§ 6.15 p.m.
§ House again in Committee.
§ Clause 1 agreed to.
§ Clause 2 [Acquisition of leasehold interests]:
§ [Amendment No. 8 not moved.]
§ On Question, Whether Clause 2 shall stand part of the Bill?
§ Lord Coleraine
The Bill is technical and I wish to ask my noble and learned friend a question which I have not had an opportunity to discuss with him. It relates to the terminology of Clause 2 which provides for the acquisition of superior leasehold interests to the leases of the qualifying flats. It appears to make no provision for the acquisition of leasehold interests superior to leases of other property included in the premises to be acquired; that is to say, commercial property or flats which are not let to qualifying tenants. Is that a drafting oversight?
It may be that it is intended that the leasehold interests superior to the commercial properties or to the flats which are not let to qualifying tenants shall remain in being and shall not form part of what the nominee purchaser buys. If so, the curious result may follow that the price paid for the freehold reversions of such properties as part of the premises being acquired will be comparatively low in cases where the freehold interest is subject to a long head lease at a ground rent. I should have thought that the intention would be to sweep up all the intermediate leases in the purchase but that is not what the Bill appears to provide. I shall understand if my noble friend cannot now answer the question, and I hope that he will write to me.
§ The Lord Advocate (Lord Rodger of Earlsferry)
My understanding is that my noble friend's understanding is correct. Indeed, it is not the intention that intermediate leases of the kind that he mentioned shall be acquired. It is intended that all that shall be acquired are the intermediate leases which lie above qualifying tenancies. That is because the policy of the Bill is to allow qualifying tenants to acquire the rights which affect them. In order that they should be able properly to exercise the freehold which they are acquiring it is therefore necessary for them to be able to acquire the leasehold interest interest between them 969 and the freehold. That is why the clause is drafted in such a way. I noted my noble friend's point about the effect of the provision on other issues and perhaps I can write to him about that.
§ Clause 2 agreed to.
§ Clause 3 [Premises to which this Chapter applies]:
Lord Williams of Elvel moved Amendment No. 9:
Page 4, line 43, after ("owned") insert ("directly or beneficially").
§ The noble Lord said: In moving Amendment No. 9, I shall speak also to Amendments Nos. 13, 14, and 15. The amendments are of a technical and almost probing nature. They relate to the premises to which Chapter I of the Bill applies and are designed to explore whether greater precision should be given to some of the phrases used in Clause 3.
§ I speak first to my Amendment No. 9. The point here is that the premises might be owned by a "person" and that might be a body corporate. It seems to me important that if it is owned by a body corporate then we should be able to find out, or have means of being told, who is the beneficial owner of the premises and who, on some occasions, may be hiding behind a corporate body. That is why I insert the words "or beneficially", because those really are the crucial words in that amendment.
§ The other three amendments in the group will no doubt be addressed by those noble Lords who have proposed them and I would only say that, in their different ways, they seem to be trying to achieve greater accuracy of expression in Clause 3. I would have no difficulty at all if the Government were to agree that any of these might be suitable in some modified form to bring greater precision. Clause 3 is a very complex clause which needs a little bit of discussion and perhaps some clear responses from the noble Lord when he replies. I beg to move.
§ Lord Strathclyde
Likewise, in replying to Amendment No. 9, I should like also to speak to Amendments Nos. 13, 14 and 15. I understand the noble Lord's intention in moving his amendment, which is to prevent a freehold being divided, perhaps within a family, simply to avoid enfranchisement. I do not consider that the amendment would actually achieve that aim. It would be very difficult for tenants to prove that a landlord had a beneficial interest in a separate freehold. There could be many forms of such an interest. A company may transfer part of a freehold from an associated company, or one person may hold part of a freehold on trust for the freeholder. Where such a person or company is otherwise unconnected, it would be difficult to prove any beneficial connection, if indeed one existed.
I recognise the noble Lord's intention that this should be a probing amendment and perhaps I may add that I do not think that it is necessary either. It would not be in a freeholder's interest to divide up his asset simply to avoid enfranchisement. Where a block is not eligible for enfranchisement, then a long leaseholder would be entitled to lease extensions and this ongoing right would prevent a freeholder from 970 getting freehold reversion. Because this extension is an individual right, tenants are more likely to exercise it than enfranchisement. Once a freehold is divided that division would have to remain, or the block would once again be able to be enfranchised.
In many cases disposal of an interest in a block would be a relevant disposal under the 1987 Landlord and Tenant Act, which would allow tenants to have a right of first refusal of the sale. In that case there would be no benefit to the freeholder as he would still have to sell his interest to the tenants. Our aim in drafting provisions for enfranchisement has been to make them as practical and as simple as possible. I am sure the whole Committee would endorse that aim. It would make the enfranchisement process very complex if more than one freehold needed to be acquired and might result in blocks not being able to be enfranchised as the process was too complex and therefore too costly.
We have also made it clear that enfranchisement should only enable long leaseholders to control the property in which they have the greatest financial stake. To enable them to purchase the freehold assets of more than one freeholder might extend the scope of enfranchisement beyond the leaseholder's reasonable interest. Therefore, this amendment would in all probability not achieve the aim of preventing a block being split, and the amendment would be one that was easy to avoid. I recognise that the noble Lord has probed, and I hope that I have given him the responses that he requires. I therefore ask him to withdraw his amendment.
§ Lord Monson
The Minister has not commented upon the other amendments. No doubt my noble friend Lord Lytton will speak to his own amendment but the Minister has not commented on Amendment No. 14. That is a probing amendment and I am grateful to the noble Lord, Lord Williams, for giving it his indirect endorsement. These are, of course, all constructive clarifying amendments and not political in any sense of the word, but I should be grateful for the Minister's reaction.
§ Lord Strathclyde
The noble Lord is quite correct. Amendment No. 13 relates to the provision that a self-contained part of a building may be enfranchised where it is possible to separate services from the remainder of the block without significant disruption to the rest of that block. The amendment would prevent separate parts of a building being enfranchised unless separation of services can be achieved without significant costs.
I am sure the Committee will agree that enfranchisement needs to relate to self-contained units to ensure that the premises for enfranchisement are viable and that any remaining part of the block which is not enfranchised is also viable. We have provided the smallest viable units able to be enfranchised separately, because the aim of enfranchisement is to give long leaseholders the right to control just the immediate premises in which they have a financial stake. They should also make a block simpler to manage after enfranchisement.
971 I consider that this amendment would frustrate the aim of ensuring that enfranchisement is exercisable over the smallest viable unit. The effect might be to require a larger unit to be purchased, possibly at greater expense to individual tenants than the cost of separating a smaller block. The current provision concentrates on the effect of the division of services on tenants in the part of the building which is not being enfranchised, and it ensures that they are not disturbed.
The provisions do not dictate the maximum costs of separating a block as this is properly a matter for the tenants and they will consider whether the cost is reasonable as part of their overall costs of enfranchisement. Significant cost is subjective in this context, because even a large cost may not be significant to tenants as part of the overall costs of enfranchisement. It is the tenants who will decide to enfranchise and it is they who will decide if the benefits of enfranchisement are worth the cost. That will include any costs of providing separate services, and this must properly be a matter for them to decide.
In Amendments Nos. 14 and 15, which the noble Lord has raised, the concern is about the effective enfranchisement of those tenants who do not wish to enfranchise when part of the block has been separated. It is right that the Committee should be assured that they can continue to maintain their block and not be adversely affected by the enfranchisement. I share that concern and perhaps it might help the Committee if I explain how our provisions ensure that the interests of all parties are maintained.
We have provided that the smallest viable unit should be able to be enfranchised. That will ensure that leaseholders may only enfranchise the property in which they have an immediate financial interest and should ensure that the block enfranchised will be simpler to maintain. We have also ensured that separation of a block can be achieved only where services are separate or where the separation of services does not result in significant disruption. Both these provisions ensure that leaseholders who do not wish to enfranchise are not unduly affected. There is a balance to be struck here. Clearly enfranchisement may have some impact upon leaseholders who remain in a block. Their interests must be balanced against the aim of giving leaseholders control of their own property, and we consider that we have got that balance about right.
I understand the specific concerns that should the majority of the service charge payers in a block wish to enfranchise only part of the block the other leaseholders may be left with defective leases. The leases could be defective because the total of the service charges collected in a block may no longer be sufficient to cover the cost of maintaining the block. Where this happens there is a remedy. Part IV of the Landlord and Tenant Act 1987 allows leases to be varied where they are defective. The remaining leaseholders can apply for variation of their leases where these no longer make satisfactory provision for the repair or maintenance of a flat, or of the building, or of any other land or building let to them.
972 I consider it important to ensure that the right to enfranchise should relate just to the immediate property in which long leaseholders have a financial stake. I consider that in achieving this aim there is sufficient protection for other parties. I recognise that noble Lords have said that they have sought to probe, and I hope that the explanations I have given will prove valuable to them.
§ Lord Williams of Elvel
Could the noble Lord reassure me on one point? Am I right in thinking that the expression "person" in Clause 3(1) (a) could be a corporate body as well as a private person—that is, "person" includes a body corporate?
§ 6.30 p.m.
§ Lord Campbell of Alloway
If two-thirds wish to exercise the right to enfranchisement and one third does not, an issue may arise as to whether, as Clause 3(2) (b) (ii) states, it,could be so provided without involving the carrying out of any works likely to result in a significant interruption in the provision".Who decides that issue? What machinery exists for the protection of the minority? "Without significant costs" could provide a little extra danger. Does it involve any danger? Will the Minister deal with that? I do not understand how the protection would operate in practice.
§ Lord Strathclyde
The answer lies in the Landlord and Tenant Act 1987 which goes to some lengths to provide protection for tenants who are affected by the actions of their landlords. Therefore, the clause needs to go no further than it does.
§ The Earl of Lytton
The Minister has given a very full answer to the amendments before I have even moved them. However, the Committee will be pleased to hear that that will shorten matters. However, I still have residual doubts about the 1987 Act and the "reconfiguration" of existing leases in the light of changed circumstances as regards the recovery of service charge elements.
It seems rather unsatisfactory that the remaining non-enfranchising tenants should subsequently have to incur expense in dealing with this aspect. The situation arises purely because the service charge may be assessed over an entire development. When a part of it is extracted, the terms of the existing leases still cover the whole, without taking account of the fact that perhaps one quarter has been taken out of the frame through an enfranchisement process.
It seems to me that to tie in with the operation of enfranchisement there should be a provision relating to the rewriting of the necessary parts of existing leases. It would be undesirable for all leases on an existing development—a multi-block development or a single block with many entrances and separate service cores—to be rewritten.
Secondly, I am anxious that the injurious affection element which might otherwise fall on enfranchising tenants in part may be artificially inflated by reference 973 to a service charge anomaly which is happening elsewhere. If that is not sorted out contemporaneously with the enfranchisement process, it could make the process very expensive for a pioneer enfranchising group within a complex or a large development. Therefore, the question of benefits which are bestowed by cutting up developments through the enfranchising process needs to be thought through. I hope that the Minister will reassure me further by writing to me subsequently on the matter.
§ Baroness Gardner of Parkes
I support the last remark of the noble Earl, Lord Lytton. Earlier, the noble Lord, Lord Strabolgi, referred to the fact that existing tenants might find that having bought the leases, their costs were higher than had previously been the case. That happened to me many years ago. We should not want the situation to arise in which people are enfranchised and then find that they are faced with higher costs. That would be a great disincentive to enfranchisement. It is an important point to be considered.
§ Lord Coleraine
I support the points made by the noble Earl, Lord Lytton. My noble friend has answered well arguments about the separation of services. However, his answer as regards the separation of service charges was less persuasive. The Leasehold Reform Co-ordinating Committee has referred me to the way in which the Bill fails to deal with a number of problems arising on the one hand out of the enfranchisement of unnaturally divided buildings and on the other out of the failure to group buildings together for one enfranchisement where common sense suggests that that should take place rather than allowing individual buildings to enfranchise separately.
The Royal Institution of Chartered Surveyors has pointed to the fact that the Bill makes no provision for the revision of the leases of flats which are left outside a block artificially created for enfranchisement purposes. The remaining flat owners must bear the considerable expense of lawyers' and surveyors' fees which will be needed for the revision of their leases. For example, account will have to be taken of service charge contributions and new percentages will have to be agreed. Another example is that the remaining flats may end up with the increased capital and overhead charges of an expensive boiler and central heating system from which a number of users have seceded. The seceding flat owners will not wish to reach a new agreement with those left behind if, following enfranchisement, they wish to have their own independent systems. Equally, several blocks may be managed as one. There may be a sinking fund or unallocated reserves in the bank set aside to deal with the re-roofing of one of the blocks. How will that money be dealt with when only one of the blocks elects for collective enfranchisement? The Bill makes no provision for that.
As my noble friend said, it is true that such covenants in leases can be compulsorily varied but only under the provisions of Part IV of the Landlord 974 and Tenant Act 1987. That Act has not worked well in practice and so far as I am aware, no practitioners have made much use of the provisions of Part IV.
The problem of court costs which may be involved is difficult. The flat owners may not agree with the freeholder as to how the leases should be varied. They may have to pay the costs of an application to the court. That does not seem to be fair given that those leaseholders never asked to be the third party to an enfranchisement problem and would gain no benefit from it.
If the freeholder is likely to incur costs in the lease variations, will my noble friend tell me whether those can be recovered from the nominee purchaser under paragraph 5 of Schedule 5. If so I assume that that would only be an advanced estimate of the costs likely to be incurred at a later date. In that regard I can see the freeholder telling the LVT—the leasehold valuation tribunal—that he will need the very best and most expensive professional assistance. In that case, the costs would be very high. If the nominee purchaser must pay, will my noble friend confirm—and this is important—that paragraph 4 of Schedule 5 provides that the marriage value will be reduced by the amount paid?
I know that my noble friend has been made aware of other anxieties expressed in regard to problems which may affect freeholders and lessees in cases such as those that I have mentioned. Anxiety has been expressed both inside and outside the Committee. I hope that the Minister will look further at this difficult area of the Bill and possibly move amendments at a later stage to deal with some of the anxieties expressed.
§ Lord Strathclyde
I listened carefully to my noble friend Lord Coleraine and to the noble Earl, Lord Lytton. I said in my original reply that I shared some of the anxieties of the noble Earl but I went on to explain why I felt that those anxieties had been taken into account. The noble Earl, Lord Lytton, kindly invited me to write to him on the matter. I should be happy to take up that invitation and I shall send a copy of the letter to my noble friend Lord Coleraine.
§ Lord Williams of Elvel
I am grateful to the Minister for that reply. Perhaps he will be kind enough to send a copy of the letter also to Members on the Opposition Front Bench and to the noble Baroness, Lady Hamwee. In the light of the Minister's comments, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 10 not moved.]
Lord Williams of Elvel moved Amendment No. 11.
Page 4, line 46, at end insert ("except where two-thirds of the total number is not a round number, when it will be deemed to be the nearest whole number.").
§ The noble Lord said: I beg to move Amendment No. 11 standing in my name and in the name of my noble friend Lady Hollis. The amendment is designed to ensure that smaller blocks will not need to have a disproportionately large percentage of flats let on long leases to qualifying tenants before they are eligible for 975 enfranchisement. For the convenience of the Committee, the amendment is a half-way house between Amendment No. 10 (which has not been moved) and Amendment No. 12. As the Bill is drafted, at least two-thirds of the flats must be let to qualifying tenants if a block is to qualify for enfranchisement. Thus, whenever the theoretical threshold is not a whole number, it must be rounded up to the nearest whole number. In smaller blocks of flats this has a disproportionate effect. For example, in a block of five flats the quorum will be four (80 per cent.) and not three (60 per cent.), even though two-thirds of five is three and a third, but one-third of a flat cannot qualify for enfranchisement.
§ Our amendment seeks to ensure that, where the theoretical two-thirds threshold in a block is not a round number, it will be deemed to be the nearest whole number rather than necessarily being raised to the number above. The 1992 Consumers' Association survey revealed that a large percentage of flat owners lived in smaller blocks. Half of those surveyed lived in buildings comprising fewer than five flats, with nearly three-quarters in buildings comprising fewer than seven flats. The problem is an important one. Unless the threshold is amended to take account of the effect on smaller blocks, a not insignificant percentage of flat owners will be unable to attempt collective enfranchisement. That problem was recognised by the Government in the Bill's passage in another place. They promised to review the practical effects of the threshold on smaller blocks of flats. I look forward to hearing the result of the Government's deep thoughts on the matter when the Minister replies.
§ 6.45 p.m.
§ Lord Carnock
This amendment is grouped with Amendment No. 12 that stands in the names of the noble Lord, Lord Annan, my noble friend Lord Bridgeman and myself. In speaking to the amendment I have to declare an interest as the owner of a long leasehold flat in a large London block and the owner of freehold premises in the country that are subject to a shorthold tenancy. Amendment No. 12 and the others that stand in my name have been put forward after discussion with the Enfranchisement League, which is an organisation of leaseholders' associations representing over 18,000 leaseholders. In the majority of cases the number of flats in a building will not be a multiple of three, so that upon multiplication by two-thirds, fractions of one-third or two-thirds will be thrown up.
The Bill provides that in all cases those fractions will be rounded up to the next whole number. They will not be rounded, whether up or down, to the nearest whole number; they will always be rounded up. Under the Bill many situations will certainly arise in which tenants will have no right of collective enfranchisement because the two-thirds threshold has been raised to the next higher whole number in the rounding-up process so that they fall below the higher threshold. Under the amendment the two-thirds threshold will be reduced to the next lower whole number so that tenants in certain blocks, who will 976 otherwise find themselves below the threshold, will find themselves above the threshold and the blocks will qualify for collective enfranchisement. The amendment will not apply to blocks that contain fewer than five flats. In the case of blocks that contain two flats, both tenants will have to qualify; in the case of blocks containing three flats, two tenants will have to qualify; and in the case of four-flat blocks, three tenants will have to qualify. A five-flat block is the smallest block that will be affected by the amendment. Upon multiplication by two-thirds, five will become three-and-one-third. Under the Bill that number will be rounded up to four; under the amendment it will be rounded down to three. The provisions of the Bill mean that if only two tenants do not qualify collective enfranchisement will be blocked. Under the amendment, collective enfranchisement will proceed and will be blocked only if the number of non-qualifying tenants increases to three. In the case of larger blocks the effect of the amendment will be similar but perhaps not as marked as in the case of smaller blocks.
The purpose of the legislation is to effect reforms in the law relating to leasehold tenure. As presently drawn, the Bill would bias the rounding process against change. The amendment would bias the rounding process in favour of change and would therefore be more favourable to the purposes of the Bill than the present drafting of the Bill. The Nugee Committee found that 75 per cent. of flats in inner London were in converted buildings commonly comprising 10 flats or fewer. Accordingly, this amendment, while making a very small numerical change, will affect a very large number of flats and in many cases will determine whether or not they will qualify for enfranchisement. If the principle of the amendment is accepted, there will be an impact on Clause 11(2) which deals with the number of signatures required for an initial notice. If no change to that subsection were made, in certain cases an initial notice would require only two signatures, which some people might think were too few. After careful consideration, it would appear that any necessary change would be purely consequential and could be agreed at a later stage.
§ Viscount Montgomery of Alamein
The amendment is to a certain extent about numbers and the "arithmetic" game. In an earlier speech the noble Lord, Lord Williams, sought to support amendments that extended the scope of the Bill. In that context it seems to me that the amendment moved by my noble friend Lord Carnock is slightly superior. When one comes to analyse the fractions, his amendment widens the scope of the Bill which in these circumstances one may think is preferable.
§ Lord Strathclyde
I am grateful to all noble Lords who have participated in this debate. My noble friend Lord Montgomery is right in saying that this amendment is purely about numbers. Wherever one draws the line somebody will feel that he or she is on the wrong side of it. As the noble Lord, Lord Williams of Elvel, has said, similar amendments were tabled in another place in an attempt to make the two-thirds rule more equitable, particularly where there were 10 977 flats or fewer, because of the way in which the two-thirds rule operated in smaller blocks by driving up the qualification to a higher effective percentage. Noble Lords will recognise that the distortion is not so great in blocks of more than 10 flats. We promised to examine whether or not there was another way in which to deal with those blocks to bring the effective threshold slightly closer to 66 per cent. I should emphasise that we are not disposed to move away from the broad principle of the two-thirds rule. We have reaffirmed that we consider this to be the correct figure. We considered making an adjustment for smaller blocks but found that that would make the Bill unnecessarily complicated. The need to make the adjustment for larger blocks is not so great but would still make the Bill unnecessarily complicated.
In smaller blocks such adjustments would increase the likelihood of a minority of tenants being able to enfranchise, given that only two-thirds of the qualifying tenants need to participate. We therefore decided not to make adjustments similar to those proposed by the amendments.
As I said, such a likelihood is less in larger blocks. Two-thirds is the threshold and it is easily understood. I appreciate that some blocks will fall just outside the threshold and that adjustments such as those proposed by my noble friend or the noble Lord, Lord Williams, might make a few more blocks eligible. However, the cost would be to make the Bill unnecessarily complicated. It is inevitable that some blocks will fall just outside the threshold irrespective of where one draws the line.
The two-thirds rule is well precedented in other legislation, and indeed has been accepted even by the Church of England Synod as a significant majority. On that basis, I hope that the noble Lord will feel able to withdraw his amendment.
§ Lord Annan
Before the noble Lord, Lord Strathclyde, replies, perhaps I may point out the extent to which the noble Lord, Lord Carnock, offered an olive branch to the Government on this issue. He did not try to reduce the figure. He merely said that if one rounded down instead of rounding up, a few more people would be included. That, after all, is the object of the Bill—to enfranchise and to be as liberal as possible. Therefore, perhaps the Minister will take the matter back and consider it further.
In a block of five or more flats a great many people would benefit. It is important to note that the noble Lord, Lord Carnock, did not make any plea for blocks containing fewer than five flats. It is a genuine attempt at compromise on the part of the noble Lord. I hope that that will commend itself to the Minister.
It is for that reason that I hope that it may be possible to give a little on this issue. After all, can one conceive of anything more damaging to confidence in the Government than if hundreds of leaseholders, encouraged to believe that at last they would be able to obtain a freehold property, found that by some abstruse manipulation of fractions their hopes had been dashed?
§ Lord Williams of Elvel
The noble Lord, Lord Annan, added a powerful voice to a genuine problem 978 which the Minister must consider. The noble Viscount, Lord Montgomery, was right to say that the amendment of the noble Lord, Lord Carnock, is superior to mine in the sense that it would potentially enfranchise collectively more leaseholders. We tried to offer a reasonable and uncomplicated way out for the Government, one which the Government, in their deep thought, do not seem to have arrived at for themselves.
The noble Lord should consider that in a block of five flats the quorum will not be two thirds, Synod or otherwise. It will be 80 per cent. It will be four out of five. That cannot be right. If two thirds is the Government's aim, let us take the nearest round number to two thirds. Three out of five is 60 per cent. and one cannot divide flats into fractions.
I urge the Minister to put aside his brief for the moment, note what noble Lords have said, take the matter back and have another look at it so that we can debate it again at the next stage. I hope that he will be able to do that.
§ Lord Strathclyde
I certainly owe the noble Lord, Lord Annan, a reply to his plea. I recognise that my noble friend Lord Carnock offered an olive branch and that much of what he and the noble Lord, Lord Williams, said is based on good sense. I do not have a closed mind on this issue. I should like to read carefully in Hansard what noble Lords have said in Committee. I make no commitment whatsoever, as the noble Lord will understand, to bring anything forward at Report, but I am happy to consider the matter further.
§ Lord Williams of Elvel
I am grateful to the noble Lord for that chink of light. We have made a little progress and we shall see what happens at the next stage of the Bill. I remind the noble Lord that we take the issue seriously and will be looking for improvement in the Government's position at the next stage. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
Lord Carnock had given notice of his intention to move Amendment No. 12:
Page 4, line 46, at end insert ("provided that, where such building or such part contains not less than five flats and where such two-thirds is a whole number and a fraction of a number, then, for the purposes of this paragraph, the fraction shall be ignored.").
§ The noble Lord said: I am grateful for what the Minister said in relation to my amendment. We shall be considering the matter very carefully, possibly with a view to returning to it later.
§ [Amendment No. 12 not moved.]
§ [Amendments Nos. 13 to 15 not moved.]
Lord Kindersley moved Amendment No. 16:
Page 5, line 15, at end insert:
("() The condition mentioned in subsection (1) (a) above is not satisfied if the person there mentioned is a charity within the meaning of the Charities Act 1960.").
§ The noble Lord said: I am delighted that the amendment has been grouped with Amendments Nos. 19, 29 to 31, 35, 150, 153 and 155, all of which cover the general principle that charities within the meaning 979 of the Charities Act 1960 and ecclesiastical landlords as defined in Section 31 of the Leasehold Reform Act 1967 should be exempted from this legislation.
§ At the Second Reading of the Bill, I tried to explain the effect that the Bill would have on charities and in particularly on Smith's charities, in which I must declare an interest as chairman. Since then I have been overwhelmed by the support I have received in the corridors of this House and in a number of telephone calls and letters.
§ My attention was drawn last night by one such supporter to an extraordinarily misleading article circulated in this House yesterday by the Leasehold Enfranchisement Association with detailed criticism of the way Henry Smith's Charity runs its affairs. If those can be regarded as the tactics of desperation to counter the support we are gaining in this Chamber, I suppose that my trustees should feel encouraged rather than offended.
§ The association is in a complete muddle over the distinction between capital and income and seems to regard our Kensington estate as a completely unsuitable investment for a charity. How lucky that the association was not around when our original trustees made their investment in Kensington in 1628 with Henry Smith's bequest of £2,000! We would have virtually no beneficiaries now if the association's advice had been followed then. Now we have a portfolio which is well balanced between real estate and investments in the stock market, thanks to the sale of long leases on the estate. I hope that the Committee will allow the trustees to continue to use the leasehold system in the management of our assets to produce the optimum mix of security, capital growth and income for our beneficiaries.
§ During the Second Reading I noted the anxiety expressed by a number of my noble friends concerning the dangers to which the Bill will expose cathedral closes around the country, most of whose medieval to Georgian buildings are owned by a charitable entity controlled by the dean and chapter of each cathedral. I have therefore put down some simple amendments which have the effect of exempting charities and ecclesiastical landlords from the enfranchisement proposals of the Bill.
§ I am particularly delighted that the right reverend Prelate the Bishop of Winchester, who unfortunately cannot be here today, has supported the amendments. I was also very glad to see the most reverend Primate the Archbishop of Canterbury in the Chamber earlier today. I believe that his presence in the Chamber underlines the anxiety that the Church feels about the Bill and the danger to which it exposes the Church's properties around cathedrals and elsewhere.
§ Why are the Government setting their face against an amendment which appears to have such massive support in this Chamber? The Minister, Sir George Young, the architect of the Bill, was kind enough to receive for the first time representatives from Henry Smith's Charity soon after the Second Reading. I was foolish enough to believe that he had been so impressed by speeches made in this Chamber in favour of exempting charities that he wished to let us know 980 that there had been a change of heart on the Government's part. Not a bit of it. His last minute conversion to good manners in being prepared to receive us was soon marred by the complete inflexibility to which we had become accustomed, coupled with the astonishing remark that we were too late.
§ The Committee is well aware that I have not had much opportunity to attend this House; and the novice is, I expect, all too evident in the way in which I move the amendment. However, from a distance, it appeared to me that one of the vital and valuable roles of this House in recent years has been seriously to study the Bills which come to it from another place with clauses the full effect of which had not been completely appreciated amidst the clamour of different interests which prevails in another place. It has been the duty of this Chamber to stand back from the Bill and calmly and judiciously to recommend amendments to ensure that the provisions are as fair as possible to all concerned. That is why I was so shocked to hear the Minister, Sir George Young, tell me, before amendments had even been put down after Second Reading, that it was too late.
After the first shock I was then amazed to hear the Minister state that if charities were to be exempted from the Bill their leaseholders would feel let down by the Government since enfranchisement had been promised in the election manifesto. What an admission, and what a feeble excuse to put up against the relatively few charities involved and the Church. We have heard quite a lot about the election manifesto promise. However, I notice that an honourable Member in another place, Mr. Dudley Fishburn, has recently proudly proclaimed in an article in the London Weekly Times that he successfully sneaked the measure into the manifesto at the last moment without anybody noticing. I quote Mr. Fishburn on the subject of the manifesto in this article. He stated:
—Bahr you may say, 'Who reads that?' Well no one of course. But once there was that commitment, just 10 lines in length, it gave reality to what had before been but a shadowy idea".
§ What an extraordinary way to introduce legislation which has the effect of destroying a landholding system which has worked well for 200 years for Henry Smith's Charity and probably longer in the country as a whole.
§ Noble Lords may be interested to know that that same honourable Member for Kensington was not always a supporter of compulsory enfranchisement in the days before the general election. Indeed, in a letter to the manager of Cadogan Estates in 1989 he was at pains to explain that he would never be a supporter of such a confiscatory measure. He stated categorically that any right to buy would be anti-Tory and the worse kind of state bossiness. What changed his mind? I am not a political animal. Therefore I leave others to form their own conclusions. However, it seems to me that the legislation has little to do with principles and everything to do with expediency.
§ No wonder it is such a hotch-potch Bill with all kinds of artificial, arbitrary limits such as the low rent test and the 10 per cent. of floor space for commercial use. There must be plenty of would-be enfranchisers 981 feeling let down by those features in the Bill. But the Government appear to have no problems on that score. Nor, it would appear, is there much concern for those who might have looked forward to enfranchising their properties on the Crown Estate around Regent's Park. The Government are apparently quite happy that those properties should be exempted on the ground of maintaining the national heritage. There is plenty of let down there, I imagine.
§ Yet when we suggest that charities and the Church should be exempted, we are told that the relatively few tenants involved would feel let down—and that the Government simply cannot permit.
§ We are all accustomed to progressive taxation. We feel, rather in the Robin Hood tradition, that it is acceptable to rob the rich in order to pay the poor. However, in the case of charities such as Henry Smith's which will be affected by the Bill, the Government are behaving much more like the wicked sheriff of Nottingham by robbing the poor (the beneficiaries of Henry Smith's Charity) in order to pay the rich (the leaseholders of our Kensington Estate). Confident that the Committee will not allow such robbery, I beg to move the amendment.
I have noted the remarks of my noble friend. Will he tell us what net loss of income would arise if the proposals in the Bill were passed? Not all the properties would be acquired. The moneys received would be invested to produce a return. Already two-thirds of the assets of the trusts are in investments. Will he comment on a remark contained in the notes of the Leasehold Enfranchisement Association? I have no connection with that movement. The notes state:The Association has a particularly high level of complaints about managing agents in respect of freeholders with charitable status".Will my noble friend comment on the statement that for each £1 of investment income 1p goes on expenses; and that for each £1 of property income 44p goes on expenses? I have had much to do with charitable trusts, charitable works, and so on. I regard such expense ratios as quite insupportable.
§ Viscount Whitelaw
I suppose that I ought to declare what can only be described as a very remote interest. I spend a great deal of my time now seeking to raise money for varying charities and good, worthy causes. I am also the chairman of the Council for Charitable Support, a body set up to find ways of obtaining more for the charity, charities and worthy causes. That is why I rise to speak. If I cannot speak as chairman of such a body it would be surprising.
My noble friend Lord Kindersley said that he is not a political animal. If I am an animal of any kind, I must be a political one. Yet he has put forward his case so well that there is little more to say. I wish simply to put this point. Last year £12 million was distributed to various charities and good causes. It was a difficult year for all charities. I can tell noble Lords that a more difficult task than seeking to raise money from people at the present time I do not know. Obviously other people are better at that than I am. But I can tell the Committee that it is a difficult task. Over the years that body has given money of about 982 that figure to many charities through the way they have managed their affairs and their estate. We are now told that they will not be able to do that any more. Someone said to me the other day when I protested, "Ah, but, you see, it will all be all right because the compensation they will receive afterwards will make up for it and they will always have the same amount of money". I have lived too long in politics —I do not understand the mathematics but I understand politics—and I do not accept that suggestion for one single moment, I do not believe it for a second. That is why I am speaking today.
I simply wish to ask whether it really makes sense to deprive a great many worthy charities—and of course I include the churches—in this way. It does not seem to make sense. I say to my noble friend that the Government should think again about this during the passage of the Bill. I feel that it is hard for many people who gain from the charities and expect money from them. The charities do so much good. I know that it is easy to point that out, but in the Bill to turn our backs altogether on them at this time seems extraordinary. I hope that the Government will think again on such a worthy subject involving a trust which, as my noble friend Lord Kindersley said, has held an exemplary position over a long time. Its wonderful tradition is being undermined by an Act of Parliament and I find that very difficult to accept.
§ The Earl of Radnor
I wish to support the series of amendments for several simple reasons. Never in my experience—although possibly in the experience of other parliamentarians—have I come across any government depriving a charity of some of its rightful wealth. It is no good thinking that the Smith's charities or any other charity owners of property will not be deprived of their wealth. It has already been said today, first, that the charities will lose the marriage value; and, secondly, that the timing of the sale will not be theirs, and the timing is extremely important for real estate. A third point which was not mentioned is that surely as fairly large charity estates, of which we have heard, gradually become eroded by the leasehold enfranchisement, so their administration costs will have to be kept in balance with the decrease in income. I am sure that that will be almost impossible and will represent a third loss.
I believe that, for the small number of charities compared with the whole gamut of this—to me—iniquitous Bill, my noble friend should concede this small point.
§ The Earl of Onslow
I can see that my noble friend on the Front Bench is totally unable to accept the amendment. If he accepts it, then he admits that the Bill by its very nature, is unfair to charities. If he gives way, then he is being unfair to private individuals; so he is unfair either way. He is in a bit of a pickle, if I may be so bold as to say so.
§ Baroness Gardner of Parkes
I thought that the amendment was moved in a superb Second Reading speech by the noble Lord, Lord Kindersley. It took a full 10 minutes and he put the case fully. However, I cannot agree with it. I believe that there is a big 983 difference between a charity running property as an investment and a charity providing charitable, inexpensive accommodation. I put into that category the Peabody Trust which I understand has provided valuable accommodation for people, going back to Victorian times. It continues to do so.
As far as concerns the charity of which the noble Lord, Lord Kindersley, is chairman, I have not read the information issued to the House, although I was interested in the points made by the noble Lord, Lord Wolfson. They were relevant as regards how much less could be spent on administration in other fields. However, I clearly recall a man sitting, year in year out, in a Range Rover in a South Kensington mews saying that a charity which I shall not name was unfair to tenants. The last time I saw him he was on a bike, I do not know whether his circumstances had been reduced—perhaps by his tenancy obligations, who knows?
There is certainly a big difference between the tenants of charities who are in business just as a property company would be and the Peabody Trust. Harrow School owns large slices of Maida Vale; the hospitals own large slices of South Kensington. A tremendous number of people would fall into that category of charities. I believe that it is right that tenants of such properties should have the same rights as other people. However, the situation is totally different where a charity such as the Peabody Trust provides low-priced accommodation. I oppose the amendment.
§ 7.15 p.m.
§ Lord Williams of Elvel
I cannot add much to what the noble Baroness, Lady Gardner, said. I believe that this is a wrecking amendment. If it were passed so many people would be taken out of the scope of the Bill as to make it almost meaningless. I do not wish to say anything against charitable institutions; they are like mother-love, one cannot say anything against them, one has to make moving speeches in favour of them.
However, charitable institutions which provide accommodation at charitable rates can certainly be excluded from the Bill, as the noble Baroness said. But I do not believe that charitable institutions of whatever nature, which operate as property companies and use the income from those property operations for charitable purposes, are any different from any other organisation that deals in, owns or leases property. Therefore I support what the noble Baroness, Lady Gardner, said, and we shall support the Government if the amendment comes to a Division.
§ Lord Peyton of Yeovil
I hope that my noble friend on the Front Bench will feel happy and contented with the comfort he has just received from the noble Lord, Lord Williams. He has not received much from behind him yet and I do not propose to give him any myself.
Firstr, I disagree, as sharply as one is allowed to with people on one's own side, with the comment made by my noble friend Lady Gardner. She rebuked 984 my noble friend Lord Kindersley for making a Second Reading speech. I thought that he made an admirable speech backed by extraordinarily good information and humour. He suggested powerfully that the Government had got it wrong. I very much hope that my noble friend Lord Strathclyde was also made to wince a little when my noble friend Lord Whitelaw spoke. I hope that those comments will be passed on with some vigour to the Minister with responsibility for housing. We all recognise that he is the parent of the Bill and it is unfortunate for my noble friend that he has to sit here and support a Minister who is responsible but who is not here.
I believe that charities should be exempt and that the Government are quite wrong in at least giving the appearance of treating the objections made on behalf of charities in so cavalier a manner. I have not yet heard any trace of Ministers even taking the objections seriously. I am curious to know whether they have even bothered to obtain the views of the Charity Commission. They may have, and, if so, I shall be interested to hear the views and also what encouragement the Government received from the Charity Commissioners to proceed along the lines proposed in the Bill.
I do not know what efforts have been made to ascertain the views of right reverend Prelates about the effects on cathedral closes. I remarked in the course of my Second Reading speech that they are places of great beauty and peace which have been cherished and preserved over many generations. They are now at risk. I am anxious to know whether the Government are in any way interested or worried about the possibility that the closes may in future lose the character which they have acquired over many generations.
Perhaps some Member of the Committee could explain to me the difference between Regent's Park and Belgrave Square. I find it difficult to understand. And what is the difference between Regent's Park and a cathedral close? The Crown Commissioners say that Regent's Park is something very special. I do not think that anybody would challenge that view. However, it might be said that what is good for Regent's Park is good for Belgrave Square and for other squares in London which are places of great beauty and charm. When the Government say that such places will be protected by estate management schemes, I believe that the Government are in very grave danger—putting it as politely as I can—of deceiving themselves with a good liberal dosing of their own eyewash.
I take up the point made by my noble friend Lord Whitelaw. He dealt with the matter very well. He said, "The charities will get their money" as if that were the same thing. Assuredly the charities will get their money, though not everybody thinks that they will be obliged to sell. Let us not have too much nonsense about the "willing seller". The charities will be obliged to sell and they will get the money. But whom am I addressing except a member of the present Administration who is not uninformed about inflation? Comparing the history of our country over recent years with that of others—I hope that I shall not be told that I am being grossly irrelevant here—I 985 believe I am right in saying that in 1960 the pound sterling bought eleven and a half German marks. It is not quite the same today. The view of those who suggest that the charities ought to be content with receiving whatever money the Government believe correct is not acceptable.
I make this plea to my noble friend. I hope that he will not make the ghastly solecism which I thought he made earlier of saying that the amendments are defective. If the Government would accept the principle, I have no doubt that my noble friend Lord Kindersley, who is both modest and intelligent, would be delighted to say, "Well, do better, so long as the Government accept the principle". I hope that my noble friend will feel able to do that. I very much hope that, whatever is done with the amendments, between now and Report stage the Government will—I strongly suspect for the first time—give some serious thought to the role that charities play in our society. I am the chairman of a charitable trust. I know very well the pressure of demands upon resources which are necessarily limited. The Government now want to say, without giving a backward glance, that charities must suffer with the rest. As the noble Lord, Lord Williams, appeared to say just now, it is outrageous. I believe that to take that kind of cavalier attitude to giving and to the people who give is wrong. I hope that my noble friend will take that message back and at least give the impression of treating the point seriously; and, even more important, that he will bring back from his colleagues some evidence that they too have taken it seriously.
I have some hesitation in further prolonging the discussion. Nevertheless, I feel moved to make a brief intervention. First, I should like to avow a very direct interest. I happen to be one of my noble friend's clients. I happen to hold the leasehold of a small flat in Onslow Square. I suppose that, if the Bill were to pass without the amendment of my noble friend, I might be the beneficiary by a penny or two. But I would not feel at all let down if the Committee were to agree to my noble friend's amendment. I would not feel let down for two reasons. The first is the very commendable management of the estates, squares and crescents which Smith's Charity has looked after over a very long period of time. It is due to that good management, I believe, that that particular part of London makes such a marvellous contribution to London's architectural heritage. The second reason is that given already in support of my noble friend's amendment; namely, the contribution which Smith's Charity makes in the charitable field. I happen to have been a beneficiary of the generosity of Smith's Charity: it is a charity close to my heart.
I was surprised to hear the noble Lord, Lord Williams of Elvel, describe my noble friend's amendment as a wrecking amendment. That does not seem a fair description of an amendment, moved with sincerity, which has attracted a great deal of support in the Committee.
§ Lord Chalfont
I shall not detain the Committee long. I do not like the Bill at all. I do not like it as it has been brought forward by the present Government.
986 I would not like it if it had been brought forward by a government of the party opposite, as indeed it might well have been. I do not like it for a number of reasons which it is not proper to go into now. I shall not embark upon anything like a Second Reading speech. I do not think, with great respect to the noble Baroness, Lady Gardner of Parkes, that the noble Lord, Lord Kindersley, made a Second Reading speech either. I believe he made a speech which addressed itself to the amendment he moved, and the noble Lord made it eloquently, forcefully and persuasively.
The noble Lord, Lord Williams of Elvel—although certainly there are arguments of an intellectually respectable kind to be made on both sides in respect of charities—made a notable contribution. I was much more influenced, however, by the profound and weighty remarks of the noble Viscount, Lord Whitelaw, when he asked the Government to agree to think again. That was surely a modest enough request. I urge the Government and the noble Lord to take his words to heart and at least give the matter some further thought. If not, I must tell him that should the occasion arise I shall vote in support of the amendment.
§ Lord Gisborough
I was quite surprised to hear of the dissatisfaction with Smith's Charity. I have known a few people living in its houses and they have been remarkably satisfied with the low rent. That is a little out of date. I cannot imagine that anybody who has taken a house from a charity can ever have imagined in his wildest dreams that he would be able to force the charity to sell at a later date. Such tenants must have realised what they were doing when they took the house on in the first place.
I am also concerned about the Peabody Trust, which I do not know at all but which I understand from what has been said asks very low rents. I cannot help thinking that the Peabody Trust and other people who, for altruistic reasons, let out houses at a very low rent (it happens occasionally) will probably suffer very severely for their altruism.
The heritage aspect has been mentioned. Onslow Square and that whole area owes a great deal to the care shown by the charity. Planning permission very often cannot control as well as the owner can.
Finally, it seems to me amazing that the Government will allow, and indeed encourage, people in charitable housing to make a profit out of a charity.
§ 7.30 p.m.
§ Viscount Mountgarret
Perhaps my noble friend will address his attention to two points relating to the amendment. The first may be regarded as somewhat facetious. But I wonder what the late Mr. Henry Smith would be thinking in regard to his generosity had he known that this was what was going to happen to the foundation that he created. I venture to suggest that he might have been inclined to be less generous than he was.
The other point is more serious. Has my noble friend considered whether or not, by retaining the charitable aspect within the context of the Bill, the 987 Government are acting in the public interest? If they are not acting in the public interest, it brings into question the whole legality of the Bill, at least in relation to charities. Retrospective legislation on the sanctity of contract where it benefits the public is all right, according to the European Court of Human Rights adjudicating on the Leasehold Reform Act 1967. But I seriously doubt whether there is any public interest in an absentee leaseholder or investor who may well purchase the freehold compulsorily by the Act, which would not then be his principal place of residence. Therefore, it would infringe the rules laid down by the European Court of Human Rights. I hope that my noble friend will take that point on board, otherwise one could wind up in a certain amount of trouble.
§ Lord Selsdon
I am grateful to my noble friend Lord Kindersley for introducing the amendment. It is in a way a divisive amendment and causes me a lot of personal anxiety. If I support the Government, am I deemed to be anti-charity and anti-Church? I am not sure about that. My noble friend mentions Smith's Charity and he speaks therefore with a fully declared interest. My knowledge of Smith's Charity is limited but I am probably one of the few Members of your Lordships' Committee who has intimate knowledge of the Ottoman Empire and of Turkish pirates.
I look at the original objectives as they were defined for the Charity Commissioners and without any malice aforethought. It is for,the relief of the poor kindred of Henry Smith".I should like to know who the poor kindred are; whether any of the leaseholders or tenants of Henry Smith are poor kindred or not. But, more important, it is for,the relief and maintenance of Godly preachers".Being, like my noble friends Lord Jellicoe and Lord Whitelaw, broad of Church and broad of mind, and also a great supporter of Winchester and anything with which the right reverend Prelate the Bishop of Winchester might be associated, I find myself in a difficult position. I therefore withdraw from that argument and ask myself, "When is a charity not a charity?" Are we at the moment talking of a charity as a charity, or a charity as a property owner? If someone is registered under the Charities Act, are they any more valuable to society than those who are not registered and also make sizeable contributions?
I declare my interest that I was actually born in a Henry Smith house; my family lived around there. The only argument we ever had was when we wanted to put the only handkerchief tree in the United Kingdom on the balcony; quite understandably the charity objected.
When I look at what we are discussing, I am confused. If we exempt charities, how many leaseholders will not be able to enfranchise? I should 988 like to know. How many charities are we discussing? I am quite sure that no one in this Chamber is anti the spirit of charities and anti the giving of freedom to invest wherever they like. But we should like to see more housing for the underprivileged and for those who cannot afford higher rents. At the moment the housing associations are doing as much as they can, but in general there is no significant investment by charities in low cost or subsidised housing.
Equally, when we look at Henry Smith's, for whom I have a great regard, it says that that charity is number seven or number eight in the batting order among the top 25 grant-making trusts by size of income. That is relatively small compared with the Wellcome Trust, the Wolfson Foundation or the Leverhulme Trust. It is about the same size as the voluntary donations made by British Telecom or the London clearing banks to voluntary societies.
When I spoke to my noble friend yesterday, I suggested that it would be nice if the charities themselves could make some positive suggestions within the overall concept of the Bill to widen enfranchisement and to allow more people to own their freeholds. I cannot believe that any of the charities are against that principle provided that at all times it does not reduce the value of their assets or their freedom of manoeuvre. There are those who would say that a property investment for £2,000 from 1628 has been a remarkable investment; others may say that if we removed inflation it may not have been so great after all, and in the past few years those who were unfortunate enough to be locked into property may have seen a devaluation of 25 per cent. plus the devaluation of the currency where they could not invest internationally.
I am certainly not against any of the charities which are freeholders or landlords, and, far from that, against the Church or the principles for which we all stand. But I believe that we are mixing apples and pears; we are confusing matters. We are talking about enfranchisement of flats and properties; we are not talking about charities, knocking them and trying to reduce their assets.
I suggest to many of those who oppose the Bill on principle and say that it is unfair in monetary terms, to concentrate their efforts on the question of compensation and payment. I suggest also that the charities themselves might take the advantage, in a democratic way, of consulting their tenants. They may be surprised at how many tenants share their views and feel that they wish to continue voluntarily rather than to have the opportunity for enfranchisement. Were I a tenant of Henry Smith's I would willingly continue and would not wish to do anything to take away assets from that great charity.
As I say, I am not speaking against Church or charity; I am trying to introduce a bit of rationality.
The Marquis of Hertford
I shall be brief. My noble friend said that we are not taking away the assets of a charity. But that is exactly what we are doing. I ask my noble friend on the Front Bench whether anybody in this Chamber seriously believes that a compulsory sale results in a fair price.
§ Lord Crawshaw
Two noble Lords asked questions about the running of Smith's Charity. As my noble friend Lord Kindersley cannot speak again, I can speak as a trustee of the charity. At any rate, I hope that I can speak with some authority, if not as much as he.
In response to the noble Lord who raised the question of the proportion of the revenue which was distributed, I can only say that in a property-owning charity such as Smith's we have great obligations in the field of upkeep, improvements and other developments in the various squares. Of course, that takes a great deal of money. The £12 million is distributed after all that has been dealt with.
With regard to who are the poor kindred of the leaseholders, that is not the whole situation. The point is that the estate is run commercially, as my noble friend Lord Montgomery pointed out at Second Reading. It is the revenue from the leaseholders which is distributed to the poor kindred and all the other charities mentioned by my noble friend Lord Kindersley. I expect that he will say something in that regard in his wind-up speech.
Going on to the general point, all things being equal I can go along with the Government on the ideal of people owning the place in which they live; but as we well know, things are not always equal and I would put home ownership around sixth in my list of ideals. I would rather be a leaseholder on a good estate and have a good job than be a struggling homeowner, perhaps unemployed, with an impossible mortgage and a mass of other debts and problems. As a trustee of Smith's Charity I suppose that I was one of those whom my noble friend Lord Strathclyde challenged at Second Reading to demonstrate why our leaseholders should be at a disadvantage compared with the leaseholders of other landlords. But he really did not consider the position of all the other parties in the deal, and in particular all the charities which receive the £12 million a year, a sum built up over very many years and with, if I may say so, a good deal of skill. I suppose it would be unfashionable to suggest that the landlords might get a little consideration. But I can only tell the Committee of the enormous work in his own time which our chairman, the noble Lord, Lord Kindersley, puts in. It is something which people further away from the charity may not appreciate.
It might be argued that our system could be extended and not finished. The Government believe that businesses should be run by business and not by the Government. I might suggest that welfare should be run by charities and not by the Government. I can think of masses of savings to the Treasury, which no doubt finds the National Health Service to be a bottomless pit. People would know when they lease a flat that a high proportion of the rent will go to welfare. To me it is preferable to pay rent, for which, after all, one gets something, than to pay more and more tax. As my noble friend Lord Peyton said at Second Reading, others must be and should be encouraged to make similar bequests to the one which Henry Smith made.
I have a little knowledge of the workings of the Church, although not as much as the right reverend 990 Prelates present. I imagine that there must be a relationship between the rents which the Church as a landlord receives and the stipends which ordinary country parsons—there are parsons in the cities as well—receive. From my observations not many people in the Church are overpaid. I would not like to see the Bill do anything which would damage the Church's revenue and income.
Finally, I should like to point out to my noble friend Lord Strathclyde that we have in existence a valuable and approved system. I do not think it is up to us to show that the leaseholders are treated unfairly. It is up to the Government to show that their proposals are an improvement for all concerned. I so agreed with my noble friend Lord Whitelaw when he said that we must reflect more on all this. I do not know whether the matter could be referred to a Select Committee to hear a little more evidence. However, I am far from satisfied that all avenues have been explored. Much more examination is needed before we see the break-up of the charitable estates, including that of Henry Smith, at great expense and with great disruption. If anything is wrecking, I suggest that the Bill is more wrecking than the amendment. I have much pleasure in supporting my noble friend Lord Kindersley.
§ 7.45 p.m.
The Lord Bishop of St. Albans
It is no discourtesy to the noble Lord to say that this debate seems rather like Henry Smith versus the rest. There seem to be a very large number of people speaking for Henry Smith's Charity or certainly who support that point of view. The Church has been mentioned several times, from the time that the two-thirds majority in the General Synod was referred to by the Minister, and therefore it may be appropriate for me to say a few words from these Benches.
The noble Lord, Lord Kindersley, kindly invited me to associate myself with this amendment. I said that there was no way that I could because I could not possibly be here on a Tuesday afternoon. I said that I had to go to a dinner in London at eight o'clock but that I could perhaps sit on these Benches for an hour or so before that. As luck would have it, the amendment has come up just while I am here for these moments. Therefore, perhaps I may say a few words on behalf of the Bishops.
I think it is true to say that the Church of England is ambivalent on this amendment because we are not in the business of fighting our own corner. We are not in the business primarily of seeing to and caring for our own assets and our own benefit. If the Government decide that this is the way in which the Bill should go through and the amendment is rejected, then the Church of England will accept that, take it on the chin, try to readjust to it and recognise that the benefits that come through the Bill for the leaseholders —they are the people we feel for because that is the other side of the ambivalence—will be enjoyed and that their rights will be safeguarded. If that is the way it is to end up, we shall be content.
However, the Government should remember the cost that will arise. There will be a cost in terms of 991 income. I am quite certain that, if the Church Commissioners could be better represented here, they would be, because in all conscience they cannot afford to lose many more millions of pounds. It means the clergy and their pay. That may have to be acceptable.
The reservoir of charitable giving and charitable influence will clearly be diminishel if the Bill goes through unamended. It may be that that is what the Government wish. It would be sad but nevertheless one would have to accept it as the decision of the elected Parliament of this land. There would also be the loss—this applies particularly to the Cathedral close—of the ambience, because the possession and control of property is not entirely for the sake of making money. It is for preserving an area—an area of peace and sanctity, particularly in the Cathedral close. Although there are not many Cathedral closes still left in this happy state, nevertheless it will be a further erosion of what those have.
So if this comes to a vote, I shall be going through the Lobby on behalf of the amendment. However, I should like to say to the Committee that the Church of England sees both sides of this argument and is in its perhaps typical, ambivalent role here.
§ Baroness Hamwee
The Committee will be most grateful for that extremely thoughtful contribution. It is helpful to have our attention turned to other landlords who fall within the ambit of the amendment. One of the reasons I wish to speak to it is because I think it is most unfortunate that Members of the Committee should have been circulated with information—perhaps misinformation—concerning a particular charity. That was most regrettable. I am in no way influenced by the information that was received but I do not think it is a practice that is to be encouraged.
The debate is not about Smith's Charity. It is in part about Smith's Charity, but by no means to the extent that one might have thought from the energetic contributions made by those who speak for it. The point made by the noble Lord, Lord Selsdon, went right to the heart of the issue. When is a charity not a charity? What benefits should be given to a charity? Is it appropriate that a charity should be treated differently because it is a charity, or should we be looking, as the noble Baroness, Lady Gardner, suggested, at the activities?
I believe that the noble Baroness was correct in her analysis. One must consider not the identity of the landlord but whether his activities are those which should be protected. I believe that in many cases the charities are holding their property portfolios as, if you wish, a commercial investment. We are not talking about the provision of housing to meet, for instance, a need for low cost housing. The Peabody Trust was mentioned along with the question of low rents. I suspect that the rents referred to are those for short tenancies and not the long-term leaseholds that are the subject of the Bill.
I regret that I did not understand the comment that the reservoir of charitable giving will be affected by the amendment. That did not seem relevant. I do not 992 believe that the British public would be dissuaded from contributing to a charity because it saw some element of confiscation by the Government.
§ Lord Swinfen
I am grateful to the noble Baroness for giving way. The element of charitable giving by the general public does not come into it. It is the element of charitable giving by the big grant-making trusts who give from the income from their investments.
§ Baroness Hamwee
That takes me to my next point, which is whether the provisions amount to confiscation or robbery. As Members of the Committee have said, if they do amount to robbery then that is the fault of the whole Bill; it is not something that should be put right just for charities. It is a much more fundamental point and needs to be addressed for all leaseholders. I do not believe that it amounts to confiscation.
The last area of concern is that of ambience. That is a concern which I share. But it is one that should be addressed through other measures. There are measures later in the Bill which deal with environmental matters. I agree with the distinction made by the noble Baroness, Lady Gardner, and the noble Lord, Lord Williams. I feel that it would not be right to apply overall concern about the Bill just to charities because they are charities, without thinking through the consequences.
§ Viscount Montgomery of Alamein
When my noble friend Lord Kindersley introduced the amendment with his usual skill and charm, he exclaimed that he was a novice. If he is, then he is no mean advocate for his cause. It is therefore no surprise that he had a great deal of support when he moved around the corridors outside. Indeed, I was one of that minority with whom he spoke and, as he knows, I do not entirely agree with him.
It is perfectly legitimate for him to mount his arguments in the way that he has, particularly about the Minister and in general about the Bill. I am sorry that he should have mentioned the Member for Kensington, Dudley Fishburn, because he is not here to defend himself and cannot be. I agree with my noble friend Lord Jellicoe that Smith's Charity is extremely efficient. Nobody would question that, and I have said so before.
The point is that it is a property company and an extremely efficient one. Therefore, it would be quite wrong for it to be treated differently from other property companies. Of course, it does great good works, but this is not a Bill about charities. The noble Baroness, Lady Hamwee, and my noble friend Lord Selsdon made that point clearly. Nobody is trying to do down charities. They are a very good thing. The Bill is about property and the right to enfranchise leaseholders across the country. Therefore one set of leaseholders should not be disqualified in favour of another. Everybody must be treated equally before the law.
The noble Baroness is right in that if we are arguing whether the Bill is a good thing, that has already been done in another place at Second Reading. I hope that 993 my noble friend will therefore be able to resist the siren calls he has heard from so many of those who have spoken in favour of the amendments.
§ Lord Strathclyde
I greatly take to heart the concerns that have been raised on an exemption for charities. I note the great sincerity that has come from my noble friends, particularly my noble friend Lord Whitelaw. I certainly do not take lightly anything that has been said. My noble friend Lord Peel asked about the National Trust. I can tell him that property on inalienable land is exempt. He will find that in Clause 85.
During the Second Reading debate earlier this month there were two speeches from my noble friends Lord Kindersley and Lord Crawshaw, both of whom are trustees of Smith's Charity. We have had powerful contributions from them again today and from other noble Lords. I therefore welcome the opportunity of setting out the Government's position in detail.
I have no knowledge of any uncomplimentary remarks made about Smith's Charity during the course of the past few days. It is not part of my case whether or not Smith's Charity is regarded as either a good or a bad landlord. Naturally I admire the tremendous work which is done by so many charities. I have seen the list of donations made by Smith's Charity: it is clear that it helps an enormous number of charities throughout the country, including those working with the young, the old, the ill, and even drug addicts, to name but a few.
It would clearly be most unfortunate if this legislation were to impede the work of that charity. Similarly, the Church Commissioners are significant landlords of leasehold properties and their important work of providing pensions for the clergy must continue. The Committee would rightly be concerned if such bodies and other charities were to be seriously and adversely affected by the Bill. Some of my noble friends have suggested that this would be the case. It is my job to reassure the Committee that that will not be the case.
I appreciate and understand the concerns that have been expressed; they were not unexpected. When the Leasehold Reform Act was debated in this Chamber in 1967 an amendment was tabled and agreed that would have exempted from the provisions of that Act houses on land owned by bodies established for charitable purposes. However, the amendment was overturned in another place and Parliament in its wisdom decided not to exempt charities from the leasehold enfranchisement provisions in that Act.
Although all charitable bodies spend their income in support of charitable ends, most raise it in a strictly commercial manner and rightly so, as my noble friend Lord Crawshaw explained. The Church Commissioners have made clear that their objective is to maximise their capital assets and revenue. The trustees of a charity are generally under a duty to use their assets to the maximum effect. So, from the point of view of a tenant, it makes little difference whether his or her landlord may be Smith's Charity or the Church Commissioners on the one hand, or, for the sake of argument, one of the great estates on the other.
994 All of these charities and all the great estates will expect to sell leases at the market rate and will impose on their tenants repairing and insuring obligations. The tenants of charitable landlords are seeking enfranchisement sometimes as strongly as those of other landlords. I can see no reason why they should be excluded from the rights of enfranchisement just because their landlord's property investment portfolio might be affected.
Many of the arguments put forward by my noble friends are based on the premise that, quite apart from the principle of enfranchisement, the valuation proposals contained in the Bill will harm the charities' financial position. It will come as no surprise to the Committee if I say that I do not accept that that is so; but if, for the sake of argument, I were to accept that it were so, I am still not convinced that that would make a case for the separate treatment of charities.
If it is unfair to treat charities in this way, it is equally unfair to treat, for instance, my noble friend the Duke of Westminster, or a property investment company, or an individual who may have inherited his freehold in that way also. So, as my noble friend Lord Selsdon put it so clearly, the key argument is whether the price of enfranchisement is fair. I anticipate a very full discussion on valuation when we reach that part of the Bill.
I should at this stage say that it is not our policy that there should be confiscation of assets at less than market value. Our aim is that the valuation basis should be fair to both parties. We do not wish to enrich tenants at the expense of landlords, or landlords at the expense of tenants. Tenants will not be able to purchase their freeholds at discount and there should be no wind-fall gains. The marriage value brought about by enfranchisement will be shared between landlord and tenant in the same way that it would in the market.
As has already been mentioned, tenants of charitable housing trusts, where the flats are in housing accommodation provided by the trust in pursuit of its charitable purposes, will not be qualifying tenants and those charitable organisations will be exempt. Housing trusts are bodies that use all or substantially the whole of their funds for the purpose of providing housing accommodation. They do not hold it for investment purposes or manage their property in a commercial way.
Where charities have let flats on a long lease, presumably to raise funds by way of the premium, they have to all intents and purposes sold that property to persons who have every right to consider themselves owner-occupiers. They will usually have the greater financial interest in the property and, like other leaseholders, the expectation of being able to enfranchise.
I do not wish to have a fight with my noble friends on this. As I said earlier, I take to heart the words of my noble friend Lord Whitelaw, but I believe that the case has not been made as to why charities should be treated any differently from any other landlord. Therefore, I ask my noble friend whether he will withdraw his amendment.
§ 8 p.m.
§ Lord Kindersley
I am interested in and should like to reply to the last remarks of my noble friend the Minister. I shall attempt as quickly as I can to reply also to some of the other comments that have been made in the past few minutes. I deal first with the basic and fundamental point that was made by my noble friend the Minister that charities will not be harmed by the Bill because it allows for perfectly fair valuations. That is a matter for debate and none of us is at all clear exactly how the valuation will work and what view the tribunal that will be set up will take. Therefore, the future is slightly misty for us.
The point that I should like to register is that if it is the case that half or fewer than half of the leaseholders in Henry Smith's Charity decide to exercise their rights to enfranchisement, there is no question in my mind but that we, as trustees, will have to withdraw from property in London because we would be left with the tattered remains of a once marvellous estate. The curious thing that nobody seems to have seized upon yet when talking about this—perhaps because we have all been thinking in the short term —is in due course (because whatever the prognosis about management being possible when individual freeholders are in charge, and we have heard my noble friend Lord Lindsay comment on his practical experience of that), the estate would lose the high standards that it has set to date. Nobody is going to spend £2 million on gardens and railings in anticipation of the future wellbeing of the estate. There is no question but that standards will suffer. We shall therefore have the curious anomaly that those leaseholders who rushed in, thinking that they were going to make a quick buck from converting into a freehold, will find themselves with freeholds in an area where the standards have gone down. Property will become less desirable and its value will actually be diminished rather than maintained at the high levels which all our long leaseholds in Henry Smith's Charity command today.
To my mind, that is a very convincing point that meets a number of the criticisms that have been made during the debate. I was glad to hear that praises outweighed criticisms; but my job is to answer some of the criticisms and that basic point answers a lot of the criticisms that were made by my noble friend Lord Wolfson. He asked for some specific answers about the loss of income and loss of value. Those questions are difficult to answer because, as I have said, things are uncertain. However, we asked our surveyor who runs the estate to make a rough estimate as best he can at this stage of what the legislation would be likely to mean to the value of our property in Egerton Gardens, where all the houses have been converted into flats. His preliminary estimate, based on the information available to him at the moment, is that the value of Egerton Gardens to Henry Smith's Charity would depreciate by £2 million. That is the best estimate that we can make of the loss of value now.
Turning to the loss of income, I point out that we are a long-term charity. No doubt, in the short term, we could at least make up for the loss of income from the properties that are enfranchised, particularly if 996 interest rates became higher again and we could deposit the money at a higher rate than we were getting from the rents. But we look to the long term, and that would not be a sensible thing to do unless we felt that the whole portfolio needed a big cash element in it because of the dreadful economic outlook.
However, I can give the Committee some figures to answer the questions that were raised about the amount of money that is spent on the management of the Henry Smith's Charity estate. This stems from the peculiar document to which I have already referred. It is of course ridiculous to try to compare portfolio investments with estate management; but comparisons can be made. Again, it is the apples and pears problem. Of course, we have much higher management expenses in running the Kensington estate than in running an investment portfolio. I do not think that I need to insult the intelligence of the Committee by making that remark, but the question was asked. We have some figures to show that despite the extra expenditure that has to go into the running of an estate of 70 acres in Kensington, between December 1984 and December 1988 the annualised total return, which includes capital value and income, was 27.42 per cent. in the case of the Kensington estate, and the equivalent return from our investment portfolio was 12.5 per cent. In the period between December 1988 and June 1991, the return on the Kensington estate was 27.9 per cent. and the equivalent return from our investment portfolio was 13.3 per cent. I hope that will answer my noble friend Lord Wolfson who is not here, which is a pity.
I hope that I have covered the main questions that were asked. I apologise for the fact that my opening remarks were not in accordance with custom in Committee. I said in my opening remarks that I was a novice. I am a novice now. I hope that I have answered the points made by my noble friend the Minister, and that I have made clear to him that the charity will suffer and that there is a case for the exemption of charities. I believe that we have sufficient support in Committee to put the amendment to the vote.
§ 8.11 p.m.
§ On Question, Whether the said amendment (No.16) shall be agreed to?
§ Their Lordships divided: Contents, 82; NotContents,116.998
§ Viscount Goschen
I beg to move that the House be now resumed. I suggest that the Committee stage begin again at 9.15 p.m.
§ House resumed.