HL Deb 15 March 1993 vol 543 cc1249-80

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 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 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 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, 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 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 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 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, 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 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 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 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 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 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 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 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 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, 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 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 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 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 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 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 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 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 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.

[Amendment No. 50 not moved.]

Clause 10 agreed to.

Lord Coleraine moved Amendment No. 51: After Clause 10, insert the following new clause:

  1. Leaseback notices 4,898 words