HL Deb 15 March 1993 vol 543 cc1222-40

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 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 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 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, 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 —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.] 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.

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.

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 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 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 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 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 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. 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 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 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.
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.
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.

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