Lords Sitting of 15 March 1993

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Ripon.

French Nuclear Power: Cost
Viscount Hanworth Viscount Hanworth asked Her Majesty's Government:
Whether they can give an estimate of the cost of power from French nuclear electricity generation and whether they consider that a newly-built PWR station in the United Kingdom would be fully competitive with other forms of electricity generation.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Baroness Denton of Wakefield): My Lords, the French Minister of Industry has estimated that the lifetime costs of a new PWR station would be about 2.7p per kilowatt hour. Whether new nuclear capacity in the United Kingdom can be competitive with other forms of generation is a matter for the Government's forthcoming review of the future prospects for nuclear power.
Viscount Hanworth: My Lords, I thank the Minister for that reply. Can she say whether, before 1994 or earlier, the public will be given a reasonable assessment of what might be the cost of new nuclear power?
Baroness Denton of Wakefield: My Lords, I am delighted to tell the noble Viscount now that the Nuclear Electric figures estimate that the lifetime cost of Sizewell 13 will be 5.2p per kilowatt hour and a twin reactor at Sizewell C could generate at under 3p per kilowatt hour.
Lord Mason of Barnsley: My Lords, is the Minister aware that the cost of imported French nuclear power is equivalent to the loss of five coal mines, and consequently to the loss of 5,000 coal miners' jobs? Is not that a case of the blatant import of unemployment? When one considers our own unemployment problems and the state of the mining industry, is that worth while?
Baroness Denton of Wakefield: My Lords, I am as aware as the noble Lord that those are questions which in due course the coal review will look at. But I point out that legislation to prevent imports of French electricity would be likely to fall foul of the Treaty of Rome.
Lord Gray of Contin: My Lords, does my noble friend accept that during its construction the Sizewell B power station gave employment to more than 20,000 people at its peak? Does she agree that it is one of the few projects which can boast of being below budget and ahead of schedule? Furthermore, would she emphasise to her colleagues in government that
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when they announce the review it is imperative that they give a positive commitment to the future of the nuclear industry?
Baroness Denton of Wakefield: My Lords, I am delighted to take the opportunity given to me by my noble friend to congratulate the project management of Sizewell B on coming towards completion on budget and in time. I confirm that it is the Government's policy to ensure that we have a diverse and economic supply of energy for British industry.
The Earl of Halsbury: My Lords, does the Minister agree that estimates for nuclear power are very largely nonsense because no credit is taken for intermediates and transfer pricing?
Baroness Denton of Wakefield: My Lords, I agree with the noble Earl that the complicated costing of nuclear issues is something of which we should all be very conscious.
Lord Stoddart of Swindon: My Lords, is the noble Baroness aware that when that link was first thought of, the reason for it was what we called in the electricity supply industry "peak lopping"? In other words, during our peak period for demand we obtained electricity from the French, and during their peak period they obtained electricity from us. Will the noble Baroness say how many megawatts per day are sent to this country, and how many megawatts per day are sent from this country to France?
Baroness Denton of Wakefield: My Lords, it will not surprise the noble Lord that I cannot put my hands on those figures at the moment. I will check with him. It is possible that he understands those matters well because his colleague instigated the line.
Lord Stoddart of Swindon: My Lords, I understand them very well because I worked in the electricity supply industry.
Viscount Mersey: My Lords, does my noble friend agree that unemployment in the Sizewell area is very bad at the moment because of the pulling out of the biggest employer in the area, which is the American Air Force? Is she therefore able to give us any hope that the building of Sizewell C will start as soon as Sizewell B is complete? In particular, can she give us any hope that the government White Paper on nuclear power might be with us in 1993, and not in 1994?
Baroness Denton of Wakefield: My Lords, obviously Sizewell C is a commercial matter for Nuclear Electric and for the review. As to the review itself, bringing forward the 1994 review was one of the recommendations of the Trade and Industry Select Committee report on the market for coal. The Government will respond to that committee's report in due course. It would be inappropriate for me to prejudge the response.
Lord Donoughue: My Lords, the Minister did not answer the first part of the Question from the noble Viscount, Lord Hanworth, about the actual cost of French nuclear generated electric power. Can she do that, or is she in difficulties because even the French

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admit that they do not know the true costs of generating their nuclear power? We know that it is subsidised. Following her reply to my noble friend Lord Stoddart, does she agree that it gives a helpful indication of the value of that two-way trade of electricity between England and France to say that since the new interconnector was established in 1986, the French have sold to us 40 times what we have sold to them; and that since privatisation, we have sold virtually nothing to the French?
Baroness Denton of Wakefield: My Lords, I repeat my first Answer, which I am sorry was not clear. The French estimate, with all the provisos to which the noble Lord drew attention, that the lifetime costs of a new PWR would be 2.7p per kilowatt hour. In a recent visit by my honourable friend Mr. Eggar to meet the French energy Minister, it was confirmed that the French welcome discussions in regard to the export of electricity to France on a commercial basis. Discussions are already taking place between EDF and a UK supplier.
Lord Campbell of Alloway: My Lords, does my noble friend agree that in order to keep a sense of proportion and balance, the commitment having been given regarding nuclear energy, it is appropriate also that some commitment should be given regarding the retention of our coal industry?
Baroness Denton of Wakefield: My Lords, I draw my noble friend's attention to the fact that the Question relates to nuclear matters. I am sure that the coal review will answer his question.
Lord Eatwell: My Lords, will the Minister tell the House whether there are any plans to widen the current nuclear and coal reviews into a review of the criteria for the development of energy policy as a whole? Is not that the only rational way forward?
Baroness Denton of Wakefield: My Lords, I am sure that the noble Lord will find that the review of the coal situation covers all aspects of energy.

Nuclear Weapons: Non-Proliferation
2.45 p.m.
Lord Mayhew Lord Mayhew asked Her Majesty's Government:
What proposals they have for preventing the proliferation of nuclear weapons.
The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey): My Lords, we attach the highest priority to preventing the proliferation of nuclear weapons. We participate actively in international efforts to that end. The most important instrument of the non-proliferation regime is the Treaty on the Non-Proliferation of Nuclear Weapons. As a co-depositary of the treaty, we are working to secure its indefinite extension in 1995.
Lord Mayhew: My Lords, I thank the noble Baroness for that reply. But why do the Government allow those admirable aims to be undermined by their nuclear weapons policy? How can other governments
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be expected to take seriously the views on non-proliferation of a government which are increasing the fire power of their strategic deterrent, designing a new additional nuclear missile system and opposing the comprehensive test ban treaty?
Baroness Chalker of Wallasey: My Lords, we are not opposing the comprehensive test ban treaty. The non-proliferation treaty, as the noble Lord well knows, enhances the security of the parties by constraining the acquisition of nuclear weapons. That is why indefinite extension is in the interests of all parties, irrespective of a progress towards a comprehensive test ban. But the benefits of restraints on testing in countering proliferation must be examined carefully. I know that is an anxiety of the noble Lord.
In the past the ban on testing was seen as a means of restraining increases in the arsenals of superpowers. Those arsenals are now dramatically shrinking. The emphasis must be on preventing proliferation of nuclear weapons in other countries. We must be exceedingly careful. As I said in this House only last week, a determined proliferator could still produce and deploy crude nuclear weapons without first establishing their safety or reliability through testing.
Lord Jenkins of Putney: My Lords, in view of the Government's support of the non-proliferation treaty, perhaps I may ask this question. Why do they not do as their fellow nuclear superpowers do, with the sole exception of China, and give support to a comprehensive test ban? They say that they are not against it, yet they are not for it. Cannot the noble Baroness say that as from now Great Britain will join France, the United States of America and Russia in actively supporting and requiring a test ban treaty, and preferably one which will come into effect in 1996?
Baroness Chalker of Wallasey: My Lords, I made clear to the noble Lord last week that the Americans have not yet made up their minds. We are in close touch with them. I cannot add to what I have said. Many other critical aspects of the nuclear weapons question appear on our agenda, particularly North Korea's decision of withdrawal from the non-proliferation treaty, which is of grave anxiety to us all.
Lord Hailsham of Saint Marylebone: My Lords, is it not absolutely plain that this problem, important though it is, is infinitely more complicated since the break up of the communist empire? So long as that remains the case, it must be in the interests of this country and the world that this country retains a cautious attitude towards rather quick-solving solutions.
Baroness Chalker of Wallasey: My Lords, my noble friend is absolutely right. We must be extremely cautious. However, we have sought to assist the former Soviet Union because the rapid and safe implementation of arms control obligations remains one of our highest priorities. We and our NATO allies were quick to offer our help with the elimination of nuclear weapons due for destruction in the former Soviet Union. We continue to seek to work with them.

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Last week I told the House about the expenditure of £30 million to assist Russia in securing transport and special containers for nuclear warheads. Of course, it is the Ukraine which continues to worry us greatly. We continue to urge them to honour their commitments to a non-nuclear weapon status at the earliest possible date.
Lord Wyatt of Weeford: My Lords, can the noble Baroness say what the Government are going to do about the Iranian Government signing agreements with the Moslem-dominated republic of Kazakhstan in the former Soviet Union to buy equipment to make nuclear weapons in the next couple of years or so?
Baroness Chalker of Wallasey: My Lords, I thank the noble Lord for his question. He will know that the Lisbon protocol to START I committed the Ukraine, Belarus and Kazakhstan to the ratification of START I. Kazakhstan has now ratified, but we share the noble Lord's concern that it must be not only committed to accede to the non-proliferation treaty as a non-nuclear weapon state but must actually put that into action as well.
Lord Kennet: My Lords, the noble Baroness has mentioned North Korea, and we must all share her anxiety in that regard. Will she confirm that it is the right of any signatory of the non-proliferation treaty to secede from the treaty if it feels that its national interests are threatened? Is it not the case that for many years past South Korea and the United States have mounted an annual military exercise called Team Spirit in which they practised in South Korea the invasion of the shores of North Korea? List year President Bush very wisely cancelled it and North Korea began to treat seriously with South Korea on reunification, and so on; but towards the end of his faltering election campaign, President Bush decided to hold an exercise this year—
Noble Lords: Question!
Lord Kennet: My Lords, I am asking whether this is not the case and whether those facts are correct. Is it not the case that President Bush decided to hold an exercise this year, supported by bombers based in Japan and all the rest of it?
Baroness Chalker of Wallasey: My Lori s, I am amazed to find that a Member of your Lordships' House seems to be in sympathy with North Korea withdrawing from the non-proliferation treaty. The treaty states that a country announcing its withdrawal must provide three months' notice to all other parties. But we should examine why this has happened. North Korea agreed in April/May of last year to the safeguards. It then allowed six inspections, perfectly properly; but as soon as the IAEA spotted two sites—former villages—which were probably now military sites it refused to allow access. This is the very first time that the IAEA has attempted to make special uninvited inspections—because of the suspicions. That is why North Korea has taken this decision. The reason is probably that it has illicit nuclear testing sites. I should have thought that this was something that the noble Lord would actually protest against.
Lord Richard: My Lords, perhaps I may follow up the Minister's answer. North Korea having given notice of its withdrawal, what can the world community actually do about it? Can she confirm that the IAEA will meet in Vienna this week to discuss North Korea's withdrawal? Does she know whether North Korean representatives will attend that meeting? Further, I understand that under the terms of the treaty, a withdrawal has to be reported to the Security Council. Can the noble Baroness tell us whether the Security Council will meet? If the Security Council meets, what action do Her Majesty's Government propose that it should take?
Baroness Chalker of Wallasey: My Lords, the noble Lord, Lord Richard, is right that the IAEA intends to meet this week in Vienna. I do not know whether North Korean representatives will be present. Given past experience, I rather doubt whether they would turn up, even if invited. That or no, I am quite certain that the Security Council will wish to consider the North Korean decision fairly quickly. Our position will be, with others, that because the United Kingdom is determined to maintain and strengthen the non-proliferation treaty, we will decide with our partners what steps should be taken at the Security Council meeting. I am not in a position at this moment to give details because we have not had consultations.

Ethnic Minorities: Funding
2.52 p.m.
Baroness Hamwee Baroness Hamwee asked Her Majesty's Government:
Whether the proposed cut in funding under Section 11 of the Local Government Act 1966 (special provision by means of Home Office grant for ethnic minority communities) will adversely affect the access of people lawfully settled in this country to a full range of opportunities.
The Minister of State, Home Office (Earl Ferrers): My Lords, Section 11 grant remains a major expenditure programme. We will work closely with local authorities and others so as to ensure that the available funding achieves the maximum benefit for members of ethnic minorities.
Baroness Hamwee: My Lords, I thank the Minister for that reply. He will be aware that the available funding is being reduced. Will he accept that fluency in the English language is fundamental and that English as a second language is not a national curriculum subject and therefore cannot be supported out of mainstream funding? In answering, will he bear in mind that my question is based on words published in the Conservative manifesto last April? They are:
"We are determined that everyone lawfully settled in this country should enjoy the full range of opportunities in our society".
Earl Ferrers: My Lords, I quite agree with the noble Baroness that fluency in English is vital. We intend to see that the best use is made of the moneys available. The sum available next year will be increased on the sum available this year. It will be after that that there

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will be a cut in the amount of the grant given. In the present economic difficulties it is not possible always to maintain the level of grants which one might normally wish to do.
Lord Morris of Castle Morris: My Lords, can the noble Earl explain to the House how it is either just or logical that Section 11 money is confined to projects benefiting New Commonwealth citizens when for the past 20 years, at the very least, the increasing majority of refugees have come from places like Chile, Vietnam, Iraq, Iran, Ethiopia, Somalia, and now from the former Yugoslavia? Are not their needs every bit as great?
Earl Ferrers: Yes, my Lords, the reason for that is historical. The money available has come under the 1966 Act which referred to Commonwealth immigrants. When a suitable legislative opportunity comes it will be possible to extend that grant to other ethnic minorities. However, the noble Lord will realise that the ethnic minority grant has been made available specifically for that purpose.
Baroness Seear: My Lords, the noble Earl accepts that a knowledge of English is vital. Does he agree that if Section 11 money is regrettably cut funds should be made more freely available to the many adult colleges that are running basic English courses specially calculated to help these people? That is another way of getting help if they are not getting it through Section 11.
Earl Ferrers: My Lords, there are all kinds of reasons why it is desirable to increase grants for various purposes. The noble Baroness will be the first to understand that in difficult economic circumstances one has to make certain cuts in various arrangements. But certainly the noble Baroness's point has validity. I shall look at it.

Olive Oil: EC Subsidies
2.57 p.m.
Lord Campbell of Croy Lord Campbell of Croy asked Her Majesty's Government:
Whether they are giving support to the aim of the EC Court of Auditors to improve the accounting system for subsidies to growers of olive trees and producers of olive oil.
The Earl of Strathmore and Kinghorne: My Lords, the Government are most concerned that the European Court of Auditors has for the second time reported on inadequacies in the systems for providing and controlling aid in the olive oil sector. We fully support the court's conclusion that the consumption aid scheme offers the requisites of a reliable control system, which the production aid system does not. We are therefore pressing the European Commission to come forward with proposals for reform of the regime along the lines recommended by the court.
Lord Campbell of Croy: My Lords, I am grateful to my noble friend for that reply. Are the Government
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satisfied that an effective system is in prospect following and in the light of events since my Questions last July about large quantities of phantom olives and about olive trees which move from place to place like Birnam Wood in "Macbeth"?
The Earl of Strathmore and Kinghorne: My Lords, the debate on 8th March on the report on The Fight against Fraud went into great detail as regards the developments to reduce fraud. Important steps have been taken over the past year. These include the following: first, the United Kingdom secured important provisions in the Maastricht Treaty, including making explicit that member states should treat fraud against the Community budget with the same vigour as fraud against national budgets; and, secondly, under the United Kingdom presidency, two meetings of the Economic and Finance Ministers considered ways of improving the Community's performance and agreed important extra steps in the fight against fraud. The Edinburgh Council emphasised the importance of sound financial management of the Community budget.
My noble friend made reference to Birnam Wood. There have been a number of press reports on mobile olive groves, but I gather that an aerial survey has been carried out which should help the situation.
Lord Bruce of Donington: My Lords, is the noble Earl aware that the amount of fraud and irregularity in this particular area is a public scandal which the whole world knows about? Is he also aware that despite the fact that the Court of Auditors spent many pages (nos. 94 to 106) in its recent report dealing with this question, the Commission itself completely ignored the issue in its response? Is the Minister aware that the Commission has no intention of tackling this matter and that the Council of Ministers, particularly after the Edinburgh conference, has no power whatever to tell the Commission what it should do?
The Earl of Strathmore and Kinghorne: My Lords, as usual the noble Lord, Lord Bruce of Donington, makes a vociferous point on this subject. The Government support the Court of Auditors' report in that the production aid scheme contains inherent flaws which could not be rectified quickly nor at reasonable cost. That is why we are pressing the Commission to accept the consumption aid scheme which can provide a more reliable system of controlling aid.
Lord Boyd-Carpenter: My Lords, can my noble friend tell us the total cost to the Commission's fund of this subsidy?
The Earl of Strathmore and Kinghorne: Yes, my Lords. In 1991 the total expenditure on the olive oil regime was £1,920 million of which £1,043 million was spent on production aid, £695 million on consumption aid and £110 million on export refunds. A surplus of £18 million was made on intervention measures. The Commission estimates the cost in 1993 to be in excess of £2 billion. That is the reason why the United Kingdom is calling for a cut in support.
Lord Carter: My Lords, is the Minister aware that British farmers are now having to fill in some

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immensely complicated forms correct to one-hundredth of a hectare to claim their arable aid payments and that a simple mistake can cost a farmer all his aid payments and his crops? Can the Minister assure the House that the olive oil producers in Italy, Greece, Portugal and Spain, who have defrauded the Community of £865 million—that is only the part that has been discovered—are also filling in their claim forms correct to one-hundredth of a hectare?
The Earl of Strathmore and Kinghorne: My Lords, the noble Lord, Lord Carter, asks a question which is slightly wide of the Question on the Order Paper. Suffice it to say, as I indicated in my original Answer, the Government treat fraud extremely seriously. That is why we are backing the Court of Auditors' report on the olive oil issue. Nevertheless, I agree with the noble Lord that the Italian, Greek and Spanish producers should play the game by the rules.

Business
3.3 p.m.
Lord Hesketh: My Lords, at a convenient moment after 3.30 p.m. my noble friend, Lady Chalker of Wallasey, will, with the leave of the House, repeat a Statement that is to be made in another place on Hong Kong.
It may be for the convenience of the House to know that the Committee stage of the Housing and Urban Development Bill will be adjourned at about 7 p.m. for about one hour and that during this adjournment the Report stage of the Video Recordings Bill will be taken.

Delegated Powers Scrutiny: Select Committee Report
3.4 p.m.
Lord Rippon of Hexham: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Your Lordships will recall that this Scrutiny Committee was established as an experiment following pressure in the House, over a considerable period of time, for more detailed consideration of the powers delegated by legislation. It was set up as a consequence of the recommendation made last year by the Select Committee on the Committee Work of the House, chaired by my noble friend Lord Jellicoe. The House will also know that the terms of reference set for the committee by the House on 10th November last year are:
"To report whether the provisions of any bill inappropriately delegate legislative power; or whether they subject the exercise of legislative power to an inappropriate degree of Parliamentary scrutiny".
However, before we were to report formally on any individual Bills, the House, on the recommendations of the Procedure Committee, asked us to conduct a general inquiry into the principles which would guide us in our work. That is the purpose of this report.
The committee has taken both oral and written evidence. I must express our thanks to all the witnesses
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and perhaps particularly to the noble and learned Lord, Lord Simon of Glaisdale, who has consistently drawn attention to the issues raised in the report. Perhaps I may also thank the Government, who have undertaken to provide the committee with a memorandum on each Bill.
Paragraph 22 of the report states that it would then be open to the committee to seek further information, if necessary, from the department concerned and even occasionally to ask for help from other witnesses. Our aim would be to ensure that the committee's views are available to the House before the Committee stage of a Bill, and in some cases perhaps earlier if possible. The Government's evidence stressed the need not to set out too rigid criteria for when delegated legislation was appropriate. Their evidence stated:
"The merits of the Government's proposed use of delegated powers need to be considered case by case in each specific context".
The committee believes that that is the right view. No doubt the criteria applied in these cases can be considered in detail by the House as the occasion arises. In paragraph 24 of our report we have drawn attention to some categories of delegated legislative power which caused exceptional concern in the past. Thus your committee will pay close attention to any Henry VIII clauses, skeleton Bills and to delegated powers subject to unusual procedures.
I should perhaps add that there might be some misinterpretation of one reference in paragraph 27. That is the reference to delegation which allows fees, charges or levies in the nature of a tax to be determined by subordinate legislation. We do not intend to find ourselves in conflict with the Parliament Acts.
Finally, our aim would be to inform the House with a view to saving time on the Floor. We believe that the terms of reference set out by the House are sufficient to enable us to do the job which the House requires. In order that we may commence without delay our work of scrutinising individual Bills, I beg to move that the report be agreed to.
Moved, That the First Report from the Select Committee be agreed to (HL Paper 57).—(Lord Rippon of Hexham.)
Lord Bruce of Donington: My Lords, I promise not to detain your Lordships long on this particular item on the agenda this afternoon. I draw the attention of the House to paragraph 12 in the report of the Select Committee as regards the scrutiny of delegated powers. It reads as follows:
"section 2(2) of the European Communities Act 1972 which allows, subject to certain exclusions in Schedule 2, any provision which might be made by Act of Parliament to be made by Order in Council or regulations under that section".
That means that there is a mass of delegated legislation incorporated in our statute books which at the moment provides some considerable difficulties in effecting proper scrutiny. I do not intend to enlarge on this particular issue for long this afternoon. It is of constitutional importance. As was pointed out in a recent book issued by the Hansard Society, of which the noble Lord, Lord Rippon, is such a distinguished officer, there is a very real danger of legislation passed by the bureaucracy in Brussels without the

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intervention of the Council of Ministers passing its way unencumbered onto the statute books of the United Kingdom. I invite the noble Lord—not necessarily this afternoon but at some convenient time—to say just how the Scrutiny Committee is going to deal with that particular situation.
Later, in paragraph 18, the noble Lord draws attention to the role of this House in the scrutiny of delegated legislation. Paragraph 18 reads as follows:
"In considering what manner of delegation of powers might be appropriate, the Committee had in mind the differences in the powers available to the two Houses of Parliament to control delegated legislation. It was pointed out to us that the distinction between affirmative and negative procedures was more important in the Commons than in the Lords, as less time was made available for debates. But control was more of a problem in the Lords, where the opportunities to reject instruments of either-kind were, by a `weak convention', virtually non-existent".
This is not the first time that I have ventured to draw your Lordships' attention to the infringement on our rights which has sometimes been progressively established not by rules but by conventions which are incorporated in the Companion. It is for consideration whether in future instead of the House, by convention, being faced with the necessity either of affirming a regulation as a whole or approving it as a whole, it should assert its undoubted right actually to challenge individual clauses in the delegated legislation itself. There is nothing save the convention—save the weak convention—that prohibits your Lordships' House from doing that. It may be a matter for consideration for the House as a whole—and possibly for the noble Lord, Lord Ripon, also.
That is all that I have to say, but I venture once again to draw your Lordships' attention to the fact that there is a danger that, by default and by the inactivity of another place, we may allow many of our liberties to disappear into a bureaucracy without effective political checks being made at this political level.
Lord Finsberg: My Lords, I should like to ask my noble friend one question arising from both his report and his remarks. I refer to the question of the Government producing a memorandum. Both in his report and in his speech my noble friend said that that would normally be produced in time for the Committee stage, but there was some sort of slight frisson as if it might not be. I wonder whether he can say how he envisages that it might not be ready, bearing in mind the time that has to elapse between a First Reading, a Second Reading and a Committee stage.
Lord Rippon of Hexham: My Lords, I thank the noble Lord, Lord Bruce of Donington, for what he said. I am sure that he knows very well that no one is more aware than I am of the implications of Section 2 of the European Communities Act 1972 and I am sure that he would have been very critical if the committee had not referred to it.
On the point about the undertaking to try to bring our reports to the House before Committee stage, perhaps I may say that one cannot give an absolute undertaking. We are not in a position to do that before
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the Committee stage of, for example, the Housing and Urban Development Bill, but we are not necessarily precluded from doing it later.
The Lord Privy Seal (Lord Wakeham): My Lords, the House will be grateful to my noble friend Lord Rippon of Hexham for the concise and lucid way in which he introduced the initial report from the Delegated Powers Scrutiny Committee. The House will also be grateful to him and his fellow members of the committee for the work that they put into producing the report.
As my noble friend indicated, it is the general conclusion of the committee that in carrying out its work it needs to consider the proposed use of delegated powers case by case and in each specific context. It is interesting to note that the committee has not felt it possible to set out with precision any test of appropriateness, but the Government note the observations that have been made in the report.
For my own part, perhaps I may simply emphasise one particular conclusion in the report which I welcome. It is that the primary aim of the committee should be to inform debate with a view to saving time on the Floor of the House. I hope that, when the House comes to consider reports from the committee on Bills, it will pay due weight to that conclusion. I also welcome the clarification to paragraph 27 of the report which my noble friend has already made.
Subject to those observations, I commend the report to the House. I hope that the House will now confirm the committee's terms of reference and agree to its proceeding as proposed in the report.
On Question, Motion agreed to.

Housing and Urban Development Bill
3.15 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Strathclyde): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Strathclyde.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMMITTEES in the Chair.]
Clause 5 [Qualifying tenants]:
Lord Coleraine Lord Coleraine moved Amendment No. 27A:
Page 5, line 40, leave out ("at a low rent") and insert ("regardless of the rent specified in the lease").
The noble Lord said: I speak to Amendment No. 27A, which stands in my name and those of the noble Lord, Lord Williams of Elvel, and the noble Baroness, Lady Hamwee. The effect of the amendment is to remove from the Bill the low-rent tests affecting flats. The tests are included in order to define what is a low rent for the purpose of the Bill, which states in Chapter I that no collective enfranchisement can take place, first, unless two-thirds of the flats in the building are held on long leases at low rents; and secondly, that two-thirds of the lessees of those flats must initiate

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enfranchisement proceedings. Clause 35 states that only lessees with low rents may have lease extensions under Chapter II.
As the Committee will know, Amendment No. 27, which also stood in my name, had the same effect as this amendment. I spoke to it when it was called soon after 11.30 p.m. on Tuesday last week. After I had moved it and spoken to it, it was represented to me that I should withdraw that amendment before any debate took place and that I should table a similar amendment for fuller discussion today. This is what I have done. Having spoken already, I hope to be comparatively brief this afternoon.
I believe that we are all agreed—at least on this side of the House—that enfranchisement and collective enfranchisement must be for long lessees with substantial monetary value in their leases—that is, the leases must command substantial premiums. While encouraging owners of long leases to enfranchise, the Government—reasonably enough—wish to make it clear that enfranchisement and lease extensions are not for tenants who merely rent. This is important. I agree that mere renters have no right to buy their freeholds compulsorily. The question that the Government are trying to tackle is how to differentiate.
The Bill proposes a test under which the rents payable at the beginning of the lease must not have exceeded what the Bill specifies as a low rent. There are three cases. For leases entered into before 1st April 1963, the starting rent qualifies as a low rent if it was not more than two-thirds of the letting value of the flat at the time that the lease was granted. For leases entered into between 1st April 1963 and 31st March 1990, the starting rent qualifies as a low rent if it was not more than two-thirds of the rateable value of the flat when the lease was granted. As rateable values were last adjusted in 1973, the Committee will well appreciate that those rateable values are now very low for leases granted in the past 15 years. For leases entered into on or after 1st April 1990, the low-rent benchmark is £1,000 per year in Greater London and £250 elsewhere.
There is, however, no way in which the low-rent test can be claimed to operate to distinguish full rack-rent long leases on the one hand from long leases of substantial value on the other hand. The arbitrary line of demarcation has been wrongly set and any number of leases of a very substantial value will be wrongly classed under the Bill as rack-rent leases. But I have to ask whether it is necessary to draw the line at all between two classes, or categories, of lease when one of the classes has not been shown to contain even one member. No evidence has yet been produced that a flat has been let on a lease for more than 21 years at a rack-rent. All long leases nowadays are granted at ground rents and for premiums. Thus all long leases of flats satisfy what are the generally agreed criteria for entitlement to enfranchisement. The low-rent test should therefore not just be tampered with. It can, and should be, abandoned.
In another place no decision was reached as to the low-rent test in relation to flats, although an amendment to abolish the low-rent test for houses was
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defeated on Report. It has applied to houses since 1967, and since then the market may be said to have taken account of that fact. Purchasers may be said to know the rules of the game. The argument for retaining the low-rent test for houses is not a good one, but that is not the question before us today.
As I explained to the Committee last week, and as the Minister for Housing and Planning, my honourable friend Sir George Young, told the other place on Report, enfranchisement of flats is something new. Flats have no previous history of low-rent legislation, so that there has been nothing to encourage freeholders to set their rents at just above low-rent levels. There is no existing enfranchisement law for flats to be changed.
The low-rent test was roundly castigated in Standing Committee by all Conservative and other Members who spoke, but the Minister for Housing and Planning persuaded the Committee to let him take the question away for further thought. We have yet to receive that thought. I now await with the keenest interest my noble friend's response today. What I say to him and the Committee is that, unless the test is excised, we shall have created, again and again, on many occasions, anomalous, unjustifiable and unnecessary situations. In some blocks some lessees will be able to enfranchise and they will become the landlords of their neighbours, who may have in all respects identical flats but are precluded from joining in the enfranchisement because they pay a few pounds more by way of ground rent. In some blocks the low-rent test will rule out enfranchisement altogether. In some blocks where enfranchisement is not possible some lessees will be entitled to lease extensions instead of enfranchisement, while their neighbours, whose leases fail that unreasonable test, will have to give up their homes at the end of the leases.
Those people will see their investment in their homes consumed not just by the inevitable effect of the passage of time on a wasting asset—we all understand that and have accepted it—but by economic reality. The truth is that, except perhaps in the peculiar economic micro-climate of central London, the rate of loss in value starts to accelerate, and accelerates year by year, as and when flat leases have less than about 50 years to run. The low-rent test for flats serves no proper purpose. The Government's stated intention is that leasehold enfranchisement shall be as widely available as possible. One effect of the low-rent test for flats will be to remove from some lessees the rights which the social purposes of the Bill, reasonably understood, require that they should have. I hope that the amendment will be supported. I beg to move.
Lord Williams of Elvel: I support the noble Lord, Lord Coleraine, in the amendment that he has just moved. The Committee will be unanimous in agreeing that there must be some distinction between the rental market and the ownership lease market. I think that that is taken for granted. In the Bill we are of course dealing with enfranchisement of ownership leases.
Perhaps I may take, first, some of the penalties that those who fail the test will suffer; secondly, look at the magnitude of the problem in terms of numbers; and,

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thirdly, argue that it is not worth all the trouble and effort to which the Government are going, let alone the prejudicial nature of the Government's measures.
If leaseholders fail the low-rent test, they thereby do not qualify to be tenants who can exercise their rights of collective enfranchisement. They are not qualifying tenants. They therefore not only cannot be part of the scheme for collective enfranchisement; they jeopardise the chances of other tenants achieving collective enfranchisement by reducing the numbers, and they have no right to extend their lease. The result is that they find themselves in the worst of all possible situations. They find themselves with a depreciating asset, as the noble Lord, Lord Coleraine, pointed out; no chance of renewing their lease; and having to terminate and move, against their own volition.
How many people will that affect? What is the magnitude of the problem? We have to distinguish— I hope that Members of the Committee will do so—between those leaseholds which are in London and those which are outside London. As I pointed out on the first day of our Committee, according to the Consumers Association, some 74 per cent. of leaseholds are outside London. The London problem accounts for some 26 per cent. of leaseholds.
Let me take the problem outside London: on all the evidence —this is evidence produced by the Government in another place as a result of a survey conducted by Price Waterhouse in November 1989—there is no problem of overlap between market rents and ground rents on leaseholds outside London. We are not dealing with a problem that occurs outside London. Therefore 74 per cent. of those who are leaseholders at present will be subjected to a test where there is no problem at all so far as concerns overlap between market rents and ground rents.
If we look at a quick, and I admit very rough, calculation of the numbers about which we are talking, we find that it is something like 10,000 leaseholders—on the Price Waterhouse figures—who will thereby be affected if a low-rent test is imposed where there is no problem outside London. Outside London it seems to me to be unfair, discriminatory and abusive.
If we look at the problem within London, and by London I mean Greater London, as the Bill itself says, here there is, according to the Government and Price Waterhouse, an overlap between ground rents and market rents. Indeed they say—some fancy figures have been quoted—that in some estates there are ground rents which are substantially the same as market rents. I am bound to say that the Consumers Association has found no evidence of that. We are relying upon statements made by Ministers without any degree of corroboration. It may well be that there are ground rents of £4,000 or even £10,000, but there is no evidence to that effect, and it could equally be that if there are such ground rents they are merely the result of the extension of a lease on a house due to the 1967 Act.
The problem in London, where 95 per cent. of ground rents are less than £700, means that about 8,000 may suffer from a low-rent test. If we are talking
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—here again I am quoting the Government's figures—about some 50 to 100 examples about which they know—they are doubtful; we have no evidence; and we do not know from where they come—from one estate and possibly others, when we are imposing a low-rent test, it seems to me that we are using a big sledgehammer to crack a small nut. If people living in London fail the low-rent test the penalties are even greater than for those living outside. As the noble Lord, Lord Coleraine, pointed out, their asset depreciates fast and it depreciates faster within Greater London.
We believe that the low-rent test serves no purpose. We do not believe that it is fair. We believe that it will operate in a random manner and we do not like to see the Government introduce such legislation. The legislation as proposed is cumbrous, discriminatory and unfair and I hope that the Committee will reject it.
3.30 p.m.
Lord Boardman: I listened with care to what was said by my noble friend Lord Coleraine and the noble Lord, Lord Williams of Elvel. However, neither touched on the fundamental point: that the tenants who will be able to enfranchise if the amendment is carried are being treated by them as though they have had an unfair deal. In each and every case the tenants are parties to a contract. They took their leasehold in the knowledge of its term, the amount that they must pay and the amortisation which will be necessary. No doubt in most cases sound advice was taken about that and the appropriate provision made. Therefore, it is not a case of someone suddenly being inflicted with hardship by the freeholders.
The amendment will amount to permission to enfranchise all future leasehold properties. It will amount to the abolition of leasehold as a form of tenure. That may or may not be right, but surely it is not the purpose of the Bill. It would be wrong to enable the low rent to be omitted and enfranchisement for all future leaseholders and that would be contrary to the intentions expressed by the Government in another place. I hope that the amendment will be opposed.
Lord Campbell of Alloway: Notwithstanding the arguments advanced in favour of the amendment, the Committee may well believe that there are strong countervailing arguments of crucial consequence, one of which was deployed by my noble friend Lord Boardman. He pointed to the all but inevitable consequence that the long leasehold would be virtually abolished. The amendment is assuredly erosive of the structure of this part of the Bill as conceived by the Government. It is an unjustified incursion into the sanctity of contract between landlord and tenant and it sets an unwelcome precedent.
My right honourable friend Sir George Young said in another place:
"the low rent test provides an important distinction between the rental market and the long lease market".—[Official Report, Commons, 9/2/93; col. 920.]

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That distinction was expressly acknowledged as valid by the noble Lord, Lord Williams of Elvel. It marks the extent of the transfer of equity between the landlord and tenant.
My noble friend Lord Coleraine argued that an arbitrary line of demarcation is wrongly set and, therefore, it is appropriate to have no line at all. The noble Lord, Lord Williams of Elvel, questioned whether it was worth the trouble. He drew the distinction between the London position, the urban position and the country position.
For many reasons the Government are rightly concerned to maintain the distinction acknowledged by the noble Lord, Lord Williams, and to introduce the right to claim enfranchisement only into the long lease market. Leaving aside any personal interests, it is difficult to understand in principle why any Member who happens to sit on this side of the Committee should wish to enlarge the scope of enfranchisement so as in effect to destroy the long lease market, to which my noble friend Lord Boardman referred. That would also challenge the rectitude of the Government's intentions in that regard.
The amendment affects the right to claim enfranchisement, which does not exclude corporate and individual tenants who use the premises other than for residential purposes. I suggested previously that such a provision should be excluded. The failure to exclude such tenants, which I regard as a manifest injustice, is now to be compounded by what appears to me to be another injustice. I say that with respect to my noble friend Lord Coleraine. There are a number of amendments to the Bill upon which, it must be hoped, accommodation can be made with the Government before Report. In any event, the hope must be that the Committee will reject this amendment.
Baroness Hamwee: I support the amendment. The noble Lord, Lord Campbell, drew a distinction between the rented and owned property sectors. That will be shared by all members of the Committee because it is not a matter which is confined to one or another political party. However, I do not believe that the low-rent test is necessary to preserve that distinction. As a matter of common sense, long leaseholders who pay a premium, or a ground rent, are not tenants as one understands the term.
Reference was made to the lack of evidence of long leases at rents approaching market rents. In another place Sir George Young referred to a letter from one of the major estates. He mentioned 50 properties with long leases and rents of more than £5,000 or £10,000 a year. However, he appeared to have no information about the value of each of those properties, nor whether the rents which he mentioned were rack-rents. We can imagine that if the properties were in central London and were valuable rents of £5,000 or £10,000 they would not be rack-rents. That appeared to be the extent of the evidence which went to support the test. I believe that if we exclude the test it will not, in a way that should concern us, prejudice landlords. However, if we include it many long leaseholders will be excluded.
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Many Members of the Committee will have received letters from people currently in leasehold properties, in many cases leasehold houses, who have suffered from the application of the low-rent test. Their rents may have been manipulated by their landlords in order to avoid meeting the criterion. Perhaps I may quote from one such letter. A gentleman wrote to me stating:
"The previous lease was granted as a statutory lease renewal under the Leasehold Reform Act 1967. The new lease introduced a Low Rent clause and eliminated any right to lease renewal. The current lease stipulates that the ground rent shall not fall below two-thirds of rateable value and that if this should happen the ground rent shall be deemed to be £1 more than two-thirds of the rateable value. At present, I am therefore not eligible for enfranchisement and will continue to be in this position under the terms of the Bill. You will note that the lease has been manipulated deliberately to preserve this position".
I was extremely struck by descriptions of that kind which I have heard from a number of people. It is worth continuing to quote to the Committee what the correspondent goes on to say:
"Since buying the house in 1987, I have spent over £150,000 and literally thousands of hours on extensive refurbishment (including substantial re-building) of the house and the gardens and an extension … This process was made all the more expensive because of my wish to conserve the building's original 1830s appearance. The house now features as one of several on the front cover of the local Conservation Area booklet which contains the rules for refurbishment and the council's aims for the area as a whole".
I believe that letter to be very telling.
Because the legislation has been so long anticipated, landlords have been in a position to take avoidance measures. The Minister, Mr. Baldry, in a letter which I have seen this afternoon says—and I am sure it is right:
"We have decided there should be as few exemptions as possible to the Bill".
That must be correct. One must endeavour to frame legislation which does not allow for a raft of exemptions and avoidance measures. However, it seems to me that the retention of the low-rent test will enable individual freeholders to create those exceptions. Not only is it unfair, but I believe that any legislation which can so easily be avoided cannot be good legislation.
Lord Finsberg: My Lords, the question of low rents has exercised me for more than 20 years because the area in which I live and had the honour of representing for a long time has a large number of blocks of flats with low rents. Not all the landlords are as spotlessly white as those spoken about in the experience of my noble friend Lord Boardman. Many tenants were virtually blackmailed into crazy leases. The choice was eviction or giving in to some of the most appallingly evil increases and low-rent terms at the same time.
Therefore, I believe that it is right that we should support the amendment. Many of my former friends in another place warmly supported the proposal. It is interesting to note the way in which Sir George Young did not reject the proposal outright. He said that he would like to think about it. If he was not going to think about it constructively, he would not have used those words because Ministers do not use them unless they have a genuine intention to reconsider what has been said.

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My friend John Wheeler and the late Sir Brandon Rhys Williams fought extremely hard to try to eliminate some of the nastier aspects of the leasehold environment among which low rents certainly occur. I do not believe that the acceptance of this amendment would kill the whole principle of leasehold. That is an argument which really cannot be sustained. The blurring between the two forms of rent—the rack-rent and the low-rent test—to which my noble friend Lord Coleraine referred, can be overcome in the way that he proposes.
I hope, as did my noble friend, that the Minister will tell the Committee that the housing Minister's rethink has resulted in something positive, otherwise I fear that if the opinion of the Committee is tested I shall support my noble friend Lord Coleraine.
3.45 p.m.
Lord Gisborough: To retrospectively remove the low-rent test would be to repeal an important part of the 1967 legislation which has applied since that time. We should be extremely circumspect about taking such a step. The argument is that without the abolition of the test freeholders will be able to prevent leaseholders from enfranchisement and will be denying the will of Parliament. However, we should ask ourselves what is the will of Parliament in this respect.
It may be instructive to look back at the 1967 debate to see why the low-rent test—or a low rateable value, as it was then—was seen as essential to the Act. The theme of that debate is probably familiar with some members of the Committee. It revolved around contracts freely entered into between willing parties and the extent to which the Government should intervene and retrospectively break them. One speaker said:
"One has to be hesitant and cautious about how far one should go in rectifying contracts which have already been made between parties. There is a whole host of legislative precedent for intervening in contracts between parties, but in such circumstances one has to look to the areas of hardship. To have no limits at all might be a more logical approach, but one would have to be cautious that it did not carry rectification of the contract too far in the sense of taking it to unnecessary limits, especially if one paid regard to hardship".
Another speaker, somewhat more cynically perhaps, dryly observed that the reason for observing rateable value limits in the Bill was to prevent a number of wealthy people becoming very much wealthier. Both points of view have their merits and are all the more remarkable for being articulated by members of the Labour Party—the former by the Labour Minister of the day, Fred Willey, and the latter by the late Lord Silkin.
I hope that the party opposite can still support the judgment and motives of their predecessors when in office and will support the Government today as they seek to retain the low-rent test. Just as that Labour Government were concerned about taking the rectification of contracts too far, we should now ensure that we do not go that one step too far and alter fundamentally the whole basis of the property market. We already face the alarming prospect of retrospective interference in freely negotiated contracts to enforce
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the sale of assets. Removal of the low-rent test would extend that enforced enfranchisement right across the spectrum of the private rented sector, far beyond the intention of the Conservative manifesto, which is already misrepresented by Part I of the Bill.
The current low-rent test fairly distinguishes between leaseholders and those tenants in the rental market by marking the extent of the transfer of equity between landlord and tenant. We simply cannot rely on the length of the lease alone as our guide to the status of the property. As the Minister for Housing and Planning revealed in another place, there are numerous examples of long leases where the rent is in excess of £5,000 or even £10,000 per annum. It cannot be said that in those cases the freeholder has relinquished his interest in the property.
What is said about the tenant? As the late Lord Silkin said, wealthy people would become very much wealthier. Are the benefits of this legislation to be targeted at those who not only have the resources to purchase their lease but also at those who pay up to £10,000 per annum? We should be wary also of the indirect results of the proposal. Abolition of the low-rent test would extend enfranchisement right across the private rented sector with the likely result that that market will disappear altogether. What could induce a landlord to rent out property in the sure knowledge that the tenant would be free to enfranchise? We have already embarked upon a path which looks set to wipe out the leasehold sector. Do we wish to send the private sector along the same path? We should be left with a simple choice of housing tenure: freehold for those who can afford it; or a lease of less than 21 years.
The noble Lord's case might have some validity if, far from being freely entered into, those leases were forced upon browbeaten tenants; but that is not the case. The leaseholders knew when they signed the contract that the property was not within the scope of enfranchisement. At that time lawyers would have explained the position to them and their non-enfranchisable leases would have been purchased at a price to reflect that.
I understand Part I is about extending home ownership by giving residential leaseholders the opportunity to purchase their freehold. This amendment does not assist that process. Instead, it represents a retrospective manifesto commitment and, far from improving the property market of this country, would work to its eternal detriment.
Lord Strabolgi: I wish to say a few words from this side of the House. Thousands of genuine long leaseholders will be disqualified from the right to enfranchisement by this test. As has been said, this is because the low rent limit is so low—on average, probably no more than 5 per cent. of the full letting value—that landlords granting long leases have for some considerable time been able to fix rents, or ground rents, just above the limit. Being human, this is what they do because they realise that the process prevents leaseholders from enfranchising. This has happened in many cases. It is grossly unfair as between individual long leaseholders. The previous domestic rating revaluation was in 1973, and many

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rateable values are still at that level. However, rents have risen. The longer the period that has elapsed since 1973, when a long lease was granted, the less likely it is that the rent would have been fixed at less than two-thirds of a 1973 rateable value. This is bound to lead to widespread anomalies in the treatment of similar properties.
How, for instance, would a leaseholder be defined if he has paid, say, £100,000 for a 99-year lease, has taken on full repairing and insuring responsibilities for his house—the noble Baroness, Lady Hamwee, mentioned that—and is paying a ground rent of, say, £305, which happens to be £2 or £3 above his two-thirds of rateable value limit? Would his house be owned or rented? I ask the noble Lord, Lord Strathclyde, to define that. Historically, holders of leases of over 21 years have been defined as home owners. The census form states:
"If your accommodation is occupied by lease originally granted for, or extended to more than 21 years, answer as an owner occupier. For shorter leases, answer 'By renting'".
The Leasehold Enfranchisement Association believes that the fact that a lease is of over 21 years is enough proof in itself of home ownership and that the low rent test is unnecessary. One may ask why there are such long leases. The noble Lord, Lord Finsberg, commented on that with his great knowledge of the real world. He said that many people were forced to take long leases under threat of ejection by landlords who had bought the freeholds to make large capital gains, as I ventured to point out on the previous day in Committee of this Bill. It is not just a question of a free contract between a willing seller and a willing buyer. The real world is not like that at all. It was not like that at all in London where the whole system of renting of flats has been changed in the past 30 or 40 years to the national detriment.
In practical terms, I understand that no one has been able to produce a single concrete example of a property sold on an over-21 year lease but with a market rent, or anything approaching it. The Leasehold Enfranchisement Association has seen literally thousands of lease details and there has not been one case that would even marginally come into this category. This is an all-party amendment. The noble Lord, Lord Campbell of Alloway, wondered why noble Lords on his side of the House were opposed to it. I do not think that is necessarily the case. This is not a party matter at all; it is an all-party matter where we are trying to help the tenants of London against unfair landlords. I support the amendment.
Lord Peyton of Yeovil: Most governments in my limited experience suffer from a number of weaknesses. First, they tend to take a favourable view of their own wisdom; and, secondly, they cherish a belief that when they have made a decision that is the end of the matter and it will not be the start of a process. I have great reservations about not the main purpose of the Bill which is, as I understand it, to give an occupier a measure of control over his own home—I have no objection to that—but this Bill goes much
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further than that. The logical next step to it is surely contained in just the amendment which my noble friend Lord Coleraine has moved.
I do not think it would have taken a great deal of imagination or foresight on the part of the Government to realise that anyone of the intelligence and perception of my noble friend Lord Coleraine would view this Bill as a great opportunity to hit the whole structure or the whole vessel of leasehold tenure well below the waterline and sink it. I hope I am not being in any way unfair to my noble friend in saying that. However, just a glance at the amendment shows the degree of attention which my noble friend has given to the Bill and his determination that this Bill should not be the last step but just the first.
Lord Coleraine: I am sorry to interrupt my noble friend and I am grateful to him for giving way. I have tabled a considerable number of amendments on the Marshalled List. Most of them are technical amendments recommended to me by the Law Society whose brief I hold in this matter.
Lord Peyton of Yeovil: I am grateful to my noble friend for explaining his position; but I must say that my willingness to go along with every recommendation and opinion expressed by the Law Society is fairly limited. I certainly do not want to be either unkind or unfair to anybody, but I see in this Bill a certain harvest for the legal profession. There will be a great deal of argument arising from it and the services of lawyers will be much in demand. I am sure that will also apply to building societies. However, I do not wish to go further down that road.
I can quite understand my noble friend wishing to expand the purposes of the Bill. I can quite understand the Labour Party and the Liberal Party doing likewise because they favour enfranchisement of leaseholds. I agree with my noble friend Lord Boardman that if this amendment were passed that would virtually signal the end of leaseholds. For that reason, I imagine that the Government will want to reject it because such an amendment underlines and goes much further than the Bill itself in that it sets out quite clearly to benefit all leaseholders whether or not the premises they are leasing are their homes, whether or not they occupy them, and whether or not they are, generally speaking, deserving cases. There will be many cases in which those who benefit will enjoy a considerable windfall.
In terms of the Government confining themselves to the pledge in the manifesto, I see no basic objection to the Bill. I wish to make it absolutely clear from my point of view that bad, greedy, oppressive, negligent or incapable landlords are a nuisance and should certainly be dealt with by the statute law. However, this favouring of all tenants, no matter who they are, how rich they are, where they come from or where they live is, I think, wrong. I believe this amendment would carry that process one undesirable step further. Having said that, I can perfectly understand how the noble Lord, Lord Williams, can stand up and say that that is what he favours.
I have already expressed my sympathy for my noble friend on the Front Bench—I see that he is in some difficulty this afternoon. Let me put it this way: it will

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be a competition between his sense of gratitude and his intelligence—both respectable qualities. If gratitude wins, the noble Lord, Lord Williams, will have the amendment accepted. My noble friend was saved from considerable mortification the other day when the bulk of his own party voted against him, but the noble Lord, Lord Williams, his party and the Liberal Party—who had a perfect right to do so—extracted my noble friend's chestnuts from the fire.
It will be extremely interesting to see what happens. I yield to no one in my respect and admiration for my noble friend: he displays the qualities of intelligence and gratitude to anyone who helps him. It will be fascinating to see which wins this afternoon: gratitude to noble Lords opposite and my noble friend Lord Coleraine; or intelligence which will warn him not to go too far too quickly down the path on which the Government have embarked.
4 p.m.
Lord Wolfson: That was an amusing contribution by my noble friend Lord Peyton. I do not know who is grateful and who is intelligent, but there must be some on both sides. I have listened carefully to the points put forward and support the amendment. It removes a discriminatory and inequitable provision from the Bill which is in some ways self-defeating.
I listened with much interest to the contribution of my noble friend Lord Finsberg who represented a marginal constituency for many years and who pointed out that landlords vary in type ranging from excellent to very bad for the tenant. My noble friend Lord Peyton made the point about a legal harvest and we know from experience that legal harvests are reaped in any situation.
I hope that the Minister will give serious consideration to the amendment which has been so well put forward by my noble friend Lord Coleraine, the noble Lord, Lord Williams, and the noble Baroness, Lady Hamwee. It is an excellent improvement to the provisions of the Bill and I intend to support it.
Lord Carnock: I support the amendment. I believe that it is better than Amendment No. 41 which stands in my name. If Amendment No. 27A is accepted, my amendment will be largely pre-empted; otherwise, I shall speak to my amendment when its turn comes.
Lord Monson: The noble Lord, Lord Williams, complained that the value of a leasehold interest decreases as the number of years remaining for the lease also decreases. He is quite correct, the value does slowly decrease. However, there are two answers to his complaint: first, the price originally paid for the leasehold interest or paid by the purchaser of the leasehold interest will have reflected the fact that he has knowingly bought a slowly wasting asset. Had the freehold of the same property been available, he would have paid a good deal more.
Secondly, even leases with less than, say, 20 years to run still have a considerable value for the leaseholder. Normally it is more financially advantageous for an individual with cash in hand—and there are plenty of
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people, not only Arabs, who live in London and have considerable sums of cash in hand—to buy the tail end of a long lease than to pay a rack-rent. Hence the popularity of short leases with only 10, 15 or 20 years to run in places like Belgravia. Consequently, it is also more advantageous to find oneself in possession of a lease, even though it may have only a few years to run, than to have to pay a rack-rent for an identical property, as many people have to do.
Lord Selsdon: I feel that perhaps we have divisions on this side of the House yet again between those who are prejudiced against the Bill and those who seek every reason to extend enfranchisement as far as possible. I stand somewhere between the two and wonder whether or not we are having a party political argument. I do not believe that we are. I have supported and support the Government on the Bill and I am moved by many comments that have been made on all sides of the Committee. Perhaps we have not listened enough on this occasion—and I say this to the noble Lord, Lord Williams—to comments about the impact of the Bill nationwide. It is not a London Bill, as he rightly points out. The highest percentage possible of those who are or could be involved are outside London. If I recall it correctly, there are something like 16 million households in the United Kingdom, and we are talking about 4 per cent. of households. We are talking in general about flats.
If one were to estimate a figure for the 750,000 people to whom we are referring, perhaps 100,000 are in houses and the rest are in flats. The amendment concerns flats and broadening the base for enfranchisement. Whom are we talking about? We are not talking about the rich in London but about the Bs, the Cs, the C1s, C2s and in particular the people whom we all try to support. I think that between 60 and 70 per cent. of the flat purchasers will be first time buyers, stepping on a ladder where they hope for a capital gain in order to move up as they have children and their families expand. Those are the people whom we are discussing today.
Much of the prejudice is based upon the fact that there will not be a fair pay out at the end of the day. We leave that to a later stage under Amendment No. 106 and later amendments when the matter will be debated. I shall then stand up fully for the right to a fair payment, whatever that may be decided to be. If we accept that, then many of the arguments that we put forward at the moment are irrelevant.
Whoever is in charge of the administration of the Marshalled List today should, I think, have sought to group a number of these amendments together. If I am right, the point made by the noble Baroness, Lady Hamwee, about people who have invested in their property and enhanced its value could be covered by Amendment No. 43, if I recall it correctly. Equally we could criticise everyone who holds a different view. But it is not right to criticise any of the freeholders, head lessors or others who, within the terms of existing legislation, have adjusted their affairs in order to protect their interests.
We are talking today about the protection of the interests of some people and the extension of the interests of others. I have supported the Government.

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I do not believe that the low rent test is necessarily fair; neither is the present position. There is an injustice here and I look forward to hearing what my noble friend says in reply to the amendment.
Lord Laing of Dunphail: I support my noble friend Lord Peyton in his eloquent comments. The Chinese have a saying—perhaps I may add, in parenthesis, that my company has a factory in China—that the longest journey starts with the first step, but it is important to know where that step is leading. If the amendment is passed, we shall be opening a door to a destination as yet undetermined. I oppose the amendment.
Viscount Torrington: I had intended to speak only to Clause 61 which refers to houses rather than flats, but the point is entirely the same. I feel for my noble friends on this side of the Committee who oppose the amendment—especially those who may be large landowners. I agree with the point about the probity of contract but I should like to point out to my noble friend Lord Boardman that he may be interested if I quote from the election handout from the Member of Parliament for Chelsea in respect of houses. The leaflet says:
"By removing the upper limit on rateable value, all leaseholders of houses will be given the right to buy their freeholds".
I am not quite sure whether that was in the election manifesto but it is certainly how he interpreted it in the leaflet.
Lord Boardman: Perhaps my noble friend would accept from me that the manifesto upon which the Government stand was not in those words. It was limited to residents who live in a flat in a block that they seek to acquire.
Viscount Torrington: I thought that I had qualified that statement by saying that it was not exactly the manifesto. The great thing about this Bill is that there is a commonality of purpose between both sides of the Committee. Whether or not we all agree, all the main political parties seem to be in favour of the gradual end of leasehold. The only thing that seems to stand in the way of that is the low-rent test, which is a totally discriminatory and blunt instrument.
I am not a lawyer, but I am told that any lawyer can look at any lease and say that it is either a long lease or a rack-rent tenancy. In setting limits we are ignoring that the majority of leases today have statements in them to the effect, for example, that where a ground rent is reviewed the rent shall be, say, one-sixth of the fair rental, or 10 per cent. or some such. Clearly anything that is one-sixth of the fair rental cannot be the fair rental. Therefore, where a lease document states something of that nature it seems entirely clear that it is not an open market rental and that the tenant ought to be entitled to enfranchise.
I have put my amendment down later for this test, which is not going quite so far as the removal of the clause altogether. I accept that there may be one or two cases where the test works, or a test actually works, but I think that this Bill has to be even-handed. Either we agree with enfranchisement for all long leasehold tenants or we do not. We should not
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discriminate just because a landlord has been clever enough to raise the ground rent by an extra pound. I should like to hope that the Government can give us some assurance that this clause might be changed, otherwise I should feel inclined to support the amendment.
Lord Strathclyde: It comes as no surprise that the debate has been full of deeply held arguments. Last week my noble friend Lord Coleraine said that there was no history of a low-rent test for flats. That is true in the context of enfranchisement because the possibility of enfranchisement for flats has never existed before now. But the market in leases of flats is well established, and so is the statutory framework governing security of tenure. So the refinement of our proposals to align the eligibility of leases with the criteria used in the 1967 Act should have come as no surprise.
My noble friend Lord Coleraine also asked why the Government decided to include a low-rent test for flats. I hope to convince my noble friend during this debate that there is a need for a low rent test to establish whether the grant of a lease has transferred ownership from the landlord to the lessee at the outset. The length of a lease alone is not a sufficient criterion. I should also like to take this opportunity to answer the other questions raised last week by my noble friend Lord Coleraine, although they are not entirely connected to the low rent test. My noble friend suggested that the consultation process on the Bill had been half-hearted. I do not agree. On the contrary, I believe that as full a programme of consultation as possible was carried out.
Turning to the amendment, noble Lords wish to remove the low-rent test qualification on leases eligible for collective enfranchisement. It is suggested that the length of lease alone is a sufficient criterion. I can tell my noble friend Lord Peyton that this is not a question of either intelligence or gratitude, because I am convinced that there is a need for a rent test. The purpose of the test is to establish whether the grant of a lease has in fact transferred ownership from the landlord to the lessee. The length of the lease alone is not a sufficient indicator. There are leases which, although granted for a term of more than 21 years and therefore "long", have an annual rent approaching or equivalent to a rack-rent.
The amount of rent payable distinguishes a lease which confers "ownership" from one which is a renting tenancy. The former carries a nominal ground rent, and the value to the landlord lies in the capital premium paid on its original grant. The latter attracts a rack-rent, which provides an income stream for the landlord. In the former case the landlord has effectively given up the interest for the duration of the lease, but in the latter the transfer of value is not so marked.
The comparison of the annual ground rent to the rateable value, or in the case of pre-1963 leases the letting value, is a simple test. It appears in roughly the same form in several pieces of important landlord and tenant legislation —including the Landlord and Tenant Act 1954, the Leasehold Reform Act 1967 (the precedent for this Bill) and the Rent Act 1977. It has

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had quite an impact on the residential property market over several decades. The test has stood the test of time. It does not vary with changes in capital values, and the information needed is readily available. We should not therefore relinquish or alter the residency test lightly. This has been clearly recognised by my noble friend Lord Boardman.
The rent thresholds set out in Clause 7 are well understood and long established. They form the bulwark of the various statutory tenant protection regimes now in place. Generally speaking, leaseholders paying a low rent do not have statutory security of tenure during the currency of their existing leases, and only those with long leases (at a low rent) are entitled to security of tenure when their leases come to an end. They are of course protected during the currency of their leases by the terms they have contractually agreed to.
The noble Baroness, Lady Hamwee, quoted from a letter from a leaseholder who clearly felt that he had been discriminated against. But if I understood it correctly the person she referred to was quite clear what the lease was saying. It was an enfranchisable lease and the tenant no doubt was fully aware of that point, particularly if, as I think the noble Baroness said, it was a lease extension bought under the 1967 provisions.
Furthermore, I point out to the noble Lord, Lord Strabolgi, that we are not saying that a rent just above two-thirds of the rateable value is a rack-rent. It falls in the range between genuine ground rent—that is, less than two-thirds of rateable value—and rack-rent. Therefore, we believe that it is right to draw the line so that only very clear ground rent should enfranchise. Those in the grey area between genuine ground rents and rack-rents should be excluded.
Further, as my noble friend Lord Coleraine recognised, it is not our policy that private sector renting tenants should be able to enfranchise. Ownership of houses and flats with such tenants lies clearly with the landlord, and the tenant is paying only for the right to occupy on a periodic basis. If renting tenants were allowed to force private landlords to sell their property, there would be no encouragement to let property at a time when we are striving to increase the supply of private rented accommodation through various schemes and initiatives. Revival of the private rented sector, and its maintenance in a healthy state, are important elements of housing policy.
I believe that I have covered the ground fully enough. I hope that the Committee is pleased with the explanation that I have given of the Government's stance, and that my noble friend Lord Coleraine will withdraw his amendment.
Lord Williams of Elvel: Before the noble Lord sits down, I wonder whether he recalls the following words:
"It seems appropriate to treat all long leases as qualifying for the purposes of any compulsion provision regardless of whether they are at low rent".
Those words come from the Lord Chancellor's consultation document on commonhold. Do the Government speak with one voice on the matter?
Lord Strathclyde: Of course my noble and learned friend the Lord Chancellor will view his proposals for commonhold in a different way. The reason is that the paper concluded that the complications of a low-rent qualification could not be justified, bearing in mind that special provision would have to be made where some leases were at a low rent and some were not.
Baroness Hamwee: The Minister referred to the gentleman whose letter I quoted as understanding what he was doing when accepting a new rent. I do not dispute that. However, does the Minister accept that knowing that one is between the devil and the deep blue sea does not help. To clarify the point, many people have no real choice regarding the property they take, whether it be leasehold or freehold. When there is the possibility of a lease extension on the property which is on unfavourable terms, the least bad option may be to accept those unfavourable terms. Perhaps the Minister will acknowledge that that is the case.
Lord Coleraine: I am grateful to the Minister for responding. I found his reply to the quotation by the noble Lord, Lord Williams of Elvel, from the Lord Chancellor's consultation paper, surprising. He stated that there had been full consultation on the matter of leasehold enfranchisement. I have criticised that aspect in stating that there has been inadequate consultation. The department has issued a series of pamphlets, having taken advice from various interested parties. However, it has never set out in detail why it has come to its conclusions. We now seek that clarification in this Chamber.
I was not surprised that my noble friend came to the conclusion that he did, nor that he rehearsed almost all the arguments put forward by Sir George Young in his report in another place when he resisted the claim for the low-rent test for houses to be abolished. However, we have much business to undertake today. I am told that I am responsible for much of it. In those circumstances, I shall not attempt to tie together the arguments. I now ask that the Question be put.
4.22 p.m.
On Question, Whether the said amendment (No. 27A) shall be agreed to?
Their Lordships divided: Contents, 117; Not-Contents, 162.

Division No. 1

CONTENTS

Addington, L.

Carter, L.

Airedale, L.

Castle of Blackburn, B.

Annan, L.

Chorley, L.

Archer of Sandwell, L.

Cledwyn of Penrhos, L.

Ardwick, L.

Clinton-Davis, L.

Ashley of Stoke, L.

Cocks of Hartcliffe, L.

Attlee, E.

Coleraine, L. [Teller.]

Aylestone, L.

Dean of Beswick, L.

Banks, L.

Devonshire, D.

Beaumont of Whitley, L.

Donoughue, L.

Blackstone, B.

Donnand of Easington, L.

Bonham-Carter, L.

Eatwell, L.

Boston of Faversham, L.

Ezra, L.

Bottomley, L.

Falkender, B.

Bridges, L.

Finsberg, L.

Broadbridge, L.

Fisher of Rednal, B.

Bruce of Donington, L.

Foot, L.

Carmichael of Kelvingrove, L

Gallacher, L.

Carnock, L.

Galpern, L.

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Gardner of Parkes, B.

Molloy, L.

Gibson, L.

Monk Bretton, L.

Gladwyn, L.

Morris of Castle Morris, L.

Glasgow, E.

Mulley, L.

Graham of Edmonton, L. [Teller.]

Murray of Epping Forest, L.

Nicol, B.

Greenhill of Harrow, L.

Ogmore, L.

Grey, E.

Peston, L.

Hamwee, B.

Pitt of Hampstead, L.

Hanworth, V.

Plant of Highfield, L.

Harding of Petherton, L.

Prys-Davies, L.

Harris of Greenwich, L.

Rea, L.

Hayter, L.

Redesdale, L.

Hilton of Eggardon, B.

Richard, L.

Hollis of Heigham, B.

Ritchie of Dundee, L.

Holme of Cheltenham, L.

Sainsbury, L.

Hooson, L.

St. John of Bletso, L.

Houghton of Sowerby, L.

Seear, B.

Howie of Troon, L.

Sefton of Garston, L.

Hunt, L.

Selkirk, E.

Irvine of Lairg, L.

Serota, B.

Jacques, L.

Shackleton, L.

Jay, L.

Shaughnessy, L.

Jeger, B.

Shepherd, L.

John-Mackie, L.

Stallard, L.

Judd, L.

Stoddart of Swindon, L.

Kennet, L.

Strabolgi, L.

Kilbracken, L.

Taylor of Blackburn, L.

Killearn, L.

Tordoff, L.

Listowel, E.

Torrington, V.

Llewelyn-Davies of Hastoe, B.

Turner of Camden, B.

Lockwood, B.

Wallace of Coslany, L.

Longford, E.

Warnock, B.

Lovell-Davis, L.

White, B.

Mallalieu, B.

Wigoder, L.

Marsh, L.

Williams of Elvel, L.

Mason of Barnsley, L.

Williams of Mostyn, L.

Mayhew, L.

Winchilsea and Nottingham, E.

Merlyn-Rees, L.

Wolfson, L.

Milner of Leeds, L.

Young of Dartington, L.

NOT-CONTENTS

Aberdare, L.

Crathorne, L.

Aldington, L.

Cullen of Ashbourne, L.

Alexander of Tunis, E.

Cumberlege, B.

Archer of Weston-Super-Mare, L.

Daventry, V.

Davidson, V.

Arran, E.

Denham, L.

Astor, V.

Denton of Wakefield, B.

Astor of Hever, L.

Dilhorne, V.

Auckland, L.

Eccles, V.

Barber, L.

Eccles of Moulton, B.

Belhaven and Stenton, L.

Elibank, L.

Bessborough, E.

Elles, B.

Blatch, B.

Elliott of Morpeth, L.

Boardman, L.

Elton, L.

Borthwick, L.

Erne, E.

Boyd-Carpenter, L.

Ferrers, E.

Brabazon of Tara, L.

Flather, B.

Braine of Wheatley, L.

Fraser of Carmyllie, L.

Braybrooke, L.

Fraser of Kilmorack, L.

Brightman, L.

Gainford, L.

Butterworth, L.

Geddes, L.

Cadman, L.

Gisborough, L.

Campbell of Alloway, L.

Goold, L.

Campbell of Croy, L.

Goschen, V.

Carnegy of Lour, B.

Gridley, L.

Chalker of Wallasey, B.

Grimthorpe, L.

Charteris of Amisfield, L.

Haig, E.

Chelmsford, V.

Hailsham of Saint Marylebone, L.

Chilver, L.

Clanwilliam, E.

Halsbury, E.

Clark of Kempston, L

Hamilton of Dalzell, L.

Cobbold, L.

Hampden, V.

Cockfield, L.

Hardinge of Penshurst, L.

Colnbrook, L.

Harmar-Nicholls, L.

Colwyn, L.

Harrowby, E.

Constantine of Stanmore, L.

Hayhoe, L.

Cornwallis, L.

Hemphill, L.

Cranborne, V.

Henley, L.

1240

Hesketh, L. [Teller.]

Orkney, E.

Park of Monmouth, B.

Holderness, L.

Peel, E.

HolmPatrick, L.

Peyton of Yeovil, L.

Hood, V.

Portsmouth, E.

Hooper, B.

Radnor, E.

Hothfield, L.

Rawlinson of Ewell, L.

Howe, E.

Rees-Mogg, L.

Hylton-Foster, B.

Renton, L.

Johnston of Rockport, L.

Renwick, L.

Kimball, L.

Rippon of Hexham, L.

Kindersley, L.

Rodger of Earlsferry, L.

Kinloss, Ly.

Romney, E.

Kintore, E.

St. Davids, V.

Knollys, V.

Salisbury, M.

Knutsford, V.

Saltoun of Abernethy, Ly.

Laing of Dunphail, L.

Selsdon, L.

Lauderdale, E.

Shannon, E.

Leconfield and Egremont, L.

Skelmersdale, L.

Leverhulme, V.

Slim, V.

Lindsay, E.

Somerset, D.

Liverpool, E.

Stockton, E.

Long, V.

Strange, B.

Lyell, L.

Strathclyde, L.

Lytton, E.

Strathmore and Kinghorne, E [Teller]

Mackay of Clashfern, L.

Macleod of Borve, B.

Sudeley, L.

Malmesbury, E.

Tebbit, L.

Marlesford, L.

Terrington, L.

Merrivale, L.

Thatcher, B.

Mersey, V.

Thomas of Gwydir, L.

Middleton, L.

Thorneycroft, L.

Monson, L.

Trumpington, B.

Monteagle of Brandon, L.

Moran, L.

Ullswater, V.

Morris, L.

Vaux of Harrowden, L.

Mountevans, L.

Verulam, E.

Mountgarret, V.

Vivian, L.

Mowbray and Stourton, L.

Wakeham, L.

Munster, E.

Wharton, B.

Murton of Lindisfarne, L.

Wilberforce, L.

Nelson, E.

Wise, L.

Norfolk, D.

Wyatt of Weeford, L.

O'Cathain, B.

Yarborough, E.

Onslow, E.

Young, B.

Oppenheim-Barnes, B.

Resolved in the negative, and amendment disagreed to accordingly.
Viscount Goschen: I believe this may be a convenient moment for the Statement, and I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Hong Kong
4.31 p.m.
Baroness Chalker of Wallasey: My Lords, with the leave of the House I should like to repeat a Statement which is being made in another place by my right honourable friend the Secretary of State for Foreign and Commonwealth Affairs. The Statement is as follows:
"With permission, Madam Speaker, I should like to make a Statement about political development in Hong Kong.
"There is widespread support in this House for the proposals put forward by the Governor last October. We sought to respond to the wish of the Hong Kong people for a greater say in their own

1241
affairs, while staying within the terms of the Sino-British Joint Declaration, the Basic Law and other relevant exchanges with the Chinese side.
"The Governor's proposals represent our judgment of the right way forward for Hong Kong. But we have said from the start that we are open to alternative ideas, from the people of Hong Kong or from the Chinese side. We have had a wide range of suggestions from people in Hong Kong. The Chinese side have opposed the proposals without offering anything in their place.
"Since last October, we and the Governor have been urging the Chinese side to discuss these electoral issues with us in order to reach an understanding. We are ready to enter such discussions without preconditions. We want to see as much continuity as possible in Hong Kong's electoral arrangements before and after 1997.
"Some two months ago, we renewed our efforts to get talks under way with China. Since then, there have been intensive diplomatic contacts in Peking. It may be useful for the House if I set out the basis on which we were prepared to hold discussions.
"First, we accepted that the talks should be on the basis of the Joint Declaration, the principle of convergence with the Basic Law and the relevant understandings and agreements reached between Britain and China. The Governor's proposals are wholly compatible with these.
"Secondly, as I made plain to the House on 10th March, we told the Chinese side that the British team in these discussions would include representatives of the Hong Kong Government on the same basis as other officials taking part in the talks. Hong Kong officials have participated over the last 10 years in discussions with the Chinese side as members of the British team, including during the negotiations on the Joint Declaration and subsequently as members of the Joint Liaison Group. We cannot and do not accept what some Chinese officials have said in the last few days—that the role of the people from Hong Kong should be downgraded in discussions about Hong Kong's future.
"We received a positive response on the principle of talks from the Chinese side in early February. To help get talks started, we and the Governor therefore decided, with the advice of the Executive Council in Hong Kong, to postpone the original plan to publish the draft electoral legislation in Hong Kong's Official Gazette on 12th February. As the diplomatic contacts proceeded, we held up publication for four further weeks. But we told the Chinese side that it was not possible to delay indefinitely, given the need to pass legislation before the Legislative Council rose for its summer recess in July.
"It is disappointing that, despite all our efforts, the Chinese side were still not able to agree by 12th March to a date for talks—or even to a date on which an announcement of talks could be made. As
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we had forewarned them, the Governor therefore published his proposals that day. A copy has been placed in the Library of the House.
"Publication in the Official Gazette is only the first step in the legislative process. Introduction of the Bill into the Legislative Council would be a separate step. As the Governor has said, we will have to judge, in the light of developments, when to take that step. Thereafter, I am sure that members of the Legislative Council would want to discuss the draft legislation in great detail, in the light of the various alternatives put forward, before they reach a decision.
"Publication of the legislation should not make it more difficult to begin talks with China. The Bill sets out the Governor's proposals, which have been public since October, in legislative form. This does not affect the basis for talks with China, the need for such talks or our wish to hold them. We have said that if we reached an understanding with the Chinese side we would recommend this to the Legislative Council.
"We remain ready for talks at any time and I hope that the Chinese side will be prepared to settle quickly on arrangements for them. Britain has responsibility for the administration of Hong Kong until 1997. Part of that responsibility is to maintain the steady progress towards democracy in Hong Kong. We are open to discussions about how to achieve that. But the key point is that the electoral arrangements in Hong Kong should be fair, open and acceptable to the people of Hong Kong.
"The Chinese side also has responsibilities and interests as the future sovereign power. Britain and China have every incentive to work together to ensure the future success of Hong Kong. We will continue to pursue steadily the path of cooperation with China: we look to the Chinese side to do the same."
My Lords, that concludes the Statement.
Lord Richard: My Lords, I thank the noble Baroness for repeating the Statement made by her right honourable friend in another place. We on this side of the House welcome the Statement. The Labour Party gave its broad support to the Patten proposals to extend democracy within Hong Kong when they were announced, though we were not perhaps quite so sure that they are sufficient to adjust what I think has been called the "democratic deficit". The proposals could perhaps have been more wide ranging, but despite this caveat we generally support them.
We also believe that these proposals should have been made somewhat earlier. Admittedly Mr. Patten delayed gazetting the proposed Bill in the hope that he could get the Chinese to negotiate; but it would perhaps have been better if the proposals had been announced during the previous governorship.
The Government here must now try to relaunch talks with China as soon as possible. It has, I am afraid, become clear that a gap has developed between the Governor, on the one hand and the Chinese Government on the other. We do not quite understand why that has been allowed to happen; nor, indeed, why relations have been permitted to

1243
deteriorate quite so far. Somehow or other they seem to have gone badly wrong almost at a personal level. That will not help the resolution of the difficulties that are to come.
As we all know, the Chinese tend to take a long-term view of things, and are prepared to wait—particularly when they do not have to wait so long, against the deadline of 1997. Our prime responsibility is to the people of Hong Kong. It is to ensure that when 1997 arrives the hand-over of power is peaceful and the transition is smooth. Our first priority now must therefore be to do all that we can to see that sensible negotiations are resumed, and resumed quickly. In so far as the gazetting of Mr. Patten's proposals ends a period of uncertainty, they are to be welcomed. At least both sides now know more clearly what they have to deal with and what they have to negotiate about.
I should like to ask the Government two questions: one of detail and one perhaps more general. I observe in the Statement that the Foreign Secretary uses the words:
"But the key point is that the electoral arrangements in Hong Kong should be fair, open and acceptable to the people of Hong Kong".
Does the use of that phrase add anything to the present position, or is it merely meant to be declaratory of what it is? Secondly, how do the Government now see the immediate future? Mr Li Peng's speech today is not exactly promising. But perhaps the noble Baroness can give the House a more up-to-date appreciation of the immediate situation.
Finally, the people of Hong Kong must themselves be involved in the process to decide the future of the colony and their representatives must therefore have the chance fully to discuss the Patten proposals. The Legislative Council should therefore continue with its consideration of the proposals, which in our view are perhaps somewhat overdue.
Lord Bonham-Carter: My Lords, I should like to associate myself with the thanks that the noble Lord gave to the noble Baroness for repeating the Statement made by her right honourable friend in another place. We also welcome the Statement. There are two views about what have come to be known as the Patten proposals. One view is that the Chinese response was foreseeable, indeed inevitable, and that therefore the proposals were foolhardy. The other view—the one which we take on these Benches—is that the proposals were ingenious; that they fell within the terms of the Basic Law, the Joint Declaration and of the conversations held between the two governments at various times.
Thirdly, we take the view that, if anything, the proposals were overdue and that had they been introduced 10 or 15 years ago neither we nor the people of Hong Kong would find ourselves in the uncomfortable situation we are in today. That, I am afraid, is self-evident. But, that having been said, it is a case of "better late than never". It seems to me intrinsically unreasonable on the part of the Chinese Government to demand that the proposals be de facto withdrawn before any discussion about them takes place. It seems to me equally unreasonable for them to
1244
demand that it would be improper if any Hong Kong officials were present at those talks—bearing in mind that they have been present at the talks over the past 10 years. In all those respects, therefore, we welcome the Statement read by the noble Baroness. I must say that some of us take the view that what is happening is that the Chinese Government are testing the nerve of Her Majesty's Government. I think that our more open support of the Governor in the difficult position in which he finds himself makes it more rather than less likely that talks will be resumed.
Baroness Chalker of Wallasey: My Lords, I thank the noble Lords, Lord Richard and Lord Bonham-Carter, for their welcome to the Statement. In a sense, a lot of people are being wise after the event—I do not mean those noble Lords, but many other commentators outside—when they say, as in the first view presented by the noble Lord, Lord Bonham-Carter, that the Chinese response was foreseeable.
The point that I made in repeating the Statement, which I shall make again now, is that the Governor's proposals on broadening our democracy have, and have always had, our full support. But we have said right from the beginning that we are ready and have always been ready to consider alternative views. The final decisions, rightly, should rest with the Legislative Council. We have said that we respect its judgment, and that judgment is obviously consistent with our own international obligation; namely, the Joint Declaration, the Basic Law.
The noble Lord, Lord Richard, asked me why we did not announce the proposals earlier. That question was echoed by the noble Lord, Lord Bonham-Carter. The Government's proposals were made in response to the development in Hong Kong in recent years of a wish for a moderately faster pace of democracy. The point about that is that the Basic Law does not contain practical proposals for that faster pace of democracy. It may indeed be that which is most feared in Peking. When the noble Lord, Lord Richard, asked me how we see the future, we can only say that we sincerely hope that we will have discussion with the Chinese. But as the noble Lord, Lord Bonham-Carter, said, it is quite wrong to try to exclude from the discussions Hong Kong officials who have taken part in the joint liaison group as part of the British delegation with the Chinese, and who have taken part in other talks, and who suddenly now become unacceptable as members of the British delegation.
I say only that in trying to resolve this very serious situation we are absolutely sincere in wishing to see a resolution which meets the needs and aspirations of the Hong Kong people, which is consistent with Basic Law and the Joint Declaration, and which indeed allows those fair elections. I say to the noble Lord, Lord Richard, that in the spelling out of the phrase "fair, open elections" there is nothing different from what we have always said in that respect. It may have been phrased a little differently, but there is certainly nothing to be drawn from the use of those words today.
4.47 p.m.
Lord Geddes: My Lords, I too would like to thank my noble friend Lady Chalker for repeating the Statement. I endorse very strongly the sentiments expressed in it. When we had the opportunity on 9th December last year to debate the situation in Hong Kong and China a number of varying views were expressed. The remarks that I made on that occasion were interpreted as being in some ways critical of the Governor. If they were so critical, it was criticism of the style of his approach rather than the content of it, and particularly of his taking with him what I and others described as a Westminster approach.
In the Statement repeated today, and indeed in that made by the Governor last Friday to the Legislative Council, everything—with one slight exception, which I shall come to shortly—gave just the facts of the matter. I will not waste your Lordships' time by repeating what my noble friend said, but the efforts to have talks were to be based on the Joint Declaration, the Basic Law and understandings between the parties. The Statement then went on, I think most unfortunately, and my noble friend repeated it, that in the opinion of Her Majesty's Government and the Governor that approach—namely, the Patten proposals—was considered to be "wholly compatible". That may well be, and I am sure that that is the view of Her Majesty's Government and the Governor. But it strikes me that it was gratuitously provocative to make such a statement when everybody knew what the situation was.
Be that as it may, the situation that has now arisen is one that we all feared at the time of our debate last December. There is no excuse for the Chinese to exclude Hong Kong representatives from the talks; there is no excuse to break off the talks if they are "without preconditions". I strongly urge my noble friend to impress on her right honourable friend, and indeed the Governor, to do everything possible to get the talks under way again, basically because, as the noble Lord, Lord Richard, said, it is the future of the people of Hong Kong that is at stake and that is what matters.
Baroness Chalker of Wallasey: My Lords, I agree with my noble friend on many matters except for one point. I must repeat a Statement made in another place and therefore cannot change the words said by my right honourable friend the Foreign Secretary. But the difficulty we faced—I remember the debate of 9th December —was that a number of people were inclined to challenge the fact that the Governor's proposals were compatible with the Joint Declaration, the principle of convergence, the Basic Law and the relevant understandings and agreements reached between Britain and China. I am sure it was for that reason that it was written in both to the Statement and to the words used by the Governor on Friday last.
However, we should draw a distinction between the publication of the legislation and its introduction. We can only decide on its introduction in the light of subsequent developments. There is no reason why publication or even consideration of the draft legislation by LEGCO should be a barrier to talks. We
1246
know that the legislative process will take months and we hope to get the talks started. But it is absolutely right that we should be discussing the electoral arrangements in Hong Kong not only with the Hong Kong people—because it is in their interests that they should be secured for continuity in 1997—but also with China. We still hope and intend to do so.
Lord Gridley: I rise to support the Minister in the Government's proposals for dealing with the Chinese. For a number of years I have been present in countries about to obtain their independence. I have seen how Britain goes to tremendous lengths to obtain an understanding of those for whose welfare she will soon not be responsible. I cannot see what objection can be taken to a request by Her Majesty's Government that China should discuss their proposals with them.
If I may say so, we got rid of the British Empire without a shot being fired. Surely that is some credit to us. There may have been difficulties in some countries concerning the carrying out of their responsibilities after they accepted them, and they have our sympathy in that regard; but, if the Chinese know anything, they know what it is to shake one's hand over a difficulty, whether in a contract or other situation which they wish to establish with the other side. I ask that we continue in the same constructive and conciliatory manner and try to persuade them to come to the table to discuss the position. Our intentions are to obtain a peaceful settlement, of which we have more experience than many other people in other parts of the world.
Baroness Chalker of Wallasey: My Lords, I thank my noble friend for those remarks. It is only when one sits down to understand the issues in detail that one realises how much time and trouble has been taken not only by the British Government but also by the Governor, his staff and members of LEGCO with the draft proposals. I underline that they are "draft" proposals.
Difficulty will always arise when one party approaches an issue with a preconceived idea, which is what I can only conclude must be the situation over this matter. As the noble Lord, Lord Bonham-Carter, said a few moments ago, it is an attempt to test out the seriousness both of the British Government and of the Governor. But as many noble Lords said, both in this exchange and in previous debates, the essential requirement is that the electoral arrangements shall be fair, open and acceptable to the people of Hong Kong. Without that, the democracy will not be the democracy for which we and they have worked. That is what must be achieved.
Lord Elton: My Lords, the approach towards democracy by Hong Kong has absorbed the interest of this House and another place, the Government and perhaps the British people for some time. That is partly because of the historic role we play in introducing democracy in countries around the world, and in part by the events we saw some time ago in Tiananmen Square and our belief that we had a duty

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to protect the inhabitants of Hong Kong as far as we could after independence against events which one hopes would not occur in a democracy.
That leads me to wonder whether we are not concentrating too much on the single issue of democracy and whether there is not an important bastion of protection available to the people of Hong Kong in the choice, appointment, powers and independence of the judiciary and the entrenchment of the human rights legislation that it will interpret. Without that, democracy will be a fragile barrier, since I do not doubt that it is one which mainland China could subsequently dismantle, albeit over a long time. Without democracy, it will be the only barrier to protecting the people of Hong Kong from events for which we would not wish to be responsible. Can my noble friend tell us what progress has been made in that direction and what we can look for?
Baroness Chalker of Wallasey: My Lords, I appreciate the comments of my noble friend. Of course we agree with the view that the strengthening of Hong Kong's democratic institutions is the best guarantee of the freedoms about which he spoke. Hong Kong has been much more fortunate than many other places; it is probably the most free of any in terms of press freedom in Asia. The Hong Kong Government have always taken the view applauded by my noble friend in following the pursuit of justice and ensuring that human rights are maintained, that there are existing and continuing avenues for redressing grievances arising from human rights complaints and the active role being played by the courts. That is what we should be and are doing. But that does not mean that we should not concentrate also on bringing the democratic rights to the people of Hong Kong.
Lord Marlesford: My Lords, does my noble friend agree that in order to understand the Chinese attitude at the present time, we must be aware of certain domestic political strains between factions inside China, inside Peking, on how China's reconstruction and development should be carried forward? All those who support that reconstruction and development, in which Hong Kong has already played a part and will continue to do, must be sympathetic to that.
Will my noble friend also re-emphasise that there is and has never been any difference between Her Majesty's Government and the Governor on any of the policy initiatives since the Governor was appointed. Britain, Hong Kong and, indeed, China are lucky to have in Mr. Patten someone who is, in effect, a Cabinet Minister resident in Hong Kong to deal with these problems.
Finally, Hong Kong's economy seems to me to be well able to withstand these temporary disputes. But China must be careful not to increase the fears of the people in the street in Hong Kong at the prospect of 1997. It is in that context that I was worried by the comments of Li Peng, the Chinese Prime Minister, in his speech this morning.
Baroness Chalker of Wallasey: My Lords, I well understand the concern expressed by my noble friend on hearing Li Peng's speech this morning. To some
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degree we all share it. But I think it is very important to make it clear beyond peradventure that there is not, and has not been, any difference of opinion between Her Majesty's Government and the Governor of Hong Kong. Indeed, I am quite sure that if Mr. Christopher Patten were elected to another place he would no doubt once again be able to contribute to the affairs of our Government.
In relation to the domestic political strains in China, I would simply say that of course we are very well aware of them, but we are also very well aware that the enormous economic improvements in the southern autonomous region have everything to do with the favourable copying of the way in which things are done in Hong Kong. Much of China's new strength comes from the very example set by Hong Kong. That is being used both as an asset taken for granted by Beijing but at the same time it obviously widens the divide between different modes of thought within China itself.
Finally, I believe that the Hong Kong economy is indeed in reasonably good order. While the Hang Seng index may have come down now, it reached an all time high in late February/early March. We know that the Hong Kong economy continues to perform strongly, as was confirmed by Hong Kong's Financial Secretary in his Budget of 3rd March. The GDP grew by about 5 per cent. in 1992 and is forecast to rise by that amount again in this coming year.
Lord Marsh: My Lords, the noble Baroness quite rightly warned against taking too much notice of all those people who had formed their views on the basis of hindsight. That was very fair. But how would she answer the quite considerable number of very eminent members of the business community and very eminent former diplomats who forecast that this would be the situation which we would reach on the existing policies? I raise that simply as a question.
Baroness Chalker of Wallasey: My Lords, the noble Lord is perhaps right when he asks why we did not see what was forecast by others. I think indeed that we did, but that does not alter the fact that it is absolutely right that the people of Hong Kong should have a full say in their own democracy. Without being given that opportunity, they would have good cause to complain about the actions of this country. Sometimes there are some very unpleasant stages to be gone through in changing a process, but they have to be faced up to. That is exactly what Her Majesty's Government and the Governor of Hong Kong are doing and are fully prepared to do.
Lord Archer of Weston-Super-Mare: My Lords, I confirm my support for the Government and, in particular, for the Governor but add how delighted I am to hear that we are actually waiting for alternative views which are simply not forthcoming. Is it not true that the Governor has to legislate if there are to be local elections in 1994 and Legislative Council elections in 1995, which I understand the Hong Kong people desperately want?
Baroness Chalker of Wallasey: My Lords, my noble friend is absolutely right. The Basic Law does not

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contain any practical proposals for either the local elections in 1994 or the Legislative Council elections in 1995. That is why the Governor has had to put forward the proposals to LEGCO.
Lord Richard: My Lords, I wish to raise a point of clarification. I am sorry to come back to this phrase but it worries me somewhat as to what it actually means. I wonder whether the noble Baroness can address her mind to it again.
"But the key point is that the electoral arrangements in Hong Kong should be fair, open and acceptable to the people of Hong Kong".
What does that mean? If it means anything it means that the Hong Kong people at some stage will be asked whether or not the electoral arrangements are acceptable. I did not know that we were getting into the prospect of tests of acceptability of these proposals in Hong Kong. If it does not mean that, can the noble Baroness tell us what it does mean?
Baroness Chalker of Wallasey: My Lords, I believe that the noble Lord may be trying to make more out of that than is necessary. We simply mean that the Legislative Council, which represents the people of Hong Kong and which is elected to represent the people of Hong Kong, must have a say in this matter. The proposals must be acceptable to the Legislative Council and the whole system must be fair and open.

Housing and Urban Development Bill
5.5 p.m.
House again in Committee on Clause 5.
[Amendments Nos. 28 to 34 not moved.]
The Principal Deputy Chairman of Committees (Lord Boston of Faversham): I should mention that if Amendment No. 35 is agreed to I cannot call Amendment No. 36.
[Amendment No. 35 not moved.]
Viscount Goschen Viscount Goschen moved Amendment No. 36:
Page 6, line 7, leave out ("1960") and insert ("1993").
The noble Viscount said: The purpose behind Amendments Nos. 36 and 176 is simply to bring up to date the references to the Charities Act 1960 and the Charities Act 1992 in Clauses 5 and 83. Following the successful passage of the Charities Act on to the statute book last year, it was decided that there should be a consolidation of the provisions of the 1992 Act and the 1960 Act. It is therefore necessary to change the references to the Charities Act 1960 and the Charities Act 1992 by replacing them with references to the Charities Act 1993. That is the effect of the amendments, and I hope that the Committee will accept them. I beg to move.
Lord Williams of Elvel: Can the noble Viscount kindly tell the Committee whether the Charities Act 1993 has received Royal Assent?
Viscount Goschen: It has not.
On Question, amendment agreed to.
[Amendments Nos. 37 to 39 not moved.]
Clause 5, as amended, agreed to.
Clause 6 [Meaning of "long lease"]:
The Principal Deputy Chairman of Committees: I should mention that if Amendment No. 39A is agreed to I cannot call Amendment No. 40.
Lord Peyton of Yeovil Lord Peyton of Yeovil moved Amendment No. 39A:
Page 7, line 41, leave out subsection (6).
The noble Lord said: I do not intend to delay the Committee for any length of time. Indeed, my ambitions in this matter are very limited because I cannot see the Government accepting the amendment. My desires lead me only this far —to understand what subsection (6) means. I have told my noble friend that I am in a state of some doubt as to the exact meaning. The phrasing does not seem particularly elegant and I should like to be quite sure that my understanding of the words is correct. Perhaps my noble friend would oblige and tell me. I beg to move.
Lord Strathclyde: The Committee will know that I always seek to be understanding of my noble friend Lord Peyton. I am in a position to explain to him what it is that we intend in subsection (6). The subsection deals with the situation where there are two leases; for example, on separate halves of a flat. I understand that this can happen if, for instance, there have been conversion works so that two smaller flats have been converted into one large flat. Under the subsection these are to be treated as one lease on one flat. I can tell my noble friend that this follows a similar provision in the 1967 Act. Furthermore, this is just an operational provision so that in those circumstances the tenant can enjoy the rights under the Bill.
Lord Williams of Elvel: In the light of what he has said, can the Minister explain what will happen if the two leases on two separate flats which are then joined and become one flat for the purposes of the Bill run for different periods? If the two flats are then divided, are there then two leases? If, on the other hand, the flats are not divided and are occupied separately but held together, are there two flats or one flat for the purposes of the Bill?
Lord Strathclyde: In answering my noble friend Lord Peyton, I was seeking to explain what we are trying to do under subsection (6). The noble Lord, Lord Williams of Elvel, has raised some questions but I am not sure that I can give him satisfaction on them. Perhaps he will allow me to look at the matter further. I may explain it to him by means of a letter.
Lord Peyton of Yeovil: My natural kindliness causes me to refrain from asking my noble friend if there are any cases, of which he can give details, where there have been particular problems which have been brought to the notice of the Government. As I said, perhaps the kindest thing I can do is to say that I am content with my noble friend's explanation and to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 40 not moved.]
Clause 6 agreed to.
Clause 7 [Leases at a low rent]:
Lord Carnock Lord Carnock moved Amendment No. 41:
Page 8, line 15, leave out ("that") and insert ("the period of twelve months immediately preceding the relevant date did not exceed £300, or the aggregate amount of rent so payable during the initial").
The noble Lord said: In moving this amendment I have to say that I voted in support of Amendment No. 27A which stood in the names of my noble friend Lord Coleraine and others. I regarded that amendment as a better one than mine. If it had been accepted by the Committee I would not be moving this amendment which stands in my name and the names of other noble Lords.
The purpose of the amendment is to remove the low rent test in respect of long-leasehold flats at rents of £300 or less. This is the area where the burden of the present system of leasehold tenure hurts the most. The amendment is moved to elicit the views of the Committee. The rent of £300 has been set with London in mind. A much lower alternative rent could be set for the country.
I shall not repeat the arguments which have been advanced in favour of removing the low rent test in its entirety. I adopt them. But I wish to emphasise that any proposals that rely on establishing the letting values of flats as they were 30 or more years ago are flawed. In many cases those very old letting values will simply not be known or at best will be very difficult to ascertain. Any proposals that rely on rateable values are flawed.
The rating system was superseded by the community charge and that charge by the council tax. No new rating lists have been drawn up for 20 years. Any proposals that rely on both those old letting values and obsolete rateable values are doubly flawed. If passed into law, the legislation will not stand the test of time.
One particular difficulty arises as a result of the property boom of the 1980s. Flats let at the beginning of the boom might have ground rents of, say, £100 with a rateable value of £270. Exactly similar flats let at the end of the boom might have ground rents of, say, £300 but with precisely the same rateable value, as there have been no rating valuation lists since 1st April 1973. Rateable values have been frozen for 20 years and ground rents have escalated.
Accordingly, flats let at the beginning of the boom might have ground rents not exceeding two-thirds of the rateable value. That is below the low rent threshold. But exactly similar flats let at the end of that period at inflated ground rents might be above that threshold. The former flats would qualify under the Bill and the latter flats would not.
The flats might all be in the same neighbourhood; some perhaps even in the same block. Anomalies would abound; grievances would arise; and the opportunities for manipulation would be increased. Social tensions would be exacerbated. All this would happen to tenants who were not among the more affluent sections of society. If the provisions of the clause were to be enacted without amendment a new division in the property market would be created. We already have a division between freehold and leasehold properties. The Bill would introduce a new subdivision in the leasehold property market itself,
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between the qualifying and the non-qualifying flats. There would be flats which, in type and size, were essentially similar, but as to tenure were essentially different. Some would be qualifying for no reasons connected with their type, size or location, but simply by reason of the dates on which the leases commenced. Others would not qualify. Was the lease granted at a low ground rent at the beginning of the boom or was it granted at an inflated ground rent at the end of the boom? Success or failure in the low rent test would depend on the date of the lease. Where is the logic and where is the sense?
The amendment would make this part of the Bill much more workable and fair. It would save expense and enable many to exercise their rights who otherwise would not. Generally, it would have a streamlining effect. The amendment is directed to ordinary people; namely, those who have long leasehold flats at rents of £300 or less in London, or possibly considerably lower rents in the country. I understand that 90 per cent. of leasehold flats are at rents of £300 or less which represents 675,000 long-leasehold flats. Assuming that each flat on average has about three occupants, we are talking about 2 million ordinary people. If we include the children, parents and close friends whom they will be seeing frequently, we are talking about several million people who will be closely interested in this matter. Those are the people who have the greatest difficulty in obtaining legal advice. The majority of them will not be able to negotiate with their landlords as the leases will have been negotiated and settled by others many years before. They are exposed to exploitation, and they will be exploited. Those who negotiated the original leases will have died or disappeared. They will have put down good money for a wasting asset which will not qualify for enfranchisement. They will not have sinking funds. They will be the victims of leasehold tenure. They are trapped and there is nothing that they can do. This amendment would give them some relief.
The amendment has nothing to do with Belgravia, heritage property or affluent tenants in Onslow Gardens or Eaton Square. It has everything to do with ordinary people who desperately require accommodation and who will expect to find a law which they can understand, which will protect them from throwing their money away on a wasting asset for reasons which they do not understand, and which will protect them from exploitation as so many of our consumer protection measures already do.
A further serious problem will arise in blocks of flats where one or more tenants fail to pass the low-rent test because their leases were granted at inflated ground rents at the end of the property boom even though other tenants, with exactly similar flats, pass the low-rent test because their leases were granted at low ground rents before the property boom. In such a case the tenants who pass the low-rent test might not be able to obtain the necessary two-thirds majority of all the tenants in the block simply because there were too many tenants with similar flats but with inflated ground rents who could not pass the low-rent test. The whole block would then be disqualified from enfranchisement even though Parliament intended

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that all the tenants in such a block should qualify. In other words, the rights of the low-rent tenants would be made unenforceable simply because other tenants with exactly similar flats were paying inflated ground rents. That result defies logic. It is absurd and most inequitable.
My noble friend Lord Bridgeman is very sorry that he is unable to be present today to speak in favour of this amendment. He feels frustrated and has authorised me to say that he agrees with what I have said. I beg to move.
Lord St. John of Bletso: I join in welcoming the amendment which effectively provides for a rent threshold of £300 for flats in London. Although the amendment does not specify "London", I believe that it is drafted to cater for London flats and that a lower rent threshold is suggested for flats outside London.
Without repeating many of the arguments already raised in connection with Amendment No. 27A, there appears to be a major defect in the current low-rent test. Clearly, the relationship between ground rents and rateable values in 1973 has broken down in the past 20 years following the property boom of the 1980s when rents rose substantially—in many cases, by over 300 per cent.—and where rateable valuations have remained unchanged since 1973. I understand that, as the noble Lord, Lord Carnock, pointed out, around 750,000 flats would need to go through the low-rent test unless this threshold were provided.
Without the amendment, many leaseholders with flats at the lower end of the market will run the risk of being unjustifiably disfranchised if they are forced to submit to a low-rent test. Clearly, that would be against the objectives of the Bill. It is for those reasons that I believe that the provision of a rent threshold for the low-rent test is fair and equitable. I support the amendment.
Lord Annan: Perhaps I should first tell the noble Lord, Lord Strathclyde, that when listening to the answer that he gave to the noble Lord, Lord Coleraine, I found myself very much in the position of the wretched judge before whom Mr. F.E. Smith (as he then was) was appearing. At the end of his submission the judge said, "Well, Mr. Smith, I do not know that I am any the wiser", to which the answer was, "Possibly not, m'Lud, but considerably better informed". I feel that I am considerably better informed as a result of the noble Lord's defence of the low-rent principle.
This amendment is designed to incorporate the low-rent principle. As the noble Lord, Lord Carnock, said, it is also designed to get the Government out of a difficulty. It has nothing to do with leaseholds in Belgravia or Kensington but it is designed to help thousands of leaseholders of small flats to become enfranchised.
As my noble friend Lord St. John of Bletso said a moment ago, the trouble is that at the heart of this test is the relationship between ground rents and rateable values. He quoted the kind of relationship that existed between rateable values and ground rents in 1973, but which today is long out of date. The truth is that the
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very long delays in the 1980s in effecting a new method of local taxation, and the fact that it is not based on rateable values, have enabled landlords to raise ground rents (by over 300 per cent. in some cases) while the 1973 rateable value has remained exactly the same.
That is why the amendment proposes a low-rent threshold of £300 for London. Who would be affected by it? Flats with low rateable values dating back to 1973, such as converted basement flats that had very low rateable values before being sold off on a long lease in the 1980s; unmodernised and derelict flats which had no rateable value before being sold off on long leases in the 1980s; and new property developments where leases were granted between 1986 and 1990 at the height of the property boom. As I have said, the point of the low-rent clause was to exclude from enfranchisement properties with high ground rents, but the test excludes flats at the very bottom of the market—those with low rateable values. Indeed, the lower the rateable value of the flat, the more likely it is to fail the low-rent test.
There is a further adverse consequence. Entire blocks of flats may be disfranchised. That is particularly inequitable as, not only is the individual leaseholder disfranchised, but other leaseholders in the building (who may meet all the stated criteria) will also be disfranchised.
The noble Lord, Lord Carnock, has had a lifetime of experience of advising trusts and property owners and he believes that it would be fair to fix a London rent threshold at £300. I am sure that his experience is sound on that matter. If that threshold were accepted, leaseholders paying a rent of that amount or less would be regarded as paying a low rent and would not have to undergo all the provisions that were never designed for them, but which are included in the clause as it now stands.
As I have said, the amendment has been tabled to help the Government. If this matter were left exactly as it is set out in the Bill, I can imagine that many small leaseholders would feel aggrieved. They will have been led to believe that the Bill would be a great step forward, but if it is unamended, they may well wonder what a great step backward would look like. I understand that the amendment would be welcomed by the Lord Chancellor's Department, independent professionals and Members of both sides of the other place.
The amendment will ensure that the vast majority of ordinary leasehold properties will qualify under the test. What is more, it will simplify procedures and stop the anomalies and diseconomies produced by the current test. I hope that the Minister will be able to take this amendment away, study it, and bring back something along similar lines, which I am sure will be considerably better drafted.
5.30 p.m.
Baroness Gardner of Parkes: I support the amendment. I am sorry that I was not here for the debate on Amendment No. 27A. I was sitting on an

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industrial tribunal case which, somehow, would not wind up, and so I arrived just in time to vote against the Government on that amendment.
Lord Strathclyde: And lost!
Baroness Gardner of Parkes: The Government must make up their mind as to whether they want people to be able to enfranchise the flats. If they do, this type of simple, helpful amendment would mean that many more people would be able to enfranchise. If they do not want people to enfranchise, why are we wasting time with the Bill at all? That is the dilemma in which the Government find themselves. They say that they want people to enfranchise, but they create so many difficult conditions that it will require someone with a great deal of ability to understand them. As my noble friend Lord Carnock pointed out, any ordinary person reading the clause, and trying to work out whether he qualifies, would have great difficulty in assessing the matter. If we multiply that one person by a block of flats, and all leaseholders have to try to agree something, it would be even more impossible.
My noble friend Lord Carnock presented the case well. I do not intend to go into the arguments in detail. He said that the provision does not relate to people in expensive areas of London. I must say that he is wrong when he puts ordinary people into one category and people who live in Belgravia and other places in another. I know plenty of people in Belgravia who are pretty poor. They have been there a long time. That is one of their difficulties. We should recognise that people are in similar positions all over London and, I suppose, other parts of the country, although I have no experience of other parts of the country.
I have had letters from people who live in the East End of London who are distressed about the present low rent level. It is so low that even their modest flats would be disfranchised. They are disappointed. In earlier stages of the Bill, I said again and again—I must repeat it again today—that many people will be thoroughly disappointed when the Bill becomes law. Such hopes have been raised and they will not be realised. If the amendment is passed, or accepted by the Government on the basis that they will take it back and look at it, many more people will find it possible to enfranchise their flats. I think that the Government want to help people, and so I support the amendment.
Lord Campbell of Alloway: I agree with my noble friend Lady Gardner of Parkes that many people will be disappointed when the Bill becomes law. They will be different people and have different reasons. I do not believe that my noble friend and I share the same reasons.
Baroness Gardner of Parkes: Definitely not!
Lord Campbell of Alloway: In opposing the amendment, I defer to my noble friend Lord Carnock who has a most impressive wealth of expertise in these affairs. I accept also his sincerity of purpose. I oppose the extension of enfranchisement, as proposed by the Bill, and I oppose the introduction of yet another test which would make it possible.
Lord Monson: The noble Lord, Lord Carnock, told us that the leaseholders whose interests the amendment is designed to further are not among the most affluent members of society, and that the amendment has nothing to do with Belgravia or Onslow Gardens. I accept that a great many of those whom the amendment is designed to help are not among the most affluent members of society, but there is nothing in it to exclude Belgravia or Onslow Gardens.
I should like to pick up what the noble Baroness, Lady Gardner of Parkes, said, and put a different twist to it. There are many people in various parts of London who will benefit and who are extremely well off. They may not be in the majority, but many will benefit. They may well be better off than the freeholders. Not all freeholders are members of great ducal families or even charitable trusts. There are many small freeholders who have only one house in which they have made themselves resident.
With respect, it is an over-simplification to claim that the amendment will benefit only those of modest means. The noble Lord, Lord Carnock, went on to say that many people who had bought leaseholds were unaware that they were buying a wasting asset. If they were unaware, I am staggered. I shall not mention words such as "common sense", but I should have thought that their solicitors would have at least pointed out the type of transaction they were getting into. If they did not do so, perhaps the people have some grounds for taking action against them.
There is nothing intrinsically stupid about buying a wasting asset. An elderly couple with no dependants may find it advantageous to do so. According to figures with which I have been supplied, one can buy a 20-year lease for 37.3 per cent. of the value of a freehold. That may make excellent sense to an elderly couple who are looking forward 15 years or so. They may have no one to whom to leave anything and want to live in a part of London, such as Belgravia, in which they could not possibly afford to live if only freeholds were available.
Lord Shaughnessy: One of the problems with the Bill is what I think has been referred to by other noble Lords as the factor of the numbers game. The enfranchisement, or the exclusion from enfranchisement, of a leaseholder can be governed by a factor of one: £1; 1 per cent. I acknowledge that it must have been difficult for the Government to come to a conclusion about the numbers. However, the Bill's objectives have not changed: they are to give the right of enfranchisement to as many leaseholders as can be appropriately achieved.
The amendment so expertly explained by the noble Lord, Lord Carnock, and supported by my noble friend Lord Annan, goes some distance towards eliminating some of the inequities that the numbers game creates. I hope that the Minister will give the amendment serious consideration, and I shall support it.
Lord Strathclyde: My noble friend Lord Carnock introduced the amendment with great skill and eloquence. He was ably supported by the noble Lord,

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Lord Annan, who said that he was offering me, or at least the Government, a lifeline. I have received a number of letters of support for the amendment from many noble Lords. So I am sorry that I shall disappoint many of my noble friends.
We have already discussed the arguments for and against a low-rent test. It marks the extent of the transfer of equity between landlord and tenant, and provides an important distinction between the rental and the long-lease market.
As I said before, the length of the lease alone is not a sufficient criterion to determine whether the grant of a lease has transferred ownership from the landlord to the lessee at the outset. Leases may be long, if they are granted for a term exceeding 21 years, but attract a high rent more akin to a market rent than a nominal ground rent.
The amount of rent payable distinguishes a lease which confers ownership from one which is a renting tenancy. The former carries a nominal ground rent. The value to the landlord lies in the capital premium paid. The latter attracts a rack-rent which provides an income stream to the landlord. In the former case, the landlord has effectively given up the interest for the duration of the lease, but in the latter the transfer of value is not so great.
The comparison of the annual ground rent to the rateable value is a simple test. The rent thresholds in our low-rent test are long-established. The low-rent test, as I said previously, appears in roughly the same form in several pieces of important landlord and tenant legislation which are referred to regularly.
The leasehold market in property generally, including houses and flats, has distinguished between long leases at low rent and leases commanding rack-rents for the past 40 years. People have organised their property transactions, investments and homes around the parameters the existing rent test has created. To change the basis of it now would significantly affect the market and damage confidence.
I do not detract from the case that has been made by my noble friend and other Members of the Committee. However, I hope that in the light of what I have said, and in reply to Amendment No. 76A, they will accept that I do not consider it appropriate to alter thresholds merely to suit a small proportion of tenants of flats. I hope that having heard my arguments my noble friend will withdraw his amendment, in particular in the light of the recent vote.
Lord Williams of Elvel: Before the noble Lord, Lord Carnock, decides what to do about the amendment, will the Minister enlarge on his response to the question which I asked at the end of our debate on the low-rent test? It related to the difference between low rents under commonhold and the treatment of low rents under leasehold enfranchisement. There appears to be a serious failure of logic on the part of the Government. If commonhold is owning the freehold of what is at present a leasehold and holding the common parts in common and if leasehold enfranchisement is collective enfranchisement of the property and most of the leases, what is the difference
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between the two in terms of the low-rent test? Why does the noble and learned Lord the Lord Chancellor take one view and the Minister take another view?
Lord Strathclyde: I hope that the noble Lord, Lord Williams of Elvel, is not suggesting that there is great disagreement between my noble and learned friend the Lord Chancellor and myself. I can prove that our views are entirely consistent. The paper which was issued in November 1990 by the Lord Chancellor's Department was published before it was decided to proceed separately with leasehold enfranchisement. Reference to rent was included in a section relating to possible forms of compulsion for the conversion to commonhold tenure.
The policy now is that a prerequisite for conversion must be agreement by everyone with a major interest in the block as well as long leases at low rent. Long leases at high rent, short leases for which a premium has been paid and business leases also count as significant interests. The extent of the transfer of ownership between landlord and tenant is therefore irrelevant for this purpose, unlike the issue of enfranchisement which we are discussing today.
The paper concluded that the complications of a low-rent qualification could not be justified bearing in mind that special provision would have to be made where some leases were at a low rent and some were not. The distinction between commonhold and enfranchisement is that the former affects everyone in the block except renting tenants. In enfranchisement the position of non-qualifying tenants does not change; they merely come under a new landlord. Housing association tenants and local authority secure tenants even keep the same landlord. Therefore, no special provisions are needed.
I do not wish to make much of the argument but I hope that I have explained the matter fully to the noble Lord, Lord Williams. If in the light of what I have said I need to write to the noble Lord, I shall do so.
Lord Renton: Before my noble friend sits down, will he confirm that under our constitution we never legislate in anticipation of further legislation? We have not had a commonhold Bill in front of us and we must therefore deal with this Bill on the assumption that there is no such thing as commonhold. Is that right?
Lord Strathclyde: That is clearly right. On Second Reading many noble Lords asked why we were not discussing commonhold. In answer I said that my noble and learned friend the Lord Chancellor may or may not introduce that system in the future because it is fiendishly complicated and may require more thought. I said that in the light of that we were bringing forward these proposals on leasehold enfranchisement which should therefore be seen separately from any other prospective legislation.
Lord Williams of Elvel: I fully accept what the noble Lord, Lord Renton, tried to say. However, let us suppose that the Committee were presented with a Bill proposing that we should all drive on the right-hand side of the road but in turn the noble and learned Lord the Lord Chancellor issued a consultation paper

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proposing that we should all drive on the left-hand side of the road. It would not be unreasonable to take into account the views of the noble and learned Lord in discussing a Bill which proposed exactly the opposite. I am afraid that the noble Lord has failed to convince me about the total homogeneity of view between himself and the noble and learned Lord the Lord Chancellor. Indeed, the latest paper issued by the noble and learned Lord deals merely with tenancies granted for more than 21 years. There is no reference to low rents or to anything else. If the noble Lord will write to me about the matter perhaps a little more convincingly than he has spoken we shall resume the debate on Report.
Lord Campbell of Alloway: Is not the problem—simply stated—that the noble Lord, Lord Williams, is driving along one road and apparently my noble and learned friend the Lord Chancellor is driving along another road? It is not a question of driving along different sides of the same road. We do not have commonhold.
Lord Williams of Elvel: I am not sure that the noble Lord, Lord Campbell of Alloway, is driving on any road at all.
Lord Coleraine: I agree with the noble Lord, Lord Williams of Elvel, that there is an inconsistency in the positions taken by the two departments. I do not believe that in pointing that out, anyone is trying to anticipate commonhold.
Lord Carnock: Apart from my noble friend the Minister only one voice was raised in opposition to my amendment. It most clearly commands a considerable degree of support in Committee and outside. However, I am conscious that the wording is defective. The amendment does not refer adequately or at all to property in the country, which would have to be treated differently from property in London.
I hope that between now and a later stage of the Bill different views will be expressed. There will certainly be further consultations outside the Committee and in view of that I shall probably return to the matter on Report. In those circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
5.45 p.m.
Baroness Gardner of Parkes Baroness Gardner of Parkes moved Amendment No. 42:
Page 8, line 28, leave out ("£1,000") and insert ("£2,000").
The noble Baroness said: As the issue has been debated so many times I shall move the amendment formally and await the Minister's reply. I beg to move.
Lord Strathclyde: The amendment seeks to raise the annual rent threshold for leases in Greater London by a factor of two. I do not wish to disappoint my noble friend but as she recognises we have discussed the issue at considerable length. Therefore, I shall take up no more time by repeating the arguments.
The amendment does not achieve very much, given that changing the threshold will cut across all the tenant protection legislation and will apply only to
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new leases within Greater London. Such leases may have been constructed to make them renting tenancies rather than owner-occupying tenancies. Their leaseholders may in fact be assured tenants. Those are not tenants to whom we as government wish to give the right of enfranchisement. That is the point which we are making in rejecting my noble friend's amendment and I hope that that explanation suffices.
Baroness Gardner of Parkes: I thank my noble friend for that reply. However, I believe that many landlords have anticipated the legislation and have planned their rents accordingly. For that reason I believe that £2,000 would change the situation. As we have discussed the matter in great detail I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Carnock Lord Carnock moved Amendment No. 43:
Page 9, line 5, at end insert ("and
(f) for the purpose of determining the proportion that the rent payable in respect of the flat during the initial year bears to the rateable value, the rateable value shall be increased either to take into account any tenants' improvements in accordance with Schedule 8 to the Housing Act 1974 or to take into account any improvements affecting the rateable value and made before the appropriate date or both.").
The noble Lord said: The purpose of the amendment is to draw attention to a problem which arises where a tenant's flat is intended to qualify for enfranchisement but might not do so because the rateable value has not been increased to reflect the cost of improvements. In order to qualify, the rent of the flat must not exceed two-thirds of the rateable value, but if improvements have been carried out and the rateable value has not increased accordingly, it is possible that in some cases the rent may be more than two-thirds of the rateable value, whereas if the rating system had been operating more efficiently, it would have been two-thirds or less of the rateable value.
The rating system has now been abandoned, but for many years previous to its abandonment it had not operated in accordance with the intentions of those who devised it. The most glaring failure is that there has been no quinquennial valuation since 1972. Therefore, the last up-to-date rating valuation list came into force on 1st April 1973 and is now 20 years out of date.
One of the unsatisfactory elements of this legislation is that reliance is still placed on such an anachronistic and flawed system as rating. However, for the moment, we are stuck with it. There are two types of improvement which are covered; namely, those made by the tenant after the commencement of his lease, and those made by the tenant or others before the commencement of the lease. The amendment covers both situations.
In order to avoid the possibility of any confusion, I should remind Members of the Committee that arrangements for the adjustment of rateable values were included in the Leasehold Reform Act 1967. Those arrangements envisaged only a downward adjustment in the rateable value to cover the possibility that improvements made by the tenant

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might have resulted in the increase of the rateable value so as to bring the tenant above the rating limit for qualification.
The 1967 Act provides a precedent for making adjustments of this kind, even though the adjustment envisaged by the amendment is an upward adjustment while that provided for in the 1967 Act is a downward adjustment. I commend the amendment to the Committee.
Lord Strathclyde: This amendment would provide that, for the purposes of determining whether a flat passes the low-rent test, the rateable value of that flat should be increased to reflect any improvements carried out since the rateable value was set or to reflect any improvements made before the date of the grant of the lease.
I believe that my noble friend has raised an important issue and it is one that I am prepared to consider further. I agree that it may be unfair to judge cases using the normal rules where it is clear that there were special circumstances. I am not sure, however, that the amendment as drafted would achieve all that my noble friend would wish.
It may be possible to take account of improvements which have been made before a lease is granted, but which are not reflected in the rateable value. But I think it may be more difficult to assess what the rateable value of a flat would have been at the time a lease began, taking account of later improvements.
Having raised those potential difficulties, I believe that this is a matter which should be considered further. I am content to look at it again to see how its aims may best be met. I shall consult with experts on rating and valuation to see whether or not a workable proposal can be brought forward. With that undertaking, I ask my noble friend to withdraw the amendment.
Baroness Gardner of Parkes: While the Minister is doing that perhaps he will look at the precedent contained in the Leasehold Reform Act 1967. In that regard, I can recall cases in which improvements were taken into account. Members of the Committee will know that the right to buy depended on the rateable value in London, which I believe was £1,500 at that time. As a councillor I can recall cases in which people proved that improvements that they had made had altered the rateable value. Therefore, perhaps that precedent can be taken into account.
Lord Carnock: In the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 7 agreed to.
Clause 8 agreed to.
[Amendment No. 44 not moved.]
Schedules 1 and 2 agreed to.
Clause 9 [Premises with a resident landlord]:
Lord Coleraine Lord Coleraine moved Amendment No. 45:
Page 10, line 16, at end insert ("and
() the freeholder was the owner of the freehold of the premises at the date when any written permissions required by law for the conversion of the premises into flats were given by the relevant authorities or, if
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no such permissions were obtained, for a period of not less than twelve months ending on the date on which building work necessary for the conversion commenced.").
The noble Lord said: The purpose of the resident landlord exemption should be to recognise the position of someone who finds that his family home has become too large or expensive and converts it and sells off parts of it. To the extent that this has a good effect on the housing stock, it is also to be encouraged. Any other person who happens to buy a freehold because that is the only way that he can acquire the possession of a particular flat which he may want really has no claim, as a freeholder, to be treated any differently from an outside freeholder.
Amendments Nos. 45 and 46 are intended to provide that the resident landlord exemption is to apply only to the freeholder who converted the house and to members of his family. I give an example of one particular type of resident landlord by purchase. A builder has converted a house into three flats. He sells two flats on long leases. When he sells the third, instead of granting a long lease, he transfers the freehold of the whole building to the purchaser. He is the freeholder. He is living in one of the flats. The other two flat owners are his lessees. It is very difficult to see why that resident landlord should benefit from an exemption.
The two other lessees will, it is true, have the right to lease extensions under Clause 35, but they will remain the tenants of a person who is only the landlord by chance.
Exemption from collective enfranchisement in this case will only tend towards poor relations between the two lessees and their resident landlord. Although, on the whole, I support the liberalisation of the right to lease extension under the Bill, I think that this is an instance of a situation where collective enfranchisement may be the better option. As I understand it—and the Minister will correct me if I am wrong—the former freeholder would take a leaseback of his flat. If he did not do so, I suppose that he could be thrown into the street. One thing would be lacking before there could be said to be an equality of rights and status among the residents in the building. I refer to the right of the freeholder to retain an interest in the freehold. Something would have to be done about that, because it would not be right for the two lessees to be able to buy out their former resident landlord and reverse their positions entirely. This is not really for me to consider today because I believe that the point to which I am drawing attention reflects a defect which is already in place in the Bill in any case where a resident landlord is unable to claim exemption.
The general conclusion that I have reached is that the tighter the conditions for exemption are drawn as regards the personal circumstances affecting the freeholder—the more that it is limited to the person who converts his own home, and to his family—the better it will be. But there must be adequate provision in the Bill for the freeholder who fails the test and finds himself given the old Animal Farm treatment when he is enfranchised against.
The recent Consumers' Association survey showed that 6 per cent. of leaseholders had resident landlords,

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with two out of three of the properties comprising three or less flats. It must be clear from this that a substantial number of flat owners will be affected by the resident landlord exemption, and that we must try to get it right now. The situation where a freeholder shares a building with his long lessee neighbours can be quite fraught.
Before I move the amendment I wish to make a further point on the clause, and if I am right about it I hope that my noble friend will give it some thought between now and Report. Much of the Bill is devoted to the relationship between freeholder and flat owner as though the freeholder was the only person who had a really substantial interest in a property. The long lessee reversioner seems often to have been overlooked. The owner who converts his family home into flats may be a long leaseholder. I suggest that the clause should be expanded so that the resident landlord exemption applies also where the landlord is a leaseholder himself. I beg to move.
6 p.m.
Baroness Hollis of Heigham: We on these Benches support this amendment as it seems to us to be useful in protecting the rights of a landlord whose home it was before the property was converted into flats. As we know, most of the acquisition of flats to the leasehold market have arisen from house conversions. We recognise therefore that there may be a claim to intimacy associated with the previous owner of the entire house. We believe, however, that no such claims of protection can apply to a landlord who subsequently buys in and for whom the purchase is strictly commercial. For those reasons this amendment draws a useful line between someone whose home it was formerly and someone who is buying into a commercial development. We support the amendment.
Lord Strathclyde: The provision that a converted block of four or fewer units with a resident landlord should not be eligible for enfranchisement is designed to ensure that a freeholder can retain a property which is his immediate home. I accept that the most important use of the resident landlord exemption is to allow a landlord to retain the freehold where he has converted a family home which has become too large.
This very narrow set of circumstances is the only resident landlord exclusion which my noble friend's amendment would allow. Our provisions go wider and continue the exemption even where the block has been passed on to another freeholder. I believe that there are some very compelling arguments as to why that should be the case notwithstanding the arguments that were put forward by the noble Baroness, Lady Hollis. Most importantly our provisions allow successors in title to a freehold to continue to benefit from the exemption. Where a person has inherited the family home, in which perhaps he grew up, he has the same claim as the person who converted the property to retain the freehold.
A freeholder may have purchased a block with the freehold and a flat deliberately because it gave him control of a small property which was his home. Our
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provisions again cover this case. Our provisions also follow the precedent of the 1987 Landlord and Tenant Act where the definition of a resident freeholder provides for successors in title. The current provisions follow precedent and make allowance for successors in title. I consider that they make a better provision for the definition of resident freeholder. On that basis I hope that my noble friend will feel able to withdraw his amendment.
Lord Coleraine: I cannot say that I accept the arguments put forward by my noble friend for rejecting the amendment. It does not seem to me that the fact that someone comes along and buys a small property where there may be three or four flats, all let on long leases, and he moves into the empty flat, gives him any particular reason to obtain exemption from collective enfranchisement against those lessees in the other flats in the building. My noble friend mentioned the possibility of a resident landlord coming in by inheritance or possibly by buying back the family home. The second of the two possibilities is fairly remote. I doubt whether one would wish to provide an exemption for that. As regards the landlord by inheritance, obviously the spirit of my amendment would cover that. I do not think anyone would dispute that. The case has not been well made for retaining the clause as it is, but I shall withdraw the amendment now and consider what to do with it between now and Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 46 not moved.]
Viscount Goschen Viscount Goschen moved Amendment No. 47:
Page 10, line 46, leave out ("or illegitimate son or daughter").
The noble Viscount said: This is purely a drafting amendment to remove reference in the clause to "illegitimate son or daughter". The intention was to specify that reference to son or daughter as a member of the freeholder's family included illegitimate son or daughter. This is not necessary because of the provisions of Section 1(1) of the Family Law Reform Act 1987 which provides legal interpretation for such references. I beg to move.
Baroness Hollis of Heigham: Does that mean that an illegitimate son or daughter is a member of the family under the Act so quoted?
Viscount Goschen: That is the case.
Lord Renton: It is quite right that we should avoid repetition in Acts of Parliament, but I should have thought that on this occasion, for the sake of clarity and so that everyone knows where they stand, it might be just as well to repeat what is in effect an earlier definition. I know that is not very good advice generally but I think that on this occasion it might well be followed.
Lord Peyton of Yeovil: I also take an interest in the drafting of these measures. I wish that my noble friend would go a little further and explain why the words were included in the first place and why the words are now being taken out. That seems very odd. One is used to some eccentricities on the part of those who draft

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these measures but here they seem to have gone over the edge. I am sure that my noble friend can help us all a little further.
Viscount Goschen: In reply to the point made by my noble friend Lord Peyton, it seems purely and simply that there has been a drafting error. In reply to my noble friend Lord Renton, I accept what he says but our advice is that further explanation is not necessary. It would be redundant and it would therefore cause duplication.
On Question, amendment agreed to.
Clause 9, as amended, agreed to.
Clause 10 [Right of qualifying tenant to obtain information about superior interests etc.]
[Amendment No. 48 not moved.]
Lord St. John of Bletso Lord St. John of Bletso moved Amendment No. 48A:
Page 12, line 19, at end insert ("and
(d) a right of access, in the case of any part of the specified premises, thereto for the purposes of enabling him to obtain a valuation of that interest in connection with the notice; and that right of access shall be exercisable at any reasonable time and on giving not less than three days notice to the occupier of any premises to which access is sought.").
The noble Lord said: This amendment relates to the rights of a nominee purchaser to have reasonable access to all parts of the property in order to make a proper and thorough valuation of the property. Clause 10 provides for the right of qualifying tenants to obtain information about superior interests but does not provide for reasonable access to the whole property for valuation purposes. As the freeholder has the right to inspect the whole property, is it not therefore reasonable for the nominee purchaser to have a reasonable right of access so that a full and proper valuation of the whole property can be undertaken? The Bill provides for the nominee purchaser, on behalf of the group of leaseholders, to make a serious offer for the freehold of the property in question. Clearly in order to make a serious offer a detailed valuation of the property needs to be undertaken.
I shall give an example. As regards a block of 10 flats where seven flats are on long lease and three flats are rented, belonging to the landlord, for a proper valuation of the freehold it is essential that all flats be inspected. As the Bill now stands, there is no such right of inspection over the three flats belonging to the landlord in the example that I have mentioned. Similarly, there might be a situation where part of the block is used for commercial purposes by the landlord or his tenant. Such parts would also need to be valued by a nominee purchaser for a proper valuation of the whole property to be obtained. Another reason why reasonable access to the property may be required is to assess the state of repair or condition of the entire property. My amendment simply seeks to give a reasonable right of access to the nominee purchaser—a right which is always enjoyed by the landlord. I beg to move.
Lord Strathclyde: I well understand why the noble Lord, Lord St. John, brings forward this amendment
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and why he might argue that it would be more difficult to value the interests of those tenants who did not wish or were unable to participate without rights of access, but I hope that I can reassure him that that would not be the case in practice.
No rights of access are of course needed in relation to the flats of tenants who are likely to participate or to common parts. It should not be necessary to have access to the flats or units of those tenants who do not wish to participate or those who do not qualify because the preliminary notice of discovery should provide the tenants with all the information necessary for them to make a realistic valuation.
The amendment applies the right of access during the preliminary notice of discovery before the tenants have concluded that their block is eligible and they wish to proceed with enfranchisement. The right to serve a preliminary notice and the rights associated with it may be exercised by a single qualifying tenant at any time and may be claimed more than once. Many preliminary notices may be served which may not necessarily lead to the tenants committing themselves to enfranchisement. If, as the noble Lord suggests, the right of access were claimed, this would become a considerable nuisance to the nonparticipating tenants whether they be shop owners, renting tenants or qualifying tenants who do not wish to participate.
So the point that I make to the noble Lord is that in practice I do not believe that there would be a problem and that if his amendment were brought forward it could be a considerable nuisance to non-participating tenants. I hope that that full explanation will give the noble Lord some comfort.
Lord Coleraine: The noble Lord, Lord St. John, referred to the nominated purchaser doing all that. I do not suppose that there is a nominated purchaser at this stage, but it seems to me that the objections raised by my noble friend could be overcome if a certain number of qualifying tenants had to make these arrangements for access.
As to the idea that one can value flats just on the basis of information supplied by a reversioner, that seems far fetched. One needs to get inside the flats to investigate the services and whether a covenant has been properly performed and the like. It seems to me that the answer that my noble friend gave is too facile. I hope that he will agree to take the matter further and look at it again. Frankly, throughout the Bill the rights given to reversioners are far in excess of those given to flat owners.
Baroness Hamwee: I support the amendment for the reasons given by the noble Lord, Lord Coleraine. I believe that we are about to find quite a number of valuations undertaken without access to premises proving not to be reliable valuations. I refer to the council tax under which, next month, I suspect a shoal of appeals will be launched against valuations made from outside the premises. I hope that that will be wrong because I wish the council tax to work. However, the amendment seems to me modest and possibly the means of avoiding quite a lot of trouble.
Lord Boardman: I understand the motives for the amendment and the manner in which the noble Lord, Lord St. John, put it commends itself in the interests of valuation. However, in his reply my noble friend referred to the inconvenience—indeed, more than inconvenience—that would be suffered by the non-participating tenants. It seems that throughout the Bill far too little is said in the interests of those who do not wish to or cannot buy their flats and who would therefore, if the amendment were accepted, be subjected to constant visits by their neighbours who would crawl all over their flats in the interests of finding out what value should be paid for them, probably out of inquisitiveness. I believe that the interests of the non-participating leaseholders should be borne in mind, as my noble friend suggested.
Lord Williams of Elvel: I am sure that there is a balance to be struck here. I take the points made by the noble Lord, Lord Boardman, and the noble Baroness, Lady Hamwee. To expect a qualifying tenant to buy blind without having seen the interior of the property he is trying to buy is an odd concept. Perhaps the Minister can look at this and find a way which strikes a balance between the legitimate concerns on both sides.
Lord Strathclyde: I do not wish to be difficult on the issue. The amendment proposed by the noble Lord, Lord St. John, would create considerable problems, I believe, for non-participating tenants, particularly in view of the way the rest of the legislation is drafted in terms that any other tenant could exercise the right to inspect people's homes. Members of the Committee may say that that will not happen in practice, but where potentially it could, particularly to business tenants, a great deal of difficulty would be created.
I do not wish to be difficult, I am quite happy to look further at the amendment. I cannot see a way through the problem but if the noble Lord, Lord St. John, has any other bright ideas, I am happy to look at them.
Lord Williams of Elvel: Perhaps it would help if the tenants in question nominated one person or a nominee purchaser so that we do not have every conceivable tenant going into the flat. There would be one nominee who could make an assessment on behalf of the others.
Lord St. John of Bletso: I am grateful for the Minister's reply and for the support given by other Members of the Committee to the amendment. All I seek in the proposal is reasonable access to the property for valuation purposes. Clearly, one is not able to value a property without physically inspecting it, but I am pleased that the Minister will give consideration to the proposal before the Report stage. Under the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
6.15 p.m.
Lord Coleraine Lord Coleraine moved Amendment No. 49:
Page 12, line 39, at end insert:
("() Any person who fails without reasonable cause to comply with subsection (7) or is guilty of unreasonable delay in complying with it shall be liable for any loss thereby occasioned to the qualifying tenant who gave the notice.").
The noble Lord said: I wish to speak to Amendments Nos. 49 and 50 which are grouped together, although they are separate provisions. Clause 10 is one of the most important in the Bill because flat owners who are considering enfranchisement have to be absolutely certain what they are taking on and whether they are legally able to enfranchise. For this purpose, they need a great deal of information which is of necessity within the knowledge of freeholders and superior leaseholders. If anything goes wrong, the flat owners stand to waste a considerable amount of money and to be liable even to the freeholder for his costs. Clause 10 sets out information which the flat owners may obtain and the obligation of the freeholder to supply the information.
There is a power to go to court under Clause 82 if there is delay on the part of the freeholder for which a sanction should be obtained or if there has been a refusal to supply information. However, all the court can order under the provision is that the party in default makes good the default within 14 days and further notices have to be served on the freeholder before the application to the court is even made.
Further complicated applications would have to be made in order to turn the court order into an adequate sanction. That does not seem to me to be good enough procedure to be adopted against a freeholder who may be dragging his heels in an effort to thwart an intended collective enfranchisement.
I am proposing two amendments. One has been drafted and recommended to me by the Leasehold Reform Co-ordinating Committee consisting of the Consumers' Association, the Council of Mortgage Lenders and various flat owners' groups. Amendment No. 50, the second amendment, makes failure to perform a duty under subsections (7) and (8) a summary offence, attracting a fine not exceeding level 4 on the standard scale. I am advised that Section 25 of the Landlord and Tenant Act 1985 is a very good precedent for that sanction, a comparable case where the landlord has failed to provide information.
Amendment No. 49, which is the Law Society's recommended sanction, provides that a person who fails without reasonable cause to supply information within the time limits should be liable for loss occasioned to qualifying tenants who ask for information. That is far from being a draconian remedy; it may need tightening up so that all tenants who suffer loss as a result of the failure to comply with the Clause 10 requirements are indemnified. I believe that the principle of the amendment, as of Amendment No. 50, is one which my noble friend should support. I beg to move.
The Lord Advocate (Lord Rodger of Earlsferry): Perhaps I may deal first with Amendment No. 49 moved by my noble friend. In relation to that matter

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he has argued that provision should be made for the tenant to recover loss incurred if the landlord had failed to respond to a discovery notice served under Clause 10 or delayed unreasonably. It has to be remembered that the preliminary inquiries, the discovery notice, come at an early stage, and it is not entirely easy to see how a significant loss could arise to the tenant, or indeed how it could be quantified. No initial notice has yet been served, and of course the nominee purchaser may not even have been appointed, as my noble friend mentioned a few minutes ago. The tenant's lease is unaffected, and no risks have yet been taken.
But my noble friend mentioned Clause 82 when moving the amendment. That is a carefully constructed clause which deals with the situation of default, and gives to the qualifying tenant the right to go to court after a certain procedure is gone through, and to have the default made good. We believe that that is the correct way to go about this matter. Given that that power exists, and that it is open to the tenant to use that clause, it is not clear to us that there should be any room for continuing loss due to a continuing default by the landlord, because it lies within the power of the tenant to use the remedy in Clause 82 and to have the default put right. We believe that Clause 82 represents the correct way forward, and that the particular provision that my noble friend has moved is not necessary.
I turn to Amendment No. 50. It does not appear to us that it would be appropriate or useful to introduce criminal sanctions into the Bill. After all, it is essentially a civil matter with which we are dealing, and it is important, as has already been said by noble Lords from several parts of the Committee, that landlords come in various types and guises. They are not all great estates with professional managers and estate offices. Some may be people in comparatively humble circumstances who do not have the assistance of such people.
There may therefore be a wide range of situations where it may be that a great estate would have no excuse for failing to comply with an obligation, but other freeholders, individuals who have perhaps inherited a property, may not have a great deal of advice available to them, and therefore their default may be comparatively venial. Therefore, it should be said that the issuing of such a notice under Clause 10 is a matter which lies exclusively in the hands of the tenants. The individual tenant can choose to issue such an order at any time that suits him. At that time of course the landlord may be on holiday, or may not entirely understand the significance of the notice that comes to him. There may be many reasons why somebody may not comply with the notice straightaway.
It therefore seems to us that to introduce criminal sanctions into this whole area would not be helpful. If I may refer back, we believe that the correct route through is the use of civil remedies available under Clause 82. That is the correct way forward, and it
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would not be helpful to introduce criminal sanctions. In those circumstances, I ask my noble friend to withdraw the amendments.
Lord Coleraine: I should like to touch first on my noble and learned friend's reply to the second amendment, the criminal sanctions. I think that he is living in a world of his own if he thinks that the criminal law should not be brought into the relationships of landlord and tenant in some of these blocks of which we hear in and around the centre of London. I have been advised that the Landlord and Tenant Act 1985 contains a good precedent for this kind of sanction in this case. However, so far as that amendment goes I shall not be moving it, and I shall no doubt hear from the people who advise me on it when they have read the reply.
Amendment No. 49 is much simpler. If properly fleshed out, it would give flat owners what would amount to a fairly effective sanction, which would not require the need to go to court. I do not for the moment understand why my noble and learned friend is less sympathetic to that. He makes two points which I shall touch on.
First, he feels that under Clause 82 applications can be made to the court. I have looked at Clause 82, and the Law Society will no doubt wish to do so when it has had a chance to consider the reply. But it seems to me that applications to the court are a slow way of bringing some sanction about in circumstances where it may well be that the reversioner is desperately seeking ways to rearrange his affairs, because he knows that his flat owners are contemplating a collective enfranchisement. From the point of view of the flat owners it is essential that these procedures should go through fairly speedily, and that there should be little incentive and little opportunity for the reversioner to slow down things, because it will always be the reversioner—and not the flat owners—who wants to slow down things.
My noble and learned friend also referred to the fact that he could not see what kind of loss might have been incurred in the initial stages before the notice under Clause 11 is served. I should like to tell my noble and learned friend that it seems to me that the flat owners who are contemplating an enfranchisement will have to incur a considerable amount of expenditure before they have served the initial notice. They will have to have the valuation; they will have to arrange finance; they will consult lawyers; they will almost certainly have to redraft many of the leases in the building; and they will have to have a collective agreement among the proposed participating tenants. Therefore, once the enfranchisement goes forward all the rights of the participating tenants inter se will be set out.
There will be a great deal of expenditure incurred by flat owners. There is much room for finding that they are likely to incur loss if things go wrong, and if the reversioner, for example, gives false information. However, these are matters which I should like the Law Society to consider when it has read my noble and learned friend's reply, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.

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[Amendment No. 50 not moved.]
Clause 10 agreed to.
Lord Coleraine Lord Coleraine moved Amendment No. 51:
After Clause 10, insert the following new clause:

Housing and Urban Development Bill

  Leaseback notices
  .—(1) A qualifying tenant of a flat may give notice ("a leaseback notice") to the person who owns the freehold, requiring him to specify which of the units within the relevant premises he would wish to be subject to the leaseback provisions of section 32 below and Schedule 8 below in the event of an initial notice under section 11 below being served within six months of the service of the leaseback notice.
  (2) If a leaseback notice is served on him, the freeholder shall reply to it within 28 days.
  (3) In this section "the relevant premises" has the same meaning as in section 10 above.").
  The noble Lord said: At Second Reading I drew attention to a property called Morshead Mansions, which consisted of 79 long leasehold flats and 25 flats let to controlled tenants on statutory tenancies. The position I described was that the owner of the block was interested in the rack-rents, as they are called—the Rent Act tenancies—because he saw the possibility of granting long leases at premiums when those tenancies fell in. Almost the entire value of the block was in the 25 Rent Act tenancies.
  As the Bill stands at present the participating tenants have to make their arrangements for financing the purchase of those Rent Act tenancies. As I explained, they have a low flow of income. It will not be easy to raise finance. They will have to go to considerable expenditure. If they can arrange finance no doubt they will have to pay a substantial commitment fee. However, when the enfranchisement proceeds, the result in such a case will be that at some point—I believe at any time before completion—the reversioner will say, "I want a leaseback on those properties". We can be almost certain that it is a leaseback that he wanted all along but in order to confuse the flat owning tenants he has held his cards back until the last minute. He has given them a rough ride until, at the last moment, he eventually says, "I want those flats back".
  It would be much simpler if we could devise a procedure such as that set out in the amendment whereby the enfranchising flat owners could require the reversioner to state at an early stage whether or not he will wish to take a leaseback on certain properties. The result of such a procedure would be that, if and when the enfranchisement went ahead, the reversioner would be obliged to take leasebacks from those on which he has stipulated that he wanted leasebacks but he would be precluded from taking leasebacks on the other properties.
  In a case such as I have described that is an eminently sensible provision. My noble friend's agile mind may have devised similar situations in which the procedure would not work. However, such a provision would make the Bill work more easily. It would be in the general interests of flat owners and not against the interests of reversioners who are seriously trying to comply with all the provisions of the legislation in a constructive way in order to get the enfranchisement through on reasonable terms and in a reasonable time. I beg to move.
  6.30 p.m.
  Lord Boardman: My noble friend asked for suggestions for overcoming the problem as he saw it. As I understood the point he made, he referred to flats in which the majority of occupants are paying rack-rents and are not long leaseholders.
  Lord Coleraine: Perhaps I may assist my noble friend. In the example I chose, in 79 of the flats they were long lessees and in 25 they were not.
  Lord Boardman: I am grateful to my noble friend. He talked in particular of the problem of the rack-rent payers. In those circumstances, perhaps he would be more supportive of the line that I took on earlier amendments with regard to, first, the right of the non-residents not to be able to enfranchise and, secondly, non-resident leaseholders, the rack-rent tenants, who seem to suffer under the proposals in the Bill.
  Lord Strathclyde: I consider that the amendments would place an unnecessary and onerous burden on a landlord. The new clause would allow any qualifying tenant to serve an additional discovery notice asking the landlord which units he would wish to lease back were an initial notice to be served within the following six months. The amendments would then commit the landlord to leasing back those units and no others.
  The present discovery notice is satisfactory and reasonable in that it provides a means for tenants to obtain the minimum information they require to enable them to make a decision on whether to proceed with a claim to the right to enfranchise. It allows them to discover who their landlords are, and whether the block is eligible for enfranchisement.
  It has been devised quite deliberately to be fair to landlords also by not requiring the release of unnecessarily detailed information. It is possible that a landlord could have many discovery notices given to him, none of which lead to the commencement of the enfranchisement process with the tenants' initial notice. He cannot claim costs for the supply of information and it is therefore right that the information required should not be extensive.
  Such a requirement would involve a landlord in a lot more work, and therefore expense, in making his response to the notice. He would have to consider which flats he wanted to lease back which might require him reconsidering his overall investment and its future potential. A landlord may be put in the unenviable position of having to give a realistic answer to a theoretical question about possible enfranchisement at a future date.
  The amendments to Schedule 8 impose an even more unreasonable burden. These make the leaseback of the units specified in the leaseback notice mandatory upon both parties. They also prevent the landlord from leasing back units not specified in the notice. Those provisions could be very onerous. Each time a leaseback notice was served the landlord would be in the position of being tied to any decision he made on leaseback for a further six months. That commitment would be without the benefit of

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  knowledge, which the landlord would later obtain from the initial notice, of the extent of enfranchisement, exactly when it might occur, and on what terms.
  The current provisions are that, once an initial notice is given to the landlord, he will be required to indicate which units he wishes to lease back. After an initial notice has been given the landlord will be able to recover his reasonable costs, which will include any associated with providing information on leaseback. That is fair to the landlord. If his decisions on leaseback affect the tenants' decision to enfranchise, then they may still withdraw and the landlord will receive his abortive costs.
  I am sorry to say this to my noble friend, but I believe that the amendments are unnecessarily onerous to landlords. The information sought will be provided by the landlord when the tenants have a real commitment to enfranchisement. That must be fair on both parties. That is the intention of the legislation and I therefore ask my noble friend to withdraw the amendment.
  Lord Coleraine: Did I understand my noble friend correctly? Was I wrong in thinking that leaseback provisions could be brought into effect by the reversioner at or shortly before the time of completion? Does he say that those provisions can be flushed out of the reversioner with the counter notice? I note that my noble friend nods his head; he is saying that.
  Obviously, I wish to consider the amendment again in the light of what he said. However, at present his objections to my amendment have been long on drafting points and fairly short on principles. If it is a question of extra expense to the reversioner it will not compare well with the expense that could be saved by the flat owners when they seek to sort out their arrangements for financing a large purchase.
  Perhaps I may say this to my noble friend Lord Boardman. The provision does not touch upon the plight of the tenants of the 25 flats which are not included in the enfranchisement. They are not parties to the argument. Possibly I have misunderstood what my noble friend said, but I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 11 [Notice by qualifying tenants of claim to exercise right]:
  Lord Clark of Kempston Lord Clark of Kempston moved Amendment No. 52:
  Page 13, line 21, leave out ("is made") and insert ("may be made at any time after 30th September 1996").
  The noble Lord said: The more I study the Bill the more I am convinced that if a Labour administration had introduced the legislation we, sitting on the other side of the Chamber, would be fighting it tooth and nail.
  Having said that, I remind my noble friend that the voting list on the amendment moved last week by my noble friend Lord Peyton shows that a majority of Back Bench Conservative Members voted against the Government. I suggest to my noble friend that that is a matter which should be taken seriously. Having
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  listened to the Committee stage of the Bill since its inception, I have seen few signs of the Government showing any flexibility. Few concessions have been made.
  The Bill forces freeholders to sell, whatever the qualification may be. Many of us believe that that is wrong. I refer to sharing the marriage value. Why should a freeholder give part of his asset to anyone, whether or not it be the tenant?
  The reason for my amendment is this. I believe that the unfairness of the Bill is exacerbated by the fact that the sale is being forced on a freeholder when the property market is practically at its bottom. When we compute the valuation of the leasehold and the freehold, no matter how it is made, the valuation will be made on the state of the property market. Consequently I should like to suggest to my noble friend that he should give an undertaking to examine the matter.
  I know that in Clause 171 the Secretary of State has the right or the duty to say when the date is going to be, and he does that by statutory instrument. Very well, we accept the fact that it somehow got into the Conservative manifesto at the last election, but if my amendment is accepted by the Government it gives the property market time to recover. It also fulfils whatever commitment we put into the manifesto. I urge my noble friend to accept this simple amendment. Perhaps the wording is not as good as a parliamentary draftsman would like, but if my noble friend accepts the spirit of the amendment, that is all I ask. I beg to move.
  Lord Strathclyde: My noble friend's amendment is drafted in a very clear manner and he has explained it very precisely. The effect, as of the two similar amendments which my noble friend has tabled for later, would be to delay the new rights contained in Part I of the Bill for roughly three years, until October 1996. I feel that it would not be right to delay new rights in that way. There are a large number of tenants of flats who are keen to have at the first opportunity the same rights that people living in houses have enjoyed for 25 years. People who currently face the problem of having an unreasonable landlord or those who cannot sell their flats because the leases are too short will not understand if the Committee delays implementing this commitment by three years.
  My noble friend referred to property prices. They have fallen over the last three years, but I understand that they are now beginning to turn. I, for one, would not be willing to predict where they might be next year, the year after or indeed in 1996; but I cannot believe it is right for the Committee to try to gerrymander by seeking to delay the introduction of the legislation to fit in with particular cycles of the property market. Landlords may do better then, but they may also do considerably worse. Who is to say whether now or 1996 will be the right time to buy commercial property or shares or bonds or any other kind of asset that my noble friend cares to mention?
  I believe that the only course we can take is to legislate for what is right and to leave the markets to fix the value of their interests. I certainly do not have a sufficiently clear crystal ball to tell anybody whether

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  enfranchisement now rather than in three years' time will work to the relative advantage of the landlord or the tenant. I take my noble friend's concerns to heart. I understand how he feels about the legislation, but I hope that he will see that the amendment really is not practicable.
  Baroness Gardner of Parkes: I oppose the amendment most strongly. It is the second time that this matter of being able to delay everything until it all becomes more expensive has arisen. Although property prices may be described as low now, anyone who has been in property for a considerable length of time, as I have myself, though in a very small way, will see that prices are nothing like what they were in, say, 1977 or even the early 1980s. They have gone back from the absolutely ridiculous peaks, which were quite unrealistic, reached in 1988 and 1989, but they have not gone right back again. The further back we look we find that Smith's Charity all started with £2,000 and then we see what it has multiplied to now. There is no way that we can really be worrying about that whereas the thought of delaying the legislation for three years is very difficult. It will in any case take people quite a long time to go through all the procedures and overcome all the obstacles to enfranchisement. The sooner the Bill is passed the happier I shall be.
  Lord Clark of Kempston: I am most grateful to my noble friend for his reply, but I am sure he will understand when I tell him that I do not accept it. Although 1996 may be too long I would be quite prepared to reduce it to 1995 or even to 1994. However, I believe there is a tremendous unfairness, without delaying the Bill unnecessarily, in forcing people who are unwilling sellers to sell an asset when the market is at the bottom. Let it have time to recover. However, in view of what my noble friend says and also in view of the fact that time is getting on, I will come back to the matter at Report stage. In the meantime I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  6.45 p.m.
  The Earl of Lytton The Earl of Lytton moved Amendment No. 53:
  Page 13, line 27, at end insert:
  ("(2A) All qualifying tenants must be given an opportunity to participate in the giving of notice of the claim to exercise the right to collective enfranchisement.").
  The noble Earl said: I will speak to Amendment No. 53 and also to Amendment No. 67, which is grouped with it. These are probing amendments. As the Bill is drafted, enfranchisement can proceed if two-thirds of the qualifying tenants sign the initial notice, but there is no requirement for every tenant to be consulted before participation. It seems to me that the nominee purchaser could on occasion simply forget to include one or more of the tenants. The problem starts with the smallest unit of four flats and can get larger in quantum thereafter, with more numerous qualifying tenants.
  Clearly, it is desirable to ensure that as many as possible qualifying tenants take part in the enfranchisement process. The effect of Amendment
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  No. 53 is to enshrine a right for every such tenant to participate, but not so as to force that participation. That is very important. The onus would be on the nominee purchaser to ensure that reasonable attempts had been made to involve as many qualifying tenants as possible. I stress that in my opinion a collective purchase requires the collective involvement of as many tenants as possible.
  Amendment No. 67 is slightly different. It starts from the fact that the Bill contains no provision to ensure that a nominee purchaser does in fact convey the freehold to the participating tenants. At Second Reading I drew attention to a case in which I had some professional involvement. A nominee tenant, ostensibly purchasing on behalf of himself and a number of other tenants within a building comprising shops and flats—there were shops below and maisonettes above —when he had concluded the purchase of the freehold, put the title in his own name. The other tenants had to sue to obtain rectification of the situation, in accordance with the original understanding. It would be most undesirable obviously if this sort of activity were allowed to take place under the provisions of the Bill once it becomes law. Amendment No. 67 seeks to remedy that.
  There is another reason why the amendment may commend itself to the Committee; namely, that it strengthens the essential relationship between a freehold ownership and the occupation of the property concerned. I should really like to see a provision whereby a share in the freehold was in some way inalienable from the occupation of the building; otherwise it could be alienated and that would be very unsatisfactory. It would lead to a further series of difficulties for tenants in the future. It should be the objective of our discussions in this Committee that we eliminate as far as possible that sort of risk. I beg to move.
  Lord Renton: I hope that my noble friend will give very careful attention to the amendment moved by the noble Earl. It provides an opportunity, if I may take advantage of it, to draw attention to what I regard as the principal defect in the Bill. I can explain it quite simply. Under Clause 3, before there can be leasehold enfranchisement, two-thirds of the tenants in the block of flats have to be qualifying tenants. But that does not end the matter. Under Clause 11, two-thirds of that two-thirds must give notice. That brings us to the proposition that only four out of nine tenants in a block of flats may find themselves forcing leasehold enfranchisement on all the tenants.
  If my noble friend says, "Oh yes, but of the two-thirds qualifying tenants, at least half, and possibly many more, will agree and will give the initial notice", I would beg leave to doubt it. I doubt it for various reasons, some of which can be gleaned from Clauses 11 to 34, which, I may say in passing, are an extraordinarily inconclusive jumble of detailed instructions for tenants and landlords to have to observe. These clauses to which I have referred comprise 28 pages. They also have to be read in the light of Schedule 8, which contains another four pages. Most of what happens between Clauses 12 and 34 could quite well have gone into a schedule. It would

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  have made for better legislation of the kind which we hope, perhaps sometimes vainly, we are leading towards. It is an unsatisfactory situation. I am sure that noble Lords on both sides who support the Bill, and who believe in democracy, which is government by the majority, find it very unusual that we should allow what is potentially a minority of the tenants to force the issue.
  I am grateful to the noble Earl. His amendment, which seems to me a very simple one and which goes towards making the outcome more certain, has provided an opportunity to draw attention to what I suggest is a major defect in the Bill.
  Baroness Hollis of Heigham: We on this side of the Chamber also support Amendment No. 53. As has been mentioned by the noble Lord, Lord Renton, there is a broader issue throughout the Bill of latecomers to the process of enfranchisement. We hope to address some of those issues in Amendments Nos. 63, 64 and 65 on the one hand, and Amendment No. 71 on the other, which deals with latecomers coming in at the stage of participation; participatory notice; and, in Amendment No. 71, latecomers coming in after enfranchisement has taken place—perhaps council tenants who subsequently exercise their right to buy. Amendment No. 53, as I understand it, deals with a preceding stage; namely, it ensures that all qualifying tenants know about, and therefore have the right to participate in, the moving of a Section 11 notice. It seems simple equity that all qualifying tenants should have that right to be conjoined in association. We do not in practice expect it to be a major problem, simply because of financial pressures to broaden the base for qualifying tenants to enter into the purchase of enfranchisement. Nonetheless, the amendment seems to me at worst harmless; and in those rare circumstances where there may be some efforts to exclude one or two qualifying tenants from participating, it would protect their democratic rights to be involved. Therefore we support it.
  Lord Strathclyde: Perhaps I may preface my remarks to the amendment by replying to my noble friend Lord Renton. I am not at all convinced that the amendment would improve my noble friend's view of this particular part of the Bill.
  There is no question of people being forced to enfranchise. What happens to those tenants who do not enfranchise is that they simply go from having one landlord to having a landlord who is controlled by other tenants in the block. I understand my noble friend's point about the difficulties of putting into practice the legislation for people to achieve enfranchisement if they want it. But I understand that most property law is extremely complicated. This leasehold enfranchisement legislation will certainly be no exception. But there are some fundamental basic principles that have to be followed which I believe will make the process considerably easier than my noble friend thinks.
  I turn to the amendment of the noble Earl, Lord Lytton. I have a degree of sympathy with the points
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  put forward, in the same way as the noble Baroness, Lady Hollis, did. The objective here is to ensure that all the qualifying tenants have an opportunity to take part in enfranchisement and that none is squeezed out because, for example, one group living in a block of flats wishes to exclude some of the other residents for an unfair or totally irrational reason.
  I have considered the amendment with some care. I do not, however, believe that it would be practicable to put in statutory requirements giving everybody an automatic right to take part in the enfranchisement. The Bill provides that the freehold of the block shall be transferred to a nominee of the participating tenants. So a right to sign the initial notice in itself is of little value. To have any meaning, what would be required is a right for all qualifying tenants to be part of the nominee—either as a shareholder if it is a company, or as one of the joint owners if the freehold is to be owned individually. But in order to define such a right, it would be necessary to constrain the way the nominee is established. Each tenant would have to be entitled to have the same number of shares as any other tenant if the right was to make any sense. But that would have the effect of restricting the opportunities for some tenants to contribute more than others in the light of their own financial circumstances and their own commitment to the ongoing management of the block. As the noble Baroness, Lady Hollis, quite rightly said, we shall be considering some of these issues in more detail when we debate the amendments in her name later.
  I believe that in practice—and this is what is important —in most blocks the tenants are likely to wish to have the greatest possible number of tenants participating. They will want to share the costs of buying the freehold, and of meeting the freeholders' legal and surveying costs, spread across as many shoulders as possible. The responsibilities which they would be taking on as owners and managers of their blocks are not insignificant, and the more people prepared to share in the task the better. They are more likely to be concerned with getting everyone involved rather than seeking arbitrarily to exclude some tenants.
  I do not believe that giving a minority group a statutory right to join the party is likely therefore to be a sensible answer. If someone is only going to be involved through the exercise of a statutory right and against the will of two-thirds of his neighbours, it is hardly likely that the task of running the block after enfranchisement will be an easy one. Most likely, he will simply be outvoted. If any tenants are excluded from enfranchisement, they will of course continue with their existing leases. Their legal position will be no worse than it was previously. They will merely have a new landlord, something that happens very regularly now under current legislation.
  I have some difficulty with Amendment No. 67. It envisages a second conveyance, at some unspecified time after the nominee purchaser has acquired the interests to which he is entitled by collective enfranchisement, of those interests to those tenants. But in English law, as I am sure the noble Earl knows

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  well, not more than four people can own a freehold. So if the block is of more than four flats it must be held by a nominee.
  I have a great deal of sympathy with the noble Earl's intentions. I believe I have proved that in practice they would not work, and could actually work against the interests of tenants.
  Lord Renton: Before the noble Earl replies perhaps my noble friend will deal with my point. We could end up with a situation in which only four tenants out of nine in a block of flats were in favour of leasehold enfranchisement and, by that minority, the majority would have it enforced upon them.
  7 p.m.
  Lord Strathclyde: My noble friend is right, but perhaps I can explain what happens under current legislation. If a freeholder wishes to sell to another freeholder, he does not need the permission of any of the tenants. We are therefore providing a considerable improvement on that situation by allowing the tenants in a block of flats the opportunity to buy their own freehold. Far from that being undemocratic, it is most democratic and extends the franchise.
  Lord Boardman: The only reason I enter the debate is because my noble friend twice referred to the fact that all that would happen is that non-qualifying tenants would have a new landlord. On one occasion he referred to the new landlord as being someone appointed by the other lessees.
  I am concerned, and I believe that it is a view expressed elsewhere, that a lessee of fellow tenants is quite different from a new freeholder who has nothing to do with the block. My noble friend referred to four tenants out of nine in a block. If those four lived on the ground floor and the others lived on the second and third floors, there would not be much enthusiasm from the freeholders to install a new lift or repair the roof. Freeholders who have the same interest in the whole block are quite different from those who have an interest in being residents of only four-ninths of the block.
  Lord Strathclyde: We are straying considerably from the amendment tabled by the noble Earl, Lord Lytton. It is obviously a point we discussed in previous clauses and no doubt shall discuss again in the near future.
  Lord Coleraine: The amendment is a wide one and I ask the indulgence of the Committee while I sneak in a further point which follows from the comments made by my noble friend Lord Renton. He mentioned the case of four tenants out of nine who are able to enfranchise. What happens should there be two blocks of four each wanting to enfranchise? Who has the right to enfranchise and who does not?
  The Earl of Lytton: First, I thank the Minister for his considered reply, which I found extremely helpful. We are on the same wavelength. I thank other noble Lords who have spoken. This relatively modest
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  amendment seems to have elicited a considerable amount of interest, which was certainly unexpected by me.
  However, I leave the Minister with the thought that there is a requirement for a unity of purpose among those who occupy and manage the building as a result of the changes brought about by the Bill. I have no intention of pressing the amendment. With the leave of the Committee, I beg leave to withdraw Amendment No. 53.
  Amendment, by leave, withdrawn.
  Viscount Goschen: I beg to move that the House be now resumed. In moving this Motion I suggest that the Committee stage on the Bill be resumed again at 8 p.m.
  Moved accordingly, and, on Question, Motion agreed to.
  House resumed.

Video Recordings Bill [H.L.]
7.4 p.m.
Report received.
Lord Elton Lord Elton moved Amendment No. 1:
Before Clause 1, insert the following new clause:

Video Recordings Bill [H.L.]
  Video works shown in public places
  After section 3 of the Video Recordings Act 1984 there shall be inserted the following section—

  Video works shown in public places.
  If a video work which is not suitable for viewing by persons who have not attained a particular age is shown in a public place, and any person under the age sees the video work, or any part of it, in the public place, then the person responsible for the showing of that video work is guilty of an offence." ").
  The noble Lord said: My Lords, I spoke to an amendment on this subject, but in different form, at Committee stage. During that debate I asked my noble friend the Minister whether he would be kind enough to undertake a review of the Video Recordings Act, which the Bill sets out to amend, and the Cinematograph Act. There is an interface between the two pieces of legislation through which some events which should be regulated can escape.
  I thank my noble friend for the letter on the subject which he wrote to me following the Committee stage. He made clear that he thought I was asking for the two Acts of Parliament to be combined, which is an entirely different matter. I would have been content merely to write pointing out the error of his assumption had it not been for the context in which these events were taking place. The context includes the attitudes common to entertainment matters generally and programmes on the screen in particular which have now become familiar to us. It includes also the level at which video recordings are seen in this country. Perhaps I can illustrate those two matters.
  The attitudes of society struck me with some force around the time I received my noble friend's letter. They were summed-up in an episode where a famous film star turned down a leading part in a film about to be made. The plot concerned a psychopath who wanted as his mistress a female whom he

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  dismembered. He removed her arms and legs and kept her in a box. The objection of the famous film star was that the nude scenes were untasteful.
  It seemed to me that the lack of outcry against the proposed film and the reasons for not taking part in it were symptomatic of a change of attitude among those who are hardened to the media to which we, who are not, ought to react. Even so, I may not have felt that it was so important were it not brought to my notice that in this country the density of video recorders is twice as high per head of population as any other European country, and that in this country £17 million a week is spent on videos.
  The final point that pushed me into tabling and persevering with the amendment, though I do not intend to press it tonight, was a chance snatch of an interview that I heard one evening of a recently appointed senior BBC official—I cannot tell your Lordships who because I missed both beginning and end of the programme. He said (in the laughing way in which one normally gives away a common piece of knowledge) that no one really knows whether what one sees on the screen influences one's behaviour. Tell that to Saatchi and Saatchi, to President Clinton and, indeed, to the marines. We accept too easily statements of that sort which I know from my own experience not to be true. I know that I am influenced by what I see on the screen. I know that what I am influenced by is not always material specifically designed to have an influence.
  We should not accept that what is seen on any screen may not be harmful. Neither do I believe that we should accept, as is often advanced, that producers and commentators on media material are merely reflecting life; I believe that they are leading it, and often leading it astray. That makes me feel that we must intervene in some fashion to protect young people from material which, although said to be suitable for adult viewers, is highly damaging to juvenile viewers. It is the intention of legislation to protect them from such material, but I am advised that they are not protected because it is not an offence for them to be shown it in public places to which they have gained admission by paying. This is a large and difficult area and I shall not take your Lordships into the detail. However, I am as concerned with the television lounges of hotels as I am with long distance buses and the videos shown on them. Your Lordships may feel that even hotel bedrooms, where there is unlimited access, are an area for concern.
  I assure the noble Lord, Lord McIntosh of Haringey, that I am not proposing immediate legislation on that. What I am asking for is that the Government should undertake to look at what is going on, to look at these two pieces of legislation and to see whether in fact they are effective or not. If they are not, then I would hope that, within this Parliament or the next, they would come back with a proposal to do something about it. That is a simple request. It is not an expensive one to undertake. If my noble friend can give me the small assurance that the Government will look to see whether or not the legislation is working, I will not feel inclined to come back with a
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  perfectly drafted amendment at Third Reading and platoons of noble friends to try to force it through the Lobby. That would be a most regrettable thing to have to do. It might well imperil the future of the Bill in another place. I believe that the Government want the Bill to succeed in another place. I hope that my noble friend will extend this hospitality, courtesy or common sense in response to the amendment. I beg to move.
  Lord Merlyn-Rees: My Lords, I am drawn to speak in this debate, very briefly I hope, as president of the Video Standards Council, which publishes its own guide to the Video Recordings Act. The noble Lord's amendment seeks to amend the Act, so there are two reasons—one general and one particular—which draw me to speak on the amendment. Except for his courtesy in dropping me a line to say that he intended to raise this wider issue, I would have been drawn to speak on that when I heard what he has just said. I say that for two reasons.
  First, it is not as easy as all that to decide what the influence of film and video is. When I was Home Secretary I remember that one day two reports came to me. One said that violence in film and on television had a great effect as regards causing violence. The other said exactly the opposite. There was probably a third, a fourth, a fifth and a sixth view on the matter, but I had a practical example of it when, purely because of my work with the Video Standards Council, I appeared on the "Kilroy" show the other morning. Also on the show were parents and youngsters. But in particular, there were two young men from the young offenders' prison at Feltham with their excellent governor, who used to be at Long Lartin many years ago.
  Mr. Kilroy-Silk asked them whether anything in the way of film or television had drawn them into the crimes for which they were sentenced, which were stealing cars and speeding round the streets at 90 miles per hour. I made a note of their response. They said that they were interested in crime through watching "Police 5", which is a programme designed to get people to report to the police any crimes that they see. If it was not "Police 5", it was "Crimewatch". Mr. Kilroy-Silk took them up on it, but they were insistent. It was not through watching the American "predator" shows. It was actually through watching the programmes designed by the BBC and the independent companies to get people to fight crime. However, those programmes made those two young men interested in crime.
  Another young boy of about 11 or 12 gave his view of the situation very articulately. He said that he did not mind the "predator" films, if "predator" is the right word. He said that he knew that they were not telling the truth. What made him worried was when he saw the news because it was real life that upset him and not the stuff he saw on videos and when he went to the cinema.
  On Saturday evening I was watching television with my grandchildren. I had been thinking about all this. Suddenly there was a film which was a little like the goodies and the baddies that I used to watch on a Saturday morning in the 1920s and 1930s for tuppence

  1283
  a time. People used to hit each other and everyone cheered. The film I saw on Saturday was most extraordinary. I looked at my grandson of seven and asked him whether he realised that those in the film were hurting each other. He said, "No, they are not hurting each other. If that crack that you hear as they hit each other was telling the truth, they would be lying flat on the ground. But they picked themselves up the next minute".
  I say to noble Lords, beware of the effect of film and video, but far more important are attitudes of mind. I accept that straight away. Middle-class attitudes percolate down to what used to be called the working class, because they watch television and they watch films. I am not giving a new interpretation by saying that the middle classes are to blame for everything, but they have very curious attitudes which are unknown among working-class people. But they pick them up. Working-class people have their own problems, but that is another matter. Therefore, one cannot be sure about this whole matter.
  I wish to say a few words about the amendment moved by the noble Lord. I understand that he intends to withdraw it and that his purpose in moving it is purely to initiate discussion and to get the Government to look into these matters. The amendment states:
  "If a video work which is not suitable for viewing by persons who have not attained a particular age is shown in a public place".
  It is to "public place" that I wish to address my mind. What does it mean? We have this problem in the video industry. To cut down what could be a long section of a speech, arrangements are made that when excerpts of videos are shown in shops they have to be done in the form of a trailer and they have to have the classifications of "Universal" (suitable for children), "Universal" (suitable for all), "Parental Guidance", and so on even if the films that they are advertising are ones that have a much harder classification. So in any event I am not sure that "public place" is in a shop in that sense of the term. In the video industry there is a code of practice anyway. I say to the noble Lord that it would be extremely difficult in a public place. The noble Lord referred to a bus, which is extremely relevant. There is also the problem of aircraft. There the classifications are done by the British Board of Film Classification. I think that the noble Lord is going up the wrong street in trying to amend the Video Recordings Act. I suggest that he would have to amend the Cinematograph Act.
  Lord Elton: My Lords, that was exactly my intention when I spoke to the noble Lord. He was probably thinking so carefully about what he was going to say that he did not catch what I said. I hope that the two Acts can be reviewed together and that the Government decide which to amend.
  Lord Merlyn-Rees: My Lords, I am happy to say that I know very little about the Cinematograph Act and that what the noble Lord said may well be the case. Even there the question is of policing the matter. That is one of the difficulties with it all. I welcome the chance to broaden the discussion about the effects of violence. Anthony Hopkins and Michael Caine have
  1284
  said that they will not appear in certain films because they are worried about the effect that they may have. Voluntary censorship, which I suppose is what it is, is very much better than the state getting involved in censorship. That has never worked properly in any part of the world. What we do now with the British Board of Film Classification raises problems from time to time but it is the best way of proceeding.
  I counsel the noble Lord: get information by all means but it is not a subject which lends itself to clear views at the end of any analysis. No one will ever be able to say that one kind of film causes violence and that another does not. The two young prisoners in Feltham taught me a lesson the other day. People with good intentions have driven two people to crime.
  Lord Birkett: My Lords, the noble Lord, Lord Merlyn-Rees, has saved me a good deal of time in what I was going to say on the subject simply because he referred to the Video Standards Council. It may be some reassurance to the noble Lord, Lord Elton, that, by and large, in what we think of as public places, the code of practice is strictly followed. That is to say, nothing is on view in video shops in any of the main places which is classified other than U or PG, whether a trailer or a whole film. However, if there are exceptions such as long-distance coaches or hotel lobbies where somehow certain things are getting through the net, they are matters which are a little outside the control of the Video Standards Council. If there are such matters, then I welcome the noble Lord's inquiry of the Government as to whether they will look into the matter because I would be as worried as he is.
  I shall not comment further on the general points which the noble Lord, Lord Elton, put before the House this evening, except to say that I am extremely obliged to him for his courtesy to me and his anxiety for this Bill which I too hope will go through both your Lordships' House and another place. I am much obliged for his consideration.
  Lord McIntosh of Haringey: My Lords, we have had a very interesting Second Reading debate this evening. It was not even a Second Reading debate on this Bill but on the original Video Recordings Bill 1984. My noble friend Lord Merlyn-Rees in particular has raised the issue of the possible effects on people's behaviour of sex and violence on the screen. The noble Lord, Lord Elton, said that he is influenced, but I do not believe that he is influenced to the extent of committing sexual or violent crimes when he sees such behaviour on the screen. I am reminded by my noble friend Lord Merlyn-Rees that President Eisenhower set up a presidential commission on pornography in the late 1950s. Evidence was given which was widely accepted at the time that there was really no identifiable effect of pornography causing sex crimes. It might have had the effect of causing more sex; but sex of itself is not a crime. Another presidential commission was set up which produced the opposite result, confirming the advice given to my noble friend when he was Home Secretary.
  I am worried about the amendment because it is fatally imprecise in a number of ways. It is imprecise

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  in the use of the word "suitable" for a person of a particular age. There are perfectly good definitions of "suitable" both in the Act and in the Bill. The amendment is fatally imprecise when it refers to a "public place". If the noble Lord, Lord Elton, believes that an hotel bedroom is a public place, then I am worried about the intrusion which would be implicit in an amendment of this kind. I am very pleased to note that he is not going to press it.
  Lord Glenarthur: My Lords, I wish very briefly to support my noble friend Lord Elton in his amendment in general terms. I fully understand that it may be difficult to find the correct words. He has hinted that the words which he has found for the amendment are not entirely suitable. The worry which has been expressed in recent weeks about violence and its effect on young children is as widespread, as we all realise. I very much agree with the noble Lord, Lord Merlyn-Rees, that no one can be sure precisely what the effect of violence shown in videos and on television screens can be on children. Material going through the eye as well as through the ear does, I believe we all agree, have a much more subtly pervasive, insidious effect which no one has resolved in terms of understanding from it which aspects are thoroughly detrimental. We are in the position of not knowing how the issue can be proved one way or the other.
  One thing which is almost certain to have a deleterious effect is the much greater number of close-ups of particularly violent issues. The blood and gore which are inevitably seen in some of the films is horrific. I wonder whether the rather more distant shots of less violent crime which leave a certain amount to the imagination, would have rather less effect than some films on those who are continually seeing such films today. Having said that, it is too easy on an aircraft, for example, to be subjected to violence which one had not anticipated from looking at the title and the short description of the film.
  I believe that the practical problems which have been raised in defining what my noble friend seeks to do, and in a watertight way, are very real. I cannot believe that it is beyond the wit of man to devise some kind of amendment which fits my noble friend's anxieties. These are extremely complex issues; but, like my noble friend, I very much hope that my noble friend on the Front Bench, Lord Astor, will be able to offer some hope.
  Viscount Brentford: My Lords, I support my noble friend Lord Elton in his request to the Government to look at this issue. It is important and it is something which needs to be kept continually under review. The noble Lord, Lord Merlyn-Rees, was spot on when he said that it is all a question of attitude. For the two young prisoners the effect was as stated; but for another two, the result might be entirely different. It depends so much on the make-up of the person who is watching television. Therefore, I strongly support the plea of my noble friend Lord Elton.
  Viscount Astor: My Lords, those of your Lordships who attended the Committee stage of this Bill will be
  1286
  familiar with the amendment. As the noble Lord, Lord Birkett, and I explained then, our current laws already adequately regulate the exhibition of films and videos in public places. Your Lordships will recall that in most cases such exhibitions are subject to the controls in the Cinemas Act 1985 which require premises other than private dwellings which are to be used for such exhibitions, to be licensed and permits local authorities to impose restrictions on the age of those who may be admitted.
  Where a public exhibition of a video could take place in circumstances which fell outside the scope of the Cinemas Act 1985, such an exhibition would nevertheless be subject to the provisions of the Indecent Displays (Control) Act 1981 which, subject to a few exceptions, makes it a criminal offence to display indecent matter in a public place or where it can be seen from a public place. Such exhibitions would also be subject to the provisions of the Copyright, Design and Patents Act 1988 which make it an offence to infringe a copyright owner's rights by the unauthorised public exhibition of a film or sound recording.
  The Government are generally satisfied with the present operation of the Cinemas Act—and beyond the extent to which we view the amendments contained in this Bill as necessary—the Video Recordings Act 1984. The Government recognise and indeed share the anxieties of my noble friend Lord Elton about the exposure of young people to unsuitable violent material and the possible effects that such material could have on the young mind. We do not perceive that there is a gap in the law in this area which remains to be filled. We do not have evidence that either of the two Acts are not working; no evidence has been presented to us.
  Of course we shall look to see whether there is any evidence of that. I cannot promise a full review of both Acts to my noble friend. If there were a significant problem justifying legislation—as I said, I am not aware of any wide-scale anxiety on this matter—it would probably be necessary to introduce some specific provisions in a more suitable measure than this present Bill which deals specifically with video recordings. I know that that assurance does not go all the way which my noble friend would wish. As I have said, we shall look to see if there is any evidence, and we shall look closely at any evidence which is presented to us.
  Lord Merlyn-Rees: My Lords, perhaps I may make an offer. The Video Standards Council collects a good deal of information. It is reported to us and to our consultative committee which has the assistance of the Mothers' Union, Church bodies and boys' clubs to call on. We could make that information available to the excellent department at the Home Office. We already have a great deal of what the noble Lord is asking for.
  Lord Elton: My Lords, I am grateful to all noble Lords who have spoken. Perhaps I should start at the beginning and ask the noble Lord, Lord Merlyn-Rees, and, going a bit further on, the noble Lord, Lord McIntosh, to pay attention to a case that is currently

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  being tried and about which we cannot therefore make judgments, but in which it is argued that the people accused of tying a couple together, putting them in a motor car and pushing them over a cliff did so immediately after seeing a film in which a couple were tied together, put in a motor car, and pushed over a cliff. Noble Lords might find that case interesting and the judgement, when it comes, may be relevant, but we shall not know whether the film was a contributory factor until then.
  We dealt with shops last time in Committee. This amendment refers only to "public places", entry to which has been paid for. As to the question of "suitable", I thought that in a probing amendment it was not necessary to state "classified for a different age group" but if I had thought so, I should have come to that on Third Reading. I do not think that a hotel bedroom is a "public place" although surveillance techniques are such nowadays that they may very well soon be classified as such.
  The noble Lord, Lord Merlyn-Rees, said that it was all very difficult, but if one sees one's family standing in front of a building which is about to fall down, one does not say that it is very difficult to see how one can prop it up, one either props it up or takes one's family away from the danger. That is the kind of situation that we are now in. I am therefore most grateful to my noble friend the Minister for saying that he will look for evidence. I am glad that the noble Lord, Lord Merlyn-Rees, will enable some of it to be presented; but I trust that my noble friend will not feel that that exonerates him from further efforts. I trust that it will be a serious search for evidence. If such evidence is forthcoming, I should be glad to share it and wonder whether the noble Lord will then entertain the question of whether legislation is necessary.
  In those circumstances, I am glad to beg leave to withdraw my amendment. Perhaps the noble Lord will write to me if he wishes to amplify what he has already said.
  Amendment, by leave, withdrawn.
  7.30 p.m.
  Clause 1 [Titles to be assigned to video works for identification purposes]:
  Lord Birkett Lord Birkett moved Amendment No. 2:
  Page 1, line 17, leave out ("submitted") and insert ("determined to be suitable").
  The noble Lord said: My Lords, this is a very small and technical amendment. Your Lordships will recall that one of the purposes of this Bill is to establish a unique title to every video work. That title is not merely the title, but also a number. This is to help the giving of evidence in the case of prosecutions which at the moment is immensely complicated and which will be vastly simplified by this small device.
  It is perfectly clear to me that the title must be the title under which the film or video was given its certificate. Indeed, I had thought that my amendment made that clear. At the moment, Clause 1(2) (a) refers to,
  "the title under which the video work was submitted".
  The Marshalled List has a misprint. It states "substituted", but it should read "submitted" because
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  that is how the Bill stands at the moment. I had sought to amend the clause to read "determined to be suitable"—in other words, at the moment that the film gets its certificate. I thought that that achieved my' end rather neatly. I am advised, however, that not all legal opinion agrees with this. Unless your Lordships are wholly and entirely content to take the amendment as it stands, I shall obtain some more legal opinion in support, I hope, of what I am saying. I thought that I would explain the position to your Lordships now even if I have to withdraw the amendment in a moment. I beg to move.
  Viscount Astor: My Lords, it is sensible that classified videos should be assigned a unique title and that this title should consist of the name of the video concerned together with a registration number. I believe that it is also agreed that the name should be that which the film company concerned wishes the video to be known by at the time when the classification certificate comes to be issued and not any earlier, variant or provisional title which may have been changed or corrected.
  Therefore, the question before your Lordships is how that desirable outcome is to be achieved by the wording of the Bill. It may be that the fear which underlies the noble Lords's amendment is that the courts will, for some reason, infer that the word "first" should be inserted before the word "submitted" in the proposed new subsection (1A) (a). However, it is most unlikely that such a construction would be placed on the words.
  I am no expert in technical drafting matters such as this, but I am assured by those who are that the current wording of the Bill achieves exactly what is necessary. I have been referred to the existing Section (4) (3) of the Video Recordings Act 1984 which also speaks of a video work having been submitted in a context. The granting of a right of appeal clearly demands that this should relate to a video work in its final state at the time when the board makes its final decision and not to some preliminary version of the work which may first have been submitted and subsequently altered.
  I hope that that will provide some explanation for the noble Lord, Lord Birkett. I realise that he may have had different legal advice from that which I have received. It is a complicated point. If the noble Lord wishes to write to me with an explanation of his legal advice, I shall certainly look at it before Third Reading. I cannot give any commitment to go any further at the moment because, as I have said, we feel that the current drafting is satisfactory.
  Lord Birkett: My Lords, I am much obliged to the noble Viscount. It may be that I am seeking belt and braces. I should like to give myself the chance to persuade the noble Viscount of my case by Third Reading so, if your Lordships will agree, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Baroness Fisher of Rednal Baroness Fisher of Rednal moved Amendment No. 3:
  After Clause 5, insert the following new clause:

  Offences due to fault of other person
  After section 15 of the Video Recordings Act 1984 there shall be inserted the following new section—

  Offences due to fault of other person.
  15A. Where the commission by any person of an offence under this Act is due to the act or default of some other person that other person shall be guilty of the offence, and a person may be charged with and convicted of the offence by virtue of this section whether or not proceedings are taken against the first-mentioned person." ")
  The noble Baroness said: My Lords, those of your Lordships who have considered the Bill previously in Committee know that I am the vice-president of the Institute of Trading Standards Administration. I speak on behalf of trading standards officers tonight. Enforcing the Video Recordings Act is but one of the many responsibilities of the officers of the Institute of Trading Standards Administration. I know that there has been long and bitter disappointment at the fact that the proper operation of the controls has been hampered by the shortcomings of the original Act. Trading standards officers have felt all along the line that they face serious difficulties. Therefore, while very much welcoming the Bill introduced by the noble Lord, Lord Birkett, they feel that it needs strengthening by the bypass procedure.
  As noble Lords will know, local trading standards officers and their departments can operate only within their own legal boundaries—that is, within the administrative boundaries of their counties or localities. It is unfortunate that the Minister has not been satisfied that the bypass procedure, which could be used, should be incorporated in this legislation.
  The Minister's reply to me in Committee suggested that if an investigation stretched across many local authority areas and was of sufficient seriousness, he expected the local authority trading standards officers to pass the matter to the police. I suggest to the noble Viscount that the role of the police is to deal with serious crime. I do not know whether the Minister has seen the exhibition which the police mounted in Westminster Hall a week or two ago which showed what I suppose one would call filth of the worst nature over which the police wanted to keep tight control. When I spoke to one of the officers, he did not think that this was a priority for them because they would rather go for what they might call the "hard sell".
  As I have said, the role of the police is to deal with what we call serious crime, and not to deal regularly with potential offences under the Video Recordings Act, as those matters are generally a breakdown of trade in the community and this is an area in which trading standards officers have unparalleled enforcement expertise. Trading standards departments would call upon the assistance of the police if any matter under their investigation was of sufficient seriousness.
  I remind the Minister that there is good co-operation between trading standards departments and the police. They work extremely well together. One would not like to feel that there is any suggestion at all that the trading standards authorities want to take over the role of the police. That is not the
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  intention of the bypass provision. It is no business of trading standards officers to want to encroach upon the real role of the police.
  The measure is designed to make more effective use of the scarce resources available to trading standards departments, the courts and businesses. I am sure that the Minister will echo, as do all Ministers, that local authorities and the courts should watch the money that they spend. The proposed by-pass procedure will be beneficial to trading standards departments, and their local authorities, the courts and businesses. It is not just a matter of saving money, as the by-pass procedure and Amendment No. 3 would enable an authority to tackle the person who knowingly manufactures and supplies misleadingly labelled videos. In other words, it goes to the source of the problem. It is no good concentrating upon the retailer only if unclassified videos are still being produced.
  There was a case within the Coventry administrative area within the past few weeks in which it was found that the videos were classified incorrectly. The charge of misdescription was brought under the Trade Descriptions Act because the videos were misdescribed. Through the Trade Descriptions Act the matter was taken to the source of the problem. That case went through the courts, and was dealt with satisfactorily. The manufacturer paid the penalty. Although the outcome was successful, penalties under the Trade Descriptions Act are much less than under the by-pass procedure proposed. Although matters are being dealt with, the penalties for those breaking the law are not as great as they should be.
  The Minister sent me a four-page letter giving all the reasons why I was not doing the right thing in moving the amendment. Some of what he said was complicated. I have so far looked at five Acts of Parliament and four sections. I was disappointed by the Minister's last page on which he wrote:
  "The Government is far from complacent about the problem of unclassified and under-age video supply. That is why we are supporting the Bill".
  I am supporting the Bill on behalf of trading standards officers. The Minister continued:
  "I hope you will agree that the Bill, as it now stands, achieves a number of useful objectives".
  But now I come to what I felt was disappointing and not complimentary to me. The Minister wrote that,
  "its chance of success should not be placed in doubt by being burdened with unsatisfactory amendments".
  That was nice! I thank the noble Viscount for that. He finishes, "Yours ever". If that is not the way to break up a romance, I do not know what is.
  I was disappointed, because I do not believe that the amendment is unsatisfactory, although the Minister and his officials might think so. The measure proposed by the amendment enjoys the widespread support of the video industry, retailers and enforcement departments. Therefore, it is a little disappointing to find that the Home Office is unable to support a clause which is used by other government departments in a number of pieces of legislation. Although I shall withdraw the amendment, it is a great shame that the otherwise admirable Bill introduced by the noble Lord, Lord Birkett, will fall short in that one respect if it becomes law.
  7.45 p.m.
  Lord Elton: My Lords, I think that the noble Baroness is aware that I am a supporter of her proposal, because I would support anything which makes for the speedy and efficient execution of the law. I believe that it is much more efficient for an authority which discovers an offence in its area to trace it to its source. That may be within the area of a less well-to-do local authority with fewer resources, which may have many other trading standards officers homing in on similar activities in its area. It is right that her amendment should be considered seriously, even though she intends to withdraw it.
  The noble Baroness knows also that I am a fellow vice-president of the Institute of Trading Standards Administrators. In case anyone else should not do so—it should not be left on the record—the House will be aware that neither she, nor any of us, can speak on its behalf. We speak on our own behalf only. I know that your Lordships knew what she meant, but it is important that it should not go on record as us speaking for an interest, but only as informed by it. I am informed by the institute. I take the same view as the noble Baroness, but I speak for myself.
  Baroness Fisher of Rednal: My Lords, I apologise to the noble Lord.
  Lord Birkett: My Lords, I believe that the noble Baroness is well aware that I have a good deal of sympathy with the amendment, because it is known to us at the BBFC that there are traders in this country—distributors mostly—who deliberately flout the present Act by never submitting their videos to us for classification. In some cases that may merely be avoidance, meanness or laziness. In much more important and frequent cases it is because they know full well that if they submitted them they would not receive a certificate. Therefore, there is illegal and potentially dangerous material especially in the present climate—I emphasise the words "dangerous material"—circulating. In some cases there is material which has been cut or altered to achieve a classification which is being put out in the original version with the cuts restored as if we had taken no trouble with it whatsoever.
  Procedures exist already whereby such people can be prosecuted. In many cases they are not. It is not the fault of the trading standards officers who in many cases have discovered and reported upon them. It is because the prosecution mechanism in various parts of the country where such people operate is not being enforced. It does not go into action. If that is the position, and I am advised that it is widespread, there may not be many of what I call the villains of the piece, but the amount of material going around the country is considerable.
  If a by-pass amendment is not deemed legally suitable—if the amendment moved by the noble Baroness is not the right one—but there is a mechanism which already exists that can be invoked, then my question to the Minister is: how do we go about ensuring that it is invoked? If the evil of which I speak can be cured, I shall be happy. Whether it is
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  cured with or without the help of my Bill is of no concern to me. The fact that it is cured is what interests me. It is upon that question that I look to the Government to give me some reassurance.
  Lord McIntosh of Haringey: My Lords, I listened to the debate in Committee; I have read my noble friend's letter to the Minister; I have read the Minister's four-page reply; I have listened to this evening's debate; and I am bound to say that I do not believe the reply given by the Minister so far has addressed the issue raised by my noble friend. She gave a clear example of the case in Coventry where the original supplier was chased from Coventry—if I may put it that way—and caught under the Trade Descriptions Act rather than the Video Recordings Act. She pointed out that the penalties available under the Trade Descriptions Act are less than the penalties available under the Video Recordings Act.
  That was made clear to the Minister when my noble friend wrote to him. If it is the case, why cannot the Video Recordings Act be amended in such a way as to provide the same protection as is provided by the Trades Description Act? I assume that the basic job of trading standards officers is to work in their own areas, but, if in order to work effectively in their own areas they have to go outside them, then surely they should be able to do so. That is what I take to be the purpose of a by-pass amendment. I am not qualified to judge the wording of the amendment. However, I agree with the noble Lord, Lord Birkett, that the Government have an obligation to come back to the House on Third Reading with an amendment which will work and which will address the problem which has been raised.
  Viscount Astor: My Lords, I listened with great care to the arguments put forward by the noble Baroness, Lady Fisher, my noble friend and other noble Lords. I fully accept that the aim of the proponents of this change is to achieve a more effective enforcement of the Video Recordings Act by the trading standards authorities. We all share that aim; indeed, all the provisions in the Bill have that as their objective. However, I must tell the House that the Government remain of the view that the amendment is undesirable in principle and that, for technical legal reasons, it would not work in practice.
  I know that there are varying views about the suitability of the drafting of this amendment in the special context of the Video Recordings Act. I do not think that it would be profitable to enter into a complicated legal debate. However, I would inform your Lordships that since the Committee stage the Government have carefully considered the matter further in the light of what was said then and have taken into account the letters sent by the noble Lord, Lord Birkett, and the noble Baroness, Lady Fisher. We have also discussed the issues again with representatives of the local authority trading standards departments.
  Nothing emerged from that further consideration which would lead us to change our view that while such a bypass provision may well be of value in the Trade Descriptions Act and similar consumer-related

  1293
  legislation it simply will not work in the context of the Video Recordings Act with its very different offence formulations and statutory defences. In short, the amendment would not only fail to achieve its desired results but, because of the doubts which it could well cast on existing aspects of the Act, its effect could be positively harmful. That, I am sure, is something which your Lordships would wish to avoid. For that reason I stated in my letter that the amendment was unsatisfactory: I implied no personal criticism of drafting powers and expertise.
  The Government are not persuaded either that the same objective should be achieved by other means; for instance, a specific provision to the effect that a trading standards officer's powers under the Video Recordings Act in this area are not territorially limited and that magistrates' courts could try offences against the Act committed outside their area. Such a provision would be most unusual and would not be justified in the limited context of Video Recordings Act offences where, for instance, each unlawful act of supply, whether by a wholesaler or a retailer, represents a separate offence which can be investigated and tried in the location where it took place. It is the Government's view that where there is an extended network of supply the appropriate way of investigating it is by close co-operation between differing trading standards authorities.
  The fact that the trading standards officers have shared their anxieties with the noble Baroness indicates the measure of their views about the problem. I am sure, therefore, that they will co-operate closely in the investigations. The police are an enforcement agency for the Video Recordings Act and many cases of unlawful supply will raise issues of obscenity which the police will wish to investigate. Video offences are serious with fines up to £20,000.
  As the noble Baroness said, I wrote to her in detail trying to be helpful and giving her a full explanation of our view. I hope she understands that while we commend her efforts to improve the Bill, admire her persistence and, indeed, have considerable sympathy with her in respect of her anxieties on this issue the Government cannot recommend acceptance of the amendment for the genuine reasons that I have explained tonight.
  Baroness Fisher of Rednal: My Lords, before the noble Viscount sits down, perhaps I may ask that his officers should consider the fact that most of the recordings are made in the London area. Most trading standards authorities in the London area are small local authorities and have little finance. It is usually the case that the larger local authorities in the counties have more resources at their disposal. Although the London authorities would like to help more often than not they are unable financially to pursue many of the cases which are brought to their attention. For that reason, help should be given to the London authorities to enable them to put into effect the provisions we are discussing. I feel sure that local government will not receive any more money, so we shall be back at square one if nothing is done.
  Viscount Astor: My Lords, as I said, we have considered the matter carefully and have had meetings with various people. Of course, finance is always a factor to be taken into account. It is for local authorities and not for the Government to decide the financial resources which their trading standard officers should have. I understand the noble Baroness's anxieties but I hope that I have explained the two separate reasons why the Government cannot agree to her amendment. We greatly sympathise with her anxieties but believe that if and when the Bill becomes an Act trading standards officers will have the advantage of working closely in their investigations, which will be helpful in achieving results.
  Baroness Fisher of Rednal: My Lords, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Viscount St. Davids: My Lords, I beg to move that the House do now adjourn during pleasure for the few minutes which remain until eight o'clock.
  Moved accordingly, and, on Question, Motion agreed to.
  [The Sitting was suspended from 7.57 to 8 p.m.]

Housing and Urban Development Bill
House again in Committee on Clause 11.
[Amendments Nos. 54 to 56 not moved.]
The Deputy Chairman of Committees (Baroness Cox): I should point out that if Amendment No. 57 is agreed to, I cannot call Amendment No. 58.
[Amendment No. 57 not moved.]
The Earl of Lytton The Earl of Lytton moved Amendment No. 58:
Page 14, line 28, after ("valuation") insert ("in writing").
The noble Earl said: Amendment No. 58 relates to the need for a valuation of the property to be in writing.
This is to do with the notice that the qualifying tenants are obliged to give if they wish to exercise their right to collective enfranchisement. An important part of the notice is the requirement that the qualifying tenants obtain a valuation by a qualified surveyor. However, there appears to be no requirement for that valuation by the surveyor to be in writing. It would generally be considered unsatisfactory for a valuation to be given in a less formal way. If the Bill does not specify that, there is a risk that valuations may be verbal and on a basis which cannot be adequately verified by the other party.
The general rule is that all formal valuations for statutory purposes should be in writing. It is important that this matter should be given further thought. The effective way to ensure that valuations are given adequate consideration by the valuer concerned is to provide that he commits himself to paper. On that basis, there is at least some probability that the quality of the valuation will be governed by the standards set by the professional body to which the valuer belongs. I beg to move.
Lord Coleraine: I accept in principle that anyone who is having a valuation made for these purposes would wish it to be in writing. I have only two points

1295
to raise. I do not necessarily believe that that should be written on the face of the Bill. The other point is that from the amendment I am not clear to whom the valuation should be given in writing. Is it to be given to all the qualifying tenants or can it be given to one or more of their number on their behalf? I ask that because in a large block of flats, where the various lessees may not even know each other, there may well be a flat under the control of the reversioner which he lets to friends of his or associated companies. It would be a pity if valuations had to be given in writing to all the qualifying tenants.
Baroness Hilton of Eggardon: We support the amendment. We believe that to have the valuation in writing will add to the clarity and provide everyone with a clear understanding of the position.
Lord Strathclyde: I have nothing against the principle behind the amendment. I had assumed that in most cases the tenants would automatically expect the valuer to provide a written report. I know that I should do so were I entering into a transaction on that scale. Therefore, we did not believe it necessary to write on the face of the Bill that there should be a written valuation.
I am not certain that adding those words in writing would achieve very much. For example, a scribbled figure on the back of an envelope would fulfil the intention behind the amendment. In view of what my noble friend Lord Coleraine said, the noble Earl may wish to think again about this matter. However, we have nothing against the principle of the amendment although it may be unnecessarily prescriptive.
Baroness Hollis of Heigham: Does that mean that the Minister is suggesting to the noble Earl that he should withdraw the amendment and that the Government may bring forward an amendment of their own on Report?
Lord Strathclyde: No. I thought that my noble friend Lord Coleraine raised some extremely sensible issues as regards the amendment. I was inviting the noble Earl to think again. If he wishes to bring forward an amendment on Report, he may do so. I am merely saying that I am not against the principle behind the amendment.
Baroness Hollis of Heigham: This is an extremely complex part of the Bill and it is an extremely complex procedure. The Department of the Environment's research on the 1987 Act showed how difficult it was for tenants and leaseholders to operate such clauses. Anything which contributes to clarity and understanding and which gives information to leaseholders on which they can consult their solicitors must, prima facie, be good. I hope that the Minister will look again at this matter to see whether we can strengthen the position of leaseholders vis-à-vis the law.
Lord Strathclyde: I believe that the noble Baroness is taking this matter too far. We are not against the principle of the amendment. We do not believe that it is necessary or we should have written it on the face of the Bill. My noble friend Lord Coleraine indicated
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why the amendment probably would not work. I too have indicated that we do not believe that it will help. I should be interested to hear what the noble Earl wishes to say. I shall not bring forward an amendment on Report, but if the noble Earl wishes to do so, that is a matter for him.
The Earl of Lytton: I assure the noble Baroness, Lady Hollis of Heigham, that I shall give further consideration to this matter because I know that the Royal Institution of Chartered Surveyors feels quite strongly about it. There are fairly set-piece routines for dealing with valuations relating to statutory purposes.
I have taken note of what the noble Lord, Lord Coleraine, said. I accept that to include such a provision may cause other complications which I must consider further. I thank the Minister for his helpful noises and, on the basis of what he said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 11 agreed to.
Schedule 3 [The initial notice: supplementary provisions]:
[Amendments Nos. 59 to 59C not moved.]
Viscount Goschen Viscount Goschen moved Amendment No. 60:
Page 176, line 42, after ("every") insert ("other").
The noble Viscount said: This is a purely technical drafting amendment. Paragraph 12 of Schedule 3 requires the participating tenants to give a copy of the initial notice to the reversioner and:
"to every person known or believed by them to be a relevant landlord".
It would be more accurate to refer to "every other person" who is a relevant landlord, so as to make it clear that it is not necessary to give a copy to the reversioner who will have received one already. The amendment achieves that effect. I beg to move.
On Question, amendment agreed to.
Lord Coleraine Lord Coleraine moved Amendment No. 61:
Page 178, line 11, leave out ("or").
The noble Lord said: In speaking to this amendment I shall speak also to Amendments Nos. 62 and 80. Clause 17 sets out the reversioner's right to require the nominee purchaser to prove the title of the participating tenants to their flats within a period of 21 days. If a nominee fails to comply with any such requirement within the 21 days, the initial notice will be deemed to have been withdrawn and the whole enfranchisement will abort.
I should say immediately that in any well organised enfranchisement the 21-day period should present no problem because among the many steps which the proposed participating tenants will be advised to take before they set out on their perilous journey—and I say "perilous" advisedly because the Bill sets many shoals in their way—will be the necessity to have their leasehold titles examined and approved to the satisfaction of the solicitor who is to act for them in the enfranchisement. It may be that one of the leases turns out defective. There may nevertheless be more than enough participating tenants left with good and properly deduced titles for the enfranchisement to have gone ahead initially without the participation of

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the tenant whose lease was defective. For example, in a case of 100 flats, all qualifying and 90 participating, it would seem unfair to penalise the lot just for one bad title when all that enfranchisement required in the first place was only 67 participating tenants.
These amendments provide that in such cases one bad apple will not spoil the pile. There may be some looseness about the drafting of the amendments; but I think that the intention is clear: that so long as the nominee purchaser has deduced titles amounting in all to the titles of two-thirds of the qualifying tenants in the block, his failure successfully to deduce one or more of the titles of the remaining participating tenants will not result in a deemed withdrawal. I beg to move.
Lord Rodger of Earlsferry: As my noble friend Lord Coleraine has said, Amendment No. 62 is technically defective because under Clause 17(1) it is the nominee purchaser who must deduce title while the amendment refers to the qualifying tenant. I do not wish to stand on the technicality of the matter. My noble friend has raised an important matter of substance. We should like to consider the matter further. If my noble friend will withdraw the amendment, we shall consider the matter further, and I shall write to him once we have done that.
Lord Coleraine: I am glad to hear that my noble and learned friend will write to me on this matter. I take it that if he finds on close examination there is substance to this matter, the Government will be prepared to bring forward a suitable amendment.
Lord Rodger of Earlsferry: That goes without saying.
Lord Coleraine: On that basis, I am delighted to withdraw the amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 62 not moved.]
Schedule 3, as amended, agreed to.
Clause 12 [The participating tenants]:
8.15 p.m.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 63:
Page 16, line 24, leave out from ("acquisition") to ("and") in line 25.
The noble Baroness said: In moving Amendment No. 63, I wish to speak also to Amendments Nos. 64, 65 and 74. As we said in an earlier debate on Amendment No. 53 standing in the name of the noble Earl, Lord Lytton, there is a sequence of amendments about so-called latecomers to enfranchisement. His amendment sought to give all qualifying tenants the right to know about enfranchisement. I hope the noble Earl will come back to that amendment given the degree of support it received in the Chamber when it was moved. It was clear that for someone not to have a right to know about enfranchisement offends natural justice.
Amendment No. 63 together with Amendments Nos. 64 and 65 addresses a somewhat different issue.
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If the Committee were minded to accept Amendment No. 63, it would allow a qualifying tenant subsequently to join participating tenants in determining who shall be the nominee purchaser to whom the freedom of the block would be sold. Amendment No. 71 deals with a situation where tenants subsequently become qualifying tenants after enfranchisement has taken place. Amendments Nos. 63, 64 and 65 would allow tenants to join in at the stage of becoming participating tenants. Participating tenants determine the nominee purchaser. They are the original two-thirds of qualifying tenants who trigger the Section 11 notice.
Under the Bill as it stands at present, unless the Committee was minded to accept this amendment, subsequent qualifying tenants could only join in the process of enfranchisement if they have the agreement of all the original participating tenants. That is the issue we seek to address in this amendment. We believe that that agreement should not be unreasonably withheld. It may be that one, two or three tenants in a block of 15 or 20 people decide that it might be desirable to exercise enfranchisement. They would approach the landlord to seek a list of qualifying tenants. They would then start to canvass the tenants. When they hit their two-thirds majority they could serve a Section 11 notice which would be the first formal stage of the process. At that point some tenants in the block may have remained uncanvassed for whatever reason. They could be sick in hospital, working abroad or be on an extended holiday. They may even be simply unpopular and be the victims of some blackballing.
From that stage on, even though someone is a qualifying tenant, if he did not take part in the setting up of the original Section 11 notice as a participating tenant, he can only subsequently join in the process of enfranchisement with the agreement of all the original signatories. We believe that is harsh. We believe that agreement should not be unreasonably withheld and we believe someone should be able to join in at a fairly early stage in the process and thus take his share of the financial cost.
Given that this seems so reasonable, why did the Government resist this amendment in another place? As I understand it, the Government fear that if qualifying tenants can join in at a later stage they will do so rather than join in at the commencement of the procedure thus making the procedure itself less likely to succeed. I believe that is the Government's case. I ask the Government whether that is reasonable. I agree that the probability is not all that high that the situation will arise simply because most people will want to share the costs on as broad a financial basis as possible. However, it seems to me there may be cases where someone is sick or abroad; and, above all, there may be cases where there is an unpopular tenant whom others seek to marginalise. As a result, those tenants can neither come into enfranchisement nor subsequently, I believe, extend their lease. They will be stranded because they will not have been part of an original Section 11 notice and they would not necessarily even have known about it given that the Government were minded to reject the amendment of

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the noble Earl, Lord Lytton. Therefore in common fairness and in common justice everyone should know and everyone should have the right to participate, sharing equally the costs and the risks. I beg to move.
The Deputy Chairman of Committees: I should point out that if this amendment is agreed to, I cannot call Amendment No. 64 because of pre-emption.
Lord Coleraine: I speak to Amendment No. 64 in the group that we are discussing. That amendment stands in my name. The noble Baroness has made an important point. However, I believe we are not just considering the odd tenant who happens to be away on holiday, or is sick or abroad. The noble Baroness was a little optimistic in thinking this is just a question of preparing a notice and canvassing tenants until one obtains two-thirds of the signatories. Quite frankly, the procedures in any normal case of enfranchisement will take many months of hard work. In that time those who are organising the enfranchisement will make certain that the absent tenants are contacted and are brought into the process or left out of it as the case may be. The problem which the amendments of the noble Baroness and my amendment highlight is the position of those who do not get on with their neighbours and who may well be left out of enfranchisement with—the noble Baroness mentioned this—no rights to an extended lease if the enfranchisement goes ahead.
My amendment provides for the majority consent to be obtained rather than that of all the participating tenants which is the provision in the Bill. The majority consent would be needed before someone who had not originally participated is brought into the process. My amendment indicates no disagreement with the amendments tabled by the noble Baroness; it is merely intended to reflect the fairly fine point suggested to me by the Law Society working party; namely, that it is grotesque that unanimity, which may mean 200 people out of 200, should be required when the consequences are so dire if the request to join in is not accepted.
We are now discussing Clause 12 which is just about the only clause in the Bill which attempts to deal with the problems that arise between tenants. I sympathise with the amendments of the noble Baroness; but I suggest one objection which may be made. I do not wish to double-guess the Minister but anyone ought to see that one response of government might be that there must be unanimity to make it compelling on everyone to come in at the beginning. The Government are rather keen that everyone should join a collective enfranchisement and not stay out. Perhaps the sanction that the Government have in mind, in having unanimity, is that one should know in advance that if one does not come in one is out for ever. I do not go along with that, as the Committee knows.
There is one difficulty that I see in the amendment tabled by the noble Baroness. We want as many people as possible to come in at the beginning because it would be undesirable for potential participating tenants to stand on the sidelines and see which way the wind is blowing before they eventually make a
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decision. It is not that they would not have to pay their proportion of the costs if the enfranchisement went ahead, I am sure that arrangements would be such that they would have to pay their proportion of the costs. However, I am worried about the position of an abortive enfranchisement. A lot of money would be spent and eventually the participating tenants would decide that they could not go ahead. The person who had been standing on the sidelines would be able to say, "Heads I win, tails you lose" and he would benefit. Thus, on principle it is desirable that everyone should come in at the beginning. I do not believe that anyone should have the absolute right to come in at any time. The Law Society proposal that someone should be allowed in on a majority vote is reasonable.
The Earl of Lytton: I wish to address my remarks to Amendment No. 74 in my name. First, I should like to say how much I identify with the fundamentals of the sentiments expressed by the noble Baroness, Lady Hollis, and to assure her that the earlier amendment which I moved is certainly not forgotten. We shall come back to it, perhaps with her help, in a slightly different form at a later stage.
Amendment No. 74 sets out to provide a safety net for those tenants who are unable or unwilling to participate in the acquisition of the freehold, although they are qualifying occupiers for the purposes of the Bill. For all the reasons that have been expressed by the noble Baroness and the noble Lord, Lord Coleraine, there may well be people who are not able to proceed with the new enfranchisement at a given moment. It seems to me that the qualifying tenants should have an absolute entitlement ultimately to join in the freehold ownership. I am very much against that freehold ownership being separated and severed from the occupation of the building. I keep going on about it and I make no apology for doing so, there must be convergence of occupation and ownership—I cannot stress that too strongly—if the Bill is really to perform the functions of social justice that it sets out to perform.
As the Bill stands, if a block of flats is enfranchised and the qualifiers decide not to participate, they will be completely left out in the cold. As I understand it, there will be no facility for them to come back in again at all. That means that certain leaseholders have just one opportunity to join the scheme of enfranchisement. I cannot believe that it is the intention of the Government that those people who, for whatever reason, fall through the net the first time round, should be left out permanently. It would be a source of ferment, giving a sense of lasting injustice if the system allowed that to happen. In speaking to Amendment No. 74, I also associate myself very much with the other amendments that have been moved.
Lord Coleraine: The noble Earl talked about what happens after completion of an enfranchisement. If one assumes that the Government's response will be, "You must go into enfranchisement now, you cannot have it afterwards", will the noble Earl agree that this is another reason for making the leasehold extension option available for those who do not join in enfranchisements?
The Earl of Lytton: I entirely agree with that. My name is on a later amendment to provide for lease extension as the obvious fallback alternative. I believe that the noble Lord, Lord Coleraine, has made a very valid point.
Lord Strathclyde: The amendments of the noble Baroness, Lady Hollis, and my noble friend Lord Coleraine would allow a qualifying tenant who had not participated in giving the initial notice but who then wished to become a participating tenant to do so either without the agreement of any of the other participating tenants or only with the agreement of a majority. The amendment of the noble Earl, Lord Lytton, would give a statutory right to qualifying tenants to purchase a stake in the freehold after enfranchisement.
I am sorry to say that I did not feel that the noble Baroness had made her case. I believe that the amendments would actually work against enfranchisement. That was understood by my noble friend Lord Coleraine who, I thought, made a good argument against all the amendments. They appear to offer tenants a guaranteed way of joining in after the initial notice, or of obtaining a stake in the freehold after enfranchisement. In practice what could happen is that many qualifying tenants will not bother to put their names down on the initial notice, in the knowledge that they can join in later if they wish, and the requisite majority will therefore be harder to obtain.
The amendments would permit any tenant who has bought the lease of a qualifying but non-participating tenant since the initial notice was given, or any qualifying tenants who decided not to participate at the outset, to become participating tenants at any time. Any agreements between the tenants, such as the apportionment between them of the costs of enfranchisement, would continually have to be revised as they would need to establish on what terms the new participating tenants were to join in. I do not consider it would be fair to the existing participating tenants to allow others to join in on indeterminate terms and continually disturb their arrangements in that way.
As we have already discussed, qualifying tenants have ample opportunity to participate. Participation involves agreeing to the buy out and being prepared to risk liability for the landlord's costs if the bid fails. It does not necessarily involve a financial stake. That is very much a matter for the tenants to resolve, with their advisers if appropriate. If they wish to make deals among themselves in order to get uncommitted tenants to join in, that is their business. If they wish to incorporate a structural link between their individual lease interests and their stake in the freehold, they should be free to do so. I do not think it is any business of the law to interfere.
The position of tenants who choose not to participate is safeguarded. Their leases remain intact, and all that happens is that their landlord changes identity. The amendment of the noble Earl, Lord Lytton, is also unhelpful in that it would in effect force the participating tenants to use the company format for their nominee purchaser, thus losing the flexibility of other structures.
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I must ask the rather obvious question: what advantage could there possibly be to a non-participating tenant if he did have a right to buy a share of the freehold at a later date? If he cannot join in by agreement, he is obviously not going to be welcome. He will not be able to contribute anything to the smooth running of the block. Neither would there be a personal financial gain from a stake in the freehold. The right of enfranchisement under the amendment still attaches to his lease, so its saleability would not be affected.
I am sorry to say that I see no merit in the amendments; in fact, I think that they are positively detrimental. Therefore, I ask noble Lords to withdraw them.
Lord Coleraine: I wonder whether my noble friend can say why he thinks that unanimity among the participating tenants should permit someone to come in. It is a matter for the participating tenants to decide. I do not believe it is for the Government to say, "You may not allow people into your enfranchisement once it has started, unless you give unanimous consent". If my noble friend does not like the normal majority, would he consider three-quarters or two-thirds? To demand unanimity seems rather illogical.
Lord Strathclyde: My noble friend can draw the line wherever he wishes. We feel that the best way must be for everyone who has participated in the action to decide unanimously whether anyone else should join in. I made the point in the previous amendment that it must be in the interests of the new freeholders to extend the ability to enfranchise to as many tenants as possible. My noble friend and the noble Baroness have to make a case for reducing the level of unanimity, and I do not think that that case has been made.
8.30 p.m.
Baroness Hollis of Heigham: Will the Minister give us some guidance? Let us consider a situation where a qualifying tenant knew of the effort to enfranchise but had recently lost his job, and therefore felt that his financial circumstances were such that he could not embrace the additional cost of enfranchisement that is, a Section 11 notice. Before it has gone very far he is fortunate enough to find work and his financial circumstances are now secure, but it is too late for him to become a participating tenant except with unanimity. He cannot, because he is a qualifying tenant, extend his lease. Because, therefore, for a period of six weeks, or eight weeks, or three months he was unemployed and thought it imprudent to extend his financial risk, he is permanently disqualified from the right that everybody else in that block will enjoy. Would the Minister help me understand what he should do in that situation.
Lord Strathclyde: Unfortunately the noble Baroness has misunderstood. He is not excluded from enfranchisement. There is nothing in this Bill that excludes him from enfranchising. But he has to get the agreement of his fellow tenants. Why should he not? That must be right. It is entirely fair.
Baroness Hollis of Heigham: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 64 to 66A not moved.]
Clause 12 agreed to.
Clause 13 [The nominee purchaser: appointment and replacement]:
The Earl of Lytton The Earl of Lytton had given notice of his intention to move Amendment No. 67:
Page 18, line 11, at end insert:
("() When the nominee purchaser has acquired, on behalf of participating tenants, such freehold and other interests specified in subsection (1), he shall convey those interests to the participating tenants.").
The noble Earl said: This amendment has already been spoken to. It is not moved.
[Amendment No. 67 not moved.]
[Amendment No. 68 had been withdrawn from the Marshalled List.]
[Amendments Nos. 69 and 70 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 71:
Page 20, line 13, at end insert:
("(13) The Secretary of State may make regulations for requiring the nominee purchaser—

(a) in such circumstances as may be prescribed by the regulations, and

(b) subject to and in accordance with the regulations to be a body corporate which conforms to such other requirements as are prescribed in the regulations.

(14) Without prejudice to the generality of subsection (13) above, the regulations may in particular make provision—

(a) requiring that, under prescribed circumstances, the nominee purchaser shall be a body registered under the Industrial and Provident Societies Act 1965 or the Companies Act 1985;

(b) requiring that a relevant qualifying tenant be granted a shareholding or other relevant interest in the nominee purchaser, and specifying any terms, including financial terms, on which such an interest shall be granted.

(15) Regulations under this section—

(a) may make different provisions with respect to different descriptions of case, and

(b) shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(16) In this section, a "relevant qualifying tenant" means a qualifying tenant of a flat in premises in relation to which the right to collective enfranchisement has been exercised, and who is not—

(a) a tenant who was a participating tenant in that exercise of the right to collective enfranchisement; or

(b) disqualified from being a participating tenant by virtue of Part I of Schedule 3.").

The noble Baroness said: This is the third in this group of amendments about latecomers to enfranchisement. We are not dealing now with the right to be informed, the right to join in as a participating tenant, or subsequent to Section 11. This is a different situation. Whereas Amendments Nos. 63 and 65 dealt with the relatively short term—that is, a qualifying tenant becoming a participating tenant—here in Amendment No. 71 we try to take up a different situation. It is still a latecomers' situation, but enfranchisement has already taken place. Therefore, other residents in that block, other leaseholders, no longer have a right to an extension of their lease, and may not have a right to enfranchisement.
Who are we talking about? Who are we seeking to bring within the framework of enfranchisement by producing a legal structure in advance of common-hold, which would make that process straightforward and simple? It could be, for example, council tenants who, at the time of enfranchisement, were not qualifying tenants. Since then they may have exercised their right to buy. They may now be effectively leaseholders of the new landlord, and would like to become freeholders in their own right. It could be an elderly tenant. At the time of enfranchisement he did not wish for the extra worry, money and cost, but he has subsequently sold the remains of the lease with perhaps 60 or 70 years to run. Somebody has bought it, and with others in the block would like to become a freeholder. As I understand it, they have no route to do so.
It might be somebody who was unemployed or redundant at the time, but who subsequently found work and would like to enjoy the same rights as others. We are talking about when enfranchisement has taken place. All these seem to be legitimate cases not of people who stood aside because they were not willing to undertake the financial risk at the beginning, but of people whose circumstances have changed and who now wish to join collectively in the new freehold arrangements.
This amendment, I have to accept, is not as good as one would wish because we do not have commonhold on the books. It is an attempt to overcome some of the discussions entered into in another place as to how best to allow latecomers to buy into enfranchisement when their circumstances have genuinely changed, such as the unemployed, council tenants, or the new incoming leaseholder. This amendment would give the Secretary of State powers to make regulations in advance of commonhold for the construction of an appropriate body corporate framework into which latecomers may buy in.
It is more widely drawn than the proposals put in another place which prescribed a company limited by guarantee. It would allow the Secretary of State the flexibility to determine different forms for different cases where it is a small block, etc. It would avoid the necessity of filing accounts when one has only a handful. But it would recognise the fact that flats as a tenure are marked by rapid turnover and rapid changes in people's ability to buy into enfranchisement.
If the Minister believes, as I am sure he does, in the Government's policy to extend enfranchisement as widely as possible, then the Government in some way or other must address this problem of latecomers to enfranchisement. I refer not only to the right to know, not only at the stage of circulating or signing the Section 11 notice, but later when people's circumstances have changed, if they are not always and permanently to be stranded; neither enfranchised nor extended, but stranded.
If the Government cannot accept this amendment I hope that they will promise to come back with amendments which will address this problem of latecomers to enfranchisement who morally, as well as

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in every other way, ought to have the right to be able to enfranchise as others have in the past. I beg to move.
Lord Strathclyde: These amendments are rather sinister. What the noble Baroness wishes to do in this amendment is to give the Secretary of State an ongoing right to interfere in the legitimate arrangements made by leaseholders as regards enfranchising and, in their post-enfranchisement, ownership of the block. First of all, the amendment would allow the Secretary of State to dictate that the nominee purchaser must be a company in certain circumstances.
We have deliberately allowed leaseholders total flexibility in choosing the nominee purchaser. In many circumstances a company in which the leaseholders have shares may be appropriate. However, in a small block the tenants may prefer to own the freehold as joint tenants. It may be that leaseholders cannot afford to own the freehold themselves, or do not wish to do so. In that case it should be open to them to choose a third party freeholder.
I do not consider that the Secretary of State should in any circumstances be able to take away this decision from the leaseholders themselves. But the strangest part of this amendment would enable the Secretary of State, as I understand it, to insist that a non-participating tenant be allowed to have a share in the freehold company. Much has been said here and in another place about interference in property contracts, but I am sure that noble Lords would not support an ongoing power for the Secretary of State, even with parliamentary permission, to impose additional owners on a group of freeholders. Nor is it likely that relationships in a block after such an imposition could possibly lead to a successful company and successful management of the block.
What our provisions do in this Bill is to give leaseholders the right to control their own property and to choose the means of that control. I can see no justification whatever to give the Secretary of State draconian ongoing powers to interfere in choice. I hope that after that the noble Baroness will withdraw her amendment.
Baroness Hollis of Heigham: I take the point about the Secretary of State's powers. I spent a long time in the Chamber trying to fight the Secretary of State's powers. However, the amendment is a well-meaning effort to try to address the problem which the Minister wilfully refuses to recognise exists. I use the word "wilfully" because he knows, as everyone else in the Chamber knows, that there is a genuine problem when people are denied the right to enfranchisement at a later stage.
Let us take an example of a block of 12 flats, all of which qualify for enfranchisement, and eight have enfranchised. Therefore the remaining four now have a new landlord. Those four include one unemployed tenant, one person whose marriage has broken up and two elderly tenants. In the course of the next two years or so, all those flats are sold to other tenants who now have a lease of 60 years, or whatever. However, they
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have no right to extend the lease. They have no right to join in the enfranchisement. Those tenants alone are sitting on a diminishing asset with a landlord other than the original landlord of the property. It surely cannot be reasonable to exclude those four new tenants out of the 12—we know that occupation of flats changes quite rapidly—from the right to enfranchise or to extend in perpetuity. I say "in perpetuity" but it is at least until commonhold comes into effect and the Government change their mind on many of the issues.
Before I decide what to do with the amendment, will the Minister please tell me what those people are to do in that situation? It is reasonable for them to wish to join in the enfranchisement. They could not be participating tenants for many good reasons such as finance or because they were not themselves the owners of the leasehold at the time. What should they do? Why should they and they alone be stranded, unable to extend the lease, with a deteriorating asset, having acquired a new landlord and with no right to join in the freehold?
Lord Strathclyde: The noble Baroness paints a rather bleak picture. In the first instance there may be some good reason why the non-participating tenants do not wish to participate in purchasing the freehold. That is entirely legitimate. Under the noble Baroness's example, two things have to happen. First, the non-participant tenants have to change or the tenancy changes hands. Secondly, the existing freeholders refuse to allow those new tenants to buy into the freehold. I believe that to be unlikely. However, I accept the point that the noble Baroness makes: that if the new freeholders decide that those non-participating tenants should not play a part in the freehold, there is not much that they can do about it. However, the purpose of the Bill is to extend the ability of leasehold enfranchisement considerably more than is possible at present. Therefore it is not the case that we are not helping an enormous number of tenants by the Bill. Quite clearly, we are. The noble Baroness refers to a small number of tenants who would not be able to enfranchise.
There is an added point. On the example that the noble Baroness used of 12 flats, the four new tenants would have to get a twelfth of the tenants to go through the process again. In that instance, they would have the right to enfranchise again under the provisions in the Bill. Therefore those four would have to provide a new two-thirds majority of all qualifying tenants to be able to enfranchise. Is that helpful to the noble Baroness?
I think that I was wrong in saying earlier that the tenants would not be able to enfranchise. They would be able to enfranchise but only if they managed to achieve a new two-thirds majority of qualifying tenants.
8.45 p.m.
Baroness Hollis of Heigham: I thank the Minister for that additional response. Obviously we shall reconsider the amendment. However, I wish to be sure that the original leaseholders can enforce their right to

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enfranchise against the original landlord; and that the same right to enforce the right to enfranchise against the new landlord is not lost under the Bill. If I have the Minister's assurance to that effect, I shall take away the amendment, and read what he has said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 13 agreed to.
Clause 14 [The nominee purchaser: retirement or death]:
[Amendments Nos. 72 and 73 not moved.]
Clause 14 agreed to.
The Earl of Lytton The Earl of Lytton had given notice of his intention to move Amendment No. 74:
After Clause 14, insert the following new clause:
Lord Rodger of Earlsferry: Perhaps I may deal with the two amendments together as being directed to one point. They are aimed at preventing the reversioner from seeking to use the same grounds again to resist a claim for enfranchisement if those grounds have previously been rejected by the court. The fear is that a reversioner will seek to defeat enfranchisement by repeating again and again the argument which has been rejected until the tenants give up. The amendment would empower the court to direct that the new counter-notice, to be issued when the initial counter-notice is ruled to be of no effect, shall not contain any reasons specified by the court which have previously been rejected.
The amendment is not necessary, since the matters to be provided for in a further counter-notice are more restricted than those which can be included in an original counter-notice. Subsection (5) of Clause 19 has the effect that a counter-notice required to be given by the reversioner must be treated as if it complied with subsection (2) (a) of Clause 18; that is, it assumes that the right to enfranchise is admitted. It may cover only the matters set out in subsections (3) to (5) of Clause 18; that is, detailed proposals on what interests are and are not to be acquired. So the fear that my noble friend has expressed is unfounded and the amendment is not needed.
The further counter-notice must specify all the points being disputed. If they are not agreed the matter will go to the valuation tribunal. There would not, therefore, be an infinite regress of counter-notices. In those circumstances the amendment is not required and I ask my noble friend to withdraw it.
Lord Coleraine: I am grateful to my noble and learned friend for his reply. I am sure that the Law Society will read his detailed comments on the amendment which it asked me to move. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 85 not moved.]
Clause 19 agreed to.
Clause 20 [Tenants' claim liable to be defeated where landlord intends to redevelop]:
Lord Coleraine Lord Coleraine moved Amendment No. 86:
Page 26, line 32, leave out ("five") and insert ("three").
The noble Lord said: Clause 20 allows the reversioner to refuse collective enfranchisement where he intends to redevelop all or a substantial part of the premises. Subsection (2) (a) provides that he may not exercise his right unless,
"two-thirds of all the long leases … are due to terminate within the period of five years"
of the service of the initial notice. Appropriate fraction and length of years are obviously a matter of judgment and balance. However, I am advised by the

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Law Society that it considers five years to be too long and that a period of three years would be more reasonable.
The test of intention to develop is more than a mere intention to develop if possible. It involves an element of reasonable certainty about the ability to realise the intention. It would be extremely difficult to achieve that as early as five years before the end of the leases given the time limits attaching to planning conditions.
I have been asked to speak about this provision also by the Enfranchisement League. That is an organisation of many flat owners. It recommends also that the Bill should contain provision requiring the reversioner to satisfy the court under Clause 20(2) that he will be able to regain possession of the leases at the end of their terms. It is likely that the lessees in question will enjoy rights under Part I of the Landlord and Tenant Act 1954. There may well be cases where the reversioner will satisfy the conditions of the clause but he has not the slightest right to obtain possession on redevelopment grounds when leases come to an end. I believe that it would be wrong to refuse collective enfranchisement in such cases.
The amendment before the Committee provides only that the period before the end of leases in which the reversioner may refuse collective enfranchisement is reduced from five to three years. There is no amendment as regards those other matters on the Marshalled List. I beg to move.
Lord Strathclyde: This is another amendment which deals with a matter of balance. We decided that a period of five years is fair to both the long leaseholder and the landlord. There will be a burden of proof on the landlord that he intends to redevelop and he must go to court to obtain an order excluding the block from enfranchisement. Therefore, the court will only grant such an order where it is satisfied that the landlord intends to redevelop and that he requires possession to do so.
Five years gives a landlord a reasonable length of time in which to consider his long-term investment strategy. The Committee will be aware that drawing up plans for a property and obtaining planning permission can be a complicated and long drawn out process. It is in the best interests of the proper management of property to allow landlords to carry out substantial works or to redevelop where buildings are seriously dilapidated.
Therefore, I do not accept the case made by my noble friend. I do not consider that there is merit in reducing the period in which the landlord can apply from five to three years. Very few tenants are affected and they would be well aware of their position. Five years gives a reasonable time to the landlord to make proper proposals for the block. I hope that my noble friend agrees with me.
Lord Coleraine: We shall have to return to this amendment. However, for this evening, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 20 agreed to.
9.45 p.m.
Clause 21 [Applications where terms in dispute or failure to enter contract]:
[Amendments Nos. 87 to 89 not moved.]
Clause 21 agreed to.
Clause 22 [Applications where reversioner fails to give counter-notice or further counter-notice]:
[Amendment No. 90 not moved.]
Lord Peyton of Yeovil: Before we proceed further I should like to make a comment. My noble friend Lord Coleraine has sprinkled the Marshalled List with a number of amendments, not all of which have been very substantial and many of which have not even been moved. He was good enough to tell the Committee earlier today that as regards the amendments he had moved, he had spoken on behalf of the Law Society. In that case the Law Society's contribution has, far from accelerating the progress of the Bill, delayed it. I wonder whether the Law Society would not be well advised to think carefully before it produces such a number of amendments which it is not prepared to have pressed.
Lord Coleraine: If it is not out of order to do so, I should say to my noble friend Lord Peyton that these amendments are of some substance but they are of a technical nature. There have been a considerable number of long debates earlier on during the proceedings both today and last week. They have been matters basically of politics. What we are discussing tonight are matters of detail. This is a highly technical Bill and my noble friend really has no business to suggest that technical amendments should not be moved.
Lord Peyton of Yeovil: My noble friend has not understood me. I never went so far as to make the suggestion that technical amendments should not be moved. I am merely suggesting that to cover the Marshalled List with amendments which, at least on the surface, appear to be spurious is a waste of the Committee's time.
The Deputy Chairman of Committees (Lord Grantchester): This debate is out of order. We must move on to the question of whether Clause 22 should stand part of the Bill.
Clause 22 agreed to.
Schedule 4 agreed to.
Clause 23 [Applications where relevant landlord cannot be found]:
[Amendments Nos. 91 and 92 not moved.]
Lord Coleraine Lord Coleraine moved Amendment No. 93:
Page 30, line 32, at end insert (", he having died, no grant of representation has been obtained or the freehold of the premises has vested in the Crown as bona vacantia, or").
The noble Lord said: This amendment, like some of the other amendments I have spoken to this evening, has been recommended to me by the Law Society. It is a very definite technical amendment. There have been many technical amendments on the Marshalled List this afternoon where I felt it might be possible to speed up the proceedings of the Committee by engaging in negotiations with the department between now and Report. This amendment provides that

1323
where the relevant landlord is dead and no one has approved his will or obtained letters of administration, the participating tenants who wish to serve an initial notice to start the enfranchisement rolling can go to court to obtain the same vesting order as they could obtain if they could not find the relevant landlord. I beg to move.
Lord Rodger of Earlsferry: I can understand the reason for this amendment. I appreciate that the obtaining of a grant of representation can take some time and we would not wish the process of enfranchisement to be delayed unnecessarily. An amendment of this kind which would allow the court to make an order for the freehold and leasehold interest to vest in a nominee would allow the enfranchisement process to continue, despite the fact that the grant had not yet been obtained.
There is a wider issue of the problems of service, where a grant has not been obtained, and we would be prepared to consider it further. I cannot give an undertaking as to precisely what we shall do, but we are prepared to consider the matter further. On that basis, perhaps I may ask my noble friend whether he would withdraw the amendment at this stage.
Lord Coleraine: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Coleraine Lord Coleraine moved Amendment No. 94:
Page 30, line 33, leave out ("each") and insert ("any").
The noble Lord said: I wish to speak to Amendments Nos. 94 and 96; the latter is consequential. I understand that Amendment No. 97 in the names of the noble Lord, Lord Williams of Elvel, and the noble Baroness, Lady Hollis of Heigham, has been grouped with my amendments.
My Amendment No. 94 is simple. If one wishes to acquire the interests of various landlords under Clause 8(2) and one of them cannot be found, one would expect to be able to make an application for a vesting order under Clause 23(1) in respect of that landlord's interests. The subsection in the Bill appears to provide that all landlords would have to go missing before one can apply, and one has to apply in respect of all of them. That cannot be what is intended, and the amendments make that clear. I beg to move.
Lord Rodger of Earlsferry: My noble friend has tabled these two amendments but I have to say that they contrast starkly with the current drafting of Clause 23 which quite deliberately enables the tenants to pursue this course of action only where each of the landlords cannot be found.
It seems to me that members of the Committee will agree that it would be wrong to deal with a case where one or more—but not all—of the landlords cannot be found, by allowing the participating tenants to seek a vesting order in relation to that landlord's interest. The reason is that in such a situation, it will still be necessary for the participating tenants to give an initial notice to the remaining landlords and for those landlords, through the reversioner, to serve a counter-notice in the usual way.
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It would be quite unhelpful to the tenants to require them to seek a vesting order in respect of a missing landlord's interest before the initial notice had been given to the other landlords. It is important and, I think, economical in every way that the process of enfranchisement should occur as one transaction.
It is for that reason that we have provided for missing landlords to be dealt with in a different way in a case where at least one or more of the remaining landlords can be traced and so an initial notice can be given. The participating tenants must apply in that situation for an order dispensing with the need to give the initial notice to the missing landlord. Part II of Schedule 1, and in particular paragraphs 6 and 7 of the schedule, require the reversioner to seek the directions of the court in respect of a missing landlord's interest. This has been carefully drafted so that the interests of the missing landlord are still protected, and the terms of the acquisition in respect of all the interests can be settled at one and the same time. Having regard to the whole scheme of this part of the legislation, these amendments of my noble friend are inappropriate and I would ask him not to pursue them.
Lord Coleraine: That was an interesting reply, the detail of which I do not pretend to comprehend at the moment. I shall read it with interest later. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 95 to 97 not moved.]
Clause 23 agreed to.
Clause 24 [Supplementary provisions relating to vesting orders under section 23(1)]:
[Amendments Nos. 98 to 100 not moved.]
Clause 24 agreed to.
Clause 25 [Withdrawal from acquisition by participating tenants]:
[Amendments Nos. 101 to 103 not moved.]
Clause 25 agreed to.
Clause 26 [Deemed withdrawal of initial notice]:
[Amendments Nos. 103A to 104 not moved.]
[Amendment No. 105 had been withdrawn from the Marshalled List.]
Clause 26 agreed to.
Clause 27 agreed to.
Clause 28 [Determination of price]:
Lord Boardman Lord Boardman moved Amendment No. 105A:
Page 37, line 21, at end insert:
("() to any amount payable to him by virtue of section (Duty of nominee purchaser to disclose existence of agreements affecting specified premises etc.) (2); and").
The noble Lord said: This amendment has been spoken to, and my noble friend expressed his agreement to it. I beg to move.
On Question, amendment agreed to.
[Amendment No. 105 AA not moved.]
Clause 28, as amended, agreed to.
Schedule 5 [Purchase price payable by nominee purchaser]:
Lord Rodger of Earlsferry Lord Rodger of Earlsferry moved Amendment No. 105B
Page 180, line 4, at end insert:

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("() Parts II to IV of this Schedule have effect subject to the provisions of Parts V and VI (which relate to interests with negative values).").
The noble and learned Lord said: I speak here to Amendment No. 105B and the other amendments that have been grouped with it. The amendments are technical. The Committee may be relieved that I do not intend to take the Committee through them in great detail. They are designed for a quite specific purpose—to prevent a potential abuse that was drawn to the Government's attention by the Law Society. The abuse was such that it would have allowed landlords to increase the price that tenants will have to pay, and to increase it artificially by the creation of leases with negative values.
Negative value leases occur quite naturally where, for example, the rent which a landlord receives from his tenants does not cover the cost of the rent for which he is liable to a superior landlord. When making calculations for marriage value, we have provided that such leases have a nil value, rather than a negative one. That decision was taken to ensure that no landlord would require to pay the tenants for the enfranchisement. I believe that the Committee will agree that to make any landlord pay his tenants to enfranchise would have been unjust.
Although the decision is just when applied to naturally occurring negative value leases, it allowed a potential abuse. As the Bill stands, unamended, a landlord could at present create a pair of leases, one with a negative value and one above it with an equivalent positive value. Each lease would be valued separately and while the value of the negative lease
1326
would be reduced to nil, the tenant would have to buy out the superior lease which would have a positive value. The overall effect therefore of creating that superior lease with the positive value would be to increase, artificially but perhaps considerably, the price of enfranchisement to tenants.
The solution to that potential abuse has been complex as it was not wished to make landlords pay tenants to enfranchise where genuine negative leases existed. The government amendments will take away the incentive to create those artificial pairs of tenancies by keeping the negative lease value as nil but reducing the superior positive interest by an equivalent amount.
The amendments also provide for cases where there is more than one lease with a negative value and for the distribution of marriage value and compensation. In broad terms, all those will be calculated to ensure that they deter abuse and compensate landlords first with leases which have a positive value.
These are highly technical amendments. It is believed that they will have the effect of cutting off that route to create those pairs of tenancies; and that in this way that potential abuse will be stamped out before it has begun. For that reason, we desire the provisions to enter the Bill at this stage. I beg to move.
On Question, amendment agreed to.
Viscount Goschen: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
House adjourned at five minutes past ten o'clock.

Housing and Urban Development Bill

  Entitlement to purchase at a later date
  .—(1) A qualifying tenant who chooses not to participate in the proposed acquisition shall be entitled at a later date to purchase a share in the new owning company.
  (2) Where such a tenant chooses to exercise that right he shall serve a notice at the registered office of the company and, in addition to the purchase price, he shall be liable to pay any costs incurred either by himself or by other occupiers in the relevant premises.
  (3) The purchase price shall be agreed between the parties or, in the event of disagreement, shall be referred for determination to the Leasehold Valuation Tribunal.").
  The noble Earl said: I have already spoken to the amendment. However, I wish to comment on what the Minister said in his response. It seems more appropriate to do so now than on earlier amendments. Part of the problem arises from the Government's insistence on a snapshot approach. It can only be said that it is detrimental to enfranchisement on the strict terms that the Government have set down. I shall return to the matter.
  [Amendment No. 74 not moved.]
  Clause 15 [Access by relevant landlords for valuation purposes]:
  Lord Coleraine Lord Coleraine moved Amendment No. 75:
  Page 22, line 9 leave out ("3") and insert ("10").
  The noble Lord said: In moving Amendment No. 75, I speak also to Amendment No. 76. Clause 15 gives the reversioner, after the initial notice has been served, the right of entry on any part of specified premises. I note that he is allowed to go into the commercial part of the property—it would be his valuer, no doubt—just as the flat owners would have wished to do. That is to enable him to obtain a valuation of the property. The provision states:
  "That right of access shall be exercisable at any reasonable time and on giving not less than 3 days' notice to the occupier".
  With all its experience of such cases and the time limits which are or are not practicable, the Law Society recommends that it is not practicable to make it a possibility that a freeholder will give only three days' written notice. It suggests 10 days. That is the substance of Amendment No. 75. If the provision for three days were to remain in the Bill, and the lessee was not present when the reversioner's valuer came, the reversioner would no doubt use his key, unlock the premises and walk in.
  Amendment No. 76 provides that the notice shall he in writing. I believe that such notice is always
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  provided to be in writing. Perhaps I may have some hope that the Minister will agree on this occasion that the notice should be in writing. I beg to move.
  Baroness Hilton of Eggardon: We support the simple and straightforward amendment. It refers to formal proceedings. It is reasonable that the tenant should be given 10 days' notice and that that notice should be in writing. I do not understand the necessity for haste. Why is it necessary to give only three days' notice? Some civilised degree of preparation might be required for the tenant if he is to have a valuation of his property, not least perhaps in order to tidy the place up.
  They are formal, legal proceedings. It is therefore appropriate that notice should be in writing and not merely a verbal communication. I urge the Minister to accept the simple and straightforward amendment.
  Lord Boardman: In contrast to some of my comments on Law Society amendments, I support my noble friend's amendment. Both amendments are sensible and should be accepted.
  Lord Strathclyde: I was not going to accept either of these amendments; but dealing with the second one first—the requirement for landlords to give their tenants written notice—I have no objection to that. However, the amendment is unnecessary because Clause 88, which relates to notice and makes certain provisions, already requires that all notices under Part I of the Bill should be in writing. Therefore, I do not think this is necessary.
  On the first amendment, requiring 10 days' notice instead of three, my own feeling is that it slows down all the stages which come after the reversioner gives the county notice. As I have explained many times, delay should be in no party's interests, but I can see that ultimately it is a matter of judgment. If the Committee wishes there to be 10 days instead of three, I am not going to object. And, as nobody is going to speak against it, I propose to accept the amendment.
  Lord Coleraine: I am grateful to my noble friend for that sincere and important concession.
  On Question, amendment agreed to.
  [Amendment No. 76 not moved.]
  Clause 15, as amended, agreed to.
  Lord Boardman Lord Boardman moved Amendment No. 76A:
  After Clause 15, insert the following new clause:

  Duty of nominee purchaser to disclose existence of agreements affecting specified premises etc
  .—(1) If at any time during the period beginning with the relevant date and ending with the valuation date for the purposes of Schedule 5—

  (a) there subsists between the nominee purchaser and a person other than a participating tenant any agreement (of whatever nature) providing for the disposal of a relevant interest, or

  (b) if the nominee purchaser is a company, any person other than a participating tenant holds any share in that company by virtue of which a relevant interest may be acquired,

  the existence of that agreement or shareholding shall be notified to the reversioner by the nominee purchaser as soon as possible after the agreement or shareholding is made or established or, if in existence on the relevant date, as soon as possible after that date.
  (2) If—

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  (a) the nominee purchaser is required to give any notification under subsection (1) but fails to do so before the price payable to the reversioner or any other relevant landlord in respect of the acquisition of any interest of his by the nominee purchaser is determined for the purposes of Schedule 5, and

  (b) it may reasonably be assumed that, had the nominee purchaser given the notification, it would have resulted in the price so determined being increased by an amount referable to the existence of any agreement or shareholding falling within subsection (1)(a) or (b),

  the nominee purchaser and the participating tenants shall be jointly and severally liable to pay that amount to the reversioner or (as the case may be) the other relevant landlord.
  (3) In subsection (1)"relevant interest" means any interest in, or in any part of, the specified premises or any property specified in the initial notice under section 11(3) (a)(ii).
  (4) Paragraph (a) of subsection (1) does not, however, apply to an agreement if the only disposal of such an interest for which it provides is one consisting in the creation of an interest by way of security for a loan.").
  The noble Lord said: This amendment amounts to the disclosure of what are called side agreements. The Bill provides that the nominee purchaser who is acting on behalf of the tenants, exercising the right to enfranchise, will pay a purchase price for the freehold based upon the value of the flats of the participating tenants. We may have a discussion as to what that value should be; but there is no doubt that the participating tenants will be able to get their flats at a cheaper price than those paid by the non-participating tenants. As a consequence, the tenants who are participating could suppress the price by limiting the number of qualifying tenants who participate to the minimum number which makes 44.1 per cent.—my noble friend Lord Renton will tell me whether my calculations are not correct—who qualify. They will restrict them to the minimum number required and reach a side agreement with those who wish to buy but who are not necessary in order to achieve the 44 per cent., which will give them a benefit afterwards. The result is that the participating tenants will get the block at a lower price than would otherwise be the case.
  The amendment which I have tabled inhibits the ability of tenants to reach such an agreement by imposing a duty upon them, both upon the nominee purchaser and the participating tenants, to disclose the existence of any such agreement, and then making them liable to the freeholder for any difference in price which results in non-disclosure. If they do not disclose and it is later found that they have not disclosed, they are under that penalty. There is an exception made in the case of loan agreements, quite rightly. In such cases it should not be necessary for them to disclose the terms on which they have raised the finance. Subject to that, I believe the amendment is a necessary one. It may be suggested that I may have a devious mind, but this is certainly a method by which participating tenants could get "on the cheap" the asset by failing to disclose any side agreement they have. I hope that my noble friend will feel able to accept this amendment.
  Lord Strathclyde: On the groupings, this amendment is grouped with several other amendments:
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  105A, 105AA, 108, 148C and 170A. I should like to make sure with the Committee and with my noble friend that it is appropriate that all these amendments should be discussed at once.
  Lord Boardman: The only one standing in my name is 105A, and that is a consequential amendment on Amendment No. 76A.
  Lord Coleraine: I have explained to my noble friend and also to my noble friend the Minister that two of these amendments in the grouping list are in my name. They are Nos. 108 and 148C, but I do not intend to speak to them with this amendment.
  Viscount Dilhorne: I entirely agree with the spirit and intention of this amendment but there are one or two things in it which worry me somewhat. Your Lordships will see from the text that it is not entirely clear that no time limit applies. Subsection (1) says:
  "If at any time during the period beginning with the relevant date and ending with the valuation date … "
  and then you go to the body of the clause below paragraph (b). You will see the words:
  "the existence of that agreement or shareholding shall be notified to the reversioner …".
  Then you get another matter introduced into subsection (2) which says that if—
  "the nominee purchaser is required to give any notification under subsection (1) but fails to do so before the price payable to the reversioner … and … it may reasonably be assumed …".
  Can my noble friend give some further indication as to the extent on which this time limit will apply? It is going to be very difficult to establish that there is a side agreement. There should be a possibility within a greater length of time of going back and saying, "There is this agreement and it should be cut down". It should be cut down after the time ending with the valuation date.
  Subsection (2) does not seem to me to make that abundantly clear, and I think it should.
  Lord Boardman: What I had in mind with this amendment is that any agreement made before the date of valuation is the material one, and of course it should be disclosed before that date. If it is not disclosed and it is subsequently found that there had been a side agreement made before the relevant date, however long afterwards it may be found, then that side agreement should give rise to the purchaser and the participating tenant having to pay the extra sum that they should have paid. That was the intention.
  Lord Finsberg: I speak to the amendment standing in my name, Amendment No. 105AA. At an earlier stage of the Bill when we were talking about valuations, I raised the question of the discount allowed to those tenants buying their own council houses with a particular time limit. I was chided by one Member for saying something that to them was irrelevant; but it links up with the amendment I am now speaking about.
  One of the problems that has come through these debates is the feeling that there is unfairness in the amount of money that an unwilling seller will receive. Nobody can say that it is a willing sale, but that does not matter: that is what the legislation will provide

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  for. Equally, a substantial number of your Lordships have spoken on more than one occasion about windfall gains, and I understand that. I have the privilege of being deputy chairman of the Commission for the New Towns. We have had for many years—long before I joined the Commission—a procedure where, if we grant a lease or sell a property, we retain for a period of up to 20 years what is called a "clawback" so that if the purchaser should get a change of planning permission or any material change, the public purse will get back a percentage of what has been sold.
  That is the purpose behind my amendment, the other way. If there is an unwilling seller, it would be fair that if a sale is made within five years by whoever has purchased the property, a diminishing percentage should be repaid to the original vendor. I have used the words "net profit", and clearly it would be right. In the Bill we call it "marriage value". That is going over and above that in order to cater for the particular problem that has been mentioned frequently about the windfall gain. I appreciate that the amendment is infelicitously worded. I do not expect my noble friend to accept it as it stands. All I do is express the hope that it might perhaps ease some of the anxieties that many Members of the Committee have expressed this evening about what they see to be unfairness in the compensation which an unwilling seller will obtain.
  9 p.m.
  Lord Clark of Kempston: I support my noble friend Lord Finsberg. When the Government introduced the sale of council houses, there was a discount element. If a council tenant sold his house within a certain number of years, part of that discount was repayable to the taxpayer. My noble friend would be well advised to have a look at this matter. There is no question but that if there is a windfall profit to whomsoever it may be because of legislation, that windfall profit should not be allowed to be made in the hands of one person who enjoys the full discount. There should be a clawback. I hope that my noble friend will look at that point.
  Baroness Hollis of Heigham: Perhaps I may say how unhappy we are on this side of the Committee about Amendment No. 105AA, for two reasons. The first is the analogy with discounts on council housing and the sliding scale. My noble friend Lord Williams argued the point earlier and perhaps it is worth reiterating. The analogy is drawn about the repayment because the original price paid was discounted by virtue of long residency. Therefore, there was some qualification for clawback.
  The second example of clawback that I am aware of in local government is when in the past improvement grants have been made and where, for example, somebody has changed tenure; then a percentage may be clawed back to avoid a windfall gain. That is when actual sums of money have been paid from the public purse to a private individual. If the basis of an improvement grant, on which those sums of money
  1312
  were then paid, is not honoured, there is a degree of clawback tapered according to the length of time the person was in residence.
  Those are the two examples I know of clawback through tapering on this analogy. Neither of them applies. The first, on council housing, was on a valuation on a discount on price paid. The second was on a total clawback of public moneys going to a private individual for a purpose which was subsequently changed. Neither of those examples is true here and therefore I would argue on the first point that to make an analogy with council house sales is invalid.
  My second reason for opposing the amendment is that I must ask what we mean by net profit. As I understand it, the enfranchising leaseholder will, first, have bought his or her lease for a tidy sum. Secondly, he will have paid over a sum of money to the freeholder for enfranchisement. Thirdly, he will have split the marriage value—which is the extent to which the sum of the whole is greater than its parts—fifty-fifty, even though many people might regard that marriage value as more properly belonging to the leaseholders as recognition of the declining value of their lease.
  Now it appears that there might be a net profit over and beyond all those three slices of payments. I suggest that if that is indeed the case, it can only reflect rising property values and certainly not in some sense an earned gain which is entitled to go back to the original landlord. If there is a rise in values then it is the leaseholder, who has taken the risk of paying not only for the original lease but for enfranchisement and 50 per cent. of the marriage value, who should enjoy it. It seems to me that the landlord has already been paid three times over. He can surely not be entitled to a fourth payment on something in which he now has no financial interest.
  Lord Finsberg: Before the noble Baroness sits down, I seem to remember certain differences of opinion between the Ministry in which I served and her council over the "right to buy" many years ago. But there is a distinct parallel here. The council tenant purchasing his house at a discount is, in my view, a parallel to the leaseholder getting a property at below market value from an unwilling seller. I am not saying which is right or wrong. I am saying that there is a distinct parallel and I am afraid that I stick to that.
  Lord Coleraine: I hope that my noble friend the Minister will reject the principle behind the amendment which my noble friend Lord Finsberg has proposed. There is no question of the leaseholder buying anything at a discount. The freeholder, if he puts his property on the market, will get a considerably smaller price from putting it on the market than he would get under this Bill when he sells it to his leaseholder. So the argument he puts forward depends on the price not being fair. I submit that in most cases the price is more than fair to the freeholder. He will get more than he would get from anyone else except in a deal arranged in conjunction with his lessee. That is irrespective of whether or not he wishes to do the deal. There may be Members of the

  1313
  Committee who feel that the price is unfair. I think they are very ill advised in doing so. I cannot see that they would be satisfied with anything but the absolute, full marriage value from the lessees.
  Baroness Gardner of Parkes: I think there is a different situation if the freeholder sells at a very reduced price to a tenant. My daughter wanted to acquire a small piece of garden outside her home. She was quoted a price of a good many thousand pounds which she could not afford. The freeholder then came forward. I must pay tribute to it, the John Lyons Trust, which is apparently tied in with Harrow school. The trust came forward and said it understood that she was a young person who would like a little bit of outdoor space. The trust would sell it to her for only £500 instead of £10,000, but if ever the time came when she sold the property on, it would expect to receive a certain percentage. I thought that was very fair. It was giving the equivalent of a huge discount to her and enabling her to have that little garden and enjoy it for many years until the time she sold the property. As the trust said, at that time she would have the money in her pocket and would be able to pay.
  The amendment of my noble friend Lord Finsberg is not parallel. I do not think he suggests any specially reduced price to enable the freeholder later to again have a special increase. It is quite a different situation when one has paid at least 50 per cent. of the marriage value, as suggested in the Bill. One's own capital is then tied into the property and if prices go up or down one carries the profit or loss accordingly. I therefore cannot support the amendment of my noble friend Lord Finsberg.
  Lord Boardman: In trying to move Amendment No. 76A briefly, I obviously did not make clear what I intended. The noble Baroness, Lady Hollis, did not appear to understand my point. The point is that under the Bill the participating tenants must pay part of the marriage value to the freeholder, whether that be a minimum of 50 per cent. or an amount to be negotiated. However, the interest of the qualifying tenants who do not participate, if the block is enfranchised, can be acquired without any marriage value being attached to the price the freeholders receive.
  It is to avoid side agreements being made which would enable participating tenants—the 44 per cent.—to obtain on the cheap the 56 per cent. of the flats which are not being acquired and then make a side agreement with those leaseholders to whom, if they are successful, as they will be under the Bill, they will pay a secret profit. It is that which is mostly unfair to freeholders and which my amendment was intended to obviate.
  Lord Selsdon: It may be something to do with the term "post prandial" but at long last we are getting down to debate and discussion of what might be deemed to be fair and equitable, and much of the tension of opposing sides seems to have disappeared.
  The amendment of my noble friend Lord Boardman is well thought out, although I cannot
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  understand it line by line. The principles of "open book" in situations such as this are healthy and good and have been established in all forms of acquisition throughout time in order to prevent what people may term "concert parties". It is possible, as has happened time and again in the past, that groups of individuals, for whatever motive and normally for profit, take advantage of a situation. For example, one tenant may not be able to afford the cost of enfranchisement and side deals may be done. Those deals are detrimental to the freeholder and possibly also to the other tenants who, in good faith, would be enfranchised.
  I wondered whether there was any precedent for that. By pure chance at dinner I asked the noble Lord, Lord Monson, whether he knew anything about the history of land tenure. He gave me a summary of a note by Savills which said that as a result of a certain unfairness a Court of Chancery was established in the 15th century to establish equitable rules which would not permit any unconscionable injustices to occur in land tenure. If there is no disclosure, an injustice may occur. I therefore support the amendment of my noble friend.
  Lord Monson: I make no comment in regard to Amendment No. 76A in the name of the noble Lord, Lord Boardman. To tell the truth, I find it rather complicated and I suspect that I am not the only Member of the Committee who does so. The noble Lord, Lord Selsdon, indicated as much. On the other hand, I find the amendment of the noble Lord, Lord Finsberg—Amendment No. 105AA—quite admirable in principle even though it may be technically defective in one way or another.
  To the noble Baroness, Lady Hollis, the noble Lord, Lord Coleraine, and the noble Baroness, Lady Gardner, I say this. If there is no profit then there is no clawback. That really answers the question. The profit is not likely to come purely or even mainly from rising property prices, but from the inevitable profit that will occur as a result of the leaseholder having to pay only 50 per cent. of the marriage value—if 50 per cent. is the figure agreed upon. Once the enfranchisement has taken place, he can immediately sell on at a profit which has variously been put at somewhere between 14 per cent. and 18 per cent. That would be irrespective of any rise in the general market value there may be. It is quite equitable that if somebody resells in a short space of time they should repay a proportion of the original sum.
  The Earl of Lytton: I want to see whether I can throw a little light on the particular reference to the amendment moved by the noble Lord, Lord Finsberg. We are dealing mainly with urban properties. One of the characteristics of that is high turnover, alteration over time and the leftover parcels of land that may represent some future prospect. I can well understand the nervousness, when enfranchisement processes take place, to absorb all those little bits and pieces, all those chances, all those avenues for exploitation.
  In compulsory purchase law, as the Minister will undoubtedly be aware, there are precedents for that type of thing, most recently incorporated into the

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  Planning and Compensation Act. Under the Act an acquiring authority invariably acquires a current use value. There is a provision whereby, if an authority sells within 10 years for a use where planning consent has been obtained and a much more substantial figure on resale is achieved, there may be a clawback. One matter that was in the back of the minds of Members of both Houses when that measure was being considered was the business of the Department of Transport selling-off roadside sites for motorway service areas having acquired them at agricultural land values from the riparian owner.
  It seems to me that we have here to consider some very fundamental principles. Marriage value contains a number of different factors. First, there is the straightforward amalgamation on a current use value basis of a freehold and a leasehold. That in itself may produce marriage value. But there are other aspects, including development rights. It is well known that some urban properties have general development order and other rights for extensions which at the time of enfranchisement may not have received planning consent although there may be the realistic prospect by precedent or other factors of getting it in the fullness of time. It is there where I feel that there is a certain degree of justifiable nervousness among freeholders about this artificially-created market—I am particularly referring to flats—in circumstances where no real market for freehold flats has actually existed in the past and where a leasehold valuation tribunal will be faced with effectively creating its own market.
  There are other circumstances where this has happened in the past, but it seems to me that the Minister should look carefully at what is intended to be transferred. If it is a right in a dwellinghouse and a roof over the head of the tenant, the security of either lease extension or the control over that and management through the medium of enfranchisement, that is the point at which the valuation which has to be fixed at a moment of time for existing use purposes can legitimately be said to be set in tablets of stone. It is what happens thereafter that is the undervalued prospect. That is something to which the Government should seriously address their attention. There are precedents. There are precedents in compulsory purchase law. It is a point that needs to be looked at further.
  9.15 p.m.
  Lord Coleraine: I should like to address briefly the amendment of my noble friend Lord Boardman. He consistently asks that the price paid by flat owners should be ratcheted upwards. On this occasion I have to tell him that I think that the point he makes is a fair one. Nevertheless, I do not believe that his approach to it is the right one. I do not see that it is right to involve flat owners in having to disclose all their negotiating positions to their reversioners. I do not think that one can talk in terms of concert parties. The flat owners should be entitled to arrange their affairs to the best of their ability in order to do as good a deal as possible with the reversioner. In the case of chattels,
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  I think that there are statutory prohibitions on doing this kind of thing. But this certainly does not apply to land and interest in land so far as I am aware.
  To try to get the kind of provision that my noble friend is thinking about reduced to suitable legislative form will call for a schedule of intense complexity. That will add one more difficulty in the way of lessees seeking to enfranchise and will add yet one more artificiality to the whole scheme of valuation which runs through the Bill and to which we shall come when we get down to discussing Schedule 5. In my view the correct way to get through this problem is for the Government to take away Schedule 5 and to start again with a commitment to try to come back with a formula which will leave it to the leasehold valuation tribunals to fix the price to be paid for the whole block on the assumption of a sale by a willing seller and with any appropriate valuation assumptions. That is how this kind of matter has been dealt with in previous legislation. It is how it should be done here because we have a whole series of totally artificial valuation methods being used. My noble friend's amendment would only add one more to them.
  Lord Strathclyde: I am glad that we have had this debate because it deals with a most important issue which my noble friend Lord Boardman has raised. This is the calculation of an element of landlord's interest known as "hope value". I understand the anxieties of my noble friends and I have some sympathy with them. The landlord will receive marriage value only on the flats of tenants who participated in giving the initial notice. So I feel that there is some justification in the argument that a group of tenants might seek to keep the costs of enfranchisement down by having only the minimum number of participating tenants. Other tenants might then make side agreements to join in at a later stage.
  It may be helpful if I explain why the Bill gives landlords a share of the marriage value only on the flats of tenants who participate in giving the initial notice. To do otherwise would be very unfair. If marriage value on the flats of non-participating tenants were given too, this could amount to false accounting. The flats of non-participating tenants are not brought under the same control as the freehold and therefore no marriage value is released. The only definite merging of control is between the interests held by the nominee purchaser and the participating tenants.
  Non-participating tenants will have a new freeholder but retain their current lease interest. Many will not wish to join in enfranchisement or will not be able to afford to do so. A landlord could not, in the open market, claim marriage value where none existed. There would be no basis for such a claim and it would be wrong to pretend that there was for the purposes of the Bill.
  My noble friend Lord Finsberg has tabled a most interesting amendment dealing with clawback. It will provide a clawback should a nominee purchaser dispose of his interest within five years. I am sorry to disappoint my noble friend because I have difficulties in supporting an amendment which would give a landlord an ongoing claim against a nominee

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  purchaser. I consider it right that once a purchase has been made the new freeholder should have control of his own property, including the granting of new leases or other interests, without a third party having a claim or interest on that property. I am not sure that my noble friend's amendment would be helpful.
  But my noble friend Lord Boardman has come forward with something which I believe is rather helpful to the Committee. I accept the principle of my noble friend's amendment which is that some element of the hope value, which is the expectation that new leases and other interests will be granted, should be taken into account when the freehold is valued. I understand that in valuation practice that is already calculated.
  I understand from my advisers that the amendment of my noble friend Lord Boardman has been drafted particularly well. Therefore, I propose to accept it. If there are any drafting amendments which need to be changed, then perhaps we can do that at Report. In the light of that, I hope that my noble friend Lord Finsberg will not feel too bad if I ask him not to press his amendment, but say that we accept the amendment of my noble friend Lord Boardman.
  Lord Boardman: I am much obliged to my noble friend.
  On Question, amendment agreed to.
  Clause 16 [Effect of notice under section 11 as respects subsequent transactions by freeholder etc.]:
  Lord Coleraine Lord Coleraine moved Amendment No. 77:
  Page 23, line 12, at end insert ("provided that this subsection shall not apply to a binding contract entered into after due compliance with the provisions of Part I of the Landlord and Tenant Act 1987, which contract is to be completed within 3 months of the relevant date.").
  The noble Lord said: Clause 16(4) provides that where before the relevant date there is a binding contract in force relating to the disposal by the person who owns the freehold of the specified premises of any interest of his which is going to be subject to the enfranchisement then, so long as the initial notice continues in force, the operation of the contract is to be suspended so far as it relates to any such disposal. I understand that if the collective enfranchisement goes ahead, the original contract falls by the board.
  The situation that I am envisaging in the amendment is unusual. It is that a tenant's right to have notice of an intended sale by a landlord under Part I of the Landlord and Tenant Act 1987 results in all the proceedings that are necessary under that part of that Act taking place and eventually a contract is entered into. My amendment would provide that the contract should be excepted from the provisions of the Bill. The provisions of Part I of the 1987 Act had very good intentions but have so far met with very little success in operation. I sometimes hear it said that the only time that that section is used successfully is when the advisers on either side have not been aware of all the defects in that part of the Act. Therefore an exception should be made from this clause in the case of a contract which has successfully arisen out of the provisions of Part I of the 1987 Act. I beg to move.
  Lord Rodger of Earlsferry: I am grateful to my noble friend for the explanation that he has given of the purpose of his amendment. As he explained, it applies in order to except those contracts entered into under Part I of the 1987 Act for the purposes of the doctrine of the right of first refusal. The intention of the amendment is that such contracts should not be suspended by an initial notice under the Bill.
  The Government are in favour of and agree with the thrust of the amendment. However, there is some doubt about whether, as presently drafted, the amendment would be technically successful. Therefore, with your Lordships' permission, I propose that we should take the amendment away and look at it. If it needs redrafting, we shall come forward with a government amendment giving effect to that.
  Lord Coleraine: I am grateful to my noble and learned friend for what he has just said. In reliance on that, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Lord Coleraine Lord Coleraine moved Amendment No. 78:
  Page 23, line 29, at end insert:
  ("() Where any notice under section 10 or 11 above has been served by a qualifying tenant on the relevant landlord and the relevant landlord is in default in complying therewith then any service charge demanded by the relevant landlord shall (unless the court orders otherwise) be treated for all purposes as not being due from that qualifying tenant at any time when the relevant landlord is in default.").
  The noble Lord said: This amendment intends to provide a simple way of enabling Clauses 10 and 11 to be self-leasing as regards the obligations of the reversioner to comply with the requirements of the clauses. It provides that, so long as the reversioner is in default in not complying with his obligations under the clauses, the obligations of the tenants to pay a service charge are suspended until the reversioner does what he should; and when he does so, the obligation to pay a service charge continues. It is a simple amendment. It would obviate the need for the applications to court about which we heard earlier today. I beg to move.
  9.30 p.m.
  Lord Rodger of Earlsferry: I understand fully the intention behind the amendment. It is largely the same as the intention behind amendments which were moved earlier. Again, I fear that on this matter I must part company with my noble friend. It is important that the timetables set down in the Bill should be followed. That is why Clause 82 contains a carefully worked out machinery whereby those who wish to enforce requirements can take steps to do so in court. The amendment seeks instead to say that if there is a delay, then during that period a service charge should be treated as not being due. That, in itself, would not be self-policing or bring about the completion of the stage. For that, we believe Clause 82 provides the machinery.
  Not only would the proposal contained in the amendment not be an effective way of achieving the desired result, but it would have certain great disadvantages: if the service charges were not paid and were not available to the landlord, that would merely

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  result in the landlord being likely not to carry out essential repairs on the block, and one would find that the block would deteriorate, or the provision of heating to the tenants in the block might be interrupted. Such things might happen. That would have an effect not just on the tenants who were participating in the enfranchisement process, but on other tenants in the block. That would be wholly undesirable. Moreover, because it would also be inefficient, we believe that the amendment, although perhaps good in intention, is undesirable in practice. I reiterate that we believe that we should stick with the machinery contained in Clause 82, and I ask my noble friend to withdraw the amendment.
  Lord Coleraine: I shall obviously read with great care all that my noble and learned friend has said. But at first hearing I find it surprising that he should say that the response of a reversioner, faced with his tenants exercising their rights under the Bill to withhold service charges until the reversioner complies with his obligations, might be to withhold the provision of services that he was no doubt covenanted to provide. I should like to consider this matter at leisure. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 16 agreed to.
  Clause 17 [Right of reversioner to require evidence of tenant's right to participate]:
  [Amendments Nos. 79 and 80 not moved.]
  Clause 17 agreed to.
  Clause 18 [Reversioner's counter-notice]:
  [Amendments Nos. 81 to 83 not moved.]
  Clause 18 agreed to.
  Clause 19 [Proceedings relating to validity of initial notice]:
  Lord Coleraine Lord Coleraine moved Amendment No. 84:
  Page 25, line 47, leave out ("an order") and insert ("a declaration").
  The noble Lord said: In moving Amendment No. 84 I shall speak also to Amendment No. 85. Under Clause 18 the reversioner may in his counter-notice challenge the participating tenants' right to collective enfranchisement. If he does so the nominated purchaser may apply under Clause 19 for a declaration that they did have that right. That declaration, if made, will contain an order requiring the reversioner to give a further counter-notice.
  The Law Society sees the possibility that the reversioner might in the further counter-notice advance one or more of the grounds put forward in the original counter-notice for challenging the participation. He might do so in conjunction with other grounds. In some cases that might be reasonable; in others it will be done purely to waste time.
  The amendments will give the court power, on the hearing of the application in appropriate circumstances, to direct in effect that one or more of the grounds on which the reversioner made his original challenge may not be repeated if in his further counter-notice he makes a further challenge.
  Amendment No. 85 is the principal amendment in the group. It provides that a further subsection is to be inserted after subsection (3) as follows:
  "An order under subsection (3) above may direct that such counter-notice may not contain any or such one or more of the reasons for not admitting the participating tenants' entitlement to exercise the right to collective enfranchisement previously stated under section 18(2) (b) as may be specified". I beg to move.