanket provision in a Bill of this nature that condemns the councillors of Scotland and to say, "You have been elected by the local people but we cannot trust you to make an objective decision", is an insult not only to the individual councillors of Scotland but to the people of Scotland who are looking for houses.
I should like the Government to put down in the Library, or anywhere else, a table of councillors who are believed to be corrupt and houses that have been the subject of corrupt allocation. If they cannot answer that question they should take this obnoxious clause out of the Bill and bury it where it belongs. We will wait to see what the provision is for England and Wales. At lunchtime today I had a brief conversation with the Minister. He indicated that he thought there was a similar provision for England and Wales. I do not believe that that appears in the text of the Bill, but if there is a similar provision I am surprised that it has got through either this House or the other place without considerable dispute and contest.
These issues are raised from purely a Scottish point of view, as I hope will have become clear, and I look forward to the Minister's observations at the close of the debate. No doubt these matters will be taken up at a later stage as indicated by my noble friend Lord Williams of Elvel.
§ 4.24 p.m.
§ Baroness Gardner of Parkes
My Lords, I am a little concerned to follow the pointing finger about corruption in both Houses. If it is so, I believe that the finger should be pointed more specifically rather than at all of us. I hope that the noble Lord is not expecting us to pay too much attention to that point.
I welcome the Bill. Like others, I must declare an interest. Although I do not live in a leasehold property I have an interest in a flat that I own. Since coming to this country from Australia I have gone to great trouble to live in a freehold house. I believe that my first home was a leasehold property, but when I knew enough about leasehold properties I went to great trouble to find a freehold property in which to live because I strongly resented the enormous number of restrictions attaching to leasehold properties. For example, one was not allowed to put up a blind, use a particular colour of paint and so forth. I was also stunned that at the end of the lease the property usually reverted to the ground landlord, even if he had not built the property in the first place. The leaseholder of the property usually had to return it to 108 the ground landlord in its top quality condition when first built—possibly 99 or more years earlier. That is a very onerous burden on leaseholders.
I know of many cases of elderly widows living in leasehold houses. Unlike the situation that applied in the days when their husbands had quite a lot of money, the houses are restricted to one-family ownership and so cannot be sub-let to relieve the financial burden. The occupants may be down to the last half-dozen or perhaps three or four years of a 99-year lease. They simply cannot sell those properties, much as they desperately need to do so, because the policy of the ground landlords is that they will not allow anyone to be told anything about the new terms that may be granted under a new lease if those properties are up for sale. They are caught in a Catch 22 situation. No one will buy: a person will not know what he is letting himself in for. Therefore, they cannot sell if they are simply refused an opportunity to consider a new lease. In the case of many leases that have run 99 years in London and are now being renewed, the ground rent is set as a percentage of the capital value or the freehold value of the property. That may be a frightening and almost open-ended commitment for someone. I do not believe that anyone could have envisaged that property would have doubled in value a few years ago. The ground rent could have doubled.
I welcome the changes of values to the Leasehold Reform Act 1967. I know of many people whom I consider to be very badly treated at the moment who will benefit from that. It is interesting to note that when the Church Commissioners voluntarily offered freeholds to people in large areas of London not everyone took them up. In some cases they felt they were too old to bother; in others the freeholds were sold separately and independently to different people. In the case of one house where I lived in the sixties I had to buy the leasehold and freehold interests separately and put them together. That is where the marriage value in this Bill comes in. At the time I bought the property—for £27,000—I was told that to pay so much for the freehold as for the remaining 17 years of lease was a terrible waste of money. However, at that time, unless I could obtain the freehold, I had no hope of getting a mortgage to buy the property. I believe that those restrictions were imposed by the Wilson Government at the time. The banks were not allowed to lend to anyone with short leasehold property.
The same situation applies today, not because the Government decree it but because it is the policy of the building societies. I declare that I am a director of a building society. The building societies will not lend on properties where there is less than 25 years remaining after the mortgage is taken into account. The reason is that the building societies are using their members' money to help other people to buy houses and they have to be sure that at the end of the period there is sufficient security in the property. We all know that at the moment negative equity is occurring in a large number of cases. I believe it is understandable that the building societies and other lending authorities require the equivalent of a 50-year lease in 109 order to grant a 25-year mortgage so that 25 years remain at the end. That greatly disadvantages many people who wish to buy a flat.
As I understand the terms of the Bill, each person occupying a flat in a block will have the same voting power as any other occupier. I would appreciate clarification of that point at the end of the debate. Service charges for blocks of flats are usually set according to the area. However, I understand that if one has a flat that is twice as large as somebody else's, one will not have two votes but just one. I should like to know exactly how that percentage is calculated. I am unhappy with the figure of £1,000 as the low rent figure because there are far too many properties where £1,001 is the current rent. It seems to me that either the people who set the figure at £1,001 have had too much influence or that the Government do not realise just how many properties are at that figure. I hope that amendments in this House will change that figure to at least £1,500 or possibly remove the restriction altogether.
I am unhappy that properties—I speak specifically of flats—are ineligible or unqualified for enfranchisement. I may be wrong and it may be only one of those two categories that will not have any right to longer leases. One cannot have both—either a longer lease or an enfranchisement. If the other people in the block of flats will not agree to an enfranchisement, one does not have the option of a longer lease. That is quite worrying.
Discussion has taken place regarding council tenants managing their own estates. In theory it is a marvellous idea. But my GLC housing experience, when I was a district housing chairman, indicated that it is not as easy as it sounds. In those days we had tenants' associations which did not do the actual management but did a great deal of the day-to-day running. It was extremely difficult to find people who were competent, willing and able to give the time required for that.
Management of anything the size of a council estate requires a lot of skill. It is important to remember the recent scandal, for example, in Lambeth Council, about which we heard. As long as I can remember in local government there have been scandals about building contractors being paid for work that either was not done or was not done well. Therefore, if people are given the right to run their own blocks of flats, it is important that there should be some sort of scrutiny. Most of the people in the blocks of flats will not be too interested in following up work carried out and there would be an opportunity for unscrupulous people to come in and make the most of loopholes in terms of building repairs. The noble Lord who spoke before me made an interesting but different point in regard to what would happen if one did not like the contractor. But there is a need for a lot of control over the contract of works.
Can the Minister say whether, if the councils have to transfer the block of flats to the people, they have to give a dowry for repairs? How will that be dealt with? Under the present circumstances there are some 110 cases where the councils have to give quite large dowries to the company to which the estate is being transferred.
Many leaseholders will be disappointed by the Bill. Apart from the points I am making, which will change the Bill if the amendments are accepted, many leaseholders believe that it will give them money in their pockets. They are quite wrong. Many leaseholders will be disappointed by the fairness of compensation that will be offered to the landlords. I am not opposed to landlords being fairly compensated. It is a good provision in the Bill. But many leaseholders do not have an appreciation of the fact that one will not obtain the freehold for nothing. That is another reason why it is particularly important that those who cannot obtain the consent of others in the block to buy the freehold should have a right to longer leases. Many people will feel that they cannot afford the cost of buying a part of the freehold and that may disadvantage the others who would like to extend their leases.
My noble friend Lord Peyton mentioned management, schemes. I believe that they are working well in protecting the visual appearance of squares in London and I see no reason why they cannot continue to work well. In addition, local authorities have rights and duties to ensure that property is maintained to a certain standard. They can take action to see that it is if the landlord or owner fails to do so.
My noble friend Lord Boardman made the point that landlords will be able to change without the tenants knowing. That is no different to what happens now. One can find one's block of flats sold by one pension fund to another or one owner to another without the tenants having any idea that the freehold has changed. Many tenants obtain leases from head lessors and not directly from the bound landlord. Therefore there will be no change. Whoever owns the block, if it is not the tenants themselves, it will not be significantly different. I believe that there are other powers to ensure that the block is managed well.
I welcome the Bill and hope that as it goes through the Committee and other stages we will be able to persuade the Government to accept amendments to improve it.
§ 4.35 p.m.
§ Lord Middleton
My Lords, I wish I could share the enthusiasm of my noble friend Lady Gardner for the Bill, although I appreciate and am impressed by the points she made with such clarity.
I have heard it said that Part I of the Bill is in the honourable Conservative tradition of reform of land tenure. Legislation compelling an owner of property to sell it to a tenant for less than its potential market value in breach of an existing contract is already in place. As we have been reminded, the Leasehold Reform Act 1967 followed by the 1974 Act were both brought in by the party opposite. The noble Lord, Lord Williams, thoroughly approves of the underlying principle.
Sir Robert Megarry, former Vice-Chancellor of the Supreme Court, referring to the principle underlying 111 the 1967 Act that under a building lease the land belongs in equity to the landowner and a house belongs in equity to the occupying leaseholder, said,Whatever political or social expediency there was in this principle it is difficult to perceive any equity in it in any sense of the word".The Government justify the appropriation of property through leasehold enfranchisement by comparing it with compulsory purchase for development. That has long been accepted on the principle of the greater public good overriding private property rights. I do not believe that the comparison is a good one. The 1967 Act was part of a series of enactments passed by the Labour Party with the object of improving the position of the tenants of private landlords. Therefore, inequitable though it may have been in principle, that Act at least had a social justification. It was aimed at removing injustices suffered by leaseholders at the poorer end of the housing market.
I am at a loss to find any social justification in the Bill which extends the right of enfranchisement into the top end of the market. There is no relief in the Bill for the poor and deprived. If a tenant can sell enfranchised property at an enhanced price, it is like robbing the rich to pay the rich. That is not to say that I am unaware that many tenants of high-value leasehold property want a reformed system. They have grievances. Landlords of flats are failing to perform their obligations. There are exorbitant charges.
But those were the kinds of abuse with which the Landlord and Tenant Act 1987 was meant to deal. If that Act is not working properly—as is admitted by the Government—then it would have been better for the Government to reform their own Act so that it does work rather than go down this dubious route.
I share some of the concerns of my noble friend Lord Peyton. I remember gathering information for a debate on housing in this House, when we were in Opposition in the 1970s, and being told by a senior civil servant in a regional office,The private rented sector is in terminal decline and, the sooner it is finished off, the better".Whether or not that was the view then of the party opposite, I believe that the Labour Government of the 1960s and 1970s were trying with the best intentions by means of their Rent and Housing Acts and Leasehold Reform Acts to improve the lot of tenants in the private sector. However, the effect on the supply of private houses coming forward for renting was marked. The decline of the private rented sector was accelerated. What is known to some of us as "Earl Ferrers' law" began to operate. It states that,the effect of any legislation is invariably contrary to the intentions of those who promoted it".Now the Government are repeatedly on record that they want to support private letting, and indeed they have legislated to reverse this decline.
I am particularly concerned with the problems facing our rural areas. Young people are finding it more and more difficult to buy houses and are looking for houses to rent. These are increasingly becoming available often on assured shorthold tenancies. This Bill does not hit directly at the private rented sector in 112 the countryside, but what it may do —this was the worry of my noble friend Lord Peyton—is to undermine confidence on the part of owners of lettable houses. If a Conservative Government can compel the sale of council houses, can endorse the purchase of long leasehold houses on comparatively unfavourable terms and can extend leasehold enfranchisement for no obvious socially justifiable reasons, what, they may ask, will be the next target for land tenure reform?
The Government have chosen this particular road to reform, so we in this House must do our best to improve Part I of the Bill. Noble Lords have indicated where amendments are desirable. To those I would add that freeholders of high value houses are not, whatever the Government may say, given adequate compensation. There is inconsistency as between freehold house owners and flat owners. Special treatment should be available both for heritage property and for houses managed for charitable purposes, as the Bill already provides in the case of flats managed for charitable purposes.
Finally, I would ask the Government to confirm their undertaking to provide for compensation for injurious affection in respect of "1993 houses" and that they will apply this consistently with the "1974 and 1967 houses". I very much hope that the Government will look favourably at these suggestions during the later phases of the Bill.
§ 4.42 p.m.
§ Lord Coleraine
My Lords, my noble friend Lord Middleton will not find that I am in agreement with all that much of what he has said but he will learn that I approve in the same way of the words of Sir Robert Megarry which he quoted in relation to the 1967 Act.
I am today speaking in support of the first part of the Bill on collective enfranchisement and lease extensions, especially in relation to flats. I have an interest to declare. I am the lessee of a flat in a block of eight flats and all of us are entitled under the Bill to collective enfranchisement. The block is in Kensington, so it is right that I should pay tribute to the late Sir Brandon Rhys Williams, who for so long ploughed the field of flat enfranchisement on behalf of his constituents, and also to Dudley Fishburn in another place, who has recently played his not inconsiderable part in keeping enfranchisement before the eyes of the Government and in bringing it into the Conservative election manifesto last year.
I shall be speaking to a number of amendments during the later stages' of the Bill. I shall touch on one or two of those in a general way this afternoon. Long leases in relation to flats in blocks are not part of our national heritage. They are a relatively modern phenomenon, coming during the past 50 years. Difficulties with the enforcement of positive covenants may have played some part in bringing them about, but long lease flats are largely the result of the statutory rent controls and security of tenure of the early and middle decades of this century, which left landlords with no practical alternative but to sell their flats on long leases rather than to rent them to tenants. This created a speculative market and any number of intractable problems which are coming to plague us 113 now. I would add my personal view that the reverse of that coin is the inflation of the past 20 or so years and the fiscal incentives which have turned a whole generation of home seekers away from the desire to rent and caused them to rush headlong into buying these flats.
Leaseholders affected by the ill effects of this form of tenure are not just those found in the crumbling mansion blocks of Maida Vale, whose Member of Parliament, my right honourable friend Sir John Wheeler, so strongly supported in another place during the early stages of the Bill there. These leaseholders are also to be found in the turn-of-the-century terraces of houses, now cheaply converted into long lease flats, in traditional Labour voting areas. I could give as an example Finsbury Park—not leafy Finsbury, but the parts of North Islington, far beyond the Georgian squares of Islington that we know.
I have heard it suggested in some quarters that the Bill is about a power struggle between some rich lessees and their landlords. Nothing could be further from the truth. The back streets of the seaside towns, the outer areas of inner London and the inner areas of our provincial cities have their stories to tell of the one- and two-bedroom leasehold flats of low income working people. The Bill is for them. Let there be no doubt about that.
The Minister has given some of the reasons why, as a matter of public policy, the Government have determined that the end is desirable. I stress that the leasehold system, for flats particularly, strikes at social cohesion, promotes a "them and us" culture, saps the personal responsibility of the citizen for his home, limits the transferability and mortgageability of property, adversely affects the value of flats, brings about serious deterioration in the housing stock and provides opportunities for fraud against the flat owner. This system persists in this country almost alone in the world.
So I heartily congratulate the Government on this legislation. It is one of the reforms of the law of land tenure which the changing needs of our people seem to call forth every fifty years or so. It is comparable perhaps to the legislation of 1925, or, looking back a little further, to the Copyhold Act of 1894, under which copyhold owners were given the opportunity to buy out their lords, enfranchise their copyholds and extinguish the feudal manorial incidents. It is by measures such as this one that in the long run, when we are all dead, the rights of property will be seen to have been preserved. I say that to my noble friend Lord Middleton, who has taken a contrary view.
Your Lordships will not have failed to notice that it was the promise of enfranchisement, from the Conservative manifesto, that John Major homed in on, from his soap box as it were, in the final lonely hours of his election campaign last year. But I have to tell the House that the Act will have only a limited success if the Bill is not amended. The Government and the Department of the Environment, having willed the end, are in danger of failing to provide the means. There is a real danger that the Act may turn 114 out to be no more than a paving Act providing a flawed mechanism by which enfranchisement can be achieved but without actually making it possible in practice for more than a very few flats to be enfranchised.
Turning to specific points in the Bill, it is evident to me that the Bill must provide—this is what the Government have tried to achieve—fairness to the landlord whose property is being expropriated, coupled with an effective machinery for bringing about the enfranchisement objective. The question of fairness to landlords brings me to Schedule 5, which sets the price to be paid by flat owners for enfranchisement. It is a matter to which we shall come back in Committee, but, if enfranchisement is to take place, the price must be both fair to landowners and a price which flat owners will and can pay.
Price will have to be looked at in conjunction with the other hurdles which stand in the way of enfranchisement in the Bill. It is a complete fiction that flat owners will be standing with their cheque books in their hands when the Bill becomes law, ready to pay whatever price Parliament fixes. From my own professional and personal experience I testify to the fact that there are not many blocks of flats in which the flat owners will cope with all the realities of collective enfranchisement. The expense and uncertainty attendant on the preliminary stages before even the initial notice is served, will alone prove a serious deterrent to many flat owners.
Yet some have said that the price should be higher. We have heard cries of, "daylight robbery", and "windfall profit" from time to time during the past few months. It may be that we shall hear those words again. I am confident that the Minister will answer those cries as effectively as did the Secretary of State in another place two weeks ago.
I remind the House that many on these Benches and in other parts of the House who deplored the Leasehold Reform Act 1967 did not do so because it involved the transfer of property from one citizen to another. That was in the Conservative manifesto at the time. They did so because of the grossly unfair compensation terms which freeholders received.
I wish too to mention Section 23 of the Housing and Planning Act 1986, which may not be familiar to many. It closed a loophole and provided a fairer measure of compensation for the freeholders of houses in the higher rateable value bands who were given the right of enfranchisement by the 1974 amendment to the 1967 Act. It was I 'who pressed for and moved the amendment which brought about the change in the law. I stand to be corrected, but I believe that I can claim that no other amendment of the 1967 Act has from 1967 until this day been made in the landlords' interests by either Government or private Member. Therefore I believe that I may make some claim to an understanding of the right of a landlord to be fairly compensated when I remind the House today that under the Bill a flat owner will only be able to enfranchise on compensation terms which are very fair indeed to the freeholder.
In Standing Committee, Sir George Young said that marriage value was the sum left over when you 115 deducted from the value of a block of flats with vacant possession the sum of the investment value of the freehold reversion and the aggregate values of the flat owners' leases. In the example that he quoted—I believe it to have been a representative one—the freehold was worth £30,000 and the leases with 50 years unexpired were worth £1,600,000. On that basis the marriage value was £370,000 and the freeholder would receive a premium on enfranchisement of half that sum; that is, £185,000. That can hardly be said to be a bad return on investment. That example shows just how generous the Bill is to freeholders.
One question perplexes me, and I have given the Minister notice of it. It is perplexing, when the price to be paid by flat owners is said to be the market price, to learn from the Bill in paragraph 4 of Schedule 5 that the marriage value will be shared as the market would share it but that the freeholder will never get less than 50 per cent. of that value. There is a logical conflict which has caused considerable worry among flat owners. Some say, however, that the Government's actual intention is that, apart from exceptional cases where there are special facts, the freeholder will not receive more than 50 per cent, except at the very end, say in the last year of a lease's life. If the Minister can confirm that to me, it will give much relief to many worried leaseholders.
On the other hand, if the Minister says that there are many cases where freeholders may receive substantially more than 50 per cent. of the marriage value, perhaps he will square the circle and explain why the freeholder will never get less than 50 per cent. of marriage value when what the Government are trying to do is to replicate market conditions.
My other enfranchisement concern is about the requirement that enfranchising flat owners must buy the non-qualifying flats in a block. I can best illustrate this aspect by taking the example of a late Victorian mansion block in Maida Vale. In such areas, there are numerous blocks containing flats which have been sold on long leases over the years. The opportunity to sell the long leases has arisen when the old Rent Act-protected and statutory tenancies have fallen in. Nevertheless, there still remain substantial numbers of flats let to statutory tenants on fair rents in those blocks. In one such block, Morshead Mansions, there are 79 long lease flats with about 80 years unexpired which may wish to enfranchise, and 25 fair rent flats. The reversions to the 25 fair rent flats are worth in total about £1 million. That is very much more than the value of the reversions to the 79 long leases. The 25 flats produce net rents of only £43,000 a year, a return of just over 4 per cent. There is no way in which the qualifying tenants can borrow against that flow of income to finance more than a part of the price of the fair rent reversions. The freeholder of such a block is not covering his borrowing costs and cannot even afford to carry out the repairs.
The freeholder's main interest in the block is speculative —a gamble on the fair rent tenants dying or leaving so that he can sell more long leases. Yet the Bill requires the enfranchising flat owners to buy the reversions to those tenancies unless the freeholder requires a leaseback. The qualifying tenants are in a 116 very difficult situation when they wish to enfranchise. They will take all the lengthy and expensive preliminary steps to arrange finance to enable them to buy the Rent Act tenancies, and they may or may not be successful. However, they can be certain of one thing: that, when they have arranged everything and all is in place, the freeholder will step in and ask for his leasebacks. That is a point on which amendments will need to be moved in Committee. There must be some better way of dealing with what is a real disincentive to flat owners embarking on the collective enfranchisement course.
I turn now to lease extensions. I have no doubt that that is one of the most important elements of Part I of the Bill. The debates in Standing Committee seem to me to show that the Government have it wrong. The claims of the non-enfranchising lessees to have lease extensions were pressed in the Commons, in particular by Opposition spokesmen. The Government listened but did not give. The Bill provides that the lease extensions can be permitted only where collective enfranchisement is legally not possible. I refer to cases such as those where fewer than two-thirds of the flats are held on long leases, or where more than 10 per cent. of the block is let commercially.
What seems to have been overlooked in the preparation of the Bill is that any lessee who did not participate in a collective enfranchisement would lose his right to do so in the future except with the consent of the lessees who had enfranchised and had become his landlords. He would have no right to an extended lease. His lease would be second class and less valuable. The reason given by the Government for resisting the liberalising of the right to lease extensions was that the intention is said to be to bring about the end of the long leasehold system. The argument continued that anything which gave an excuse for leaseholders not to join in the collective enfranchisement was to be discouraged. What is so illogical about the argument is that, unless the collective enfranchisement is seen as a step towards commonhold, we shall finish up in many cases with the long leasehold system continuing much as before but with first class lessees inside and second class lessees outside the enfranchising freehold-owning company. My honourable friend Sir George Young made it quite clear in Standing Committee that it is no part of the Government's thoughts that collective enfranchisement should lead to commonhold.
We now have the red pamphlet from the Lord Chancellor's department entitled, Commonhold—the Way Ahead. The pamphlet states that all the long leaseholders in a block will need to agree for conversion to commonhold to take place. It is made quite clear, therefore, that, except in cases where only a few flats are involved, only new blocks and new conversions will be owned in that new way. The long leasehold system will continue on its way unabated and in some cases in a more perverse form than before. The pamphlet makes clear the lack of a truly firm commitment to commonhold and strengthens the case for liberalising the provisions of the Bill relating to lease extensions.
117 Finally, I am sure that it will not have escaped attention that the lease extension option, seen as an alternative to collective enfranchisement, has two advantages. By providing the possibility to flat owners of not enfranchising, the liberalising of the lease extension option would satisfy those who feel, as I do, that not all landlords need lose their freeholds by enfranchisement. It would also be in the interests of, and in accordance with the wishes of, the not inconsiderable number of flat owners who are, let it be said, satisfied with the existing management of their buildings. Why should they be socially engineered into enfranchisement in order to protect their homes? With that question, I leave the Bill to the House and commend Part I.
§ 5.1 p.m.
§ Lord Shaughnessy
My Lords, this Bill is probably one of the most controversial measures which has come before your Lordships in this Session. It will be greatly welcomed by about 750,000 long leaseholders of flats and no doubt fervently denounced by the freeholders of very large properties in London and other cities throughout England and Wales.
Like other noble Lords, in respect of Part I of the Bill, I must declare an interest since, as a long leaseholder, I may stand to benefit when the legislation is enacted. However, that situation will not occur if one of the exclusions currently contained in the Bill is not modified. I refer to the rule that excludes any block of flats containing more than 10 per cent. of non-residential premises by floor space. If that condition is retained at that low percentage, I believe that a significant number of buildings, which in every other respect are suitable for conversion, will be disqualified, thus partially defeating the objective purpose of the Bill. When the Minister winds up, I hope he will explain the rationale for that limitation. Nevertheless, I support the Bill as an appropriate and desirable modernisation of the housing regime.
In a free society it should be a basic right for an individual to continue to own outright an asset for which he has paid full value at the time of acquisition. Any curtailment of that right cannot have any validity in a democratic society. That right has been denied under the leasehold regime which has existed for some years in England and Wales.
But this Bill is in fact an extension of the principle involved in the Leasehold Reform Act 1967 which, for whatever reasons, was not extended to residential flats. I believe that the argument that these proposals interfere with "contracts freely entered into" has little force since the principle was affirmed by the 1967 legislation with no apparent disastrous results. The basic concept existed then, as it does now, and the reason that a freehold contract was not readily available was because enabling legislation such as we are discussing today, did not exist. But whatever that situation may be, the objectives must be achieved fairly.
Apart from the anomaly to which I have referred, I believe that this Bill strikes an equitable balance in the equation. The rights of the landlord to establish a 118 legitimate price for the surrender of the freehold are reasonable. The position of the leaseholder to acquire an enduring equity in the property for which he has paid full value seems to be adequately protected. Therefore, one would hope that in the last analysis there would be no reason why these conditions are not acceptable to both parties.
Historically, the fraught relationship between landlords and tenants has been a source of turbulent discontent since feudal times. It has frequently erupted into insurrection and even revolution. The natural human aspiration has always been the outright ownership of the land and property which he or she could succeed to acquire. No matter what sacrifices may be involved, that objective will be pre-eminent in the minds of men and women. It is time therefore that this country, which has shown the way to social emancipation over many years, should take the appropriate action to resolve an anomalous situation with respect to the tenure of property that exists in almost no other developed country in the world. I hope that the Bill will at least go as far as possible —given the adoption of some important amendments —to achieve what must be a wholly desirable objective.
In conclusion, I should like to echo the remarks of the noble Lord, Lord Williams of Elvel, in respect to the Bill as a whole. I agree with him that in as compendious a piece of legislation as this, there appear to be no significant measures to address the problem of the lack of housing and the grisly spectacle of homelessness which is still with us.
§ 5.7 p.m.
§ Lord Kindersley
My Lords, there is a danger of repetition when so many speakers are critical of a government Bill from whatever angle they may be coming at it. But there are some things which bear repetition to make sure that the message is well and truly received by this Government. I can only hope that by the end of this debate the ornamental ears referred to by my noble friend Lord Peyton will have understood the real purpose of their design and will listen—a characteristic which seems to have been notably absent up to this point in government quarters.
I must now declare an interest as chairman of Henry Smith's Charity which owns about 70 acres in Kensington. It was bought by the original trustees in the early 17th century and a very farsighted investment it has proved to be. Judging by many of the remarks made in the other place on both sides of the Chamber, that is now regarded not as an enlightened investment, but as an unfair privilege which must be stripped from the charity and distributed by forced sale to our tenants. It is a far cry, one would think, from the Government's policy of encouragement to entrepreneurs and to investment in the future which was the basis of the original decision of our trustees.
However, there is not much point at this stage in moaning about the principles underlying this unfair piece of retrospective legislation when a majority government have made it quite clear that nothing will make them change their minds. Much support is 119 visible through the politics of envy which are transparent in the comments of members of both government and opposition parties.
Envy surely cannot extend to a charity with thousands of beneficiaries who are in a considerably worse plight than the tenants of our Kensington estate. Is it really unreasonable to suggest that charities should be exempted from this legislation? I hope that your Lordships think that it is not. However, if the Government continue to turn an ornamental ear to this suggestion, would not your Lordships feel that any windfall gain arising from the forced sale of its freehold should go entirely to the charity and its beneficiaries? Again, that seems not unreasonable. If we as trustees do not do our utmost to ensure that this happens, we should rightly be censured by the Charity Commissioners for failing in our duties towards our beneficiaries. Neither the present drafting of the Bill nor the comments made by its architect, the Minister, Sir George Young, give us any confidence at all on that point.
If there is to be no change and we are forced not only to sell but to share the marriage value with the leaseholder, surely that windfall gain should go only to those who use their flats as their principal private residence. It would be too ridiculous to hand out such a gain at the expense of the charity to the many companies, mostly based overseas, which use the estate.
Leasehold reform is claimed to be a manifesto commitment which must be honoured. But, if one reads it carefully, the manifesto makes it clear that the pledge is to home owners, and the Bill should surely reflect that by including a "principal private residence" clause or something very similar.
Finally, there is a factor which transcends the mercenary elements to which I have referred but which nevertheless also affects the fortunes of the charity. I refer to the heritage factor. The trustees, their managing agents and, if I may make so bold as to add, their leaseholders have a pride in the standards set in the estate. Two million pounds has recently been spent by the trustees in the restoration of the railings and the relandscaping of the gardens throughout the estate. Can one imagine a series of separate and squabbling freeholder associations contemplating anything of this sort? Indeed, it is far from clear in the Bill who would take the responsibility post-enfranchisement for even the basic maintenance of the gardens. They would become a liability rather than, as now, an asset enhancing the overall value of the estate in the interests of the freeholders, the leaseholders and, I believe, the citizens of London generally.
Rather than let this and other aesthetically pleasing areas of London risk falling into an uneven patchwork of maintenance, surely there is a case for excluding conservation areas from this ill-thought-out piece of legislation, which appears now to be directed more at the landlords who have proved their competence over the centuries than at those fly-by-night speculators of whom tenants can justly complain. If the objective of this legislation has moved away from its original purpose, which was to defend leaseholders from bad landlords, and into the more general objective of abolishing leaseholds altogether, surely it would be 120 simpler to tear up this complicated leasehold reform, which has been so criticised for all those complications and clauses, and merely abolish the leasehold system —but not retrospectively—so that the present leases, freely entered into by both parties, would in due course come to an end. The freeholder would then decide whether to sell the property or to rent it on a short-term basis.
Under the Bill as it stands at present, there is the fatuous situation of flat owners (who are unqualified and thus unable to buy their freehold) being given the right to buy a long-term lease from the landlord, thus perpetuating the very instrument that we are told that the Government want to destroy. The whole thing is marvellously Alice in Wonderland, but the issues are too serious to be humourous.
§ 5.15 p.m.
My Lords, in speaking in your Lordships' House this afternoon, I do so entirely in the role as supporter of my noble friend Lord Kindersley, who has just sat down. As he has said, he is the chairman of the Trustees of Henry Smith's Charity. I am another trustee and I hope that what I have to say will not be simply a repeat performance. I shall confine my speech to Henry Smith's Charity and its workings, and shall seek assurances from the Government that the working of the charity will not be disrupted under the provisions of the Bill.
On Henry Smith's tombstone in Wandsworth, it is written:Here lyeth the body of Henry Smith Esq., sometime Alderman and Citizen of London, who departed this life the 3rd day of January 1627, and not here stinting his charity and bounty, did give and bequeath the most part of his Estate —being to a great value—to the purchasing Lands of Inheritance for ever for Relief of the Poor".Consequently, 84 acres of land (including roads) were acquired in what was then the village of Brompton, which is now known as Kensington. This area is still the kernel of Henry Smith's Charity. Over the centuries, squares and streets of houses, flats, gardens and offices have been developed. All of these are let on long leases. The whole area is one of great character and distinction, well and professionally managed, and maintaining its capital value under the present arrangements. It includes Onslow Square and Gardens, Lennox Gardens, Pelham Crescent and Egerton Crescent. It has been a very well run, estate over a long period and is in every way what one might refer to as a "heritage estate".
It has attracted several Members of your Lordships' House to take out leases, including—to name but a few—my noble friends Lord Newall, Lord Holderness, Lord Caldecote, Lord Ingleby and, in particular, Lord Montgomery of Alamein, who, I am delighted to say, is present this afternoon and intends to speak in this debate. I am sure that he will have a lot of constructive things to say. I look forward to hearing his speech. In conversations with those noble Lords, and others, I have found friendly banter rather than outright criticism to be their tactics. It usually has something to do with window cleaners or painters peering into bedrooms or with garage rents that are too high, and such matters.
121 Much experience is gained and vital stability is introduced over four centuries. If one translates all that into the national scene, we have the ingredients of a cure for this country's economic ills. A period of stability, building upon what we have inherited, as opposed to endless experiment and upheaval, is what this country needs above all else. While I do not want to preach, I am bound to say that a Conservative Government should conserve.
One point on enfranchisement within blocks of flats worries me especially. Let us suppose that two-thirds, or four-ninths, or whatever the fraction may be, of leaseholders wish to enfranchise, and enfranchisement goes ahead, then I fear for the remainder who, for very good reasons, may wish to retain their leaseholds. The landlord —in this case Henry Smith's Charity—may well take the view that the fragmented property is unmanageable, and sell up; thus removing the honest broker with whom the leaseholder did his deal in good faith. My noble friend Lord Peyton mentioned that point and I support his doubts about the proposed management system. As I see it, the spivs and the speculators will move in and great pressure, seen or unseen, is likely to engulf the remaining leaseholders. I hope that I am wrong, but I have visions of an ogre who will make Mr. Rachman seem like Father Christmas.
I leave Count Dracula and return to the admirable Mr. Henry Smith and his,Lands of Inheritance for ever for Relief of the Poor".Last year, the income from the charity's freehold estate enabled the trustees to distribute over £12 million to thousands of charitable causes throughout the United Kingdom. Even today, £12 million is a considerable sum. I know of many charities for which the Henry Smith's Charity's contribution is a lifeline. In other cases it is a catalyst or pump primer. I know how much noble Lords value the part played in this country by voluntary organisations, especially, as the noble Lord, Lord Williams, pointed out in what one might call the bad areas.
Many noble Lords have conferred with me to enlist support for a charity in which they have an interest. Some of them are here today. All those charities are scrutinised by the Charity Commissioners. On Second Reading I shall not go into great detail, but I shall probably produce a mass of evidence at later stages of the Bill. Suffice it to say today that the NHS and the social services will be under even greater strain in thousands of cases without help from Henry Smith's Charity.
It may be argued that the compensation paid to freeholders will enable the likes of Henry Smith's Charity to carry on as before; but the Kensington Estate has been the nub, the essence, the soul of the operation for nearly four centuries. I should not like to see it replaced by potentially ephemeral pieces of paper on the Stock Exchange. I cannot speak for the other large London estates, including the Church—I hope that someone will speak for it in due course—but in the sphere upon which I have concentrated I have not heard a great clamour for the Bill. I shall be looking for assurances from the Government and support from noble Lords in future stages of the Bill.
§ 5.26 p.m.
§ The Earl of Shrewsbury
My Lords, I am somewhat hesitant about addressing your Lordships on the Second Reading of this important Bill because, unlike many of your Lordships, I have no vested interest in any lease. There are many noble Lords here who are far more qualified than I am. I feel that it will be refreshing to get away from the subject of leasehold for a few moments, and I intend to talk about urban regeneration. I must declare an interest as, first, I have the honour of recently succeeding my noble friend the Duke of Abercorn as president of the Building Societies Association; and, secondly, I have an involvement with a property company in the Black Country in the West Midlands, a region for which I have the highest regard and where of course the Industrial Revolution had its beginnings.
I should like to pay tribute to the building societies movement for the responsible way in which it has started to tackle the appalling problems of homelessness throughout this country; for example, the Bradford and Bingley Building Society, in conjunction with a housing association, runs a scheme which has become the model for the industry. To date, it has been most successful.
During my research into this subject I thought that it would be strange if I did not say something about leaseholds. First, I am aware that many of my noble friends are not happy about the Bill, especially the leasehold reform part of it. Indeed, I have been told that this is a Conservative Government putting forward Socialist proposals. However, it must be said that leasehold reform has been part of Conservative Party policy since 1966. It was a commitment in the party's manifesto last year and one mentioned by my right honourable friend the Prime Minister on the last day of the election campaign.
It is often said that your Lordships' House is an anachronistic establishment. I am sure the same can be said about leaseholds. They have many disadvantages. Government have a clear duty to keep forms of contract in all walks of life under review and to ask Parliament to reform them when and if necessary. There are numerous precedents for that.
The Bill has the support of the Building Societies Association and the Council of Mortgage Lenders. I shall quote from the CML newsletter of November last year in which it said:There is of course Opposition to the enfranchisement proposals. The large estates, particularly, are believed to be planning to fight this part of the Bill in Parliament, arguing that the current system is in principle not flawed and that, if there are bad landlords, they should be dealt with specifically. The CML has never accepted this argument, believing that in effect the landlord-tenant relationship is incompatible with real home ownership. The Government seems to have been convinced by this argument and, although the Bill contains one 'concession' to the estates in the form of the proposal that 'estate management schemes' should be allowed to continue as part of the enfranchisement framework, it is believed that the Government is determined to persevere. The Opposition has always supported the basic proposals although in its General Election Manifesto, it was in fact prepared to go even further than the Government, by, for example, making the voting requirements less stringent".123 Therefore we are lucky that the Government, rather than my colleagues on the Opposition Benches, are taking the Bill forward.
A much wider public interest is of course addressed by the Bill. It will allow home ownership for about 750,000 people who in the past have been tenants. That cannot be a bad thing. I support the Bill in general, but I am sure that our lives will not be dull in Committee and on Report.
I wish to turn now to urban regeneration, a subject which I know a little more about. I hope to raise some constructive points which are of considerable concern to those in the private sector. The points that I shall address relate to planning and contaminated land. I see that my noble friend on the Front Bench is grinning at me. He and I have had many conversations on the subject. I shall deal also with the incentives which will need to be provided in order to attract private sector involvement in the redevelopment of this country's run-down urban areas.
First, I shall deal with contaminated land. That is a major and complex problem which has become the flavour of the month since the Government's original proposals early last year to establish a register under Section 143 of the Environmental Protection Act 1990. The threat of such a register has caused the widespread blighting of properties throughout the West Midlands conurbation and in virtually every area of this country. Many of the areas have a history of heavy contamination from the old industries which were based there.
At first the general perception was that the proposed registers would affect only industrial and commercial sites. But as public awareness grew the general public realised that many of the residential areas where they had purchased homes would also be affected. That did not come to light until a couple of documentary programmes were shown on television. Then all of a sudden everything hit the fan.
I know full well that the building society's movement is acutely aware of the great difficulties which it would encounter should a register be implemented on the original proposals. With house prices having fallen dramatically during the past two years and with many mortgagees in a tragic situation of negative equity, the consequences to both borrower and lender of having their house entered on the register would be disastrous. To the lender it would mean a further heavy fall in the value of his security. To the borrower it would mean the ghastly situation not only of having a house which will be greatly reduced in value (and which has already dropped in value out of all proportion) but also a property which will overnight become almost impossible to move in an already severely restricted, congested and depressed market.
Private sector developers have already suffered from the blight caused by the Government's proposals, even though the original proposals were scrapped and less punitive ones put forward last July for discussion. The commercial and industrial property markets are at a very low ebb, with no sign of an early recovery, no matter what one reads in the papers. The major lenders 124 have been scared stiff by the proposals for contaminated land registers. But perhaps also they have been provided with a gift horse which gives them a valid excuse to decline involvement in this troubled sector —an excuse which they have been looking for for a long time—and the development of existing sites with a history of previous industrial use is becoming nigh on impossible.
My noble friend the Minister knows only too well my thoughts on the subject. I imagine that he is getting pretty bored with my comments but I assure him that I shall continue to bang on about it until the Government change their mind about the registers. I hope that he may be able to give me some encouragement in his winding-up remarks today. But somehow I doubt it. I look forward to listening to him. But even if it is true—as stated in The Times last Thursday in another governmental leak—that HMG are on the verge of withdrawing the proposals, already severe damage, which may well be irreparable, has been sustained by the commercial property sector and also by owners of residential property.
The clean-up costs relating to contaminated sites are horrendous. I have heard figures from experts in the field stating costs per acre of between £100,000 and £1 million. Tips licensed to accept potentially toxic materials are few and far between and are extremely expensive to tip in. Often material from clean-up programmes in, for instance, the Black Country has to be taken to tips as far afield as Bedford. The transport costs alone of such an operation are large, to say the least.
There is no way that such sites will be dealt with unless there is a basketful of incentives from the Government to assist developers to tackle the problem. But developers are not simply looking for handouts from the Treasury. Many of the areas where urban regeneration is needed have a history of contamination. To address the financial aspects of regeneration I suggest that direct grant-aid is a lengthy process, with much paperwork needed, and at considerable cost to the Treasury, which I believe does not have the money, and ultimately the taxpayer, who certainly does not.
Surely a more simple system would be to use the enterprise zone model, where 100 per cent. industrial building allowances are made available to. those willing to commit themselves to the development of those areas of land. Those allowances can last for 10 years, or however long the Government choose. With the evidence over the past few years of schemes whereby private investors are able to take advantage of putting their cash in to back developments in such areas, the benefits are numerous. First, the land is developed (and no longer stands idle as an eyesore, covered with the products of illegal fly-tipping) and is made to be attractive; secondly, private investors are persuaded to back the finished product while benefiting from generous tax advantages; thirdly, new employment is produced; fourthly, the need for making use of greenfield sites is dramatically reduced; and, fifthly, the Treasury benefits from the tax gain from new businesses and their employees.
125 I realise that those benefits are long term, but we must renew the derelict urban areas and such a suggestion seems to me to be a least cost option. It is completely unacceptable to pass the buck and say, "To hell with the problems of developing old and derelict sites in urban areas. We can find a nice place in the countryside where our costs of development on a greenfield site will be less. We shall have to fight a few planners and probably the locals, and maybe the CPRE and also the Friends of the Earth. But in time we'll achieve what we want". That simply is not good enough. Too much pressure has already been placed on greenfield areas and we have a great opportunity now to renew and revitalise urban sites which have been allowed to decay in recent years. Yes, it will cost a great deal of money. But if addressed in a responsible manner the future vision of urban areas devoid of dereliction and with vibrant commercial and industrial activity could well become a reality.
The final subject which I would like to address is that of planning. I am not expert in this matter but I hear the comments delivered to me by my colleagues in both the property development industry and the construction industry. They are adamant that they face on a daily basis not so much the negative attitude of the planning authorities but the extremely slow and arduous process which they have to go through. There is far too much bureaucracy.
When the situation arises developers need to move quickly, otherwise they stand the risk of missing the market, losing investors' funds and finding severe problems in doing business. The market changes rapidly. I know of many cases where sites have been purchased, thoughtful plans developed and tenants in place ready and eager to move into the finished product, bringing with them jobs—often many jobs. But then the frustration begins, with schemes being delayed by the planning authorities, and sometimes being called in to the DoE. In numerous cases applications agreed (or at least not opposed) by the council officers are then turned down by the lay committee members. The results are most damaging to the viability of the locality, with job opportunities lost through the intransigence of those who sit in judgment and the slowness of the system.
The present system needs careful consideration and probably some certain reformation. Time spent dealing with local authority planners—it is always a great deal of time—costs large sums of money. As I have mentioned, too many proposals are being called in where the opportunity to develop with a tenant in place is being lost. Planning committees should for a start meet more often and the time which it takes to process an application at present must be greatly reduced.
If we are serious about redeveloping the large stocks of derelict land in our urban areas let us make moves to cut the bureaucratic process and get rid of the restrictions and the involvement of many councillors who know not the least about planning. Let us have, for instance, local boards of truly professional people who know just what is needed, and who from a professional point of view are able to 126 ascertain just what that particular area needs and what industry might be attracted to the area. Can we not have a new system run not by civil servants, but where the red tape is cut and where entrepreneurs with funding from the private sector are able to put their skills to good use? In order to "incentivise" the private sector—and many incentives will be needed to attract developers into urban renewal schemes —the Government must address those issues. A pro-active stance by both central and local government must be adopted.
Finally, there is an anomaly with regard to historic houses and their exemption from inheritance tax, a provision contained in the Bill. That needs to be addressed and in Committee I intend to bring forward a necessary amendment to rectify it.
I know that I have digressed probably very wide of the mark but I believe that the convention of your Lordships' House is that at Second Reading almost anything goes.
§ 5.39 p.m.
§ Lord Sefton of Garston
My Lords, I almost feel like apologising because I appear to be interfering in a debate within the Tory Party. There appear to be many divisions. The noble Earl, Lord Shrewsbury, admitted that he is not an expert in planning. He then proceeded to read out what I considered to be a perfect brief produced by some private developers who are supposed to be experts in planning and who are working somewhere in a remote office. He dismissed the question of planning by saying, "We shall have to deal with a few planners and locals". That is the same attitude which has prevailed in this new science of looking at planning. It is said, "We shall have to deal with a few locals"—that is regardless of the fact that those few locals may be several thousands of people in London Docklands who have been displaced through the principle that the expert knows best.
I am glad that somebody has referred to what is the most important part of the Bill, Part III. Part III contains many extremely fundamental principles. I bow to the knowledge of others as regards charities and agree with the professed belief that charities should be exempt from the provisions of this Bill. Charities perform a useful function.
I do not believe that anybody has a moral responsibility or duty to control somebody else's basic form of shelter. I believe that everybody has a right to own and control their own shelter. That is the situation in Part I, which I shall not deal with.
The noble Earl referred to historic houses. Chapter I contains a clause which practically forces local authorities to take welfare payments for the upkeep of those houses out of the housing revenue account. I shall be interested to see the details of that later, and that will be dealt with when we are discussing amendments. However, I believe that that is fundamentally wrong. Such welfare should be a charge on the community.
I give an example of what I mean. I received a letter saying that as a direct result of the Government's announcement the council's urban programme in 127 Liverpool had been reduced to £11.3 million from £17.2 million and for 1994–95 it had been reduced to £5.7 million. At the same time the Government are saying that we can spend £60 million or £80 million on rebuilding Windsor Castle; that is an obscenity. I believe that it should stay as an historic monument. That is what I mean by Part III of the Bill.
The URA is to occupy a similar position to that occupied by new towns. It does not take into consideration local authorities and it will not be made up of members of local authorities. The Government are moving towards a situation in which all the new planning organisations are centralised in Whitehall. It is anathema to socialists to talk about central bureaucracy. It may be that some socialists lost their lives while opposing the kind of centralised bureaucracy which existed in the Soviet Union many years ago. It is ironic that they are now supposed to be moving into a freer society and we are moving away from it. Why are we doing that? We are moving away from it because it is the bureaucrats who now have the power in this country.
I give an example of what has happened in the past 10 to 15 years. The legislation on the police provided that, because of some problems which the police force were having, there should be an amalgamation of forces. We then abolished the watch committees, and having reduced the powers of local authorities, JPs were appointed to police authorities. What power do local authorities have now as regards the administration of the police? We are slowly moving towards a situation in regard to that so-called service where we are reproducing what used to happen with the Metropolitan Police in London. Nobody bothered about the fact that there was more corruption in the Metropolitan Police than in any other police force in this country. Why was that? It was because it was not responsible to anybody. There was no watch committee. It was responsible only to the Secretary of State. That is what is happening in all aspects of society today.
At present there is hysteria. People are talking about crime and the power to control it. The same demands will be made for a national police force. I can remember in my lifetime that to suggest that we should have a national police force at one time was considered to be the worst thing that could happen in this country. Nevertheless, slowly but surely we are moving towards that situation. Local authorities could implement all the provisions contained in this Bill were they given the resources which are now to be given to these new organisations.
New towns were brought into existence because it became quite evident that the problems in London and the major cities were such that we needed those new towns. By the very nature of things, those areas had to be within green fields. No local authority existed which had experience of administering such matters. Therefore, the idea was born that there should be representatives from areas from where the people were moving and representatives from the areas to which they were moving. The new town movement was extremely successful. Useful and efficient areas were created for development.
128 Why were the new towns not kept like that? The new towns were something of a nuisance to Whitehall. Movement had always been towards the centre. Whitehall did not like the new towns and the awkward councillors. Whitehall was not bothered about the few planners and locals. Whitehall wanted power to be contained in Whitehall and this Government did not have the sense to control that.
This Bill is the same Rake's Progress towards centralised authority. Many small matters can be dealt with at later stages by amendment. However, the fundamental fault in this Bill is that Part III should never have been included. It is too fundamentally different. My noble friend Lord Williams said that there should have been three Bills. Had that been so, it might have been possible to have had a proper discussion and we could have seen exactly where we were going. However, we are submerged in a plethora of appeals, which almost breaks my heart. I hear the appeals from landlords who own those long leases. I literally almost wanted to start crying for people like the noble Duke, the Duke of Westminster, who owns half of London. It is about time that somebody asked a fundamental question, and your Lordships will forgive me if I ask it, although I know that I shall not receive a reply. We should look at how the noble Duke acquired his estates and whether it is morally right that he should be in a position to dictate to others how they should live their lives. Those are fundamental questions.
When I hear the appeals from such people or their representatives in this Chamber, it does not make the slightest difference to my feelings. In this country we built up a very efficient system of local government. There is no doubt that local government could do the job were it given the opportunity. From their very inception this Government have been hostile to local government and have slowly strangled it. I believe that the Bill will be the last chance that we have to try to prevent that. After the passage of the Bill I doubt whether there will be any local government worthy of the name.
§ 5.50 p.m.
§ Viscount Dilhorne
My Lords, I have no interest to declare. That may surprise some noble Lords but it is the truth. Many landlords accept, for better or for worse, that the logic of the Leasehold Reform Act 1967 and its extension by the Counter-Inflation Act 1973 should be extended to include leasehold flats. Many landlords also support the introduction of commonhold tenure: the removal of bad landlords and the granting of rights to leaseholders of all residential flats to control their own buildings. A great amount of consultation has taken place in relation to commonhold.
Power has already been given by Parliament in the Landlord and Tenant Act 1987 to leaseholders to take over the management of their buildings and to combat bad landlords. However, for various reasons that Act has been totally ineffective in that respect. Why cannot that legislation be amended and made effective? At no time, not even in the Conservative Party's previous election manifesto, was it made evident that the true 129 intention was to abolish all residential leaseholds in excess of an original term of 20 years—a length of term that makes it virtually impossible for a mortgagor to obtain a mortgage from any building society of repute. That cannot be identified with the election promise that was made in the following terms:We will introduce Commonhold legislation giving residential leaseholders living in blocks of flats the right to acquire the freehold of their block at the market rate. Leaseholders of higher rate houses will also be given the right to buy the freehold of their property … Leaseholders who live in a block which does not qualify will have a new right to buy an extended lease".That is an exact reproduction of what was printed. There are no residential requirements in the Bill despite the implication in the manifesto that only residential leaseholders living in blocks of flats would qualify. There is a clear, positive and unambiguous undertaking that the market rate will apply in the purchase by those who qualify but, as I am sure your Lordships are fully aware, we have heard this afternoon that that is not an entirely accurate statement.
I propose to concentrate on just two aspects of this Bill. The intention not to speak for too long is good but the fulfilment of that may err slightly. I hope that is not the case. There are two serious errors of omission of which I am sure the Government are aware. However, I suspect they may not yet have fully addressed those errors of omission. I hope they will do so. The two important headings are residence and the formula for calculating the purchase price payable. Those matters are dealt with in Clause 28 and Schedule 5 of the Bill.
I shall deal with residence first. In all previous parliamentary measures going as far back as 1915—I know that my noble friend on the Front Bench went further back in time in his opening speech—the purpose of Parliament was to give protection and security of tenure to tenants provided there was a residential qualification. This Bill shirks dealing with that question entirely. It is necessary therefore to look at the provisions of other landlord and tenant legislation and related legislation to see what Parliament in its past wisdom has thought fit to enact. I hope noble Lords will not be alarmed and think I shall take too long over this.
The various Rent Acts, including the 1977 Act, require the tenant simply to occupy the premises as his dwelling. Those are the important words. That enabled a Rent Act protected tenant to have two homes provided the tenant could meet that residential qualification. The Leasehold Reform Act 1967 had a more demanding test than that required by the Rent Acts. It required the enfranchising tenant to establish not only that the premises were his only and main residence but also that he had lived in them in the three years immediately preceding his application to enfranchise. Both those requirements were designed to ensure the exclusion of speculators, property developers and all such other persons whose interest in the property was not residential. Those measures succeeded in achieving that aim.
130 A common factor running through the entirety of that legislation which seems to be missing in this Bill was to give protection to people's residences by preventing the ills that would flow from the eviction of people from their homes. I should perhaps point out to noble Lords at this stage that while there is no residential qualification stated in the Bill the extension of the enfranchisement rights under the Leasehold Reform Act 1967 has been permitted to continue in respect of residences. I believe that matter has entirely escaped the notice of those honourable, gallant and learned Members in another place. If this Bill receives the Royal Assent in its present form, a veritable cocktail of residential requirements ranging from none to entirely strict qualifying requirements will range throughout the legislation.
The Housing and Urban Development Bill achieves a quite different result. It is not primarily concerned with giving protection to tenants in their homes. Its primary concern is the actual transfer of assets in freehold ownership to the least superior—or perhaps he could as accurately be described as the most inferior—tenant of the flats. I use those terms as normal legal terms. They have no other connotations. The Bill's provisions on the right to enfranchise extend to the most palatial mansions. They extend beyond home owners to those for whom property is an investment. That will include companies resident here and overseas and companies resident in tax havens sheltering under untraceable nominee names.
All of those inanimate legal persons have one object only, and that is to make money out of their investment. They are incapable in any physical sense of living or residing in the premises. Will my noble friend on the Front Bench therefore do his best to ensure that all companies be excluded from obtaining any rights of enfranchisement and that any such rights, if granted, will be limited to properly qualified home owners?
It should be possible, and within the wit of Parliament, to extend either the test applying under the 1967 Act or the test applied in the various Rent Acts and housing legislation to ensure that the promise made in the election manifesto is kept and is not extended beyond what is stated there. Perhaps later in the debate my noble friend will explain the reasons why it is the intention of the present Government to extend these rights to all persons within the leasehold chain of interest and why it is their intention to include companies.
I now turn to the matter of price. I mentioned that a minute or two ago. I have reason to believe that it is the Government's intention that leaseholders should pay a fair price and should not be able to make a windfall profit; and that they will be required to pay a full market value for the interest they are acquiring. Market value is a concept well and truly tried and understood by everyone in the property world. Yet the conclusion I am compelled to draw, after reading the text of the Bill, is that the Government are uneasy about allowing the free market formula to operate, for they have tampered with it instead of leaving well alone something which operates well and is 131 understood. They have tampered with it by introducing into Schedule 5 of the Bill an alternative formula.
Perhaps my noble friend on the Front Bench will explain why he considers that the market value formula is itself unsatisfactory. Alternatively, if the Government are satisfied with the market value formula perhaps my noble friend will explain why they have to introduce what I call a fall back position and specify a minimum marriage value of 50 per cent. That itself provokes a further question concerning why that figure should not be 100 per cent., 10 per cent. or 80 per cent. How is it arrived at? This provision genuinely puzzles me. If the market value formula is truly effective, it seems that the Government do not need to fall back on this mechanism.
It is an indisputable fact that the marriage value belongs entirely to the freeholder. In a free market no one but the freeholder can give it or withhold it. It is his entirely. In this Bill he is compelled to part with his property if an application is made by a most inferior leaseholder to enfranchise. The proposal before your Lordships in this Bill is that the minimum a prospective enfranchising freeholder will have to pay for it is 50 per cent. of its value.
I should like to add one further point concerning commonhold. I do not understand, and I hope that my noble friend will be able to enlighten me, why commonhold is not yet to be introduced. I learn through the grapevine that it is to happen "when parliamentary time allows". I suspect that that is a euphemism for "this year, next year, sometime, never". The advantage of commonhold and its relevance to the debate today is that it is a universal system of tenure and management for property occupied in common. It has been considered for at least the past two or three years. The system simplifies transactions on leasehold flats. It seems ill-advised to introduce enfranchisement for flats in this Bill without the availability of commonhold. The relevance of commonhold to the Bill is that under the Bill each purchase of a freehold will entail a different management regime and tenure, leading to more complications, more expense for leaseholders in the future, and more uncertainty.
§ 6.1 p.m.
§ Lord Norrie
My Lords, I am particularly interested in Part III of the Bill and the proposal to establish an urban regeneration agency. That is an initiative which has profound environmental benefits.
We should not forget that land is one of our most important environmental resources, and the new agency has a significant role to play in making the best use of it. Every acre of urban derelict land reclaimed is an acre of land improved for city dwellers and thus an acre of countryside saved from urbanisation.
The environmental role of the urban regeneration agency is so important that I am disappointed that it is not recognised on the face of the Bill. I believe that the agency should be guided by a specific environmental duty and should undertake an environmental assessment of its own activities.
132 I am also concerned by the agency's name. It is to be called an urban agency, yet half of all derelict land is in rural areas. That is largely the legacy of the mines and quarries which have been allowed to scar our countryside. I believe that it is the Government's intention that the agency should work in rural areas. Certainly that is a priority for such bodies as the Countryside Commission and the Council for the Protection of Rural England. I hope that my noble friend can assure me that the proportion of funding for derelict land reclamation in the countryside will not decline as a result of the creation of the new agency. To reflect its purpose perhaps it would be better to call it a land regeneration agency.
My noble friend will not be surprised to learn that I should like clarification of how the agency will work in relation to national and local planning policies. We have a much stronger and more environmentally aware planning system as a result of the recent Planning and Compensation Act and the subsequent government policy guidance. National policies and local authority development plans aim to steer development away from the countryside and make the best possible use of land in urban areas. I hope that the agency will be required to further those objectives. The Bill only requires the agency to work within the planning system. That would not prevent it from promoting inappropriate development on a green belt site or damaging the wildlife value of protected waste land. If it were required to further planning objectives such conflicts could be avoided.
Finally, I turn to the issue of preventing the creation of derelict land. It is a well-known saying that prevention is better than cure. That is particularly apt when it comes to policy in relation to derelict land. For every acre of derelict land which we reclaim another acre is created. Unless we prevent land from becoming derelict in the first place we shall never be able to solve the problem. The Department of the Environment review recognised that in 1989 when it said that the Government should give as much priority to prevention as to cure. Little has been done since. There is nothing to reflect that intention on the face of the Bill.
I hope that my noble friend will concede the need to add derelict land prevention to the objectives listed in Clause 142. The new agency could be a potent force in advising local planning authorities and in monitoring progress. I look forward to my noble friend's response at the end of the debate.
§ 6.5 p.m.
§ Lord Selsdon
My Lords, I shall address my remarks today not so much to the purpose of the Bill but to the philosophy behind the Bill which is, to some extent, based upon change.
We on these Benches have supported our Government throughout in their desire to promote wider home ownership because the ownership of a home is a great and gracious thing. There is perhaps a similarity with the feeling one has as a child when 133 one first has a room of one's own. Then the moment comes when one seeks to buy one's own house, with all the trauma and trouble which that involves. There are the questions of whether one earns enough to pay the mortgage and whether one's wife will have enough money.
In this country home ownership is not simply a question of a home but also one of savings. The bulk of people's savings are in their own homes. Here we differ from almost every other country in the developed world. We believe in home ownership. Often the prices of our land and our houses are higher than those in other countries, for one basic reason: the pride of ownership.
Here we go back to a number of basics. Perhaps I should declare an interest. For almost all my life I have lived in houses or flats belonging to the great estates. I was born in a house belonging to Mr. Smith. We had five or six living-in staff. It was not a poor house; in those days we were not a poor family. Since then I have moved on from one estate to another. I believe wholeheartedly in the desire on these Benches to encourage people to own their own homes.
Why, therefore, is there so much fuss about the Bill? What has changed since the 16th century, or more recently? There was a period, perhaps 50 years ago, when people were proud to say that they lived in a house which belonged to a great estate. Perhaps they felt greater comfort and greater protection. It is not a question of a good or bad landlord. That argument is immediately lost because surely, in principle, the best person to look after a property is the person who owns and lives in it.
There appears now to be a psychological difference in attitudes towards freehold and leasehold property. There was a time when people would have said that a good leasehold was worth the same as a freehold, or that there was only a marginal difference. Those who had leaseholds would extol the advantages of their landlords and their relationships with their neighbours and with the community as a whole. Homes are not merely places in which to live. They represent savings, and they are part of the community at large. Here I shall try to link housing with urban regeneration and the strange breakdown which has taken place within our society, where men and women no longer know and do not help their neighbours. They live in an isolated environment, despite being surrounded by people.
There was a time when in the East End and all over London—in the properties of Mr. Peabody as well as of Mr. Smith —nobody locked their doors. There was trust between neighbours and friends. I do not know what has happened to that society and why property laws and structures have so changed that there is no longer that relationship between the person in one house and the person in the next.
Not so long ago I had the privilege of meeting with a great American architect who had been given the job of dealing with the problems of urban regeneration in the middle of New York. People are frightened to go to work or to go home from work. They are frightened to walk down the streets. Looking at London, he said, 134 "You know what it is. You need more doors opening onto streets". If a large building which runs the length of three blocks has only one door people are nervous as they go to the tube station or take a bus because there is too long a distance without a door. Doors, especially open doors, always give a friendly aspect.
I am intrigued by the position that seems to have been adopted. Although a leasehold is no longer as valuable as it was, the principle of allowing people their freeholds must be acceptable. Why are there objections? Why do the problems exist in the Bill which no doubt will rear their heads at Committee stage? What is a great estate? What is a freeholder? What is a charity which owns property? I believe that the debate will concern money, gain and wealth. People may hide behind names. They may even hide behind charities. But effectively, those charities, or those who run estates, are in one way or another property companies seeking to maximise the return from their properties. They seek capital gain. They seek all the benefits of corporate entities. They often pay no tax. I do not criticise that. However, we have a different scene today. I believe that the Government can take great credit for having reduced inflation so dramatically that it has had a major impact upon the property market. People's homes were once their savings. Values have tumbled. People might have said that the happiest day was when one bought one's house; but now the happiest day is when one sells it. The fall in values has been dramatic.
Coincidentally, it may be a good time to push such legislation through Parliament because, with low inflation, the desire to invest in property for major capital gain no longer exists. The subject of valuation has been raised and will arise again. To share the marriage value is undoubtedly correct. However, if anyone can tell me the name of a valuer who has managed to get valuations right in the past two or three years, I shall be surprised, because the market has shifted.
I find the Bill difficult to understand in many ways. There are technical aspects of which I am not aware. However, one aspect worries me. If people wish to exercise their right to buy they will require money. The financing of those purchases may often prove beyond their means. My noble friends have pointed out that there is negative equity around. The difficulty of financing purchases needs to be addressed by Government. Can the Minister give us some idea of the total amount if everyone were to exercise their rights? We are talking of 750,000 people. How much is involved? The sum may not be great but it may cause even greater tensions within society.
Although I do not wish to speak from my position as a leaseholder, I have received numerous letters and spoken to several hundred people. Everyone is anxious. There is a certain nervousness around. In general, people wish to buy their freehold. Why, my Lords? It is because they believe that it will enhance their position. There is a belief that because the purchase of leaseholds cannot be financed as the leases become shorter a leasehold is no longer a rising but a declining asset and that a freehold is a safe haven for investment.
135 Arguments that flats owned by companies and dual residencies should not qualify are fair and sound. But within the arguments there are anomalies. I refer to the person who goes abroad to work and lets his flat with a view to returning when he retires. A family decides that its pensions and savings would be best put into property which it can pass on to its children or grandchildren in due course. Foreign investors may look to London as a safe haven in which to invest. The value of property in the United Kingdom has decreased by about 25 per cent. in three years. That is an enormous decrease. Add to that the fall in the value of sterling and, relatively speaking, the London property market has dropped even further.
I support many aspects of the Bill. Above all, I support the principle and intentions underlining the Bill. Wider home ownership and leasehold reforms are good. I have the utmost sympathy with the charities, and with many points raised by noble Lords. I hope that at Committee stage we shall be able to iron out some of the differences between us in a constructive and friendly manner.
§ 6.16 p.m.
§ Lord Cavendish of Furness
My Lords, I should be sorry if a disinclination on my part to oppose the Bill outright were seen as my having any degree of enthusiasm for it. I took part in the campaign to secure a return of a Conservative Government at the time of the general election and I have to recognise that the measure was flagged up in the party manifesto.
I also have certain interests to declare. I hope that noble Lords will believe me when I say that I do so spontaneously and of my own free will rather than at the behest—I considered it slightly gratuitous—of the noble Lord, Lord Williams of Elvel. I recently acquired through gift the leasehold on a flat in central London which will almost certainly qualify for enfranchisement if the Bill becomes law. It will be a privilege that I have not sought and few would say that I deserve. On the other hand, my family business owns a block of flats in a northern industrial town. It would seem likely that that property could be expropriated under the terms of the Bill regardless of my stewardship or any investment that has been made or is planned to be made. In declaring those personal interests it may be that I stand neither to gain nor to lose. But an interest there certainly is and I have concluded that it would be wrong to seek to change the main objective of the Bill.
Following the refreshingly free-ranging speech of my noble friend Lord Selsdon, I return to more specific matters. I wish to focus on the reservations that I have on the potential impact that the Bill has on important elements of our built heritage about which concern has been expressed by a broad spectrum of opinion within the field of conservation, including English Heritage (of which I am a commissioner), the Civic Trust and the national amenities societies speaking through their joint committee.
I shall advocate changes affecting only a small percentage of what would otherwise be eligible property. The changes that I propose I believe to be 136 entirely necessary to protect heritage interests of acknowledged importance. The anxieties lie in how the Bill will impact on two distinct aspects of the heritage which are outstanding in the national context.
The first aspect is historic entities which have met the stringent criteria for conditional exemption from inheritance tax. The second refers to urban estates whose distinctive historic character and environmental quality depend to a great extent on the active involvement of landlords. I acknowledge that the Government have recognised the legitimacy of those heritage interests and have sought to address them through strengthening the provisions for schemes of estate management which were originally established under Section 19 of the Leasehold Reform Act 1967.
I applaud those concessions and know they have been welcomed by English Heritage. They will go a long way to improve the effectiveness of such schemes in maintaining that special character in particular of urban leasehold estates which has resulted in so many of them being designated as conservation areas. What I do not accept is that they will provide sufficient means of safeguarding the character of those few estates, both urban and rural, which are of outstanding importance.
For almost 20 years now the principle has been accepted that it is in the public interest to keep under common control historic entities of outstanding importance in the national context. Typically such an entity might be a country house, its contents and its historic setting. Without exemption, it would be exposed to the risk of break-up as a consequence of the imposition of inheritance tax. Again, I believe it is accepted that the loss of tax has been outweighed by public benefit, enforced through conditions requiring a high standard of maintenance and significant public access. The number of such properties is small. To date, only some 160 have been recommended on the grounds of "outstanding importance", and of these only about 60 have been designated. Furthermore, the number of potential new cases is extremely limited.
However, I believe that there is a hugely important issue of principle at stake, which is this: by permitting enfranchisement and thus the possible break-up of estates, the intention and benefit of existing legislation could be frustrated. And that intention, remember, and that benefit are already widely accepted as being in the public interest. It seems inconceivable that the Government will be prepared to gamble the fate of some of our most important heritage sites simply because it seems to them a convenient route to widening home ownership and bringing to heel a number of delinquent landlords. A better way should be found.
The properties of which I speak, and which are eligible for designation, are comparable in quality, importance, and the degree to which there is public access, to those houses held inalienably by the National Trust and which are specifically exempted under Clause 85 of the Bill. I wonder whether my noble friend the Minister sees any irony in the fact that the arrangements for provisional exemption from inheritance tax and its precursors were designed 137 precisely to obviate the need for some of these entities to be taken into the care of the Trust or into the care of the state.
I certainly do not begrudge the many and varied privileges enjoyed by the National Trust. But why on earth must private owners, some with properties at least as important as those of the trust, and sharing the same problems and the same aspirations, be discriminated against? I might say in passing, and the point will not be lost on your Lordships, that potential tax consequences for private owners may be significant. Those owners may find that in addition to their entities being broken up, they are also victims of a mean-spirited redistributive measure, hardly to be expected from any administration, still less a Conservative one.
Some of the proposed Crown exemptions recognise the importance of continuing the long, or particular, association of a single landowner. I give as an example the terraces around Regent's Park. The number of areas of our historic towns and cities whose distinctive character and environmental quality depend very much on the active involvement of landlords is limited, although diverse. They range from the closes around our great cathedrals, referred to so eloquently by my noble friend Lord Peyton, of which Salisbury is probably the most extensive. I have to say that I am a little surprised that there are no right reverend Prelates here to take part in this Second Reading when so much is at stake for the cathedrals.
At the other end of the range stand the more obviously, dare I say, emotive examples like the Grosvenor Estate in London. Here the maintenance of distinctive quality and character owes as much to active management, investment and aesthetic control as to the enforcement of covenants, which would remain possible under schemes of management. It is, however, hard to see how schemes of management could deal with very many issues, some of which I will briefly touch on.
How can a management scheme cover, for example, managing uses to ensure that the historic character of an area is not lost through pressure to maximise individual property returns solely within the constraints of planning legislation? It may be remembered that, under the use classes order, no distinction is made between small craft workshops, for instance, and offices. An example of this causing a change of character might be Savile Row, where, when the tailors' workshop leases fall in, they are taken over by office blocks, and in consequence the character of the area changes.
While most commercial properties are not directly affected by the provisions of the Bill, their management as a small element of a predominantly residential area plainly would be. Again, schemes of management cannot be structured to deal with environmental improvements; for example, re-paving mews and footways with historically correct materials. How will schemes work in promoting active steps to prevent historic buildings from falling into decay, including ultimately forfeiting a lease? How can schemes of management be brought to bear in the 138 matter of, for instance, the painting of stucco terraces, not only the same colour every five years but painting them at the same time? Finally, how will schemes of management influence the exercise of a patron's aesthetic control over new buildings and alterations?
To justify exemption, such a "heritage area" would need to be of outstanding importance in the national context, and the number is clearly limited. By maintaining quality and character through attention to detail, landlords in such areas do of course ensure that the investment of both freeholder and leaseholder is protected. However, I entirely accept that there would need to be stringent safeguards to protect the interests of tenants by the landlords being held to a strict code of estate management, and provision for lease extension as of right on favourable terms.
The exemptions that I have outlined do, I believe, enjoy wide approval among those who are concerned with the protection of the built environment. I should like to ask my noble friend the Minister therefore to recognise these anxieties and, I hope, to bring forward amendments that will meet them. Finally, I am concerned also that this Bill, by extending the scope of enfranchisement, will make it marginally more difficult for building preservation trusts to control the future of the properties which they repair, and whose long-term management they must be able to safeguard if they are to retain their charitable status.
I accept that the answer to this problem may well not lie in amending the Bill but through the introduction of positive covenants which run with the title. I shall be grateful, therefore, if my noble friend the Minister can give some reassurance that such provision will be incorporated possibly in the commonhold Bill if, as I have heard, it is to be introduced shortly.
§ 6.27 p.m.
§ Lord Monson
My Lords, I shall confine myself to Part I of the Bill, most of which I oppose on the grounds that it violates property rights and the sanctity of contracts. Let me say straight away that I have no interest to declare. I do not own any freehold property subject to long leases, nor am I trustee of any charity that does so. Indeed, like tens of thousands of other people, most of them, ironically, Conservative voters, several of my relations have each made tens of thousands of pounds in consequence of the Labour Government's Leasehold Reform Act 1967. Of course, on a purely personal level I am delighted at their good fortune, while rather wishing at the same time that they had come by their money by an ethically superior route, such as winning the football pools.
I am well aware of the problems caused to leaseholders by a minority of bad ground landlords. We have old family friends—old in both senses of the word—who have suffered terribly from the actions and inactions of such individuals, but the 1987 Act was specifically designed to cope with this undoubted problem. To the extent that the 1987 Act is deficient, it should be extended and built upon. Indeed, Chapter V of Part I of this Bill, embracing Clauses 68 to 76 139 inclusive, does just that; and if Chapter V is inadequate for the purpose it should be strengthened by your Lordships' House in Committee.
For various reasons the rest of Part I will not necessarily help the victims of unscrupulous ground landlords. You do not help a man who has bought a dud television set by giving him the right to buy at a substantial discount the freehold of the premises where he acquired the faulty set. Moreover, it is a fallacy to imagine that self-management of the common parts of a block of flats always equates to good management.
If time permitted I could give your Lordships first-hand experience of where management of common parts of flats has already been delegated to the lessees. This has led to chaos and inefficiency, owing to the reluctance of lessees —most of them university graduates and most holding good jobs—to turn up for meetings of lessees or to pay the bills on time, if at all. Sometimes it seems that fair but firm outside managing agents are needed to ensure that lessees fulfil their repairing and maintenance obligations.
Turning from practical considerations to considerations of principle, on 7th March 1967 in another place Mr. Anthony Barber, as he then was, attacked the Bill on behalf of the Conservative Opposition from the Front Bench. He said at col. 1287 of Hansard for the other place:It is no light thing to interfere with contractual or private rights".A little while later, Mr. John Boyd-Carpenter, as he was then, quoted the following wise words, as he put it, from the report of the Jenkins Committee:While freedom of contract should certainly be subject always to public policy, private property should only be taken for the benefit of the community as a whole—never for private advantage, and on terms of full compensation for the freeholder".How does this Bill differ from the one attacked so vigorously by the official Conservative Opposition 26 years ago? Certainly, the compensation terms are better, but they are still below the price at which a willing seller would sell to a willing buyer. If that were not so, there would be no need for compulsion. Hence, the Bill is still semi-confiscatory. The legislation takes from both the very rich on the one hand and the poor on the other (by which I mean the beneficiaries of charities) to give in the main to the fairly rich although some of those who benefit in areas like Belgravia would almost certainly be millionaires.
Where is the benefit in all this for the community as a whole cited by the Jenkins Committee as a prerequisite for interfering with property rights and the law of contract? I have read carefully the literature put out by the Leasehold Enfranchisement Association. I have to say that almost all the alleged imperfections of the present system which the association instances apply equally to ordinary rented property, whether it be rented from a private landlord, a housing association or a local authority. The only exception relates to the difficulty of obtaining a mortgage once a lease has only 30 or 40 years to run. I agree that that is a problem, but not one so great as 140 to justify one private individual being able to confiscate in part another private individual's property.
Apart from that, what is wrong with the leasehold system in principle? Why should not people buy and sell wasting assets if they so choose? Most things people buy in their daily lives are wasting assets, after all: motor cars, washing machines, double beds or holidays abroad. Why should not people have the choice between buying expensive freehold property, less expensive leasehold property or rented property? True, there is not much freehold property available in Belgravia, but no one is actually forced to live in Belgravia.
I make no apology for referring yet again to the late Lord Brooke of Cumnor who pointed out to your Lordships over 25 years ago that the existence of the leasehold system had enabled his family to live in much better accommodation in a much better area than would have been the case had only freehold property been available. Many of today's problems arise from the fact that too many people since that time have been willing to pay freehold prices for leasehold property, in the expectation and hope that some future government would bail them out. My noble friend Lord Shaughnessy talks about people paying full value for their leasehold property, but what he actually means is the full freehold value. If they do pay the full freehold value, then I am afraid they have only themselves to blame.
Perhaps I may instance a typical case where the grant of a long lease at a low rent is positively beneficial to a large number of people: hence it might be said that it is very much in the public interest. This is not a hypothetical case but an actual one. A family inherits a farm and a comfortable farmhouse, together with a number of redundant, semi-derelict farm workers' cottages. They have no spare capital and they do not wish to borrow from the bank to modernise the cottages with a view to letting them because that would not be economical. Nor do they wish to sell. They are a large family, they happen to be Roman Catholics and they hope that one or more of the younger children will eventually settle in the same area.
Along come a wealthy couple in their late forties or early fifties who have no children and are too old to have any. They do not wish to spend money on buying a freehold because there is no one to whom they wish to leave it. All they want is a comfortable cottage to which to come for weekends and eventually retire to. So, hey presto! A perfect deal is struck whereby the childless couple take one of the cottages on a 40-year lease for no capital consideration and at a nominal ground rent of, let us say, £150 a year. In return, they guarantee completely to modernise and in every way improve and renovate the cottage. They have what they want, and in 40 years' time one or more of the family's children will inherit a splendidly restored and modernised house capable of a great many more years' use. What is more in the interests of the community as a whole than that arrangement? Yet, under the leasehold enfranchisement system, the landlord would be unwise to enter into such an 141 arrangement because the unscrupulous leaseholder could take advantage of the situation and virtually confiscate the cottage for which he has paid not a penny in capital terms. He could then immediately, or after three years, resell it at a huge profit. Indeed in that unfortunate case, that is exactly what happened.
The big urban ducal estates can doubtless look after themselves. I am concerned with the problems of rural areas and of universities, ecclesiastical landlords and charities whose representatives we have heard speak so well this afternoon. Any amendment to ensure that they receive a minimum of, say, 75 per cent., rather than 50 per cent. of the marriage value would help them. I hope that just such an amendment may be agreed in Committee.
However, unless the estates in question are sold in their entirety, their overheads will not fall as fast as their declining revenues. They will still therefore be worse off, with the unhappy results that the noble Lords, Lord Peyton and Lord Crawshaw, forecast this afternoon.
Finally, like the noble Lord, Lord Boardman, and others, I find that quite the most objectionable feature of the Bill is the proposal to allow non-residents to acquire flats at substantial discounts and then immediately sell them on at a massive profit. In most cases it would probably be a tax free profit since many of those taking advantage of that provision will be domiciled abroad. I hope that all quarters of the House—not necessarily those on the Conservative Back Benches—will join together to resist this "spivvery" at the expense of the beneficiaries of charities.
§ 6.38 p.m.
§ Lord Gisborough
My Lords, my noble friend the Minister said that when in opposition the Conservatives supported in principle the 1967 Leasehold Reform Bill on Second Reading. Would he be kind enough to give the voting figures for that debate during his reply?
I was interested to hear the noble Lord, Lord Williams, pour scorn on the Government's initiatives in the towns for redevelopment. I hope that one of these days he will come up to the North East and look at the cities there. He may have a surprise and perhaps lose some of his scorn.
A few years ago I was asked to visit an old lady in a block of flats in Kensington. In her day she had been a nanny and had lived in her flat for many years. Recently the service charge had been doubled and the rent increased, and she was being driven out of her home. She had always expected the rent to rise but not by more than the increase in her pension. No one could find out the name of the new owner who had bought the block and who was trying to increase the value of his investment.
When I heard that legislation was arriving to look after such unfortunate cases, I was naturally delighted. It would, I thought, help a great number of similar cases and be welcomed by those landlords who are sympathetic to the situations of their tenants and who do not like to see the name of landlords 142 besmirched by those of them who are greedy. So I was very disappointed to discover that this Bill does little if anything for the old lady in Kensington and many others like her, but instead is a confiscatory measure against freeholders.
What the Bill should do is to extend the rights and protection for vulnerable tenants and provide for leaseholders to be able to manage their blocks without the expense of having to buy the freehold and to extend their leases at reasonable cost. But there is no justification or relevance for the forced transfer of the property at a concessionary price from the freeholder to any leaseholder.
If the object of the Bill is to protect leaseholders from rapacious and anonymous freeholders, there is a perfectly good alternative that would achieve the desired result; that is, to give occupiers of properties the right to manage their blocks and to be told the identity of the freeholder and leaseholder.
Under this Bill the majority of the tenants in a block may want to buy their freehold, but the most vulnerable and less well off tenants whom we should be seeking to assist in this Bill will be unlikely to have the resources to benefit from the measures that are being proposed. Instead, they will be faced with two alternatives. First, the other tenants can buy the freehold interest of those unable to afford to do so and charge rent. Alternatively, an outside investor, who may well be a Rachman, can buy the freehold interest and charge a rapacious rent.
These provisions do not attack bad landlords; they attack all landlords. The greatest loss and damage are inflicted on the best landlords—for example, the trustees of the Henry Smith's Charity, who will be obliged by the Bill to transfer charity assets to those who some may think are in no need of charity—the leaseholders of Onslow Square, for example. These assets will take the form of windfall gains which will accrue to leaseholders thanks to the terms of Clause 28 and Schedules 5 and 12 to the Bill.
This Bill does more, much more than was promised in the Conservative manifesto. Indeed, a careful reading of its contents and of statements made by Ministers during the Bill's progress through the other place reveals an even more disturbing intent; namely, the abolition of leasehold as a form of housing tenure. There was no mention in the Conservative manifesto of the abolition of leasehold as a form of housing tenure; and there has certainly been no debate within the housing profession about such a major change. There is a fundamental difference between a policy that proposes to enfranchise along the lines of the 1967 Act and a policy to abolish leasehold as a form of tenure.
It has been suggested in the other place that long leasehold has been abolished in countries such as the United States and Australia. This is not correct. Those countries took the democratic approach of providing an additional form of tenure (which in this country we are going to call commonhold) and letting the marketplace make the choice between them.
Abolition of leasehold would require widespread discussion and consultation as it would fundamentally alter the balance of tenures within the housing market 143 —at a time when there is already too little choice in the types of tenure offered within the British housing market. Yet on 24th November Tony Baldry, MP, Parliamentary Under-Secretary of State for the Environment, made clear in Committee that,it was common ground that leasehold was an outdated form of land tenure which as far as possible, we should seek to remove".With whom was it common ground? With those who would seek to make windfall gains from enfranchising?
Leasehold is a convenient form of tenure for many who do not wish to commit themselves to a freehold purchase at the market price but who may for all kinds of reasons wish to live, for example, on the extremely well kept estates of Mayfair, Belgravia and South Kensington. Leaseholders were never forced to buy the lease on their properties but chose to do so under a legally binding agreement, fully understanding the advantages and disadvantages of doing so. If legal agreements can be torn up at the whim of the Government, what value can be attached to them in future, and how can the law of contract be relied on?
Leaseholders in areas of high value properties will make the biggest windfall gains under the Bill's compensation arrangements. A further inequity is that the leaseholder, as well as forcing the purchase, may determine the timing of the purchase, which could be when the market is low and no freeholder would want to sell.
I have seen tables based on research by the respected property company, Savills, which show the likely profits to leaseholders on enfranchisement. The profits are higher the shorter the lease and the bigger the property. On a small mews house in Belgravia—in one of those delightfully well-kept side streets off Sloane Street—the windfall gain on a lease with 80 years to run would be £24,000. The windfall gain on the same house with a 50-year lease would be £67,000; with a 40-year lease, £83,000, and a 30-year lease, £90,000. That on a large house with a 40-year lease to run would be £255,000; and a 30-year lease would enrich the leaseholder at the expense of the freeholder for a sum higher than £275,000.
That a Conservative Government are legitimising the expropriation of such large sums of money and depriving freeholders of the peaceful enjoyment of their possessions and property comes as something of a surprise to those of us who take seriously the commitment of Conservatives to property rights. That commitment was best expressed by Edmund Burke, when in his book Reflections on the Revolution in France, he said:The power of perpetuating our property in our families is one of the most valuable and interesting circumstances belonging to it, and that which tends the most to the perpetuation of society itself".There may be some who believe that Edmund Burke's views are no longer appropriate to 20th century society. Frederick Hayek was not among them. In his book Road to Serfdom he spoke of:The system of private property [as] the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not".There are leaseholders eagerly looking forward to the gains to be made from enfranchisement. They may 144 not be aware that the legislation that will facilitate those gains may also set a precedent for the future expropriation of assets—including their own. I submit to your Lordships, for the sake not only of those who own property but scarcely less for those who do not, that this Bill must be well amended and modified.
§ 6.47 p.m
§ Lord Hamilton of Dalzell
My Lords, I speak as a landowner and a trustee of Smith's Charity, but I have no houses that are likely to be enfranchised under the Bill and therefore have no financial interest in it whatever. However, I have an interest as a landowner who suffered enfranchisement under the 1967 Act. My estate lost two houses.
I dispute the Government's contention that this new legislation can be built safely on the 1967 Act. I find it rather difficult to convey to your Lordships the outrage of having houses taken from under one's nose that one thought were one's property. It is not just a matter of money. It is admitted that the money received under the 1967 Act was derisory, but it was 25 years ago and we have forgotten it. What is of interest is that the house is there today; it is bound to the future uses of one's children. This Bill is an invasion of one's privacy; it stops one planning the future accommodation of expanding generations and therefore is diabolical. For 25 years I have hated the 1967 Act and I like its successor no better. It seems clear to me that the Government were persuaded to bring forward the Bill by pressure from a lobby wishing to obtain freeholds in houses and flats mainly in central London, where the debate has tended to centre.
I can understand the frustration and anxiety of tenants, particularly when faced with the astronomical rise in prices which took place in the late 1980s. Now the boom has turned to bust. Now the people to be envied are those who have not yet committed themselves to a freehold investment in property worth far less than they paid for it. The attractions of leasehold are improving, but the Government have made a manifesto commitment to abolish it.
Government legislation in the field of residential housing has a poor record. As my noble friend Lord Middleton said, whenever they interfered the results tended to be unexpected and, generally, malign. The legislation after the war enforcing low rents led directly to Rachmanism. The necessary legislation to give security of tenure to counter that evil helped to eliminate the private rented sector over a period, until now it stands at about 7 per cent. of home use. The unexpected result was that low rents raised the irrecoverable costs of local authority housing to such a level that it pays to sell council houses at discounts of 70 per cent.—the plans for which appear later in the Bill.
The Government have now correctly detected a demand for rented accommodation, which is particularly strong in country areas. They have started a campaign to encourage the private sector to build houses to rent. They must be joking! The mathematics show that without a huge subsidy it would cost an enormous amount of taxpayers' money. There is no 145 way in which the rental required can be different from the mortgage rate, which still carries tax relief. It is tax relief on mortgages which has contributed to the growth of leasehold in this country by making it financially attractive to roll up rent in a premium—a result of government policy now detested and which they wish to abolish.
The object of the 1967 Act was to relieve the genuine problems of coalminers in Wales who found themselves caught with expiring 99-year leases. The landlord was the Coal Board. The unexpected result of tabling legislation to abolish long leases for their benefit was that it would also abolish the great London estates. The way round that was to amend the Bill to give a high rate restriction to enfranchisement. But that was not totally effective, particularly in the countryside where comparatively wealthy people had made arrangements with landowners—as my noble friend Lord Gisborough mentioned—to restore cottages and make them into highly desirable residences. That arrangement commended itself to landowners as the only alternative to selling them. However, the rateable value was never changed to reflect the improvements and they were therefore bought by their tenants who profited enormously.
The secondary effect was a big increase in the number of unoccupied houses for which that mutually advantageous arrangement is no longer available. I now have many empty houses on my estate for that reason, waiting for the money to bring them up to proper standard so that I can let them on short lets.
But the leaseholders scented blood and now, 25 years later, the present Bill appears before your Lordships' House. What will be the effect of the legislation? My belief is that in the first instance nothing will happen. Who will want to increase an investment in property when it may well fall further in value? The freeholder will have to continue to suffer the loss with no hope of recouping it when the market rises again.
In time the market will turn and leases will then be enfranchised or extended. Nobody will want to sell a lease without enfranchising because of the inbuilt share in the marriage value. In the end, leaseholds both long and short will disappear. That will have its own effect. First, it will increase the supply of expensive properties available for purchase, particularly in London. That must tend to depress their relative price to the disadvantage of existing freeholders and people with long leases. Large sums of money will be paid over to London's landlords, which will never return to the residential market and therefore do nothing to help maintain prices.
Anybody who wishes to come to work and live in central London will have to pay the full freehold price. I am thinking of foreigners on medium-term appointments to foreign banks; businessmen who make their way in London, and perhaps even new Members of another place. The system of leasehold in London has grown up over the ages to serve the needs of the City of London and the capital, to which it is the dormitory. It must be an important element in the success of a great international financial centre for 146 those who want to do business in it to be able to find the accommodation they need at a price that is competitive with other centres. Have we placed a social contract on London?
While landlords, good or bad, will be abolished, the new system will rely on good relations between neighbours—one of the most difficult conditions in human experience. I can see the occasional little Bosnia appearing in central London. Far from creating the development of a universally peaceful and just enjoyment of property, free of the hated landlord, I also see the opportunity for the bullying and intimidation of tenants who cannot or will not enfranchise.
Finally, it is a hard task in these iconoclastic, egalitarian days of a classless society to argue for the rights of those who have inherited positions and wealth, even when one of them is a charity. The Bill will have unforeseen and damaging results, but above all it remains an infringement of the rights of a small minority. I read in the Spectator last week, commenting on a similar point, of a simple test which I commend to both sides of your Lordships' House: for the word "freeholder" substitute the word "Jew", before deciding what one should do with it.
§ 6.58 p.m.
The Earl of Lindsay
My Lords, I am grateful to my noble friend the Minister for his clear and detailed explanation of the Bill. My interest in the Bill revolves around Part IV, and its implications for the architecture, the environment and the landscape that have been created and maintained by the better leasehold estates. I speak primarily from two standpoints; first, as a landscape architect with considerable experience of working both within the traditional leasehold estate and in similar circumstances without; secondly, as chairman of a London property management company which runs a group of mews houses and their common grounds on behalf of the covenanted freehold owners, of whom I am one.
Few would argue against the assertion that some of our finest urban heritage has been conceived, developed and maintained to an extraordinarily high degree through the leasehold estate system. What such estates have achieved has been of benefit to many more than just their own residents. Comparative examples between leasehold development and control and freehold development and control are thick on the ground and some are mentioned in the Bill. For instance, there are the differences between Victoria Square and Argyle Square, between Pimlico and Belgravia; or the Cadogan Estate or Smith's Charity's London streets and those in Lambeth or King's Cross. Much of South London, despite the covenants placed on freeholders, exemplifies the erosion of the initial concept under a barrage of modern short-term pressures.
Much of the architectural cohesion we admire in Continental cities results from different planning codes, planning enforcements and legislation. It also results from different proportions of rented accommodation versus freehold ownership. It must also be remembered that cities such as Bath and Edinburgh 147 have much of their heritage vested in stone facades which involve very much less frequent maintenance than London's 18th and 19th century painted stucco facades.
The comparative excellence of some of the leasehold estates does not come as a surprise to me, having worked on urban commissions there. In such cases, designs, materials and methods have quite rightly been subjected to conscientious scrutiny and there has been no hesitation on the part of the landlords' agents in querying details and insisting on changes. In doing so they not only maintain the leaseholders' covenants to a high standard but they also follow all modern planning and conservation law with a rigour and watchfulness that is rarely seen from our overworked local authorities.
The weight the agents of these estates bring to bear is impressive. It sometimes feels intrusive, but were they not so attentive and meticulous the results would be more akin to the kind of townscapes that too often predominate elsewhere. Pursuing similar commissions outside these traditional estates one often finds less, if any, scrutiny, less compromise and less respect for either the surrounding heritage or, inevitably, the finer points of the law.
I have also seen at first hand the extent to which these landlords are prepared to commit their own funds to large capital projects, incurring costs and overheads that are largely irrecoverable and are unlikely to be repeated in enfranchised areas. My noble friend Lord Kindersley mentioned the £2 million spent by Smith's Charity on its railings. Such projects are driven by long-term interests and long-term stewardship taking priority over short-term considerations. This is something of a rare phenomenon nowadays. In relation to the £2 million spent by Smith's Charity on such projects, I would also emphasise the point mentioned by the noble Lord, Lord Crawshaw. I refer to the extraordinarily large donations which are still made to charities over and above the capital projects on the fabrics of their estates.
For how long will the estates keep their offices fully staffed if their estates are fragmented is unknown and the risk of a deterioration in the management, heritage and environment is one of the disturbing features of the Bill. I would question whether in Clause 4 there is as yet sufficient and effective regard for the environmental and heritage consequences, some of which may turn out in the long term to be damaging to some of our finest townscapes. Enabling the fragmentation of the ownership of some of the finest areas without positively and deliberately ensuring effective and similar controls and management schemes is unsound. If I understand the Bill correctly, all we have at the moment is a possibility rather than a certainty. I notice that the Financial Times commented:No landlord is perfect but it is hard to see any hint of intelligent alternative management proposals in the current legislation".That is probably a little unfair, as Clause 64 may contain a hint, but before the Bill leaves the House it may be that this hint could become a certainty.
148 What the Bill and its proposers are suggesting is not totally convincing for anyone who has working experience of town and country planning, for anyone who is involved in the urban heritage and for anyone involved in communal management systems. Those with first-hand experience in all those areas have felt the modern tide and the extraordinary strength with which the private leasehold estates have acted as a breakwater.
The estate management schemes being put forward in Clause 64 of the Bill may contain insufficient incentives for the estate landlords to take them up. Should not greater encouragement be given to the traditional management systems to continue? My noble friend Lord Cavendish mentioned some of the crucial environmental improvements that have been carried out by traditional landlords which may not be carried out in the future.
What is certain in London is that the existing planning system, and the resources and wisdom with which it is enforced, are inadequate for the task of preserving, let alone upgrading, so much that the better leasehold landlords have created. The statutory framework, particularly the "conservation area" designations and listed building legislation, has neither the teeth nor the resources to replace long-term vision and committed management. It has failed to prevent the steady erosion of architectural detail, unlike the traditional landlords. And, where it fails, individual whims and excesses begin to assert themselves in a piecemeal fashion on to the original pattern. Negative forms of planning control are no substitute.
To add to the problems, there is the decision of English Heritage to rescind its statutory controls over Grade II listed buildings in London, passing them on to the same hard-pressed boroughs. Most boroughs have far too few conservation officers; some, in fact, have none. Many have been forced to shed planning staff and responsibilities because of financial pressures. Very few of them are increasing staff or resources. They are also burdened by the fact that they can only step in after a situation has deteriorated to a certain point.
Another problem that can sometimes pertain to local borough control over national heritage assets is that some boroughs will inevitably have vested interests which make independent decisions on listed buildings difficult, especially where demolition is involved. I shall therefore welcome any further thoughts that my noble friend may have on how Clause 64 might best encourage the continuance of a traditional management structure.
I have experience of what happens when covenanted freeholders set about managing their own interests on the departure of a ground landlord. Since 1984 I have been the covenanted freehold owner in a private mews in North Kensington. Each of the 17 freeholders owns a share in the company that owns and manages our joint interests. These include the roadway and services, various pieces of planting and other common grounds, and respect for the covenants that are intended to preserve the architectural and general character. I have been a director of that 149 company since 1987, and chairman since 1989. The management is at times a nightmare and is never satisfactory. My noble friend Lord Kindersley mentioned the problem of separate and squabbling freeholders. That is exactly what we have. Finding the four directors or committee members among the shareholders to run the area on behalf of everyone was only a modest problem when there were seven owner-occupiers out of the 17 properties. There are now only four owner-occupiers, of whom one speaks no English and therefore cannot be involved. That leaves three of us—two British and one, thank God, English-speaking German. The rest are absentee landlords, and virtually all of them have little interest as they see their properties as a short-term investment and accordingly fill them with short-term tenants while watching the property market. Short-termism and self-interest rule supreme.
If the three of us directors propose an initiative or an investment which exceeds the definition of minimal and the cheapest possible maintenance, we are unlikely to gain approval from the absentee shareholders who form the majority. Expenses have to be justified over the shortest possible timescale. The majority, for instance, have no interest in planting and replanting, or in redesigning the bin and refuse area, which turned out to be badly flawed and an unhygienic disaster. The largely absentee majority also have no interest in abiding by, or enforcing on themselves, their tenants or others, the covenants which are meant to preserve the character of the area. Extensions have crept in at the backs of houses. Much the worst flouting of covenants relates to those that govern cars and car parking. Quite rightly, only a certain number can be parked and only in a certain configuration. In addition, everyone has a garage which must be kept and used as such. Cars are parked where and whenever, and garages have been converted into dining rooms, dark-rooms, open-plan hall extensions and so forth. At each owners' AGM any suggestion that the covenants should be obeyed more strictly finds no favour with the majority. In the best traditions of English freehold law, they are cheerfully ignored. One tenant even suspended across part of the common ground a heavy chain in order that he could arbitrarily reserve part of it for his own exclusive use. He refused to take it down and his absentee landlord could not care one way or the other.
The majority of shareholders are reticent about these covenants. They are nervous that, if they enforce them on someone else, they may themselves in time want to break them but will find them enforced on themselves. The AGMs are scenes of memorable arguments about who should pay how much for what. If a tree has been planted which cannot be seen by the man who lives at the entrance, he wants to pay less than his fair share. If this comprises estate management by a willing group of freehold owners, it is laughable.
The Minister in another place, in explaining that estate management schemes might take over, said that there was no need to worry because they would not mean the break-up of an estate as the buildings would 150 still be there in the same relation to each other. Since we acquired the management of our estate, the buildings, noble Lords will be glad to hear, are still there in the same relationship to each other. But the conception of the estate as created by the developer and the planners in the early 1980s, has failed to last because of the flouting of the covenants. If there is a common purpose which brings cohesion to our management it is that the absentee majority require that the least commitment is made at the lowest cost with the minimum of administration or management, and that the highest short-term profit margin on the property is retained. When I moved into the property in 1984 it was brand new. Over nine or 10 years I have seen how one co-ordinated development can decline under the wrong management system.
In conclusion, I look forward to assurances from my noble friend the Minister that some of the wider consequences of this Bill, primarily as they affect areas of notable urban heritage, have been properly considered and that the management schemes appropriate to the circumstances will be a certainty and not just a possibility. Managing any urban environment is one of today's continuing challenges. Managing large urban sprawls such as London presents possibly the worst kind of challenge that there is. What this Bill must not do is undermine without guaranteeing its effective continuance the stewardship which has been so successful in meeting that challenge.
§ 7.11 p.m.
§ Earl Peel
My Lords, I realise that there is much good in this Bill, but human nature being as it is, I am afraid that we as a breed tend to concentrate on that which is bad. Being a typical member of the breed, that is exactly what I intend to do. I apologise to the House if it is becoming repetitious, but like other noble Lords I would like to concentrate my remarks principally around Part I of the Bill.
I have no interest whatsoever in that part of the Bill except to say that perhaps I have more friends who will gain from the Bill than those who will not. But that does not prevent me from having very serious doubts about the implications of Part I of the Bill. As other noble Lords have said, I appreciate that the Government cannot be accused of inconsistency and with breaking with the traditions of previous Conservative doctrine because I am aware that in opposition they supported both the 1967 and the 1974 Acts in principle. However, I find the principles of both those Acts difficult to come to terms with, although I accept that, certainly in the 1967 Act, there were considerable cases of hardship which needed to be addressed.
I find it very difficult indeed to come to terms with the leasehold enfranchisement in this Bill. Very simply, it is because I am someone who believes in the principle that when an agreement is made in law between two willing participants, it should be upheld. It is of very considerable concern to me and to many others whom I know, when that particular principle is undermined by government using retrospective legislation and particularly by a government which I 151 support and whose philosophy, I would have thought, should lean very much towards the principle that the ownership of property is sacrosanct.
When there is an overriding need such principles of course can be overcome, but I am not convinced that such an overriding need exists through the Bill that is before us today. I very much concur with the point made by the Country Landowners Association in its comments leading up to this Bill when it said that this is really,not so much the right to buy—more an obligation on the freeholder to sell".I very much subscribe to that, and I regret it.
I do so agree with my noble friend Lord Middleton when he made the point about the worrying implications as far as other property rights are concerned. Certainly as regards countryside matters, there is a real worry and a real doubt that people will consider whether letting is going to be a genuinely future market and something on which they can rely. The implications there, as I am sure all noble Lords will appreciate, are very considerable indeed.
I understand that there are too many cases when unsatisfactory landlords exploit leaseholders. But, as has been said by many noble Lords, surely it must be possible to devise legislation to give such people a more satisfactory means of redress by increasing the rights in the 1987 Act, which the noble Lord, Lord Monson, pointed out and which is a very valid point indeed. It is quite wrong that to overcome that problem we should be considering dismantling a large part of the leasehold sector of the property market and with it the business activities of many first-class landlords. What is more, a large section of choice is going to be removed from people entering into the property market.
At this point I take issue with a comment made by the noble Lord, Lord Sefton of Garston, who is not in the Chamber to respond to what I am saying. But I hope that in the remarks that he was making about my noble friend the Duke of Westminster, he was not implying that he is not anything but an exemplary landlord. Furthermore, I believe that it is fair to say that through his good management a local authority has certainly been saved a great deal of time and money.
Moving away from the principles behind Part I of the Bill, there will obviously be a great number of specific points which will be heavily scrutinised during later stages. Perhaps the one which we shall be concentrating on as much as any other is the formula under which the leaseholder will be able to acquire the property. It seems fairly clear to me, from what I have read and heard, that if the present proposals are to be accepted, the landlord is going to get a pretty bad deal. Bearing in mind that in most cases the landlord is unlikely to be a willing seller, it seems to me that we should endeavour to ensure that the formula should, if anything, work in his favour and more towards the true freehold value. That seems to me to be quite fair and reasonable.
Furthermore, it would be quite unacceptable for a leaseholder, having exercised his right of enfranchisement, to sell the property shortly afterwards for a 152 sizeable gain. My noble friend Lord Gisborough gave us some fairly stark examples of what may happen if the present formula is accepted. It seems to me that we should look towards introducing some safeguards so that if a property were sold after a certain period of time and large profits were made, the landlord should have some form of redress to get back those profits. I believe I am right in saying that there is a minimum qualification clause in the right to buy council houses under the 1985 Act. I am sure that something along those lines could be introduced to safeguard that particular point.
I would like confirmation from my noble friend on the Front Bench that the Government have agreed to introduce an amendment covering injurious affection for houses as well as for flats. I welcome that. If that is indeed the intention of the Government it would be logical to extend that to properties covered under the two previous Acts. My noble friend may say that that is unacceptable because it is retrospective, but I believe it is fair to say that a number of matters in this Bill are retrospective and I certainly do not like them.
There are other areas of concern which I do not wish to dwell upon at the moment, but they include the prospect of corporations, foreign companies and property speculators acquiring freeholds. That problem was identified in an article in the Sunday Telegraph, which I am sure that some of your Lordships will have read, which suggested that such people might be able to acquire a freehold and, with it, considerable profit. It would not be the occupant who gained from such a buy-out.
The question of principal residence is also very important. We should look at it carefully to prevent those without such a fundamental involvement in the property from gaining it so readily.
I do not want to dwell on charities. I am sure that Members on both sides of your Lordships' House will have been impressed, if not moved, by the remarks of my noble friend Lord Kindersley. I am sure that that is a point that we shall have to consider most carefully at a later stage. His arguments were very powerful and we cannot ignore them.
My noble friend Lord Middleton was concerned about rural low-cost housing. I very much hope that the Government will consider carefully the effects of the Bill on any such scheme that is protected now, or would be in the future, by charitable status.
As I said earlier, I find myself at loggerheads with the principle behind Part I of the Bill, and whereas I know that it represents an extension of previous Acts, there seems to be one major difference. For the first time, we are seeing —certainly with regard to houses and, I think, high value flats, a new type of leaseholder who needs no assistance, who is quite capable of looking after himself or herself, who is financially well off but who is now being given the right to acquire a property against the wishes of the landlord and, from all accounts, laughing all the way to the bank. I cannot accept that that is right.
§ 7.22 p.m.
§ The Earl of Lytton
My Lords, as is the case with many other noble Lords, my remarks on this Bill relate primarily to Part I and to the leasehold enfranchisement provisions. I declare an interest only in so far as I am a member of the Royal Institution of Chartered Surveyors and am therefore a valuer in practice. I am also a member of the Country Landowners' Association, and a private landlord, but not of long leasehold property. I can therefore disclaim any interest, personal or professional, in the matters affected by this Bill.
Perhaps I should say first that I support several aspects of the Bill. First, I support Clause 78 which refers to codes of management practice. I know that the Royal Institution of Chartered Surveyors has worked hard on this and has issued some draft proposals of which I hope that the Government will take due note. I feel strongly that the management of flats and of houses in multiple occupation which are subdivided into flats is close to the heart of the problems which have been experienced and which have led to the Bill now before us.
I support also the principle of establishing an urban regeneration agency. Whatever form that takes, it is an initiative which should be supported. The areas of derelict land in our inner cities are something of which none of us can be proud—certainly not those of us who, like myself, are in some way responsible for property matters.
I should now like to touch on some of the points made by the Minister. First, he equated in value long leasehold properties with freeholds. It is not clear to me that that is universally the case. I feel certain that the Minister had good reason for making that point, and at this stage I would merely ask him whether he will be kind enough to write to me, giving concise details of the background, before we reach the next stage of the Bill. I should be most grateful for that. The Minister referred also to research by the the Consumers' Association. I take him to mean in this instance the research that was carried out by the Joseph Rowntree Foundation. At my request I was sent a copy of that research by the Consumers' Association. I have to say that I did not regard it as a reliable document either statistically or in terms of its coverage for the purposes of a justification of this Bill. To my way of thinking, it was little more than a litany of commonly encountered tenants' complaints. It made no attempt to dig deeper into the underlying reasons why, from the landlord's point of view, that situation might have come about.
In addition, something was missing from the Minister's opening remarks. Previously, the Government have indicated that there would be a right of appeal to the Lands Tribunal for the settlement of disputes. I cannot find that anywhere in the Bill. I should be grateful for a reassurance that such a provision will be introduced at a later stage. It is a valuable and much-needed safeguard.
I take a technician's view of the Bill, so I shall not comment on the morality or the politics of it. As someone who uses legislation and who has to implement it in the course of my normal business, I 154 expect legislative provisions to operate fairly, without undue complexity, and to have a reasonable chance of meeting their stated objectives. However, for all the comment that has been made about this Bill and for all the claims that have been made for it, I have to say that a large part of it is, in my opinion, unnecessary. The clear demand of tenants is to have the provision for extending their leases guaranteed and to have management control of the property where they have the majority interest. The noble Lord, Lord Coleraine, also made that point. However, the Bill guarantees neither. Indeed, I rather take issue with the Bill to the extent that it purports to deliver something which, on my reading of it, it does not succeed in delivering.
The chosen mechanism of enfranchisement is, at best, long-winded and complicated. Perhaps I may illustrate that. A leaseholder in a block of flats only ever has partial control of the building as a whole. That is particularly the case where the flats were originally designed to be rented and not to be sold. There may, therefore, be deficiencies in the nature of commonways and accesses. Perhaps I may put up a marker that the concept of the freestanding "Englishman's home is his castle" is, in these circumstances, unattainable. My allied complaint about the Bill is that it attempts to force a large number of different types of occupation, different lengths of lease and different patterns of service charge into a communal mould—and that is a mistake.
There are other problems with the Bill. Where there is a complex of flats, possibly covering several acres and comprising many different buildings with several different entrances, the operation of the Bill as it stands will take no account of the physical and legal realities—nor, for that matter, does it address the problem of potential service charge deficiencies. The Bill allows partial enfranchisement in such circumstances of blocks or parts of blocks in much larger developments. That is a recipe for muddle, if not disaster.
I am worried that the Bill will be divisive as between existing contented tenants and landlords, and, in my opinion, needlessly so. That apart, it will also be divisive between different classes of tenants, as has been pointed out. Some problems are already arising where long leaseholders and rack-rented tenants in the same building do not see eye-to-eye. They view their positions and interests as being different.
Moreover, the Bill, as the noble Lord, Lord Coleraine, pointed out, will introduce a further category of tenant; namely, those who at a particular moment choose not to enfranchise and who will, for ever and a day, be left out of account. That cannot be right. Following that, the freehold may be purchased on behalf of tenants by a nominee purchaser; but there is no obligation placed on that nominee purchaser to hand over the freehold to the tenants whom he purports to represent. In the course of my business I have experience of a case where the freehold of a building, comprising flats and shops, was purchased by a nominee on behalf of eight other tenants. The nominee then proceeded to put the freehold into his own name. Without a tying-in procedure of some kind in the Bill, the avenue for fraud is wide open.
155 I feel also that there should be a firm link between those leaseholders and the freehold which is supposedly acquired for their benefit in the public interest. I do not see that link. Many of the existing problems between landlord and tenant will be replicated, despite this legislation. My anxiety is that the Bill represents a failure to grasp an opportunity. I should have liked to see the whole vexed system of residential landlord and tenant sorted out once and for all, to restore order and consistency to a marketplace which is bedevilled by antagonism; to provide security for long-term tenants and an opportunity for long-term investment; a range of lease lengths of all types and values; but this rather overweight Bill merely makes the position more complex. As I see it, its effect will be that only mortgage lenders will have an opportunity to invest in residential property by way of a financial commitment for longer than 21 years. Is it intended that they should have a monopoly which is denied to existing long leaseholders? I see no reason to protect the position of mortgage lenders twice over, or to give them a monopoly in those circumstances. It is a mistake to alienate some existing and important economic players in the urban market.
As has been pointed out by others, that would also be a warning to potential investors of a lack of an integrated policy in this area. Why stop at 21 years? Why stop at residential property? I am also worried that some legitimate and uncontroversial investments will be compromised without public benefit. Many of them will be extremely complicated and awkward to unwind. In applying the broad-brush approach the Government should give special consideration to areas of hardship.
The Bill produces a whole new crop of problems. I agree with the sentiments expressed by the noble Viscount, Lord Dilhorne, and the noble Lord, Lord Coleraine, about the mechanics of the proposal. I hope that the Government too will take due note of what has been said. I should like to leave them with the thought that revision rather than abolition might be a better way forward.
§ 7.35 p.m.
§ Viscount Montgomery of Alamein
My Lords, the Bill is in three parts and is very comprehensive. It is really three Bills, and I propose to concentrate, like many speakers, on Part I. This has been an unusual debate in that the arguments have ranged long and heatedly, mainly, but not exclusively, on these Benches. I note that they have been mostly against the Bill. I am pleased to assure my noble friend the Minister that I shall speak in favour of it. In that, I am in the minority, but that is not unusual. I agree with what my noble friend Lord Selsdon said in an excellent speech and with what my noble friend Lord Coleraine said.
I too must declare an interest in that for the past 35 years I have moved around west London and lived in a number of different long leasehold properties on the so-called great London estates and others. They vary enormously in quality. That is an important point. It 156 is no good lumping them all together, although for the purposes of the legislation of course everyone must be equal.
My noble friend Lord Crawshaw mentioned me and so I shall take up the issue of Henry Smith's Charity which was also mentioned in an excellent speech by my noble friend Lord Kindersley. The Henry Smith's Charity estates are exceptionally well run. Its flagship estate, Onslow Square, is superbly managed. It is expensive but efficient. One receives good value for money. That is not to say that the Henry Smith's Charity does not do great work, but it is run as a commercial concern. It gives away large sums of money but it earns large sums of money. I believe I am right when I say that the percentage of profits that it distributes is modest for a charity because it is run commercially. There is nothing wrong with that. Let us be under no illusion. It has every right to be commercial. But it must be made clear that that is what happens.
Another interesting point raised in the debate relates to heritage. There is an idea that if leaseholders on an estate are enfranchised, the whole heritage of the London squares will somehow collapse. That argument is dubious because there is a great deal of legislation already in place. Planning regulations of all kinds exist. Conservation areas have been designated. We already have an enormous number of measures designed to protect the environment. I do not see that that is a good argument.
The provisions of the Bill—this point has not been mentioned—which are contained in the manifesto, are about choice. Choice, I am glad to say, is at the heart of the policies of all the main parties now. It is all very well to talk about contracts freely entered into, and to say that the proposals are retrospective, but if one has tried to buy a flat in central London over the past 25, 30, 40 or 50 years, one will have found that only one type of flat has been available, and that is leasehold. One is obliged to accept all the onerous obligations which may in some cases be beneficial but in others irrelevant and unnecessary because conditions are changing all the time. They are imposed by landlords for their own benefit. Leasehold is an archaic form of land tenure which has been largely discontinued in all parts of the world. The position in the United Kingdom is unique.
Another curious point that is made relates to windfall profits. The windfall profits that have been mentioned are modest by comparison with the magnificent profits that will be made by the freeholders at the end of a lease. They are staggering sums of money. The subject of profits is not a good one to explore, although no doubt it will be explored during the passage of the Bill.
As regards the matter of choice, people will not necessarily wish to take up the enfranchisement which is proposed. There is no obligation for leaseholders to do so and, therefore, there is no question of leasehold abolition. I believe that the good estates, which offer long lease renewals on reasonable terms, will find that their leaseholders stay with them. There is no reason why that should not be the case. There appears to be a certain amount of panic on the part of people who 157 own large areas of land—mostly Peers on these Benches—which appears to indicate that the Government may well be on the right lines. The owners of the great estates have used their not inconsiderable resources to mobilise a great lobby against the Bill.
I hope that the Government will stand firm. As the 1967 legislation progressed through Parliament its effect was whittled away by the pressure groups. I am worried that the same may happen again; indeed, there is an indication that that has already begun in another place. I urge my noble friend not to be put off or to be cajoled by the siren voices which he heard from behind him but to stand firm so that we can provide a choice to the benefit of all concerned.
§ The Earl of Onslow
My Lords, unfortunately I do not own Onslow Square; I wish that I did. I was interested to hear the comments of my noble friend Lord Montgomery. He reminded me irresistibly of my grandmother when in 1907 she was engaged to my grandfather. He said to her, "Marriage is all give and take". Her reply was, "Yes, you give and I take". That appears to be my noble friend's description of the choice that has been offered to the tenant; in other words, the tenant says to the landlord, "You give and I take".
I believe that the presentation of the Bill is an extremely bad day for this House and for the Government. I say that with regret. We are seeing a considerable amount of social upheaval, of dissatisfaction with society and of a society which is in no way at ease with itself. It is a society which has fewer morals and shows less care for its neighbours than has been the case for a long time. I can think of nothing which will do more to make the situation worse than this Bill.
The Government were approached by people who said, "We have something which we entered into quite reasonably. We want to get something for nothing. Please, will you go and take it from the freeholders and give it to us?" My noble friend Lord Dilhorne established that beyond peradventure. The Government then said, "Well, there are 750,000 leaseholders. They have votes and we are frightened of them. There are not many freeholders. Some of them are noble and they do not have votes so we could not care anything at all about them". I thought that Conservative governments cared about contracts and about property. It was not only Hayek who said that liberty was based on property; it was said earlier by Locke.
Several noble Lords have spoken in favour of leasehold enfranchisement. Most have a personal benefit to gain. We have heard a Front Bench Opposition spokesman who is a director of a Maxwell company promoting with relish the idea of a Bill from which he personally will benefit. I do not know about other noble Lords but I do not find that particularly attractive. The whole concept of the Bill is to take from one person and to give to another for the 158 purposes of political bribery. I find that unattractive. I also find unattractive the concept of Peers voting for their own interests.
It has been said with reason that the law of contract was previously upset. The Irish Land Acts are obvious examples. I do not see that Belgravia is full of Greeks on donkeys digging rotten potatoes out of the square in order to feed themselves. I do not see in Harley Street surgeons' wives with seven children, no shoes and threadbare shawls around their shoulders shivering in the cold while begging to feed their children. There is no great social need for this piece of confiscatory legislation. If there is, it has failed to appear. It is not as though the inhabitants of Chester Square or Gerald Road live in back-to-back cottages full of Welsh miners whose villages are decaying. It is extraordinary that a Conservative Government can confiscate from the BP pension fund and give to rich South African and Californian millionaires. I know that to be the case.
Those are my reasons for believing that this is a rotten Bill. I find unattractive the behaviour today of some noble Lords speaking in favour of a Bill which will benefit their interests. I have no interest in the Bill. I have not been marshalled by anyone, nor would I be. I know that there have been frequent complaints about the degeneration of moral behaviour. It has been said that the youth of today have ill manners and show no respect for their parents. That was found on the clay tablets in Samaria 2500 years before Christ. That still does not prevent one on occasions from pointing out a piece of scruffy and rotten legislation.
§ 7.47 p.m.
§ The Earl of Liverpool
My Lords, one of the consequences of rising to speak at this stage in a debate is that almost everything one wanted to say has already been said far more eloquently. Looking at the clock I am aware of the lateness of the hour and I hope that your Lordships will be relieved to hear that I shall endeavour to be brief. I must declare an interest in regard to Part I of the Bill. Indeed, it was declared by the noble Lord, Lord Williams of Elvel. It is that I am the owner of a long-lease flat in London and I shall be in a position to purchase its freehold if the legislation becomes law.
I should like to join other noble Lords in thanking the Minister for the detailed and clear way he explained the objectives of this wide-ranging Bill. Part I has been the subject of much debate. There is only one aspect of that part to which I wish to refer. It is my abiding concern that the Bill may not enable the less well-off lessees to acquire their freeholds. A two-thirds majority of tenants is needed to register an interest in acquiring the freehold. Even if a residents' association can obtain a two-thirds majority to register an interest in purchase, they may lack the funds to proceed if a landlord has submitted excessive service charges over the years or mismanaged the block in some way. If that is the case, the tenants remain trapped with leases which they can do nothing about. Yet surely those are the very people whom the Government are trying to help. They are often burdened by debt and are in no position to increase their debts. With ever-growing 159 restraints on public expenditure it may be a forlorn hope, but I ask the Minister whether it might be possible to make available some central funds which could be loaned to facilitate genuine cases so that those people would be able to take advantage of this legislation which they would otherwise be unable to do. That was a point raised so eloquently by my noble friend Lord Selsdon.
Part III of the Bill relates to the setting up of the urban regeneration agency. I have a further interest to declare in this regard as I am a director of a property company which has been involved in the cleaning up of a derelict and, in part, contaminated site at major expense. I believe that the aims of this part of the Bill are to be welcomed and are generally regarded favourably by the local authorities and the regional development corporations. However, I wonder whether the Minister can give some insight into the Government's thinking on a number of aspects.
Clause 142(2) (c) and (d) states that the task of the URA will be to seek to regenerate land which is:contaminated, neglected or unsightly; and land which is likely to become derelict, neglected or unsightly".Those are commendable objectives. Clause 153 goes on to say, as I understand it, that those and other areas which in the opinion of the Secretary of State are suitable for urban development shall under a "designation order" become "designated areas". The designation order may provide for the URA to become the local planning authority. That being the case, I wonder whether my noble friend can reassure me that the code of consultation which currently exists between local authorities and urban development corporations, which I believe have similar powers, will be fully adopted by the URA.
Clause 147 provides for the URA to carry out development or redevelopment of land and to provide finance in a variety of ways to achieve that. However, subsection (3) of that clause goes on to state:but the Agency shall not in giving financial assistance, purchase, loan or share capital in a company".So far, so good, hilt I wonder whether my noble friend can help me as regards what appears to be an anomaly, since Clause 143 states in subsection (1) (g) that the agency may:with the consent of the Secretary of State, form, or acquire interests in, bodies corporate".While on the face of it I am not opposed to the URA entering into what might be called joint venture development, perhaps the Minister will give me a little guidance as regards what is proposed here and whether, as I have suggested, there is an anomaly in the legislation as presently drafted.
In the case of any development proposed by the URA I hope that it will work closely and consult fully with Her Majesty's Inspectorate of Pollution, the Health and Safety Executive and the NRA. I hope also that, as the noble Baroness, Lady Hamwee, said, care will be taken not to affect the unitary development plan.
Finally, and perhaps most importantly in the context of urban regeneration, I should like to turn to the question of the blight which currently affects cleaned up sites which are threatened with inclusion on a contaminated land register. The Environmental 160 Protection Act 1990 requires local authorities to complete a register of contaminated land but makes no provision for grading the land: for example, to show, first, land which is contaminated where no remedial work is in progress; secondly, contaminated land where work is in progress; and, thirdly, contaminated land where work has been completed to the specification laid down and passed as fit for development use. In many cases those latter sites provide an even better building foundation than sites which are regarded as clean at the outset since far more is known about the nature of the substrata of the treated sites.
The continuing uncertainty as to how the contaminated site register will be compiled and the fact that there is no provision for treated sites to be either removed from the register or separately registered are a positive disincentive to developers to undertake the much-needed work. Sources of finance to commence the work and mortgage funds to prospective house buyers at the other end of the scale are simply not available while that uncertainty exists. That was a point made extremely persuasively by my noble friend Lord Shrewsbury. At the very least I hope that land which has been treated will not be retrospectively included in the register and ideally I should like to see the whole idea of the contaminated land register scrapped.
The press has recently reported that that may be about to happen. It may be a forlorn hope, as was that expressed by my noble friend Lord Shrewsbury, but I hope that the Minister can give me some reassurance that that is indeed the case. I apologise for posing a number of questions to my noble friend, who I know will be hard pressed to answer fully all noble Lords when he winds up the debate, but I live in hope that, as on past occasions, he may make the most of what on the face of it appears a challenging stint at the Dispatch Box.
§ 7.55 p.m.
§ Lord Pearson of Rannoch
My Lords, your Lordships will be relieved to hear that I shall speak briefly, since most of what I might have said has already been said.
I should start by declaring an interest in this unfortunate Bill. When I live in London I live in a house which I lease from the Grosvenor Estates, the properties in London of my noble friend the Duke of Westminster. My lease runs for another 52 years.
If this Bill goes through unamended, I understand that Part I would enable me to buy the freehold, perhaps against the wishes of my landlord and at a price very advantageous to me and my heirs.
Tempting though that prospect may be to me personally, it pales into insignificance beside the importance of the principle at stake which the Government propose to set aside. I shall therefore vote against those parts of this Bill which, without good reason, would force anyone to sell something which he does not wish to sell, which would allow contracts freely entered into to be unilaterally broken and which would generally undermine some of our most important freedoms, privileges and duties.
161 The fact that the rot envisaged by Part I started to set in with socialist legislation in 1967 does not impress me favourably and I am surprised that the Government are praying it in aid of their present intentions. It seems to me that this Bill's envisaged powers of compulsory purchase under Part I should only be granted to genuine residents who either cannot find their landlord or who can show that he is acting unreasonably or negligently. Such unreasonable or negligent conduct could easily be defined in law and decided by the county court. Indeed, parts of Clauses 78 to 81 seem to go some way to providing just such a possible framework, or perhaps the Landlord and Tenant Act 1987 could be amended to spell out the necessary criteria which a landlord should meet if he does not do so already.
I must apologise to my noble friend the Minister for speaking in these terms. He has the unenviable task of dragging this Bill through your Lordships' House and I hope that he will be able to convince his colleagues in government of the need for compromise as the Bill proceeds. He has shown his wisdom and ability to do that when dealing with other pieces of bad legislation which have come before your Lordships for improvement. I wish him well this time. I say this also because, like other noble Lords, I cannot believe that this Bill is his fault and so my criticisms are not in the least bit directed at him. Indeed, I understand that the Bill is largely the brainchild of my old and honourable friend in another place, Sir George Young, who was at school with me; and of my honourable friend Mr Dudley Fishburn, who was also at school with me, where he had the doubtful privilege of fagging for me. I must say that until this Bill came along, I did not think that these experiences had done either of my honourable friends much harm, but now I clearly need to think again.
I believe that the Government too should think again before they sell some of the great principles which are at stake in this Bill for a few thousand votes in London and the South East.
§ 8 p.m.
§ Lord Ezra
My Lords, in my experience of debates in this House I have rarely seen a situation such as we have here today, in which almost without exception speakers have made declarations of interest or declarations of non-interest. I wish to follow suit by declaring my interest, which is that I am chairman of a residents' association located in the City of Westminster. My declaration of non interest is that I live in premises which would not be affected by the provisions of this Bill.
Another interesting feature of this debate has been the sharp division of opinion on the Benches opposite. Many noble Lords on those Benches have become worked up about this issue. Those noble Lords opposite who have been courageous enough to support the legislation have been few and far between. I admire their courage and I support them. I think that the broad thrust of this legislation is right but, as we pass through the various stages of the Bill, we shall no doubt propose various amendments.
162 Two points have been made in the course of the debate which I feel merit further consideration. A cogent point was made about charities. We need to reconsider that matter. There is also the question of historic houses. My noble friend Lord Cobbold could not be with us today. He is the treasurer of the Historic Houses Association. He would have spoken on that subject and he will move amendments to the Bill at a later stage.
There has been much talk about good and bad landlords. Certainly there are a number of bad ones. The Consumers' Association has listed the kind of things from which leaseholders have suffered, such as the neglect of the buildings in which they live, delays in repairs being carried out or escalating costs for those repairs being charged without any justification being given. The Consumers' Association has also listed the effects of absentee landlords, a lack of contact with such landlords, a lack of indication of how service charge accounts are prepared and other such matters. A number of leaseholders are suffering difficulties as a result of such behaviour. There are, of course, good landlords. The large estates have been mentioned in this respect. I commend Grosvenor Estate's management from my own experience. I hope the impeccable appearance of the estates will be maintained under the proposals in the legislation for many years to come.
A number of specific points have been made about the problems with which leaseholders would have to contend under this proposed legislation. The noble Lord, Lord Coleraine, mentioned some of them. The hurdles to be overcome are not inconsiderable. I cannot envisage a rapid rush towards enfranchisement as a result of the legislation. The noble Baroness, Lady Gardner of Parkes, mentioned low rentals. Many feel such rentals are fixed at far too low a level and should be increased.
The noble Lord, Lord Shaughnessy, referred to the situation where accommodation in a block is occupied by commercial interests. As he mentioned, if more than 10 per cent. of a block is occupied by commercial interests the enfranchisement process cannot be undertaken. Then there is the whole problem of the assessment of the purchase price and the debate about the marriage value. Several noble Lords have referred to that.
There is also the matter of the option to extend leases, which is limited to those who do not qualify for enfranchisement. That seems to be a retrograde step in comparison with the 1967 legislation, which allowed any qualifying leaseholder to opt either for a longer lease or for enfranchisement. My own view is that, if that option were open to those who qualify for enfranchisement, many people, rather than go through the arduous process of seeking enfranchisement—which involves having to obtain the agreement of two-thirds of the occupants and having to buy out the remainder and working out what the eventual price will be—would be quite happy to opt for an extension of their lease. I hope we shall get the Bill amended to that effect.
I have indicated some of the issues to which I believe we shall return as regards the first part of this 163 Bill. A number of issues have been raised by my noble friend Lady Hamwee in regard to Parts II and III. I do not wish to repeat the points that have been made, except to emphasise one point that my noble friend made in relation to Part II on the abolition of the right of tenants of local authority housing as regards the contracting out of the management of their homes. Hitherto they have had the right to be consulted, with an effective veto if there was a majority against the contracting out proposal. I believe the abolition of that right is a retrograde step. It offends against the whole concept of the Citizen's Charter. I hope an amendment will be tabled to correct that.
§ 8.5 p.m.
§ Baroness Hollis of Heigham
My Lords, I, too, declare what interest I possess, which is that I hold a lease under the Crown Estates which may voluntarily conform to enfranchisement. A number of speeches have been made. Almost all of them were concerned with leasehold reform. Two or three speeches were concerned with urban regeneration. To my regret no one, except on the Front Bench, mentioned housing.
I wish to comment first on leasehold enfranchisement. We on this side entirely support the need to abolish a tenure that is not only an aberration—I believe it is seldom found outside Hawaii—but is too often exploitative, with all the rights and benefits on one side, namely, the freeholder; and all the costs and obligations on the other side, namely, the leaseholder. Any Bill which seeks to reform property law invariably affects vested interests, which in this case are those of the rich, the powerful and those who inherit property.
We have been told by those who oppose the Bill, by the noble Lords, Lord Gisborough, Lord Peyton of Yeovil, Lord Boardman, Lord Hamilton, Lord Pearson and the noble Earl, Lord Peel, that this Bill represents compulsory interference with contracts that are entered into freely. I have to say that the three-quarters of a million leaseholders know that if they need a flat—notwithstanding the views of the noble Earl, Lord Onslow—and they are either young, retired, single parents or poor, they have virtually no choice but a leasehold flat. It is hard to talk about freely entered contracts in that situation.
The noble Viscount, Lord Dilhorne, and the noble Lord, Lord Monson, have talked about confiscation. However, on the contrary, not only will landlords who have disposed of all but a minimal interest in their property to a long lease nevertheless enjoy half the marriage value, but it could be argued—I am not arguing it—that the full marriage value belongs to the leaseholder as compensation for his declining asset.
We have been told by the noble Lord, Lord Cavendish, speaking on behalf of English Heritage—some of his fears were shared by the noble Earl, Lord Lindsay—that this Bill may threaten the stewardship of the great estates. As a former commissioner of English Heritage I understand and sympathise with their fears. However, all the experience we have of the enfranchisement of houses in 1967 and of the efficacy of estate management agreements in the Bill, together with the safeguard of 164 diligent local authorities operating their conservation powers, shows there is protection enough, especially if the Government make some concessions as regards the efficacy of Article 4 directions.
Finally, we have been told—these arguments were eloquently put by the noble Lords, Lord Kindersley and Lord Crawshaw—that churches and charities should be exempt. But just because churches and charities spend their money in charitable ways does not always mean that they derive their income in charitable ways. Lines may have to be drawn clearly between those churches and charities which let their properties on a commercial basis to finance charitable works and those which let their properties on a non-commercial basis for charitable ends. Noble Lords may be sympathetic to drawing that distinction.
We have heard voices tonight putting those arguments, but we have not heard voices putting arguments with equal weight from the other side. We have not heard about the problem of the diminishing lease which is impossible to sell and, given the reluctance of mortgage lenders, almost as impossible to buy. Above all, we have heard little about the problem landlord whose management is too often shoddy, non-existent or over priced.
Three quarters of leaseholders have experienced problems with landlords. Half of those problems were serious. A quarter of leaseholders considered going to court and a quarter of those actually did so. We are speaking here of unknown landlords, scurrilous managing agents, soaring service charges, repairs not done, accounts not audited and lease extension refused. This will not do.
We on this side of the House believe that that part of the Bill is a brave measure. It seeks to abolish leasehold and to define tenures as either broadly rented or freehold. However, here we would want to part company with the Government because, as the noble Lord, Lord Ezra, rightly said, the Bill offers a twin-track procedure of either enfranchisement or extension. I believe that there are better ways.
As the noble Lord, Lord Strathclyde, said in opening the debate, to enfranchise leaseholders must overcome a series of hurdles, such as low rent, long lease, two-thirds eligibility and no more than 10 per cent. of the property being commercial property. We understand the thinking behind those hurdles, particularly in the case of long leases and the 10 per cent. commercial property rule. Nonetheless, such hurdles may be improved by amendment. As the noble and learned Lord the Lord Chancellor said in November 1990, the complication of a low rent qualification cannot be justified. We on these Benches agree with the noble and learned Lord the Lord Chancellor that it is an unnecessary solution to a non-existent problem. We shall return to those points in Committee.
As the noble Baroness, Lady Gardner of Parkes, rightly said, the core problem lies with the very concept of the twin track. Under the Bill if one can enfranchise then one must. Only if one is not qualified to enfranchise can one extend one's lease. Again, we understand the Government's thinking. They fear that if extension is a viable alternative individual flat 165 owners may follow that path and make it impossible for the others statutorily to overcome the enfranchisement hurdles and obtain a two-thirds majority. As the Government wish to enfranchise they wish to reduce the number of those in the betwixt and between land of leasehold.
I wonder whether the Government thinking on the matter is right. All consumer research shows that tenants overwhelmingly prefer enfranchisement to extension. According to consumer research two-thirds say that they would not extend their lease, whereas over half would buy. Under the Bill many would be able neither to enfranchise, because they cannot obtain the majority, nor to extend, because they have been forced to go down the track of enfranchisement. We have a twin track.
I do not know what the noble Lord does when he goes down a track which becomes a dead end. As the noble Lord's family probably owns the fields he would probably cut a swathe across them, but the rest of us would backtrack and go down the other path. We shall be arguing in Committee for a similar approach. We shall be arguing that where those eligible to enfranchise have failed to obtain the necessary two-thirds majority vote on, say, three occasions, perhaps two years apart, they should then have the right to opt for extension. It is the only way to avoid a situation in which the minority, perhaps non-resident, leaseholders can deny the majority of home owners the right to enfranchisement, the right to extension and the right to anything else. Such an amendment would still privilege enfranchisement as the Government want, but if we do not amend the twin-track procedure we shall be left with three categories of former leaseholder: the enfranchised, the extended and the stranded. As the noble Lord, Lord Coleraine, said, we cannot believe that that is the Government's intention.
I now move on to the second part of the Bill, dealing with housing. It is a pity that we have to do so because this would be a much better Bill if, as my noble friend Lord Williams of Elvel said, it was confined to leasehold enfranchisement and that had been combined with a full commonhold scheme. Indeed, it is significant that very little reference has been made to housing, except by the noble Lord on the Front Bench opposite. That is perhaps understandable because this is not a housing Bill, despite its Long Title. It is essentially a tenures Bill. It adds not a single house to the stock, houses not a single homeless family, employs not a single building worker and takes not a single family out of bed and breakfast accommodation.
Therefore, apart from the welcome which we shall give to the tidying up of the consequences of the Ealing judgment and thus clarifying the funding of housing welfare services, we shall be arguing that there is little in the housing part of this Bill which is either necessary—such as the right to compensation and the right to repair—or desirable in terms of the rent-to-mortgage scheme or the loss of tenants' veto on changes in housing management.
166 The right to repair is unnecessary and, in the form in which it appears in the Bill, probably unworkable. Many local authorities now have schemes whereby if the local authority does not complete work in a given time tenants can call in a contractor from an approved list. That is absolutely right. However, I am afraid to say that the Government have produced a scheme that will not work, like the last one they produced in 1985 in which all of 70 tenants spent £7,300 on repairs at a cost to the Government of £40,000 in publicity.
Why is there a problem? Under compulsory competitive tendering a private contractor will, for the most part, be responsible for housing repairs. Under the Bill if the private contractor fails to do the job on time, often simply because he cannot gain access because the tenant is out, the tenant may call in a second contractor, also within the competitive tendering procedure, to do the work in lieu. Who is responsible for what, at what price, under what authority and for what reason will be impossible to determine and control. If the Government want the scheme to work—and I believe that the proposal is well intentioned —will they please listen to professional and local authority advice this time round? We shall take no pleasure, or not much, in saying, "I told you so".
I now turn to the aspect of the housing Bill which I believe to be downright irresponsible, namely, the rent-to-mortgage scheme. It has not been referred to today, except by noble Lords on the Front Benches. The Minister, Sir George Young, said in July 1992, in Inside Housing:No responsible government would want to encourage people who cannot afford it to take on the responsibility of owner occupation".One has only to look around. We are already living with the consequences of pushing marginal buyers into owner occupation, especially as the economic slump deepens. We are surrounded by the 75,000 families a year whose homes are being repossessed, the 300,000 families who are more than six months in arrears with repayments of whom half will lose their homes, the 1 million families with negative equity and the more than 1 million families who are in multiple debt. Even more repossessions have only been avoided because building societies are rescheduling payments, which adds to the problems of negative equity and long-term debt. Sir George Young was right last July. So what on earth are the Government doing producing a rent-to-mortgage scheme when every Member of this House, I am sure, would agree with John Perry of the Institute of Housing that:effective measures are needed to convert mortgages into rents, not more ways of persuading people who can barely afford it to become owner occupiers"?Local authorities are flooded with former owner occupiers who are now homeless and seeking council housing, and we shall be adding to that list.
The Government have already experimented with shared owning/renting schemes in 1984. That failed. Only 600 people took it up. We told the Government at the time that it would fail. Now we are to have another version of a similar scheme—a deferred purchase scheme, which is bad when it is in local government and good in central government. It has 167 been piloted with little enthusiasm in Milton Keynes and Basildon. Every local authority and professional association is saying that it will not work.
Certainly no tenant should touch the rent-to-mortgage scheme. They will have poorer discounts than under the right to buy, they face heavy outgoings on repairs and insurance, they will lose any future right to housing benefit if their income falls, and precisely because they are too poor to buy outright their cases are marginal enough to risk repossession. Because the local authorities have no power under the Bill to repurchase those people's homes, they face foreclosure with no way back. For many families that section of the Bill is a tragedy waiting to unfold.
The Minister may say, as the Minister stated in another place, that tenants know best, and that they, and not the Government, will decide. I accept that. But why is it that the tenant's right to know best, and to decide, is being removed from the last and most important housing issue: that is, of housing management? Why do the tenants know best under rent-to-mortgage but do not know best under housing management? Housing management is not just about giving out keys and getting in rent. It relates to housing the homeless, prioritising applications, resolving disputes and complaints, determining housing benefits, recovering arrears, offering debt counselling, supporting the mentally and physically frail in sheltered housing and running local community offices. It touches people's lives intimately. Therefore, whoever manages the housing stock is central to people's and tenants' wellbeing.
Yet under the Bill, whether or not council tenants wish it, housing management will go out to compulsory competitive tendering; and whether or not tenants wish it, an alien company may manage their homes and part of their lives. I do not wish to sound complacent but there is no evidence that tenants are unhappy with local authority management. MORI research suggests the contrary. There is no evidence that compulsory competitive tendering will cut costs, especially in the light of the TUPE regulation and the cost of contracting out. There is no evidence that compulsory competitive tendering will improve quality of service. Indeed, in so far as it splinters services, which Cullingworth urged in 1969 should be integrated, we shall see a comprehensive service deteriorate.
The Bill imposes compulsory competitive tendering on tenants. It is without their consent, they have no choice. Government do not need the Bill to introduce compulsory competitive tendering. They need the Bill to overturn what your Lordships insisted on in Sections 105 and 27 of the Housing Act 1985: the right of tenants to be consulted and to determine who manages their homes. Your Lordships safeguarded tenants' rights in 1985 against the wish of the Government. That safeguard has proved exemplary.
Elsewhere in the Bill leaseholders and local authority tenants have a final say on who owns their homes. But they are to be refused the final say on who manages them. If they are affluent enough to buy, they have that right. If they are too poor to buy, they are 168 denied that right. Will your Lordships protect the right of those who are too poor to buy to say who manages their homes, as you did in 1985?
The Greenwich tenants wrote to the Minister saying,We are led to believe that this Government believes in giving more choice to tenants over the running of their homes, not in taking it away … CCT does not allow us to choose… We should be able to decide by whom and at what cost our homes are managed".The Secretary of State is saying that tenants can only choose what he, the Secretary of State, has already chosen. Will your Lordships empower the tenants to defend their rights as you did in 1985, and reclaim for them the moral adulthood that we expect to enjoy over our homes? We shall be asking your Lordships to do so.
Finally, I turn to the Urban Regeneration Agency. I have little to add to the comments made so forcefully by my noble friend Lord Williams of Elvel. We welcome the bringing together of three land-related programmes: English Estates, derelict land grant and city grant. We welcome the fact that, belatedly, market forces alone are not now considered available to deliver land regeneration. As the noble Earl, Lord Shrewsbury, rightly noted, we welcome the pressure that we shall put on developers to move from the "easy anywhere greenfield sites" of the 1980s to developing the inner cities.
We welcome, too, the fact that it is a multi-agency. However, we are worried about the adequacy of funding. The noble Lord, Lord Norrie, referred to this factor. We are worried whether that part of the Bill is sufficiently environmentally conscious. As my noble friend Lord Sefton stated so eloquently, we are worried that the Government have not learned the lessons of the 1980s: that without full participation with local government the agency will be remote and top down.
Above all, we are worried that it is assumed that the inner city problem is one of land and property. We believe that the problem relates to the loss of jobs and of hope, of lack of nurseries whereby single parents cannot go out to work and the lack of support for carers so that the elderly cannot remain in their community to stabilise them. The problem relates to the lack of leisure facilities which will be a challenge to the problem of illicit drugs, stolen cars, illegal, goods and casual vandalism. Those issues will be explored at Committee stage. But at the core, if development is not owned by and accountable to local people then, as in Docklands, it will fail. One can no more have trickle-down development than one can have trickle-down wealth or trickle-down economics.
We have three Bills in one, with 130,000 words and 250 pages. As my noble friend Lord Macaulay of Bragar said, those pages are obviously full of democratic deficit and undermining of local authority rights. We hope constructively to strengthen the brave part of the Bill on leasehold reform. We shall seek to make the clauses on urban regeneration work. Too many of the housing chapters are perverse. With the help of your Lordships we hope to amend them to empower tenants and to offer them full citizen rights.
§ 8.26 p.m.
§ Lord Strathclyde
My Lords, it comes as no surprise that we have had a most interesting and informed Second Reading debate. We shall of course have the opportunity to consider many points in the Bill in greater detail in Committee. However, it might be useful if I take the opportunity to comment on the main issues and points of concern raised in the debate.
I shall not pretend for one moment that it has been an easy debate to reply to. It is often the case that a Bill provokes a great deal of interest before coming to the House. But it is rare that that interest should concentrate so much on one aspect of the Bill and that it is my noble friends who have been so uncharacteristically provoked.
I thank all noble Lords who have contributed today. We have had some powerful speeches and I have had some uncomfortable moments today. However, I was not made uncomfortable by the speech of the noble Lord, Lord Williams of Elvel. It was a good speech. In fact the noble Lord made a very good speech and had the grace to tell us why: because it was written for him by Conservative Central Office. I understand that the noble Lord can subscribe to the Conservative research department publications and I am sure that he will be delighted to do so.
Like the noble Baroness, Lady Hamwee, I propose to start at the end of the Bill with urban regeneration. My noble friend Lord Norrie sought further clarification on the environmental duties of the urban regeneration agency and its role in rural areas. I can assure him that the Bill gives the agency the power to continue the full range of the present work of the three programmes that it will inherit. However, it is a particular strength of the agency that it will be able to do far more than that. It will be able to develop its own imaginative new programmes in response to the needs and opportunities of both urban and rural areas. It will do that in accordance with guidance that we shall issue which will take account of the current priorities of derelict land grant, city grant and English Estates.
Environmental objectives lie at the heart of the agency. It will decontaminate land. It will make unstable land safe. Every piece of vacant and derelict urban land that it brings back into use will relieve the pressure on greenfield sites. The means by which the agency's objectives are to be achieved in Clause 142 already include the creation of a safe and attractive environment. Any further environmental duty is unnecessary and could confuse the present emphasis on the regeneration of land in areas of need.
My noble friend Lord Norrie also referred to the need for environmental assessment. The Community directive requiring those assessments to be carried out in major schemes likely to have significant environmental effects has already been implemented for projects in England and Wales which require planning permission. It will apply to projects for which the agency seeks planning permission. Any separate requirement for environmental assessment could undermine the directive by appearing to set up a parallel system.
The noble Lord, Lord Williams of Elvel, complained that the Government are repackaging a 170 succession of initiatives rather than providing real help for our cities. The Government are helping our cities. For a start, they are spending nearly four times as much in real terms on the urban block as the previous Labour Government did. More importantly, they are achieving output: 69,000 jobs created; £12 billion private investment attracted by UDCs since 1981; 284,000 dwellings improved under estate action since 1988; and 13,000 acres of derelict land reclaimed through DLG since 1988.
I turn now to the point raised by my noble friends Lord Shrewsbury and Lord Liverpool on contaminated land registers. We have recently consulted. We have received over 450 responses to our consultation exercise on registers and we are considering these carefully. We are particularly concerned to avoid any unnecessary blight, and we want to encourage the full and effective use of sites which have previously been developed, including contaminated land. We hope to announce our decisions on the consultation exercise shortly. In the meantime, it would be inappropriate for me to make any further statement or to comment on any speculation in the press.
As for my noble friend Lord Liverpool on joint ventures, there is no conflict between Clauses 143 and 147. The agency can form joint ventures subject to the Secretary of State's consent. The restriction in Clause 147 simply stops the agency buying shares in a company for the sole purpose of giving financial assistance to that company. In other words, the agency could not buy shares for the purpose of propping up a lame duck company but it could form a joint venture with a company to meet its statutory objects.
The noble Lord, Lord Sefton of Garston, complained that the URA was a further attack on local government. It is not. City Challenge has shown that the Government are happy for local authorities to take the lead in urban regeneration provided they work with the private sector, with local communities and with other public agencies. Similarly, the URA will do all it can to work in partnership with local authorities.
The noble Lord, Lord Macaulay of Bragar, in his discussion on the Scottish provisions complained that they were included in this Bill. But since the Scottish provisions are similar to those for England and Wales there are clear advantages in both sets of provisions being considered together. This is well precedented, and the Government could have been criticised for not bringing forward these important new rights for Scottish tenants at the earliest possible opportunity. The noble Lord made reference to the drafting of the Scottish provisions. While I do not share his concerns, he will of course have the opportunity to explore these further in Committee, when he will be delighted to hear that my noble and learned friend Lord Fraser of Carmyllie will be standing in my place.
The noble Lord, Lord Williams of Elvel, the noble Baronesses, Lady Hollis and Lady Hamwee, and the noble Lord, Lord Ezra, asked about housing management and CCTs. Why should we trust the tenants? Cannot the local authorities do better? These are the questions that have been asked. The point is 171 that councils will not delegate the core functions to tenants; for instance, the policy on rents, the allocations, the strategic and enabling functions. We believe that we are providing more effective consultation procedures which will enable them to influence in a positive way significant decisions affecting the management of their homes.
On the right to repair, we want to listen to advice. We want to listen carefully to advice from local authorities and from tenants. The consultation paper on the detailed new scheme was issued in January, and that consultation period ends in April of this year. The purpose of the Government's proposals on right to repair is equal rights for all tenants. We could leave decisions on the form of schemes to local authorities' discretion, but this would mean that the best authorities will introduce comparable schemes whereas the worst will not. We want to ensure that those tenants in the worst areas have a workable and effective right to repair.
In reply to the noble Baroness, Lady Hollis, on rents to mortgages for local authority tenants who want the opportunity to own their own homes, the rent-to-mortgage scheme offers an important extension to the highly successful right-to-buy programme. Rent to mortgage is an attractive route to owner occupation because mortgage repayments will need to be no greater than the current rent. Tenants who pay full rent often see this as dead money going into the landlord's pocket each week. Rent to mortgage enables them to invest this money in their own homes. It offers a safer route into home ownership for people who would like to exercise the right to buy but cannot quite afford it. This is a low-risk route.
The noble Baroness, Lady Hamwee, put two questions to me about rents to mortgages. She asked why tenants on housing benefit are excluded. It is because even if they could raise the purchase price—for instance, by help from their families—they would be likely to have difficulty in meeting the other costs of home ownership. We are concerned that rents to mortgages should not lead tenants to making unwise decisions to buy.
Secondly, the noble Baroness asked why the scheme is not open to tenants whose rents equate to more than 80 per cent. of the normal right-to-buy price. That is because the added complication of an existing mortgage from the landlord is really not justified if the tenant could afford the ordinary right to buy, and tenants who can buy outright are probably well advised to do so.
In answer to the accusations from the Opposition that we are not doing enough in housing policy, I can tell noble Lords opposite that Parts I and II of the Bill are but one element of our housing policy. They address real problems and needs in practical ways, but they are not the whole story. Indeed, perhaps the most significant action that we have taken to the benefit of housing in this country is to reduce interest rates from 15 per cent. to 6 per cent. in the space of two years. We have also provided £630 million to boost the housing market in England this year. Through our capital partnership programme we hope to bring some of the 83,000 empty council flats and houses back into use.
172 There are now 2 million more homes in this country than there were in 1979. Home ownership in Great Britain is up from 55 per cent. in 1979 to 68 per cent. today. The quality and standard of housing are now higher than ever before, and we have boosted low-cost housing. By 1993–94 a £2 billion per annum programme will have seen housing associations having built over 150,000 more homes. That is a record that we are proud of.
It is now appropriate for me to turn to the provisions in Part I of the Bill; those on leasehold enfranchisement. I have listened carefully to the debate on enfranchisement. I accept that it is a serious step to require one person to sell an asset to another, but I believe that it is necessary and justified in this case.
Let me deal with some specific points that were raised before I deal with some more general items. First of all, to the noble Lord, Lord Williams of Elvel, and other noble Lords, including my noble friends Lord Coleraine and Lord Dilhorne, on why we have not brought forward proposals for commonhold in this Bill: as the House will know, this is a matter for the Lord Chancellor, and the House will also know that a draft Bill was published for consultation purposes in 1991. It was incomplete. Technically it is very complex to introduce commonhold, and it is important to get it right. The Government decided that it was more important to bring forward enfranchisement to allow leaseholders to take control within the existing tenure framework. The noble Lord, Lord Williams, complained that already this Bill was too complicated and too long. To have included an incomplete Bill on commonhold at this stage would have been a retrograde step.
My noble friend Lady Gardner asked about the number of votes per leaseholder. I can confirm to her that there is one vote per flat. Size or value of individual flats in a block are immaterial. There is not a ballot for collective enfranchisement. Those tenants who qualify and who wish to participate must sign the note, which is then given to the landlord.
My noble friend Lord Coleraine said that there was no option to buy new leases for individual tenants in enfranchiseable blocks. I can say to him that this is a firm policy. An option would wreck the chances of widespread enfranchisement; individual action would always be more popular than collective action so tenants would renew to protect their asset value rather than go down the route of collective enfranchisement.
My noble friend 'also asked why the tenants' nominee had to buy non-qualifying parts of the block. The nominee purchaser must buy leases over tenanted flats and commercial parts unless the existing freeholder opts to lease them back. This is logical, of course, because the objective is to control the whole building and allow the existing freeholder the opportunity to withdraw completely. If the participating tenants have difficulty financing the purchase of the entire block they are free to arrange deals, to release the rack-rented parts and the commercial parts as part of the finance package.
My noble friend Lord Gisborough asked about new freeholders. He said that new freeholders could 173 not change non-participating tenants' rents. Those tenants remain with their original lease and all its terms unaltered under the scheme.
Much has been made about the principle of the Bill in regard to what happened in the 1960s with the general election and when the 1967 legislation was going through Parliament. In 1967 my noble friend Lord Barber, then Mr. Anthony Barber, welcomed the principle of the Leasehold Reform Bill 1967—I refer my noble friends to the debate on 7th March 1967 at col. 1284—but we disagreed with the terms of compensation. This Bill, however, says explicitly that the marriage value is to be shared, as the market would have done if it had operated fairly.
As my noble friend Lord Montgomery of Alamein put it, extremely well, people have virtually no choice about leasehold if they can only afford a flat. The markets demand that they pay close to a freehold value, despite it being a wasting asset.
My noble friend Lord Gisborough also asked whether I had the voting figures on the Second Reading of the 1967 Act. He will be delighted to hear that I have. The ayes for the Government were 319; the noes, the Conservative Opposition at the time, were 197. What that tells him is entirely up to my noble friend.
My noble friends Lord Cavendish of Furness and Lord Peyton asked about cathedral closes, among other points. No exemption is given in the 1967 Act for houses of low and medium value in cathedral closes, but landlords could have applied for estate management schemes then. The same treatment will arise under this Bill for higher value houses in cathedral closes where they arise. They can be the subject of estate schemes. I am well aware that during the course of the Committee stage we shall have many discussions about how estate management schemes will work in practice. There is a great deal of detail already in the Bill, but I am happy to receive suggestions from my noble friends.
I also think that my noble friends will be pleased to hear that there is a definite Government commitment to amend the Bill to add injurious affection for houses as a head of compensation for all new entrant houses brought in. The Government will bring forward an amendment on that.
The noble Earl, Lord Lytton, asked why the appeals to the Lands Tribunal is not on the face of the Bill. That is because it is set out in earlier legislation which controls leasehold valuation tribunals which are rent assessment committees. It is therefore not necessary on the face of the Bill.
The Bill seeks to redress two problems which are becoming urgent. Leaseholders are faced with a wasting asset which is almost impossible to sell. This problem became acute for the leaseholders of houses before the 1967 Act was passed and has now become acute for flats.
In addition, leaseholders have no control over their asset, which is particularly difficult in the case of flats. I mentioned earlier that recent research by the Consumers' Association had found that two out of three leaseholders reported problems resulting from 174 their freeholders' action or lack of action. Amazingly, as many as one-in-four long leaseholders have considered taking their landlord to court and one-in-20 have actually done so.
I cannot think of any other area of contractual relationships which generates such a level of dissatisfaction and litigation. Abuse by some landlords of their unfairly weighted power over tenants is widespread. It is wrong that the person who has the smallest financial interest in a block and for whom a block is most often just an investment, has full control over what to the leaseholder is often his greatest investment and his home.
The position of long leaseholders excluded from previous reforms is now so serious that the Government made a clear manifesto commitment to give long leaseholders of flats and higher value houses a chance to take over full control of their own property. We must take positive action and the Bill does just that.
However, I am aware that there are some substantial hurdles that I have to get over with my noble friends. May I deal first with the question of valuation? This was raised particularly by my noble friend Lord Kindersley who made a most important speech on the role of valuation and of charities. It has been the particular concern of the Government to ensure that our proposals are fair. I must emphasise again that landlords will receive the market value of their assets. I know that my noble friend Lord Dilhorne disputes that, but in the case of flats they will receive the open market value of their interests, at least half the marriage value, compensation for loss of value to retained land and all their reasonable costs.
It is the apportionment of marriage value about which most concern has been expressed. This is the extra value which enfranchisement will release because it represents a sale to the tenants and brings together the freehold and all the leasehold interests into the same control.
We have provided that landlords shall receive at least half of this additional value. It represents a real capital gain to the landlord. It is fair that this value should be shared as it can only be released by a sale to the tenants. Should a landlord sell to any other purchaser, marriage value would not arise.
I believe that this is a fair basis for valuation. It reflects how the market works in practice where it has been usual to give 50 per cent. to the landlord, following the Lloyd Jones v. The Church Commissioners case. That reflected market evidence submitted by the landlords. I believe strongly that the provisions in the Bill are therefore fair. They follow normal market practice and allow a landlord to maximise his asset.
There is also a secondary problem. We have heard speeches from both sides; not necessarily from both sides of the House but from the side of the landlords and the side of the tenants. The Government are trying to walk a delicate path and endeavouring to be fair. That is why I believe we have come to the right conclusion.
Much was made in the debate this afternoon of the residency test. My noble friend Lord Boardman gave 175 an example of a Libyan and my noble friend Lord Dilhorne referred to the residency test. One or two noble Lords mentioned Texan millionaires and non-English speakers. I sense that there is an air of xenophobia in all this and I do not believe that we should be overly concerned about it.
The Government believe that a residence condition as qualification for enfranchisement in flats is not acceptable on the ground that it would reduce the number of blocks in which enfranchisement could take place. The reasons for this effect are that individual blocks could move frequently in and out of eligibility, making it harder to find an opportunity to enfranchise. Tenants would have difficulty in ascertaining the status of their block because they could not always readily discover the residential status of non-participating qualifying tenants.
However, we accept that these arguments are less compelling for individual lease renewals in unenfranchiseable blocks. My right honourable friend the Secretary of State said in another place that the Government would bring forward an amendment in this House to add such a residency test for the purposes of the grant of a new lease. I look forward to proposing this in due course.
I turn to the question of charities, raised so effectively by my noble friends Lord Kindersley, Lord Crawshaw and Lord Peyton, and also many others. Charities, per se, are not exempt from the provisions of the Bill. That would be unfair to the tenants of those charities. The Leasehold Reform Act 1967 did not exclude charities and I can see no justification to do so now. The real distinction that must be made is between the derivation of a charity's income and the charitable use to which that income is put. I am fully aware of the very good work that charities such as the Smith's Charity undertake and it is important that they should continue to be in a financial position to sustain their work. But the benefits that a charity can give have no obvious connection with the source of its income.
I believe that my noble friend Lord Selsdon made the most valuable contribution to the debate in dealing with that point. He asked how much money was involved. I am afraid that I cannot tell him because it depends upon the value of leasehold flats, current ground rents and the length of leases outstanding. We do not know precisely how many blocks will qualify nor how fast people will want to take up their new rights.
It is the duty of charities to maximise the income from their investment portfolios. Charities holding housing or flats purely as an investment do not generally let them at social rents. Where a charitable housing trust lets a property on a long lease in pursuit of its charitable purposes it is a quite different matter. Tenants with such leases will not qualify for the rights of collective enfranchisement or lease renewal. A charity will, like any other landlord, receive the full market value of its asset. Indeed, it will receive more from the tenants than it could from a third-party purchaser and will thus maximise its asset. It will be free to reinvest the gains made from the sale, and rollover capital gains tax relief will be available so that 176 reinvestment can be without penalty. Where a charity has let a property on a long lease it has already disposed of its major interest in that property. It will not be fair to discriminate against the long leaseholders in such a property, who now own the greatest financial stake and whose home the property very often is, on the basis of their landlord. That would be unfair.
Those who wish to put forward in Committee the view that charities should be dealt with separately will have to prove that it is in the interests of tenants that they should be treated differently from any other landlord or any other charity that was affected by the 1967 legislation.
I was not at all surprised that some of my noble friends' speeches made me feel uncomfortable. I know that there are issues here of very great concern. However, I am grateful for the substantial support that the Government's proposals have received this afternoon.
I can assure the noble Lord, Lord Peyton, that Government Ministers are not ornamental. I shall listen most carefully to the points put forward. I have indicated those areas where I believe your Lordships' consideration can improve the Bill. The Bill offers important new rights and opportunities to many hundreds and thousands of people in both the public and private housing sectors. It offers the prospect of a better environment for all those who live or work in our inner cities. I commend it to your Lordships' House.
§ Lord Coleraine
My Lords, before my noble friend sits down perhaps I may say that he answered as questions three of the points I made as criticisms. I was interested in his answers, but perhaps he would answer the question of which I gave him notice. Referring to paragraph 4 of Schedule 5 to the Bill, what are the circumstances in which a landlord may expect to receive more than 50 per cent. of the marriage value?
§ Lord Strathclyde
My Lords, the House will forgive me if I cannot give my noble friend a detailed answer at this stage but I understand that that precedent is well set on the basis of evidence of ordinary housing legislation and enfranchisement. If I can be of more help to my noble friend Lord Coleraine, naturally I will write to him.
On Question, Bill read a second time, and committed to a Committee of the Whole House.