Housing and Urban Development Bill

HL Deb 09 March 1993 vol 543 cc1012-52

9.15 p.m.

House again in Committee.

Clause 3 agreed to.

Clause 4 [Premises excluded from right]:

Baroness Hamwee moved Amendment No. 17: Page 5, line 21, leave out ("10") and insert ("20").

The noble Baroness said: In moving this amendment I shall deal briefly with the qualification of premises which may come within the enfranchisement net if they include a non-residential part. I shall seek to deal with the volume of that part.

As the Bill is drafted, premises or a building are excluded if more than 10 per cent. of the internal floor area is non-residential. I believe that that is too low a threshold. If the figure is 10 per cent. then a block of flats with shops on the ground floor would have to be 10 storeys high in order to come within the qualification. Many mansion blocks have commercial premises on the ground floor, particularly shops, and I suspect that few of them would be 10 storeys high.

Having taken the decision to proceed with the enfranchisement provisions, the Government will wish to create real and not merely illusory rights. They will want to allow enfranchisement on a basis which is as wide as is reasonable. If we are to accept that the rights are to apply to mixed hereditaments, then I believe that those rights should not be restricted to relatively few mixed hereditaments. I say that with a certain lack of knowledge, but having read the debate in another place I feel that it appears that there is little knowledge on the number of premises that will be affected. There was a good deal of discussion about Westminster, but I do not believe that Westminster is typical of the whole country. If the Minister, in either accepting or refuting the amendment, can tell the House the effect that 10 per cent. or 20 per cent. would have, it would be most helpful.

If the argument against increasing the figure from 10 per cent. is that the cost of acquiring the freehold for the other leaseholders would be too high, I do not believe that that is a basis for denying them the right. Certainly there will be implications in the cost, given that the value of commercial premises will affect the value of the whole of the premises. But to use that as an argument against an increase in the figure of 10 per cent. would be somewhat paternalistic. It must be a matter for the leaseholders involved. It must be their decision whether or not they seek to exercise the right and pay what will be required.

If the argument against an increase is that it will mean a loss of the right of the leaseholders to extend their leases —in other words to exercise rights under the next chapter of the Bill—I suggest that we reconsider the relationship between the two rights of enfranchisement and extension.

If the argument is, to quote the words of the Minister in another place, a concern, not [to] spill over into the commercial market as anything that undermined the generally satisfactory workings of that market would be unwelcome"—[Official Report, Commons, 9/2/93; col. 926.], that would seem to be an argument that enfranchisement should be allowed only if there is no commercial element in the premises. It is quite clear that the Government do not take that view.

There is no magic in the figure of 10 per cent. and the Government recognise that. Clause 4(4) provides for the Secretary of State to have reserve powers to amend the percentage. Given that there is no magic in 10 per cent., I should like to hear why it could not be 20 per cent., which I believe would be a more realistic figure. I beg to move.

The Earl of Lytton

It may be for the convenience of the Committee if I also speak to Amendment No. 18 which stands in my name and is grouped with the amendment moved by the noble Baroness, Lady Hamwee.

Amendment No. 18 seeks, I hope, to clarify—I have to say "I hope" as I cannot be absolutely certain it will he seen that way by all parties—the manner in which floor areas fall to be calculated for the purposes of whatever percentage may be used. The amendment is in two parts. It sets out to insert the provision that, any garage, parking space, storage area or other part of the premises which is held on a long lease for use in conjunction with the residential parts of the premises shall not be regarded as being occupied, or intended to be occupied, otherwise than for residential purposes". The purpose of the amendment is quite clear. It is an attempt to avoid arguments about what does or does not constitute the residential element. I need not tax the patience of the Committee by stating the obvious, other than to say that if the intention is that the Bill should operate smoothly in practice, it is important that there is a clearly defined definition for that purpose. That is the background behind that particular aspect.

The second aspect is the question of the internal floor areas of the building and the way in which the measurement shall be conducted. I am indebted for the help of the Royal Institution of Chartered Surveyors, of which I am a member. I asked about that particular point. When I first read the Bill I asked whether the method of calculating the floor area was satisfactory. The answer came back: "We do not think that it is terribly satisfactory".

I believe that the RICS had discussions with the Minister's department on that and other matters. The amendment attempts to improve on the definition contained in the Bill and I merely offer it to the Minister with the comment that, having kicked the problem around, it is the best that we can come up with. We can find no formula of words which is absolutely foolproof; there is nothing that is totally watertight in this instance. Matters such as the treatment of service cores within buildings and areas where one would not be able to classify its use with precise certainty as between residential and non-residential, raise significant difficulties.

Amendment No. 18 is a probing amendment to try and obtain some comment back from the Minister on what the current thoughts are on the issue. I want to impress upon him that the intention is to make the procedure run smoothly so that there are not endless battles through the courts or valuation tribunals in order to sort out matters which, on the face of it, one would expect surveyors to be able to agree as a matter of course. Obviously it is a matter of interpretation. It is an area which will be contentious as between the parties—between the freeholder and the leaseholder seeking to enfranchise. It is something that should be cleared up.

I have no specific comment to make in regard to the percentage that should apply. I know the Government's view and I hear what the noble Baroness, Lady Hamwee, says. It must be a matter for others. I do not wish to be drawn into that argument. However, I commend Amendment No. 18 to the Minister for further consideration on this point.

Baroness Gardner of Parkes

I support Amendment No. 18. I do not intend to go into the detail of whether or not it is right. The principle of establishing the position of these areas is most important.

Lord Williams of Elvel

I too will speak to both Amendments Nos. 17 and 18. We agree with Amendment No. 17. The matter was discussed at some length in another place. Various figures were put forward and in the end the Government stuck at 10 and others thought that 20 was perhaps a better compromise.

The problem is one of leaseholders who live normally in mansion blocks built in the latter part of the last century and sometimes in the 1960s, particularly in the centre of towns where often commercial premises such as chemists, travel agents or bookshops occupy the ground floor. There are extraordinary problems in trying to find the right balance between making it extremely difficult for the people who hold the leases to enfranchise, and producing something which is over-expensive and too cumbersome. I take the view, along with the noble Baroness, Lady Hamwee, that 20 per cent. would be a better figure than 10 per cent. and I look forward to hearing from the Minister whether or not he thinks along the same lines.

On the amendment of the noble Earl, Lord Lytton, I accept that there is a problem. I am not sure that the amendment solves that problem. Amendment No. 18 excludes areas leased to residents alone and, as I see it, would thus exclude a considerable number of blocks—for instance in some blocks storeys are given over to car parking for paying customers. Such blocks will be unenfranchisable under Clause 4 as at present drafted or indeed as amended by Amendment No. 18 in the name of the noble Earl, for no particular reason that I can think of. I accept the noble Earl's point. There is a problem and it is for the Government to explain how they intend to deal with that problem, given that the noble Earl quite rightly said that his amendment is of a probing nature.

9.30 p.m.

Lord Strathclyde

Like other speakers I, too, shall speak to Amendments Nos. 17 and 18. Clause 3 defines the premises which may be enfranchised under Chapter I. This is, however, further qualified by Clause 4 which defines that certain premises cannot be enfranchised even though they may meet the qualifying conditions in Clause 3. These are premises where more than 10 per cent. of the internal floor area, excluding common parts, is given over to non-residential use and converted premises that have a resident landlord and do not contain more than four flats.

As far as concerns commercial premises we have tried to ensure that enfranchisement will only affect properties where the commercial use is very much ancillary to the residential use. We are concerned that the proposed legislation should apply only to properties which are predominantly residential.

The issue was fully debated in Committee in another place and a number of amendments were tabled with the intention of raising the threshold. In Committee we promised to reflect further and the matter was considered extremely carefully. As my honourable friend the Under-Secretary of State said during Report on the Bill in another place, and in response to another attempt to increase the threshold, we have come to the conclusion that it should remain at 10 per cent.

The threshold was chosen very carefully after extensive sampling and the taking of expert advice. There is no demand in the commercial property market for leaseholders of commercial units to have the right to purchase the freehold. On the contrary, there is great concern that our proposals for the residential market do not spill over into the commercial market. Anything which undermines the generally satisfactory working of the commercial property market and Part II of the Landlord and Tenant Act 1954 would have an unsettling effect and would be unwelcome.

Research commissioned by Westminster City Council into properties in Westminster confirms that the 10 per cent. threshold will bring within the scope of the enfranchisement provisions the largest single block of mixed-use property in terms of both numbers of buildings and the average number of dwellings per building. The research indicates that at the 10 per cent. threshold 88 per cent. of flats are likely to be enfranchisable. Increasing the threshold to 15 per cent. might increase the number of flats that would be enfranchisable to 89.5 per cent.

Our consultation exercise has suggested that a 10 per cent. threshold seems the best fit—not only in London, as the noble Baroness, Lady Hamwee, pointed out, but also elsewhere in the country—among all the other conflicting interests.

We are aware that many tenants in mixed-use blocks that will be excluded from enfranchisement by this 10 per cent. threshold have argued for it to be increased. I understand their concerns. It is difficult to predict how non-enfranchisable leases in properties excluded by the 10 per cent. rule will fare in the property market, albeit that they will have the right to lease renewal under Chapter II.

The commercial parts of a block are often much more valuable than the residential parts, sometimes 15 to 20 times more valuable. If the threshold was raised the cost of the freehold reversion could be prohibitive. Tenants would be acquiring interests worth more than their own flats and they would in many cases be unable to afford to buy the freehold. In those circumstances they would not benefit from our proposals because they would not have the right to lease renewal.

We feel that we have the balance about right but there are arguments on both sides for drawing the threshold elsewhere. That is why we have taken reserve powers under subsection (3) of Clause 4 to enable the Secretary of State to specify a different percentage threshold should the need arise.

I turn to Amendment No. 18. I can tell the noble Earl that I have sympathy with what the amendment tries to do although I have some concerns about the way in which it does it. Clause 4 makes it clear that, for the purposes of calculating the area of non-residential parts, any common parts of the building will be disregarded. The proposed amendment would expand this section to make it clear that, for the purposes of calculating the area of commercial use of the building, any garage, parking space, storage area or other parts of the premises held on a long lease in conjunction with the residential parts will be treated as occupied for residential purposes. I accept that this seems sensible.

I would be prepared to consider seeing if we can amend Clause 4 to make it clear that such areas are excluded from the calculation of the areas used for commercial purposes. It may be unnecessary because our definition of appurtenant property in Clause 1(8) means any garage, outhouse, garden yard and appurtenances belonging to or usually enjoyed with the flat.

I appreciate that the amendment is intended to change the way in which the internal floor area is calculated so that it does exclude all common parts. I am not sure why the amendment is needed.

The Bill assumes that the floor or floors of a building are taken to extend without interruption throughout the whole building when in fact they may not. That may be the crucial difference between what is in the Bill and what is now proposed. I hope that the proposed amendment will not make the calculation of the internal floor area of the building more difficult. The proposed amendment shows that the present definition may give rise to confusion, but I remain to be fully convinced.

However, I accept that calculation of the residential and non-residential parts is crucial in deciding whether or not a block is enfranchisable and I am therefore prepared to consider whether the clause needs to be and can be amended to ensure that calculation of the interior floor area does exclude all those areas we intend it should; for example, open-sided parking areas underneath blocks, other parking spaces, garages, storage areas, stairwells and other common parts. On that basis I hope that the noble Baroness will withdraw Amendment No. 17 and that the noble Earl will be happy with what I have said.

Baroness Gardner of Parkes

Perhaps I may ask my noble friend a question. In central London there are a number of blocks which have quite large garage space underneath which were in use originally by tenants at fairly reasonable rents. However, many property landlords have now increased those rents very dramatically and to such a level that tenants are saying, "It is cheaper for me to go by taxi. I won't have a car".

Therefore, what was residential parking is becoming available. First, it was offered to the tenants; secondly, it is being offered on the open market as commercial garage space. When my noble friend is looking into the matter, will he also look into that aspect? It would be wrong if, because that situation exists, people were ruled out from enfranchising their flats. The garage spaces were never let on long leases. From the statement that my noble friend made about a flat on a long lease, I was not clear whether the garage also had to be on a long lease. The garages were always short-term tenancies: that is how rents have been increased so dramatically recently. I ask my noble friend to assure us that he will take that situation into account.

Lord Strathclyde

My noble friend makes rather a good point. It shows the difficulty about making an exact statement. It was my understanding that garages were held in conjunction with residential parts. Where that is clearly the case then they will be included as residential parts whether or not the tenants may have decided to treat them in a different way. Where the parking space belongs to the landlord, however, and he has chosen to let it on a commercial basis, that may be another question altogether. However, I have said that I am prepared to consider the amendment further and I shall do so.

Baroness Hamwee

In thanking the Minister for that reply, I believe that the discussion concerning the measurement of the respective spaces shows not only how important is that issue, but also how important is the 10 per cent., 15 per cent., 20 per cent. or whatever percentage there may be. I have never been under any illusion that the measurement would be simple. I believe that as a professional it is one of the matters for regret in this Bill that there is so much material that a professional, both legal and surveying, can get his teeth into. I suspect that that may amount to insuperable obstacles in the exercise of the enfranchisement right.

I regret that the Minister gave me no new arguments with regard to the percentage. I think that I anticipated what he had to say when I moved the amendment. He talked of the extensive sampling that has taken place but, as I understand it, that sampling was extensive within the Borough of Westminster, but did not extend beyond Westminster. We heard earlier today that this is an issue not only for London but for the whole country. As I understand it, this issue of measurement applies particularly in many of our south coast towns such as Eastings and Hastbourne—I mean Hastings and Eastbourne, I should not elide the two. There appears to be no evidence to support the Government's case on that.

The Minister also said that Clause 4(3) will be used to alter the threshold "should the need arise". I am not sure what need might arise, but I shall not ask the Minister to come back on that. It is perfectly clear that it is a matter for the Secretary of State to consider whether or not the provisions are working reasonably well. However, there seems to be no objective measurement of that. This is the sort of clause that makes one feel that the drafting of the original does not entirely have the draftsman's confidence.

Above all, this short debate confirms the need to consider further the relationship between enfranchisement and lease extension. I shall consider the arguments and take them into account at a later stage when I may wish to return to this matter, but this evening I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Lytton had given notice of his intention to move Amendment No. 18: Page 5, line 23, leave out subsection (2) and insert: ("(2) For the purposes of subsection (1)—

1. (a) any garage, parking space, storage area or other part of the premises which is held on long lease for use in conjunction with the residential parts of the premises shall not be regarded as being occupied, or intended to be occupied, otherwise than for residential purposes;
2. (b) the internal floor areas of a building or of any part of a building shall be the sum of the entire areas taken up by each floor of the building or part, there being disregarded only those areas taken up by any external walls, any party walls dividing the building from any adjoining building and any common parts of the building.").

The noble Earl said: I should like to thank the Minister for his reply and to assure the noble Lord, Lord Williams of Elvel, that it was not my intention that the provisions should read as if garages in a compound or in a subterranean car park should be excluded to the detriment of residential occupiers of the building—in fact, quite the converse. I thank also the noble Baroness, Lady Gardner of Parkes, for her support for the amendment. She raised an important point about this—

Lord Williams of Elvel

Either the noble Earl is going to move his amendment and speak to it or he has no locus to speak at all if he is not going to move it.

The Earl of Lytton: Not moved.

[Amendment No. 18 not moved.]

[Amendment No. 19 not moved.]

Lord Monson moved Amendment No. 20: Page 5, line 30, leave out ("four") and insert ("ten").

The noble Lord said: This is only a probing amendment because whereas I am certain that the Government's figure of four is too low, I suspect that the figure of the noble Lord, Lord Peyton, and myself of "10" is possibly somewhat on the high side.

The Government clearly and understandably want to prevent what might be described as full-time, professional landlords from benefiting from the exclusion contained in this subsection. I refer to people who, for example, buy a pair or even a trio of adjacent terraced houses for extensive conversion—possibly a horizontal conversion—and subdivision into a large number of flats. However, there are a very large number of mainly 19th century, single—and I emphasise the word "single"—terraced houses in London which have been properly converted into five or six or even—if the attic roof is raised and dormer windows are installed—into seven or eight flats; and I do mean flats, not bed-sitters. The landlord may well live in one of the flats in what was once his own undivided house with the intention of looking after the fabric and controlling the destiny of the house. As I have said, I would concede that our figure of 10 is possibly on the high side, but is there not room for a possible compromise at six or, better still, eight?

9.45 p.m.

Lord Strabolgi

The trouble with the amendment is that it would of course exclude the much smaller houses. The noble Lord spoke about terraced houses. There are many terraced houses which have been converted into only four or five flats. They would be excluded. The number he proposes is far too high.

Baroness Hollis of Heigham

Perhaps I may speak also to Amendment No. 21 which is grouped with Amendment No. 20, although I do not know whether the noble Lord, Lord Coleraine, proposes to move it. We on this side oppose Amendment No. 20 because, as the noble Lord, Lord Monson, said, it would raise from four to 10 the number of flats which would be exempted if there were a resident landlord. That means that for those leaseholders who have a resident landlord this is effectively a disfranchising amendment. The Consumers' Association research shows that about 6 per cent. of leaseholders have a resident landlord. That is a low number. However two thirds of the properties where there is a resident landlord comprise three flats or fewer.

I recognise that the amendment is a probing one, but if it, or a similar amendment, were to have the Committee's support, then virtually all properties with a resident landlord would be exempt from enfranchisement. Is that reasonable? After all, the growth in the number of flats, certainly since the 1980s, has come largely from converted houses, because 75 per cent. of all flats are now in converted houses. Where the landlord was a bona fide former owner of the house that was converted, there may be a case for protecting his interest where there are four flats or fewer. I believe that I am right when I say that the noble Lord, Lord Coleraine, may refer to that point when we come to Amendments Nos. 45 and 46. Surely that protection should not apply when we are talking about 10 flats and, therefore, effectively a large commercial development into which, in some cases, the landlord may have bought subsequently and not been the original owner.

For both those reasons we oppose Amendment No. 20, and also Amendment No. 21 which would make it that much harder for leaseholders to enfranchise by raising the minimum threshold.

Lord Coleraine

I shall not speak to Amendment No. 21. I think it was grouped with No. 20 in error. One of the advantages of Amendment No. 20 which raises slightly the number of flats with the resident landlord exemption is that it would give more people the right to lease extensions. There may be some people who would rather have a resident landlord with a lease extension right than have a non-resident landlord with the right only to collective enfranchisement.

Lord Strathclyde

The effect of the amendments would be to extend the resident landlord exemption in Clause 4. Amendment No. 20 would extend that exemption to blocks containing 10 flats or fewer. Amendment No. 21—which I recognise my noble friend does not wish to be grouped, but the argument is the same—extends the resident landlord exemption to blocks containing more than four units, because some of those units may not be flats, but it would restrict the exemption to blocks of four flats or fewer.

We have restricted the resident landlord exemption to small blocks and by that I mean blocks containing only four flats or fewer. We consider it important that collective enfranchisement should not take place in premises where there is a resident landlord, but only where the premises do not contain more than four flats.

Our purpose in limiting the resident landlord exclusion to premises converted into not more than four flats is to limit the exclusions to smaller blocks that may at one time have been the landlord's home. We can see no justification for excluding premises with resident landlords that were purpose built as flats or for excluding premises containing a large number of flats or separate units.

Both the amendments will extend the resident landlord exemption to larger blocks where there are more flats or units. We have limited the exemption to blocks containing not more than four flats and we do not think that the exemption should be extended.

I know that the amendment is a probing one, but I hope that with that explanation the noble Lord, Lord Monson, will agree to withdraw it.

Lord Monson

I am disappointed with the Minister's reply. I agree that the exemptions should not apply to purpose-built blocks but must be confined to houses which were once the landlord's home. I also agree with the noble Baroness, Lady Hollis, who suggested that the Bill be amended so as to restrict the exemption to cases in which the house had at one time been the landlord or landlady's home. That suggestion is not wholly unreasonable. However, a large number of houses in London, but perhaps fewer outside London, have four floors plus a basement and therefore one can have five large flats or a greater number of small flats.

Will the Minister reconsider the matter, studying the situation in the parts of London in which there are a large number of 19th century terraced houses? I emphasise that they are single houses, and not large purpose-built blocks, which can be converted into more than four flats. I am not referring to bedsits, which is another state of affairs altogether. Perhaps the Minister will come back at the next stage with a compromise of six. I do not expect him to give an answer tonight and therefore I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Coleraine moved Amendment No. 21: Page 5, line 30, leave out ("units") and insert ("flats").

The noble Lord said: I move the amendment separately because it deals with a slightly different point. Members of the Committee may wonder whether they have read the amendment correctly. Yes, I come bearing gifts—at any rate a small token—to great estates. The intention of the Government, as stated in the department's pamphlet published in March 1992, is that the resident landlord exemption should apply in the case where there is a resident landlord in a conversion containing four or fewer flats. Under Clause 4(3) the situation which qualifies for an exemption is that there should be not more than four units. "Unit" as defined in Clause 34, means either a flat or a separate set of premises let, or intended for letting, on a business lease". Where a house has been converted into four flats and a tobacco kiosk or into three flats and two small commercially let workshops the use of the word "unit" would take away the exemption. The amendment proposes that the word "flats" be used in order to put right what appears to be no more than a drafting error and to confirm the Government's intentions.

I note that in speaking to the previous amendment, by noble friend continually referred to four flats and not to four units. I take it that he will recommend that the Committee accepts the amendment. I beg to move.

Lord Strathclyde

I am sorry to disappoint my noble friend because his amendment will extend the resident landlord exemption to larger blocks where there are more flats or units. We have limited the exemption to blocks containing not more than four flats and therefore we do not believe that the exemption should be extended. I cannot add a great deal to the reply which I gave in respect of the previous amendment.

Lord Coleraine

I shall read what the Minister said and see whether he is right. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Cavendish of Furness moved Amendment No. 22: Page 5, line 30, at end insert: ("() This Chapter does not apply to premises forming part of a landholding for the time being designated as a heritage area under Schedule (Heritage Areas) to this Act.").

The noble Lord said: In moving the amendment I shall speak also to Amendments Nos. 34, 44 and 151. The group of amendments is complicated technically but I hope that the thrust of the argument can be easily and briefly explained. The amendment should be seen within the context in which this part of the Bill is being debated.

The whole issue of our national heritage looms large in contemporary debate. The media devotes much space to it and the issue is regularly discussed in another place and in this House. In addition, we have a new Ministry of National Heritage. I wonder what would have been the reaction in all those arenas of serious debate if, say, five years ago, the Church had announced its decision to flog the close in Salisbury, or if Smith's Charity or the Grosvenor Estates were suddenly to put its entire London estate on the market. Quite simply, such action would have attracted universal condemnation. It would have been regarded as an outrage, the principal cause of that outrage centring on the fact that an extremely important facet of national heritage was being wantonly put at risk.

When five years later the Government seek, with good and honourable intentions, to address problems of injustice and the menace of bad landlords, it seems hardly to be noticed that in heritage terms these very estates are about to be disintegrated through sale. It is as though, for the purposes of this Bill, heritage issues were to be put aside and suspended.

These amendments seek to protect those areas of our historic towns and cities, limited in number and diverse in character, whose distinctive character and environmental quality depends to a great extent on the active involvement of their landlords. It would include, for example, the closes around our great cathedrals as well as some of the great London estates. On such estates the enforcement of covenants can go some way to maintaining the distinctive quality and character of the area and can be accomplished under schemes of management. I accept the value of those schemes of management, especially in the light of the amendments brought forward to strengthen their effectiveness, for which I am grateful to the Government. What I seek is the acceptance of the principle that to an equal or greater degree the landlords contribute to the maintenance and distinctive quality and character through their active management, investment and aesthetic control.

Specifically, I draw your Lordships' attention to five important areas where schemes of management, even when strengthened, are, I believe, found wanting. First, they cannot, for example, cover managing uses in an estate as a whole to ensure that the historic character of the area is not lost through pressure to maximise individual property returns solely within the constraints of planning legislation. I gave your Lordships examples during the Second Reading debate. 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.

Secondly, schemes of management would not be effective in the matter of environmental improvement as opposed to mere maintenance of what exists. An example might be the use of historically correct materials in re-paving a new street. Thirdly, I cannot see how effective the schemes would be in promoting active steps to prevent historic buildings falling into decay. Under the Bill, of course, the landlord's ultimate sanction to forfeit the lease would be lost.

Fourthly, schemes of management cannot be brought to bear, for example, in the matter of the painting of stucco terraces not only the same colour every five years but with the same paint and indeed at the same time. Finally, it is difficult to see how schemes of management would allow the exercise of a patron's aesthetic control over new buildings and alterations rather than mere reasonableness which could just as well be achieved through conservation legislation.

To justify exemption under these amendments, areas would need to be of outstanding importance in the national context: the number is clearly limited. These linked amendments introduce the concept of a heritage area. Landholding could be so designated if it is wholly and substantially contained within a conservation area and at least one-fifth of the area covered by buildings which form part of a landholding comprises listed buildings; if the landlord has undertaken to comply with a code of estate management practice; and if the landholding is of outstanding historic interest and its preservation or enhancement would be secured by management by one landlord and in accordance with the code of estate management practice. Once so designated, the area would be exempt from the enfranchisement provisions of the Bill. A good example of a heritage area which fully meets those criteria would be the Crown Estate stucco terraces around Regent's Park which have already been mentioned in earlier discussions and which Sir George Young indicated in another place will not be enfranchised. As Members of the Committee know, the Crown is entitled to ignore legislation. In fact, the Crown has agreed to the enfranchisement of its properties with certain exceptions. Such an exception is the case of the Regent's Park terraces on heritage grounds.

My amendments would exempt only a handful of estates which are clearly of national importance. The interests of tenants would be adequately protected by the provision for the extension of leases. Therefore, I contend that it would not be contrary to the spirit of the Bill but would clearly be in the public interest. I beg to move.

10 p.m.

Lord Strabolgi

I believe that there is a great deal in what the noble Lord, Lord Cavendish, says. I know Grosvenor Estates very well. The property is beautifully kept. The houses have to be painted every three years, not every five years, because the lead-free paint does not last as long. It is very important that that should remain.

However, there are provisions in Clause 63 of the Bill for management schemes. I remind the noble Lord also that there has been leasehold enfranchisement on the Grosvenor Estates since 1967 for the cheaper houses, although they are still very expensive. Those houses were priced below a certain ceiling. Those houses are still painted the same colour; there is no difference at all. It is important that that control should continue because with the British liking for individuality, one does not wish to see Eaton Square looking like a knickerbocker glory and painted all the colours of the rainbow. I agree with that; it is extremely important. However, provision is made for that in the Bill.

A more serious point is that if the many areas of London which make up the Grosvenor Estates, which are conservation areas, are excluded, there will not be much left in central London which it will be possible to enfranchise under the Bill. Although I believe that there is great merit in what the noble Lord says, and one can see the importance of the point which he makes, I hope that the Committee will reject the amendment.

Lord Campbell of Alloway

I support this group of amendments. The noble Lord, Lord Strabolgi, prays in aid Clause 63. It remains to be seen how that would work in practice after enfranchisement. There are all kinds of practical problems as regards how those schemes will work after enfranchisement.

Surely the restrained logic of my noble friend's reasoned presentation of principle is worthy—and I ask the Minister to consider it—of further consideration before Report stage. We must hope that the Minister will consider it further because as I see it, contrary to the way in which the noble Lord, Lord Strabolgi, sees it, this is yet another of those dimensions of manifest error in justice to which I have already referred in the context of Amendment No. 7, a dimension of error which my noble friend's amendment seeks to rectify.

I have stayed here not to detain the Committee with a speech which could not add anything to what my noble friend has said, but to have the privilege of supporting him on a Division if that should arise.

Baroness Hollis of Heigham

In speaking to Amendment No. 22, I should like to speak also to Amendments Nos. 34, 44 and 151.

In many ways, we are hesitant and sorry to challenge the amendments. I speak as a former commissioner of English Heritage as well as someone involved through local government in setting up many conservation areas. Therefore, we fully support the principle behind this cluster of amendments; namely, that we need stronger powers than those currently available to protect heritage areas. I am sure that we all share that concern.

However, having talked to many experienced colleagues in the conservation and planning world, on reflection I do not believe that this cluster of amendments is the most appropriate way to go about it. First, it assumes that enfranchisement will damage heritage considerations. As my noble friend Lord Strabolgi said, there is no evidence for that. The 1967 Act enfranchised historic houses in cities like Bath and Norwich and in places like Hampstead and Belgravia. There is no evidence that following the 1967 Act there has been any deterioration in the heritage quality of those properties. I understand that something like 200 estate management agreements have been set up—for example, in places like Hampstead, Dulwich and Belgravia—which have been successful. Perhaps we need to remind ourselves that leasehold as a tenure does not exist in Scotland. It does not exist in Paris or Rome, and yet they are cities of great historic quality and are properly and fully protected. I argue that if a leaseholder has a lease of diminishing value—which will certainly be the case 50 or so years on in a 99-year lease—that leaseholder is more likely to neglect the basic repairs essential to maintain historic houses. The inescapable fact of leasehold is that it relates to a diminishing asset. As it diminishes in value why should one be prepared to invest? Unless historic property is kept in sound repair—and leaseholders will have less and less inclination so to do—it will quickly become ripe for redevelopment rather than protection.

The next point I make in opposition to the amendment, although I entirely sympathise with the principle behind it, is that I do not believe it is right to deny many hundreds —perhaps many thousands—of leaseholders the right to enfranchise simply because they live in historic property with no evidence that they cannot properly maintain it. There is considerable evidence that in the 1960s many of the great estates were held together—needless to say, I exempt the great landlords perhaps presently in this Chamber—not for heritage considerations but in order to maximise redevelopment opportunities when the time was ripe.

As mentioned by the noble Lord, Lord Cavendish, in moving the amendment, and by my noble friend Lord Strabolgi, we all accept that, where we are talking about terraces of houses or flats in places like Belgravia, the heritage needs to be protected. One needs to protect against the neglect of stucco, which is a fragile material. As my noble friend Lord Strabolgi said, one needs to protect against cassata icecream painting of frontages. Perhaps one needs to check vibrant awnings set to mark or demarcate the three sets of bays of a flat. One needs to check against idiosyncratic coloured railings and doors, to say nothing of UPVC windows and the like. The thrust of our hesitation is that we believe that the right way to do that is through estate management agreements which can control development and the use and appearance of property, empower landlords to carry out work or repairs and impose obligations in respect of properties used in common. It may be argued that former landlords who are now no longer the freeholders of historic estates will have little financial incentive to ensure that such estate management agreements stick. Is that true? I cannot believe that civic-conscious landlords, particularly those who have cherished their properties for several hundred years, will walk away, particularly as it will cost such landlords nothing to maintain estate management agreements since the cost will be recharged to the former leaseholders.

Equally, I understand that in the case of many estates—for example, I believe this to be the case as far as the Grosvenor Estates are concerned—there is such a heavy admixture of commercial properties in such areas that undoubtedly they will see fit to ensure that estate management agreements are made to work. I understand that the sister of a senior Cabinet Minister, who acquired the freehold of a house in Belgravia under the 1967 Act, wanted to cut down a tree. She had to go not only through the estate by virtue of the estate management agreement but also through the planning authority, and quite rightly so.

Finally, we shall ourselves be moving amendments, for which we very much hope that we shall have the support of noble Lords opposite, including the Government, and certainly the support of English Heritage in principle. We shall move amendments to strengthen Clauses 64 and 65, which define estate management agreements. Draft clauses are including on the Marshalled List in Amendments Nos. 163 and 164, which may need to be refined before we discuss them, perhaps next Monday. In those amendments we propose that there should be an estate management agreement where so far none exists. Alternatively, where there is an estate management agreement which is not being properly enforced we shall move amendments to ensure that leaseholders can enforce it against the former landlord, local authorities can enforce it against the leaseholder and English Heritage can enforce it as a last default power on appeal to the leasehold valuation tribunal.

It may also be the case, as was trailed in the debate in the other place, that we need a wider debate about the adequacy of conservation powers for local authorities, particularly over the control of permitted development areas.

We on this side of the House firmly believe that there need be no conflict between protecting the heritage on one side, which we all, certainly on these Benches, want to do and respecting the rights of individual leaseholders to enfranchise on the other. We believe that there need be no conflict provided that estate management agreements are properly applied and observed, with default powers for local authorities and English Heritage to ensure that they stick. If we go that route I hope that we can meet all the anxieties.

The Earl of Lytton

My Lords, I had not intended to speak on the amendment but, since the question of management schemes has been raised, perhaps it is proper that I should do so as a professional observer of how people react in the real world of property.

I should like to associate myself with the comments made by the noble Lord, Lord Campbell of Alloway, and question how Clause 63 will work in practice. I listened with great interest to what the noble Baroness, Lady Hollis of Heigham, had to say, but I am not convinced that that is how people react.

Through the Bill we are replacing a blanket proprietorial interest with a dispersed series of individual interests in different parts of what was once a large estate. The process may be fast or it may be slow, but there will eventually come a point when the freeholder's interest is so dispersed that the concept of carrying out environmental improvements, or even environmental maintenance such as the noble Lord, Lord Kindersley, mentioned in connection with the investment being made by Henry Smith's Charity, ceases to be of any relevance to the freeholder who has seen his proprietorial interest gradually eroded. There will come a time when he will walk away from that situation.

I am convinced that that is what has happened. I am reinforced in my view by seeing how the marketplace has reacted to property legislation over the past 20 or 30 years and the effect that that has had. Therefore, with the greatest of respect to the noble Baroness, Lady Hollis of Heigham, from my own observations I cannot come to the same conclusions as the noble Baroness, although no doubt she has very good reasons for reaching that conclusion.

A real problem is in prospect. People are driven by very simple motives. Management and the continuity of that management either protects a proprietorial interest or it makes money. I do not see that the recovery of cost as an item in a management scheme would be of any interest to any of the people involved in large-scale heritage properties or in large-scale urban or rural estates which would be affected by the Bill. I do not believe that those people have such an interest in management; they are not management organisations. I am convinced that others will fill that void. I believe that there is a potential problem. I do not know whether that supports, or otherwise, the thrust of the amendment moved by the noble Lord. However, I relate closely to the problem that he identifies. The noble Lord, Lord Campbell of Alloway, also made the point that something does not fit. The Minister would do well to have a further look at the issue.

10.15 p.m.

Baroness Gardner of Parkes

I wish to follow the remarks of the noble Earl, Lord Lytton. I was a member of the Greater London Council's Historic Buildings Committee. We found that there was great difficulty in doing anything about the arches in London because no one owned them. For example, many of the mews in South Kensington have an archway at the entrance. Many other parts of central London have attractive archways. In our experience no one maintained them because no one accepted that they owned them or had any obligation for them.

The noble Baroness, Lady Hollis, and the noble Earl, Lord Lytton, are both right. The noble Baroness is right in saying that so long as there is a commercial interest people will continue to maintain the property. The noble Earl is right in saying that when that commercial interest ceases, whether because the last of the freeholds is sold off or for another reason, no one will continue such maintenance. I understand that in law positive covenants are very unsatisfactory in terms of enforcement whereas negative covenants work very well.

In Trevor Square, Knightsbridge, all the freeholds have been sold off. When they were under one management and were leasehold properties they were maintained, but no better than at present. The local residents have taken over as freeholders. The square is well maintained. Therefore, the system can work but it is important to ensure that there is such provision in the Bill.

Lord Peyton of Yeovil

There seem to be many good intentions, but I am not sure how they will be realised. I warmly support the amendment moved by my noble friend. Perhaps the Government would like to break the ice on this occasion and move in the direction of the helpful suggestion made by one of the people behind the Minister which is in no way ruinous to the Bill. If the Minister does not do that, it will be very odd. In the inheritance legislation enacted in 1984 the Government seemed to recognise that there was a problem. They dealt with the problem in a reasonably effective manner. Because they are now so anxious to sustain the chastity of this measure, if that is the right term, they are resisting all change.

I am anxious to help the Government. I urge them to avoid the shameful process of backtracking on their own past wisdom and pursuing the path of insisting on every detail in the Bill without exception.

The noble Lord, Lord Strabolgi, faced the problem clearly. However, when he found that to provide such a measure would involve a substantial number of exceptions, he said, "No, we cannot do that. We must have the Bill". Therefore, his good intentions came to nothing.

The noble Baroness, Lady Hollis, said very attractively and beguilingly that she was in favour of the issue in principle. However, she then suggested that we had better put our faith in estate management schemes. I read the later part of the Bill. I am bound to say that I wish I could share the noble Baroness's apparent faith in those estate management schemes. I do not know who will have any interest in sustaining them. There will be a great deal of hassle, worry and trouble about them. However, the Bill proposes to give the landlord residuary powers. I am asking why we should accept such provisions. Not only will the landlord have power but great responsibility, considerable costs, and absolutely no interest in performing the duty which will be put upon him. That seems to me very unwise indeed.

We shall come to discuss that feature in more detail when we reach the relevant clause. Meanwhile, I hope that my noble friend will at least give himself and us a change and say that he will take away my noble friend's amendments and give them serious and friendly consideration. I should be upset to hear him say that he will not meet them at all and will put them in the same waste paper basket as the rest of the amendments.

Viscount Montgomery of Alamein

I am always distressed to have to disagree with my noble friend Lord Peyton because he is always so witty and beguiling in the manner in which he deploys his arguments. Also, my noble friend Lord Cavendish is quite right to be preoccupied with the heritage. Many of us are, and he produces a good argument for it. But there are a great number of measures already in place concerning the heritage as well as a great number of organisations: English Heritage, the Royal Fine Art Commission, local government restrictions and planning regulations. All those are at present concerned with preserving the heritage in one way or another. If the heritage is not being maintained adequately by the enormous plethora of existing regulations, then there is cause for something to be done about it. However, this is not the right place, and the noble Baroness, Lady Hollis, put the point properly. She said that of course we are concerned with the heritage but it should not be at the expense of a clause like this and thus disqualifying vast numbers of people from the purpose of the Bill. That is not what this should be about.

The proposers of the amendments may be on the right track in their intentions, but they have put them in the wrong place. They should be dealing with the matter possibly not in this Bill at all but in another one and certainly not at this stage and in this manner. I hope that the Government will not listen to my noble friend Lord Peyton, as they were encouraged to, and will remain on the same lines as before.

Lord Strathcona and Mount Royal

In supporting the amendment, I wish to underline one simple point. The Crown estate commissioners have apparently said that they intend to follow the obligations which are imposed upon other landlords under the Bill. They are in the happy position of being able to exercise their own judgment as to how far they go in doing so. But they have apparently said that they feel it is necessary to exercise their judgment in favour of excluding themselves from the Regent's Park terraces. If they perceive it to be a major problem, then surely it is one and the Government should recognise it as such. That is what my noble friend is trying to do with his amendment.

Lord Renfrew of Kaimsthorn

Many of us share the intention behind the amendment proposed by the noble Lord, Lord Cavendish. We are very much concerned that the integrity of conservation areas should be preserved. It is the case, however, that conservation areas cover large tracts of varied townscapes. It may well be that the procedure of management schemes would meet the issue. English Heritage itself has been a pioneer in proposing management agreements for scheduled monuments. Although of course the circumstances of ownership are different, it may be that the same kind of approach could be applied to the heritage component of urban townscapes, where we are concerned with the heritage element.

It would be helpful if the Minister could give us encouragement along the lines indicated by the noble Baroness, Lady Hollis, as to how estate management schemes might be made effective in such a case. We very much share the anxiety of the noble Lord, Lord Cavendish, that if the urban areas pass out of single ownership, integrity may be lost. But it may well be that they can properly pass out of single ownership or single freehold control, if estate management schemes can be made to work. That seems the crux of it, and I for one am doubtful about the outcome at this stage.

The Earl of Lindsay

I support my noble friend Lord Cavendish in this amendment. As with the noble Earl, Lord Lytton, my doubts about the adequacies of the Bill for properly conserving some of our heritage areas are based on practical experience. I know those who support the Bill more firmly say that there are estate management schemes set up in Clauses 63 and 64. If they fail, we might also have the freehold management schemes. Behind those are the planning authorities; English Heritage; and legislation on listed buildings and conservation areas. Despite the organisations, if one looks around today in almost any area with some kind of heritage, there are flaws and problems in properly implementing the safety net.

Section 19 provisions from the 1967 Act, which have been mentioned as a great plus point for the possible estate management schemes of this Act, are not wholly good news. There have been some successes. There have been plenty of failures. I would caution people against quoting Dulwich too often. In Dulwich they are facing increasingly serious problems, and there is a danger that the Dulwich management scheme is about to disintegrate.

I look forward to the amendments of the noble Baroness, Lady Hollis, on Clause 64. Any strengthening of Clauses 63 and 64 will be very welcome. She mentioned Paris, Bath, Edinburgh and various other cities. I have extensive knowledge of Edinburgh, having lived there. There is a huge difference between the stone-built heritage of Edinburgh and Bath and the painted stucco heritage of London. In Paris there is a huge difference between the architecture and the planning codes on one hand, and the pattern of rental leasing and owner-occupied property. I have a general concern on the subject and therefore I intend to support my noble friend's amendment.

Lord Strathclyde

I am grateful for the opportunity of participating in the debate. I say at the outset to my noble friend Lord Peyton that I always try to deal with my noble friend's amendments in a friendly manner. I hope that when we disagree he understands it is because the force of argument lies with the Government rather than with opponents of the Government.

On the matter of dealing with heritage areas and estate management, I hope that I can demonstrate why these amendments are not necessary but why I believe that I have a crumb of comfort for my noble friends who would like to see us moving in that direction.

All these amendments are intended to exempt certain historic buildings and heritage properties from the leasehold enfranchisement, lease renewal and lease extension provisions in both this Bill and the Leasehold Reform Act. They do this by enabling the Secretary of State for National Heritage to designate heritage areas within which buildings will be excluded from these provisions.

Amendments Nos. 22, 33 and 44 are intended to exempt historic buildings and estates from the leasehold enfranchisement provisions in Chapter I by reference to heritage areas.

Amendment No. 44 introduces a new schedule which would make provision for the designation of heritage areas by the Secretary of State for National Heritage. The other amendments, Amendments Nos. 22 and 34, would disapply the rights of enfranchisement to properties which form part of a landholding designated as a heritage area, disqualifying long leaseholders of such properties from being qualifying tenants.

Amendment No. 151 would amend Clause 59 in the Bill. That clause will amend the Leasehold Reform Act 1967 by removing the rateable value limits in that Act and extending leasehold enfranchisement to higher value houses.

Amendment No. 151 would also exclude from the provisions of the 1967 Act those houses brought within the scope of the Act by Clause 59 that are in landholdings designated as heritage areas or are properties transferred for public benefit under the provisions that would have been introduced by Amendment No. 26. Noble Lords are no doubt looking forward to an interesting and lively debate when we consider that amendment.

The amendments would exempt historic buildings or estates in their own right by reference to what are referred to as "Heritage Areas". They would require the Secretary of State for National Heritage to designate landholdings on application, presumably by the freeholder, subject to certain conditions. They would be designated where a substantial part of the landholding falls within a conservation area, at least one-fifth of the area comprises listed buildings and the landlord has undertaken to comply with a code of estate management practice, which will also be required under the amendment.

My right honourable friend the Secretary of State for National Heritage would need to be satisfied that the landholding is of outstanding architectural interest and that its continued existence with one landlord, in accordance with a code of estate management practice, will make a material contribution to the preservation or enhancement of its character or appearance. I cannot help feeling that the amendments are designed to give my right honourable friend the Secretary of State more powers with respect to heritage or historic estates because of an inadequacy with the existing laws for listed building and conservation areas which are there to protect historic buildings and areas. If there are problems in that regard then they should be addressed in respect of that legislation.

The amendments are not as wide as those previously tabled in another place, but the suggestion is still that those areas can only be effectively managed and will only retain their architectural and historical merit if the existing leasehold arrangements are left unchanged. Therefore, the amendments still cut right across our desire to keep exemption from leasehold enfranchisement to an absolute minimum and our desire to keep such exemptions on the face of the Bill. The proposed amendments would give my right honourable friend the Secretary of State the power to exempt any properties he sees fit. The issue again is whether it is necessary that estates should continue in single ownership if they are to be managed effectively and leaseholders be denied the right to enfranchise.

I cannot accept, and do not believe, that the case has been made that, as a general proposition, landlords are necessarily better at management or more likely to care for and preserve an historic building than the leaseholder who lives in it. My noble friend Lord Lindsay mentioned the estate of Dulwich. The friends that I know who live on that estate are quite happy with the arrangements and believe that it exists for their benefit.

It has been argued that the leasehold system itself acts against the proper care and maintenance of property: if a leaseholder of a house knows that he has only a short-term and diminishing interest he has less incentive to plan for the long-term care of the property. Our proposals for estate management schemes should answer that problem and I have no doubt that we will discuss those in some detail when we reach Part IV of the Bill. Estate management schemes will allow the freeholder to continue to exercise some influence over the use, maintenance and redevelopment of a property even though the leaseholder has enfranchised, and I have said that there is no reason why freeholders of historic estates should not apply. They would allow the freeholder to retain control even though the leaseholder has enfranchised. The terms of an estate management scheme can deal with the appearance of a property and can empower the landlord to carry out work to maintain or repair it and can impose obligations relating to use and public access that are already contained in the leases.

I have already mentioned, and perhaps should remind the Committee, that amendments will be tabled to enable local authorities and English Heritage to promote estate management schemes where the landlord or representatives of the tenants have failed to do so.

Baroness Hollis of Heigham

Perhaps the Minister will kindly give way. Will the Government also be tabling amendments for default powers where there is an estate management agreement in place that is not being enforced?

Lord Strathclyde

I am quite prepared to consider that point between now and when we reach that part of the Bill.

I believe that long leaseholders are fully capable of caring for the buildings in which they live. Where owners of historic buildings have let property on long leases they have, to all intents and purposes, transferred ownership of that property. The leaseholders will usually have the greater financial interest in that property. I also believe that the system of estate management schemes will provide more than adequate safeguards where in the general interest there needs to be coherent management of an area as a whole.

I hope that in the light of what I have said my noble friend will understand why I cannot accept the main thrust of his amendments. I do, however, have some general concerns about heritage and we are dealing with those through estate management schemes.

Lord Campbell of Alloway

The answer to the noble Baroness, Lady Hollis, was not clear or, frankly, satisfactory. I ask categorically—because it will affect the way I would vote on a Division—whether my noble friend the Minister is prepared to assure the Committee by giving an undertaking that the Government will introduce effective and proper powers of enforcement. That was the question asked by the noble Baroness. She received no answer.

Lord Strathclyde

I am sorry that my noble friend should be talking in terms of having a Division when I have given a very full answer and offered certain aspects known as estate management schemes that we can discuss in far greater detail when we reach that part of the Bill. I said that I would consider the proposal put forward by the noble Baroness, Lady Hollis. I cannot be more categoric than that. My noble friend will, I know, be sympathetic to that but I hope that that will not affect the way in which he will vote.

Lord Renton

Can my noble friend say to which part of the Bill he was referring when he said that he will consider it when we reach that part?

Lord Strathclyde

All the estate management amendments will come up when we reach Chapter IV of this part of the Bill. Clauses 63 and 64 deal in great detail with estate management schemes.

Lord Cavendish of Furness

I thank all those who have taken part in the debate. I also thank my noble friend the Minister for his reply. In concrete terms, the crumb of comfort that was promised was so small as to be almost invisible but I felt that the tone was positive. There seems to be concern on all sides of the Committee that we must get this matter right. I certainly share the reservations of the noble Earl, Lord Lytton, about the enforceability of estate management agreements. A determination exists in the Committee to get this right. In the light of the suggestion from my noble friend the Minister that he will bring forward amendments and in the light of Amendments Nos. 163 and 164 in the name of the noble Lord, Lord Williams of Elvel, and the noble Baroness, Lady Hollis, which I have not had time to study, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Lytton moved Amendment No. 23: Page 5, line 30, at end insert: ("(3A) Where premises are built as part of a larger scheme of development the right to collective enfranchisement shall not be exercisable in respect of those premises until the whole development has been completed or until three years have elapsed since the premises were completed, whichever is the sooner.").

The noble Earl said: This again is a probing amendment. I hope that it will receive the response that I was able to get from the Minister on the previous amendment I moved for which I was most grateful. The amendment relates to flats developments which are under construction.

The problem which may arise is that the Bill would allow enfranchisement to occur as soon as two-thirds of the relevant part of the property or perhaps two-thirds of the first phase was occupied. In the context of an on-going development, where roads, infrastructure and matters of that kind are still unfolding, I can see that this would cause tremendous problems with the developer where he has to come back to provide for common services, for the completion of roads, drainage and so on. I do not think it would be helpful if residents of one part, as it came on stream, could make a pre-emptive strike in that situation. The amendment seeks to avoid that situation arising. I am hopeful that the Minister will be able to tell me that it is not necessary but I do not see anything in the Bill at the moment that would prevent it happening. In consistency with my aim to try to make sure that when the Bill becomes law it will operate smoothly and satisfactorily in practice, I beg to move.

Baroness Hollis of Heigham

I shall be very brief. We see circumstances in which this amendment might be sensible, but our reservations are that where there is a major development involving many blocks the amendment would, as regards the early blocks, hold up the tenants' rights to seek enfranchisement for three years, and for no good reason; and where those blocks could function independently. We believe that the right answer is commonhold and we await that Bill. On balance we do not support this amendment.

Baroness Gardner of Parkes

I also believe that it would be better to sell the following blocks on a different basis. I hope that that will apply. Therefore, it would be only the existing blocks that I hope would be enfranchised. The amendment may not be necessary for that reason.

Lord Strathclyde

In these provisions our concern is to ensure that leaseholders can take control of their own property. That is why we have provided that enfranchisement can relate to the smallest viable unit. It will ensure that the leaseholders can only control the property in which they have an immediate financial stake and will make management simpler. I do not consider that it would be appropriate to sterilise the right to enfranchise just because the block is part of a large development.

I do understand the concern of the noble Earl that it may make it more difficult for a developer who wishes to provide common services to the development, and that the first block to enfranchise might claim the freehold to the common parts. The developer will, however, be aware of the right to enfranchise and will need to take this into account when the development is phased. It may well be in the interests of both the developer and the tenants if their intention to enfranchise is known before the development is finished, as this may make a difference to the provision of communal services.

If the tenants do wish to purchase the freehold of common parts, and that would disrupt the development, then the freeholder can offer permanent rights over those parts in lieu of the freehold. This provision will ensure that other blocks can benefit from the common parts.

This Bill intends to give tenants increased rights for ownership and control. I do not consider it right to block those rights while a developer builds adjoining property in which the tenants may have no interest. There is provision in the Bill to ensure that the common parts can be retained for the benefit of other leaseholders so the amendment is unnecessary to protect them. I hope that gives the noble Earl some comfort.

The Earl of Lytton

It is certainly not my intention to press this amendment. In the light of what the noble Lord said I shall certainly consider the situation more carefully. I feel that he may be right in a number of respects, but there may also be circumstances where things could go badly wrong. I should have preferred to see something which prevented matters going badly wrong. On the basis of what the Minister said I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Coleraine moved Amendment No. 24: Page 5, line 31, leave out subsection (4).

The noble Lord said: In rising to move this amendment I am glad to see that I am supported by my noble friend Lord Peyton of Yeovil, the noble Lord, Lord Williams of Elvel, and the noble Baroness, Lady Hollis of Heigham. This amendment would remove the power of the Secretary of State to vary by order, upwards or downwards, the percentage of internal floor area occupied for non-residential purposes which, if exceeded, prevents qualifying tenants from having the right to collective enfranchisement. Similarly, it would remove the power of the Secretary of State to vary by order, upwards or downwards, the number of flats in the building of the resident landlord above which the resident landlord exemption does not apply. Furthermore, the amendment would exclude the right of the Secretary of State, under Clause 89, to make different provisions in both of those cases for different areas.

Any order made under the subsection could alter the rights of either tenants or freeholders. It would operate with icy even-handedness to move the goal posts against the flat owners or the freeholders. One moment flat owners in the block would have the right to lease extensions; the next moment, after an order, they would find that they were coerced into collective enfranchisement.

A few amendments ago I was listening to my noble friend replying to the noble Baroness, Lady Hamwee, who wanted to increase the commercial percentage from 10 per cent. to 20 per cent. My noble friend said that in future 15 per cent. (or some other figure) might be found to be the right percentage. He said very happily that that could be dealt with by order under this subsection.

Perhaps I may envisage the case of a purchaser buying, say, a 30-year lease in a block with a large shopping parade at its feet. The first thing that the purchaser would want to know is the percentage of commercial use. Let us assume for a moment that he is advised, after expensive surveys, that it is 12 per cent. The purchaser might well go ahead and complete the purchase of the 30-year lease. He would move in and, if my noble friend's amendment to a later part of the Bill is accepted, he would have to wait for three years before his right to a lease extension arose. I envisage that that gentleman or lady might be very sorry indeed to discover after a couple of years that, by a mere order of the Secretary of State, the percentage figure was raised from 10 per cent. to 15 per cent. so that he no longer had the option of a lease extension. If he wanted to improve his position, he would have no option but to join his fellow lessees in what would amount to a fairly extensive and complicated financial operation of buying out the shops. That is not the sort of operation that every leaseholder wishes to get involved in.

This is not a power that should be in the hands of the Secretary of State. Parliament alone - and by primary legislation - should decide whether and to what extent the rights of expropriation contained in the Bill should be exercised. I advise my noble friend that I envisage the need for further primary legislation on this matter of lease enfranchisement within the few years that may pass before the Bill is seen in operation. Once the legislation has been in place for a little while the Government will have the opportunity to change the goal posts by primary legislation if that is what they feel inclined to do. On this occasion, I do not think that one should be prepared to accept the Government's excuse that it will be difficult to find time for primary legislation to do something that could be done by order. I beg to move.

10.45 p.m.

Lord Strathcona and Mount Royal

Before we proceed any further in discussing the amendment, perhaps my noble friend the Minister would care to tell the Committee why he thinks that it is necessary to give the Secretary of State what I think Ministers tend to call "flexibility", which means that they can do anything they like, whenever they like. Before we debate further whether it is necessary for the Secretary of State to have those powers, can my noble friend tell us why he feels that it is necessary to put them in the Bill at all?

Lord Renton

This is a Henry VIII clause of a particularly damaging kind. It would enable fundamental provisions of this part of the Bill to he changed by ministerial order, presumably checked only by the negative resolution of Parliament. And they are indeed fundamental provisions. One has only to refer back to earlier parts of the clause to realise that. It is important that we should know whether it is to be 10 per cent. of the floor area, a greater or a lesser part, that is to govern the criteria.

I draw the Minister's attention to the fact that this is the first amendment we have considered today with which Members on both sides of the Committee have been in agreement whereas formerly they were in disagreement.

Lord Monson

From these Benches I, too, oppose the excessive powers granted to the Secretary of State by the subsection, as it stands. I wish only that the hour were earlier so that my noble and learned friend Lord Simon of Glaisdale could be here to give this Henry VIII subsection the pasting that it deserves.

Lord Williams of Elvel

Perhaps I might add my voice to what has been said. This is the first time that I have seen such a blatant Henry VIII clause. I do not know what we were debating when the noble Baroness, Lady Hamwee, moved from 10 per cent. to 20 per cent. in the early part of the clause. I do not know why we were debating that at all, because the Secretary of State has powers to move the figure from 10 per cent. to 15 per cent., 20 per cent., 30 per cent., or 90 per cent. on any day of the week, at any time, when he gets out of his bath. So I do not understand why we were having that debate.

If the clause said merely that the Secretary of State can do what he likes—fix the percentage; and decide what is the internal floor area—well, if that is what the Government want, let them try to do it. It is one of the most absurd clauses I have ever seen in a Bill.

Lord Peyton of Yeovil

Before my noble friend replies, I put down a similar amendment without prior consultation with the noble Lord, Lord Williams, or my noble friend Lord Coleraine. I was suprised to find myself in their company. However, I am fortified by the reflection that I cannot again be wrong and that my noble friend, who has had such a happy day relying upon the support of the opposite Benches, might find himself constrained to look at the amendment with some sympathy, inspired by a little apprehension that he might be obliged to move in its direction.

There was a time, I am sure—I cannot exactly remember it, because it must be buried in the mists of history—when I had great regard for the wisdom of Secretaries of State. There was a time, but I cannot put a date on it, it was so long ago. Now, in the light of experience, my confidence in the wisdom and judgment of Secretaries of State is on the whole restrained and comes to the surface only in the very best of weather, and certainly not at this time of night. I ask my noble friend to understand that when governments come solemnly to Parliament and say, "This is what we recommend", and Parliament, in its quiet docile way, urged on by the Whips and everything else, says, "All right, we accept this", it is going too far when the same people say, "Of course, as soon as you lot are finished with it, we want to be free to change our mind and your decision". That is not the way to treat Parliament. It is interesting to note the way that that argument has been rehearsed again and again, and Ministers take not the slightest bit of notice. I am sure that the conversation my noble friends on the Front Bench are having is interesting, but I hope that they are deciding that this matter is too important to settle tonight and that they would like to put it off until the morning by which time they will have had second thoughts, with, I hope, some flowering of wisdom in the interval.

I do not want to detain the Committee for any length of time. I merely ask my noble friend whether there is any possibility that Ministers will at some time realise that this kind of clause is unwelcome to Parliament and that Members on both sides of the Committee have tonight once again expressed their distaste for such stuff. If my noble friend could communuicate that distaste to his colleagues, that would be helpful.

Lord Strathclyde

I have been beaten over the head by my noble friend Lord Peyton and I can see that on this issue everyone is against me. I do not think that there is any point in continuing the debate much longer and I am happy to look at the matter properly between now and Report. I know that at present the power is negative and I can understand why that is acceptable. Perhaps we should do away with the power altogether or perhaps have an affirmative power. I shall take the amendment away, consider it and discuss it with one or two of my noble friends. We can decide what to do about it on Report but I do not think it is worth discussing the matter for much longer in Committee.

Lord Coleraine

I am glad to leave the matter in the hands of my noble friend. I do not normally stand up here and talk about government by regulation; it is not a subject which I normally get excited about. However, I find this a most objectionable use of the power. When I am interested in a subject I see no basic difference between the negative and affirmative procedures. We want this clause out of the Bill altogether and I hope that my noble friend will think carefully about those words. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Baroness Hamwee moved Amendment No 25: After Clause 4, insert the following new Clause:

"Exclusion for housing associations.

. This Chapter does not apply to premises where the immediate landlord under the lease is a registered housing association and the flats in the premises—

1. (i) are particularly suitable, having regard to their location, site, design, heating systems and other features, for occupation by persons of pensionable age;
2. (ii) are occupied by persons of pensionable age or physically disabled persons; and
3. (iii) have special facilities which include the services of either a resident warden or a non-resident warden and a means for calling him.").

The noble Baroness said: The proposed new clause seeks to exclude from leasehold enfranchisement leasehold schemes for elderly people where the freeholder is a resident of a registered housing association. I suggest that the specialised nature of the services provided, as described in the new clause, makes that type of housing worthy of different treatment.

As the Bill stands, leaseholders of housing associations' sheltered housing schemes are able to exercise enfranchisement. The new clause is designed to seek to exclude the sheltered housing schemes. It would affect only schemes where the housing association had not received housing association grant, known as HAG. HAG-funded schemes require the association to retain 20 per cent. of the equity. Under Clause 16 enfranchisement would not apply in that situation. Many housing associations have undertaken sheltered housing schemes without using housing association grant. The clause would affect those schemes.

I do not propose the new clause lightly. I understand that there may be an argument against it and that it discriminates against a particular group of people; namely, the leaseholders in such schemes. However, perhaps the overwhelming argument is that, faced with the needs of an ageing population, the leasehold enfranchisement should not apply to take out over time the warden services and other special provisions. Ultimately the properties might be sold to people who are not elderly and the supply of sheltered accommodation might be reduced at a time when the need for it is increasing.

The wording of the proposed new clause has drawn heavily on the Housing Act 1985, which excluded sheltered housing from the right-to-buy provisions. In anticipation of the argument which might be made that restrictive covenants could do the job as well as this amendment, perhaps I may say that covenants are open to being changed between the new freeholder and the leaseholder once the freehold has passed to the new freeholder. Therefore, I would not accept that such covenants would be sufficient.

I am aware of the irony of endeavouring to preclude by the new clause an agreement freely entered into. That is a discussion which we have had several times. However, I believe the weight of public interest would be in favour of this proposed new clause. I beg to move.

11 p.m.

Lord Monson

I am very happy to support this amendment. The main underlying purposes of Part I of this Bill, as I understand it, are twofold: first, to prevent a minority—and it is a minority—of bad landlords making life a misery for lessees; and, secondly, to prevent difficulties cropping up for lessees during the last 30 years or so of their lease. Neither problem occurs in this case, of course, because the landlords, almost by definition, are good landlords, and since the schemes in question are relatively novel in nearly every case there will still be 60, 70 or 80 years of the lease to run.

Those who benefit from enfranchisement will therefore not be the lessees themselves but more probably their sons, daughters, grandsons, granddaughters, nephews or nieces who will want to enfranchise and then sell the property at a profit. There is nothing wrong in wanting to benefit your children, nephews or nieces, but not at the expense of the potential beneficiaries of these very highly targeted schemes which have done so much good to so many people.

Lord Beaumont of Whitley

The Bill, on the whole, is a very grey Bill, which is why I did not inflict myself on your Lordships earlier on today. However, there are areas where the grey shades over to white, and that is where it manages to make certain that owners of leaseholds who are bad landlords are put in a position where they have to sell; and that is worthwhile. At the other end of the spectrum, there are areas where it shades over into dark grey, and even black. I thought the amendment of the noble Lord, Lord Kindersley, was in the dark grey area but I supported it because of that: I thought it was worthwhile. If that was worth the support of a number of your Lordships—and a large number did support it—this one surely is much more so. This is an area where we ought to preserve the work and the rights of the people who are providing good housing for elderly and disabled people.

Lord Renton

Although the three noble Lords and the noble Baroness who have their names on this amendment are not supporters of the Government, I feel pretty confident that there are a number of supporters of the Government who would agree with me that it would be unrealistic and unthinkable for housing associations which exist to provide accommodation for people of pensionable age or physically disabled people, and which have a resident or a non-resident warden, should be subject to the provisions of this Bill. It is just not the sort of scene for leasehold enfranchisement. I would therefore very much hope that my noble friend would feel that this is another point that he could take away and consider between now and the Report stage.

Lord Williams of Elvel

As one of the signatories to this amendment, and indeed an opponent of the Government, as the noble Lord, Lord Renton, points out, I entirely support what the noble Lord says. It does not seem to me that this amendment would prejudice in any way the Bill as it stands if it were accepted, and it does not prejudice the interests of those who are in sheltered accommodation or who might need such accommodation in the future. Clearly, if sheltered accommodation is exempt from the provisions of the Bill and the new clause is accepted, elderly leaseholders would automatically receive the right, under Chapter II of the Bill, to renew their leases in line with leaseholders in other bonded schemes. In fact, it is that right rather than enfranchisement which is of greater interest to those living in sheltered accommodation.

The amendment may be defective in its terms, but I believe that the Minister would be wise to look very carefully at the matter and to accept the principle of it because, as the noble Lord, Lord Renton, rightly said, this is not a matter which we should allow to go through the Committee unamended.

Lord Hylton

I played a small part, in company with other Members of the Committee, in exempting this kind of accommodation from the right-to-buy provisions. As the noble Baroness, Lady Hamwee, rightly said, at a time when we are facing a dramatic increase in the elderly population and an extremely sharp increase in the number of frail elderly people, this is a timely amendment and I am glad to support it.

Lord Monk Bretton

I have given my noble friend on the Front Bench no trouble so far this evening. However, I should like to support the amendment in the name of the noble Baroness, Lady Hamwee.

I am president of a charitable housing association which is called the Sussex Housing Association for the Aged. That is a registered housing association. It was also registered under the Charities Act 1960 but is now classified as an exempt charity. That association has entered into various schemes ranging from sheltered accommodation to extra care homes.

It established a satellite company called SHAA Retirement Homes Limited which, although controlled by SHAA, does not have registered status. That provided sheltered housing by persuading commercial interests to build it and then taking over the freehold interest when it had been sold off on 99 year leases. That has been done extensively by both charitable and non-charitable housing associations.

There is a problem because those associations are caught by the Bill as it stands. The amendment would get them off the hook. I am not clear why enfranchisement of sheltered housing accommodation is a desirable objective for anybody and it may never happen. Should we do so in order that our heirs could live in that accommodation? I should have thought probably not because as we grow older, we shall allow our heirs to live in our former houses while we live in the sheltered accommodation.

At present, SHAA has been thinking of dissolving that satellite company which does not have charitable status, and bringing the properties back under its own charitable umbrella. I understand that that will not work because while the Bill excludes from enfranchisement the charitable housing trust—for example, the Peabody Trust, and there are not many of them—it does not exclude charitable housing associations. I do not fully understand the need for that differentiation. I wonder whether or not it is an oversight.

I am not sure whether we are also speaking to Amendment No. 33 which is grouped with Amendment No. 25. It is possible —I am not sure —that Amendment No. 33 might also produce a solution to the problem to which I refer, even were it not so widely drafted as it is at the moment and was restricted further so that it applied to charitable housing associations but not to housing associations. I hope very much that my noble friend on the Front Bench will be able to offer some help in this rather complicated matter.

Lord Strathclyde

This new clause would exclude from enfranchisement premises where the immediate landlord is a registered housing association and the flats are designed for and occupied by persons of pensionable age or disabled persons with the services of a warden. I believe that it creates an unnecessary and unfair restriction. It is unclear as the clause is drafted of which lease the registered housing association must be the immediate landlord, but I understand the principle that is put forward.

The effect of the new clause would be to make a lot of blocks unenfranchisable. Chapter II would still operate to give the right to obtain new leases to the long leaseholders in the blocks but that would be poor compensation for the disenfranchised lessees who would be unable to take control of the management of their blocks. If the intention is that Chapter I should not apply to housing association blocks containing any sheltered housing the situation could arise that a large block contained only a few such flats but the right of enfranchisement would be denied to the whole block. In any case, it is unfair to deny long leaseholders the collective right to buy the freehold simply because they live in housing association-owned sheltered housing. Why should such people be prevented from taking control of the development—which they effectively own—and overcoming the diminishing value of their leases?

The drafting of the new clause follows broadly paragraph 10 of Schedule 5 to the Housing Act 1985. That provision excludes sheltered housing for elderly people from the right to buy. However, that is not a relevant precedent since the purpose of the paragraph in the Housing Act 1985 is to ensure that sheltered flats or bungalows remain available for reletting on secure tenancies in due course rather than sold to the tenants. That is a valid restriction on the right to buy. The same restriction is inappropriate for the right to enfranchise as the enfranchising tenants are already long leaseholders of their flats. The purchase of the freehold would simply mean that there was a new landlord. The freeholder-leaseholder structure would remain.

I can understand the concern that after enfranchisement the new freeholders might sell the properties to other people who were not elderly or disabled and the flats would move out of the sheltered housing market. That would be unlikely to happen because any restrictive covenants in the lease, which might specify for example that the flat was only to be let to the elderly, would remain. Such covenants could not be changed unless both parties to the lease agreed. If the freeholder and leaseholder happened to be the same person there would be the democratic right to alter the lease if that person so wished. There may be residents of sheltered housing who choose not to participate in enfranchisement. The terms of their leases will remain unchanged so that any services, such as a resident warden, will be maintained. The terms of tenancies held by non-qualifying tenants will also be unaffected, and it may be that a non-qualifying tenant will not even have a change of landlord since a lease superior to the interest of a non-qualifying tenant is not liable to acquisition. If the tenant on a short tenancy rents direct from the freeholder the freeholder will have the option to take a leaseback of the flat if he so wishes.

Amendment No. 33, which is grouped with Amendment, No. 25, would prevent any tenant whose immediate landlord is a registered housing association from being a qualifying tenant in respect of either collecive enfranchisement or lease renewal. Again, that creates an unfair and unnecessary restriction. It is our intention that leasehold enfranchisement should apply to as many long leaseholders as possible and that there should be few exemptions.

The definition of a charitable housing trust has been drawn quite tightly. It is a housing trust as defined in Section 6 of the Housing Act 1985 and a charity within the meaning of the Charities Act 1960. Only where the tenant's immediate landlord is both a housing trust and a charity will the exemption apply, and it will do so on a flat-by-flat basis only. A housing trust is a corporation or body which uses its funds for the provision of housing accommodation. Some housing association flats may well fall under the definition of those which are exempt from enfranchisement.

The amendment proposed would, however, exclude from enfranchisement and lease renewal the tenants of all housing association flats. Why should long leaseholders be denied the collective right to buy the freehold simply because their immediate landlord is a housing association? It would be unfair to prevent such tenants from taking control. Where a housing association has let a flat on a long lease we consider that it has already disposed of the major interest in that flat. The price which leaseholders will have to pay for the freehold will reflect the full market value of that interest. Landlords will therefore be fairly compensated.

Both amendments would therefore interfere with rights which we wish to give to tenants under this legislation. The former is the most perverse. It suggests that if one is able-bodied and young it is perfectly legitimate for one to enfranchise, but if one is old or disabled in some way the amendment indicates that one is not capable of making a choice whether or not to enfranchise. I cannot believe that that is the intention of those who moved the amendment because I cannot believe that that is right.

Lord Renton

I am really quite shocked by the explanation which my noble friend has given. It seems to me that a registered housing association is in a very similar position to a collective freehold. To ask a lot of elderly people, some of whom may be in the mental state which many of us reach in our eighties—and I speak as one—to decide whether they should change an arrangement which may have suited them for years and exchange it for the complicated provisions under the Bill, where only four ninths of the residents in the particular block of flats are required to agree to what is going on, is unreasonable and almost inhuman. I believe that my noble friend should keep a more open mind on the matter and agree to take it away.

Lord Strathcona and Mount Royal

Like the noble Lord, Lord Hylton, I was involved in the Housing Act 1985 and I seem to have heard many of the arguments before. I am still not greatly moved by them. The Government was dragged screaming by this House into amending the 1985 Act, with a degree of success. So far as I am aware that has worked very well.

I do not know whether the noble Lord understood much of the brief which he read out at great speed, but I shall give him credit for having done so. However, most of us will want to read very carefully in Hansard what he said and consider whether the issue should not be raised again. I could not follow the noble Lord's arguments, but I was not convinced by those arguments any more than I was in 1985.

Lord Strathclyde

Of course I shall want to consider very carefully what has been said in this debate. I have said in many of the debates we have had in the course of today that I want to do that, and this is no exception.

There is a point here on which I suspect that my noble friend Lord Renton and I shall disagree. I do not see why, if one happens to be old, that should exclude one from the ability to make a choice. It does not mean that one has to opt for leasehold enfranchisement, but simply that one should not be excluded by the Bill because one happens to be old. I may be quite wrong on that point, which is why I am happy to reconsider the matter and read what has been said. If I am wrong, I am not sure that I have fully understood the points that have been put to me by my noble friends.

Lord Williams of Elvel

Unless there is such an exemption, there will not be the right to extend the lease, which is the most important thing.

Lord Strathclyde

The noble Lord says that that is the most important thing. I do not believe that that is so. The most important factor is the ability of people to enfranchise and to be in complete control of their affairs, if that is the choice of the tenants.

Baroness Hamwee

I am extremely grateful to the Members of the Committee who have supported the amendment. It is quite clear that there is a considerable degree of concern on the issue.

I did not introduce the amendment intending it to be ageist in any way. I do not suggest that elderly people are not capable of making choices. My anxiety is to preserve the type of accommodation and the services that accompany it, and not to lose those to an increasingly elderly population.

I do not agree with the Minister on the suggestion that a restrictive covenant can deal with the matter. However, I refer to the issue regarding a block of flats which contains only some specialised units. I accept that it is common for there to be blocks with flats on the ground floor which are designed specifically for elderly and/or disabled people. Perhaps I should reconsider the situation in that light. I am grateful to the Members of the Committee who have pushed the Minister from his original flat refusal to consider the proposal into at least accepting that he will take it away and reconsider it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Cavendish of Furness moved Amendment No. 26: After Clause 4, insert the following new clause:

("Exclusion for property transferred for public benefit

.—(1) Nothing in this Part of this Act shall apply to property which—

1. (a) belongs to a body not established or conducted for profit and in relation to which the Treasury has for the time being given a direction under section 26 of the Inheritance Tax Act 1984; or
2. (b) is for the time being designated by the Treasury under section 31(1) (b), (c) or (d) of the Inheritance Tax Act 1984.

(2) Where an application to the Treasury for a direction under section 26 of the Inheritance Tax Act 1984 in relation to a property or designation of a property under section 31(1) (b), (c) or (d) of that Act is or has been made at any time before the expiry of one year from the coming into force of this section then subject to subsection (3) below if (before or after the making of the application) a notice is given by a tenant of a house of his desire to have the freehold under Part I of the Leasehold Reform Act 1967 ("the tenant's notice") or a notice is given under section 11 ("the initial notice")—

1. (a) no further proceedings need be taken towards the determination of the terms of the proposed acquisition to which the notice relates beyond those which appear to the landlord in the case of the tenant's notice or the reversioner in the case of the initial notice, to be reasonable; but
2. (b) the tenant in the case of the tenant's notice or the nominee purchaser in the case of the initial notice may at any time withdraw the notice by a further notice in writing given to the landlord in the case of the tenant's notice or the reversioner in the case of the initial notice and he shall not be required to make payment to the landlord, reversioner or any other relevant landlord in respect of costs incurred by reason of the notice withdrawn.

(3) Subsection (2) above shall cease to apply—

1. (a) if within a period of two years from the date of the application it is withdrawn or the designation is refused or not given or no direction is given; or
2. (b) if the applicant has not, by advertisement or by other appropriate means given adequate notice to persons interested informing them of the application for designation.

(4) In the case where an application is withdrawn or refused subsection (2) does not apply at any time falling after—

1. (a) the date of withdrawal of the application, or
2. (b) the date when the decision of the Treasury refusing the application becomes final,

as the case may be.").

The noble Lord said: My second heritage amendment is rather long and complicated. I have needed the extensive help of English Heritage in drafting it. However, it is again simple in principle. I regard it as very important. I make no apology for detaining the Committee even at this late hour.

The amendment seeks to ensure that our national heritage does not suffer as a consequence of inheritance tax liabilities by the forced sale and break-up of important properties. Buildings which are of outstanding historic or architectural interest, together with their contents, and land essential to the protection of their character or amenity, can be exempted from inheritance tax if they are given to a non-profit making body.

They can also be designated by the Treasury under Section 31 of the Inheritance Tax Act 1984. This has the result that, subject to undertakings being given concerning maintenance and public access, they are conditionally exempted from inheritance tax.

Those provisions, originating some 20 years ago, are widely accepted as being in the public interest, since the loss of tax is outweighed by the public benefit enforced through the conditions, such as those to which I have referred, of public access and maintenance. By permitting enfranchisement and thus potential break-up of such entities, the intention and benefit of existing legislation could be frustrated. To my mind, an issue of principle is therefore involved, despite the small number of cases to which it applies.

Properties which are eligible for conditional exemption are generally comparable in quality, importance and the degree of public access, to those houses held inalienably by the National Trust, and which are specifically exempted under Clause 85 of the Bill. Indeed, I pointed out at Second Reading the irony of the fact that the arrangements for conditional exemption and its predecessors were designed precisely to obviate the need for some of those houses to be taken into the care of the trust or the state.

The leasehold enfrancisement provisions of the Bill would undermine this important protection. If an estate owner is forced to sell part of the property, the undertakings given at the time of conditional exemption to maintain the character of the property and provide public access are likely to be viewed as broken by the Inland Revenue and I do not believe that the government dispute that. It will be damaging to both public and private interests.

If the Inland Revenue decides on review that the entity has been materially affected by the sale and no longer justifies conditional exemption, the owner would then be faced not only with paying tax on the value received for the disposal but on the value of the whole estate that has been exempted at the time of the last taxable transfer. That, in turn, would almost certainly trigger a general sale to meet the tax liability and thus damage the public interest in the protection of the heritage by maintaining such entities intact.

Aside from the damaging threat to the heritage, the Bill, unamended, represents a wholesale betrayal of those owners who have entered into an agreement with the Treasury in good faith, only to find it reneged on with potentially ruinous consequences both in terms of their own financial liabilities and the heritage they sought to protect.

Since to qualify for exemption an estate does not have to be wholly in single ownership, it may be argued that a scheme of management could avoid damage to its heritage value. However, it would not, in the view of English Heritage, provide an effective tool to bring about the visual unity which comes from the common control. More importantly, I am advised that it is not possible to enforce, through such schemes, conditions in leases which require public access, which is one of the main conditions of exemption.

The proposed new clause seeks to avoid these damaging consequences by excluding designated properties from the application of Part I of the Bill. It also provides a limited time period of one year, during which designation may be sought for potentially eligible properties. During that period, and until the Treasury has made its decision, any applications to enfranchise would be frozen.

The number of properties which would be affected by the provision is small. To date, only some 160 have been recommended on the ground of outstanding importance and of those only about 60 have been designated. The proportion of those properties which are subject to potential enfranchisement leases is itself very small. To accept the amendment would not, in my view, compromise the principles of the Bill, but it would recognise an established principle and would be of great help in protecting heritage interests of acknowledged importance.

I believe the amendment would improve the Bill and correct an injustice which I am sure the Government never intended. I beg to move.

Lord Boardman

If my noble friend is right in his analysis of the consequences—and I am quite sure that he is—then those consequences of the enfranchisement could cause gross unfairness for a small but important section of the community. I hope, therefore, that my noble friend will respond to the amendment in terms which will enable him to accept it. That would put right something which would otherwise be most unjust.

Baroness Hollis of Heigham

It will not surprise the Committee that we on this side are obviously uneasy about the amendment. It deals with a small number of properties which, if held by the National Trust, would be inalienable. Throughout the discussions today and in future debates on the Bill we seek to maximise the opportunities for enfranchisement. However, on this amendment we are dealing with a small number of properties which had special protection under inheritance tax agreements in return for public access, and which, when introduced, had the support of all parties.

If we on this side could think of a better way to meet the objectives that the noble Lord is pursuing we would seek perhaps to oppose the amendment and produce amendments of our own. As we cannot, we propose not to vote on the amendment should it be pressed to a Division.

Lord Campbell of Alloway

I support the amendment, but I have already spoken to it on another aspect of heritage exclusion. We are concerned with a very small number of cases, with again yet another distinct and important dimension of error and injustice. I ask the Minister to take this back.

Earl Peel

I asked my noble friend earlier about the National Trust and he confirmed that it will be exempt under the Bill. The amendment which my noble friend Lord Cavendish moved appears to give the same principle to heritage property as is given to the National Trust. It seems to me that we shall be discussing or contemplating double standards here if the amendment is not accepted by the Government.

There is also the question of endowments which would go with such properties. If the amendment were not accepted, those endowments would be likely to be subject to some form of retrospective tax which would have very considerable effects on the donor. I would have thought that that would only lead to confusion for the owner and would certainly work against the better interests of the general public.

11.30 p.m.

Lord Strathclyde

I have listened again with some care to what my noble friends have said. I appreciate that there is worry that if these properties are enfranchisable there would be serious implications for some estates. There is anxiety that coherent management of the estate would be lost and that the inheritance tax consequences of the disposal could trigger a review by the Inland Revenue of the conditional exemption.

I do not feel that the best way of dealing with this matter is in the Committee stage. I said that I recognised that there was anxiety. I am happy to take the matter away and discuss with my noble friend Lord Cavendish exactly how we might be able to meet these worries, if that is possible. I cannot give a commitment, and my noble friend will know why I cannot give a commitment. But I believe it is worth discussing this point perhaps round a table rather than in Committee.

Lord Cavendish of Furness

I thank Members of the Committee for taking part and for the sympathy expressed for the amendment by the noble Baroness, Lady Hollis. I understand her position. I also thank my noble friend the Minister for agreeing. That is entirely satisfactory and has enabled me not to press the matter to a vote this evening. I am very grateful for his offer to discuss the issue. I hope he will include the comments made by my noble friend Lord Peel about the fate of endowments. That is an area where I find it difficult to establish the principle. Meanwhile, I hope that my noble friend will accept my thanks. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 [Qualifying Tenants]:

Lord Coleraine moved Amendment No. 27: Page 5, line 40, leave out ("at a low rent").

The noble Lord said: This amendment is grouped with Amendments Nos. 41, 42 and 43. The noble Lord, Lord Strabolgi, my noble friend Lady Gardner of Parkes and the noble Lord, Lord Ezra, have added their names to the amendment.

The amendment provides that to be a qualifying tenant it is not necessary to have a lease at a low rent. The low rent test provides that unless you are a tenant at a low rent, you cannot be eligible to join in the collective enfranchisement. That means in addition that in marginal cases where one less qualifying tenant many mean that two-thirds of the flats in the building are not held by qualifying tenants, not only does the tenant lose out but collective enfranchisements may not be possible for any of the qualifying tenants in the building.

The idea behind the low rent test is that collective enfranchisement should only be permitted to flat owners who have a substantial value or investment in their leases. The right should be refused to those who are merely renters paying a rent. One way of separating the two categories is by applying a low rent test. But that only works if the term "low rent" is defined in such a way that it includes something approaching all rents other than full renting rents, or rack rents. The Oxford Companion to Law defines a rack rent as the highest rent obtainable; the full annual rent of the property. It is the rent that you pay when you have not paid a premium. It is when rents are less than rack rents that they have substantial monetary value and satisfy the criteria which the Government have identified as necessary as qualification for enfranchisment.

Unfortunately, the low rent test in the Bill operates at levels so far below rack rent levels that it catches a great number of leases which change hands for considerable premiums and which should qualify for enfranchisement by those criteria. In Standing Committee in another place no Back-bencher spoke in favour of retaining the test. But it was never shown, and it was barely suggested, that flats let on long leases of 21 years or more are let at rack-rents.

The low rent test was debated on Report in another place. But the debate was on an amendment to remove the low rent test from houses under the Leasehold Reform Act 1967, and it was on that basis that Sir George Young put the case for retaining the test. I felt that it was a pretty thin case put forward by my honourable friend Sir George Young, the Minister for Housing, when answering the case for repealing the low rent test for houses. He said little about flats. He referred to the fact that the ground rents under house leases had been manipulated to prevent enfranchisement, and went on to say, In the case of flats, it is far less likely that ground rents have been manipulated in any way. Enfranchisement for flats is a recent development—first announced to the House in July 1991. As I said earlier, different statutory limits apply for leases granted since April 1990, these being £1,000 in Greater London and £250 elsewhere".—[Official Report, Commons, 9/2/93; col. 921.]

The arguments which Sir George deployed in relation to low rent tests for houses do not apply to flats. Flat enfranchisement is a collective operation and whatever illogical rule may be invoked to sustain the low rent test in respect of houses does not apply to flats. To exclude one flat owner may deprive the rest of the right to collective enfranchisement. That is something the Government do not wish. Furthermore, in general the claim of flat-owners to enfranchise, locked together as they are within the long leasehold system with little control over the repairs and management of their properties, is even more substantial than the claim of house lessees.

There is no history of a low rent test for flats. Indeed, I need not remind the Committee that in July 1991, when the department's first proposals for enfranchisement were published, no low rent test was to be applied to flats. The Lord Chancellor's departmental consultation paper on commonhold had seen no reason why one should be applied. It was not until March 1992 that the low rent test was first proposed. It may be that I have not been as observant as I should have been, but I have not heard or read why there was a change. The Committee may wish to be reminded why the Government changed their mind, and I ask my noble friend, when he replies, to tell the Committee who or what it was that persuaded the Government to change their mind. Perhaps he could also tell us why the consultation process on the Bill has been half-hearted and inadequate. I would like to think that it might be continued a little this evening so that when we eventually come to a decision on this question, we may do so with a fuller understanding of the meagreness of the arguments for including this unfair and illogical test in Part I of the Bill.

Before I formally move the amendment I shall say a few words about two of the grouped amendments. I anticipate that at this time of night, noble Lords who intend to move other amendments grouped with Amendment No. 27, may not feel that they should speak to them. However, Amendment No. 41 in the name of my noble friends Lord Carnock and Lord Bridgeman, and the noble Lord, Lord Annan, attracts me. My noble friend Lord Carnock seems to think that a lease rent of £6 a week for a flat is a low rent. I agree with him. I hope that the Minister does also, or perhaps he can tell me where I can lease a flat for twice that sum without having to pay a substantial premium.

I shall be interested to hear also what my noble friend Lady Gardner of Parkes has to say of her amendment, but possibly not tonight. She will propose that from and after 1st April 1990 the low rent test for flats in Greater London shall operate at rents above £2,000 a year instead of £1,000 a year. Forty pounds a week is more than £6 a week, but it still does not seem a high rent to me.

I have one final thought for my noble friend the Minister, which follows on from the amendment in the name of my noble friend Lady Gardner. There will be no difficulty in future in selling long leases at rents of £1,000 a year in Greater London or £250 a year elsewhere for substantial premiums. Why, if the Government believe that the long leasehold system is outdated, are they so unashamedly legislating for its continuance? Will my noble friend the Minister please tell the Committee why the opportunity has not been seized to abolish the low rent test altogether if the lease is granted after the date of Royal Assent? I beg to move.

Baroness Gardner of Parkes

It is very late and I hope that my noble friend Lord Coleraine will agree not to proceed with the amendment tonight. The amendment is so important that it would be desirable for him to bring it back as the first amendment on another day. It could be brought back as a new amendment on Monday afternoon. By then we will all have had the benefit of reading what he said, which will be on record in Hansard. I put that suggestion to my noble friend.

Lord Williams of Elvel

Perhaps I may take up the suggestion of the noble Baroness. Instead of the noble Lord, Lord Coleraine, putting down the same amendment I suspect that we might put down an amendment of a rather similar nature for Monday, which we could debate then if the noble Lord is good enough to withdraw his amendment.

Lord Carnock

As my amendment is grouped with Amendment No. 27 I should like to say that I think that my noble friend's amendment is better than mine and that I support it. But if it is not accepted by the Government I propose to speak to my own amendments in their proper place in the Marshalled List.

Lord Coleraine

Having heard what my noble friend Lady Gardner of Parkes said, I wonder whether it would be in order for me to ask leave to withdraw the amendment now. I do so.

Amendment, by leave, withdrawn.

Lord Strathclyde

I beg to move that the House do now resume.

House resumed.

House adjourned at eighteen minutes before midnight.