Housing and Urban Development Bill

HL Deb 15 March 1993 vol 543 cc1294-326

House again in Committee on Clause 11.

[Amendments Nos. 54 to 56 not moved.]

The Deputy Chairman of Committees (Baroness Cox)

I should point out that if Amendment No. 57 is agreed to, I cannot call Amendment No. 58.

[Amendment No. 57 not moved.]

The Earl of Lytton moved Amendment No. 58: Page 14, line 28, after ("valuation") insert ("in writing").

The noble Earl said: Amendment No. 58 relates to the need for a valuation of the property to be in writing.

This is to do with the notice that the qualifying tenants are obliged to give if they wish to exercise their right to collective enfranchisement. An important part of the notice is the requirement that the qualifying tenants obtain a valuation by a qualified surveyor. However, there appears to be no requirement for that valuation by the surveyor to be in writing. It would generally be considered unsatisfactory for a valuation to be given in a less formal way. If the Bill does not specify that, there is a risk that valuations may be verbal and on a basis which cannot be adequately verified by the other party.

The general rule is that all formal valuations for statutory purposes should be in writing. It is important that this matter should be given further thought. The effective way to ensure that valuations are given adequate consideration by the valuer concerned is to provide that he commits himself to paper. On that basis, there is at least some probability that the quality of the valuation will be governed by the standards set by the professional body to which the valuer belongs. I beg to move.

Lord Coleraine

I accept in principle that anyone who is having a valuation made for these purposes would wish it to be in writing. I have only two points to raise. I do not necessarily believe that that should be written on the face of the Bill. The other point is that from the amendment I am not clear to whom the valuation should be given in writing. Is it to be given to all the qualifying tenants or can it be given to one or more of their number on their behalf? I ask that because in a large block of flats, where the various lessees may not even know each other, there may well be a flat under the control of the reversioner which he lets to friends of his or associated companies. It would be a pity if valuations had to be given in writing to all the qualifying tenants.

Baroness Hilton of Eggardon

We support the amendment. We believe that to have the valuation in writing will add to the clarity and provide everyone with a clear understanding of the position.

Lord Strathclyde

I have nothing against the principle behind the amendment. I had assumed that in most cases the tenants would automatically expect the valuer to provide a written report. I know that I should do so were I entering into a transaction on that scale. Therefore, we did not believe it necessary to write on the face of the Bill that there should be a written valuation.

I am not certain that adding those words in writing would achieve very much. For example, a scribbled figure on the back of an envelope would fulfil the intention behind the amendment. In view of what my noble friend Lord Coleraine said, the noble Earl may wish to think again about this matter. However, we have nothing against the principle of the amendment although it may be unnecessarily prescriptive.

Baroness Hollis of Heigham

Does that mean that the Minister is suggesting to the noble Earl that he should withdraw the amendment and that the Government may bring forward an amendment of their own on Report?

Lord Strathclyde

No. I thought that my noble friend Lord Coleraine raised some extremely sensible issues as regards the amendment. I was inviting the noble Earl to think again. If he wishes to bring forward an amendment on Report, he may do so. I am merely saying that I am not against the principle behind the amendment.

Baroness Hollis of Heigham

This is an extremely complex part of the Bill and it is an extremely complex procedure. The Department of the Environment's research on the 1987 Act showed how difficult it was for tenants and leaseholders to operate such clauses. Anything which contributes to clarity and understanding and which gives information to leaseholders on which they can consult their solicitors must, prima facie, be good. I hope that the Minister will look again at this matter to see whether we can strengthen the position of leaseholders vis-à-vis the law.

Lord Strathclyde

I believe that the noble Baroness is taking this matter too far. We are not against the principle of the amendment. We do not believe that it is necessary or we should have written it on the face of the Bill. My noble friend Lord Coleraine indicated why the amendment probably would not work. I too have indicated that we do not believe that it will help. I should be interested to hear what the noble Earl wishes to say. I shall not bring forward an amendment on Report, but if the noble Earl wishes to do so, that is a matter for him.

The Earl of Lytton

I assure the noble Baroness, Lady Hollis of Heigham, that I shall give further consideration to this matter because I know that the Royal Institution of Chartered Surveyors feels quite strongly about it. There are fairly set-piece routines for dealing with valuations relating to statutory purposes.

I have taken note of what the noble Lord, Lord Coleraine, said. I accept that to include such a provision may cause other complications which I must consider further. I thank the Minister for his helpful noises and, on the basis of what he said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 11 agreed to.

Schedule 3 [The initial notice: supplementary provisions]:

[Amendments Nos. 59 to 59C not moved.]

Viscount Goschen moved Amendment No. 60: Page 176, line 42, after ("every") insert ("other").

The noble Viscount said: This is a purely technical drafting amendment. Paragraph 12 of Schedule 3 requires the participating tenants to give a copy of the initial notice to the reversioner and: to every person known or believed by them to be a relevant landlord". It would be more accurate to refer to "every other person" who is a relevant landlord, so as to make it clear that it is not necessary to give a copy to the reversioner who will have received one already. The amendment achieves that effect. I beg to move.

On Question, amendment agreed to.

Lord Coleraine moved Amendment No. 61: Page 178, line 11, leave out ("or").

The noble Lord said: In speaking to this amendment I shall speak also to Amendments Nos. 62 and 80. Clause 17 sets out the reversioner's right to require the nominee purchaser to prove the title of the participating tenants to their flats within a period of 21 days. If a nominee fails to comply with any such requirement within the 21 days, the initial notice will be deemed to have been withdrawn and the whole enfranchisement will abort.

I should say immediately that in any well organised enfranchisement the 21-day period should present no problem because among the many steps which the proposed participating tenants will be advised to take before they set out on their perilous journey—and I say "perilous" advisedly because the Bill sets many shoals in their way—will be the necessity to have their leasehold titles examined and approved to the satisfaction of the solicitor who is to act for them in the enfranchisement. It may be that one of the leases turns out defective. There may nevertheless be more than enough participating tenants left with good and properly deduced titles for the enfranchisement to have gone ahead initially without the participation of the tenant whose lease was defective. For example, in a case of 100 flats, all qualifying and 90 participating, it would seem unfair to penalise the lot just for one bad title when all that enfranchisement required in the first place was only 67 participating tenants.

These amendments provide that in such cases one bad apple will not spoil the pile. There may be some looseness about the drafting of the amendments; but I think that the intention is clear: that so long as the nominee purchaser has deduced titles amounting in all to the titles of two-thirds of the qualifying tenants in the block, his failure successfully to deduce one or more of the titles of the remaining participating tenants will not result in a deemed withdrawal. I beg to move.

Lord Rodger of Earlsferry

As my noble friend Lord Coleraine has said, Amendment No. 62 is technically defective because under Clause 17(1) it is the nominee purchaser who must deduce title while the amendment refers to the qualifying tenant. I do not wish to stand on the technicality of the matter. My noble friend has raised an important matter of substance. We should like to consider the matter further. If my noble friend will withdraw the amendment, we shall consider the matter further, and I shall write to him once we have done that.

Lord Coleraine

I am glad to hear that my noble and learned friend will write to me on this matter. I take it that if he finds on close examination there is substance to this matter, the Government will be prepared to bring forward a suitable amendment.

Lord Rodger of Earlsferry

That goes without saying.

Lord Coleraine

On that basis, I am delighted to withdraw the amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 62 not moved.]

Schedule 3, as amended, agreed to.

Clause 12 [The participating tenants]:

8.15 p.m.

Baroness Hollis of Heigham moved Amendment No. 63: Page 16, line 24, leave out from ("acquisition") to ("and") in line 25.

The noble Baroness said: In moving Amendment No. 63, I wish to speak also to Amendments Nos. 64, 65 and 74. As we said in an earlier debate on Amendment No. 53 standing in the name of the noble Earl, Lord Lytton, there is a sequence of amendments about so-called latecomers to enfranchisement. His amendment sought to give all qualifying tenants the right to know about enfranchisement. I hope the noble Earl will come back to that amendment given the degree of support it received in the Chamber when it was moved. It was clear that for someone not to have a right to know about enfranchisement offends natural justice.

Amendment No. 63 together with Amendments Nos. 64 and 65 addresses a somewhat different issue.

If the Committee were minded to accept Amendment No. 63, it would allow a qualifying tenant subsequently to join participating tenants in determining who shall be the nominee purchaser to whom the freedom of the block would be sold. Amendment No. 71 deals with a situation where tenants subsequently become qualifying tenants after enfranchisement has taken place. Amendments Nos. 63, 64 and 65 would allow tenants to join in at the stage of becoming participating tenants. Participating tenants determine the nominee purchaser. They are the original two-thirds of qualifying tenants who trigger the Section 11 notice.

Under the Bill as it stands at present, unless the Committee was minded to accept this amendment, subsequent qualifying tenants could only join in the process of enfranchisement if they have the agreement of all the original participating tenants. That is the issue we seek to address in this amendment. We believe that that agreement should not be unreasonably withheld. It may be that one, two or three tenants in a block of 15 or 20 people decide that it might be desirable to exercise enfranchisement. They would approach the landlord to seek a list of qualifying tenants. They would then start to canvass the tenants. When they hit their two-thirds majority they could serve a Section 11 notice which would be the first formal stage of the process. At that point some tenants in the block may have remained uncanvassed for whatever reason. They could be sick in hospital, working abroad or be on an extended holiday. They may even be simply unpopular and be the victims of some blackballing.

From that stage on, even though someone is a qualifying tenant, if he did not take part in the setting up of the original Section 11 notice as a participating tenant, he can only subsequently join in the process of enfranchisement with the agreement of all the original signatories. We believe that is harsh. We believe that agreement should not be unreasonably withheld and we believe someone should be able to join in at a fairly early stage in the process and thus take his share of the financial cost.

Given that this seems so reasonable, why did the Government resist this amendment in another place? As I understand it, the Government fear that if qualifying tenants can join in at a later stage they will do so rather than join in at the commencement of the procedure thus making the procedure itself less likely to succeed. I believe that is the Government's case. I ask the Government whether that is reasonable. I agree that the probability is not all that high that the situation will arise simply because most people will want to share the costs on as broad a financial basis as possible. However, it seems to me there may be cases where someone is sick or abroad; and, above all, there may be cases where there is an unpopular tenant whom others seek to marginalise. As a result, those tenants can neither come into enfranchisement nor subsequently, I believe, extend their lease. They will be stranded because they will not have been part of an original Section 11 notice and they would not necessarily even have known about it given that the Government were minded to reject the amendment of the noble Earl, Lord Lytton. Therefore in common fairness and in common justice everyone should know and everyone should have the right to participate, sharing equally the costs and the risks. I beg to move.

The Deputy Chairman of Committees

I should point out that if this amendment is agreed to, I cannot call Amendment No. 64 because of pre-emption.

Lord Coleraine

I speak to Amendment No. 64 in the group that we are discussing. That amendment stands in my name. The noble Baroness has made an important point. However, I believe we are not just considering the odd tenant who happens to be away on holiday, or is sick or abroad. The noble Baroness was a little optimistic in thinking this is just a question of preparing a notice and canvassing tenants until one obtains two-thirds of the signatories. Quite frankly, the procedures in any normal case of enfranchisement will take many months of hard work. In that time those who are organising the enfranchisement will make certain that the absent tenants are contacted and are brought into the process or left out of it as the case may be. The problem which the amendments of the noble Baroness and my amendment highlight is the position of those who do not get on with their neighbours and who may well be left out of enfranchisement with—the noble Baroness mentioned this—no rights to an extended lease if the enfranchisement goes ahead.

My amendment provides for the majority consent to be obtained rather than that of all the participating tenants which is the provision in the Bill. The majority consent would be needed before someone who had not originally participated is brought into the process. My amendment indicates no disagreement with the amendments tabled by the noble Baroness; it is merely intended to reflect the fairly fine point suggested to me by the Law Society working party; namely, that it is grotesque that unanimity, which may mean 200 people out of 200, should be required when the consequences are so dire if the request to join in is not accepted.

We are now discussing Clause 12 which is just about the only clause in the Bill which attempts to deal with the problems that arise between tenants. I sympathise with the amendments of the noble Baroness; but I suggest one objection which may be made. I do not wish to double-guess the Minister but anyone ought to see that one response of government might be that there must be unanimity to make it compelling on everyone to come in at the beginning. The Government are rather keen that everyone should join a collective enfranchisement and not stay out. Perhaps the sanction that the Government have in mind, in having unanimity, is that one should know in advance that if one does not come in one is out for ever. I do not go along with that, as the Committee knows.

There is one difficulty that I see in the amendment tabled by the noble Baroness. We want as many people as possible to come in at the beginning because it would be undesirable for potential participating tenants to stand on the sidelines and see which way the wind is blowing before they eventually make a decision. It is not that they would not have to pay their proportion of the costs if the enfranchisement went ahead, I am sure that arrangements would be such that they would have to pay their proportion of the costs. However, I am worried about the position of an abortive enfranchisement. A lot of money would be spent and eventually the participating tenants would decide that they could not go ahead. The person who had been standing on the sidelines would be able to say, "Heads I win, tails you lose" and he would benefit. Thus, on principle it is desirable that everyone should come in at the beginning. I do not believe that anyone should have the absolute right to come in at any time. The Law Society proposal that someone should be allowed in on a majority vote is reasonable.

The Earl of Lytton

I wish to address my remarks to Amendment No. 74 in my name. First, I should like to say how much I identify with the fundamentals of the sentiments expressed by the noble Baroness, Lady Hollis, and to assure her that the earlier amendment which I moved is certainly not forgotten. We shall come back to it, perhaps with her help, in a slightly different form at a later stage.

Amendment No. 74 sets out to provide a safety net for those tenants who are unable or unwilling to participate in the acquisition of the freehold, although they are qualifying occupiers for the purposes of the Bill. For all the reasons that have been expressed by the noble Baroness and the noble Lord, Lord Coleraine, there may well be people who are not able to proceed with the new enfranchisement at a given moment. It seems to me that the qualifying tenants should have an absolute entitlement ultimately to join in the freehold ownership. I am very much against that freehold ownership being separated and severed from the occupation of the building. I keep going on about it and I make no apology for doing so, there must be convergence of occupation and ownership—I cannot stress that too strongly—if the Bill is really to perform the functions of social justice that it sets out to perform.

As the Bill stands, if a block of flats is enfranchised and the qualifiers decide not to participate, they will be completely left out in the cold. As I understand it, there will be no facility for them to come back in again at all. That means that certain leaseholders have just one opportunity to join the scheme of enfranchisement. I cannot believe that it is the intention of the Government that those people who, for whatever reason, fall through the net the first time round, should be left out permanently. It would be a source of ferment, giving a sense of lasting injustice if the system allowed that to happen. In speaking to Amendment No. 74, I also associate myself very much with the other amendments that have been moved.

Lord Coleraine

The noble Earl talked about what happens after completion of an enfranchisement. If one assumes that the Government's response will be, "You must go into enfranchisement now, you cannot have it afterwards", will the noble Earl agree that this is another reason for making the leasehold extension option available for those who do not join in enfranchisements?

The Earl of Lytton

I entirely agree with that. My name is on a later amendment to provide for lease extension as the obvious fallback alternative. I believe that the noble Lord, Lord Coleraine, has made a very valid point.

Lord Strathclyde

The amendments of the noble Baroness, Lady Hollis, and my noble friend Lord Coleraine would allow a qualifying tenant who had not participated in giving the initial notice but who then wished to become a participating tenant to do so either without the agreement of any of the other participating tenants or only with the agreement of a majority. The amendment of the noble Earl, Lord Lytton, would give a statutory right to qualifying tenants to purchase a stake in the freehold after enfranchisement.

I am sorry to say that I did not feel that the noble Baroness had made her case. I believe that the amendments would actually work against enfranchisement. That was understood by my noble friend Lord Coleraine who, I thought, made a good argument against all the amendments. They appear to offer tenants a guaranteed way of joining in after the initial notice, or of obtaining a stake in the freehold after enfranchisement. In practice what could happen is that many qualifying tenants will not bother to put their names down on the initial notice, in the knowledge that they can join in later if they wish, and the requisite majority will therefore be harder to obtain.

The amendments would permit any tenant who has bought the lease of a qualifying but non-participating tenant since the initial notice was given, or any qualifying tenants who decided not to participate at the outset, to become participating tenants at any time. Any agreements between the tenants, such as the apportionment between them of the costs of enfranchisement, would continually have to be revised as they would need to establish on what terms the new participating tenants were to join in. I do not consider it would be fair to the existing participating tenants to allow others to join in on indeterminate terms and continually disturb their arrangements in that way.

As we have already discussed, qualifying tenants have ample opportunity to participate. Participation involves agreeing to the buy out and being prepared to risk liability for the landlord's costs if the bid fails. It does not necessarily involve a financial stake. That is very much a matter for the tenants to resolve, with their advisers if appropriate. If they wish to make deals among themselves in order to get uncommitted tenants to join in, that is their business. If they wish to incorporate a structural link between their individual lease interests and their stake in the freehold, they should be free to do so. I do not think it is any business of the law to interfere.

The position of tenants who choose not to participate is safeguarded. Their leases remain intact, and all that happens is that their landlord changes identity. The amendment of the noble Earl, Lord Lytton, is also unhelpful in that it would in effect force the participating tenants to use the company format for their nominee purchaser, thus losing the flexibility of other structures.

I must ask the rather obvious question: what advantage could there possibly be to a non-participating tenant if he did have a right to buy a share of the freehold at a later date? If he cannot join in by agreement, he is obviously not going to be welcome. He will not be able to contribute anything to the smooth running of the block. Neither would there be a personal financial gain from a stake in the freehold. The right of enfranchisement under the amendment still attaches to his lease, so its saleability would not be affected.

I am sorry to say that I see no merit in the amendments; in fact, I think that they are positively detrimental. Therefore, I ask noble Lords to withdraw them.

Lord Coleraine

I wonder whether my noble friend can say why he thinks that unanimity among the participating tenants should permit someone to come in. It is a matter for the participating tenants to decide. I do not believe it is for the Government to say, "You may not allow people into your enfranchisement once it has started, unless you give unanimous consent". If my noble friend does not like the normal majority, would he consider three-quarters or two-thirds? To demand unanimity seems rather illogical.

Lord Strathclyde

My noble friend can draw the line wherever he wishes. We feel that the best way must be for everyone who has participated in the action to decide unanimously whether anyone else should join in. I made the point in the previous amendment that it must be in the interests of the new freeholders to extend the ability to enfranchise to as many tenants as possible. My noble friend and the noble Baroness have to make a case for reducing the level of unanimity, and I do not think that that case has been made.

8.30 p.m.

Baroness Hollis of Heigham

Will the Minister give us some guidance? Let us consider a situation where a qualifying tenant knew of the effort to enfranchise but had recently lost his job, and therefore felt that his financial circumstances were such that he could not embrace the additional cost of enfranchisement that is, a Section 11 notice. Before it has gone very far he is fortunate enough to find work and his financial circumstances are now secure, but it is too late for him to become a participating tenant except with unanimity. He cannot, because he is a qualifying tenant, extend his lease. Because, therefore, for a period of six weeks, or eight weeks, or three months he was unemployed and thought it imprudent to extend his financial risk, he is permanently disqualified from the right that everybody else in that block will enjoy. Would the Minister help me understand what he should do in that situation.

Lord Strathclyde

Unfortunately the noble Baroness has misunderstood. He is not excluded from enfranchisement. There is nothing in this Bill that excludes him from enfranchising. But he has to get the agreement of his fellow tenants. Why should he not? That must be right. It is entirely fair.

Baroness Hollis of Heigham

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 64 to 66A not moved.]

Clause 12 agreed to.

Clause 13 [The nominee purchaser: appointment and replacement]:

The Earl of Lytton had given notice of his intention to move Amendment No. 67: Page 18, line 11, at end insert: ("() When the nominee purchaser has acquired, on behalf of participating tenants, such freehold and other interests specified in subsection (1), he shall convey those interests to the participating tenants.").

The noble Earl said: This amendment has already been spoken to. It is not moved.

[Amendment No. 67 not moved.]

[Amendment No. 68 had been withdrawn from the Marshalled List.]

[Amendments Nos. 69 and 70 not moved.]

Baroness Hollis of Heigham moved Amendment No. 71: Page 20, line 13, at end insert:

("(13) The Secretary of State may make regulations for requiring the nominee purchaser—

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

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

1. (a) requiring that, under prescribed circumstances, the nominee purchaser shall be a body registered under the Industrial and Provident Societies Act 1965 or the Companies Act 1985;
2. (b) requiring that a relevant qualifying tenant be granted a shareholding or other relevant interest in the nominee purchaser, and specifying any terms, including financial terms, on which such an interest shall be granted.

(15) Regulations under this section—

1. (a) may make different provisions with respect to different descriptions of case, and
2. (b) shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

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

1. (a) a tenant who was a participating tenant in that exercise of the right to collective enfranchisement; or
2. (b) disqualified from being a participating tenant by virtue of Part I of Schedule 3.").

The noble Baroness said: This is the third in this group of amendments about latecomers to enfranchisement. We are not dealing now with the right to be informed, the right to join in as a participating tenant, or subsequent to Section 11. This is a different situation. Whereas Amendments Nos. 63 and 65 dealt with the relatively short term—that is, a qualifying tenant becoming a participating tenant—here in Amendment No. 71 we try to take up a different situation. It is still a latecomers' situation, but enfranchisement has already taken place. Therefore, other residents in that block, other leaseholders, no longer have a right to an extension of their lease, and may not have a right to enfranchisement.

Who are we talking about? Who are we seeking to bring within the framework of enfranchisement by producing a legal structure in advance of common-hold, which would make that process straightforward and simple? It could be, for example, council tenants who, at the time of enfranchisement, were not qualifying tenants. Since then they may have exercised their right to buy. They may now be effectively leaseholders of the new landlord, and would like to become freeholders in their own right. It could be an elderly tenant. At the time of enfranchisement he did not wish for the extra worry, money and cost, but he has subsequently sold the remains of the lease with perhaps 60 or 70 years to run. Somebody has bought it, and with others in the block would like to become a freeholder. As I understand it, they have no route to do so.

It might be somebody who was unemployed or redundant at the time, but who subsequently found work and would like to enjoy the same rights as others. We are talking about when enfranchisement has taken place. All these seem to be legitimate cases not of people who stood aside because they were not willing to undertake the financial risk at the beginning, but of people whose circumstances have changed and who now wish to join collectively in the new freehold arrangements.

This amendment, I have to accept, is not as good as one would wish because we do not have commonhold on the books. It is an attempt to overcome some of the discussions entered into in another place as to how best to allow latecomers to buy into enfranchisement when their circumstances have genuinely changed, such as the unemployed, council tenants, or the new incoming leaseholder. This amendment would give the Secretary of State powers to make regulations in advance of commonhold for the construction of an appropriate body corporate framework into which latecomers may buy in.

It is more widely drawn than the proposals put in another place which prescribed a company limited by guarantee. It would allow the Secretary of State the flexibility to determine different forms for different cases where it is a small block, etc. It would avoid the necessity of filing accounts when one has only a handful. But it would recognise the fact that flats as a tenure are marked by rapid turnover and rapid changes in people's ability to buy into enfranchisement.

If the Minister believes, as I am sure he does, in the Government's policy to extend enfranchisement as widely as possible, then the Government in some way or other must address this problem of latecomers to enfranchisement. I refer not only to the right to know, not only at the stage of circulating or signing the Section 11 notice, but later when people's circumstances have changed, if they are not always and permanently to be stranded; neither enfranchised nor extended, but stranded.

If the Government cannot accept this amendment I hope that they will promise to come back with amendments which will address this problem of latecomers to enfranchisement who morally, as well as in every other way, ought to have the right to be able to enfranchise as others have in the past. I beg to move.

Lord Strathclyde

These amendments are rather sinister. What the noble Baroness wishes to do in this amendment is to give the Secretary of State an ongoing right to interfere in the legitimate arrangements made by leaseholders as regards enfranchising and, in their post-enfranchisement, ownership of the block. First of all, the amendment would allow the Secretary of State to dictate that the nominee purchaser must be a company in certain circumstances.

We have deliberately allowed leaseholders total flexibility in choosing the nominee purchaser. In many circumstances a company in which the leaseholders have shares may be appropriate. However, in a small block the tenants may prefer to own the freehold as joint tenants. It may be that leaseholders cannot afford to own the freehold themselves, or do not wish to do so. In that case it should be open to them to choose a third party freeholder.

I do not consider that the Secretary of State should in any circumstances be able to take away this decision from the leaseholders themselves. But the strangest part of this amendment would enable the Secretary of State, as I understand it, to insist that a non-participating tenant be allowed to have a share in the freehold company. Much has been said here and in another place about interference in property contracts, but I am sure that noble Lords would not support an ongoing power for the Secretary of State, even with parliamentary permission, to impose additional owners on a group of freeholders. Nor is it likely that relationships in a block after such an imposition could possibly lead to a successful company and successful management of the block.

What our provisions do in this Bill is to give leaseholders the right to control their own property and to choose the means of that control. I can see no justification whatever to give the Secretary of State draconian ongoing powers to interfere in choice. I hope that after that the noble Baroness will withdraw her amendment.

Baroness Hollis of Heigham

I take the point about the Secretary of State's powers. I spent a long time in the Chamber trying to fight the Secretary of State's powers. However, the amendment is a well-meaning effort to try to address the problem which the Minister wilfully refuses to recognise exists. I use the word "wilfully" because he knows, as everyone else in the Chamber knows, that there is a genuine problem when people are denied the right to enfranchisement at a later stage.

Let us take an example of a block of 12 flats, all of which qualify for enfranchisement, and eight have enfranchised. Therefore the remaining four now have a new landlord. Those four include one unemployed tenant, one person whose marriage has broken up and two elderly tenants. In the course of the next two years or so, all those flats are sold to other tenants who now have a lease of 60 years, or whatever. However, they have no right to extend the lease. They have no right to join in the enfranchisement. Those tenants alone are sitting on a diminishing asset with a landlord other than the original landlord of the property. It surely cannot be reasonable to exclude those four new tenants out of the 12—we know that occupation of flats changes quite rapidly—from the right to enfranchise or to extend in perpetuity. I say "in perpetuity" but it is at least until commonhold comes into effect and the Government change their mind on many of the issues.

Before I decide what to do with the amendment, will the Minister please tell me what those people are to do in that situation? It is reasonable for them to wish to join in the enfranchisement. They could not be participating tenants for many good reasons such as finance or because they were not themselves the owners of the leasehold at the time. What should they do? Why should they and they alone be stranded, unable to extend the lease, with a deteriorating asset, having acquired a new landlord and with no right to join in the freehold?

Lord Strathclyde

The noble Baroness paints a rather bleak picture. In the first instance there may be some good reason why the non-participating tenants do not wish to participate in purchasing the freehold. That is entirely legitimate. Under the noble Baroness's example, two things have to happen. First, the non-participant tenants have to change or the tenancy changes hands. Secondly, the existing freeholders refuse to allow those new tenants to buy into the freehold. I believe that to be unlikely. However, I accept the point that the noble Baroness makes: that if the new freeholders decide that those non-participating tenants should not play a part in the freehold, there is not much that they can do about it. However, the purpose of the Bill is to extend the ability of leasehold enfranchisement considerably more than is possible at present. Therefore it is not the case that we are not helping an enormous number of tenants by the Bill. Quite clearly, we are. The noble Baroness refers to a small number of tenants who would not be able to enfranchise.

There is an added point. On the example that the noble Baroness used of 12 flats, the four new tenants would have to get a twelfth of the tenants to go through the process again. In that instance, they would have the right to enfranchise again under the provisions in the Bill. Therefore those four would have to provide a new two-thirds majority of all qualifying tenants to be able to enfranchise. Is that helpful to the noble Baroness?

I think that I was wrong in saying earlier that the tenants would not be able to enfranchise. They would be able to enfranchise but only if they managed to achieve a new two-thirds majority of qualifying tenants.

8.45 p.m.

Baroness Hollis of Heigham

I thank the Minister for that additional response. Obviously we shall reconsider the amendment. However, I wish to be sure that the original leaseholders can enforce their right to enfranchise against the original landlord; and that the same right to enforce the right to enfranchise against the new landlord is not lost under the Bill. If I have the Minister's assurance to that effect, I shall take away the amendment, and read what he has said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 13 agreed to.

Clause 14 [The nominee purchaser: retirement or death]:

[Amendments Nos. 72 and 73 not moved.]

Clause 14 agreed to.

The Earl of Lytton had given notice of his intention to move Amendment No. 74: After Clause 14, insert the following new clause:

Lord Rodger of Earlsferry

Perhaps I may deal with the two amendments together as being directed to one point. They are aimed at preventing the reversioner from seeking to use the same grounds again to resist a claim for enfranchisement if those grounds have previously been rejected by the court. The fear is that a reversioner will seek to defeat enfranchisement by repeating again and again the argument which has been rejected until the tenants give up. The amendment would empower the court to direct that the new counter-notice, to be issued when the initial counter-notice is ruled to be of no effect, shall not contain any reasons specified by the court which have previously been rejected.

The amendment is not necessary, since the matters to be provided for in a further counter-notice are more restricted than those which can be included in an original counter-notice. Subsection (5) of Clause 19 has the effect that a counter-notice required to be given by the reversioner must be treated as if it complied with subsection (2) (a) of Clause 18; that is, it assumes that the right to enfranchise is admitted. It may cover only the matters set out in subsections (3) to (5) of Clause 18; that is, detailed proposals on what interests are and are not to be acquired. So the fear that my noble friend has expressed is unfounded and the amendment is not needed.

The further counter-notice must specify all the points being disputed. If they are not agreed the matter will go to the valuation tribunal. There would not, therefore, be an infinite regress of counter-notices. In those circumstances the amendment is not required and I ask my noble friend to withdraw it.

Lord Coleraine

I am grateful to my noble and learned friend for his reply. I am sure that the Law Society will read his detailed comments on the amendment which it asked me to move. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 85 not moved.]

Clause 19 agreed to.

Clause 20 [Tenants' claim liable to be defeated where landlord intends to redevelop]:

Lord Coleraine moved Amendment No. 86: Page 26, line 32, leave out ("five") and insert ("three").

The noble Lord said: Clause 20 allows the reversioner to refuse collective enfranchisement where he intends to redevelop all or a substantial part of the premises. Subsection (2) (a) provides that he may not exercise his right unless, two-thirds of all the long leases … are due to terminate within the period of five years of the service of the initial notice. Appropriate fraction and length of years are obviously a matter of judgment and balance. However, I am advised by the Law Society that it considers five years to be too long and that a period of three years would be more reasonable.

The test of intention to develop is more than a mere intention to develop if possible. It involves an element of reasonable certainty about the ability to realise the intention. It would be extremely difficult to achieve that as early as five years before the end of the leases given the time limits attaching to planning conditions.

I have been asked to speak about this provision also by the Enfranchisement League. That is an organisation of many flat owners. It recommends also that the Bill should contain provision requiring the reversioner to satisfy the court under Clause 20(2) that he will be able to regain possession of the leases at the end of their terms. It is likely that the lessees in question will enjoy rights under Part I of the Landlord and Tenant Act 1954. There may well be cases where the reversioner will satisfy the conditions of the clause but he has not the slightest right to obtain possession on redevelopment grounds when leases come to an end. I believe that it would be wrong to refuse collective enfranchisement in such cases.

The amendment before the Committee provides only that the period before the end of leases in which the reversioner may refuse collective enfranchisement is reduced from five to three years. There is no amendment as regards those other matters on the Marshalled List. I beg to move.

Lord Strathclyde

This is another amendment which deals with a matter of balance. We decided that a period of five years is fair to both the long leaseholder and the landlord. There will be a burden of proof on the landlord that he intends to redevelop and he must go to court to obtain an order excluding the block from enfranchisement. Therefore, the court will only grant such an order where it is satisfied that the landlord intends to redevelop and that he requires possession to do so.

Five years gives a landlord a reasonable length of time in which to consider his long-term investment strategy. The Committee will be aware that drawing up plans for a property and obtaining planning permission can be a complicated and long drawn out process. It is in the best interests of the proper management of property to allow landlords to carry out substantial works or to redevelop where buildings are seriously dilapidated.

Therefore, I do not accept the case made by my noble friend. I do not consider that there is merit in reducing the period in which the landlord can apply from five to three years. Very few tenants are affected and they would be well aware of their position. Five years gives a reasonable time to the landlord to make proper proposals for the block. I hope that my noble friend agrees with me.

Lord Coleraine

We shall have to return to this amendment. However, for this evening, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 20 agreed to.

9.45 p.m.

Clause 21 [Applications where terms in dispute or failure to enter contract]:

[Amendments Nos. 87 to 89 not moved.]

Clause 21 agreed to.

Clause 22 [Applications where reversioner fails to give counter-notice or further counter-notice]:

[Amendment No. 90 not moved.]

Lord Peyton of Yeovil

Before we proceed further I should like to make a comment. My noble friend Lord Coleraine has sprinkled the Marshalled List with a number of amendments, not all of which have been very substantial and many of which have not even been moved. He was good enough to tell the Committee earlier today that as regards the amendments he had moved, he had spoken on behalf of the Law Society. In that case the Law Society's contribution has, far from accelerating the progress of the Bill, delayed it. I wonder whether the Law Society would not be well advised to think carefully before it produces such a number of amendments which it is not prepared to have pressed.

Lord Coleraine

If it is not out of order to do so, I should say to my noble friend Lord Peyton that these amendments are of some substance but they are of a technical nature. There have been a considerable number of long debates earlier on during the proceedings both today and last week. They have been matters basically of politics. What we are discussing tonight are matters of detail. This is a highly technical Bill and my noble friend really has no business to suggest that technical amendments should not be moved.

Lord Peyton of Yeovil

My noble friend has not understood me. I never went so far as to make the suggestion that technical amendments should not be moved. I am merely suggesting that to cover the Marshalled List with amendments which, at least on the surface, appear to be spurious is a waste of the Committee's time.

The Deputy Chairman of Committees (Lord Grantchester)

This debate is out of order. We must move on to the question of whether Clause 22 should stand part of the Bill.

Clause 22 agreed to.

Schedule 4 agreed to.

Clause 23 [Applications where relevant landlord cannot be found]:

[Amendments Nos. 91 and 92 not moved.]

Lord Coleraine moved Amendment No. 93: Page 30, line 32, at end insert (", he having died, no grant of representation has been obtained or the freehold of the premises has vested in the Crown as bona vacantia, or").

The noble Lord said: This amendment, like some of the other amendments I have spoken to this evening, has been recommended to me by the Law Society. It is a very definite technical amendment. There have been many technical amendments on the Marshalled List this afternoon where I felt it might be possible to speed up the proceedings of the Committee by engaging in negotiations with the department between now and Report. This amendment provides that where the relevant landlord is dead and no one has approved his will or obtained letters of administration, the participating tenants who wish to serve an initial notice to start the enfranchisement rolling can go to court to obtain the same vesting order as they could obtain if they could not find the relevant landlord. I beg to move.

Lord Rodger of Earlsferry

I can understand the reason for this amendment. I appreciate that the obtaining of a grant of representation can take some time and we would not wish the process of enfranchisement to be delayed unnecessarily. An amendment of this kind which would allow the court to make an order for the freehold and leasehold interest to vest in a nominee would allow the enfranchisement process to continue, despite the fact that the grant had not yet been obtained.

There is a wider issue of the problems of service, where a grant has not been obtained, and we would be prepared to consider it further. I cannot give an undertaking as to precisely what we shall do, but we are prepared to consider the matter further. On that basis, perhaps I may ask my noble friend whether he would withdraw the amendment at this stage.

Lord Coleraine

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Coleraine moved Amendment No. 94: Page 30, line 33, leave out ("each") and insert ("any").

The noble Lord said: I wish to speak to Amendments Nos. 94 and 96; the latter is consequential. I understand that Amendment No. 97 in the names of the noble Lord, Lord Williams of Elvel, and the noble Baroness, Lady Hollis of Heigham, has been grouped with my amendments.

My Amendment No. 94 is simple. If one wishes to acquire the interests of various landlords under Clause 8(2) and one of them cannot be found, one would expect to be able to make an application for a vesting order under Clause 23(1) in respect of that landlord's interests. The subsection in the Bill appears to provide that all landlords would have to go missing before one can apply, and one has to apply in respect of all of them. That cannot be what is intended, and the amendments make that clear. I beg to move.

Lord Rodger of Earlsferry

My noble friend has tabled these two amendments but I have to say that they contrast starkly with the current drafting of Clause 23 which quite deliberately enables the tenants to pursue this course of action only where each of the landlords cannot be found.

It seems to me that members of the Committee will agree that it would be wrong to deal with a case where one or more—but not all—of the landlords cannot be found, by allowing the participating tenants to seek a vesting order in relation to that landlord's interest. The reason is that in such a situation, it will still be necessary for the participating tenants to give an initial notice to the remaining landlords and for those landlords, through the reversioner, to serve a counter-notice in the usual way.

It would be quite unhelpful to the tenants to require them to seek a vesting order in respect of a missing landlord's interest before the initial notice had been given to the other landlords. It is important and, I think, economical in every way that the process of enfranchisement should occur as one transaction.

It is for that reason that we have provided for missing landlords to be dealt with in a different way in a case where at least one or more of the remaining landlords can be traced and so an initial notice can be given. The participating tenants must apply in that situation for an order dispensing with the need to give the initial notice to the missing landlord. Part II of Schedule 1, and in particular paragraphs 6 and 7 of the schedule, require the reversioner to seek the directions of the court in respect of a missing landlord's interest. This has been carefully drafted so that the interests of the missing landlord are still protected, and the terms of the acquisition in respect of all the interests can be settled at one and the same time. Having regard to the whole scheme of this part of the legislation, these amendments of my noble friend are inappropriate and I would ask him not to pursue them.

Lord Coleraine

That was an interesting reply, the detail of which I do not pretend to comprehend at the moment. I shall read it with interest later. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 95 to 97 not moved.]

Clause 23 agreed to.

Clause 24 [Supplementary provisions relating to vesting orders under section 23(1)]:

[Amendments Nos. 98 to 100 not moved.]

Clause 24 agreed to.

Clause 25 [Withdrawal from acquisition by participating tenants]:

[Amendments Nos. 101 to 103 not moved.]

Clause 25 agreed to.

Clause 26 [Deemed withdrawal of initial notice]:

[Amendments Nos. 103A to 104 not moved.]

[Amendment No. 105 had been withdrawn from the Marshalled List.]

Clause 26 agreed to.

Clause 27 agreed to.

Clause 28 [Determination of price]:

Lord Boardman moved Amendment No. 105A: Page 37, line 21, at end insert: ("() to any amount payable to him by virtue of section (Duty of nominee purchaser to disclose existence of agreements affecting specified premises etc.) (2); and").

The noble Lord said: This amendment has been spoken to, and my noble friend expressed his agreement to it. I beg to move.

On Question, amendment agreed to.

[Amendment No. 105 AA not moved.]

Clause 28, as amended, agreed to.

Schedule 5 [Purchase price payable by nominee purchaser]:

Lord Rodger of Earlsferry moved Amendment No. 105B Page 180, line 4, at end insert: ("() Parts II to IV of this Schedule have effect subject to the provisions of Parts V and VI (which relate to interests with negative values).").

The noble and learned Lord said: I speak here to Amendment No. 105B and the other amendments that have been grouped with it. The amendments are technical. The Committee may be relieved that I do not intend to take the Committee through them in great detail. They are designed for a quite specific purpose—to prevent a potential abuse that was drawn to the Government's attention by the Law Society. The abuse was such that it would have allowed landlords to increase the price that tenants will have to pay, and to increase it artificially by the creation of leases with negative values.

Negative value leases occur quite naturally where, for example, the rent which a landlord receives from his tenants does not cover the cost of the rent for which he is liable to a superior landlord. When making calculations for marriage value, we have provided that such leases have a nil value, rather than a negative one. That decision was taken to ensure that no landlord would require to pay the tenants for the enfranchisement. I believe that the Committee will agree that to make any landlord pay his tenants to enfranchise would have been unjust.

Although the decision is just when applied to naturally occurring negative value leases, it allowed a potential abuse. As the Bill stands, unamended, a landlord could at present create a pair of leases, one with a negative value and one above it with an equivalent positive value. Each lease would be valued separately and while the value of the negative lease would be reduced to nil, the tenant would have to buy out the superior lease which would have a positive value. The overall effect therefore of creating that superior lease with the positive value would be to increase, artificially but perhaps considerably, the price of enfranchisement to tenants.

The solution to that potential abuse has been complex as it was not wished to make landlords pay tenants to enfranchise where genuine negative leases existed. The government amendments will take away the incentive to create those artificial pairs of tenancies by keeping the negative lease value as nil but reducing the superior positive interest by an equivalent amount.

The amendments also provide for cases where there is more than one lease with a negative value and for the distribution of marriage value and compensation. In broad terms, all those will be calculated to ensure that they deter abuse and compensate landlords first with leases which have a positive value.

These are highly technical amendments. It is believed that they will have the effect of cutting off that route to create those pairs of tenancies; and that in this way that potential abuse will be stamped out before it has begun. For that reason, we desire the provisions to enter the Bill at this stage. I beg to move.

On Question, amendment agreed to.

Viscount Goschen

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

House adjourned at five minutes past ten o'clock.

cc1307-8
1. Entitlement to purchase at a later date 799 words
cc1308-20
2. Duty of nominee purchaser to disclose existence of agreements affecting specified premises etc 6,199 words