Lords Sitting of 22 March 1993

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Sheffield.
The Lord Chancellor (Lord Mackay of Clashfern): My Lords, before the commencement of business, I take the opportunity to inform the House that, with the approval of' Her Majesty The Queen, I am to visit Malaysia on official business between Tuesday 30th March and Thursday 1st April. Accordingly, I trust that the House will agree to grant me leave of absence from Tuesday 30th March to Thursday 1st April.

Privatised Utilities: Pricing Policies
2.37 p.m.
Lord Molloy Lord Molloy asked Her Majesty's Government:
In the light of reported overcharging of customers by the privatised utilities, what action they are taking to compensate these customers, to penalise the offending companies and to prevent such overcharging from occurring in the future.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Baroness Denton of Wakefield): My Lords, this is a matter for the utility companies, their regulators and customers. The utility regulators have statutory duties to protect the interests of customers. If there is evidence of a problem, I am sure that the regulators will wish to take note and discuss it with the companies with a view to resolving the issue urgently.
Lord Molloy: My Lords, I thank the noble Baroness for that reply and acknowledging that many of those utilities are striving very hard to improve their services, but is she aware that small businesses are being overcharged to the tune of £100 million a year
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and that those excessive charges have been laid by British Telecom and the water, gas and electricity companies? Does the Minister agree that those matters should be looked into?
There is one other small matter. I refer to those who live alone, or who are crippled or old-age pensioners. Where their meter cannot be read they receive an estimated account which, needless to say, is well in excess of the true figure, although at the following reading the subscriber is compensated by the subsequent bill not being so heavy. However, is the Minister aware that the customer may have paid out quite a large amount of money which would have gained interest in the intervening period? Would it not be possible for meters to be read more regularly?
Baroness Denton of Wakefield: My Lords, it is the policy of all the utilities to read regularly meters which are inside houses. Should there be an estimate for someone who is in no position to read his own meter, I am sure that the local gas or electricity board will be very happy to help.
Lord Gainford: My Lords, has my noble friend the Minister any evidence of customers receiving bills showing excessive estimated amounts well beyond the readings? I ask that question because it happened to me. I received an estimated bill. I checked the reading, which turned out to be far less than the figure on the bill.
Baroness Denton of Wakefield: My Lords, until now I have no direct information as regards estimates. I am certain that the bill was corrected when it was drawn to the attention of the company concerned.
Lord Stoddart of Swindon: My Lords, does the Minister agree that the privatised fuel companies cannot have done anything so vicious and cruel as the Chancellor did last Tuesday when he raised the price of domestic fuels by 8 per cent. from next year and by 17.5 per cent the year after, which will cheat customers of £2,500 million? Can she give an explanation as to

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why the Chancellor and the Prime Minister, who promised that there would be no such increase, have so quickly broken their promises?
Baroness Denton of Wakefield: My Lords, I find it difficult to relate the question asked by the noble Lord, Lord Stoddart of Swindon, to that on the Order Paper. The impact of VAT on those with the lowest incomes is recognised. The Chancellor has said that that will be taken into account when the social security benefits are uprated in April 1994.
Lord Peston: My Lords, I suppose that the relevance of my noble friend's question is that a 17.5 per cent. increase in fuel bills looks very large relative even to the overcharging of the privatised utilities. Does the noble Baroness agree that there are two concepts of overcharging here which we need to look at? The first is the tendency to get bills wrong, which is a new phenomenon. I do not remember this enormous tendency to get bills wrong before private ownership—certainly not on this scale.
Secondly, does the Minister agree that not only do the companies get the bills wrong but, now that they have been privatised, it is perfectly legal for them to put up their charges enormously anyway? In that connection, does the Minister agree that water is the most astounding example? Today I received my water bill which is absolutely staggering. One used to believe that water was cheap, but it now appears to be one of the dearest commodities.
Baroness Denton of Wakefield: My Lords, if noble Lords opposite wish to discuss VAT on domestic gas and electricity, I am sure that they will table a Question in due course. As regards overcharging, I point out that since privatisation British Telecom prices have fallen by 27 per cent. and that by the end of this month domestic gas prices will have fallen by 21 per cent. The noble Lord, Lord Peston, knows as well as I do that the need for infrastructure costs in the water industry is enormous.
Lord Kinnaird: My Lords, does my noble friend agree that one reason why water has become so expensive is that people waste it so?
Baroness Denton of Wakefield: My Lords, I agree with my noble friend that there is a great need to conserve the precious resource of water. The water boards are now looking at ways of doing that.
Lord Peston: My Lords, did the Minister intend to agree with her noble friend? That would imply that suddenly we have developed a greatly increased propensity to waste water. That is simply not believable. We may well waste water and we have been doing so all our lives.
Baroness Denton of Wakefield: My Lords, I was saying to my noble friend that water shortages are a problem in this country. The water utilities are looking at ways of ensuring that that problem can be dealt with.
Lord Marlesford: My Lords, will my noble friend underline the point that consumers of all these
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industries are likely to receive a much better deal if there is vigorous regulation by the regulator rather than having their fate in the hands of a government who also own the industry?
Baroness Denton of Wakefield: My Lords, I am delighted to agree with my noble friend that competition is to the benefit of the consumer.
Lord Grimond: My Lords, will the Minister reconsider her answers to the noble Lord, Lord Peston? Whatever the expense involved in renewing pipes, and such things, by the water suppliers, water charges have increased beyond all reason. We are bombarded by statements that the water authorities now run racing on their reservoirs, and so forth. The public are fed up with the water charges. We should be grateful if the Minister could do something about them.
Baroness Denton of Wakefield: My Lords, charges are now regulated by an independent regulator, and that must be to the benefit of users.
Lord Molloy: My Lords, is the Minister aware that Ofgas, the gas industry watchdog, has claimed that complaints have nearly doubled during the past year? The Federation of Small Businesses and the National Consumer Council are adamant that the overcharging is getting out of hand. Is it possible for the Government to encourage both sides to get together to examine the matter so that the investigation satisfies all concerned?
Baroness Denton of Wakefield: My Lords, there are always individual cases that need to be examined and discussed by the two parties. However, overall charges have gone down. That is to the benefit of small and large companies. In a recent independent market research survey British Gas came out second only to Marks and Spencer for customer care.

Parole Board
2.45 p.m.
Lord Boyd-Carpenter Lord Boyd-Carpenter asked Her Majesty's Government:
What are the names and qualifications of the members of the Parole Board.
The Minister of State, Home Office (Earl Ferrers): My Lords, there are 85 members of the Parole Board. Their names and relevant experience are published in the board's annual report, a copy of which was placed in the Library of the House.
Lord Boyd-Carpenter: My Lords, I thank my noble friend for that comprehensive Answer. In the case of future appointments to the board, will the Government bear in mind the important duties which members of the board discharge in advising the Home Secretary in connection with the release of long-term prisoners? Will he secure that among those appointments are people with experience of the problems of law and order?
Earl Ferrers: My Lords, I agree with my noble friend that the Parole Board has important duties to discharge. By law, the board must consist of at least one of the following categories: members of the judiciary; psychiatrists; those who have experience of the supervision or after-care of discharged prisoners; and those who have made a study of the causes of delinquency or the treatment of offenders. Of course, lay members too can be appointed. My right honourable friend's remit is covered by my noble friend's Question.
Lord McIntosh of Haringey: My Lords, it was impressive to know that there are 85 members of the Parole Board. Is that enough? How many cases before the Parole Board were outstanding at the end of last year? Has that number been increasing over recent years?
Earl Ferrers: My Lords, the noble Lord asks whether the board has enough members. The membership has increased by 22 since January of last year. That is a fair increase. I cannot tell him how many outstanding cases there are.

Passport Applications from Post Offices
2.47 p.m.
Lord Skelmersdale Lord Skelmersdale asked Her Majesty's Government:
Why sub-postmasters are not permitted to hold stocks of passport application forms.
Baroness Denton of Wakefield: My Lords, under the terms of the Passport Agency's contract with Post Office Counters Ltd., post offices holding stocks of passport application forms also issue British visitors' passports. For security reasons, those facilities are limited to some 1,500 Crown and franchise post offices within Great Britain, together with a limited number of sub-post offices at ports and airports. An internal assessment of those arrangements in December 1992 by the Passport Agency concluded that the present arrangements adequately meet customer demand.
Lord Skelmersdale: My Lords, I thank my noble friend for that Answer, but I am amazed by it. Is she aware that if on any day you wander into the Passport Office in Petty France you have hardly to go through the door before you can pick up passport application forms from four racks? If security there is so lax, why is security given as a reason for not allowing them to be supplied by sub-post offices?
Baroness Denton of Wakefield: My Lords, I shall clarify my earlier Answer. The fact that the issuing of passport application forms is linked to British visitors' passports is a reason for the security considerations.
Lady Saltoun of Abernethy: My Lords, does the issuing of application forms have to be linked to the issuing of British visitors' passports? That does not seem to make much sense to me.
Baroness Denton of Wakefield: My Lords, I am pleased to tell the noble Lady that the review carried out in December 1992 looked at the security aspect,
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the cost benefits involved and also the needs of the customer. Only 10 complaints on this matter have been received.
Lord Campbell of Alloway: My Lords, does my noble friend agree that her observations about security are wholly unacceptable and unintelligible? Does she further agree that there cannot be a viable issue of security on a form?
Baroness Denton of Wakefield: My Lords, I am pleased to assure my noble friend that I am not talking about security relating to the issue of forms. I am talking about the handling of British visitors' passports, in relation to which a high level of security and staff proficiency are required.
Lord Peston: My Lords, I find even that answer a little staggering. I had assumed that security would be the answer because I could not think of any rational answer, and when there is a shortage of rational answers "Security" is what civil servants put out. The noble Baroness used the expression "customer convenience". It would be most convenient if we did not have to have passports, but while we are stuck with them customer convenience must come first. Why one cannot simply go into a sub-post office and ask for a form makes no sense to any of us. As regards complaints, the old British attitude applies: you take it for granted that you cannot obtain a form and so you do not complain. Therefore, I do not believe that the data about complaints tell us anything at all. Will the Minister go back to whoever takes the decisions about such matters and say, "Can't you be a little more sensible and place forms where people will find it convenient to collect them"?
Noble Lords: Hear, hear!
Baroness Denton of Wakefield: My Lords, I hear the view of the House and of the noble Lord. But these are operational matters for the Passport Agency in its contractual arrangements with the Post Office. I have never noticed people being slow to complain. There is also the question of cost benefit, because this is taxpayers' money.
Lord Elton: My Lords, when my noble friend tells her right honourable friend of the outrage of this House over this extraordinary provision, will she kindly impress on him the great importance of post offices in English, Welsh and Scottish villages? Furthermore, will she point out that anything which tends to make their survival unlikely is against the interests of the British people and anything which within reasonable cost makes their survival more likely is in the interests of the British people?
Baroness Denton of Wakefield: My Lords, I hope that it will be possible to reassure my noble friend that our commitment to a nationwide network of post offices includes a rural network. We are well aware of the special importance which they have among the rural community and we most certainly value the work of sub-postmasters.
Viscount Caldecote: My Lords, in view of the importance which the Government attaches to the

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work of sub-postmasters does my noble friend agree that it is highly desirable that sub-postmasters are allowed to carry out motor tax business?
Baroness Denton of Wakefield: My Lords, it may be seen that motor tax discs are a form of passport for motor cars, but they are outside the realms of this Question.
Lord Teviot: My Lords, is my noble friend aware that only three application forms are relevant to passports; they are those for adults, for children and for extensions to passports? Furthermore, is she aware that there are fewer Crown post offices in major towns because they have been made sub-post offices? Therefore, it is becoming inconvenient for people to go to Crown post offices to obtain passport application forms. Will my noble friend look at the matter again and let the House know the result in due course?
Baroness Denton of Wakefield: My Lords, I shall certainly look at the matter again. I wish to point out that facilities are not limited to Crown post offices but extend to franchise post offices and to some sub-post offices at ports and airports.
Lord McIntosh of Haringey: My Lords, the Minister appears still to rely on the security argument. Will she confirm that it is possible for an application to be accepted and considered even if it is made on a photocopy of the original form, which makes nonsense of the security argument?
Baroness Denton of Wakefield: My Lords, I am not talking about security in relation to forms. The issuing of British visitors' passports raises the security aspect.
Lord Morris: My Lords, does the Minister agree that the Question does not relate to the issuing of passports but is solely about application forms?
Baroness Denton of Wakefield: My Lords, as I explained in my original Answer, the Passport Agency has passport application forms linked to the issuing of British visitors' passports for operational needs.

Metropolitan Police Service: Retirement Age
2.55 p.m.
Lord Stallard Lord Stallard asked Her Majesty's Government:
Whether they intend to restrict the extension of service of staff employed by the Metropolitan Police service beyond the age of 60; and if so when they will implement such proposals, and how many staff will be affected.
Earl Ferrers: My Lords, members of the Metropolitan Police civil staff are employed by the commissioner. Extension of service beyond the contractual retirement age of 60 years, which is at the commissioner's discretion, will in future be granted only when there are managerial reasons for doing so. It is therefore difficult to say how many people will be
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affected. The commissioner is engaged in consultations to determine when his proposals might best be implemented.
Lord Stallard: My Lords, I am grateful to the noble Earl for that Answer; but he must be aware that it justifies the Question that I have asked. Does he agree that there is an intention to vary the terms of employment of civil servants, security staff and the like beyond the age of 60 and that that will cause a great deal of hardship for many men and women at the wrong end of their working lives? Does the Minister recall a statement made by his right honourable friend Sir Norman Fowler in his capacity as Secretary of State for Employment? When he introduced the abolition of the pensioners' earnings rule, he spoke with some encouragement about how that would make a major contribution to the continued employment of the older workers and that it would encourage employers to continue to employ such people. Do not the Minister's remarks signify a direct contradiction to the policy statement made by Sir Norman Fowler?
Earl Ferrers: My Lords, no, I do not think so. The extensions of service have always been subject to the discretion of the commissioner. They have been dependent upon the person having satisfactory health, on his conduct being satisfactory and on the needs and efficiency of the Metropolitan Police service. The trouble is that individuals have largely chosen the dates of their own retirement, and the needs of the Metropolitan Police service have rarely been a deciding factor. The enforcing of the contractual retirement age will help to provide flexibility during a period of low staff turnover and to redeploy those whose jobs disappear. Therefore, it is to the benefit of those serving in the Metropolitan Police service.
Lord Jenkins of Putney: My Lords, is the Minister aware that if a similar rule were applied to the Members of this House, membership would be more than dissipated and that hardly anyone would be here except for a few noble Baronesses?
Earl Ferrers: My Lords, I agree that would be a tragedy, and it is why there are no proposals to introduce a retirement date for your Lordships.
Lord McIntosh of Haringey: My Lords, as one who will reach the age of 60 next month, I wish to ask the Minister a question. Have representations have been made to the Commissioner of the Metropolitan Police or to the Government against the proposed restriction of extended service?
Earl Ferrers: My Lords, perhaps I may first congratulate the noble Lord, Lord McIntosh, in anticipation of his 60th birthday. I express the hope that he will have a birthday party to rejoice in that, and that your Lordships will be invited. The noble Lord asked whether there have been consultations. The official side met with the trade union side on 15th March. They are aware of the position and it is hoped that agreement will be reached so that the implementation of the change can take effect from 1st April 1994.
Lord McIntosh of Haringey: My Lords, I did not ask whether there had been consultations because I had gathered that from an earlier answer. I asked what representations, if any, had been made against the proposed change.
Earl Ferrers: My Lords, I thought that I had given a clear answer—that consultations would be the avenue by which representations were made.

Business
2.59 p.m.
Lord Hesketh: My Lords, at a convenient moment after 3.30 p.m., my noble friend Lord Caithness will, with the leave of the House, repeat a Statement that is to be made in another place on the Channel Tunnel rail link.
I t may be for the convenience of the House to know that the Committee stage of the Housing and Urban Development Bill will be adjourned at about 7 p.m. for about one hour and that during this adjournment the Official Secrets Act 1989 (Prescription) (Amendment) Order 1993 will be taken.

Housing and Urban Development Bill
3 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Strathclyde): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Strathclyde.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMMITTEES in the Chair.]
Schedule 5 [Purchase price payable by nominee purchaser]:
Lord Gisborough Lord Gisborough moved Amendment No. 105C:
Page 180, line 13, leave out ("the freeholder's share of").
The noble Lord said: The purpose of the amendment is to ensure that the freeholder receives the full amount of the marriage value. I know that it has been said in another place that under paragraph 4 of Schedule 5 the freeholder may be able to receive up to 100 per cent. of the marriage value. However, there is a good argument that the freeholder should be entitled to that 100 per cent. in all cases.
An individual who is required to sell property to a public authority under a compulsory purchase order receives the full value of the property. The public body which exercises that power pays the full value of that property. It is most unusual to give a private individual or group of private individuals the right to compulsory purchase of another private individual's property. When such unusual powers are given to a group of people, it is important that they should be required to pay the full value of the property which they are acquiring. It would be quite wrong to enable
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them to purchase for a lower price since the discount would provide an incentive to them to exercise their powers in order to make a profit.
The considerations in this case are quite different from those in which local authorities have been given a right to buy. It is open to government to offer rights to private citizens when acquiring property from a public authority. The individual's gain is at the expense of public funds, albeit local rather than central government funds. If the Government wish to provide an incentive to leasehold tenants to enfranchise their flats, that should be at the expense of public funds rather than at the expense of the landlord. Otherwise, we are talking about redistribution of wealth. That may be expected of a socialist administration but it is hardly to be expected of a Tory Government.
A landlord wishing to sell his property may well expect to receive less than the full value from the residential leaseholders as a result of open market negotiations. However, in such a negotiation a landlord who is not a willing seller would not accept a price based on less than the full marriage value. A landlord who is forced to sell as a result of compulsory leasehold enfranchisement should receive the same price. Also, once the landlord has had to sell, it is highly probable that he will have to pay capital gains tax. Having paid that, the value of the compensation received that is available for re-investment will be seriously and unfairly reduced. Therefore, without a 100 per cent. marriage value, he would suffer loss twice.
Finally, since the Budget last Tuesday, the position of charities has worsened dramatically. An argument in favour of enfranchisement under the terms of the Housing and Urban Development Bill was that charities would realise liquid assets from the sale of property and could then re-invest in equities and be none the worse off. After the Budget, they will be considerably worse off if they follow that course of action. Changes in the system of tax credit on share dividends were made and the tax rebate now given with dividends has been cut by one-fifth. The exact losses to be borne have yet to be calculated but any charity relying on income from a share portfolio will lose many thousands of pounds per annum.
Those changes are being phased in over a four-year transitional period for charities but it is difficult to see how, ultimately, they can be avoided. I beg to move.
Lord Boardman: Grouped with this amendment are my Amendments Nos. 108B and 111D. I do not propose to speak to them now. I wish to speak to them when they are reached in their numerical order.
Lord Campbell of Alloway: I support the amendment for the reasons which have been given. I shall support also Amendment No. 108B. The two amendments are not mutually exclusive or inconsistent but for the reasons that have been clearly given, I support the amendment.
Lord Carnock: I oppose the amendment and any amendment which would increase the freeholder's share of the marriage value. My objection turns on the

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increase in the percentage profit that such an amendment would give to the freeholder at the expense of the enfranchising leaseholder.
I shall illustrate my objection by reference to the figures in the Norfolk and Lloyd-Jones cases which were decided by the Lands Tribunal. Neither case was the subject of a judicial review. So far as I have been able to ascertain, no valuation case under the 1967 Act has come before the courts for review.
In the Norfolk case, the investment value of the freeholder's interest, which was the reversion to a lease at a ground rent with 59 years to run before expiry, was £1,000. The marriage value was £5,500 of which one-half was awarded to the freeholder. Therefore, the enfranchisement price was £3,750 representing a profit to the freeholder of 275 per cent. The value of the property unencumbered was £37,000. The value of the leaseholder's interest was £30,000 but he had to pay £3,750 for enfranchisement. Therefore, his contribution was £33,750. For that he received property worth £37,000. His profit was 9.8 per cent.
According to my calculations, the substitution of 75 per cent. for 50 per cent. as the freeholder's share of the marriage value would increase the enfranchisement price to £4,125. That would increase the freeholder's profit to 412 per cent. and reduce the leaseholder's profit to 8.4 per cent. If 100 per cent. of the marriage value was to be awarded to the freeholder, the freeholder's profit would be further increased and that of the leaseholder further diminished.
I repeat that exercise as regards Lloyd-Jones. The lease had 12 years to run before expiry. The value of the freeholder's interest was £84,257. The marriage value was £58,243, of which one-half was awarded to the freeholder. The enfranchisement price was rounded to £113,000. The freeholder's profit was 34 per cent. The leaseholder's interest was valued at £45,000, but he had to pay £113,000 for enfranchisement, making his total contribution £158,000 for a property worth £187,500. Therefore, his profit was 18.7 per cent. According to my calculation, if the freeholder were to have 75 per cent. instead of 50 per cent. it would increase the enfranchisement price to £127,939, increase the freeholders profit to 51.8 per cent. and reduce the leaseholders profit to 8.4 per cent. The freeholder's profit would be yet further increased if he were to receive 100 per cent. of the marriage value and the leaseholder's profit correspondingly reduced.
Norfolk and Lloyd-Jones were treated by the Lands Tribunal on very similar principles, but there were differences in the basic facts. In Norfolk, the lease had 59 years to run but in Lloyd-Jones it had only 12 years. In Norfolk the value of the leaseholder's interest greatly exceeded that of the freeholder, while in Lloyd-Jones the value of respective interests was reversed. In both cases the profit of the freeholder expressed in percentages greatly exceeded that of the leaseholder. Under the Bill, the profit of the leaseholder is modest, while that of the freeholder is very handsome indeed.
Under Amendment Nos. 105C and 110, the profit of the freeholder will be enhanced and that of the
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leaseholder reduced. In neither Norfolk nor Lloyd-Jones did the leaseholder make any windfall profit. If there were any windfall profits they were those of the freeholder in both cases. I do not know what profits have been made where enfranchisement proceedings have been settled by negotiation as the results are not published. In view of the published figures, I cannot support either Amendment No. 105C or Amendment No. 110.
I should like to refer to paragraph 2(1)(b) of the fifth schedule to the Bill, which includes a provision for the sharing of the marriage value between the freeholder and any leaseholders with superior leases in proportion to the value of their respective interests in the property. I do not understand why that very simple provision does not include the enfranchising leaseholder. While in practice as a solicitor, I frequently used this method of dividing a trust fund between life tenants and reversioners. In many cases it proved to be entirely satisfactory to the beneficiaries.
Finally I should like to remind Members of the Committee that the learned authors of Woodfall on Landlord and Tenant have cast a doubt on the correctness of the decision of the Lands Tribunal to award 50 per cent. of the marriage value to the freeholder. I cannot improve upon the wording of Woodfall, so I shall quote from the fourth volume, paragraph 26.123:
"So far as marriage value is concerned, this is generally divided equally between landlord and tenant. An alternative view is that although in a freely negotiated bargain the ability of the vendor to bide his time may result in the 'marriage value' being divided fifty-fifty, the Act postulates a willing seller at the time the tenant serves his notice, and on such a sale it would seem that the sitting tenant could get the marriage value for himself by just one bid higher than the most optimistic of investment bidders would make".
3.15 p.m.
Lord Williams of Elvel: I agree with the noble Lord, Lord Carnock, in his opposition to the amendment. During the last stages of his intervention, he mentioned the decisions of the Lands Tribunal in the cases of Lloyd-Jones v. the Church Commissioners and the Norfolk case. In both those cases the tribunal accepted an even split of the marriage value. We think that that is right. That is something which the market would accept.
However, having said that, perhaps I may make a general point about the grouping of the amendments. We seem to be starting to waver quite a lot. I address my remarks to the Minister. If we are to get through the rest of Part I of the Bill today, it seems to the Opposition to be important that we stick to the groupings agreed. I fully accept that any Member of the Committee is able to speak to any amendment that he wishes in the order that appears on the Marshalled List but if that happens frequently I am afraid that we shall be unable to get to the end of Part I because there are just too many amendments to cover.
Lord Strathclyde: I should like to respond to that point. It is my understanding that in the grouping under discussion we are speaking to all the amendments listed in the groupings list apart from those which will be moved later by my noble friend

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Lord Boardman. As the noble Lord, Lord Williams, said, that is the normal form that the Committee should take. However, it is up to any Member of the Committee to unbungle the groupings if he so chooses; otherwise, I hope that the grouping of amendments on the list is acceptable.
Lord Clark of Kempston: I could not disagree more with my noble friend Lord Carnock. If indeed a person holds an asset which he agreed in the past to let to someone else, then whoever takes on that lease knows the conditions and consequently the value of the freehold must remain with the freeholder. I believe that my noble friend has got the wrong end of the stick. I say that because my honourable friend Sir George Young said in Committee in another place on 19th November last that the valuation would be based on "normal market practice". What the Bill proposes is not normal market practice. First, the tenant can determine the timing of the sale and, secondly, it is not an open market price because there is only one person to whom the freehold can be transferred. Consequently, in talking about normal market practice my honourable friend Sir George Young has really shot himself in the foot. I say that because the rest of the Bill does not provide normal market practice.
I turn now to the question of a forced sale or, for that matter, any sale. My noble friend Lord Gisborough mentioned in his speech the situation where one has a compulsory purchase order which involves a forced sale. In such a case, so far as concerns the state, whoever owns the property gets the full value; it is not sharing at all. That is not analogous to the sale of council houses where a discount was given for the length of time. The council tenant did not have a lease. By and large, the council tenant was a statutory tenant. That is different from a normal landlord. In order to evict a statutory tenant a normal landlord has to go through a tremendous court procedure. But a local authority need not necessarily do so. Consequently, we are not comparing like with like so far as concerns discounts. Some council tenants are weekly tenants while others are monthly tenants.
For the life of me, I cannot see the fairness in saying, "This property today is worth 100 units, but tomorrow if the freehold is sold it is worth 120 units". I cannot see why the 20 units do not go to the person who owns it. The person who owns it is the freeholder and, in the hypothesis I have referred to, he should receive the 20 units. I cannot for the life of me see why it is necessary that the freeholder should share any proceeds with the tenant. That tenant signed an agreement with his eyes open. As my noble friend Lord Boardman has said on previous occasions—no doubt he will repeat it this afternoon—some of the tenants do not even live in the properties in question. They live abroad or the properties may be holiday homes. Many foreigners come to this country and they stay in flats so they do not have to stay in an hotel. There are also company flats. These tenants are not analogous to council tenants. These tenants will receive a windfall profit at the expense, not of the state but of the freeholder.
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The other unfairness in this situation is that the bottom line valuation will be assessed, or computed, when the property market is at its bottom. It is quite obvious that at the bottom of the property market valuations are much lower. The tenant can determine the timing of the sale. That is absolutely wrong and certainly goes against what I have always considered to be Conservative policy, which is that fairness is given to the person who owns an asset. If the state wishes to give a discount, for whatever reason, on council houses that is one thing, but under no circumstances should the state force a private individual to give away an asset and not receive its full value.
I know that my noble friend on the Front Bench has a difficult job. Up until now there have been few concessions on this Bill. My next point has been made by my noble friend Lord Gisborough. If this Bill, or a similar Bill, had been introduced by a Labour administration, the Conservative Party would have fought it tooth and nail. I hope my noble friend will feel obliged to accept this amendment. I wholeheartedly support it and I hope the Minister will give it consideration.
Baroness Gardner of Parkes: I wish to oppose the amendment. I have listened carefully to the speech that has just been made in favour of it. I cannot agree for a moment with the noble Lord, Lord Clark. He claims that the freeholder has the right to everything, but he then contradicts himself by saying that there is only one buyer and that is the person in the flat. It is because that person is in the flat that he has a right to a proportion of the marriage value.
As the noble Lord knows, vacant possession is an entirely different matter. If, as a freeholder, he offered his property on the open market with a sitting tenant, the sum he would receive would be vastly different to the sum he would receive if he offered the property with vacant possession. Therefore possession in itself is worth a great deal.
While a proposed marriage value of 50 per cent. does not favour the tenant, I believe it is far fairer to the freeholder than it is to the tenant. There are other clauses in the Bill that will make things difficult for the tenant. I do not intend to repeat the arguments that have been made in previous debates. The noble Lord, Lord Clark, has repeated some arguments that have been made on previous occasions. I do not wish to delay this matter. I oppose the amendment.
Lord Wolfson: I, too, oppose the amendment because it vitiates the purpose of the Bill, which itself is a logical extension of the 1967 Act and another milestone on the road to a property owning democracy. A number of points were made by my noble friend Lord Gisborough. First of all, he said that the Budget had affected the return on shares. That is perfectly true, but is there any reason why reinvestment should not take place in gilts or convertible bonds if one is concerned about inflation? Incidentally, the level of inflation has not prevented property prices from falling quite sharply.
The point has been made that the market is at its bottom. I am not sure how one can assert that.

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Reference has been made to the marriage value. It is normal commercial practice to have approximately a 50/50 split between the freeholder and the leaseholder. In many respects the residential leaseholder has not been able to negotiate freely in these matters. He has made a big input into the property and should participate in its marriage value. Investment income is more valuable in net terms than property income because it requires less money to be spent on the asset itself.
Reference has also been made to capital gains tax. If compensation were doubled, the same would occur with capital gains tax, although I agree that the net amount would be greater. Finally, I am not clear how the foreign and absentee tenants that have been mentioned acquired the properties in the first place. Were they let to them by the landlord, or sublet by other tenants? It would be interesting to know a little more about that.
Lord Peyton of Yeovil: I wish to comment briefly on the six amendments that stand in the name of my noble friend Lord Kindersley, who unfortunately cannot be present today. The purpose of those amendments is to sound one more note of complaint to the Government over the way in which they have handled the issue of charities. As I see it, the Government in their zeal to do something for tenants —that is to say, for all tenants regardless of merit, needs or deserts—have simply brushed charities on one side. The Government have shown little evidence of having thought at all deeply about their value to the community and the importance of the role they perform.
These amendments in part would place a heavy burden upon all tenants. I would not wish to press them for that very reason. That is my complaint about this Bill. The Government propose to do something for all tenants regardless of their deserts. I should like the Government to answer a question. Are they really satisfied that it is fair and right to give indiscriminately a considerable benefit to tenants who do not live in, perhaps never have lived in and have no intention of living in the property concerned? Are they satisfied that it is fair to do that at the expense of a charity whose earnings would be used to succor people in need? I wonder whether the Government have given serious thought to whether it is right so to injure a charity. I have asked my next question before without eliciting an answer from my noble friend. I do not know whether the Government ever consulted the Charity Commission as to whether this was a right and proper way to proceed.
We have already gone into the question of cathedral closes versus the Regent's Park Nash terraces. I cannot understand how it is right to take action to save one and jeopardise the other. The point has already been made about the effect of the Budget and about the disadvantages for charities and others holding shares following the Budget. That rather knocks a hole in some of the remarks my noble friend has been accustomed to make from the Front Bench as regards charities being fully compensated. I do not personally go along with that point.
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I ask my noble friend, on behalf of the Government, to take note of the disturbance and concern which charities feel at the way—I shall not use the word "mean" in this sentence —they have been treated, which indicates a lack of care and concern. I hope my noble friend will take this matter seriously as I wish to return to it on Report but not in terms of these amendments. As I have said, they would be objectionable to my mind in that they take an indiscriminate step against all tenants. I object to the Government doing that vis-à-vis all landlords, whoever they are. I hope that my noble friend will take that point to heart.
3.30 p.m.
Lord Hamilton of Dalzell: I thank my noble friend Lord Peyton for supporting the charities. In the absence of my noble friend Lord Kindersley I represent Smith's Charity. In his speech a fortnight ago my noble friend complained at the lack of consultation by the Government before the Bill was brought forward. I do not believe that they understand the concept of the marriage value. I am certain that the Conservative Party research department does not. I have with me a paper of a rather unusual colour for this side of the Chamber. It is produced by the Conservative Party research department, is entitled Housing and is dated March 1993. On page 7 it reads:
"The marriage value is the difference between the leasehold value and the freehold value of the property".
That is wrong. The marriage value is the freehold value less the value of the lease and the value of the reversion combined. That statement is wrong and misleading. I contend that a transaction between two parties belongs in equity to the freeholder in its entirety.
The marriage value is well named because it represents accurately what occurs in the free market. A freeholder wishes to cash in a freehold interest because he needs the money. The leaseholder wishes to sell his lease, providing the opportunity to do so. A proposal of marriage is made by the freeholder that the leasehold and freehold interest should be joined so that the freehold may be sold. To that end the freeholder is prepared to offer part of his equity as a marriage settlement. Once one party is given the right to enforce a union on the other it can no longer be defined as a marriage; it is more like a rape. I could have an interesting discussion with my noble friend Lord Strathclyde as to what he would have recommended the Sabine women to have given as a marriage settlement to their Roman abductors. There can be no marriage benefit where there is no marriage. Smith's Charity feels very strongly that value should not be taken away from its beneficiaries through the Bill.
The second point on which I believe it is important that the Minister should give an opinion, in order to avoid the possibility of litigation in the future, is the value to be placed on the option to buy which will be granted to a leaseholder by the Bill. The leaseholder is to be given an option to buy an asset at less than its free market price at any time during the term of the

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lease. That may be a considerable number of years. In the commercial market such an option would be worth money. As time progresses the value of the leases sold in the market will begin to reflect that, eating into the marriage value. The first question a freeholder is likely to ask a valuer—and I believe that Smith's Charity will be asking this question—before considering the price of enfranchisement is: what is the value of the option which should be added to the price?
Lord Williams of Elvel: In my earlier intervention I did not comment on the amendments which have been tabled concerning charities. Perhaps I should make a brief comment. We have had this debate before, as the noble Lord, Lord Hamilton, pointed out.
Our view remains exactly what it was two weeks ago. There is no reason why charities should be excepted from the general rule unless part of their charitable work is to let out properties at low rents for charitable purposes. We stand by that.
To talk about Smith's Charity is hardly relevant to the general point at issue. As the noble Baroness, Lady Gardner of Parkes, said, Eton College and Harrow have large properties. As the noble and learned Lord, Lord Hailsham, will know, the battle of Waterloo was won not on Agar's Plough or Upper Club but at Elsworthy Road, NW3, which used to be the playing fields of Eton College.
We cannot go on like this. We have had this debate before and I hope very much that we shall bring it to a conclusion.
Lord Stewartby: Before my noble friend the Minister replies to the debate, as one who so far has found it just possible to support the Government against amendments of this kind, perhaps I may ask him to think very carefully about the point made by a number of my noble friends. I shall not repeat what my noble friend Lord Peyton said because he said it better than I could have done. There are a number of us who are prepared to accept one important principle in the Bill with which we are not very happy, namely the principle of leasehold enfranchisement. However, we are not at all happy about another principle which has crept into the Bill, which is that tenants should have a windfall gain at the expense of freeholders. I suspect that many of the amendments which have been tabled are different manifestations of that same anxiety.
A week ago the Committee considered amendments which were designed to deny enfranchisement if the tenant was not resident in this country. In that debate the point was frequently made that it was not right that such absentee tenants should be entitled to a windfall. That point, which has not been disputed, goes to the heart of the problem. It indicates that there is a windfall to tenants. Whereas I am reluctantly able to go along with the main purpose of the Bill because it was a manifesto commitment that there should be leasehold enfranchisement of this kind, most of the amendments which have been put forward to assist charities, pension funds and other freeholders reflect a fundamental unease among many of us that the terms of the proposals are simply not fair.
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If we are to accept the overriding principle of the Bill concerning enfranchisement we should not also have to swallow a very unattractive element which is embodied in the valuation arrangements. It is difficult to accept that at the same time there should be a transfer of value from freeholders such as charities and many others to tenants, some of whom, as was pointed out in last week's debate, are not necessarily at all deserving in that cause.
When he responds to the debate can my noble friend assure the Committee that the Government will think further about the basis of valuation? I hope that he will not merely dismiss many of the points which have been raised on behalf of charities and others. There are sincerely held anxieties that the purpose of the Bill has been distorted by the way in which the valuation arrangements have been framed.
Viscount Montgomery of Alamein: The temptation to follow my noble friend Lord Hamilton into the fields of Roman mythology is great but must be resisted in the interests of progress.
The question of the marriage value involves a matter of principle. I take issue with some of my noble friends because their amendments seek to benefit the freeholder at the expense of the leaseholder. As my noble friend Lady Gardner pointed out, the leaseholder has a large stake in the matter, which may well be much greater than that of the freeholder. In the case of new blocks of flats, the entire cost of construction has probably been paid by the leaseholders in the initial sale price. Therefore it is absurd to suggest that the leaseholder does not have a considerable stake in the issue. Therefore, the concept of the marriage value, which involves sharing the benefit, recognises the fact that the freeholder has art interest, namely in the freehold of the property. In other words, he has an interest in the land on which the property is constructed.
We have agreed the principle of enfranchisement, although one could be forgiven for believing that that was not the case in view of some of the speeches which have been made. We did so at Second Reading and it has been agreed in another place. The question is how that value should be divided. It seems to me that common sense should apply in that sometimes the marriage value may well be more than 50 per cent. and frequently considerably less than 50 per cent., depending on the circumstances which will vary from property to property and from estate to estate. I hope that my noble friend will vigorously resist the amendment.
Lord Coleraine: I wish to speak to the amendment: spoken to by my noble friend Lord Peyton and return to the amendment moved by my noble friend Lord Gisborough. We have heard from my noble friend Lord Hamilton of Dalzell that he is one of the trustees of Henry Smith's Charity; my noble friend Lord Kindersley is another. Smith's Charity does not act among the poor of London. It raises money and hands over millions of pounds every year to other charities to spend for their charitable purposes. The remainder of the money is accumulated year by year and invested in Stock Exchange investments and in the purchase of

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other freehold properties. It forms a treasure chest. There seems always to have been a large part of its income which is not used for charitable purposes but which one day may be so used.
Were there not other grounds for resisting the amendment, one could quite effectively point to that treasure chest and suggest that while it exists the charity has no claim to treat any particular freehold reversion as providing the funds for charitable donations. Were my noble friend Lord Peyton to press his amendment—he will not do so—the intention would clearly have been effectively to have rendered enfranchisement nugatory for most flat owners with charitable landowners. Under the amendments, a price would be fixed which bears no relation to reality and would make it quite inconceivable that any flat owner would wish to enfranchise. It would make no economic sense.
I have to venture the opinion which has been voiced before: that it is an attempt to re-run the argument that charities should be exempted from the provisions of the Bill altogether. My noble friend has not pointed to any precedent for charities being exempted or for their special treatment on compulsory purchases. I assume that he would have done so had he or his advisers been able to lay their hands on suitable precedents.
Lord Peyton of Yeovil: I refrained from doing so in the interests of brevity. My noble friend should practise what he preaches.
3.45 p.m.
Lord Coleraine: I am not aware what precept I have preached. I shall continue.
Any precedent of which I am aware is against the exemption of charities from compulsory purchase legislation. The Companies Act provisions, whereby a shareholder who has not accepted takeover terms is then bought up with the rest of the minority and receives what the accepting shareholders receive, do not apply to charities. I see no provision for such special treatment of charities, let alone a special price for charities, under the Leasehold Reform Act 1967.
I venture to suggest to my noble friend Lord Peyton that his is an unattractive proposal that he brings before us again today. We live in times when society at large has much to say about the ethical investment of charitable funds. Something could be said about that but I do not wish to embark upon the argument today. I hope that my noble friend will continue to resist such amendments in relation to the investments of charities.
My noble friend Lord Clark of Kempston raised points on the amendment moved by my noble friend Lord Gisborough. I have to say that he does not understand why in a compulsory purchase situation it is necessary to ride over the fact that the freeholder may be entitled to take all the marriage value in certain circumstances and why it is necessary that there should be an assumption of the willing purchaser.
Lord Clark of Kempston: I cannot quite understand what my noble friend says. He agrees with me that with a compulsory purchase order the value of the freehold should go entirely to the freeholder, but he considers that there is a difference in the provisions of the Bill. It involves compulsion on the freeholder at the behest of tenant to sell the freehold. It is analogous to compulsory purchase.
Lord Coleraine: It is because of such remarks that I seek to explain why the argument that my noble friend advances is incorrect. I shall come to it in due course.
The market in leasehold flats is an imperfect one. The term does not just waste away in a straight line until its value reaches zero. As must by now be well known, it reflects the almost universal need to raise a mortgage for flat purchase. A flat which with 80 years' lease may have almost the value of a freehold may be almost unsaleable 30 years later with 50 years of the term remaining. I do not refer to flats in Belgravia and Kensington, where the wealthy congregate and which are a law unto themselves in that respect, but to flats and blocks of flats in less affluent areas.
I am advised that there are not so many flats which have yet fallen into that danger area because it was mainly in the decades after the Second World War that it became usual to sell flats on long leases. The leases of most of those flats still have a while to run before they drop into that danger area, but in many cases the danger area is not far off. In some cases it already exists.
Let us take as an example a flat on a long lease of 99 years in 1950. It would now have about 46 years to run and already it has fallen into the danger area. But what happens when the lease of a flat reaches that point and the owner wishes to sell? He finds that he has to agree a premium for lease extension with his freeholder. The premium will almost invariably include almost the whole of the marriage value. Nevertheless, it is still just worth the flat owner's while to agree to pay it as ransom money to make his lease saleable once again. That process can be repeated more than once in the life of any flat lease and can be as frequent as every 30 or 40 years, depending on the length of the lease and of the lease extensions granted. If a flat owner were content to stay in his flat until the term expired, then the marriage value would have melted away. That rarely happens because flat owners move house fairly frequently.
It is in those ways that dealing in reversions can be so profitable. It is because of that that the law is now stepping in—if the Bill is enacted in a form that is workable—to intervene to help the disadvantaged party in what amounts overall to a monopolistic situation. I hear what noble Lords such as my noble friend Lord Dilhorne say. He is now present. At Second Reading, he said:
"It is an indisputable fact that the marriage value belongs entirely to the freeholder".—[Official Report, 23/2/93; col. 131.]
However, they overlook the fairness of the situation and the fact that the marriage value has been carved out of the flat owner's share of value.

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Let us put fairness to one side. That is not the end of the situation. Referring to marriage value, my noble friend Lord Dilhorne continued by stating:
"In a free market no one but the freeholder can give it or withhold it".
That is a patent fallacy. The flat owner is also needed for the giving or withholding of marriage value. There is a good case for saying that the marriage value belongs entirely to the flat owner, but I do not put it that way except on the limited ground of what is fair. It is an argument with which I do not wish to burden the Committee today.
The freeholder can manipulate the system in the "unfree" market for flats which exists in central London because in a hypothetical free market situation which compulsory purchase legislation necessarily requires marriage value has to be shared. That is why the claim of 100 per cent. of marriage value cannot be justified by the claim, and as my noble friend Lord Gisborough pleads, that in the real world of Belgravia and Kensington the reversionists are strong enough to demand and obtain 85 per cent. or more of marriage value. They claim to be able to do so again and again over the long-term scale on which they operate. It is like harvesting a forest. That fact, and the special situation of central London out of which it arises, has to be overlooked in any compulsory purchase legislation. The legislation has to include the assumption of the willing seller. It is simply no good suggesting that the seller is not willing. Such legislation is and always has been framed and interpreted on the basis of balance between the buyer, who may say, "But I am the only possible purchaser, and I will only pay a penny", and the vendor, who may say, "I do not wish to sell and you will have to pay me the moon".
It is in that context that legislation must assume the willingness of the seller. That is what the amendment denies and why I hope that my noble friend will advise that it be rejected. I am sure that my noble friend Lord Peyton will agree that I have spoken long enough and that I need not mention the other argument that it would be altogether disastrous—tending like no other amendment to the wrecking of the Bill—to include provisions tailored to maximise the profit of central London estates, investment landlords, when to do so will defeat the entirely reasonable social objectives of the Bill in relation to the many more flat owners outside central London whose landlords are not holding their reversions as long-term investments but who are holding them as stock-in-trade in dealing operations.
Lord Boardman: Before my noble friend sits down, I wonder whether he has taken account of Amendment No. 138 in the name of my noble friend on the Front Bench. If I may say so, it completely defeats the argument which my noble friend Lord Coleraine put forward on the renewal of leases.
Lord Monson: This seems a convenient moment to speak to my Amendment No. 110 which is grouped with the others and which is a little less radical than the amendment to which we are speaking, Amendment No. 105C. It merely provides that the
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minimum share of the marriage value to be received by the freeholder should be 75 per cent. rather than 50 per cent. I have with me some pages taken from a magazine which appeared shortly before Christmas, at a time when the Bill was still in Committee in another place and when, therefore, the final terms of the Bill were not known and prices in London did not reflect the expectation of enfranchisement on the specific terms contained in the Bill before us.
The pages contain advertisements for several flats at prices ranging from £295,000 to £475,000. Unlike the noble Lord, Lord Coleraine, I specifically cite flats in South Kensington, Chelsea and Belgravia because it is there that the greatest totally undeserved and unearned profits will be made if we do not agree to some amendment.
The specific flat which I have chosen to illustrate my case is located in Cadogan Square where £400,000 was sought for the remaining 31 years of the lease. That equates to a freehold vacant possession value of £760,000. On the assumption that the ground rent is a nominal £100 per annum and on the secondary assumption that there is no compensation to be paid for injurious affection, someone who bought the leasehold interest in the property before Christmas for £400,000 will have to pay £248,400 to enfranchise, assuming that the landlord receives 50 per cent. of the marriage value. That makes a total of £648,400 for a property whose vacant possession value is £760,000. In other words, it gives a profit of £111,600, or 17.2 per cent.
Surely that is too much by anyone's standards and particularly when we bear in mind that the Chancellor of the Exchequer announced in his Budget speech that foreigners who bought flats in London for secondary or tertiary residences would not pay income or capital gains tax if they used them while in this country, giving scope for an enormous amount of profit speculation without any tax whatever being paid to the Exchequer.
If the freeholder were to receive a minimum of 75 per cent. of the marriage value, the profit would be reduced to £55,800 on a total purchase price of £704,200, giving a profit of 7.92 per cent. That is not bad. It is perfectly acceptable and would leave something in hand. I do not object to that. I should have thought that the Committee would agree that it could be borne as it is not too excessive or gross. However, a profit of over 17 per cent. is far too much and should be resisted.
Lord Wolfson: Before the noble Lord sits down, has he taken into account in his calculations the amount spent on the property by the leaseholder in assessing the capital profit that he has enunciated?
Lord Monson: The example that I gave assumed that someone who had bought the property just before Christmas had spent nothing on it. I am talking about short-term speculation, not people who may have been in a flat for 15 or 20 years. That is another matter altogether.
Lord Hamilton of Dalzell: I wish to put on record how much I object to the remarks of my noble friend

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Lord Coleraine, who appears to impugn the integrity of Smith's Charity in accusing it of not distributing its income to the full, as it is required to do by the Charity Commissioners.
Baroness Hamwee: The right reverend Prelate the Bishop of St. Albans commented last week that the debate on charities appeared to be turning into a debate about Smith's versus the rest. I do not believe that any Member of the Committee would wish to impugn Smith's Charity but we have to bear in mind the requirements and positions of other charities and of leaseholders with which the Bill is intended to deal.
For the reasons given by the noble Baroness, Lady Gardner, and the noble Viscount, Lord Montgomery of Alamein, with regard to the amendment which would remove any interest in the marriage value from the leaseholder, I agree with the point which I may be paraphrasing but which strikes at the heart of the principle of enfranchisement.
With regard to charities, and without wishing to repeat the arguments that were made last week, it has occurred to me that no Members of the Committee—among whom I include myself—commented on the fact that many charities do not have that type of portfolio. Their investments, if they have any—and many charities struggle along without them —are in different assets.
I wonder whether it would be correct to suggest that a particular type of investment should attract a particular type of advantage. I should have thought that there might be an argument which would appeal to Members of the Committee opposite that the market should be allowed something of a free rein and that the existing provisions for tax benefits which apply to charities are the right way to assist all charities, rather than assisting charities which have a particular investment portfolio.
Lord Selsdon: I think this is perhaps the most important part of the Bill because it is about money or windfalls or profit. Up to now I have the feeling that it has been more about prejudice. I wonder whether, with a wicked sense of humour, if we had excluded from the Bill the great estates of London we would have had the same prejudice on the Benches this side of the Committee.
I recall that, as the noble Lord, Lord Williams, pointed out, basically we are not talking about London. I address my remarks more to outside London and the 60 per cent. first-time buyers and the problems that people had when they wished to buy a home and there were only leasehold flats available. Ultimately, at this stage we come down to what is a fair price. Members of the Committee have argued that in this case it is not the market price that the freeholder will receive. Other Members of the Committee will say that in many cases freeholders would find it impossible to sell their investment with a sitting tenant.
Somewhere between those two poles of what is on offer—100 per cent., 50 per cent.—must be the right amount. I should not dream of determining what that amount would be. If it were left to me, my preference
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would be that the freeholder should voluntarily seek to sit down with his tenants—as has happened on many occasions in the past—and negotiate a fair price. However, I assume that that is not possible within the terms and conditions of the Bill.
It is a question of what is a fair price to whom. Let us begin with the freeholder. In general, the freeholder will not necessarily be one of the great estates. In many cases, he will not even be British; he will be a foreign national sheltering behind an investment company set up for him by his advisers. In general, I believe that the freeholder will not pay tax, either through roll-over relief or some other perfectly legal and acceptable mechanism.
The leaseholder, on the other hand—if it is his permanent place of residence and he buys a longer lease and sells it —will not pay tax. If it is his secondary residence—and the law is already established for that—he will pay tax: 40 per cent. capital gains tax after the smaller amount.
In considering valuations, we should look at the net position. The freeholder will himself have legal fees. In general, if he is a big landowner, those legal costs will not be too high, whereas the individual leaseholder may have substantial legal costs with which he has to cope. Thus, when we come down to what the net figure is, in listening to noble Lords today I have certain worries. I tend to feel that the Government may, by accident or design, have it almost right. Some noble Lords say that the consideration is too much; others say that it is too little. Some others rightly point out that at the moment property prices are low and it is an unfair time to bring about such an initiative. Property prices may be low, but there is a desperate shortage of liquidity. However, the situation is open-ended; there will be an option to purchase for quite a long period of time.
The windfall profit may well go to a foreigner, to the freeholder or the leaseholder. In many cases, it is greater outside London. But even within London, there are many foreign investors who have come in, particularly in the past few years, and some have seen substantial losses because of the decline in their currency. I do not say that the Government have the balance right. I am not qualified to judge as I am not a professional in that area. But the professionals to whom I have spoken say that it is probably not far out.
4 p.m.
Lord Strathclyde: My noble friend Lord Gisborough introduced his amendment most succinctly, and I am grateful that he did so. In his opening remarks he said that the tenants should pay the full value. I hope that in the course of the next few minutes I shall demonstrate that that is exactly what they will do.
My noble friend Lord Selsdon was also right in saying that nobody agrees with the Government, and therefore we are probably right. Some Members of the Committee have said that tenants should pay more; others have said that they should pay less. The Government have chosen to seek a middle way which is fair to all parties. But I understand that the Committee still has great anxiety about the proposals.

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I shall try to respond to all the issues raised by the amendments tabled on valuation to show why we have arrived at the provisions in the Bill, and why we consider them to be fair.
It is clear that the issue of fair valuation is crucial to the whole debate on enfranchisement. It is important that the rights which we confer on leaseholders should be possible only at a fair price. Therefore, I hope that the Committee will permit me to explain how the valuation provisions in the Bill evolved, and why I consider them to be fair.
When the 1967 Act was passed by a Labour Government, the price which long leaseholders had to pay was very low. All they had to pay was the open market value of the freeholder's interest in the land, which would have been less than the price for which it could have been sold to a third party.
That was understandably very popular with the tenants. However, the Conservatives did not accept that the provisions were fair to both parties and we opposed it at the Second Reading of the Bill as unfair to the landlords. During the passing of the Labour 1974 Housing Act we successfully moved a change to the 1967 Act to cover medium value houses, newly brought in. That ensured that the price had to take into account the fact that the tenant had a special interest in buying, and so his bid for the freehold was likely to be higher than that of a third party. That proved more acceptable and has worked well for nearly 20 years. The basis for medium value houses reflects what actually happens in the open market and allows no statutory favouritism.
When we came to consider extending enfranchisement to the relatively few leaseholders of high value houses, and the three-quarters of a million or so long leaseholders of flats, it was clear that they should have to pay the market value of their landlords' interests. That follows the Conservative tradition of fairness to all parties.
We have provided that the price paid to the landlord should comprise the sum of three elements. The first is what a third party should pay for the landlord's interest as an investment. It reflects the value of the property to the landlord, subject as it is to the tenant's lease. The second element is marriage value, where we have provided that the landlord will receive at least half. The third element is compensation for any severance losses.
The first element—open market value—represents the price which the landlord could receive from a third party purchasing the property as an investment. It is fairer than the original valuation basis applied to low value houses by the 1967 Act, because it takes into account the value of the buildings as well as the land.
Many of the amendments put down today concern the second element, which is marriage value. Marriage value is the increase in value when the freehold and leasehold come under the same control. So for example, if the landlord's interest could be sold for, say, £20,000, and the value of a leasehold flat is £80,000, making £100,000 altogether, but either could sell the flat with a new lease for £150,000, then the marriage value would be £50,000. The marriage value does not exist unless one party—either the landlord or
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the tenant—can obtain vacant possession of the flat and grant a new lease. So it does not belong wholly to the landlord, or to the tenant. I suspect that that is the basis for what I felt was a misunderstanding by my noble friend Lord Clark.
In the open market marriage value is shared to ensure that a mutually acceptable bargain is struck. This reflects the mutual benefit of the landlord selling to the tenants and of the tenants buying. Landlords could not obtain all of the marriage value in the open market except in very exceptional circumstances. The Lands Tribunal, following that principle, has adopted the approach of sharing marriage value. The Royal Institution of Chartered Surveyors agrees that the Bill's proposals follow market practice. Their press notice of 9th February made clear that they did not consider that tenants will be able to make windfall profits and that such an interpretation was a misreading of the Bill. I hope that that deals with the anxiety expressed by my noble friend Lord Stewartby when he feared that windfall profits would be made. Any gain is shared.
My noble friend Lord Peyton, in his speech on charities, asked whether I realised the great anxiety felt with regard to charities. That point was echoed by my noble friend Lord Stewartby. As drafted, the amendments affecting charities would require tenants to pay 50 per cent. more than the market price for their property if their landlord is a charity. I appreciate that that is not my noble friend's intention. It is that the landlord should receive all of the marriage value. But I feel that that would be unfair. It cannot be right to discriminate against a tenant on the basis of his landlord, still less should organisations raising money by commercial means be allowed to exact a ransom from tenants simply because of use to which they put their income.
The principle remains the same, it would not be fair to allow a charity to receive more than other landlords. I have explained that marriage value is shared because that is what the open market provides. Our proposals are fair and they are fair to all parties, whatever the identity of the landlord or tenant.
Some of the amendments which the Committee has been asked to consider affect the division of marriage value. We have been presented with a number of options affecting that division. It has been suggested that the marriage value floor should be deleted, or raised to 75 per cent., or that the landlord should automatically receive all of the marriage value. I do not consider that any of those amendments are fair, or necessary. We have provided that the landlord should receive at least half the marriage value, as an equal division of marriage value is very common. This recognises that the parties have to reach an agreement or the marriage value is lost. By specifying 50 per cent., we hope to reduce the scope for argument, thereby making enfranchisement quicker and cheaper. Equally, it would not be fair to award all the marriage value to the landlord automatically. If the landlord were to sell to any other purchaser, then the extra value would not be released. Enfranchisement is maximising the possible gain which a landlord can receive from his asset. That is because the landlord

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receives all his marriage value share at enfranchisement. If there were no enfranchisement, he would not receive any marriage value. If he were to receive any it would he spread over a number of years as and when individual tenants wished to extend their leases.
Perhaps I may respond to my noble friend Lord Gisborough. None of the provisions in the Bill prevents a landlord from receiving more than 50 per cent. of the marriage value. We have been careful to ensure that where the market would provide the landlord with more than 50 per cent., and he can produce evidence of that from actual sales, then that is what will happen. In some instances he may well receive considerably more than 50 per cent. For example, where the tenant's case is weaker because his lease is short and he will have difficulty selling it in the open market, he may be keen to buy and therefore the landlord will receive a larger share.
My noble friend Lord Clark said that the freeholder must receive the full freehold value of the property. The marriage value is not part of the freehold value; it is the extra created by enfranchisement and belongs to neither freeholder nor leaseholder.
The noble Lord, Lord Monson, spoke of profit on a flat. Enfranchisement is a collective right. A foreigner cannot simply buy a flat, enfranchise and then sell. He must organise two-thirds of the others in the block. That will take time and effort. In the Bill there is no prospect of easy killings for anybody.
We have had a full and useful debate on the subject of the proper valuation. I listened with great care to the points made by Members of the Committee. I believe strongly that the basis for valuation must be one which is fair both to tenants and to landlords and without discrimination as to the identity of either. By following the open market practice on valuation, we have sought to ensure that our valuation provisions are fair.
Compensation for the acquisition of private property has always been on the basis of the price paid to a willing seller, whether the purchaser is a private company, as in the building of the great railways in the last century, or the state, as in our own century with the building of roads. I said at the beginning that my noble friend Lord Gisborough said that tenants should pay full value. I hope that I have demonstrated that that will be the case. We have provided that the landlord will receive the full open market value of his asset. That, I believe, is fair. The amendments under consideration would change the valuation provisions to make them unfair. It is on that basis that I ask that they be withdrawn.
Lord Williams of Elvel: Before the noble Lord sits down, perhaps I may intervene. He referred to foreign leaseholders—a matter which has arisen from time to time in speeches from the Benches opposite. However, it is not only leaseholders who may be foreign; a large number of landlords are foreign also. The amendment of the noble Lord, Lord Gisborough, may therefore have the opposite effect to that he supposed. In fact, our information is that many of the worst cases of landlord misbehaviour are where a foreign landlord company is concerned.
Lord Gisborough: I thank my noble friend for his reply. However, it is irrelevant whether it is a foreigner or otherwise or a rich man or a poor man who is benefiting. That has nothing whatever to do with the point.
Much has been said about the fact that leaseholders always knew what they were getting into. But when they bought the lease they paid a sum which was equivalent or related to the rent that they would otherwise have paid over a number of years. As the number of years reduced, so the cost of the leasehold for them went down. As the noble Lord, Lord Monson, said, it will be possible for somebody, provided all the flats in the block are being enfranchised, to buy their leasehold and to sell it immediately as a freehold for a windfall gain. To my mind that is redistribution of wealth from one individual to another or from one charity to another. I find it politically confusing. On the one hand, the Conservatives are going Left-wing with this funny redistribution of wealth affair; while on the other hand we read in the press that the Socialists are busy going Right-wing in abolishing Clause 4. I am extremely confused.
There have been more speakers against the amendment than for it. The ones for it have either been quiet or are not here. I therefore beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Viscount Goschen: I believe that this may be a convenient moment at which to take the Statement. I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Channel Tunnel Rail Link
4.15 p.m.
The Minister of State, Department of Transport (The Earl of Caithness): My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Transport. The Statement is as follows:
"With permission, Madam Speaker, I should like to make a Statement about the proposed new railway line between the Channel Tunnel and London and about the Ashford international passenger station.
"I have today given the go-ahead for the Ashford international passenger station. I have given British Rail both a full approval and the funding it needs to carry out immediately all the track, signalling and platform works, totalling £30 million. In parallel, my department and British Rail will explore urgently with the private sector ways of involving its expertise and capital in the construction of the station buildings. The Government are fully committed to having the station completed as soon as possible so that Kent and other parts of the South East can gain the full benefits from the Channel Tunnel.

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"Turning to the Channel Tunnel rail link, the House will recall that my predecessor announced in October 1991 the route corridor preferred by the Government which approaches London from the east via Stratford and terminates at King's Cross; and he invited British Rail to refine the route. For that work British Rail formed a subsidiary, Union Railways, which draws on the skills of both the public and private sectors. Its work has been thorough and professional. Great effort has gone into achieving a route with proper environmental standards which largely follows existing transport corridors and at the same time reduces the costs substantially. As a result of this work, the line is now estimated to cost between £2 billion and £3 billion, considerably less than before, without any loss in the overall benefits, environmental or otherwise, of the route, and with some gain.
"The Union Railways report offers a series of options on the precise route and does not make recommendations between them. The Government have concluded that the route which should now be put to public consultation is as follows.
"Between the Channel Tunnel and Detling, north of Maidstone, the route would largely follow the previously safeguarded route. However, at Ashford the route would run to the north of the town, with a tunnel under the M.20 and then running parallel to the motorway. This route is environmentally superior to the former safeguarded route. It is also £85 million cheaper and it would have less impact on existing and potential development within the town.
"For the section of the route crossing the Medway valley, we prefer an option in the report which from the east would diverge from the M.20 corridor, passing through a 4 kilometre tunnel under Blue Bell Hill, before crossing the Medway alongside the existing M.2 bridge and following the corridor of the M.2 and A.2 on the surface. That is not the cheapest option but has substantial environmental advantages, at a modest additional cost.
"South of Gravesend there is provision for a connection to Waterloo. The main route would run along the Ebbsfleet Valley then tunnel under the Thames, to run alongside the existing London Tilbury and Southend railway from north of Purfleet to east of Barking. From there it would enter a tunnel to Stratford, where there remains an option for a station. That route overcomes a number of the engineering and environmental difficulties associated with the more southerly route published in 1991.
"West of Stratford there are two options. One option is for a tunnel all the way to the proposed King's Cross low level station. The alternative is for a tunnel from Stratford to a point on the North London Line railway west of Dalston Kingsland station, then continuing alongside the North London Line by reinstating the original four-track alignment within the existing railway boundaries, before finally swinging south over railway lands into St. Pancras station.
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"The tunnel route to King's Cross has significantly more impact on property settlement and noise levels than the route via the North London Line, which is important from the environmental point of view. The St. Pancras option also appears to be less expensive than the King's Cross low level proposal and that is important in terms of practical feasibility, in relation both to public expenditure and private capital. As my right honourable friend the Chancellor of the Exchequer announced in his Budget speech, the Government's preference is for the St. Pancras option. We recognise that before we come to a final view further work will be needed on the environmental, planning, regeneration, safety and engineering aspects of the proposal and on exploring the options for developing the Thameslink services. I have asked Union Railways to carry this forward as a matter of urgency.
"The new railway will bring great benefits. It will reduce journey times for international passengers, compared with what will be available in the early years following the opening of the Channel Tunnel, by at least 33 minutes, and by more in the commuter peaks, to 2 hours 27 minutes from London to Paris and 2 hours 7 minutes to Brussels. The railway will transform commuting from many parts of Kent, with a large increase in capacity, enhanced reliability and dramatic reductions in journey times. Construction of the railway will create about 15,000 jobs. The railway will also contribute substantially to the regeneration of the East Thames corridor and more widely. The Union Railways report also sets out ideas for related rail projects which could stimulate further regeneration.
"The Government consider that the benefits of this project are such that it should now go forward as a joint venture between the public and private sectors. The Government are prepared in principle to provide substantial public sector support in recognition of the domestic transport benefits from the new line.
"The next stage is to consult on the proposals. I want the consultation to be thorough and well informed. It will be led by Union Railways, and I should like it to be completed by mid-October. Only then will we take the final decisions on the route, and I shall then safeguard it. In the meantime, I am releasing the safeguarding from the two sections of route which have been superseded by that which I have just announced. The Union Railways report and the independent review of Union Railways undertaken by my advisers, Samuel Montagu and W.S. Atkins, are available in the Vote Office.
"In parallel with the public consultation, my department, with Samuel Montagu and Union Railways, will be discussing with the private sector their participation in a joint venture. Our aim is to find a way of taking the project forward which offers the private sector a proper return on its investment and secures value for money to the taxpayer. Union Railways will be made into a

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separate, initially government owned, company once the relevant powers have been granted under the Railways Bill now before the House; and we intend that in due course the project will be transferred to the private sector.
"Following safeguarding, the project will proceed by hybrid Bill. Provided that we press ahead quickly, it should be possible for the railway to be completed by around the turn of the decade.
"The time has come to end the uncertainty. Our decision to give the go ahead to the new railway will enable us to secure the benefits which it will bring for international travellers, for Kent and Essex commuters, and for regeneration in the East Thames corridor. This will be a massive undertaking. The preferred route I have proposed today is environmentally sensitive, realistic and financially feasible as a joint venture".
My Lords, that concludes the Statement.
4.24 p.m.
Lord Clinton-Davis: My Lords, the House will be grateful to the Minister for having repeated in this House the Statement made by his right honourable friend. I am most grateful for the slight delay that was afforded in reiterating the Statement here to enable me to attend the funeral of the late Lord Underhill.
Is it not absolutely remarkable that, five years after the decision was made to build a dedicated high-speed Channel Tunnel route from London, the Government are still not in a position to ensure that it will be constructed? Is this not in marked contrast to the situation on the other side of the Channel, where the French high-speed train will be ready to go as soon as the tunnel is opened, hopefully towards the end of this year or the beginning of next?
In this country we have no specially constructed track—not one metre has been laid; no major terminus has been prepared; there are no links to the rest of the national network; no British rolling stock has been produced. That has been very largely because the Government have been hopelessly hampered by their ideological baggage, insisting that until now there should be no public financial support. That has compounded the delay and uncertainty. It has led directly to the blight which affects so many thousands of people and the loss which marks the Government's handling of the situation.
Would the Minister indicate what is the cost of the work that has actually been thrown away, carried out and no longer required? What compensation is to be given to those who are suffering from blight as a result of the Government's changed views about the scheme? How many times did the Government change their mind about the route?
Does the Minister now accept that there is no prospect of the high-speed rail link being financed by the private sector alone without government finance and/or guarantees? Is it not a fact that the 1991 east London scheme announced by Mr. Rifkind, the previous Secretary of State, changing the previous southern route was to be based on 38 kilometres of tunnels, including tunnelling under Boxley Valley, and
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now this route will cut through at least one, and probably more, site of special scientific interest? Did not the eastern route offer major regenerative opportunities for east London and north Kent; and what is the effect of this route as far as that is concerned?
Turning to St. Pancras, on what basis and studies was St. Pancras chosen? What effect is there to be in terms of delays for passenger through-journeys to the North, which is one of the important aspects of the King's Cross route? And what effect is all this going to have on other schemes such as the west coast main line and its vital modernisation, and the cross-rail project which is now being abandoned?
As far as the environment is concerned, the Government repeatedly claim in the Statement that this route is superior environmentally to the previous safeguarded route. What caused them to change their minds when they were lauding the environmental benefits of the previous route? We all know that the Government are very much more concerned about cost saving than the environmental benefits. Is the environmental impact assessment to be published, and is it in accord with the requirements of the European Community to which the Government have acceded? Even now we have to await a Statement in October on the engineering survey concerning St. Pancras and on the availability of private sector finance.
There is a report in today's newspaper, which I would invite the Minister to confirm or deny, saying that the Government are seeking support from European Community funding, from the European Investment Bank or the European Investment Fund. Is it not a fact that this aspect of funding was shunned by this Government for years—I speak first hand about that—and has this not led directly to a loss of invaluable time?
What effects will all this have on Hackney? About 10,000 people will be affected by the scheme in properties which run alongside the North London Line and which are now threatened. Are they to be compensated, and on what basis? Did the Government have consultations with them before this announcement was made?
This is a saga of incompetence unmatched even by this hapless Government, and the lesson is that if, instead of listening only to their own dogma and to themselves, they had listened to others, including the Opposition, this vital project for Britain of a Channel link would have been well advanced by now.
Lord Ezra: My Lords, I too should like to thank the noble Earl for repeating the Statement. I have three points to put, some of which coincide with what the noble Lord, Lord Clinton-Davis, has just said.
First, I too am very disturbed that it should have taken so long for a preferred route to have been identified on which consultation and legislative debate still have to take place and for which the money still has to be gathered from the private sector and, as we now understand, to some extent from government and possibly also from the Community. In the meantime, on the other side of the Channel, as the noble Lord, Lord Clinton-Davis, pointed out, they have pretty

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well completed their work and will certainly be ready with a high-speed connection by the time the Channel Tunnel begins to operate.
What I find particularly puzzling is that British Rail, presumably with the tacit agreement of government, should have embarked on so many studies which now have proved abortive. It appears that while British Rail was doing its studies—for example, in connection with King's Cross—the Government were working on a completely separate study based on another station. That strikes me as very surprising. If the Government were going to do this study anyway, why did they leave British Rail to waste its time and taxpayers' money doing its studies? Perhaps the noble Earl will explain how these various studies are undertaken and whether British Rail was aware of what the Government were doing and vice versa.
My second point concerns the validity that we can now expect of the timetable proposed. For how long will this consultation effectively take place, because those who will now be affected will complain very strenuously? Is enough time being allowed for that? Then we have the question of hybrid legislation, which will take a very long time. There is also the question of the private sector deciding whether and to what extent it will contribute. It may well want to see how the traffic develops for a year or so once the tunnel is completed before it makes its assessment. Therefore, it is at the very least optimistic to expect that all this, including the construction time, can be completed by the end of the century.
Thirdly, the Government have now come forward with a project which will cost markedly less than the previous one, yet they tell us that environmentally it is just as good. However, the cost of the original project—the £4.5 billion project—was largely incurred because of environmental measures. It follows that if £2 billion has been saved in some way, some of these costly environmental measures must have been eliminated. Will the noble Earl kindly indicate how it can be claimed that this much cheaper scheme is as environmentally attractive as the others?
The Earl of Caithness: My Lords, I am grateful to both noble Lords for what they have had to say. In their comments they covered many of the same points. Both noble Lords started by saying that the project has taken a long time to date. Yes, it has taken a long time, but I do not think there are many places in the country that are as densely populated as parts of Kent, with all the environmental considerations and the geological difficulties which do not appertain on the other side of the Channel that need to be examined. I know that both noble Lords would be the first to criticise the Government if they had not spent time looking at the matter in detail. We hope that some of the blight that has been caused can be eased quite substantially and that rapid progress can now be made towards finalising discussion on this matter with a view to a hybrid Bill:
The noble Lord, Lord Clinton-Davis, said that there were no major termini built in this country. I would only refer him to the enormous amount of work that has been undertaken at Waterloo, which will be
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open very soon. The noble Lord went on to ask about the cost of the work that has had to be thrown away. Whenever one looks into a major project—this is a mammoth project: perhaps the largest engineering project this century—there are bound to be options that need to be looked at. I would not say that that work was wasted. I would say that it was part of the correct exercise in assessing what is the right project for this country, at the right price, with the right protection for the environment. I can confirm to both noble Lords that there will be public finance in this project. It will be a joint venture with a view to being an entirely private venture in due course.
I would say to the noble Lord that there are major regeneration opportunities as a result of the work that has been carried out. That is fully explained in the document which I am sure he will read with great care. So far as concerns passengers going on through journeys to the North and Midlands, it does not make any odds whether it is King's Cross or St. Pancras. We are both extremely conscious of the need to get passengers to the North and the Midlands. Whether they go to King's Cross or St. Pancras will not make any difference at all. We are particularly anxious that they should be able to speed on their way and get easy access to the Continent.
The noble Lord paid the Government a great tribute when he said that we are concerned with cost savings. Of course we are. When one is talking about taxpayers' money, that is absolutely right. I am happy to stand condemned of that. It is something that splits the two parties.
I would say to the noble Lord, Lord Ezra, that when the work was initially carried out on the eastern approach the opportunity for St. Pancras was not available. It presents some environmental benefits as set out in the report, and the extra relaxation on the type of gradients that might be permitted allows those environmental benefits and allows St. Pancras to be taken into account. We anticipate that the consultation period will be about six months. We hope that the next report will be ready by mid-October.
Finally, the noble Lord, Lord Clinton-Davis, said that 10,000 people would have their properties affected by the line. I do not know where the noble Lord gets that figure from because we are not taking property from 10,000 people. Only about 11 properties along the whole route will need to be demolished. That is a remarkable tribute to the work of Union Railways. I would remind both noble Lords that three-quarters of the route will either be in tunnel or following existing transport links.
4.36 p.m.
Lord Boyd-Carpenter: My Lords, can my noble friend say what is the total expenditure from public funds which would be acceptable to Her Majesty's Government if difficulties arose in obtaining private funding? Have the Government some figure beyond which, if things went badly, they would not go? Can he also say over which particular years that expenditure would be spread?
The Earl of Caithness: My Lords, it is too early to give my noble friend an answer on that. There is substantial interest from the private sector in this project but it is obviously something that needs to be worked out in conjunction with the private sector. Therefore, I cannot give him the answers which he requires. So far as concerns expenditure, the immediate expenditure for Ashford station—£30 million—has been approved; £12 million in the current year and £18 million in the following year. As to future amounts of public money, it is too early to say.
Lord Henderson of Brompton: My Lords, I thank the noble Earl for making the Statement. Can he explain what he means when he says that,
"the time has come to end the uncertainty"?
Does he really mean that? Is there going to be no more uncertainty, for instance, for the residents and businessmen of the King's Cross area, whose homes and businesses have been blighted for at least five years? From listening to the Statement it looks as if the engineering survey will not be completed until October. The implication of that is that these wretched people will have to wait another six months or so. I should like to know categorically that their blight is lifted. They should not have to wait one second longer. It has been an intolerable delay for them. I am asking the noble Earl to say, in view of what seemed to me to be a categoric statement from the Chancellor of the Exchequer last week and from what the noble Earl said today, except for the one sentence about the engineering survey, that they will be told that their misery is over.
That also implies—the noble Earl did not say a word about the King's Cross Railway Bill—that the King's Cross Railway Bill is a dead duck. Clearly, he cannot make the statement which the long-suffering Select Committee said he would have to make if the project was to go forward. The Select Committee stated that,
"the Government statements presented to us indicated a clear commitment to the project".
Thus far have the Government misled the Select Committee. The Select Committee further stated that the Government should no longer proceed with the Bill unless it was clear that the Minister was able to make a statement of intent during the Third Reading of the Bill. Clearly, the Minister is not in a position to make that statement of intent. Therefore, may we please have his authority to assume that the King's Cross Railway Bill is dead?
The Earl of Caithness: My Lords, referring to the first comment of the noble Lord, Lord Henderson, I am unable to give him the satisfaction that he requires. As he will have heard from the Statement, further work is to be carried out on St. Pancras by Union Railways. It is very much the Government's preferred option that that should be the terminus. The blight suffered by certain people around King's Cross has unfortunately gone on for a lot longer than five years. That is why I say to the noble Lord that we must seek an urgent end to it so that the worry and concern that
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is felt is reduced to the absolute minimum. Referring to the noble Lord's second point about the King's Cross Bill, that is a question for the promoters.
Lord Williams of Mostyn: My Lords, I revert to the question asked by the noble Lord, Lord Boyd-Carpenter. The question is one of great importance. The noble Lord asked whether the Minister would indicate the maximum anticipated tolerable public expenditure. The Minister's reply—which I believe the noble Lord, Lord Boyd-Carpenter, and I both agree was unsatisfactory—was that it was too early to say. I ask the Minister to tell us when that conclusion is likely to be arrived at?
The Earl of Caithness: My Lords, it is too early to say. I cannot give the noble Lord a firm date as to when I can answer that question.
Lord Aldington: My Lords, is my noble friend aware of the pleasure that will be given to the whole of East Kent and certainly all around Ashford by the decision of his right honourable friend on the international passenger station in Ashford? Is he further aware that, despite the further delay that is bound to take place between now and the end of the consultation period, there will be a feeling of relief that at last we are getting to the point of decision?
Perhaps the Minister will give a little further thought to the proposed new route to the north of Ashford. That is a departure from the route that has been safeguarded and on the basis of which everyone has been making plans. Will he assure me that consultation on the route will be real consultation, even though he rather astonishes me by saying that he has withdrawn the safeguarding from the only other alternative route? That makes it look as if consultation is no consultation. Will he bear in mind in the search for new routes round a populous area that, while the very difficult environmental situation in the whole of Kent but particularly round Ashford is understood, when he moves routes like this he upsets a whole series of other people? He will find, as I have found in making enquiries, that some people have moved from where the old route was to where the new route is going to be. That is not the way to satisfy environmental sensitivities. Does he realise that in tackling the consultation process and the sensitive feelings of the people who live in that part of the world?
The Earl of Caithness: My Lords, I am pleased to be able to make my noble friend happy with the announcement about Ashford station. I believe that the last time we debated transport issues my noble friend was not as happy as he is today. I welcome his comments with regard to that. I can confirm to my noble friend that consultation will mean consultation. If one looks at a route and believes after a rigorous search that one has found a better and more environmentally friendly one so far as Ashford is concerned, it is understood that some people who might have thought they would not be affected will be concerned. But I am sure that my noble friend will

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agree with me that one must not shrink from making decisions if one believes them to be right. The consultation period is precisely to hear those voices.
4.45 p.m.
Lord Howie of Troon: My Lords, is the Minister aware that the decision to shift the terminus from King's Cross to St. Pancras will be received with a great deal of regret? Does he recall that the proposed terminus at King's Cross was a fully integrated interchange under which the international station at low level would have been combined with the Thameslink station, giving ready access to the mainline station above and to the London Transport tube station? It seems that this is not the case at St. Pancras, or will he tell us how St. Pancras can be changed to make it as convenient an interchange as King's Cross would have been?
I turn to the route as a whole. The Minister may recall that when Brunel was building the Great Western Railway in the 1830s he was specifically asked whether he would provide the cheapest route. He replied that he would provide not the cheapest but the best route. Is the Minister aware that in this case the Government seem to have chosen the cheapest route rather than the best one? Will he tell us how long this country has to put up with second-best cheap solutions instead of what is desirable?
The Earl of Caithness: My Lords, I say to the noble Lord, Lord Howie of Troon, that the decision to move from King's Cross to St. Pancras has been widely welcomed in some quarters. Indeed, locally, some people feel that it will be a much better option. However, I take note of what he says. Union Railways will be carrying out further work. Given the noble Lord's expertise in engineering, I am surprised that he did not pay a fuller compliment to Union Railways upon the work they have done. They have followed Brunet's edict. I cannot recall the days of Brunel, although the noble Lord suggests that I may be able to. The route we have put forward is exactly the type of route that Brunel would have put forward. I can say to the noble Lord with absolute confidence that it is not the cheapest route; it is the best route.
Lord Shepherd: My Lords, the Minister referred to a hybrid Bill. Will this be a hybrid Bill that will be introduced by a promoter under the normal conventions or will it be a government Bill? Clearly, a hybrid Bill will take a very long time to pass through both Houses of Parliament. Have the Government given any thought to how long it will take for that Bill to pass through Parliament before any contracts can be made or implementation commenced? Has the Minister any idea how long it will take to get that legislation through the two Houses of Parliament?
The Earl of Caithness: My Lords, as I understand it the hybrid Bill will be a government Bill, although there may be other promoters along with the Government, as has been the case in the past. As to the time required to take a hybrid Bill through both
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Houses of Parliament, that is something I shall leave to the business managers. It would be wrong of me to guess.
Lord Shepherd: My Lords, the Minister misunderstands my point. It has nothing to do with the business managers. Under the hybrid Bill procedure, those who have petitions to make have the power and opportunity to make them. In that respect the process has nothing to do with the business managers. I ask the Minister a very simple question. If one proceeds by way of the hybrid Bill procedure, how long do the Government perceive it will take to get that legislation through, which must be done before they can proceed to build the railway?
The Earl of Caithness: My Lords, I fully take the point made by the noble Lord, Lord Shepherd, about the hybrid Bill procedure, but, considering that it will be a government Bill, there is every reason for the business managers to be involved. I believe it would be wrong for me to comment on how long it will take.
Lord Brabazon of Tara: My Lords, I wonder whether my noble friend can help me. I had understood that following the Transport and Works Act this type of scheme would in future be taken forward by public inquiry and no longer by Private or hybrid Bill procedure. Why are the Government not using the public inquiry procedures under the Transport and Works Act?
The Earl of Caithness: My Lords, considerable thought has been given to that point. However, given that this is the largest engineering project this century, the Government felt it right to take it through the hybrid Bill procedure.
Lord Howell: My Lords, perhaps I may direct the Minister's attention to the great conurbations of the West Midlands, the North-West and West Scotland. Where are these great manufacturing industries and populous areas going to fit into the Channel Tunnel line? Does the Minister's Statement mean that there will be no linking up with the direct route through the Channel Tunnel, which will cause great dismay, especially having regard to the fact that we are all now talking about the importance of manufacturing industry? Does he agree that it is therefore absolutely vital to give it a boost and to ensure that those areas link directly into Europe? As regards passengers, although I noted what the Minister said, will he take note of the fact that from the West Midlands and the North West there are no railway lines to either St. Pancras or King's Cross? Therefore it is very important for passengers as well as manufacturing industry that we link in to the Channel Tunnel line so that we can go directly to the Continent.
The Earl of Caithness: My Lords, the noble Lord is right but only to a point. I believe that he missed out the North East. There are some very important industrial areas in North-East Scotland and North-East England which the noble Lord would wish to include, and I support him on that. That is why I said in my first response to the noble Lords, Lord Clinton-Davis and Lord Ezra, that we had taken

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particular cognisance of the needs of the Midlands, the North and Scotland. That is why provision will be there for through trains, but they will go to London first.
Lord Annan: My Lords, does the Minister agree that an inquiry should be set up into expediting schemes of this kind? My mind goes back to the proposal for a fourth London airport in about 1960 and for which the preferred place was Stansted. There were then many inquiries into the matter, costing millions of pounds. Various other schemes were proposed and rejected. There was then to be no fourth London airport. Finally, the fourth London airport was sited at Stansted. We are notorious in this country for being unable to come to conclusions on matters of this kind. We do not bear good comparison with France. It is true of course that the authorities in France have no regard at all for public opinion in the areas affected. Nevertheless, though we consult, does the noble Earl not agree that we do so in a haphazard manner? Will the noble Earl please ask his colleagues whether this is not the time to set up a commission to look into this whole matter? The delays are really intolerable.
The Earl of Caithness: My Lords, the noble Lord raises a point which has been a matter of fierce debate for some years. I shall certainly pass on to my right honourable friend what the noble Lord has said.
Earl Peel: My Lords, my noble friend has quite rightly made reference to the important environmental points which have been taken into account. In terms of SSSIs and NNRs, can my noble friend tell the House how the proposed route compares with the old one and how many such sites are likely to be affected?
The Earl of Caithness: My Lords, as there is to be a further consultation, at the moment I cannot give my noble friend an exact figure. It is very difficult to thread a route such as this through somewhere like Kent, given the important environmental criteria which cover that county, without impinging upon some aspect of Areas of Outstanding Natural Beauty and SSSIs. The whole point is that considerable time and effort have been spent by those responsible, along with the 12 environmental consultants, in finding ways to keep that to an absolute minimum.
Lord Ewing of Kirkford: My Lords, when the noble Earl tells the House that he does not know what will be the Government's financial commitment to the project, is he saying that he is going to talk to the private sector about its investment and intends to say that he does not know how much the Government are prepared to put into this project? That is an astonishing position for the Minister to find himself in today. Can he say what rate of return he regards as being fair from the private sector? As regards the North East of Scotland, is the Minister aware that I am very touched by his concern for that area? Does that mean that sometime this week the Government
40
are going to release resources in order to finance the electrification of the line between Edinburgh and Aberdeen?
The Earl of Caithness: My Lords, that is an ingenious second question, to which the noble Lord would not expect me to give an answer such as he would like to get from me. As regards the noble Lord's first point, there is a six-month consultation period. There are to be discussions with the private sector. Once the costs have been firmed up, then I am sure that one will be able to progress the matter, which is of concern.
Baroness Hamwee: My Lords, can the Minister give the House further reassurances about the position of Stratford? He said that the option would be kept for a station to be put there. But does he not agree that it is vital that it should be more than a station? Should it not be the hub of development and a catalyst for the regeneration of the area? Can the Minister comment on the position of Waterloo? After a multi-million pound investment in a new terminal there, is there to be only a slow route for part of the way? Is it not a fact that Waterloo will turn into something of a white elephant in not providing the facility for a fast route to the Continent which we all understood it was to do?
The Earl of Caithness: My Lords, as regards Waterloo, there will be a link from south of Gravesend to form a connection to Waterloo. So there will still be facilities for the fast train service. I am afraid that I have forgotten the noble Baroness's first point.
Noble Lords: Stratford!
The Earl of Caithness: My Lords, I can give confirmation as to the one station at Ashford. I take the noble Baroness's point about freight. That will have to be a matter for the promoters. Because the gauge of the line is designed to take the same traffic as Continental traffic, there are enormous opportunities.

Housing and Urban Development Bill
4.56 p.m.
House again in Committee on Schedule 5.
[Amendments Nos. 106 and 107 not moved.]
Viscount Goschen Viscount Goschen moved Amendment No. 107A:
Page 180, line 17, leave out from first ("the") to ("a") in line 19 and insert ("amount arrived at in accordance with sub-paragraph (1) is").
On Question, amendment agreed to.
Lord Coleraine Lord Coleraine moved Amendment No. 108:
Page 180, line 44, at end insert:
("() on the assumption that neither the nominee purchaser nor any tenant will or would seek to buy the freehold or extensions to leases in the future.")
The noble Lord said: This is a probing amendment. I hope that my noble friend the Minister will be able to allay some fears which have been expressed to me by several professional colleagues as to the actual effect of the words in brackets in lines 25 and 26 on page 180 of the Bill:
"(with neither the nominee purchaser nor any participating tenant buying or seeking to buy)".
Those words form part of the formula for valuing what the Bill refers to as "the freeholder's interest"; one of the two components of the price which the flat owners will have to pay for the freehold.
The words have a history which starts with the Leasehold Reform Act 1967 as amended in 1969. The words did not appear in the 1967 Act. The formula in Section 9(1) of that Act was the price which the property would realise if sold on the open market by a willing seller. It was apparently the intention of the then Labour Government that the enfranchising house lessee should not be treated as "in the market" for his house in order to keep the price down.
In 1969 in the cases of Custins v. Hearts of Oak Benefit Society and Haw v. Peek, the Lands Tribunal decided that the possibility, or the likelihood even, that the tenant would bid had also to be taken into account. The then government took immediate steps to reverse the position. Section 82 of the Housing Act 1969 provided that the valuation had to be on the basis of a willing seller as before, but with the following words in brackets added,
"(with the tenant and members of his family who reside in the house not buying or seeking to buy)".
That effectively removed from the purchase price any uplift caused by the tenants wanting to buy the house. What it did not appear to do—here is one point at which the problem seen by the valuers advising me and such organisations as the Leasehold Reform Co-ordinating Committee arises—is to prevent the purchase price being uplifted by the additional amount which a property dealer would pay because he thought that there would come a time in the future when the leaseholder would want to buy the freehold. I call that additional amount "hope value".
I should like to define one other term that I use and that is "pure investment value". I use that phrase to describe the value or price which represents the sum of, first, the present value of the freehold interest with vacant possession deferred until the end of the lease; and, secondly, the present value of the flow of rents over the unexpired years of the lease.
Hope value, as I have said, is what a dealer would pay in addition to pure investment value in the hope of effecting a subsequent sale to a lessee. Such advice as I have received affirms that the price to be paid under the 1967 Act, as amended by the 1969 Act, is the pure investment value, and hope value is disregarded. Nevertheless, what has been represented to me is that the wording of the 1967 Act, as amended by the 1969 Act, suggests that although the possibility of a bid from the tenant cannot be added to the pure investment value of a house, the pure investment value is, nevertheless, to be uplifted by the hope value in fixing the price payable under Section 9(1) of that Act.
I hope that my noble friend, with all the resources and expertise at his disposal, can explain which view of the matter is correct in the case of a valuation under Section 9(1) of the 1967 Act, as words similar to those used then are used in the Bill, and I assume that the words in the Bill will have the same effect in that respect. I beg to move.
5 p.m.
Lord Williams of Elvel: This seems to be a clarification that is necessary. I look forward to hearing what the Minister has to say I imagine that the noble Lord, Lord Coleraine, was speaking also to Amendment No. 148C which tracks the same wording but in a different place in the Bill. However, I notice that we have Amendment No. 170A in the group. It is an amendment in the name of the noble Lord, Lord Boardman. I do not know whether he assents to that grouping, or whether he wishes to dissociate himself from it.
Lord Boardman: I spoke to that amendment with an earlier one which the Government have conceded and which will come up to be decided upon shortly.
Lord Strathclyde: As I understand them, the amendments would delete any element of hope value from the landlord's interest. When we discussed the amendments tabled by my noble friend Lord Boardman we addressed the issue of hope value. That is the extra amount, over and above the basic price, which a purchaser will pay now because he may be able to sell later to a sitting tenant at a price which includes a share of marriage value. The Committee then agreed to accept the amendments which required the disclosure of side agreements, to ensure that a realistic element of hope value could be taken into account in the valuation of a landlord's interest.
These amendments, though, would preclude any element of hope value from being taken into account when the landlord's interest is valued. That cannot be right. It is a normal part of valuation practice to take into account the future potential for the granting of new leases or other interests. This hope value is a legitimate part of the price to be paid for a freehold. It would be very unfair to landlords and would not reflect the operation of the open market to exclude that element.
I understand that my noble friend Lord Coleraine is anxious that there may be an element of double counting for the flats of participating tenants. I assure my noble friend that we have specifically ensured that there is no element of double counting. Schedule 5 excludes the nominee purchaser and the participating tenants from the market for the purposes of valuation. Marriage value, but not hope value, will be payable for the flats of participating tenants and hope value will be payable for the flats of non-participating tenants. I hope that with that assurance my noble friend will withdraw the amendment.
Lord Coleraine: I was pleased to receive my noble friend's assurance and to learn that hope value is excluded by the words in brackets to which I referred initially. I should like to confirm that I was speaking also to the amendments to which the noble Lord, Lord Williams, referred. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Principal Deputy Chairman of Committees (Lord Boston of Faversham): I call now Amendment No. 108ZA in the name of the noble Lord, Lord Coleraine.
Lord Boardman: I wonder whether Amendment No. 108B, which I removed from the previous group, should come before Amendment No. 108ZA.
The Deputy Chairman of Committees: I shall be calling that amendment shortly. Amendment No. 108ZA comes next.
Lord Coleraine Lord Coleraine moved Amendment No. 108ZA:
Page 181, line 17, leave out ("date of the passing of this Act") and insert ("22nd October 1992").
The noble Lord said: Sub-paragraph 5 of paragraph 3 of the schedule contains anti-avoidance measures. It provides:
"The value of the freeholder's interest in the specified premises shall not be increased by reason of—
(a) any transaction which—

(i) is entered into on or after the date of this Act … and

(ii) involves the creation or transfer of an interest superior to … any interest held by a qualifying tenant of a flat contained in the specified premises".

The amendment was recommended to me by the Law Society before my noble friend had moved amendments to remove a large part of the difficulty which might arise out of negative values. The case in mind when the amendment was tabled was that a superior lease, granted out of freehold in reversion to existing leases, might create negative value by manipulation of the rents charged, and that negative value would not be reflected in the price paid to the owner of that interest. It would have the effect of increasing the value of the freehold.
I understand that the amendments in this respect which are in the course of being moved into the Bill will remove that problem, but it is relevant to comment that Amendment No. 108A, which is to be moved shortly, seems still to suggest that there is room for the avoidance provisions which are contained in sub-paragraph (5). It is well known that the operation of the 1967 Act was crept over by hordes of accountants and lawyers trying to find ways of getting round it. One of the ways they found was the creation of intervening leases between the freeholder and the house owner on the spot.
It may well be that the amendments which are now coming into the Bill will remove that problem, but it is not clear that the Government consider that that is necessarily the case. If it is not necessarily the case, then the avoidance provisions should not date from the passing of the Bill but from when the Bill was first introduced in the other place. The purpose of the amendment is to bring forward the date from which the avoidance provisions will work to 22nd October 1992. I beg to move.
Lord Williams of Elvel: I imagine that the situation is slightly analogous to that of the Budget: that measures are announced and people then start working out how to obviate them. By the time those measures come into effect, a coach and horses have
44
been driven through them. I have a certain sympathy with the point being made by the noble Lord, Lord Coleraine.
The Lord Advocate (Lord Rodger of Earlsferry): I too have sympathy with the fears that lie behind the amendment. The amendment seeks to introduce a retrospective element into the Bill in that it would take back the anti-avoidance provisions to the start of the Bill's passage which was not announced at that time. During that period people may have entered into valid and proper transactions which, if this provision were now inserted into the Bill, would be caught and upset by it.
Such a provision would be justified only if one had reason to believe that there was a great evil which would be remedied in that way. Whereas it would be rash for me or anyone else to say that no scheme could be devised which would get round the provisions of the Bill, nonetheless, the major problem which we feel could arise is one that has been covered by the provisions which are at present being moved into the Bill by the series of amendments to which I spoke at the end of the last Sitting of the Committee.
We are therefore satisfied that the anti-avoidance provisions are now in a proper form and there is no need to take them back to what they were at the beginning of the passage of the Bill. In that situation I ask my noble friend to withdraw the amendment.
Baroness Gardner of Parkes: I rise to ask for clarification. My noble friend Lord Coleraine suggested that people might intervene in the situation. Does that mean that where people who have the tenancy of flats are subject to a head lessee they will have some degree of difficulty? As I came into the Chamber today I was stopped by a Peer who is in a Crown property and who, it is understood, will not be able to acquire the freehold. The property is subject to a head lease which is held by someone entirely different. I wish to ask what that Peer's position will be. If my noble friend does not have the answer today, I should be grateful to receive it at a later date.
Lord Rodger of Earlsferry: I am not sure that my answer will entirely satisfy my noble friend. The amendments which are being made to the Bill are designed to deal with a problem which may arise as the result of the creation of intermediate interests between the freehold and the existing qualifying tenant. The result would have been to increase the amount which the qualifying tenant would have to pay. The creation of those artificial interests between the two would be likely to cause problems. In order that the whole scheme should work forwards, in any enfranchisement it will be necessary for the qualifying tenants to purchase the intermediate interests which lie between the qualifying tenancies and the freehold. If they did not do so they would not be able to deal with the whole situation.
Baroness Gardner of Parkes: In cases where one will not be able to acquire the freehold, but there is a head lessee—for example, in the Regent's Park area—will one be able to acquire the head lease?
Lord Rodger of Earlsferry: In so far as there lies anything between the qualifying tenant and the freehold it will he possible for the qualifying tenant to purchase that.
Lord Coleraine: I was grateful to hear that my noble and learned friend does not anticipate any avoidance difficulties now that the new provisions will come into effect. Recently, various suggestions have been made to me about how unscrupulous freeholders might seek to evade those provisions. I have not studied them carefully to see whether they will hold water and I should like to do so between now and Report. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Viscount Goschen Viscount Goschen moved Amendment No. 108A:
Page 181, line 24, at end insert:
("(6) Sub-paragraph (5) shall not have the effect of preventing an increase in value of the freeholder's interest in the specified premises in a case where the increase is attributable to any such leasehold interest with a negative value as is mentioned in paragraph I4(2).").
On Question, amendment agreed to.
[Amendment No. 108AA not moved.]
5.15 p.m.
Lord Boardman Lord Boardman moved Amendment No. 108B:
Page 181, line 33, after ("seller") insert ("assuming that the freeholder will receive the whole of that proportion of the marriage value attributable to the increase in value of the new interests and existing leasehold interests of those participating tenants who do not occupy a flat in the specified premises as their principal residence").
The noble Lord said: I apologise for the alphabetical inaccuracy with which the amendment has been called. In moving the amendment I shall speak also to Amendment No. 111D. The noble Lord, Lord Williams, asked why I had withdrawn the amendment from the first group. I did so because I anticipated, accurately as it has turned out, that my noble friend on the Front Bench would put that group of amendments in the grey area while my amendment lies clearly in black and white areas. The black area is the way in which the Bill is now drafted. With great respect to the draftsman, and taking account of all the complexities which he has tried to incorporate in the Bill, it is hardly surprising that there are certain black areas, and this is one of them. That black area was created by the unfairness. As regards the white area, I hope that my amendment will be successful in including in the Bill a fairness which my noble and learned friend will wish to achieve and which will commend itself to noble Lords opposite.
In speaking to the first amendment this afternoon my noble friend Lord Strathclyde said that in arriving at the method of valuation the Government had sought the middle way. He referred to the gain that would arise upon enfranchisement and said that it would be shared. That may be right in the case of a resident leaseholder; there are a variety of views on whether that should be the case. However, that cannot be right in the case of-a non-resident leaseholder. Like the freeholder, he is an investor. He has purchased an interest in a property in which he is not living and is looking for a return in either revenue or capital gains, just as a freeholder is looking for a long-term return
46
on his investment. They are both investors. If one is compulsorily bound by statute to sell his share in that investment to another investor—wrong as many of us may consider that to be—the least which can be expected is that the freeholder who is forced to sell his share will obtain the full value for that share. To do otherwise amounts to the non-resident leaseholder acquiring the property on the cheap. It is a form of confiscation at a discount which, as I hope is clear to all Members of the Committee, would be unfair.
The amendment seeks to provide that a freeholder must receive 100 per cent. of the marriage value from a participating leaseholder who is a non-resident. That is a fair proposition. There is no reason for the middle way to be found between those two or for any sharing of the gain or profit to be made. I hope that my noble and learned friend will agree to that simple and fair point. I beg to move.
Lord Williams of Elvel: The noble Lord, Lord Boardman, has tabled two interesting amendments. The problem I have is that he introduces again the question of principal residence. I find that a difficult concept and perhaps I may illustrate why. On Second Reading I declared my interest as a leaseholder under the terms of the Bill. However, according to the decision of the council tax people, my principal residence is a freehold in mid-Wales. I happen to have the leasehold of a property in London in which I spend a great deal of time but in terms of the council tax, Brecon and Radnor and not Kensington and Chelsea, is my principal residence. Therefore, I should be disqualified.
That does not bother me in the least. I use it as an example of the difficulty of defining principal residence. It is even more difficult to define main residence. If the noble Lord will enlighten me on how one makes the distinction and makes it water tight I might feel sympathy for the amendment. As it is, I find it difficult.
Lord Boardman: I understand the difficulty of defining principal residence. It may well be that it is a matter we must look at again at a later stage. The point I am making is that non-residents —that is, the people who are purely investors in the property—should not be entitled to a bonus by compulsory acquisition.
The Earl of Onslow: The exercise is extremely simple; the Inland Revenue does it every day of the week in respect of principal houses. It is -well-known fact and is easy to define.
Lord Gisborough: I support what was said by my noble friend Lord Onslow and I support the amendment. As regards capital gain, the Inland Revenue makes one declare one's main house of residence, as it does in respect of estate duty. There is no difficulty in that regard and I see no reason why a declaration should not be made in this case.
Lord Clark of Kempston: I support my noble friend Lord Boardman. Once again, we are back to the position of giving to an investor a windfall profit which should really belong to the freeholder.

47
As regards "principal residence", I agree with my noble friend Lord Gisborough that there is no difficulty about that for capital gains tax purposes. One can opt for one's principal residence. As my noble friend said, principal residence causes no difficulty with regard to estate duties and inheritance tax.
I return to the main thrust of the amendment. It is completely unfair that a windfall profit should be enjoyed by somebody who does not live in this country and for whom the property is merely an investment. I do not believe that the Bill intends to help investors. My right honourable friend Sir George Young said during the passage of the Bill that this provision aims to augment, assist and encourage home ownership. I asked my noble friend on the Front Bench whether this Bill extends home ownership and he said that it does not. Therefore, there seems to be a difference of opinion.
I believe that this Bill aims to help people who live in leasehold flats to acquire the freehold. Whether or not we agree with that is immaterial. However, the Bill does not intend that people who use a flat merely as an investment should receive a windfall profit.
Lord Williams of Elvel: The noble Lord, Lord Clark, said that it is easy to establish "principal residence". However, the assumption in the amendment must be that the landlord would receive the whole of what is described as the windfall profit in the event of the property not being a principal residence.
Secondly, we are not talking only about foreign leaseholders. The noble Lord should be worried about foreign landlords.
The Earl of Onslow: Let us take the case of my friend, the Californian millionaire. If the amendment in the name of my noble friend Lord Boardman is not agreed to, he will be made richer than he is at present. My noble friend Lady Gardner of Parkes groans, but that is a fact. The freehold of the property is owned by the BP pension fund. The millionaire will gain a lot of money. My noble friend Lady Gardner thinks that that is a good thing; I do not. Unless the amendment is passed, that will happen.
Earl Peel: The noble Lord, Lord Williams of Elvel, gave his own case as an example. In London he has a leasehold property which he will be able to enfranchise if the Bill is enacted. In Wales he has a freehold property. If the property in Wales were a leasehold property also, does he believe it to be right that he should be able to enfranchise both properties?
Lord Williams of Elvel: I am not trying to argue ad personam. I am using my case as a general principle on the amendment. It would be quite wrong for every noble Lord to explain his own personal circumstances.
Baroness Gardner of Parkes: I reacted in that way to the remarks of my noble friend Lord Onslow because we have heard before about this Californian. It is important to realise that it is no good arguing a particular case. We must look at the generalities of the issue. The Bill aims to make it possible for people living in flats to enfranchise their homes. We have
48
discussed the 100 per cent. marriage value and we have agreed that that should not be accepted. We are discussing the situation in which some flats in a block are owned by foreigners or by companies. One can think of the recent fuss that there has been about someone here who runs his own private company into which moneys are paid. Even in this country many people live in company-owned properties because they are advised by their tax advisers to do so. Because you happen to live in a block where a certain number of flats are company-owned, you may be excluded from enfranchisement. I believe that to be wrong. The residential qualification is artificial. This Bill aims to give people the right to buy leaseholds. Therefore, I oppose the amendment.
Lord Monson: Is the noble Baroness saying that the end justifies the means, however dubious the means?
Baroness Gardner of Parkes: No. I do not accept all this talk of windfall profits. I believe that enfranchisement will be a vastly expensive process. As I have said before, at the end of the day people who wish to enfranchise will be disappointed when they learn how much it will cost them.
Lord Coleraine: I declare the interest which I have declared on a previous occasion in that my London leasehold flat is not my sole residence. It seems to me that we should look at the message that amendments in favour of the residency test give to the world. This kind of amendment is saying to the international business community who house their executives here that they are not wanted.
The Earl of Onslow: Rubbish!
Lord Coleraine: It says to the Hong Kong businessman that we do not want him in London. It overlooks the fact that if the Hong Kong businessman is not living in the flat, he is probably doing us a favour by letting it on a short lease to people who need to live there. If the amendment is taken seriously, what will become of London, which was once a proud commercial centre and the capital of the world?
Lord Boardman: Is my noble friend suggesting that these businessmen from Hong Kong and elsewhere did not know the terms of the contract which they entered into?
Lord Coleraine: I am not again entering into discussions as to the sanctity of contract with my noble friend or anyone else in this Chamber. I am saying that this amendment is a sorry and petty pinprick. Its ancestor is a provision in the openly anti-property Leasehold Reform Act 1967. Its other precedents are reliefs in taxing statutes, which are altogether irrelevant to the rights which go with the ownership of property.
Lord Hamilton of Dalzell: Does my noble friend not agree that for residents from Hong Kong and elsewhere, their flats in London are their principal residence?
Lord Coleraine: I would not know whether it is their principal residence. They may be army officers serving abroad. It may or may not be their principal residence.
Viscount Montgomery of Alamein: My noble friend Lord Coleraine makes a very good point. The question of principal residence is a red herring. To disqualify people from enfranchising because the property is not their principal residence is to make a special exception. These people are not only army officers; they are also diplomats, clerics and other people who are encouraged to move around the world. There seems to he no reason why they should be disqualified from participating in the provisions of the Bill. There is no need to return to the principle of the Bill because that has been agreed. We are trying to make the Bill work. It seems to me that this series of amendments would have the reverse effect. They would be extremely unfortunate and give the wrong message.
The Earl of Onslow: For people posted abroad—diplomats and so on—the property still counts as their principal residence. Therefore, that argument does not wash either.
Baroness Hamwee: I understand very well the assessment of a principal place of residence for capital gains tax purposes. I believe that the noble Lord, Lord Boardman, is asking us to interpret the words of the amendment as referring to non-residents. Perhaps he will comment on a situation, which is not uncommon, where parents who have a son or daughter attending college away from their home town purchase a property for occupation by that son or daughter, perhaps with other college students, as the most efficient and economic way of housing the son or daughter for the period of the course. In that situation, would not the residence fall within the noble Lord's exception?
Lord Boardman: I have used exactly the same words as those used in Amendment No. 138. I hope that they will not be complained about. The amendment aims to prevent non-residents from picking up a windfall profit. I believe that that is wrong and unfair and I hope that my noble friend will agree that that is so.
Lord Strathclyde: I do not wish to go back into the arguments, or the discussion, that we had earlier in Committee this afternoon. My noble friend introduced the amendment by saying that it was a black and white issue. It may well have been so when he started. However, having had the debate, I believe that it is far from being a black and white issue. It comes down to a central question of why the landlord should receive more than the market value just because some of the long leaseholders are temporarily abroad or have bought the flat as a retirement home or a home for their children, or because it is owned by a family trust or indeed by the noble Lord, Lord Williams of Elvel. I do not regard the latter as an investor; but clearly his flat in London may not be his primary residence.
50
Those participating tenants who were resident may have to find a larger sum to meet their agreed share of the cost. I must emphasise the fact that those leaseholders who have bought their properties as an investment and who perhaps live permanently abroad cannot make speculative profits by enfranchisement; they will have paid the full market price for their investment. Of course, enfranchisement is a collective action. They are dependent on other long leaseholders wishing to enfranchise.
As I said earlier, the Bill does not prevent a landlord receiving a higher price for the flats of non-resident leaseholders if he can prove that that is what would have happened in the open market. There may well be a case for the landlord to make to the Leasehold Valuation Tribunal that where the purchaser is a non-resident, a company or a foreign company he should get more than 50 per cent. That could be a perfectly legitimate case to make.
However, I am not entirely convinced by the remarks of my noble friend Lord Boardman. In response to the noble Lord, Lord Williams, he admitted that there could be some tightening up in the matter. If my noble friend does not press the amendment, I look forward to seeing what tightening up he has in mind.
The Earl of Kinnoull: If my noble friend is correct in saying that the valuation court could interpret such a situation by saying that because the tenant is not resident then that is a case for increasing the marriage value for the owner, would it not be more reasonable for the court to say that such a provision should have been put in the Bill?
Lord Strathclyde: The reason that such a provision has not been put in the Bill in those exact terms is because we have decided that the landlord should receive a minimum of 50 per cent. There may be many other instances for example, where the lease is short—where the landlord may receive 75 per cent. or even 80 per cent. However, that provision has not been put in the Bill and therefore nor should this one be included.
Lord Hamilton of Dalzell: When I spoke previously I asked my noble friend Lord Strathclyde whether he thought that, in order to avoid litigation in the future, the option to buy should carry any money. In the commercial world, the option to buy a property some time in the future carries money. I thought that he would be enthusiastic to answer my question. However, I notice that he has not done so. Perhaps he would be kind enough to do so now.
Lord Strathclyde: Surely there can be no official answer to that question. It will depend on the prevailing market conditions. If someone is prepared to pay extra because he believes that he may receive a benefit at some time in the future as he will be able to enfranchise, that is entirely a matter for him.
Lord Boardman: I am somewhat disappointed with my noble friend's response. As I understand it, while he said that he would perhaps look again at my definition of "principal residence", he is not prepared

51
to accept the principle that I put forward; namely, that there is no reason why a non-resident leaseholder should gain any part of the marriage value. I should like to point out to my noble friend Lady Gardner of Parkes that she was quite wrong in her definition of leasehold enfranchisement. It does not apply in the cases she mentioned. On reflection, I believe that she will find that to be correct.
As my noble friend is unable to accept the principle that the freeholder should receive 100 per cent. of the marriage value, I feel that I must test the opinion of the Committee.
5.35 p.m.
On Question, Whether the said amendment (No.108B) shall be agreed to?
Their Lordships divided: Contents, 77; Not-Contents, 141.

Division No. 1

CONTENTS

Aberdare, L.

Kimball, L. [Teller.]

Aldington, L.

Kinnoull, E.

Attlee, E.

Knutsford, V.

Banbury of Southam, L.

Layton, L.

Belhaven and Stenton, L.

Lindsay, E.

Birdwood, L.

Mancroft, L.

Bledisloe, V.

Masham of Ilton, B.

Boardman, L. [ Teller.]

Middleton, L.

Brabazon of Tara, L.

Monson, L.

Broadbridge, L.

Montagu of Beaulieu, L.

Campbell of Alloway, L.

Moran, L.

Clanwilliam, E.

Mottistone, L.

Clark of Kempston, L.

Mowbray and Stourton, L.

Craig of Radley, L.

Murton of Lindisfarne, L.

Cullen of Ashbourne, L.

Norfolk, D.

Dacre of Glanton, L.

Onslow, E.

Davidson, V.

Orr-Ewing, L.

Derwent, L.

Pearson of Rannoch, L.

Dilhorne, V.

Peel, E.

Eden of Winton, L.

Peyton of Yeovil, L.

Elton, L.

Portsmouth, E.

Erne, E.

Quinton, L.

Fairhaven, L.

Rankeillour, L.

Forester, L.

Renwick, L.

Fraser of Kilmorack, L.

Romney, E.

Gainsborough, E.

Salisbury, M.

Geddes, L.

Saltoun of Abernethy, Ly.

Gisborough, L.

Strange, B.

Gridley, L.

Sudeley, L.

Hamilton of Dalzell, L.

Swinfen, L.

Hampden, V.

Swinton, E.

Harrowby, E.

Terrington, L.

Head, V.

Thurlow, L.

Hertford, M.

Vaux of Harrowden, L.

Holderness, L.

Verulam, E.

Hood, V.

Vivian, L.

Hothfield, L.

Westbury, L.

Hylton-Foster, B.

Wynford, L.

Johnston of Rockport, L.

NOT-CONTENTS

Acton, L.

Birk, B.

Addington, L.

Blatch, B.

Alexander of Tunis, E.

Blyth, L.

Alexander of Weedon, L.

Bonham-Carter, L.

Ardwick, L.

Borthwick, L.

Arran, E.

Boston of Faversham, L.

Ashley of Stoke, L.

Boyd-Carpenter, L.

Astor of Hever, L.

Braine of Wheatley, L.

Auckland, L.

Brougham and Vaux, L.

Barber, L.

Bruce of Donington, L.

Barnett, L.

Butterworth, L.

Beaumont of Whitley, L.

Caithness, E.

Bessborough, E.

Carmichael of Kelvingrove, L.

52

Carnegy of Lour, B.

McColl of Dulwich, L.

Carnock, L.

McIntosh of Haringey, L.

Cawley, L.

Mackay of Ardbrecknish, L.

Chalker of Wallasey. B.

Mackay of Clashfern, L. [Lord Chancellor.]

Chelmsford, V.

Chilver, L.

Mackie of Benshie, L.

Clinton-Davis, L.

McNair, L.

Cocks of Hartcliffe, L.

Marlesford, L.

Coleraine, L.

Mason of Barnsley, L.

Craigavon. V.

Merrivale, L.

Crickhowell, L.

Mersey. V.

Cumberlege, B.

Milverton, L.

Dean of Beswick, L.

Mishcon, L.

Denton of Wakefield, B.

Monk Bretton, L.

Dormand of Easington, L.

Montgomery of Alamein, V.

Elles, B.

Morris of Castle Morris, L.

Elliot of Harwood, B.

Mountevans, L.

Elliott of Morpeth, L.

Nicol, B.

Ewing of Kirkford, L.

Norrie, L.

Falkland, V.

Ogmore, L.

Fitt, L.

Orkney, E.

Fraser of Carmyllie, L.

Pitt of Hampstead, L.

Galpern, L.

Plant of Highfield, L.

Gardner of Parkes, B.

Plummer of St. Marylebone, L.

Geraint, L.

Ponsonby of Shulbrede, L.

Gilmour of Craigmillar, L.

Prys-Davies, L.

Glenamara, L.

Radnor, E.

Goschen, V.

Rea, L.

Graham of Edmonton, L.

Redesdale, L.

Gray of Contin, L.

Richard, L.

Greenway, L.

Rodger of Earlsferry, L.

Hampton, L.

Saint Albans, D.

Hamwee, B.

St. Davids, V.

Harmsworth, L.

Seear, B.

Hayhoe, L.

Sefton of Garston, L.

Henderson of Brompton, L.

Selsdon. L.

Henley, L.

Shackleton, L.

Hesketh, L. [Teller.]

Shannon, E.

Hives, L.

Sharples, B.

Hollis of Heigham, B.

Shaughnessy, L.

HolmPatrick, L.

Skelmersdale, L.

Hooper, B.

Stewartby, L.

Hooson, L.

Strabolgi, L.

Howe, E.

Strathclyde, L.

Howell, L.

Strathmore and Kinghorne, E. [Teller.]

Howie of Troon, L.

Jay of Paddington, B.

Taylor of Blackburn, L.

Jeger, B.

Thomas of Gwydir, L.

Jenkins of Putney, L.

Torrington, V.

Judd, L.

Trumpington, B.

Killearn, L.

Turner of Camden, B.

Knollys, V.

Ullswater, V.

Lauderdale, E.

Wakeham, L. [Lord Privy Seal.]

Lindsey and Abingdon, E.

Lockwood, B.

Wharton, B.

Long, V.

White, B.

Longford, E.

Williams of Elvel, L.

Lucas of Chilworth, L.

Wise, L.

Lyell, L.

Young of Dartington, L.

Resolved in the negative, and amendment disagreed to accordingly.
5.43 p.m.
The Deputy Chairman of Committees (Baroness Lockwood): I now call Amendment No. 109. I should point out that if this amendment is carried, I cannot call Amendment No. 110.
Lord Coleraine Lord Coleraine moved Amendment No. 109:
Page 181, line 33, leave out from ("seller") to end of line 35.
The noble Lord said: I say at once that from the point of view of flat owners this is one of the most important amendments that is likely to be made to the Bill. However, it is not one that I am likely to press this afternoon. On various occasions in debate earlier this afternoon it has been bruited about that on the one

53
hand freeholders are asking for their price to be jacked-up while on the other hand flat owners are asking for the price that the Bill provides to be reduced. That is not in any sense a fair analysis of the situation. I have not heard freeholders ask for anything less than the formula which the Government have said again and again will determine the price, and that is what the market would provide.
Paragraph 4(1) (b) provides, not altogether consistently with what went before, that the marriage value will be shared as the market would share it on a sale by a willing seller and then, with an almost total lack of internal consistency, that the freeholder will always take at least 50 per cent. of marriage value. I have to ask my noble friend what kind of marriage value that constitutes. The Minister gave an answer of a sort on Second Reading when he said:
"We have provided that landlords shall receive at least half of this additional value".—[Official Report, 23/2/93; col. 174.]
He meant the marriage value. A little later in the same column of Hansard he stated:
"I believe that this is a fair basis for valuation. It reflects how the market works in practice where it has been usual to give 50 per cent. to the landlord, following the Lloyd-Jones v. the Church Commissioners case. That reflected market evidence submitted by the landlords. I believe strongly that the provisions in the Bill are therefore fair. They follow normal market practice and allow a landlord to maximise his asset".
That was a most extraordinary statement. The Lloyd-Jones decision was that of the Lands Tribunal, consisting of one man, an experienced surveyor and member of the Lands Tribunal. So far as I am aware, it has never been challenged or upheld in a court of law, nor does the decision purport to be more than a decision on the facts of the case. It does not purport to establish any general principle. Indeed my noble friend Lord Carnock in an earlier debate has already pointed out that the learned editors of Woodfall on Landlord and Tenant doubt whether the decision was rightly reached.
If it is the case that many, if not most, cases have, since Lloyd-Jones, been settled on the basis of an equal sharing of the marriage value, that is a reflection of the well documented ability of the large freehold estates to deploy colossally expensive teams of lawyers and valuers to fight the few cases where the lessees have not agreed to settle with their reversioners. It is also a reflection of the fact that evidence of comparables from an actual open market has been lacking and tribunals have insisted on taking settlements under the 1967 Act as evidence of open market price, which they are plainly not.
If the market is to decide, the market should decide. Either the market would always award a landlord 50 per cent. at least of the marriage value, in which case the sub-paragraph is otiose; or it would not, in which case the sub-paragraph consists of weasel words which should be omitted. What evidence can my noble friend the Minister produce to show that in market conditions the freeholder always receives a minimum of 50 per cent. of marriage value? What evidence has he that this applies on sales of blocks of flats? What advice has he received on this, and on the authority of the Norfolk and Lloyd-Jones decisions, as establishing
54
legal principles of general application? Will he tell the Committee that or, if not, will he publish the answers to those questions? I beg to move.
Lord Williams of Elvel: As the noble Lord, Lord Coleraine, says, this is an extremely important amendment, whichever way one looks at it. I have a certain sympathy with the noble Lord, Lord Coleraine. I am particularly conscious of those leaseholders who live outside London—as I have said before, and as the noble Lord, Lord Selsdon, has said, that is three-quarters of all leaseholders—and particularly those who are first-time buyers and who are of the social classes C1 and C2 where their bargaining power may not be as strong as that of landlords. In that sense they are protected by what is in the Bill. On the other hand the amendment would offer to a strong bargainer the possibility of obtaining more by negotiation and by using the market as a proper criterion.
I am in two minds about the matter. I do not wholeheartedly support the noble Lord, Lord Coleraine, but I understand and have some sympathy for his case. On the whole I would prefer to keep the Bill as drafted rather than go along with the noble Lord. However, I believe that the Minister owes the noble Lord an explanation of the Government's policy on the matter.
Lord Carnock: I should like to support my noble friend Lord Coleraine and this amendment. It seems to me that in setting a floor of 50 per cent. for the marriage value there is an infringement of open market practice. One is also opening up a different method of valuation for flats as against houses because, as I understand it, there is no 50 per cent. floor in the 1967 Act.
Lord Strathclyde: I had hoped that at this stage of the Committee proceedings we might all feel that we had discussed valuations to such an extent that we could have skipped the amendment. However, as my noble friend Lord Coleraine put the matter, I understand that I have to do some more explaining.
We intend our proposals to be fair and to follow open market practice. Until now the Committee has agreed that our valuation provisions are fair. My noble friend Lord Coleraine now proposes that we delete the 50 per cent. marriage value floor. I do not consider that that is necessary. As I have explained, we have provided that floor because an equal sharing of marriage value is very common. The equal division of marriage value recognises that the parties have to reach agreement or the marriage value will be lost. By specifying that the landlord should receive a minimum of 50 per cent. we hope to reduce the scope for argument, thereby making enfranchisement quicker and cheaper.
My noble friend Lord Coleraine asked where I got my figures. The 50 per cent. floor is a recognition of how the market works in practice. It is in the interests of all parties that there should be a base for normal valuations so that enfranchisement can be as simple as possible. I find it surprising that my noble friend Lord Coleraine should seek to take away that aspect of

55
valuation since it allows the Government to argue that valuation is determined on a fair basis. I hope that in the light of my explanation my noble friend will withdraw his amendment.
Lord Coleraine: Nothing in what my noble friend said leads me to suppose that valuation is on a fair basis in relation to this particular paragraph. I hope that when the noble Lord, Lord Williams of Elvel, reads the debate in Hansard he will see that the amendment is fair and will appeal to the lessees to whom he referred.
My noble friend the Minister said that in many cases the Lands Tribunal or the LVT will decide that an equal sharing is right. So be it. In many cases an equal sharing is appropriate and what the market would find. However, the fact that my noble friend said that in many cases that is what would result is no reason for making it a universal rule and imposing a floor on what the landlord would receive.
My noble friend kindly said that in the interests of speed and cheapness he thought that my amendment was unnecessary. It would speed matters up considerably if this short-cut were taken and the rights of flat owners were pushed to one side. As to cheapness, it is the flat owners who will have to pay. I believe that it should be left to them to decide whether obtaining a fair price is an expense they would wish to incur. In many cases they would not wish to do so but they must always have the right to choose. There must be a fair price in the Bill.
As I said, this matter has only just begun to run and I am sure that we shall return to it at a later stage. In the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Monson Lord Monson moved Amendment No. 110:
Page 181, line 34, leave out ("50") and insert ("75").
The noble Lord said: I am sorry to disappoint the noble Lord, Lord Strathclyde, in his hope that we have spoken enough about valuation. I do not intend to repeat the points I made when we discussed the matter earlier this afternoon before the Statement was repeated. However, I should like to take issue with the noble Lord's assertion that no windfall profits will accrue to landlords if this amendment or something very like it is not adopted.
In cases where the freeholder receives as little as 50 per cent. of the marriage value—and I fully accept that in some cases the freeholder will receive more—he is certain to be in a position to make windfall profits. That cannot be avoided, unless his legal costs are so high that they would absorb all the windfall profits or unless he has to pay substantial additional sums by way of compensation for injurious affection.
Some Members of the Committee or members of the public may think that where there is a rich freeholder and a modestly well-off leaseholder the fact that the latter receives a windfall profit is no more than rough justice: the Robin Hood analogy. However, where there is a relatively poor freeholder, whether a direct or indirect freeholder like a beneficiary of a charitable trust, combined with a rich leaseholder, the Robin Hood analogy does not apply. There are rich
56
leaseholders. If one pays £300,000 for the lease of a small flat in South Kensington or £805,000 for the lease of a large flat in The Avenue, St. John's Wood —as an advertisement I have with me indicates—then clearly one is not exactly destitute.
A number of Members of the Committee have privately indicated to me that they very much support the principle of the amendment. However, in view of the result of the last Division and the confusion which arises from having 12 amendments in the first grouping, of which six are substantive, which makes it difficult to absorb all the arguments, I do not intend to press the matter this afternoon. I intend to beg leave to withdraw the amendment but to return to the matter at Report stage, possibly with a slightly modified amendment which would make it more acceptable to the Government.
Lord Strathclyde: I shall surprise the noble Lord, Lord Monson, by saying that I very much understand the concern which he raised in proposing the amendment. The noble Lord is concerned that a group of tenants could attempt to keep the cost of enfranchisement down by having only the minimum number of participating tenants. That could be achieved by having only a minimum number of participating tenants, with the other tenants having side agreements to join in at a later stage.
Lord Monson: The noble Lord is answering Amendment No. 111.
Lord Strathclyde: The noble Lord, Lord Monson, is quite correct. Therefore, I take back what I have just said, and the noble Lord will not be surprised to hear, since we have already had this discussion, that 75 per cent. is no more acceptable as a floor now than it was an hour ago when we discussed the matter previously.
The case of the noble Lord, Lord Monson, is based on the assumption that the freeholder somehow has a right to a greater share of the marriage value. The noble Lord rests his case on the fact that the valuations we are putting forward are unfair and do not reflect market share or, if they do, the noble Lord feels that the landlord should receive more.
I have not yet heard a convincing case as to why we should be unfair to the tenant and the tenant should pay more than the prevailing market value. That is why the Government have chosen a figure of 50 per cent.
In all the debates on valuation I have made the case that in some instances there is no reason why the landlord should receive more than 50 per cent. I believe it is that argument which the noble Lord needs to consider.
Perhaps I may repeat this again. We put a great deal of thought into the valuation proposals before we brought them forward in the Bill. The Royal Institute of Chartered Surveyors agreed that our proposals were fair. We believe that they are fair. We believe that they are based on market practice on a fair valuation. I am not convinced that we can go any further.
6 p.m.
Lord Monson: I am grateful to the noble Lord for his reply. Obviously I have not convinced him. I hope to be able to do so next time around. For the moment, beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Monson Lord Monson moved Amendment No. 111:
Page 181, line 41, leave out ("participating") and insert ("qualifying").
The noble Lord said: We finally reach the amendment to which the noble Lord began to reply.
It is a much more significant amendment than it appears to be, and is rather technical. I hope that the Committee will bear with me.
The amendment is designed to ensure that the marriage value is assessed for all the long leaseholds in the block which would qualify for enfranchisement. Schedule 5, paragraph 4(2) (a) adopts a far less favourable basis for defining the marriage value than the document, Enfranchisement of Long Leasehold Flats: the Government's Revised Proposals, issued in March 1992. The Bill confines the calculation to those flats associated with participating tenants rather than qualifying tenants. As drafted, the provision is an incentive for leaseholders to abuse the system by arranging for a bare two-thirds of the qualifying tenants to sign the initial notice. That will reduce the marriage value to a minimum. As soon as enfranchisement is complete, it will allow other qualifying tenants to purchase shares in a new property company at a price which will reflect the low marriage value paid by the enfranchisees rather than the significantly higher marriage value which would have been payable if all the qualifying tenants had participated in the purchase.
Such arrangements between leaseholders will enable them effectively to deprive the landlord of a substantial part of the marriage value. A speculator could abuse the provision. He could persuade two-thirds of the long leaseholders to appoint him as their nominee purchaser to enfranchise the freehold of the block. I do not believe that that is desirable. I beg to move the amendment.
Lord Gisborough: I support the amendment. If it proves impossible to revert to the definition of marriage value in the 1992 document, the Bill should be amended to allow a landlord to require the nominee purchaser to grant him at the time of enfranchisement a long lease over any flat with a qualifying tenant who has decided not to participate in enfranchisement. If the leaseholder in question subsequently wishes to participate in the enfranchisement, provision should be made with him at that stage to pay to his former landlord an amount equal to the enhanced marriage value resulting from the merging of his leasehold with that of the flats belonging to the participating tenants.
Lord Strathclyde: This of course is the amendment as regards which I have some sympathy with the noble Lord, Lord Monson. He is concerned that a group of tenants could attempt to keep the cost of enfranchisement down by having only the minimum number of participating tenants, with the other
58
tenants having side agreements to join at a later stage. It is precisely that proposal that we discussed last week on Amendment No. 76A, proposed by my noble friend Lord Boardman, which the Government accepted in principle. Indeed they accepted the amendment.
The Committee accepted that all side agreements should be disclosed so that "hope value" could be taken into account when the landlord's interest was valued. That "hope value" is the sum which a landlord would receive in the open market on the expectation that non-participating tenants would receive new leases or other interests after enfranchisement.
The proposal that marriage value should be payable for the flats of non-participating tenants is not fair. No marriage value is in fact released for those flats as they are not being brought under the same control as the freehold. Non-participating tenants will have a new freeholder but will retain their current lease interest.
Earlier in Committee we accepted an amendment that will ensure that landlords will receive the full value of their interest even where tenants join in at a later stage. This will be done by providing that the hope value for those interests can be taken into account. Therefore the amendment is unnecessary because it is a matter with which we have already dealt.
I hope that that deals with the point raised by my noble friend Lord Gisborough. If it does not, I shall write to him.
Lord Monson: I am grateful to the noble Lord, Lord Strathclyde, for his explanation. On his assurance that Amendment No. 76A, in the name of the noble Lord, Lord Boardman, to which the Government agreed and for which we are grateful, achieves broadly the objectives of the amendment, I am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Viscount Goschen Viscount Goschen moved Amendment No. 111A:
Page 181, line 50 at end insert ("and its value when acquired by the nominee purchaser").
On Question, amendment agreed to.
Viscount Goschen Viscount Goschen moved Amendment No. 111B:
Page 182, line I. leave out ("it") and insert ("the value of the interest").
On Question, amendment agreed to.
Viscount Goschen Viscount Goschen moved Amendment No. 111C:
Page 182, line 3, at end insert:
("(4) Accordingly, in so determining the value of an interest when acquired by the nominee purchaser—

(a) the same assumptions shall be made under paragraph 3(1) (or, as the case may be, under paragraph 3(1) as applied by paragraph 7(1)) as are to be made under that provision in determining the value of the interest when held by the person from whom it is to be acquired by the nominee purchaser; and

(b) any merger or other circumstances affecting the interest on its acquisition by the nominee purchaser shall be disregarded.").

On Question, amendment agreed to.
[Amendments Nos. 111D to 114 not moved.]
Viscount Goschen Viscount Goschen moved Amendment No. 114A:

59
Page 182, line 42, leave out from ("Where") to ("a") in line 44 and insert ("in the case of any intermediate leasehold interest the amount arrived at in accordance with sub-paragraph (1) (b) is").
On Question, amendment agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 115:
Page 183, line 36, leave out ("-") and insert ("+").
The noble Lord said: This is a probing amendment. I have tried to work out what the formula means in real money, bearing in mind paragraph 6(3) of Schedule 5. I have found myself unable to work it out. Perhaps the Minister will explain it to a simple-minded non-arithmetician. If he cannot do so, perhaps he will write to me. I beg to move.
Lord Strathclyde: With the agreement of the Committee, perhaps the easiest method would be for me to write to the noble Lord, and put a copy in the Library, because the matter is complicated. I have the explanation with me but I suspect that reading it rather than hearing it might make more sense.
Lord Williams of Elvel: I am grateful to the noble Lord. It would certainly make more sense, certainly to me, and to other noble Lords. It is a complex matter. All the variations that I have put in seem to result in zero. No doubt the noble Lord will explain the matter in the letter that he will write. In the light of his assurance, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 116 and 117 not moved.]
Viscount Goschen Viscount Goschen moved Amendments Nos. 117A to 117D:
Page 185, line 5, leave out from ("Where") to ("a") in line 7 and insert ("in the case of any interest the amount arrived at in accordance with sub-paragraph (1) or (2) is").
Page 185, line 22, at end insert:
("() In its application in accordance with sub-paragraph (1) or (2) above, paragraph 3(6) shall have effect as if the reference to paragraph 14(2) were a reference to paragraph 18(2).").
Page 185, line 26, leave out ("and (3)") and insert ("to (4)").
Page 186, line 8, at end insert:
Calculation of marriage value
15.—(1) Where (as determined in accordance with paragraph 4(3) and (4)) the value of any interest—

(a) when held by the person from whom it is to be acquired by the nominee purchaser, or

(b) when acquired by the nominee purchaser,

is a negative amount, then for the purposes of paragraph 4(2) the value of the interest when so held or acquired shall be nil.
(2) Where sub-paragraph (1) above applies to any intermediate leasehold interest whose value when held or acquired as mentioned in paragraph (a) or (b) of that sub-paragraph is a negative amount, paragraph 14(2) to (4) shall apply for determining for the purposes of paragraph 4(2) the value when so held or acquired of other interests in the specified premises, as if—

(a) any reference to paragraph 14(1) were a reference to sub-paragraph (1) above; and

(b) any reference to the relevant purposes were, as respects any interest, a reference to the purposes of paragraph 4(2) as it applies to the interest when so held or acquired.

(3) References in paragraph 16 or 17 to paragraph 14(2) or (3) do not extend to that provision as it applies in accordance with sub-paragraph (2) above.
Apportionment of marriage value
16.—(1) Where paragraph 14(1) applies to an interest, the value of the interest for the purposes of paragraph 9(2) shall be nil, unless sub-paragraph (2) below applies.
(2) In a case where paragraph 14(1) applies to the freeholder's interest in the specified premises and to every intermediate leasehold interest—

(a) sub-paragraph (1) above shall not apply for the purposes of paragraph 9(2); and

(b) any division falling to be made on the proportional basis referred to in paragraph 9(2) shall be so made in such a way as to secure that the greater the negativity of an interest's value the smaller the share in respect of the interest.

(3) In a case where—

(a) paragraph 14(2) operates to reduce the value of any such superior interest as is there mentioned ("the superior interest"), and

(b) after the operation of that provision there remains any interest whose value for the relevant purposes is a positive amount,

the value of the superior interest for the purposes of paragraph 9(2) shall be the value which (in accordance with paragraph 14(2)) it has for the relevant purposes.
(4) In a case where—

(a) paragraph 14(2) operates to reduce the value of any such superior interest as is there mentioned ("the superior interest"), but

61

(b) after the operation of that provision there remains no such interest as is mentioned in sub-paragraph (3) (b) above.

the value of the superior interest for the purposes of paragraph 9(2) shall be the value which it has for the relevant purposes apart from paragraph 14(2).
Adjustment of compensation
17.—(1) Where—

(a) paragraph 14(2) operates to reduce the value of any such superior interest as is there mentioned ("the superior interest"), and

(b) apart from this paragraph any amount of compensation is payable under paragraph 8 to the owner of any relevant inferior interest in respect of that interest,

there shall be payable to the owner of the superior interest so much of the amount of compensation as is equal to the amount of the reduction or, if less than that amount, the whole of the amount of compensation.
(2) Where—

(a) paragraph 14(2) operates to reduce the value of two or more such superior interests as are there mentioned ("the superior interests"), and

(b) apart from this paragraph any amount of compensation is payable under paragraph 8 to the owner of any relevant inferior interest in respect of that interest,

sub-paragraph (1) shall apply in the first instance as if the reference to the owner of the superior interest were to the owner of such of the superior interests as is furthest from the negative interest, and then, as respects any remaining amount of compensation, as if that reference were to the owner of such of the superior interests as is next furthest from the negative interest, and so on.
(3) In sub-paragraph (1) or (2) "relevant inferior interest", in relation to any interest whose value is reduced as mentioned in that sub-paragraph ("the superior interest"), means—

(a) the negative interest on account of which any such reduction is made, or

(b) any other interest intermediate between that negative interest and the superior interest;

but sub-paragraph (1) shall apply in the first instance in relation to any amount of compensation payable to the owner of that negative interest, and then, for the purpose of offsetting (so far as possible) any reduction remaining to be offset in accordance with sub-paragraph (1) or (2), in relation to any amount of compensation payable to the owner of the interest immediately superior to that negative interest, and so on in order of proximity to it.
(4) To the extent that an amount of compensation is payable to the owner of any interest by virtue of this paragraph—

(a) paragraph 2(1) (c) or 6(1) (b) (ii) shall have effect as if it were an amount of compensation payable to him, as owner of that interest, in accordance with paragraph 5 or 8, as the case may be; and

(b) the person who would otherwise have been entitled to it in accordance with paragraph 8 shall accordingly not be so entitled.

(5) In a case where paragraph 14(2) applies separately in relation to two or more negative interests in accordance with paragraph 14(3), the preceding provisions of this paragraph shall similarly apply separately in relation to the reductions made on account of each of those interests, and shall so apply—

(a) according to the order determined by paragraph 14(3) (a); and

(b) with there being taken into account any reduction in the amount of compensation payable to any person under paragraph 8 which results from the prior application of the preceding provisions of this paragraph.

Housing and Urban Development Bill

  PART V VALUATION ETC. OF INTERESTS IN SPECIFIED PREMISES WITH NEGATIVE VALUES
  Valuation of freehold and intermediate leasehold interests
  14.—(1) Where—

  (a) the value of the freeholder's interest in the specified premises (as determined in accordance with paragraph 3), or

  (b) the value of any intermediate leasehold interest (as determined in accordance with paragraph 7),

  is a negative amount, the value of the interest for the relevant purposes shall be nil.
  (2) Where sub-paragraph (1) applies to any intermediate leasehold interest whose value is a negative amount ("the negative interest"), then for the relevant purposes any interests in the specified premises superior to the negative interest and having a positive value shall be reduced in value—

  (a) beginning with the interest which is immediately superior to the negative interest and continuing (if necessary) with any such other superior interests in order of proximity to the negative interest;

  (b) until the aggregate amount of the reduction is equal to the negative amount in question; and

  60

  (c) without reducing the value of any interest to less than nil.

  (3) In a case where sub-paragraph (1) applies to two or more intermediate leasehold interests whose values are negative amounts, sub-paragraph (2) shall apply separately in relation to each of those interests—

  (a) beginning with the interest which is inferior to every other of those interests and then in order of proximity to that interest; and

  (b) with any reduction in the value of any interest for the relevant purposes by virtue of any prior application of sub-paragraph (2) being taken into account.

  (4) For the purposes of sub-paragraph (2) an interest has a positive value if (apart from that sub-paragraph) its value for the relevant purposes is a positive amount.
  (5) In this Part of this Schedule "the relevant purposes"—

  (a) as respects the freeholder's interest in the specified premises, means the purposes of paragraph 2(1) (a); and

  (b) as respects any intermediate leasehold interest, means the purposes of paragraph 6(1) (b) (i).

PART VI VALUATION ETC. OF OTHER INTERESTS WITH NEGATIVE VALUES
Valuation of freehold and leasehold interests
18.—(l) Where—

(a) the value of any freehold interest (as determined in accordance with paragraph 11(1)), or

(b) the value of any leasehold interest (as determined in accordance with paragraph 11(2)),

is a negative amount, the value of the interest for the relevant purposes shall be nil.
(2) Where, in the case of any property, sub-paragraph (1) applies to any leasehold interest in the property whose value is a negative amount ("the negative interest"), then for the relevant purposes any interests in the property superior to the negative interest and having a positive value shall, if they are interests which are to be acquired by the nominee purchaser, be reduced in value—

(a) beginning with the interest which is nearest to the negative interest and continuing (if necessary) with any such other superior interests in order of proximity to the negative interest;

(b) until the aggregate amount of the reduction is equal to the negative amount in question; and

(c) without reducing the value of any interest to less than nil.

(3) In a case where sub-paragraph (1) applies to two or more leasehold interests in any property whose values are negative amounts, sub-paragraph (2) shall apply separately in relation to each of those interests—

(a) beginning with the interest which is inferior to every other of those interests and then in order of proximity to that interest; and

(b) with any reduction in the value of any interest for the relevant purposes by virtue of any prior application of sub-paragraph (2) being taken into account.

(4) For the purposes of sub-paragraph (2) an interest has a positive value if (apart from that sub-paragraph) its value for the relevant purposes is a positive amount.
(5) In this Part of this Schedule "the relevant purposes"—

(a) as respects any freehold interest, means the purposes of paragraph 10(1) (a); and

(b) as respects any leasehold interest, means the purposes of paragraph 10(2) (a).

Calculation of marriage value
19.—(1) Where (as determined in accordance with paragraph 4(3) and (4)) the value of any interest—

(a) when held by the person from whom it is to be acquired by the nominee purchaser, or

(b) when acquired by the nominee purchaser,

is a negative amount, then for the purposes of paragraph 4(2) the value of the interest when so held or acquired shall be nil.
(2) Where, in the case of any property, sub-paragraph (1) above applies to any leasehold interest in the property whose value when held or acquired as mentioned in paragraph (a) or (b) of that sub-paragraph is a negative amount, paragraph 18(2) to (4) shall apply for determining for the purposes of paragraph 4(2) the value when so held or acquired of other interests in the property, as if—

(a) any reference to paragraph 18(1) were a reference to sub-paragraph (1) above; and

(b) any reference to the relevant purposes were, as respects any interest, a reference to the purposes of paragraph 4(2) as it applies to the interest when so held or acquired.

(3) In this paragraph any reference to any provision of paragraph 4 is a reference to that provision as it applies in accordance with paragraph 12(1).
(4) References in paragraph 20 or 21 to paragraph 18(2) or (3) do not extend to that provision as it applies in accordance with sub-paragraph (2) above.
Apportionment of marriage value
20.—(1) Where paragraph 18(1) applies to arty interest in any property to which paragraph 12(1) applies, the value of the interest for the purposes of paragraph 12(2) shall he nil, unless sub-paragraph (2) below applies.
(2) Where, in the case of any property, paragraph 18(1) applies to every interest which is to be acquired by the nominee purchaser—

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(a) sub-paragraph (1) above shall not apply for the purposes of paragraph 12(2); and

(b) any division falling to be made on the proportional basis referred to in paragraph 12(2) shall be so made in such a way as to secure that the greater the negativity of an interest's value the smaller the share in respect of the interest.

(3) Where in the case of any property—

(a) paragraph 18(2) operates to reduce the value of any such superior interest as is there mentioned ("the superior interest"), and

(b) after the operation of that provision there remains any interest which is to be acquired by the nominee purchaser and whose value for the relevant purposes is a positive amount,

the value of the superior interest for the purposes of paragraph 12(2) shall be the value which (in accordance with paragraph 18(2)) it has for the relevant purposes.
(4) Where in the case of any property—

(a) paragraph 18(2) operates to reduce the value of any such superior interest as is there mentioned ("the superior interest"), but

(b) after the operation of that provision there remains no such interest as is mentioned in sub-paragraph (3) (b) above,

the value of the superior interest for the purposes of paragraph 12(2) shall be the value which it has for the relevant purposes apart from paragraph 18(2).
Adjustment of compensation
21.—(1) Where in the case of any property—

(a) paragraph 18(2) operates to reduce the value of any such superior interest as is there mentioned ("the superior interest"), and

(b) apart from this paragraph any amount of compensation is payable by virtue of paragraph 13 to the owner of any relevant inferior interest in respect of that interest,

there shall be payable to the owner of the superior interest so much of the amount of compensation as is equal to the amount of the reduction or, if less than that amount, the whole of the amount of compensation.
(2) Where in the case of any property—

(a) paragraph 18(2) operates to reduce the value of two or more such superior interests as are there mentioned ("the superior interests"), and

(b) apart from this paragraph any amount of compensation is payable by virtue of paragraph 13 to the owner of any relevant inferior interest in respect of that interest,

sub-paragraph (1) shall apply in the first instance as if the reference to the owner of the superior interest were to the owner of such of the superior interests as is furthest from the negative interest, and then, as respects any remaining amount of compensation, as if that reference were to the owner of such of the superior interests as is next furthest from the negative interest, and so on.
(3) In sub-paragraph (1) or (2) "relevant inferior interest", in relation to any interest whose value is reduced as mentioned in that sub-paragraph ("the superior interest"), means—

(a) the negative interest on account of which any such reduction is made, or

(b) any other interest in the property in question which is to be acquired by the nominee purchaser and is intermediate between that negative interest and the superior interest;

but sub-paragraph (1) shall apply in the first instance in relation to any amount of compensation payable to the owner of that negative interest, and then, for the purpose of offsetting (so far as possible) any reduction remaining to be offset in accordance with sub-paragraph (1) or (2), in relation to any amount of compensation payable to the owner of such interest falling within paragraph (b) above as is nearest to that negative interest, and so on in order of proximity to it.
(4) To the extent that an amount of compensation is payable to the owner of any interest by virtue of this paragraph—
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(a) paragraph 10(1) (c) or (as the case may be) paragraph 10(2) (b) shall have effect as if it were an amount of compensation payable to him, as owner of that interest, in accordance with paragraph 13; and

(b) the person who would otherwise have been entitled to it in accordance with paragraph 13 shall accordingly not be so entitled.

(5) In a case where paragraph 18(2) applies separately in relation to two or more negative interests in accordance with paragraph 18(3), the preceding provisions of this paragraph shall similarly apply separately in relation to the reductions made on account of each of those interests, and shall so apply—

(a) according to the order determined by paragraph 18(3) (a); and

(b) with there being taken into account any reduction in the amount of compensation payable to any person by virtue of paragraph 13 which results from the prior application of the preceding provisions of this paragraph.").

On Question, amendments agreed to.
On Question, Whether Schedule 5, as amended, shall be agreed to?
Lord Gisborough: The Government's 1992 document said that the purchase price should include sums to compensate for injurious affection. The document explains that this term means damage to potential value from which the freeholder might have benefited if a sale had not been forced. Paragraph 5 of Schedule 5 is, I understand, intended to provide for this element of the purchase price. However, the drafting of the paragraph is obscure and it makes no mention of compensation to reflect compulsory purchase.
I feel that that principle should be clearly stated so as to give proper guidance to a leasehold valuation tribunal when assessing the price to be paid for the freehold. I should be grateful if the Minister would comment on the clarity of that paragraph.
Lord Strathclyde: Perhaps I may explain what we are trying to do in Schedule 5 and how it sets out our proposals for fair valuation. The price payable by the nominee purchaser for the premises is the sum of the value of the present interests of the landlords on valuation day, at least half the marriage value and any compensation due.
The first element assumes a nominee purchaser, that participating tenants are not in the market and that the seller is willing to sell. The assumption is made that the interest which is to be acquired will be subject to existing leases, rights and burdens and any new rights to be created on enfranchisement, and assuming that the tenants have no rights in enfranchisement or lease extension under the Act.
The conveyance terms are assumed to be those provided for in Schedule 6. Improvements made by the participating tenants at their own expense are disregarded. These assumptions ensure that the valuation is fair. Furthermore, on the points raised by my noble friend Lord Gisborough, I believe that this is well understood by the tribunals and therefore the problem does not arise.
Lord Gisborough: I thank my noble friend.
Schedule 5, as amended, agreed to.
6.15 p.m.
Clause 29 [Costs of enfranchisement]:
[Amendment No. 118 not moved.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 119:
Page 38, line 27, leave out subsection (7).
The noble Lord said: This amendment stands in my name and that of my noble friend Lady Hollis. Under the Bill, the costs of enfranchisement with which Clause 29 deals are to be paid by those who wish to enfranchise, but subsection (7) makes all those who will potentially bear the costs liable for the costs of everyone. In other words, there is joint and several liability.
In the case where one leaseholder, or maybe two or three, default on the costs or for one reason or another cannot pay and go bankrupt, the costs then fall, as I understand it, on the other leaseholders who are enfranchising. That seems to me to be rather harsh, or at least it seems to argue an enormous faith on behalf of those enfranchising leaseholders in the honesty and probity of their fellow leaseholders. That is not always the case either in London or elsewhere.
I understand that someone must pay the money, but it seems to me to be somewhat unfair that all are jointly and severally liable. Thus, if out of 10 leaseholders enfranchising, nine go bust, the one has to pay the full cost.
This is, of course, a probing amendment. It is not designed to change the Bill. But I seek the Government's explanation of what seems to me to be rather a harsh measure. I beg to move.
Lord Selsdon: The noble Lord, Lord Williams, has raised the question of costs and it is quite a worrying matter with the complexity of the situations that may arise. I was asking how much it would cost, almost to express it as a percentage of the total value. If we consider a flat which is on a reasonably long leasehold, it seems to me that the cost of enfranchisement might be as high as 2½ or 3 per cent. of the value of that leasehold interest. It could be a much higher proportion, therefore, of the consideration paid to the freeholder. However, people are entering this with a reasonably open mind. They know that there are costs which will have to be borne. There will be a certain unfairness. We hope that the tenants will speak for themselves, but I do not think that the costs can possibly fall on the freeholder. It is a difficult matter and I believe that this is a good probing amendment.
Lord Rodger of Earlsferry: The position is, as the noble Lord said, that under Clause 29(7) provision is made for joint and several liability on those who are liable for the cost under Clause 29 or elsewhere in the Bill.
Members of the Committee will notice that we are dealing here with the liability for costs incurred by the reversioner or any other relevant landlord. It seems to us that at the end of the day—and, as I understand it, there is no dispute about this on the part of the noble Lord—someone must bear the costs. After all, they have been incurred and are recoverable only to the extent that they are reasonable. The costs must be
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recovered and this provision seems to us to be the only proper way of dealing with the matter. It would not be right that a landlord should have difficulty in selecting some person against whom he should have the right to recover costs. It appears to us that those who are participating in the venture should be liable at the end of the day jointly and severally for the reasonable costs incurred by the landlord.
That may mean that people entering such a venture will have to select with care those with whom they participate. When they are considering whether to participate at all, they must consider the whole picture. We have stressed from the outset that this is not a venture which is to be entered into lightly. One has to consider, before embarking on the enterprise, the whole nature and undertakings which are being entered into when the considerable process of enfranchisement takes place. It is an aspect of that that at the end of the day, in so far as those participating are liable for the costs of the reversioner, it is a joint and several liability.
Lord Williams of Elvel: I am grateful to the noble and learned Lord, so far as he went, which was simply to repeat the clause in the Bill and explain that that is the Government's view. However, it does not seem to me to answer the point that I raised. I agree that there is no dispute about recovery of the reversioner's cost. It clearly has to be recovered and must be recovered from the enfranchisers. I agree with that. However, as the noble Lord, Lord Selsdon, rightly remarked, the costs could be extremely high.
If we take a block of 20 or 30 flats—and there are many blocks of that nature—the freeholder will have to have extensive legal advice, possibly extensive valuing advice, accounting advice, tax advice, all kinds of advice. Those costs could be quite prohibitive. In a block of flats of, say, 20 leaseholders who are qualifying tenants and get the two-thirds majority, in order to engage in enfranchisement each and every one of those potential enfranchisers would have to investigate the financial status of his colleagues. I would not enfranchise along with the noble and learned Lord the Lord Advocate if we lived in the same block of fiats unless I were sure that he could pay the bill at the end. That would be an extremely difficult and tricky operation. I do not quite understand how it would work in practice. That is the point I am trying to make.
I accept that there may be no other solution—other than some insurance scheme that might meet the bill —but the Government need to bear that matter clearly in mind. A problem of cost should not be a barrier to enfranchisement.
Lord Rodger of Earlsferry: I cannot add very much. I believe that the noble Lord accepts that reasonable costs must be recoverable. It is very difficult to see how one could select from those embarking upon the exercise of enfranchisement those who would bear the costs and those who would not. At the end of the day, I respectfully submit that the correct way to proceed is as proposed in the Bill.

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Having said that, I accept that there may be practical difficulties facing those who embark upon that course. But those are among the matters which people will have to take into account when they do so.
Lord Williams of Elvel: With respect, the onus could be laid on the reversioner to claim against all enfranchisers by simply leaving out the words "jointly and", leaving it as several liability rather than a joint and several liability.
Lord Rodger of Earlsferry: If one simply had several liability, that would lead to the reversioner having the greatest difficulty in recovering his costs. It does not seem fair that the reversioner in that situation should have to go around trying to recover a portion here and a portion there. One has to bear in mind that this enterprise is set in train by the qualifying tenants and set in train, in one sense, against the reversioner. In that situation it would not be right that the reversioner should have laid upon him the burden of somehow or other building up the entire recovery of the cost. We believe that this is the correct way to proceed.
Lord Williams of Elvel: I do not believe that we shall get much further with the argument. The Government take that view. I merely set out the problems. I accept that the reversioner has to be able to reclaim his costs and reclaim them quite easily. But I warn the Government that it will be a serious barrier to enfranchisement, particularly of larger blocks of flats. In my view, it will work against the Government's policy.
Baroness Hamwee: Before the noble Lord sits down, I wonder whether the Minister can help us as to the position of the nominee purchaser. We have been talking as if we were dealing only between the reversioner and the enfranchising leaseholders. As I read the provision, the nominee purchaser has a position and may be a body corporate.
Lord Rodger of Earlsferry: That is correct, as one sees under Clause 29(1) in that situation,
"the nominee purchaser shall be liable".
It may indeed be a corporation of some sort. In that situation again a problem could arise; for example, of the corporate body not having any assets. It is precisely that sort of situation where it would be important for the reversioner to be able to go against other persons were that to be appropriate.
Lord Williams of Elvel: I was regarding the nominee purchaser as being transparent. Clearly the noble Baroness is right when she says that it could be a limited company. But if there were a joint and several guarantee, as is required under the clause, then the company itself would become transparent. As I said, I do not think that we can get much further on the matter, but I wanted to point out to the noble and learned Lord that that might militate against enfranchisement. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Earl of Lytton The Earl of Lytton moved Amendment No. 119A:
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Page 38, line 29, at end insert:

("(8) At any time after receipt of the initial notice the reversioner may, by notice in writing given to the nominee purchaser, require the nominee purchaser to deposit with the reversioner, or a person nominated by him in the notice as his agent or as stakeholder, a sum equal to £100 multiplied by the number of participating tenants by whom the initial notice is given, on account of the price payable for the freehold of the specified premises and any other sums payable by the nominee purchaser in accordance with the provisions of this Act; and the nominee purchaser shall, within 14 days of the giving of the notice, pay the sum demanded to the reversioner or person nominated by him.

(9) The Secretary of State may by order amend subsection (8) above by substituting for the amount of £100 or for such other amount for the time being specified there such other amount as is specified in the order.

(10) The deposit payable under subsection (8) above shall be returned to the nominee purchaser if the initial notice ceases to have effect by virtue of section 20(4) or 27(4).").

The noble Earl said: This is a probing amendment. I hope that it may provide some further insight into the matter that we have just discussed. It is intended to provide a situation similar to that under the Leasehold Reform Act, whereby the enfranchising tenant can be required by the landlord to pay a deposit on account of expenses. The point behind that must be clearly understood; namely, it is an attempt to make sure that the freeholder is not left out of pocket in a manner which would make it difficult for him to recover his expenses.
One would hope that freeholders will not attempt to work the levers in order to add to the expense of enfranchising tenants. It is probably safe to say that those landlords who have always conducted themselves with a degree of probity will play the game by the rules of propriety and those who are not so inclined will not. The Bill may be intended to catch those in the latter rather than in the former category.
I realise that the amendment is defective in that it does not specify that repayment of the sums would be made "less deductions" on account of the freeholder's expenses. That is one reason why it can only be a probing amendment. It seems to me wrong that the landlord (the freeholder) should be exposed to a difficulty of recovering costs under this Bill which is not on all fours with the Leasehold Reform Act 1967. I believe that that requires some further explanation from me.
The costs which a landlord can recover from the enfranchising tenant under the 1967 Act are set out in Section 9(4) of that Act. The equivalent can be found in Clause 29(1) of this Bill. The difference is that under Section 22(2) of the 1967 Act and the regulations made under it, a deposit of three times the annual ground rent, or £25, whichever is the greater, can be demanded by the landlord. Although on some ground rents, I admit, that might produce an exceptionally high figure, in many cases it would not, having regard to the likely cost of legal expenses alone.
Under the Bill, if participating tenants withdraw after putting the landlord to expense, that freehold landlord can recover the expense only by way of an ordinary action in the county court. He would certainly not be able to recover the amount due under

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a service charge—because it would be an improper item in service charges—or by threatening forfeiture. That problem needs to be addressed.
It is certainly not my intention that the measure in my amendment should be any sort of up-front penalty to prevent enfranchisement proceeding. The Committee will note from the wording of the amendment that there is provision for the Secretary of State to make alteration to the figure in question. But that can only apply nationally under the terms of the Bill. I agree that it would not sift out hard cases. It seems to me right that where compulsion is used against a freeholder, he should at least be given some sort of security—perhaps by the tenants placing a sum on deposit with a solicitor—to cover those costs. That would to some extent meet the point made by the noble Lord, Lord Williams of Elvel, about the ability of people to pay and the question of joint and several liability. At least there would then be a fund which would enable some of the disbursements—though almost certainly riot all—to be defrayed. I beg to move.
Lord Rodger of Earlsferry: Like the previous amendment, Amendment No. 119A raises an interesting issue. As I understand it, the amendment would allow the reversioner to require a deposit from the nominee purchaser towards the purchase price of the freehold and other costs. It is to be paid within 14 days but is to be returned if the initial notice ceases to have effect, either because the landlord has obtained a court order preventing the tenants from enfranchising on redevelopment or because an acquiring party has served a notice to treat.
As the noble Earl said, to some extent the requirement has a precedent in the 1967 legislation, although the provisions there are slightly different. Under the 1967 Act this is the only deposit which was required to be paid, whereas under this legislation there would be a requirement to pay a deposit on exchange of contracts. There is therefore that difference.
I am sympathetic to the principle of a preliminary deposit —not so much as a deterrent to those about to embark upon the process of enfranchisement, but rather for the reasons explained by the noble Earl. However, the form of the amendment is not one that we can accept. I therefore ask the noble Earl to withdraw it on our undertaking that we shall give further consideration to the question of deposits, in particular how the matter can best be taken forward in the context of the Bill. On that basis, I ask the noble Earl to withdraw the amendment.
The Earl of Lytton: It would be entirely churlish of me not to withdraw the amendment on the basis that the noble and learned Lord will give the matter further consideration. I welcome some input into the matter. I am grateful to him for taking on board the basic principle I was trying to put forward. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 29 agreed to.
6.30 p.m.
Clause 30 [Conveyance to nominee purchaser]:
The Earl of Lytton The Earl of Lytton moved Amendment No. 120:
Page 38, line 38, at end insert:
("() Before any conveyance to a nominee purchaser can be executed proof must be supplied that a majority of qualifying tenants continue to support the exercise of their right to collective enfranchisement.").
The noble Earl said: Amendment No. 120 is intended to ensure that as the enfranchisement process proceeds, at a subsequent point—not simply at the initial point when the notice is served on the freeholder —there remains a majority of qualifying tenants to continue to support the exercise of the right to collective enfranchisement.
At Second Reading and earlier in Committee I said that my anxiety has always been that a majority of tenants would trigger the enfranchisement process, but that there was no guarantee that as time proceeded all those tenants would remain in the game. The number could be whittled away by all manner of things—the prospect of the expense, the time lag and other factors.
It is possible—I shall be grateful if the Minister will comment on the point specifically—that at the end of the day when it comes to exchanging contracts, there may be only one tenant dealing with the matter for the other enfranchising tenants; nobody else would be supporting it. It does not seem right that one person can acquire by default in that manner.
The fault seems to be that in assessing the right to enfranchise, a snapshot approach is taken. With regard to the support from the tenants in the building, one is looking at the situation at a single moment in time. The Minister may say that if there is wastage over time, if negotiations are protracted and drawn out, people may fall by the wayside. It is certainly not my intention in moving the amendment to try to make that more rather than less likely.
But another matter arises. I refer to the possibility of the misappropriation of the freehold. I am anxious about that and it may be that the case with which I was personally involved is unique in the country. It is unlikely, but possible. The situation could arise where there were seven tenants in a block of 10 flats and they initially indicated that they wished to enfranchise. However, all but one had second thoughts and withdrew and only one was left to proceed. That tenant could decide to vest the matter in a mariner convenient to him and which suited his commercial purposes rather than the purposes of the other occupiers in the building.
It is the failure of the Bill to bond together the enfranchisement process and the continuation of the occupation of the building that causes me anxiety. That is the reason I tabled the amendment. I wished to ensure that there was a further test before the conveyance to the nominee purchaser could be executed. There must be further proof to show that it is supported by the majority. If nothing else, it would ensure that the majority were aware of what was happening. The legislation would contain an insistence that the matter be referred back to them should they later not support the application.
It is a rather complicated point. I hope that I have explained it satisfactorily. I beg to move.
Baroness Gardner of Parkes: I should like to ask a question on the amendment. I believe it ties in with what the Minister said he would take away and reconsider. What is the financial position if the situation reaches the stage where only one person is interested and considerable costs have been incurred? Provisions must be made to look at what happens to the money that various people have paid out.
Lord Rodger of Earlsferry: Taken as a whole, the amendment is inconsistent with what is the desired aim running as a theme through the Bill—that is, that the procedure for enfranchisement should run as quickly as possible once it has been initiated by the Section 11 notice of claim. Once the reversioner has been satisfied that the qualifying criteria were met, or once that has been dealt with by the tribunal, from that moment onwards the participating tenants do not need to prove that they have sufficient numbers.
The effect of the amendment would be to increase the scope for delay and for uncertainty. It could lead to an increase in costs especially if one were to have a situation where the landlord disputed, for example, that the numbers necessary were available, or whether the information supplied was correct. There may be room for confusion. That could only lead to further delay. In that situation, the amendment would not help the position of the tenants. It would lead to confusion.
The noble Earl asks whether it is possible that the stage could be reached where there was only one participating tenant. Under the strict theory of the Bill, that is correct. But I would imagine that given that the cost to an individual tenant is likely to increase as the numbers participating decline—at the end of the day they have to buy out the whole asset —one would not expect an individual to wish to continue if he or she could not afford it. So there is in some sense an economic check, but taking the whole situation we believe that this kind of amendment would cause more trouble than it would bring benefit. The procedure which we have adopted is that of checking at one stage only. In that situation I would ask that the amendment be withdrawn.
A noble Lord: Can my noble friend explain whether, having initiated serving the notice under Section 11 by the nominee tenant, there is a time limit? Is the freeholder then left in limbo? Supposing it is necessary for the freeholder to sell his interest at that point, how is he going to ensure that his own interests are not damaged by an unnecessary delay? But there may be a time limit in the Bill which I have not seen.
Lord Rodger of Earlsferry: There are many time limits scattered throughout the Bill, and there is machinery at various stages for ensuring that the next stage is taken. To that extent, there is machinery to advance the process.
The Earl of Lytton: I am grateful to the noble and learned Lord for his response. This is a probing
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amendment, and clearly I understand his point that it is defective and it would not be helpful in terms of the long-term benefits that are intended under the Bill for this sort of provision to be included. But I think the Minister must understand that I have reservations about how the Bill is going to work in practice. I also have reservations about the lack of tying in between the occupation of the building and its ultimate ownership.
I was not particularly heartened by the comment the Minister made when the Committee last sat. I understood him to refer to a form of serial enfranchisement where this would continue and if you did not like the situation you would do it again. That would be difficult and complicated. I hope that I misunderstood him on that occasion. I should not like to think that we would allow a Bill through the House which produced effects of that sort. But, subject to the reservation that I may come back to this at a future date, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Whether Clause 30 shall stand part of the Bill?
Lord Williams of Elvel: Before we leave Clause 30, I wonder whether I may ask the noble and learned Lord one or two questions about the rather shadowy figure of the nominee purchaser. I am sorry that I have not given notice of this matter. Perhaps I should have raised it earlier in the Bill under Clause 13, but I am a little concerned.
There is a lot in the Bill about the nominee purchaser. We are not quite sure what he or she is, whether he or she is to be a person, a corporation, a resident corporation or a foreign corporation, or what legal liabilities the nominee purchaser has. What are the possibilities of the nominee purchaser defaulting? What happens if the nominee purchaser runs off to Brazil with the money? There are many questions about this shadowy character or corporation which are not answered in the Bill.
I wonder whether the noble and learned Lord could give thought to this and not necessarily answer me now but perhaps write to me, or at a later stage in the Bill give me the benefit of the Government's view about a whole range of questions about the liabilities of the nominee purchaser that seem to be unclear in the Bill as drafted at present.
Lord Rodger of Earlsferry: A fairly formidable agenda has been given. The general principle that lies behind the Bill is not to specify what the characteristics of the nominee purchaser should be: this is to allow the tenants to choose the form of nominee purchaser which may best suit their particular circumstances. It may suit them best to have a company; or it may be better to have an individual or more than one individual. The way in which the liability would be shared out among those would largely depend on the particular circumstances chosen by the participating tenants.
That having been said, there are other points which the noble Lord raised which perhaps I may come back to either in writing to the noble Lord or at a later stage.
6.45 p.m.
Lord Williams of Elvel: I am most grateful to the noble and learned Lord. I am sure that he understands the problems that vex me at present. The nominee purchaser is going to have to sign a contract, which requires all sorts of conditions including solvency and the ability to meet the terms of the contract, and he must not be negligent. There are all sorts of considerations which the noble and learned Lord understands much better than I do. I should be most grateful if he could write to me on these matters at a later stage.
Clause 30 agreed to.
Schedule 6 [Conveyance to nominee purchaser on enfranchisement]:
Schedule 6 agreed to.
Clause 31 [Discharge of existing mortgages on transfer to nominee purchaser]:
Clause 31 agreed to.
Schedule 7 [Discharge of mortgages etc.: supplementary provisions]:
Schedule 7 agreed to.
Clause 32 [Nominee purchaser required to grant leases back to former freeholder in certain circumstances]:
Clause 32 agreed to.
Schedule 8 [Grant of leases back to former freeholder]:
[Amendment No. 124 not moved.]
The Earl of Lytton The Earl of Lytton moved Amendment No. 124A:
Page 192, line 5, leave out from ("is") to end of line 6 and insert ("immediately before the appropriate time a flat let to—

(a) a person who is not a qualifying tenant; or

(b) a qualifying tenant who is not a participating tenant.").

The noble Earl said: This amendment seeks to extend the freeholder's right to lease back flats which are occupied by qualified tenants who do not wish to participate. I would explain straight away that this is a probing amendment.
Currently the Bill provides that a landlord whose property is enfranchised has a right to lease back certain units in a block which are ineligible for enfranchisement, that is, those let for commercial or short-term residential uses. This amendment would serve to widen the leaseback provisions to include flats which are eligible for enfranchisement but where the tenant does not choose to enfranchise.
This amendment would prevent qualifying tenants who do not wish to participate and who exclude their flats from a marriage value calculation when the purchase price is determined, thus depressing the sum paid to the freeholder, subsequently obtaining a new lease from the new freeholders, the enfranchising tenants, at some sort of discount.
This has been partly covered by the Government's acceptance of the disclosure of side agreements, but I am advised that this would not be entirely effective in practical terms, particularly where new leases are granted some time after the original freeholder ceased to have an interest in the property. So I feel that this
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is an important safeguard, and I would welcome the comments of the Minister on the amendment. I beg to move.
Lord Williams of Elvel: I am glad that the noble Earl said that this was a probing amendment, because it is one which, had it not been a probing amendment, we would not have wished the Government to accept. It appears to be intended to enable the freeholder to retain a leasehold interest in relation to any flats occupied by qualifying tenants who are not participating tenants. We oppose it on those grounds alone.
However, it also seems to us to have the effect of leaving the position of flats which are not occupied by tenants at all—that is, flats occupied by licensees or vacant flats —completely indeterminate. For that reason as well, we would wish to oppose the amendment.
Lord Strathclyde: The noble Lord, Lord Williams of Elvel, is quite right in what he says. However, given that this is a probing amendment, perhaps I may explain what it is that we are doing here.
The voluntary leaseback provisions encompass those units or flats which are not let to qualifying tenants, including rented flats and commercial units such as shops and offices. These are likely to be a significant source of income to the landlord and it is right that he should have the right to take a leaseback of them if he wishes to do so. Thus the voluntary leaseback provisions are primarily for the benefit of those landlords who derive income from certain non-qualifying units and flats and wish to continue to do so. We have, however, deliberately excluded flats let to qualifying but non-participating tenants from the voluntary leaseback provisions.
In Clause 2 we have stipulated that the participating tenants must acquire every leasehold interest which is superior to that of a qualifying tenant. Our intention is that there should be no immediate leasehold interest between residential long leasehold flats held by qualifying tenants and the freehold owned by the long lease purchaser of the participating tenants. To allow intermediate leases to remain or to create new ones via the leaseback provisions would make any future negotiations between a new freeholder and a qualifying tenant wishing to obtain a share of a freehold somewhat pointless. The leaseback landlord would still be able to exert management control and refuse to extend the lease. That is not what we wish to see. A qualifying tenant may have bought or inherited the lease of a flat where the previous tenant had decided not to participate in enfranchisement. The new freeholder, the nominee purchaser, may be quite willing to have a qualifying tenant on board, but the intermediate leaseback would mean that a share of the freehold would be of little worth to the qualifying tenant and he would not be able to claim the right to a renewed lease under Chapter II of the Bill.
I hope that that explains our position to the noble Earl. The amendment, even though it is probing, quite

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clearly runs counter to the policy aims in this part of the Bill. Therefore, I hope that my explanation gives the noble Earl some succour.
The Earl of Lytton: I cannot admit to it having given me any particular succour but the reply comes as absolutely no surprise. It has given me some further insight into the way in which the noble Lord views this matter. I certainly to not intend to pursue the amendment at this juncture. On that basis, I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Lord Coleraine Lord Coleraine moved Amendment No. 125:
Page 192, line 10, at end insert:
("(4) This paragraph does not apply to a flat or other unit unless the freeholder shall have specified that flat or unit in reply to a leaseback notice served on him in accordance with section (leaseback notices) above.").
The noble Lord said: I spoke to this amendment in an earlier grouping. My reason for moving it formally today is to give my noble friend the chance to amplify or expand on the reply which he gave me at that time. The idea behind the grouping was to bring forward the date on which reversioners had to specify the properties that they would require leasebacks on. This was to enable flat owners to avoid the need to make expensive financial provisions to purchase the reversions to Rent Act properties which the reversion is going to want to keep in any case. In replying to the amendment on 15th March my noble friend said:
"The current provisions are that, once an initial notice is given to the landlord, he will be required to indicate which units he wishes to lease back".
Before withdrawing my amendment I asked:
"Did I understand my noble friend correctly? Was I wrong in thinking that leaseback provisions could be brought into effect by the reversioner at or shortly before the time of completion? Does he say that those provisions can be flushed out of the reversioner with the counter notice? I note that my noble friend nods his head; he is saying that".—[Official Report, 15/3/93; col. 1279.]
What can be obtained with the counter notice is a statement by the reversioner of the units which he wishes to lease back. In order to reach the stage at which he is finally committed to lease back the properties, one has to look to Part III of Schedule 8. Paragraph 5 states that,
"this paragraph applies to any unit contained in the specified premises which is not immediately before the appropriate time a flat let to a person who is a qualifying tenant of it".
The relevant words in that short extract are "the appropriate time". The paragraph then goes on:
"the nominee purchaser shall, if the freeholder by notice requires him to do so, grant to the freeholder a lease of the unit".
The words "the appropriate time" are defined in paragraph 1 of the schedule as the time when the freehold of the specified premises is acquired by the nominee purchaser. I take that to mean the date of completion or, at the earliest, the date of a contract. Certainly, that would be after a valuation has taken place. The effect of the provisions is that the freeholder can stipulate that the nominee purchaser shall grant leasebacks at the very last stages of the proceedings, long after the valuation has taken place, and not at the earlier time of the serving of the counter notice to
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which my noble friend referred. This should be looked at further and I wait to hear what my noble friend has to say. I beg to move.
Lord Strathclyde: As my noble friend explained, this amendment was previously grouped with Amendment No. 51. The amendment was withdrawn and without it this amendment no longer makes sense. However, I have some sympathy with the concerns of my noble friend. Clause 18 provides that the reversioner should specify in his counter notice any flats or units which he wishes to lease back. I acknowledge that it is possible that between the counter notice stage and the execution of the conveyance, flats which were let to qualifying tenants may cease to be so let, perhaps because the qualifying tenant was precluded from participating due to forfeiture proceedings which were later completed. In such cases the landlord may decide that he wishes to lease back those flats and give notice to the tenants to that effect before the conveyance to the nominee purchaser is executed. We think that it would be wrong if this were to be disallowed, for the former freeholder would be unable to lease back a vacant flat. I acknowledge, however, that the last-minute leaseback request could cause inconvenience for the tenants.
There is, however, another possibility which gives us more concern. A flat which is rack-rented at the time of the counter notice could be subsequently let on a long lease to a qualifying tenant. In Clause 2 we have provided that all intermediate interests which are superior to that of a qualifying tenant shall be acquired in addition to the freehold. We do not wish there to be leasehold interests superior to that of a qualifying, but not necessarily participating, tenant. If that were to be the case, it would prove an obstacle to any subsequent election to participate by the tenant under Clause 12(3) or, indeed, to any future negotiations between the qualifying tenant and the new freeholder, the nominee purchaser. So to permit a leaseback of such a flat would run counter to our aims. We wish to consider this last point further, but I hope that my noble friend will withdraw the amendment.
Lord Coleraine: I am very glad to have my noble friend's sympathy. I shall await with interest the result of his deliberations. I am not at all sure that he is fully apprised of the difficulties that could affect intending enfranchisees if the reversioner wants to take back a leaseback on all the properties which previously he has indicated that he did not. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 126:
Page 192, line 29, leave out from ("provisions") to end of line 32 and insert ("is agreed to by the nominee purchaser and the freeholder with the approval of a leasehold valuation tribunal.").
The noble Lord said: The purpose of this amendment is to ensure that the procedure for approving the terms of a lease under Part III of Schedule 8 is the same as the procedure under Part II.
It appears to be somewhat different. Where a flat in a block is occupied by a secure tenant or, if the landlord is a housing association, an assured tenant, Clause 32 and Schedule 8 require that on enfranchisement the former freeholder gets a 999-year lease on the flat and the tenant continues to enjoy nearly the same rights as before. Where the flat is not occupied by a qualifying tenant—that is, it is empty or is occupied by a licensee —the former freeholder may insist on a 999-year lease on the same terms as in the previous case but the lease must conform with Part IV of the schedule unless with mandatory leaseback landlord and nominee purchaser agree with the approval of the leasehold valuation tribunal. In the second case either the landlord or the nominee purchaser may apply to the leasehold valuation tribunal which may approve of a departure from Part IV.
The two cases are rather different. The reason is unclear. The object of the amendment is to make sure that local authorities are not put into the difficult position of having to assent to what is effectively the arbitration of the leasehold valuation tribunal, whereas in the case of a qualifying tenant arbitration does not come into it; it simply authorises it. Those representing local authorities feel quite strongly about it. They should like the wording in the schedule to be similar, both where it is the qualifying tenant and where it is not. I beg to move.
The Deputy Chairman of Committees (Lord Hayter): I have to point out that if this amendment is agreed to I cannot call the next one because of pre-emption.
Lord Strathclyde: hope I have understood what is being proposed by the noble Lord, Lord Williams of Elvel. At the outset I was surprised that the noble Lord had tabled the amendment. What it appears to do is increase the scope for delay by requiring the approval of a leasehold valuation tribunal for something that can be settled by mutual agreement. The current arrangements for departures from prescribed terms on voluntary leaseback seem to me to be entirely appropriate in this instance. They allow for negotiation and co-operation between the parties rather than seek an imposed settlement.
If the noble Lord is worried that a departure made only by the mutual agreement of the parties may have an onerous effect on the interests of the sub-tenants, I can assure him that that is not the case. The terms of a voluntary leaseback will alter the terms of their existing leases and that particular problem does not arise. Having said that, I hope the noble Lord, Lord Williams of Elvel, will feel I have fully explained that aspect.
Furthermore, it seems odd that the noble Lord, Lord Williams, voices a concern about mandatory leaseback in Part II on this amendment which deals with voluntary leaseback in Part IV. Under this particular part, the aim is to protect secure tenants. I hope that with that explanation the noble Lord will feel able to withdraw his amendment.
Lord Williams of Elvel: I realise that this is a complex amendment and it is difficult to understand.
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I am not sure that the Minister has quite understood what we are driving at. I think the best thing for me to do is to leave it there. Between now and Report stage we shall have made our point quite clear so that the Government can understand what we are asking for. I agree that it is a technical question; but it is something about which local authorities feel quite strongly. In the circumstances, I believe it is right for me to withdraw the amendment.
Amendment, by leave, withdrawn.
Viscount Goschen: I beg to move that the House do now resume. In moving this Motion, perhaps I may suggest that the Committee stage begin again at ten minutes before eight o'clock.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Official Secrets Act 1989 (Prescription) (Amendment) Order 1993
7.5 p.m.
Baroness Denton of Wakefield Baroness Denton of Wakefield rose to move, Thai the draft order laid before the House on 17th February be approved [21st Report from the Joint Committee].
The noble Baroness said: My Lords, the draft order has been considered by the Joint Committee on Statutory Instruments and the Second Standing Committee on Statutory Instruments. The order is made by my right honourable friend the Secretary of State for the Home Department under the Official Secrets Act 1989. Under that Act, persons who are not Crown servants can be treated as such by virtue of a prescription order. The draft order prescribes the staff and board members of Urenco (Capenhurst) Limited. Essentially, this is a technical measure. For commercial reasons, British Nuclear Fuels plc will shortly be transferring some staff at its Capenhurst enrichment site from its employment to that of a new subsidiary, Urenco (Capenhurst) Limited. As BNFL staff, those people are currently prescribed by an earlier prescription order. This order is needed to ensure that they remain prescribed after the transfer.
I emphasise that this order will not increase the effective scope of prescription. When the order conies into effect not one single person will be prescribed who is not already prescribed. The staff and board of BNFL among others were prescribed by the Official Secrets Act 1989 (Prescription) Order 1990. During parliamentary consideration of that order the proposal to prescribe these people was never questioned. The work at Capenhurst remains classified for proper reasons of national security. I beg to move.
Moved, That the draft order laid before the House on 17th February be approved. [21st Report from the Joint Committee.]—(Baroness Denton of Wakefield).
Lord Graham of Edmonton: My Lords, we on this side of the House fully appreciate the sensitive nature of the broad issues that we are discussing. Therefore, there is nothing that I wish to say that in any way seeks

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to dislodge that joint understanding. However, perhaps the Minister can satisfy me that in all that has been clone there has been full consultation with the appropriate trade unions, and that the impact of the transfer does not diminish any of their rights. I have in mind TUPE 81, which is a prevalent feature in discussions these days about how the rights of employees are affected. I realise that this matter may not be analogous with the broad subject covered by that—that is, people who cease to be in Crown service and go into a privatised company. If the Minister can tell the House that the employees affected are satisfied that the rights they have hitherto enjoyed are not diminished, it will certainly assist me.
Baroness Denton of Wakefield: My Lords, I am pleased to reassure the noble Lord, Lord Graham of Edmonton, that the unions have been fully consulted by BNFL. I understand that they accepted the need for BNFL to take these steps in order to remain competitive in the enrichment business. The transfer has been discussed in TUPE terms with the unions.
On Question, Motion agreed to.
Viscount St. Davids: My Lords, I beg to move that the House do now adjourn during pleasure until 10 minutes before eight o'clock.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 7.9 to 7.50 p.m.]

Housing and Urban Development Bill
House again in Committee on Schedule 8.
Lord Coleraine Lord Coleraine moved Amendment No. 127:
Page 192, line 31, leave out ("authorised") and insert ("directed").
The noble Lord said: In moving this amendment perhaps I may also speak to Amendment No. 128 which is consequential on it. These amendments seek to improve the provisions of Schedule 8 to the Bill as regards the contents of leases to be granted to freeholders under the leaseback provisions of the Bill. Paragraph 7 of Schedule 8 to the Bill provides that a lease,
"shall conform with the provisions of Part IV".
When we look at that we see a number of provisions mentioned. In that connection perhaps we may look at the paragraph which is headed "Covenants by lessee" which provides:
"The lease shall include a covenant by the lessee to ensure that the interior of the demised premises is kept in good repair (including decorative repair)".
Any lease which is to be granted under a leaseback is going to need rather more provisions than by way of a lessee's covenant. For example, it is going to require covenants as to user, assignment and sub-letting. As regards paragraph 7 of the schedule, the lease has to conform with the provisions of Part IV:
"except to the extent that any departure from those provisions—
(b) is authorised by a leasehold valuation tribunal on an application made by either of those persons".
I cannot find in the Bill any way in which sensible provisions can be included in conveyances by the leasehold valuation tribunal except under the words
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which I have just quoted. It seems to me that the word "authorised" is not sufficient. I believe that the word should not be "authorised" but "directed" so that the leasehold valuation tribunal can direct the provisions to go into the conveyance. That is the effect of my amendments. I beg to move.
Lord Rodger of Earlsferry: The leasehold valuation tribunal will only in practice have to become involved in such matters where the parties cannot agree. If there is a dispute, against that background it seems appropriate that the leasehold valuation tribunal should direct that departure from the provisions of Part IV should be made rather than as presently drafted. Therefore, we propose to accept the amendment subject to the agreement of the Committee.
On Question, amendment agreed to.
Lord Coleraine Lord Coleraine moved Amendment No. 128:
Page 192, line 33, leave out ("authorise") and insert ("direct").
The noble Lord said: I beg to move this amendment.
Lord Rodger of Earlsferry: I also accept that amendment.
On Question, amendment agreed to.
Lord Coleraine Lord Coleraine moved Amendment No. 129:
Page 192, line 36, leave out sub-paragraph (3).
The noble Lord said: In moving this amendment, I speak also to Amendments Nos. 130 to 132. All these amendments relate to the same subject, which is the content of paragraph 7(3) of the schedule. The sub-paragraph states:
"In determining whether any such departure is reasonable in the circumstances, the tribunal shall have particular regard to the interests of any person who will be the tenant of the flat or other unit in question under a lease inferior to the lease to be granted to the freeholder".
The point with which I find difficulty in this sub-paragraph is the word "particular". Amendment No. 130 would have the effect of deleting that word. I have difficulty with it because there are so many matters to which the tribunal should have regard that it is invidious to direct it to have particular regard to the interests of any person who will be the tenant of the flat or any other unit,
"under a lease inferior to the lease to be granted to the freeholder",
unless it is required to look to other matters such as the interests of,
"the tenants of other flats and units in the building, and to the use and character of the building, and of the neighbourhood".
That is the subject of Amendment No. 132. If the tribunal is to look to the interests of the lessee, it should also look to the interests of the nominee purchaser and the freeholder.
This is basically a probing amendment. I hope that my noble friend will find it possible to respond positively to the thoughts which I am putting before the Committee this evening. I beg to move.
Deputy Chairman of Committees: I understand that if this amendment is agreed to, I cannot call Amendments Nos. 130 to 132.
Lord Williams of Elvel: We are not entirely happy with the amendments of the noble Lord, Lord Coleraine. They seem to undermine the force of paragraph 7(3) that a leasehold valuation tribunal should have primary regard to the interests of the tenant in any flat which is the subject of leaseback under Part III of the schedule.
It seems to us that the primary regard is the very important thing as regards paragraph 7(3). To remove the word "particular" from the schedule would weaken the force of the sub-paragraph itself.
Lord Coleraine: I believe that removing the word "particular" would not have any effect in weakening the importance that regard should be had for the interests of the lessee. It would enable regard to be had for other considerations which are in themselves extremely important and which otherwise might not be considered with sufficient care by a leasehold valuation tribunal which was directed to refer to a particular matter. There is always this difficulty with documents: the word "particular" always causes problems. I do not believe that the interests which are already protected by sub-paragraph (3) would be damaged by making some amendment along the lines which my amendments suggest.
Lord Williams of Elvel: I certainly take note of the noble Lord's meaning, but I disagree with it.
Lord Rodger of Earlsferry: As the Committee perceives, in the case where the former freeholder is taking a voluntary leaseback of a unit or flat which is not let to a qualifying tenant, there may be both tenants and sub-tenants whose rights immediately before the relevant time must be taken into account. For example, the tenants and sub-tenants of the former freeholder may have rights over the use of the common parts or other facilities, or their tenancy agreements may include references to duties and responsibilities for repair and maintenance. It is therefore important that where there is to be a departure from the provisions of Part IV the effect on the rights of those tenants is known and considered.
Sub-paragraph (3) is not drafted so as to exclude or in any way diminish consideration of the position of the other persons involved in the transaction. Their interests are taken care of by sub-paragraph (2); but, as the noble Lord, Lord Williams, has said, it seems appropriate in those circumstances that particular care should be given to examining the position of the sub-tenants. It is for that reason that that word is included. I do not believe that in practice it will cause any "particular"—if I may use that word—difficulty. As the noble Lord said, it has been used in other circumstances. If I had to arbitrate between my noble friend and the noble Lord, I would favour the position of 'the noble Lord, Lord Williams, on that matter. In that case, I ask my noble friend to consider withdrawing the amendment.
8 p.m.
Lord Coleraine: I shall consider carefully all that my noble and learned friend has said. In the circumstances, I beg leave to withdraw the amendment.
Amendment, my leave, withdrawn.
Lord Coleraine Lord Coleraine had given notice of his intention to move Amendment No. 130:
Page 192, line 37, leave out ("particular").
The noble Lord said: This is a probing amendment on a matter which has interested some people. I merely ask my noble friend to explain why leasebacks are to be for terms of 999 years as against 90 years, which relates to the terms of lease extensions, when in the normal way one would have expected—
Lord Williams of Elvel: I apologise for interrupting the noble Lord. The Deputy Chairman in fact called Amendment No. 130. I understand that the noble Lord might wish not to move that amendment.
[Amendment No. 130 not moved.]
[Amendments Nos. 131 and 132 not moved.]
[Amendment No. 133 had been withdrawn from the Marshalled List.]
Lord Coleraine Lord Coleraine moved Amendment No. 134:
Page 192, line 46, leave out ("999") and insert ("90").
The noble Lord said: This is a simple probing amendment. I wish to inquire of my noble friend why the term granted under leaseback is to be 999 years; rather than 90 years. I beg to move.
Viscount Goschen: By far the most important of the express terms of a leaseback are that the lease should be for 999 years and that it should he at a peppercorn rent. We think it is important that the former freeholder should have the right to acquire art interest which is as near as possible to the freehold interest which he formerly enjoyed. The provisions do not though prevent the grant of a shorter term if the parties are in agreement or if it is directed by a leasehold valuation tribunal that a departure from the express terms should be made.
The amendment would not preclude the creation of a longer leaseback—perhaps for a term of 999 years. As I have just mentioned, that can be done either by the mutual agreement of the parties or by the direction of a leasehold valuation tribunal. It does, however, remove the former freeholder's right to a 999-year lease, and unless he could reach an agreement with the nominee purchaser, he would have to apply to the leasehold valuation tribunal, thus causing delay to the process of enfranchisement.
The important point is that a 90-year lease is worth significantly less than a 999-year lease. The effect of reducing the length of the term to 90 years would be to increase the cost to the tenants of purchasing the freehold, including the parts to be leased back. In some cases it could put beyond them the cost of enfranchisement as landlords might refuse to take a leaseback on such terms.
I hope that I have reassured my noble friend that it is right that the express term should be 999 years. He will be aware that either party may request a shorter

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term if they wish, although in the case of mandatory leaseback both parties must agree to a shorter term. In those circumstances, I hope that my noble friend will withdraw the amendment.
Lord Williams of Elvel: Is not it also true to say that it would deprive secure tenants occupying any flat in a block which had collectively enfranchised from exercising the right to buy since the local authority's or housing association's interest would not be sufficient to permit the grant of the 125-year lease required under the right-to-buy provisions?
Viscount Goschen: That is basically right, yes.
Lord Coleraine: I am grateful to my noble friend for his reply. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 8, as amended, agreed to.
Clause 33 agreed to.
The Earl of Lytton The Earl of Lytton moved Amendment No. 135:
After Clause 33, insert the following new clause:
("Managing Trustees
.—(1) Where the right to collective enfranchisement is exercised in relation to any premises to which this chapter applies there shall also be acquired on behalf of the qualifying tenants the interest of any managing trustees.
(2) Compensation for the loss of their interest shall be paid to the managing trustees by the nominee purchaser.
(3) Any dispute about the compensation payable shall be referred to the Leasehold Valuation Tribunal for determination.").
The noble Earl said: I speak also to Amendment No. 136, because the amendments relate to similar, although not identical, factors. These are probing amendments. I wrote to the Minister in connection with my concerns, which I expressed on Second Reading, that the right of appeal to the Lands Tribunal was not on the face of the Bill. He kindly replied and explained that the provisions were to be found in housing legislation. I am a little doubtful as to the adequacy of that provision. Those who are interested in the operation of the Bill should be able to find the provisions in the Bill itself.
Lord Rodger of Earlsferry: I am reluctant to interrupt the noble Earl, but I thought that the Deputy Chairman mentioned Amendment No. 135. Unless I am mistaken, the noble Earl is speaking to Amendment No. 136A.
The Earl of Lytton: The noble and learned Lord is correct and I apologise to the Committee. Amendments Nos. 135 and 136 relate to managing trustees and managing companies which are responsible for the management but are not bodies which themselves have an interest in the freehold.
As matters stand, those bodies would not be enfranchised under the provisions of the Bill. That is an oversight, because one of the main causes of discord among occupiers of blocks of flats in particular is their inability to control the management of the building. There should be a provision whereby, on enfranchisement, the interests of managing trustees and managing companies are brought within the auspices of control by the tenants in that building. So
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the two amendments set out to cover situations whereby the bodies which are not possessed of enfranchisable rights—in other words, they do not have an interest in property—are, nonetheless, brought within the ambit of the Bill and therefore under the control of the enfranchising tenants. I beg to move.
Baroness Hamwee: While I take the point made by the noble Lord about dealing with the position of managing trustees, both amendments raise the question of compensation for their loss of interest. That is an interesting concept to introduce, because I should have thought that managing trustees, by definition, existed to manage and have responsibilities. The remuneration they receive is for carrying out those responsibilities. It is not as if they have an interest in the property which needs to be compensated. Perhaps I have misunderstood the amendment.
The Earl of Lytton: Perhaps I may explain, as I understand it—this is something that was brought to my attention by the working party of the Royal Institution of Chartered Surveyors, which has been following the Bill closely and has given it considerable scrutiny—many members of the working party were aware of situations where the management, as opposed to the freehold ownership, was a separately constituted body. Presumably that body must balance its books in some way and perhaps it has obligations towards its organisation or contractual matters. I am not sure how widespread the situation is but I know that the members of the working party were unanimous in their view that the issue should be addressed and was a proper item for rectification in the Bill. The words:
"compensation for the loss of their interest"
relate to a commercial interest and not an interest in property. It would be compensation for the disruption of that interest due to the cessation of that management company or management trust being involved in the management of that building. That is as I understand the matter. I beg to move.
Lord Strathclyde: The noble Earl's new clauses would require the nominee purchaser to acquire the interests of any managing trustees and managing companies whether or not they are party to the relevant leases. The Bill provides that only those intermediate interests which are superior to those of qualifying tenants must be acquired in addition to the freehold. Leasehold interests in common areas or appurtenant property may also be acquired.
The role of managing trustees or management companies is likely to be such that they will have a contractual arrangement with the freeholder. Since a contract for services is not an interest in land it will not be subject to acquisition by the nominee purchaser. Of course if the managing trustees are doing a good job the enfranchising tenants may wish to continue the relationship with them.
If they are not and the tenants do not wish to continue the association, there are two likely outcomes. One is that the freeholder and managing trustees will have ensured that the contract between

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them provides for the termination of the contract in the event that enfranchisement occurs. If, however, that is not the case the second outcome is that the contract will be frustrated, which means that it is discharged from further performance. Subject to any specific provision in the contract payments made "up front" are recoverable, but where there has been part performance of the contract the party supplying the goods or services is entitled to compensation for such as have been supplied to date.
In situations where the managing trustees or company are a party to the leases of the qualifying tenants they will have to agree to any variation of those lease terms if the tenants no longer wish to use their services.
One final situation springs to mind; it is that where the managing trustees or company has a head lease of the common parts, as is often the case. In such circumstances the participating tenants have the right to acquire that lease but they do not have to do so. Clearly, if the lease is not acquired the managing trustees or company will continue unaffected in their role. If the participating tenants do acquire the lease of the common parts the managing trustees or company will be compensated in the same way as any other relevant landlord.
We consider the amendments to be inappropriate and, in certain circumstances, unnecessary. However, I recognise that the noble Earl said they were probing. The Bill provides for the interests of managing trustees and companies to be acquired in certain cases. In other cases the contractual nature of their interest or the performance of their role, whether as party to the leases or otherwise, will determine the effect of enfranchisement. I do not think the tenants should be required to acquire such interests. I hope the noble Earl will withdraw the amendments.
The Earl of Lytton: I thank the Minister for his reply. He has a point in saying that the wording of the amendment would insist on the interests of managing trustees and managing companies being acquired. Clearly it is not right that there should be an added burden on franchising tenants. On the other hand, I remain anxious that written into leases in any particular development may be an obligation to pay contributions towards managing trustees and managing companies. I understand that although the freehold may be acquired the inferior leases will remain in place but with a different freeholder. That appears to create a hiatus where the management company remains without portfolio because it exists in isolation. I shall consider the matter further but in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 136 not moved.]
Schedule 9 agreed to.
Clause 34 agreed to.
8.15 p.m.
The Earl of Lytton The Earl of Lytton moved Amendment No. 136A:
After Clause 34, insert the following new clause:
("Right of appeal to Lands Tribunal
.—Where any matter under this Chapter fails to be determined by the Leasehold Valuation Tribunal there shall be a right of appeal to the Lands Tribunal.").
The noble Earl said: I tried to speak to Amendment No. 136A earlier but in an inappropriate place. I shall speak also to Amendment No. 148A. The Minister kindly wrote to me stating that it was unnecessary for there to be on the face of the Bill a right of appeal to the Lands Tribunal. In looking at the Bill I considered that the matter should be self-contained and it should not be necessary for someone interested in the procedures to look through Housing Acts. I shall endeavour to offer an olive branch to the Minister and say that, if he undertakes to point out in guidelines sent to tenants that there will be a right of appeal from the Leasehold Valuation Tribunal to the Lands Tribunal, I shall be entirely satisfied. I beg to move.
Lord Rodger of Earlsferry: The noble Earl recognised the fact that the position is covered by the provisions in Clause 81(10). There one finds reference to the Housing Act 1980, which provides the appeal machinery. We believe that those interested in the jurisdiction of the Leasehold Valuation Tribunal can find within the four corners of the Bill guidance as to the appeal provisions.
I note the point which the noble Earl made. I am not sure whether it is intended to issue guidance but if guidance is issued on an official basis I note the noble Earl's point that the matter may be appropriate for inclusion.
The Earl of Lytton: I thank the noble and learned Lord for that reply. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees: If Amendment No. 137 is agreed to, I cannot call Amendments Nos. 140 and 148.
Clause 35 [Right of qualifying tenant of flat to acquire new lease]:
Lord Strabolgi Lord Strabolgi moved Amendment No. 137:
Page 42, line 3, leave out from ("flat") to end of line 7.
The noble Lord said: This is an all-party amendment to remedy a serious omission in the Bill as it seeks to make lease extensions an option for all flat owners, regardless of their block's eligibility for enfranchisement. As drafted, the Bill gives flat owners whose properties are ineligible for enfranchisement under Chapter I of the Bill the right to extend their leases at market value for a further 90 years. Leaseholders in properties which are eligible who fail to enfranchise because they cannot convince sufficient numbers of their neighbours to support the hid will not have a statutory right to extend their leases. That mutual exclusivity must be removed if the legislation is to work in practice, otherwise a second market in second-class flats, unable to enfranchise but with diminishing leases, looks sure to develop.
As the Bill now stands, all flat owners in blocks eligible for enfranchisement but unable to raise the two-thirds majority necessary for the bid will be left without any benefit from the legislation. In addition to

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continuing to suffer from any management problems—and this was alluded to by the noble Earl, Lord Lytton, on a previous amendment —they are bound to see their flats suffer from a fall in value relative to similar blocks which have either enfranchised or, if not eligible to do so, have taken up the option to extend their leases. Their predicament may well be compounded by new tensions between those leaseholders who were willing and able to enfranchise and those who have frustrated the bid by deciding against participation.
The Government claim that, if flat owners had the choice, some who would otherwise have supported enfranchisement would opt for a renewed lease instead, possibly in sufficient numbers to block the necessary two-thirds majority needed for enfranchisement. However, the Consumers' Association conducted a recent survey of long leasehold flat owners. It showed that half the respondents were interested in buying their share of the freehold, whereas only one in 10 said that they would pay the same—I wonder whether the Minister on the Front Bench will listen to what I am saying because this is an important survey carried out by the Consumers' Association—for a lease extension.
Clearly, the option to purchase the freehold and so gain control of management and the power to grant extended leases is much more popular. Surely the reason for that is evident. As the Consumers' Association survey and postbag of complaints showed, the main problem of the long leasehold system is not so much selling properties which have dwindling leases as bad management. That is one of the reasons why the Government have put forward this Bill, which in many ways is extremely good.
The survey revealed a relatively high proportion of first time buyers and pensioners within the leasehold flat owner population. They are likely to have limited financial resources. In any block eligible for enfranchisement, the number of those opposing the bid will be inflated by those who simply cannot afford it. Thus, the block may fail to realise the necessary two-thirds majority and all the flat owners will be left without any benefit from the legislation.
Their problems will not be lessened by seeing comparable blocks which have enfranchised or which have been able to extend their leases experience a relative rise in value. Of course, there are many other long leaseholders occupying flats who are foreigners, here only for a short time, who may not be interested in buying the freehold but would be interested in extending their leases.
Many long leaseholders would therefore be left without any benefit at all from the legislation. That is different from what we were led to believe at the time of the election. I certainly gained the impression from the Government that, if long leaseholders could not enfranchise, they would be able to extend their leases. That appeared in many election manifestos.
Unless that defect is put right, a long leaseholder holding a lease with only 30 years or fewer to run will be in a difficult position. He cannot sell the lease as prospective buyers will be unable to obtain a
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mortgage. The Government claim that, when the original lease lapses, the leaseholder will have the right to a continuing statutory tenancy. Indeed, the noble Lord, Lord Strathclyde, said that on 15th March at col. 1243. However, that protection—this is not generally known and it is very important—will last only until 1999, which is not very far ahead, as the law was changed a couple of years ago.
At present, security of tenure is guaranteed by Part I of the Landlord and Tenant Act 1954 to certain residential tenants at the expiry of long tenancies. However, Part I is to be replaced after 15th January 1999 by Section 186 and Schedule 10 to the Local Government and Housing Act 1989. That means that long leases coming to an end between 1st April 1990 and 15th January 1999 will be changed from 16th January 1999 to assured tenancies under the 1989 Act.
I suggest that the difference is important as it means that tenants, as former long leaseholders, will lose the protection of the 1954 Act and fair rents. The only assurance in a so-called tenancy is that it gives the landlord the assurance that he may ask for any rent he may like to. Long leaseholders whose leases are diminishing will be in an extremely difficult position. They cannot extend the leases under the Bill. They cannot sell the remaining portion if it is too short for a mortgage. Against their wishes, they will become so-called assured tenants in a few years. They will be at the mercy of their landlords.
That is an unsatisfactory state of affairs. Unless something is done, the Government are laying up a great deal of difficulty for themselves by the end of the century. I beg to move.
Lord Coleraine: I support the amendment so cogently moved by the noble Lord, Lord Strabolgi. I support it briefly because my views on the matter are well known to the Committee. I believe that I may have been the first to bring this to Members' attention on Second Reading.
I consider that the mutual exclusivity between the right to collective enfranchisement and the right to a long leasehold is a serious flaw in the Bill, most particularly because it deprives the lessees who are satisfied with the existing management of their building of the right to the benefits of the Bill which they would wish to enjoy under their existing management.
Again and again during the early stages of the Bill I have endeavoured to point out places where the mutual exclusivity makes a nonsense of the provision being discussed. Again and again it seemed to me that we should do better to consider the Bill in the light of some entirely different provisions relating to leasehold extensions. I hope that, before we have finished our discussions this evening, my noble friend will make a statement which will enable us to feel that the pleas that we have made have been listened to.
The Earl of Lytton: I support the amendment moved so eloquently by the noble Lord, Lord Strabolgi, and supported by the noble Lord, Lord Coleraine. I agree with everything that they said.
It seems to me that two principles are at stake in this Bill: the first is that tenants should not be held to

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ransom by lease extensions; the second is the right to manage. Those can be achieved without insisting on tenants going through the fiery hoop of enfranchisement, particularly where it is clear that it will be a tortuous, expensive and long-winded process. I support this automatic alternative right to a lease extension. It still leaves me with the problem of how to deal with a tenant's right to manage, but I hope that we may deal with that later on in our discussions on the Bill.
I strongly support the amendment. It is entirely right and proper, for the reasons which the noble Lord, Lord Coleraine, mentioned, that there should not be a particular category of tenant who falls between entitlement to enfranchisement and entitlement to a lease extension. It seems to me quite wrong that that should be allowed to happen.
Baroness Hollis of Heigham: I shall speak also to Amendment No. 140, standing in my name and that of my noble friend Lord Williams. That is a fall-back position from Amendment No. 137.
The Bill encourages enfranchisement, reducing leasehold as a form of tenure, but there are limitations on eligibility. We believe that some of those are reasonably sensible; for example, the 21 year rule. We believe that some are unnecessary; for example, the low rent rule. We believe that some need qualification; for example, the resident landlord provision and the 10 per cent. threshold on commercial property. Because of those limitations, it is calculated that about only 40 per cent. or thereabouts of present long leaseholders will be eligible to enfranchise. Of that 40 per cent., the number able to muster the necessary two-thirds majority vote will of course be even fewer. Therefore, if the Government wish to pursue the aim of their Bill—that is, to reduce leasehold as a form of tenure—I hope that they will give full support to the amendments.
As the noble Earl, Lord Lytton, said, throughout the debates we have recognised the double problem—the problem of the bad landlord and of the diminishing lease. Enfranchisement clearly deals with both of them. But because a wide number of leaseholders are debarred from enfranchisement, the Government have offered statutory extension which will deal with one of those two problems—the diminishing value of the lease. Presumably leaseholders will have access either to the 1987 Act or possibly to some provisions in subsequent amendments which will be moved later that will allow the right to management.
The Bill seeks throughout—and, in our view, rightly—to privilege enfranchisement as a way to overcome the problems of leasehold with the problems of the diminishing asset and those of the bad landlord. For those who legally cannot enfranchise there is the right of extension. So far so good. Moreover, so far those clauses have passed with the support of this Chamber, and especially with the support of these Benches, without which, I remind noble Lords on the Government Front Bench, the Bill might well have been wrecked by now. I am sure that the Government accept that fact and that it is something they bear constantly in mind.
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But along with the low-rent test, one of our strongest objections is to this part of the Bill. If you can enfranchise you must; but you can extend only if you are legally disqualified from enfranchisement. If you can enfranchise you must; but if you can and do not do so, you are not able to extend. In another place the Government refused to let leaseholders choose which of those two tracks they wished to pursue. They feared that if people could extend they would and, as a result, they would not enfranchise. Therefore, they feared that people would be picked off, would not therefore be able to muster the two-thirds vote and enfranchisement would not follow.
We understand the Government's thinking on the matter, but we believe it to be wrong and profoundly damaging in its consequences. My noble friend Lord Strabolgi has already quoted consumer research findings which reveal that over half would prefer to enfranchise if they could but that only one in 10 would seek to extend. Why is that? It is partly because of the British pressure—obsession, if you like—for owner occupation. But extension helps only with the problem of a diminishing asset. But as only 3 per cent. of leases are for less than 60 years, and given the fact that most conversions to leasehold tenure occurred in the past decade, that appears not to be the most salient problem in people's minds. What people are most concerned about are bad landlords. That is why they prefer the route of enfranchisement to that of extension. Further, given that there is little cost difference, I believe that they are obviously correct.
There is little evidence to suggest that if people can enfranchise they would prefer instead to extend. If that is right then the whole basis of the Government's case is flawed. Instead, we will find blocks of flat where, although people can qualify for enfranchisement, and where many of them might wish to, they will not be able to reach the necessary two-thirds majority; but under the Bill they will not be able to extend because the Government fear that if they can, they will not enfranchise.
What sort of people are we talking about? Let us take, for example, a block of 12 flats. Bearing in mind the average stay of flat-holders of, say, six years, one or two of the people in the block may be in the process of buying or selling and simply not want the bother, the hassle or the financial commitment when they are already worried about the financial implications of buying and selling. Another couple of occupants may well be elderly and not want the hassle or the expense involved. Another one or two residents may have financial problems; for example, one of them may be unemployed or another couple may be in the process of seeing their marriage perhaps on the rocks and may not be able to see where the future lies for them. That means the six remaining qualifying tenants cannot enfranchise in the foreseeable future. But because they can enfranchise but do not acquire the necessary two-thirds majority, they cannot extend. As a result they are stranded with no way forward.
What are those people supposed to do? Short of winkling out the elderly, employing the unemployed or acting as marriage guidance counsellors to those who are facing a marriage breakdown, they are stuck.

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That is the difficulty with the twin-track theme which underlies the Bill. If you come to a dead end down one track, the Government give you no way to go back and then go down another track, which is what most of us do when we face dead ends. Amendment No. 137 gives a choice to individual leaseholders of which track to pursue from the very beginning.
The fall-back amendment tabled in my name and that of my noble friend Lord Williams (Amendment No. 140) would still privilege enfranchisement, which is what the Government seek to do. However, if it is clear from the demographic, social and financial profile of the block that enfranchisement is not realisable in the reasonable future, then those individual leaseholders should have the right of extension. Our amendment suggests that that may take place after two years, five years or any period which makes reasonable sense. After all, if such individuals do extend, it does nothing to inhibit enfranchisement at a later stage.
But, in all fairness, there is a real problem here and one which the Government are failing to address. They must find a way for those who cannot enfranchise (even though they are legally qualified to do so) to protect their financial and property interests. I hope the Government will indicate in their response that they are moving in that direction.
8.30 p.m.
Lord Boardman: I find it somewhat surprising that on all sides of the Committee there seems to be a complete forgetfulness of the fact that parties to a leasehold contract have entered into a contract and that, whatever the contract may have been, it is one which they entered into. When they did so they paid their money, took advice and decided what term they were buying—for example, how long it would last—and what they had to set up in the way of amortisation, and so on. Yet we have heard from the noble Lord, Lord Strabolgi, and others that we should forget the very commitment that they took on and entirely forget the fact that they agreed to take on a lease for 30 years, 50 years or 90 years for so much with provisions. It is said that we should have sympathy with them for having made the wrong decision and, as they have made that wrong decision, we should now agree to compensate them and allow them to make good by giving them the opportunity to extend their leasehold, buy it, or whatever it may be. Never mind the poor freeholder on the other side of the contract. We can forget him. He has just got to do what we tell him to do. I find that suggestion quite remarkable.
The noble Lord, Lord Strabolgi, referred to these people being left without any remedy. When such people entered into the contract, did they enter into it thinking they would have a remedy when it reached the last 30 years? Did they think that some kind government would come to their rescue and say they could have a new lease? Alternatively, did they say, as most sensible people did, "No, we are entering into this; we realise that we shall have to set something aside and that we must make provisions"? They were
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not left without any remedy; they were left in exactly the same situation as they were in when they first contracted.
The noble Lord also referred to bad management. I know that there are many complaints about it. I have tabled Amendment No. 168B which I hope will deal with that subject. I understand the complaints about bad management service agreements. But that has absolutely nothing to do with this clause. I believe my noble friend has tabled Amendment No. 138 which specifies flat owners to whom the clause should apply. I very much welcome it and I hope that I shall have the opportunity of supporting him on that matter. It is primarily a matter for the resident leaseholders.
I believe that one Member of the Committee referred to the Conservative electoral pledges. I believe that it was the noble Lord, Lord Strabolgi. Yes, I believe that the Conservative Government should fully, wholly and exclusively comply with the pledges that they made in the manifesto. As my noble friend knows, I may or may not agree with all of them. However, once they are made, I feel bound by them.
I believe that the noble Baroness, Lady Hollis, said that only 40 per cent. of the people we are discussing will be entitled to enfranchise. Did that 40 per cent., or the 60 per cent. who cannot enfranchise believe they would be bailed out by a kindly government when they entered into the agreement? I know we have a kindly Government but I hope they are not as kind as all that. I sincerely hope those people did not believe they would be bailed out when the time came. This amendment, to use the words of the noble Baroness, is flawed. I hope my noble friend will reject it.
Lord Williams of Elvel: Before the noble Lord sits down, I hope I may ask him a question. Does he recall that those who entered into a closed shop agreement signed a contract, and that contract was overridden by statute law introduced by government and passed by Parliament? In that case statute law was overridden in exactly the same way as contract law is being overridden in this case. Friendly employers were bailed out —I use that expression if that is the expression the noble Lord likes—by a friendly government. I do not believe the noble Lord has many legs to stand on.
Lord Boardman: I have avoided repeating my Second Reading speech as comments have been made about that. The only justification for any government bringing about the breach of a contract is if there is a greater public interest in so doing. I shall not enter into a debate with the noble Lord, Lord Williams, as to whether there was a greater public interest in the case he mentioned. But certainly there can be no public interest here in the context of this matter.
Lord Coleraine: We are not talking about a breach of contract here. To grant a lease extension is not to breach an existing contract; it is to create new rights on top of the contract when it comes to an end.
Lord Boardman: I am afraid I cannot agree with my noble friend on that. To say that when a contract that

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is made comes to an end the other party to it must be compelled to renew it on terms which are laid down in statute must constitute a breach of contract.
Lord Monson: I entirely agree with what the noble Lord, Lord Boardman, has just said. Of course it is an interference with the right of contract to tell someone they must renew a contract, whether they wish to or not, when the contract has originally been freely entered into. The noble Lord, Lord Strabolgi, based his argument on the assumption that in every case the leaseholder is an individual of relatively modest means who is short of cash and is therefore dependent upon a mortgage and is anxious to stay in the property for evermore. The noble Lord claims that for that and other reasons the leaseholder is anxious and indeed desperate to extend his lease at all costs. That may be so in many cases and perhaps even in most cases. However, there exist other leaseholders who knowingly and willingly buy a lease of short or medium length for two reasons: first, because it is cheaper to buy than a freehold and they have no need of a freehold and, secondly, it is cheaper than paying rack-rent on a similar property. If one buys the property with cash, one is not dependent upon a mortgage. Those people have no wish and no need to extend the contract. They entered into the arrangement quite voluntarily. I am talking now not only about people in those parts of London where mainly only leasehold properties are available but also about people in the country where leasehold properties are relatively rare.
As I pointed out on Second Reading, there are individuals—I know directly of one case and I have heard at second hand of many others—who inherit a large house, possibly in London but more probably in the country, and who cannot afford to maintain it, perhaps because the property is too large for present day living. Accordingly they convert it into a number of flats. They live in one of the flats and sell the others on a lease of medium length—let us say 50 years—in the hope that eventually the family fortunes may revive and in 50 years' time the property will revert to a grandson or granddaughter who will then be in a position to recreate the house into one undivided unit as it was originally.
If this amendment referred only to large, purpose-built blocks owned by individuals who are basically freeholders for purely financial reasons and who have no emotional affinity or historical sympathy for the property in question, there might be something to be said for it. However, the amendment does not confine itself to large purpose-built blocks. It extends to possibly relatively small houses that are converted into five or six flats. For that reason I think it is extremely unfair on the kind of freeholders about whom I have just been speaking. I could not support the amendment as it stands.
8.45 p.m.
Lord Carnock: I wish to support this amendment and to adopt the arguments which have been deployed before the Committee in support of the amendment. I wish to say a few words about the suggestion that
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sacred contracts are being set aside. In the field of real property, contracts very often create tenures. That is the case with long leaseholds.
In the history of our real property law there are many examples of tenures being either abolished or radically changed. I have only to refer to the copyhold tenure which affected vast quantities of land in England and the rights of the lords of the manor. That disappeared through Lord Birkenhead's legislation. I refer to the abolition of the military tenures in 1660 which brought our law from the medieval period into the modern period. I refer—this is a slightly different line of argument—to the abolition of tithes which took place over a period of 130 years from about 1836 to 1966. That caused great upheavals in private rights as it was not only the Church that owned tithes. Lay ministers were also involved. I remind the Committee of the changes that took place in Ireland with the land laws. Finally, I refer to the enclosure Acts which created great changes in our commons and the extinguishment of the rights of commoners. As I see it, there is nothing that departs from precedent in making a change in our leasehold system.
Baroness Hamwee: The Committee will be grateful for that historical perspective which, I suspect, is not one that is included in the Government's brief. That helps us put what we are doing into perspective and it is most helpful. In re-opening the question of sanctity of contract—I thought we had decided that matter at an earlier stage of the Bill—I, for one, fail to see the logic of applying different arguments to tenants who happen to live in a building where the process of enfranchisement goes forward, to those who fall within subsection (2) (b) of Clause 35 who are simply disqualified, not by virtue of anything that is personal to them or anything that they would have known about when they entered into the contract but because the right to collective enfranchisement is not exercisable with respect to the particular building or the particular part of the building because of the actions or non-actions of other people. The noble Baroness, Lady Hollis, has referred to that matter.
I understand the Government's reluctance to allow what perhaps 1 may call a pick-and-mix approach to enfranchisement and lease extension from the very start. I am conscious of the need to address the problem of the bad landlord. Not every landlord is a bad landlord but there are enough for us to be worried about their tenants. Therefore I think it is right to give priority to enfranchisement rather than to extension. For that reason I support Amendment No. 140 to which my name has been added. I do not think it is right to disfranchise certain leaseholders altogether from any remedy. However, I suspect the noble Lord, Lord Boardman, will tell me there is no wrong to be remedied.
The Government must fulfil what was generally understood to be a promise to deal with the question of bad landlords. They must look at this whole issue. They are doing so through the Bill. By and large the issue is being tackled in the right way through this Bill. It would be wrong to leave a group of people without

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any way forward as a consequence of the circumstances or the decisions not of themselves but of other people.
Baroness Gardner of Parkes: In spite of the statements made that more people would prefer to enfranchise than to extend their leases I am not convinced by that argument. I believe that a great many people would be very happy to deal directly with the freeholder and arrange a new lease. That is one of the reasons why the Government do not wish to give them both options. The Government fear that such people will not be sufficiently keen on enfranchising if they can be sure of a new lease.
Therefore, I should like to put forward a novel suggestion for the Government to consider: those people who would be entitled to a longer lease, having failed to achieve enfranchisement, should be able to extend their lease only if they had voted for enfranchisement. That would ensure that the Government's first choice of enfranchisement would be met. That suggestion would cover the people who wish to enfranchise but cannot obtain a majority. Those are the people for whom I feel most sympathy. They will have been prevented from enfranchising by others in the same block because of their inability to achieve the majority they require.
That is just a thought for the Government to consider. I do not believe that it conflicts with the Government's wish for enfranchisement to be the first choice. It would not apply to those who are ineligible, because they fall within a different category. If the block cannot be enfranchised there is an automatic entitlement to a long lease.
I am a little concerned by the next amendment which is to be moved by my noble friend on the Front Bench because that removes everyone but residents. Therefore, the noble Lord, Lord Strabolgi, may not have realised when he spoke on that point that, if the next amendment is passed, what he said about companies being able to obtain extensions would not be correct. There will be a strict residential qualification if that amendment is accepted. I appreciate that we are not speaking to that amendment but the two issues appear to be linked.
I have great sympathy with the people who wish to enfranchise and cannot do so. I ask the Government to give some thought to that suggestion.
Lord Selsdon: It seems that on these amendments there are on these Benches fewer rumblings from the shires. I ask myself why. I can see the purpose of the amendment. It is a perfectly fair one. It is well thought out and justified. However, I should like to consider the matter from the point of view of a good landlord.
If I am right a good landlord owning many properties, particularly listed buildings, actively seeks to encourage his tenants to extend their leasehold interest as the lease comes to an end. Here there is a difference between good landlords and bad landlords and between those who think of future redevelopment rights and capital gain and those who are genuine landlords looking for good tenants, preferably without intermediaries.
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If the amendment is passed it will undoubtedly help those who find, for one reason or another, that they are unable to enfranchise. However, we have not said anything about the large number of people who may not wish to enfranchise but wish only for a longer lease. They may be perfectly happy with their existing landlord, who manages the block well and provides gardens. Here I am thinking more of London and of the great estates.
Some people say that the purpose of the Bill is to differentiate between good and bad landlords. A good landlord is also from time to time a canny landlord. He may not whinge too much, although I have detected a large amount of whingeing in this Chamber in recent weeks. A good landlord has to find good tenants in order to maintain his livelihood. He looks for good tenants. The best tenant of all is the existing tenant who has behaved well and wishes to continue to live in the property.
The amendment is about freedom of choice as well as about extending rights. My noble friend on the Front Bench now has the habit, after a good dinner —which he may not have had tonight—of making concessions to all sides of the committee. I ask him when he replies not to say that he will consult with noble friends but, as a true Scot, to accept the amendment. In that case I shall support him on Amendment No. 138.
Lord Strathclyde: The noble Lords have moved their amendment on the grounds that it is unfair to tenants if they do not all have an individual right to buy a new lease on their flat. It is claimed that leaseholders in enfranchisable blocks will somehow become second-class citizens if they do not collectively buy the freehold.
It is quite true that the amendment would give individual leaseholders a choice, but the arguments miss the point. Part I of this Bill concerns a concept. We seek to reform residential leasehold tenure by delivering enfranchisement, and the purpose of the Bill is to guide owners of flats down that route. We aim to allow flat owners to take collective control of their property and manage it to suit themselves, not a remote commercial landlord. Enfranchisement is a worthwhile goal, and almost all noble Lords who have spoken in this debate today agree with us. Nothing else would change the landlord.
It is unfortunate that collective enfranchisement cannot be a universal right. Some exceptions have to be made, for reasons that we debated extensively when we considered various amendments which sought to extend or curtail the eligibility criteria. To help those leaseholders whose flats regrettably cannot be enfranchised, we decided to allow them to relieve the burden of declining lease value and saleability by constructing a mechanism to allow leases to be renewed for longer periods. Otherwise they would derive no benefit whatsoever from the Bill.
Those who are seeking to change the Bill here appear to be backing away from the principle of promoting collective enfranchisement. It seems that they want lease renewal for all as the central plank of

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this Bill, with enfranchisement as the default option. That is not sound policy. It is vital to these reforms that leaseholders actually control their property.
Amendment No. 140 is a variation on the theme. It offers an additional right to lease renewal where the building is eligible for collective enfranchisement where at least two years have elapsed since Chapter I was brought into force and no claim to enfranchise collectively has been made. I am sure that the effect would be the same: collective enfranchisement would be less likely. The waverers and doubters would merely procrastinate for two years, obstructing and thwarting those in the block who want to proceed but cannot, either because they are short of the last few crucial numbers to give the mandate to start the process, or perhaps because the cost to the remaining participating tenants would become too great.
The argument that individual tenants in an enfranchisable block will be disadvantaged if a buy-out does not take place is spurious. The remedy of enfranchisement is always open. It is not time-limited. If one attempt is not made, or fails, there is nothing to stop the interested tenants trying again. As Robert the Bruce's spider taught us, if you do not succeed at first, try, try and try again.
Baroness Hollis of Heigham: Wait for the Maastricht Bill and my noble friend Lord Bruce of Donington!
Lord Strathclyde: Indeed.
The flexibility of the procedures under Chapter I permits all kinds of different arrangements to be tried to get a successful collective enfranchisement under way. The noble Baroness, Lady Hamwee, understood that very well. She said that the principle of the Bill concerned enfranchisement. The amendments weaken that. They reduce the ability of tenants to end their leasehold tenancy and enfranchise.
It has come as something of a surprise to me to hear so many Members of the Committee who over the past few weeks have urged the Government to enfranchise come forward with amendments which would not enfranchise but would allow leaseholders to continue the tenure of leasehold.
I am faced with a confusing issue. Members of the Committee opposite and some of my Back-Benchers believe that we should go for leasehold extension. In a powerful speech, my noble friend Lord Boardman said that we should not accept the amendment. I suspect that on this occasion he is probably right.
9 p.m.
Baroness Hamwee: The Minister states that the Bill is about enfranchisement. Why do we have a section on lease extension? Why are the rights of enfranchisement not much wider? Why are they as constrained as they are in the first section of the Bill?
Lord Strathclyde: There is a clear answer to that. I am sorry if I have not explained previously to the Committee why we have introduced leasehold extension.
Throughout the Bill we have sought to encourage a collective enfranchisement. But we accept that some
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tenants for a variety of reasons may not qualify for enfranchisement. In order to help those who cannot be part of the enfranchisement, we have offered them the opportunity to extend their leases. They lose nothing by not being able to enfranchise. We wish to encourage those who cannot extend their leases to enfranchise.
Baroness Hamwee: They cannot enfranchise because of the rules set out in the Bill. I refer to the two-thirds rule, and so on. If one accepts that certain thresholds have to be overcome, if they cannot be overcome, then trying, trying and trying again is not likely to solve the problem. I shall not prolong the debate. I do not believe that the Minister has answered the question regarding choice. Some people are disqualified and they will never have the choice.
Lord Strathclyde: Perhaps I may deal with that point. The majority is of course two-thirds of two-thirds. In an earlier debate it was demonstrated that one could enfranchise a block with as little as 44 per cent. of the tenants. I accept that argument. However, if we continue to lower the thresholds then we create a democratic deficit which I believe would lose us support about the intentions of the Bill. I do not believe that the two-thirds of two-thirds is a wrong figure. I believe that it is a most appropriate figure. We wish to encourage people collectively to enfranchise. If they are not eligible to do so, it is right that they should have leasehold extension. Otherwise, we should leave the matter as it is.
Baroness Hollis of Heigham: In his reply the Minister has not honestly and fully addressed the queries raised from this side of the Chamber. Perhaps we did not put the arguments powerfully enough. We emphasised clearly that we supported the principle of seeking to privilege enfranchisement. We did not seek a pick-and-mix solution. We sought to privilege enfranchisement. We did not in any sense challenge the need for two-thirds majority because we accepted the statistics that the noble Lord cited. We are at one with the Minister in that if tenants cannot exercise a collective right to enfranchise, they should be offered an individual right to extend. Under the provisions of the Bill at present one cannot enfranchise because of such matters as the 10 per cent. rule, the low rent rule and so on.
We ask the Minister to state that there is another hurdle: that one cannot achieve the requisite majority. It is simply unfair that the rights of individuals to enfranchise should depend on the temporary lottery of others' willingness to exercise those same rights. What right is it when it depends on the lottery of others being willing to exercise that right? That is why we urge that if the collective right to enfranchise cannot be exercised, one should have recourse to an individual right to extend. Otherwise, people are left stranded.
Lord Boardman: Before my noble friend replies, perhaps I may intervene. Has the noble Baroness understood the issue? In order rightly to fix a base below which it would be totally uneconomic and impractical to enfranchise—the figure for practical

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purposes is fixed at 41 per cent.—at present the Bill provides that those who are unable to enfranchise because the figure has dropped below that 41 per cent. have the bonus issue (as I call it) of being able to extend their lease. That is an extremely generous and proper course to take. It means that where it is impossible to attain the minimum number needed to enfranchise, people should not be entirely excluded but will have the opportunity to extend the lease, which in many cases I believe is a much more valuable opportunity.
That is what the Bill provides. The amendment destroys the provision. For that reason, I oppose the amendment.
Lord Strathclyde: The noble Baroness, Lady Hollis, made some interesting observations. However, I should like to put one question to her. First, does she believe that if the amendment were passed fewer people would seek to enfranchise their blocks because it would be easier to extend their leases than to go through the process of enfranchising their blocks? Secondly, is that situation desirable if the whole purpose of the Bill is to enable greater enfranchisement?
We are discussing an important amendment. If the amendment were agreed, it could change substantially our initial intentions in the Bill. My noble friend Lady Gardner of Parkes made what she called a novel suggestion. It was novel. It may have some merit. We have three proposals before us. The noble Lord, Lord Strabolgi, proposed that leasehold extension should be automatic. The noble Baroness, Lady Hollis, proposed that leasehold extension should become automatic after two years. We now have the suggestion of my noble friend Lady Gardner of Parkes that leasehold extension should apply only to those who have tried to enfranchise—they have had a positive attitude towards it—but because they have failed the two-thirds test they would be unable to do so.
Having heard the debate, I wonder whether it is appropriate for us to seek to decide the best way to go forward by a Division, and whether perhaps I should agree to consider some of the proposals that have been put and decide which is the correct one.
Baroness Hollis of Heigham: The question was put directly to me by the Minister, and I shall not take up the Committee's time for very long. He asked whether I believed that if Amendments Nos. 137 and 140 were passed, it would reduce the number of people seeking enfranchisement. The answer to that is no, provided that we can trust the pledge of the noble and learned Lord the Lord Chancellor, as I am sure we can, to introduce commonhold. Enfranchisement is a necessary precondition for commonhold and commonhold is an attractive form of tenure widely held around the world. Given the right to commonhold, of course people will prefer to enfranchise where they can. However, where they can legally but in fact cannot, we should not deny them the individual right to extend.
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Subsequently, they can still go on to enfranchisement and to commonhold when the snapshot of their block has changed.
Lord Coleraine: The point the noble Baroness makes is a good one about commonhold. Surely, the position is that the Lord Chancellor's department has made it quite clear that collective enfranchisement is not viewed as a way to commonhold, so the point falls by the way. With commonhold, as I understand the Government's proposals, one has to have the unanimous consent of long leaseholders. One will never get that; collective enfranchisement will not go that way. We shall finish with a dead-end, with people in collective enfranchisement situations who may like to have commonhold but cannot get it.
Lord Selsdon: I appear to be marginally confused, but I am not sure why. I believe it has something to do with spiders. I once had to write a fable in the style of La Fontaine called L'Araignée et l'Encrier. Instead of that, I believe we have a case of "Incy Wincy Spider". I hope that the sun will come out and we shall understand. I am not sure whether, if we are asked to divide by my noble friend on the Front Benches, we have a free vote.
Lord Strabolgi: I am grateful to all noble Lords who have taken part in the debate. I do not wish to go into the question of the third group, but they are in a difficult position. I do not wish to elaborate on that because my noble friend Lady Hollis most ably described their plight.
I should like to comment on the remarks of the noble Lord, Lord Boardman, about the sanctity of contracts. Of course, contracts are sacred, that we can agree. However, there is a particular situation with flats in the large cities, especially in the centre of London. The leaseholders were not always willing buyers; they were forced to buy the leases by landlords, many of them bad, in the 1950s, when there was no security of tenure. One or two property speculators realised that they could make a large sum of money quickly by buying freeholds, by forcing the tenants who were living happily as renting tenants, to buy long leases. Then the landlords would recoup what they lost in rent by levying service charges. Those charges increased all the time and were used to refurbish other flats. They were used to build penthouses on top of the properties so that the speculators could borrow more money from the banks. Then they went bankrupt—one passed into the language, Mr. Rachman and his Alsatians—and has now entered the dictionary. Another became one of the largest bankrupts of all time and entered the Guinness Book of Records.
It has been a very unsatisfactory situation. When the speculators went bankrupt, the receivers took over and all they were interested in was obtaining the largest amount of money they could for the creditors. The flats were then sold off to foreign investors who had very little interest in them and who operated through managing agents, many of whom were unpleasant people.

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Thus I do not think that one could say that it is always a case of a willing buyer in that situation. Of course, there are good landlords; I live on the Grosvenor Estates and am a member of the residents' association. Grosvenor Estates are very good landlords indeed. However, it has not been so in the field of flats, where people have had a wretched time. They now see their leases coming to an end, they have 20 years less. What will they do? They cannot sell because they cannot raise the mortgage; they cannot leave the property. What will their heirs do? It is an unsatisfactory situation.
The noble Lord, Lord Strathclyde, told me that he would take the amendment away and think about it. I was not quite sure whether that was what he meant, but he nods his head so I am reassured. I hope that between now and the next stage of the Bill the Government will come back with something. They have done a great deal in the Bill; I support it; it is a valid attempt to come to grips with the whole system of leasehold tenancies in this country. I hope, therefore, that the Government will go a little further and that we shall have something at the next stage of the Bill. In the meantime, I thank all Members of the Committee who took part in the debate and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Strathclyde Lord Strathclyde moved Amendment No. 138:
Page 42, line 3, at end insert:
("(aa) the tenant has occupied the flat as his only or principal home—

(i) for the last three years, or

(ii) for periods amounting to three years in the last ten years,

whether or not he has used it also for other purposes; and").
The noble Lord said: We now come to an interesting amendment. I am pleased to move Amendment No. 138 on behalf of the Government and wish also to speak to Amendments Nos. 141 to 146. Amendment No. 138 modifies Chapter II—which deals with the right of qualifying tenants of flats in buildings which are not eligible for collective enfranchisement—to include a test of residence.
We debated at length last week the matter of a residence test in relation to collective enfranchisement. It was the decision of the Committee that there should not be one. Therefore I do not propose to take up valuable time by going over the arguments again. But we accept that the arguments which swayed the Committee against a test for collective enfranchisement are less compelling for individual lease renewal in unenfranchiseable blocks, and I have referred already, during Second Reading, to the statement of my right honourable friend the Secretary of State in another place about that. He said that the Government would amend the Bill to add such a residency test for the purposes of the grant of a new lease. That is the subject of these amendments.
Our amendment follows the principle of the 1967 Act test applied to individual tenants of houses. The qualifying tenant who claims a new lease must be able to show that the flat is or has been his only or main home. In the case of joint tenancies, at least one of the tenants must satisfy the test, while occupation by a
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company or other artificial person will not count Residence must include either the last three years or periods totalling at least three years within the last 10 years. This second option is designed to allow people who may, for example, have gone abroad to work for a few years to qualify. As long as the tenant uses or has used the flat as his home, it does not matter whether he also uses it for other purposes. Nor does it matter whether he uses only a part of it to live in.
The amendment disapplies those subsections of Clause 5 which act to prevent head lessees taking advantage of the new rights. These are intended to stop one commercial investor taking property from another. But those provisions are now relevant only for collective enfranchisement, because with a residence test we no longer need them for lease renewal.
I should just like to mention that I am considering whether I may need to move supplementary amendments at a later stage. These would, if they prove necessary, clarify the position where a tenant qualifies in respect of more than one flat in a block and require the tenant to give details of his residence in his notice claiming a new lease. I believe that this amendment and those grouped with it are sensible and will be perceived to be fair and simple to operate. I hope that they are welcomed by the whole Committee. I beg to move.
9.15 p.m.
Baroness Hollis of Heigham: On this side of the Committee we are rather unhappy about Amendment No. 138. I wonder whether I can push the Minister a little further on the matter of his comparative treatment of leaseholders who seek to enfranchise and those who seek to extend. So far as I know, I have no financial interest. I am a leaseholder under the Crown Estates.
As I understand the matter, the Government on the one hand insist, when we talk about enfranchisement, that non-resident leaseholders cannot only enfranchise but can take up to 50 per cent. of the marriage value. I refer to the beginning of today's debate. We supported the noble Lord on this side of the Chamber. For those who do not qualify for enfranchisement; perhaps simply because they fall foul of the 10 per cent. commercial property rule or because their landlord has set a ground rent £5 above the low rent formula, the flat has to be their principal residence for them to seek to extend. Therefore, by definition, everyone who needs a second home for business purposes—including perhaps many Members in this Chamber and of the other House—would be excluded from extending his lease, though not excluded from enfranchising it. I do not understand that. Such tenants or leaseholders may have no quarrel with their landlord's management, yet having bought a lease for entirely legitimate business purposes, they face a declining asset which they cannot protect as others do.
I believe it is somewhat less than even-handed to allow not just the right to enfranchise but also the profit from marriage value to possible foreign non-residents (under Amendment No. 111D) but not

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a right of extension to UK citizens whose work requires them to have a second home which they occupy for four days a week. Why should those for whom it is not their principal residence have the greater right of enfranchisement but not the lesser right of extension? Perhaps the noble Lord will explain it to me.
Lord Boardman: I welcome the amendment. It is very much in line with one which, as my noble friend knows, I have tried to apply in a rather wider field, but I shall not go over that ground. I must say that I am somewhat surprised that the noble Baroness, Lady Hollis, refers to the marriage value. Earlier this evening I moved an amendment to distinguish between resident and absentee tenants. So far as I am aware, the noble Baroness voted against my amendment. Therefore she seems to have made a rather sudden reversal.
Baroness Hollis of Heigham: I made it clear that we supported the Government on a previous amendment and therefore we are baffled as to why they would not extend the same right to those seeking to extend their leases. Perhaps my voice was not sufficiently audible to the noble Lord. I apologise.
Lord Boardman: I am very sorry if I misapplied what the noble Baroness has said or done. I support the amendment. I believe that the benefit which results from either enfranchisement or potential leasehold should be limited to those for whom the Government has a public interest; namely, those who are resident in the flats concerned—long leaseholders of flats. For that reason it is right that the amendment should be accepted and I strongly support it.
Baroness Gardner of Parkes: Perhaps I can ask my noble friend to repeat something he said earlier. I hope that he is listening or he will not know to what I am referring.
He said something in regard to people who occupied more than one flat. I know of blocks of flats where one flat is not big enough and people therefore occupy two or three. What is the situation then? The amendment merely says, "the flat".
Lord Peyton of Yeovil: I should like to take the opportunity—there have not been too many opportunities—of supporting the Government. The amendment is admirable and when it comes from a converted sinner it is all the more welcome. I can hardly find adequate words to praise my noble friend.
When I first looked through the amendment I did not look at the name at the top, and I concluded immediately that my noble friend Lord Boardman had been conducting himself with his usual sagacity when tabling the amendment. One can imagine my astonishment therefore when my eye went to the top and I found the name of my noble friend. It is extremely welcome.
Viscount Montgomery of Alamein: Perhaps my noble friend can clarify a point for me. I have been surprised by the approach of certain Members of the Committee. The amendment appears to be a
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restriction of what was contained in a previous amendment. Although my noble friend agreed, after a lengthy debate, to take away the previous amendment and consider it, he is now proposing something which merely seems to be a restricted form of what was proposed in a previous amendment.
Lord Selsdon: I should like to discuss foreigners because I am confused about residence and domicile. There have been instances within the EC where someone would say, "If I have only one residence in that country, that is my principal place of residence".
Perhaps my noble friend can help me with regard to the proposed report of the Law Commission or legislation which may come before your Lordships called Domicile—The New Regime. If my interpretation is correct, it may mean that a foreigner in this country who has a residence, even if it is not his principal place of residence, may be deemed to be domiciled in the United Kingdom, in which case it becomes his principal place of residence unless he can prove beyond reasonable doubt that he is domiciled elsewhere.
The situation may not arise this year, but I understand that it may arise next year. Matters of confusion occur as to when is a resident not a resident, particularly if he is a foreigner? The situation may arise when a foreigner may claim to be a resident. I believe that anyone who pays tax in this country should be entitled to residency, but not otherwise.
Viscount Dilhorne: Perhaps I can help my noble friend on the Front Bench, which is unusual for me in connection with this Bill. The Inland Revenue has tried. I cannot be exact, but around eight years ago it went to the extent of tabling a Bill about domicile and residence. It found that it would not work. I am interested to learn from my noble friend that the idea is not dead, but only moribund and that they are trying to resurrect the impossible. I urge the Minister to wait and see what comes out of the traps in the dog race before committing himself to anything that the Revenue may consider doing—that is, until it is in print.
Lord Harmar-Nicholls: I should like to know when my noble friend tabled the amendment. I too was surprised to discover that it was in his name on behalf of the Government, particularly in view of the reaction we received when an earlier amendment was moved and lost by my noble friend Lord Boardman. I hope that when we reach the Report stage of the Bill, the spirit behind Amendment No. 138 will be reflected in the further amendments that I have no doubt will be tabled by my noble friend.
Lord Coleraine: We all know that Amendment No. 138 is the result of a deal reached in another place between the Government and the big estates. That aside, I support the thoughts of the noble Baroness, Lady Hollis, for the reasons I gave when discussing the amendment moved earlier by my noble friend Lord Boardman. The amendment is unsatisfactory, particularly because it creates entirely anomalous

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rights as between non-resident lessees who have the right to lease extension and those who have the right to collective enfranchisement.
Baroness Hamwee: I should simply like to put on record my anxiety about the amendment, for the reasons given by the noble Lord, Lord Coleraine, including the introductory words which he used which explained the reason for it.
Lord Strathclyde: We were galloping so quickly through this that it came as much as a surprise to me as to noble Lords that we reached this amendment.
Noble Lords have accused the Government of being inconsistent in our approach on a residency test. I understand why some noble Lords should take that line; but there are two important points here. First, there is the precedent of the 1967 Act which had a residency test in it. Secondly, in all the debates that we have had on residency, the reason why the Government have not accepted a residency clause for the sake of enfranchisement has not been a matter of principle but of practicability—that if there is a collective right and tenants are excluded from taking that collective right because they are non-residents, the ability of collective enfranchisement to have any force at all and any chance of success is reduced. That is why we have included it for what is not a collective right but an individual right.
I hope that explains to my noble friend Lord Montgomery, who has supported the Government extremely well over the course of the past few days in Committee, why we have done this. I can say to my noble friend Lord Harmar-Nicholls that the amendment was present when the original Marshalled List was published some weeks ago, so it should have come as no surprise, and it did not come as a surprise to my noble friend Lord Peyton. The only surprise was that the Government were actually moving it.
My noble friend Lord Selsdon made a very good comparison with tax law and the potential problems of domicility. I can confirm that residence is a matter of fact ultimately to be decided by the courts. There are extremely good precedents in law as to what makes somebody resident. As I said in originally moving this amendment, residence must include either the last three years or periods totalling at least three years within the last 10 years.
I can confirm to my noble friend Lord Dilhorne that there is no necessary connection with tax law here or on domicility. Residence is purely a matter of fact. I hope I have not confused the Committee as to what our intentions are on the Bill and on these amendments, and that the Committee will now approve the amendments.
On Question, Amendment No. 138 agreed to.
[Amendment No. 139 had been withdrawn from the Marshalled List.]
[Amendment No. 140 not moved.]
[Amendment No. 140A not moved.]
Lord Strathclyde Lord Strathclyde moved Amendments Nos. 141 to 144
Page 42, line 8, leave out ("Subject to subsections (4) and (5) below,").
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Page 42, line 10, at end insert ("(with the omission of subsections (5) and (6))").
Page 42, line 17, leave out subsections (4) and (5).
Page 42, line 33, at end insert:

("(5A) For the purposes of subsection (2) (aa) above—

(a) any reference to the tenant's flat includes a reference to part of it; and

(b) it is immaterial whether at any particular time the tenant's occupation was in right of the lease by virtue of which he is a qualifying tenant or in right of some other lease or otherwise;

but any occupation by a company or other artificial person, or (where the tenant is a corporation sole) by the corporator, shall not be regarded as occupation for the purposes of that provision.

(5B) In the case of a lease held by joint tenants—

(a) the condition in subsection (2) (aa) need only be satisfied with respect to one of the joint tenants; and

(b) subsection (5A) shall apply accordingly (the reference to the lease by virtue of which the tenant is a qualifying tenant being read for this purpose as a reference to the lease by virtue of which the joint tenants are a qualifying tenant).").

On Question, amendments agreed to.
Clause 35, as amended, agreed to.
Clause 36 agreed to.
Schedule 10 agreed to.
Clause 37 agreed to.
Clause 38 [Notice by qualifying tenant of claim to exercise right]:
[Amendment No. 145 not moved.]
Clause 38 agreed to.
Schedule 11 agreed to.
Clauses 39 and 40 agreed to.
Clause 41 [Landlord's counter-notice]:
9.30 p.m.
Lord Strathclyde Lord Strathclyde moved Amendment No. 146:
Page 47, line 7, after ("35(2) (a)") insert (", (aa)").
On Question, amendment agreed to.
Clause 41, as amended, agreed to.
Clauses 42 to 45 agreed to.
Clause 46 [Applications where landlord cannot be found]:
[Amendments Nos. 147 and 148 not moved.]
Clause 46 agreed to.
Clause 47 agreed to.
[Amendment No. 148A not moved.]
Clauses 48 and 49 agreed to.
Clause 50 [Effect on tenant's notice of giving of initial notice under Chapter I]:
Lord Coleraine Lord Coleraine moved Amendment No. 148B:
Page 54, line 42, leave out paragraph (c).
The noble Lord said: This amendment is intended to clarify inconsistencies which appear to exist in the Bill in the area of mutual exclusivity between the right of collective enfranchisement and the right to extension of lease. I would make it quite clear to the Committee that this is in no sense a re-run of a discussion we had a few minutes ago.
The rule to which the Government have been sticking is that, while collective enfranchisement is possible, there should be no lease extension allowed. After a collective enfranchisement has taken place it will remain possible in theory, however unlikely in practice, for qualifying tenants who stayed out of enfranchisement to persuade some or all of those who

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enfranchise to carry out a further enfranchisement operation. For this reason the outsiders will have lost their right to lease extensions even though the enfranchisement has taken place. My point today is a very small one and it is a concern mentioned to me by the Law Society working party on the Bill. It is that circumstances within a block of flats may change over time and a block which after a collective enfranchisement remains technically enfranchisable may cease to be enfranchisable. In those circumstances the conditions in which lease extensions are available would again be present. Paragraph (c) of Clause 50(1) would nevertheless preclude lease extensions taking place. I do not believe that this was the intention of Parliamentary Counsel. There appears to be no good reason for the paragraph to remain in the Bill. The amendment would delete it. I beg to move.
Lord Rodger of Earlsferry: I am grateful to my noble friend for bringing this matter to the attention of the Committee. It does indeed appear that paragraph (c) is superfluous in this situation. However, I am advised that it would be necessary also to make a change in paragraph (b). In that situation, if my noble friend will withdraw his amendment on this occasion, I shall take the matter away and return with an appropriate amendment at the next stage.
Lord Coleraine: On the understanding that my noble and learned friend will do that, I see no reason why I should not withdraw the amendment. I beg leave to do so.
Amendment, by leave, withdrawn.
Clause 50 agreed to.
Clauses 51 and 52 agreed to.
Schedule 12 [Premium and other amounts payable by tenant on grant of new lease]:
[Amendments Nos. 148C and 148CA not moved.]
Schedule 12 agreed to.
Clause 53 [Terms on which new lease is to be granted]:
The Earl of Lindsay The Earl of Lindsay moved Amendment No. 148D:
Page 57, line 22, at end insert:
("() The lease shall provide for—

(a) the tenant to be liable for the remedy of any inherent defects; and

(b) for the landlord to be able to recover from the tenant any costs incurred in the remedy of any such inherent defects;

and in this section "inherent defects" shall mean any structural defect which has arisen because of the use of construction methods which are now considered to be inadequate but which could reasonably have been considered adequate by reference to the standard of construction methods prevailing at the time the work was executed.").
The noble Earl said: The purpose of this amendment is to transfer liability for remedying inherent defects in a building from the landlord to the leaseholders where leaseholders exercise their right in accordance with the Bill to extend their leases. Inherent defects should not be confused with latent or hidden defects. The correction of an inherent defect may appear to be a repair. In reality it is an
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improvement made necessary by construction techniques which are now outmoded but which were acceptable at the time the work in question was executed.
An example of an inherent defect would be a basement constructed without a damp-proof course—an established building method in the last century but one that quite clearly is no longer acceptable. Installing a damp-proof course in such a building would not involve replacing an existing defective damp-proof course, which would be a repair; it would be the installation of something that did not previously exist and thus would be an improvement.
I have used the example of basements requiring damp-proof courses because of the number of basements now used as habitable rooms, contrary to their original purpose. Under normal circumstances, improvements are the liability of the landlord. Hence, the landlord of a block of flats would arrange letting policies in a manner that would enable inherent defects to be tackled efficiently and cost effectively. For example, such a letting policy could involve the landlord granting leases of varying lengths so that groups of leases fell in at the same time, thus enabling the work to be carried out while the flats in question were vacant. Alternatively, on the grant of a new lease the landlord may agree that the leaseholder shall carry out the works, the cost to the leaseholder being reflected in a lower premium or rent. Either way, the works can be undertaken when the building is empty or under the landlord's control. Under the provisions of the Bill no such opportunities arise. The lease extension provisions of the Bill allow qualifying leaseholders individually and at a time completely of their own choosing to extend leases by 90 years plus the outstanding period of the old leases. Moreover, Clause 55 gives leaseholders rights to further renewal. The provisions put lessees almost in the position of freeholders and deny landlords the ability to set leasing policies which enable works to remedy inherent defects to be executed on a cost-effective and co-ordinated basis.
Given that the landlord will be unable to control the cost and timing of the correction of inherent defects once leases have been extended under the provisions of the Bill, and that the considerable consequential costs of rehousing or working around leaseholders will fall on the landlords, it is only reasonable that the liability for such work should pass to the leaseholders. I stress that this amendment is specific to inherent defects and does not seek to absolve landlords from any other obligations.
Lord Rodger of Earlsferry: As the opening words make clear, the general principle behind Clause 53 that prescribes the terms on which a new lease is to be granted is that the new lease should essentially be on the same terms as the existing one. As my noble friend has explained, the effect of this amendment is to require that all new leases should make the tenant liable for any inherent defects and for the landlord to recover the cost of putting such defects right. Some may consider that this amendment is unfair to tenants; others may look at it as being unfair to landlords. Tenants will have purchased their flats in a block with

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or without inherent defects—defects of which they may or may not have been aware and which may or may not have been reflected in the price paid. If they enter into a lease that makes them liable—and I understand that most leases even on new properties do not—that will have an effect on the price they pay. In such circumstances the freeholder will be able to include similar terms in the new lease.
Where the tenants are not liable and the freeholder may not necessarily be responsible under the terms of the existing leases there may well be a problem. It is difficult to assess the effect of including such provision on the value of a new lease, especially where there is no known inherent defect, but the inclusion of such a liability as a covenant in the lease will have an effect and may deter potential purchasers or significantly depress the purchase price. Where there is a known defect, the effect on the value of the lease may be greater than the cost of works to put that defect right. I realise that at present many landlords will deal with this problem when they receive a request for a lease extension or a new lease and that that is granted only on condition that the inherent defect is dealt with. That deals only with voluntary lease extensions, not the exercise of statutory rights granted under the Leasehold Reform Act or under this Bill. That is where the problem arises.
I believe there is a much wider problem concerning responsibility for the state and condition of property, and that has been tackled to some extent by the consultation paper of the Law Commission on this issue.
As I say, the issue is difficult. I am prepared to take away this amendment and consider it in some detail; but If cannot go further than that. I cannot make any promises to the Committee, but with the promise that I shall take the amendment away and consider it—and no further than that —I ask my noble friend to withdraw his amendment.
The Earl of Lindsay: I thank my noble and learned friend for the consideration which he is going to bring to the amendment. I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Clause 53 agreed to.
Clauses 54 to 57 agreed to.
Schedule 13 agreed to.
Clause 58 [Interpretation of Chapter II]:
Viscount Goschen Viscount Goschen moved Amendment No. 149:
Page 62, line 39, after ("landlord"") insert (", in relation to such a claim,").
The noble Viscount said: This is purely a technical, drafting amendment which I am sure is necessary for clarification. I beg to move.
On Question, amendment agreed to.
Clause 58, as amended, agreed to.
Clause 59 [Extension of right to enfranchise to houses whose value or rent exceeds applicable limit]:
[Amendments Nos. 150 and 151 not moved.]
The Deputy Chairman of Committees (Lord Skelmersdale): If Amendment No. 152 is agreed to, I cannot call Amendment No. 153.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 152:
Page 63, leave out lines 25 to 31.
The noble Lord said: In moving this amendment, it may be for the convenience of the Committee if speak also to Amendments Nos. 155A, 156, 157 and 157A. We come now to a different chapter of the Bill which is Chapter 3, Part 1.I draw the attention of the Committee to the title which is,
"Enfranchisement under Leasehold Reform Act 1967"
We have to consider the amendments to that Act which the Government are introducing under this Bill. The Leasehold Reform Act 1967 was in itself an extremely important piece of legislation. For the first time it enabled people who were excluded from realising the real benefit of their holdings as leaseholders, to realise that benefit and to both enfranchise and, under some circumstances, to extend their leases.
The problem with that Act is not only that it has been in existence for quite a long time (nearly 25 years or so) but also that I do not believe that anyone appreciated that leaseholds would become so important in flats as opposed to houses. I believe that the growth in the leaseholds in flats has been very substantial since the passing of that Act.
In so far as they go, we welcome the amendments that the Government are bringing forward to that Act. Clause 59 amends it to assist leaseholders of houses, who could not benefit from the rights under the 1967 Act, to enfranchise or extend their leases. The rateable values of their houses exceeded the limits imposed by that Act. Clause 59 enables them to enfranchise.
Similarly, leaseholders with ground rents that exceed the low-rent definition of the 1967 Act are entitled to enfranchise provided that their ground rent falls within the low-rent provisions at present in the Bill. I said on Second Reading that we supported the Government generally in their programme of leasehold reform; but we should like to extend the scope. I should again this evening like to try to extend the scope of the amendments to the Leasehold Reform Act 1967, because we have two objections to what the Government are doing.
The first objection relates to the low-rent provisions. We have been through the low-rent provisions on the enfranchisement of flats, and we now come to the low-rent provisions on the enfranchisement of houses. We have already made clear to the Committee our anxiety about the low-rent provisions for flats. The same anxiety is evident when we come to look at houses. Evidence has been accumulating over the years, especially from the Leasehold Enfranchisement Association, that there is no logical reason for the low-rent test, and that the way it operates is, in many ways, inequitable. We are sad to see the low-rent test appearing yet again in the same form as we saw it in the chapter which dealt with the low-rent test for flats, which we discussed the other day. We recognise that the Committee went against us on that issue; nevertheless, we believe that it is important that the Committee considers the low-rent test for houses equally seriously.
Our second objection, which is almost equally important, is the Bill's failure, as at present drafted, to extend the right to a renewal of the lease to leaseholders in houses debarred by the value limits or by the low-rent limits in the 1967 Act. That seems to create something of an anomaly with the proposal that we have just been discussing for an extension of leases for flats. The Bill gives the leaseholders of flats the right to acquire the freehold collectively, as we have discussed, or, if that does not apply, to extend their leases. We have argued about who may or who may not be eligible to do that; but, nevertheless, that is a clear provision. However, the Government do not appear to be consistent in offering the same rights to those who have leases on houses. I ask the Minister why that inconsistency exists. Is there not a case for amending the Bill in a way which will remove that inconsistency?
Various Members of the Committee have put forward different suggestions of how the matters I have discussed in general terms might be dealt with. I am sure that Members of the Committee who have tabled amendments in the grouping to which I am speaking will be discussing their own versions. I shall be rather more general about the matter and look at Amendment No. 155A, tabled by the noble Lord, Lord Coleraine, or our amendment, Amendment No. 156 which is supported also by the noble Baronesses, Lady Gardner of Parkes and Lady Hamwee, the point being that the low-rent test no longer has any relevance for houses any more than it has any relevance for flats. That is the nub of the argument.
I should like the Committee to consider our two objections: first, the low-rent test which we do not like and which we should like removed; and, secondly, that the inconsistency between what happens to leaseholders of houses and leaseholders of flats so far as concerns the extension of leases is removed from the Bill once and for all. I beg to move.
Viscount Torrington: I too am aware that my noble friend Lord Strathclyde gave a dusty, if courteous, rebuttal to the proposals to remove the low-rent test from Clause 7 as it applied to flats. In daring to go over what is already old ground—except that there is the slight difference that we are dealing with houses rather than flats—I am emboldened by the preamble to the Bill. It states:
"Chapter III amends the Leasehold Reform Act 1967 by removing rateable value and other value limits and thereby extends the right to acquire the freehold".
Clearly, those tests are not removed from the Bill. If the Government truly intend that the preamble should foreshadow what is in the Bill, the low-rent test in Clause 61 has absolutely no place in the Bill—certainly not in its present form. If that is not what the Government intend, the preamble should read:
"extends the right to one or two more houses".
I accept that my noble friend was referring to flats when he gave his spirited defence of the low-rent test. But to suggest that a house on, say, a 99-year lease, with a ground rent of £1,001 per year, is
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unenfranchiseable when an identical house with the same lease period but with a ground rent of £999 is enfranchiseable is to split hairs beyond credibility.
When I spoke to the amendments to Clause 7 I probably failed, with my somewhat inarticulate presentation, to make the point that a low-rent test to distinguish between leaseholds and rack-rentals on the so far not publicly-proven contention that leases longer than 21 years exist with rack-rentals is an unnecessarily blunt instrument. The vast majority of leasehold agreements make themselves perfectly explicit as to whether they represent long leaseholds or rack-rent tenancies. In virtually no case would there be any serious dispute between the landlord and the leaseholder or tenant as to the tenancy or the tenure thereby established.
In the few really grey cases a judge could decide, but I frankly doubt whether that would give rise to the wide use of legal time and court-room capacity. Furthermore, many leases make it plain that the ground rent is not a rack-rent since they define reviewable ground rents as being a particular percentage of an actual rack-rent. As I said last week, the ground rent defined as 10 per cent. of a rack-rent cannot by definition be a rack-rent. For something to be 10 per cent. of itself is a mathematical impossibility unless it is either zero or infinity.
I accept that somewhere perhaps in the recesses of the offices of one of the great London estates there may exist one or even two leases on which a judge could not opine. That is fine; for those eventualities let us keep the low-rent test. My amendment simply qualifies the low-rent test so that it applies only where the lease is not clear as to whether it is a rack-rental or a tenancy.
I expect that my noble friend's answer will be as dusty as that which he gave the other night. However, I ask him to look again at the matter and at the other amendments because I do not believe in equity that the test has any part in the Bill.
Baroness Gardner of Parkes: I support the generality of the amendments. I wish to speak also to Amendments Nos. 156 and 157A. The low-rent test is far less appropriate for houses than for flats. I was not in the Chamber on the afternoon of the debate about low rents for the flats. Therefore, I do not know what arguments were rehearsed other than those I have read in Hansard. I believe that as regards houses there is a clear differentiation between a ground rent and any other type of rent. Indeed, in the case of houses I understand that most of the rack-rents are clearly determined by the courts. A house which is being rented, furnished or unfurnished on a short rental, is quite different.
Tenants have had advantage taken of them in terms of the ground rent of houses. Years ago landlords suffered because they granted 99-year leases. I knew of a case in which the ground rent was £10 per year and it was collected in quarterly instalments. That became quite ridiculous even in terms of collection costs. Therefore, when landlords had the opportunity to renew leases, they suddenly greatly increased them and the cost of leases increased every 20 years by quite a sizeable amount.

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However, I find it unacceptable that the ground rents on many large estates are determined to be a percentage of the freehold value. Many tenants entered into leases on that basis before the property boom of 1988–89. They did not appreciate that they were signing a blank cheque for their landlords because the ground rent increased out of all proportion. That was an injustice to the tenants concerned.
It should be appreciated that that is not the situation in every case. However, the enfranchisement of houses should be related strictly to the length of the lease. I read in Hansard that it is intended to throw out the rateable value as a qualification. I thought that that was great. However, as I read on I thought that it seemed that as many restrictions would be reinstated as had been taken away. That is not satisfactory.
My Amendment No. 157A makes an increase from £1,000 to £2,000. It is quite clear that there must have been discussions between the Government and the landlords of the larger estates as regards the figure which should be chosen. It is too much of a coincidence that so many ground rents are now set at £1,001. For that reason, I chose the figure of £2,000, which would show that the Government are not in collusion with anyone as regards ground rents. I support all of these amendments and in particular my amendment which proposes the abolition of the low-rent test.
Lord Coleraine: I speak to Amendment No. 155A which provides that:
"In section 4(1) of the Leasehold Reform Act 1967, after 'April 1963' there shall he inserted 'or after the coming into force of the Housing and Urban Development Act 1993".
I support all that the noble Lord, Lord Williams, and other Members of the Committee have said about the applicability of the low-rent test to houses. I do not believe that it is applicable. This amendment is a distant fallback from those amendments. However, I should like to mention it now because I want to look forward to what happens after the passing of this legislation.
When I first moved an amendment to abolish the low-rent test late in the evening on the first day of our Committee stage discussions, I asked what would be the future position. It seems to me that, as the Bill stands, in the future £20 per week will count as a rack-rent. Leases in central London which are let for £20 per week will escape the net.
I asked whether it was not possible in the future to abolish the low-rent test altogether because the Government are committed to working towards the eventual withering away of the long leasehold system in relation to residential flats. I thought about that. I took on board the Minister's argument, which was the principle argument on which he found it unacceptable to allow the abolition of the low-rent test; namely, that he felt that it was inequitable to allow enfranchisement to apply in cases where at the time that the lease was granted it was not made abundantly clear that the value had passed and the lessee was effectively the owner.
I do not for one moment accept that that is something which should govern the question of
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whether one has a low-rent test. But, for the sake of argument, I have brought forward an amendment today which satisfies all the requirements of the Government as I understand them. It would provide that, as from the passing of the Bill, the test which lessees wishing to enfranchise would have to pass—or, rather, the way in which the freeholder would avoid the right of the lessee to enfranchisement—would be to show that the rent payable at the beginning of the term was more than two-thirds of the rental value. I think that that proposal is one to which I may expect my noble friend to respond positively.
10 p.m.
Baroness Hamwee: I should like to support the amendments, which seek to abolish the low-rent test for houses. During the debate with regard to the test last week, I referred to the example of a leaseholder of a house whose ground rent is deemed to be £1 more than two-thirds of the rateable value; in other words, he can never fall within the low-rent test because of the way in which his lease has been drawn. Of course, that is only one of quite a number of examples which I have heard of during the course of the Bill. I am shocked—that is not a term that I would use lightly—to hear how the provisions of leases have been manipulated so that the low-rent test does not apply.
We now have a splendid opportunity not only to learn from experience but actually to put right what I think is quite a wrong; that is, the manipulation of the rules. Although I speak against my own profession, the ability of lawyers to continue to find ways to get around the rules cannot be a good thing; indeed, the fewer rules there are the better. The noble Baroness, Lady Gardner of Parkes, referred to the long-lease test. As a matter of common sense, I think that that is entirely sufficient. A period of 21 years is a well-understood period. We are giving work to my profession which I do not seek—I see that some Members of the Committee are smiling at what I say—but, more importantly, we are providing opportunities to avoid the real objective of the legislation.
Lord Monson: It is almost 26 years since the passing of the iniquitous 1967 Leasehold Reform Act, with its appallingly confiscatory provisions. Not only did the Conservative Opposition, and indeed the independents, find the provisions confiscatory, but even certain Members of the then Labour Cabinet were uneasy, as the Crossman diaries later revealed.
Any amendment which has the incidental effect of extending the powers to confiscate is therefore to be deplored. If the low-rent test is widened, a parallel amendment needs to be introduced to bring the compensation into line with the compensation that people would obtain under the main provisions of this Bill. I do not believe that there is any such power in the amendment and I do not think that Chapter III includes any such provision. Therefore, I oppose the amendments.
Lord Strathclyde: We have had a good discussion on the question of the low-rent test for houses. Of course, it is a debate that we have already had in respect of flats. Some of the amendments proposed

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would increase the effect of the test, whereas others would weaken it. The Bill extends the right to enfranchisement to high-value houses and to houses let on leases which fail the existing 1967 Act low-rent test but which would meet the new test to be applied to flats. Amendment No. 152, tabled in the name of the noble Lord, Lord Williams, would remove that right from the houses which fail the existing low-rent test, keeping them unenfranchisable.
Long leaseholders of low-value houses have been able to enfranchise since 1967, and those of medium-value houses since 1974. High-value houses are presently excluded from enfranchisement, as are houses whose ground rent was originally low but has risen because of rent review clauses over a period of time, and consequently fails the 1967 Act test. Although the leases of such houses could have enfranchised when they were granted, the right was not exercised then, and the subsequent increases in rent have made them ineligible. By offering the rent test as applied to flats, which takes the rent payable when the lease was granted, as an alternative to houses which fail the existing 1967 Act test, the Bill enfranchises them. I believe it would be most unfair to continue to exclude them.
I turn now to Amendment No. 155A of my noble friend Lord Coleraine, which, by interfering with the existing test for houses, would also unfairly exclude a certain group of leaseholders from enfranchisement. This has separate legs for leases granted before and after 1st April 1990. There is a proviso to the effect that a lease granted between the end of August 1939 and the beginning of April 1963 which meets the relevant test would nevertheless be treated as not being a tenancy at a low rent if, at the start of the tenancy, the rent exceeded two-thirds of the letting value. This proviso was intended to exclude from enfranchisement tenancies which were originally let at a rack rent, but which, because of inflation in rents between the date when the tenancy was granted and the "appropriate day", which for the purposes of the 1967 Act is 23rd March 1965, would have become low-rent tenancies, as defined.
The amendment would apply the same proviso to leases granted after the commencement of this Bill. It would affect tenancies on which the ground rent is less than £1,000 in Greater London or £250 elsewhere, and which are therefore already low. Nevertheless, if their ground rent exceeds two-thirds of the letting value, they would be excluded from enfranchisement.
Given the purpose of the proviso, it is difficult to see why my noble friend Lord Coleraine considers its use appropriate for leases granted after commencement of the Act. It would clearly be unfair and illogical to exclude new leases by using a proviso designed for a particular economic situation years ago.
I turn now to Amendment No. 156, which would remove from the Leasehold Reform Act 1967 the low rent test for houses, the value limits and the residency requirement. In short, it would extend the right to enfranchisement and to lease extension to any house let on a long lease. We have previously heard the arguments for this radical step in relation to flats.
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Exactly the same arguments are appropriate for houses and I do not propose to take up the Committee's valuable time in going through them again.
Amendment No. 157 of my noble friend Lord Torrington would create yet another rent test for houses. His intention appears to be that, where the rent does not exceed the letting value of the house, then the lease is to be classed as a lease at a low rent.
The effect of the optional test added by this amendment is twofold. First, it uses letting values instead of rateable values for all houses; and secondly, it has a threshold of the whole of the letting value rather than two-thirds.
I acknowledge that letting values (that is, market rentals) are used for pre-1963 leases in the Leasehold Reform Act 1967 and have been adopted for such leases in the Bill under discussion today. The reason for their inclusion in the 1967 Act was to take account of the delay in a rating revaluation after the Second World War. This meant that after the war the incompatibility of genuine ground rents and any test based on pre-war rateable values was sufficient to justify the use of letting or rental values instead. As all residential rents were statutorily controlled at that time, there was a single market in rents which made the test effective and simple to apply.
This approach would not work with leases granted since the introduction of enfranchisement for houses and the deregulation of rents in the letting market because of the gulf that exists between regulated rents and market rents. There is now a big difference between market rents and the fair rents of the remaining regulated sector, and the use of letting values would not help to establish the extent of the transfer of ownership between lessor and lessee.
The second effect of the amendment is that it adds an optional test with a threshold of the whole of the letting value rather than two-thirds. The thresholds used in our alternative low rent test for houses are long established and underpinned by statute. In most statutes a low rent is an annual rent of less than two-thirds of the rateable value of the property demised by the lease. For leases granted before 1963, two-thirds of the letting value may be taken instead.
Amendment No. 157A of my noble friend Lady Gardner would interfere with the additional low rent test for houses which the Bill would add to the Leasehold Reform Act 1967. It would affect leases entered into since April 1990 by raising the annual rent threshold for such leases in Greater London from £1,000 to £2,000. I cannot agree that it would be appropriate to accept the amendment, just as I could not accept the amendment when we discussed flats.
Having explained the position vis-à-vis houses, and in the light of the discussion last week on flats, I know that it will be a disappointment to some of my noble friends and Members of the Committee opposite that we are not adjusting the low rent test. I believe that it is appropriate that we have a low rent test. It has withstood the test of time. It is firmly established in our current legislation and I hope that the amendments will be withdrawn.
Lord Williams of Elvel: I am grateful for the Minister's response to the amendments. I am grateful to Members of the Committee who have outlined the different solutions which have been proposed. I am wholly unpersuaded by the noble Lord's reply. I am totally persuaded by the remark of the noble Baroness, Lady Gardner of Parkes, that this is a stitch-up between the Government and major landlords. I understand that, because the noble Lord, Lord Strathclyde, has been sandbagged so many times from behind that it is at least conceivable that he will try to do a deal in order to stop another sandbag hitting the back of his neck.
This issue will not go away. The low rent provision is inappropriate for houses. It is an issue to which we shall return at a later stage. The Government should not feel that we have used our full firepower on the issue as yet. I beg leave to withdraw the amendment.
Lord Coleraine: Before the noble Lord decides what to do with his amendment, as we are dealing with amendments within the grouping and the Minister replied to an amendment of mine, I should like to press him a little further on the subject. I do not want to move away from the grouping system and move my amendment later.
As I understood it, my noble friend said that in certain circumstances the regime I proposed for after the passing of the Bill might be damaging to lessees because two thirds of letting value might be less than £1,000 a year. That can be solved perfectly well by introducing two heads to the provision so that the low rent test is satisfied either if it is less than £1,000 a year or if the rent is less than two thirds of letting value.
I shall ask my noble friend a question and his answer will be illuminating. He has told the Committee, in effect, that rent of £20 a week in central London at the start of a lease is what distinguishes a lease in which the value does not pass from a lease where the value does pass to the lessee and where the lessee effectively becomes the owner. Why does my noble friend feel that that is the appropriate cut-off rather than two thirds of letting value?
Lord Strathclyde: Surely the problem that unites all of the low rent tests is that having drawn a line some people will be on the wrong side of it. I can understand why my noble friend feels as he does. However, the tests have existed for many years. People have worked out their affairs in relation to those particular tests. We believe that it would be wrong to change them now. In respect of my noble friend's amendment it would clearly be unfair and illogical to exclude new leases by using a proviso designed for a particular economic situation which originated years ago.
In relation to the point that my noble friend made on the level of the rent, we do not say that a rent above, say, £20 a week is a market rent. That is exactly the debate which we had last week in relation to flats. We do say that it is not necessarily a ground rent and for that reason fails the test.
Lord Coleraine: Does my noble friend recollect that rateable values are no longer part of the formula? It is no good his saying that we are using a formula which
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has been used successfully for many years in the past. We are now using an entirely new test. For how long does he say that the £20 a week cut-off point has existed and has been applied in legislation? Why does he not treat this as a point at which to start afresh? That is what I ask him to do. The precedents of rateable values in the past have no relevance whatever today.
10.15 p.m.
Lord Monson: Before the noble Lord, Lord Coleraine, sits down, perhaps I may ask this question. Does he agree that some landlords who may not have access to capital are quite prepared to charge less than the rack rent, perhaps half the rack rent, in return for the tenant agreeing to carry out repairs and improvements on the assumption that the tenant has access to capital? There is nothing wrong with that. It would make his suggested cut-off point of two-thirds rather difficult.
Lord Coleraine: That often happens, and landlords become subject to enfranchisement as a result.
Lord Strathclyde: The answer to the question posed by my noble friend is that the £1,000 applies to the post-1990 leases, not to the rateable values. Therefore £20 is not relevant to the rateable values.
Lord Williams of Elvel: I was so baffled by the Minister's last sentence, that I simply did not understand what it meant. No doubt we shall return to the issue at a later stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 153 to 155 not moved.]
Clause 59 agreed to.
Clause 60 agreed to.
[Amendments Nos. 155A and 156 not moved.]
Clause 61 [Additional "low rent" test]:
[Amendments Nos. 157 and 157A not moved.]
Clause 61 agreed to.
Clause 62 [Price payable by tenant on enfranchisement by virtue of section 59 or 60]:
Lord Strathclyde Lord Strathclyde moved Amendment No. 158:
Page 65, line 17, leave out from ("shall") to end of line 18 and insert ("be determined in accordance with subsection (1A) above; but—

(a) in any such case section 9A below has effect for determining whether any additional amount is payable by way of-compensation under that section; and

(b) in a case where the provision (or one of the provisions) by virtue of which the right to acquire the freehold arises is section 1A(1) above, subsection (1A) above shall apply with the omission of the assumption set out in paragraph (b) of that subsection."").

The noble Lord said: I beg to move Amendment No. 158.
The Chairman of Committees having put the amendment to the Committee, perhaps I may be a little more specific. I had thought that it was an amendment that had already been grouped with others. However, I discover that I have not explained to the Committee what the amendments provide. Therefore, in moving Amendment No. 158, I shall also speak to Amendments Nos. 159 and 161.
The amendments are as a result of the fulfilment of the Secretary of State's commitment in another place that we would provide for severance compensation for the landlords of high value houses newly enfranchised by the Bill. The amendments also disapply to high value houses the assumption in the valuation calculations that there is security of tenure at the end of a lease.
Anxiety was raised in another place that we had not provided severance for houses. Severance—it is part of what is known as injurious affection—is a precise valuation term which quantifies in money the loss of redevelopment potential or any other loss of value on land in the landlord's ownership which he is to retain after the enfranchisement of other properties.
Severance was not given under the 1967 Act as it was not considered that the loss of low value houses would have an impact on the landlord's other property. We have, however, provided severance in the case of flats because a development or estate of flats may well contain several blocks. In that situation, the loss of one block from a landlord's portfolio may prevent him from developing the land between the blocks. It has been impressed upon us that loss in the value of a landlord's other property could also occur where high value houses are enfranchised. Such a case could be where a dower house or other associated property is enfranchised from a country estate. That can create a doughnut effect of a property being an island in a different ownership and control. We accept that there could be a real case for compensation in such situations and no doubt the Committee will wish to consider the point.
The next amendment and others would provide for severance for all houses. This was not provided for by Parliament in 1967 and I should be worried about the impact on lower value houses which were already enfranchisable. The addition of severance to the price could add considerably to the cost of enfranchising such property or could be used by the landlord to deter enfranchisement.
I am also not convinced that there is a need to provide severance for houses which are already enfranchisable. Many of those eligible have already been enfranchised and the landlord's property has been broken up so that there will be no possibility of future damage to other property.
The group of amendments we are now considering will ensure that possible compensation for injurious affection can be taken into account for all high value houses in the same way as has been provided for flats. I must emphasise that this is a provision which will cover the specific case of damage to other property interests.
The other amendment which we put forward disapplies an assumption in the valuation provisions in the 1967 Act so far as it relates to high value houses. The assumption is that a tenant will have security of tenure at the end of the lease. This is not true of the tenants of high value houses and the assumption would artificially depress the value of a landlord's interest. The amendment will ensure that a proper
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valuation can be made. It will affect neither a tenant's security of tenure where he has this right nor the valuation where the right exists.
I apologise for my earlier indiscretion in not moving the amendment. These amendments fulfil commitments and ensure that landlords can receive the proper value of their assets. I commend them to the Committee.
Lord Peyton of Yeovil: This is one of those happier moments for me when I can say something nice to my noble friend. I always try to do so and wish to do so very much. Here he has fulfilled a pledge which is welcome to some of us. I say with some sympathy that my noble friend has had to endure what the noble Lord, Lord Williams, referred to as the "sandbags" behind him. Personally I lay no claim to any sandbag owned by a landlord or anyone else. I do not carry anything as heavy as that.
My noble friend has also had to endure the sympathy of the noble Lord, Lord Williams, and perhaps at greater length the support of his noble friend Lord Coleraine. I am sure that he will be able to tell his right honourable friend the Secretary of State that he has had to carry the burden and heat of the day, whereas his right honourable friend had an easy, quiet passage in taking the Bill through the other place with a well behaved and docile majority behind him. My noble friend must be very envious of that.
I warmly support the amendments and wish briefly to speak to my own amendments which follow. They are designed to remedy what I am sure is an unintentional gap in the Government's thinking. As I understand it—and my noble friend went too quickly for me to follow every detail of what he said—the Government have now amended the Bill so that the owners or the landlords of premises enfranchised under this Bill will be compensated for injurious affection. I see that my noble friend nods, so I am all right so far.
However, I am surprised—and this is not retrospective—that where damage or injurious affection occurs as a result of enfranchisement in the future under either the 1967 Act or the 1974 Act, no compensation is provided. I am sure that that is an unintended gap in the Government's thinking, and my amendments have been drafted to put it right. I do not need to continue at length, but I look forward to hearing my noble friend say that, even if he does not accept the precise drafting of my amendments—and I in no way wish to retain it—he will be kind enough to remedy the gap and support the proposal. Then I shall be only too glad to add to the compliments which I have already paid him.
Lord Middleton: I certainly welcome the government amendments. I join my noble friend Lord Peyton in saying that any rapture arising from the Government's exceptions of compensation for injurious affection for house owners has to be modified. As my noble friend said, the government amendments do not go far enough. It must be inconsistent to limit the right to compensation for injurious affection to freeholders of 1993 houses. Amendments Nos. 158A, 159A and 161A in the name

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of my noble friend Lord Peyton and myself would apply the same right to compensation to 1967 and 1974 houses, but not in retrospect. That must be the only fair way to do it.
Lord Williams of Elvel: Perhaps I may speak to Amendments Nos. 158, 159 and 161, which are the amendments that the Minister spoke to. That was the grouping that was decided. The Minister quite rightly
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said that those amendments picked up undertakings made in a long debate in another place and we have no particular objection to them. They add a fairly substantial piece to the Bill. It is a pity that we should have to discuss them at such a late hour. Nevertheless, I do not intend to oppose the amendments. I think that they go far enough.
On Question amendment agreed to.
10.25 p.m.
Lord Peyton of Yeovil Lord Peyton of Yeovil moved Amendment No. 158A:
Page 65, line 17, leave out from ("shall") to end of line 18 and insert:
("be determined in accordance with subsection (1A) above; but in a case where the provision (or one of the provisions) by virtue of which the right to acquire the freehold arises in section 1A(1) above, subsection (1A) above shall apply with the omission of the assumption set out in paragraph (b) of that subsection.").
The noble Lord said: I have already spoken to this amendment. I beg to move.
Lord Williams of Elvel: I have looked briefly at the amendments in the name of the noble Lord, Lord Peyton, the noble Earl, Lord Lytton, and the noble Lords, Lord Monson and Lord Middleton; namely, Amendment No. 158A which was moved and Amendments Nos. 159A, 160 and 161A grouped with it. I am not persuaded that the amendments are either necessary or desirable. But I wait to hear what the Minister has to say about them.
Lord Monson: I too support the series of amendments. They make the provisions of the 1967 Act fractionally less confiscatory and unfair so far as the future is concerned—though they do nothing to remedy the past. When I use words like "confiscatory" and "unfair" I do not think that I exaggerate. I guess that at least 90 per cent. of those present in the Committee would readily agree that the provisions of the 1967 Act were unfair. The amendments are not retrospective any more than the Bill as a whole is retrospective or agricultural tenancy legislation is retrospective, or even, in certain respects, the Budget. So I think that we can knock that one on the head in advance. The amendments are modest. They do not ask for very much. They are reasonable, and I hope that the Government will accept them.
10.30 p.m.
Lord Strathclyde: I am glad to receive the welcome of my noble friend Lord Peyton in respect of the government amendments we have just discussed; it is so much easier being on his side than being against him. It would be a delight if we could continue in that manner.
However, my noble friend asks me to do something which is extremely difficult; that is, to extend the provisions for injurious affection for pre-1993 enfranchiseable houses. I would be concerned about the possible impact on lower value houses which are already enfranchiseable. The addition of severance could considerably add to the cost of enfranchising such property.
I am not at all convinced either that it would be right to impose new obligations on those who already have the right to enfranchise. The Committee has already decided on the issue of the low rent test that it would not be right to affect existing arrangements —that was supported by my noble friend Lord Peyton —by changing the threshold of that test. Equally, I do not consider that it would be right to affect
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arrangements for the valuation of lower value houses which have existed for 25 years. Tenants of those houses and their landlords are aware of the valuation basis on which enfranchisement can be achieved; indeed, many lower value houses will have been enfranchised and the estates broken up so that there is no possibility of future damage to property, and injurious affection does not arise.
I do not consider that the price payable for those with existing rights to enfranchise should be changed, and I wonder whether, on reflection, my noble friend will agree with me on that point.
Lord Monson: Before the noble Lord sits down, perhaps he can answer this. If the terms of compensation under the 1967 Act are unfair —I think it was generally agreed by the Conservatives at the time and still agreed by them now—why not do something even now to improve it fractionally? If a Conservative Government had introduced a measure which Labour had thought was unfair, would Labour have had any hesitation in rectifying it once they came to power? Of course not.
The Earl of Kinnoull: At this late hour we are in fact talking of compensation, not of existing arrangements as to whether a property qualifies, which is the low rent or the short lease. Compensation was a matter which the Minister's right honourable friend at Second Reading particularly stressed was unfair in the 1967 Act. I must admit that those of us who practise have always recognised that fact. It cannot be going too far to include the amendments of my noble friend Lord Peyton. I hope that the Minister will reconsider and look again, before the next stage of the Bill, at what is a fairly small addition to the compensation provisions. It is very fair in practice.
Lord Middleton: I believe that my noble friend said that extending compensation to lower value property would add to the cost. But if there is an equitable case for compensation for severance, then in fairness it must apply right across the board. One cannot pick and choose houses by reference to their rateable value and say that some are entitled to severance payments and others not, however good their case for recoupment of lost value.
Lord Peyton of Yeovil: I listened carefully to what was said by my noble friend and I do not want to repeat myself. As I see it, the position boils down to this. In introducing these extremely welcome amendments, following a promise made by the Minister's right honourable friend in another place, the Government have admitted that they made a mistake; that there is something wrong. What is wrong applies with equal force to what is contained in the 1967 and 1974 Acts. Nobody is suggesting that anything that has been done under either of those Acts should be undone or affected in any way. It is simply that in the future where enfranchisement under any Act affects injuriously other property of the landlord there should be compensation.
My noble friend, on behalf of his right honourable friend, has laid down a principle which he ought now to follow. I feel extremely uneasy about what he said.

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I shall be content to withdraw the amendment if he will agree to take a further look at it and discuss it with his right honourable friend. His right honourable friend found himself faced with an argument to which he did not know the answer. The Secretary of State needs no tribute from me as to his eloquence or skills as a lawyer and an advocate.
Lord Strathclyde: I have difficulty in giving my noble friend comfort on this matter. We said that the 1967 valuation was unfair, and we stand by that. The 1974 valuation was probably all right. The amendment asks us to go back to those houses which are currently enfranchiseable but for one reason or another have not been enfranchised. I am not convinced, and I do not believe that my noble friend has made the case, that because those houses were not enfranchised we should now change the law on injurious affection against those houses.
There is a further point. Surely it is the lowest value houses which are the least likely to involve severance. Where severance is most important is in high value houses; it is on that that we have given it. Perhaps my noble friend should be grateful—if I can use that word —that the Government have seen that it is right to introduce injurious affection at this stage, and perhaps to press the amendment further would not be right.
Lord Peyton of Yeovil: I listened to what my noble friend said. I will also read with considerable care what has been said and consider it with some of my noble friends. On the basis that I shall certainly wish to return to the matter on report, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Strathclyde Lord Strathclyde moved Amendment No. 159:
Page 65, line 20, at end insert:
("(3) After section 9 of that Act there shall be inserted—
"Compensation payable in cases where right to enfranchisement arises by virtue of section 1A or 1B.
9A.—(1) If, in a case where the right to acquire the freehold of a house and premises arises by virtue of any one or more of the provisions of sections 1A and 1B above, the landlord will suffer any loss or damage to which this section applies, there shall be payable to him such amount as is reasonable to compensate him for that loss or damage.
(2) This section applies to—

(a) any diminution in value of any interest of the landlord in other property resulting from the acquisition of his interest in the house and premises; and

(b) any other loss or damage which results therefrom to the extent that it is referable to his ownership of any interest in other property.

(3) Without prejudice to the generality of paragraph (b) of subsection (2) above, the kinds of loss falling within that paragraph include loss of development value in relation to the house and premises to the extent that it is referable as mentioned in that paragraph.
(4) In subsection (3) above "development value", in relation to the house and premises, means any increase in the value of the landlord's interest in the house and premises which is attributable to the possibility of demolishing, reconstructing, or carrying out substantial works of construction on, the whole or a substantial part of the house and premises.
(5) In relation to any case falling within subsection (1) above—
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(a) any reference (however expressed)—

(i) in section 8 or 9(3) or (5) above, or

(ii) in any of the following provisions of this Act,

to the price payable under section 9 above shall be construed as including a reference to any amount payable to the landlord under this section; and

(b) for the purpose of determining any such separate price as is mentioned in paragraph 7(1) (b) of Schedule 1 to this Act, this section shall accordingly apply (with any necessary modifications) to each of the superior interests in question."").

On Question, amendment agreed to.
[Amendment No. 159A not moved.]
On Question, Whether Clause 62, as amended, shall stand part of the Bill?
Lord Monson: Before we leave Clause 62 perhaps I may ask the noble Lord, Lord Strathclyde, whether he could - for those of us who are not lawyers, surveyors or valuers—explain the effect of Clause 62 in conjunction with Schedule 14. How does this alter the compensation measurement? Perhaps he would prefer me to wait until we reach Schedule 14.
Lord Strathclyde: The noble Lord asks about Clause 62. This clause amends Section 9 of the Leasehold Reform Act 1967 and provides that the special valuation basis which was inserted for properties brought into the scope of the 196'7 Act by the 1974 Housing Act should apply to all houses newly enfranchised under this Bill. The clause states that Schedule 14 will reproduce Section 9 of the Leasehold Reform Act 1967 as amended.
Conservative opposition to the 1967 Act was based on the valuation terms which we did not consider gave fair compensation to landlords. It was therefore the Conservatives who tabled the amendments in 1974 which ensured that the special valuation basis was inserted into the 1967 Act. This basis reflects the true market value of the property. It is this valuation which would be applied to houses newly enfranchiseable under the Bill. The clause is necessary to ensure that all houses enfranchised by this Bill are acquired using the special valuation basis in the 1967 Act. It is, of course, designed to remove confusion, and I am sorry if any has been caused. I beg to move.
Lord Monson: I am most grateful to the noble Lord for that extremely helpful and welcome answer.
Clause 62, as amended, agreed to.
Lord Middleton Lord Middleton moved Amendment No. 159B:
After Clause 62, insert the following new clause:
("Charitable Housing
—After section 1(3) (b) of the Leasehold Reform Act 1967 there shall be inserted—
"(c) it is let to him by a charitable housing trust which is a housing trust within the meaning of the Housing Act 1985 and which is a charity within the meaning of the Charities Act 1960 and the house and premises form part of the housing accommodation provided by it in the pursuit of its charitable purposes.").
The noble Lord said: The amendment would provide the same treatment in respect of houses managed for charitable purposes by charitable housing trusts as already exists under the Bill in respect of flats. It does not protect charities holding

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houses as an investment. The amendment would be useful in filling a gap in housing provision in rural areas in particular. It would allow an owner to transfer to a charity land for local needs housing to be let on long leases. Leases could then be made available to local people who did not wish to enter a shared ownership scheme through a housing association or who did not want to take up low cost rented housing needed by others but who still could not afford to buy at the prices on the open market distorted by demand from outsiders. Land owners could not provide such housing under the Bill as it is drafted as it could not be maintained for local needs. In any case, no owner would grant a long lease knowing that the property would be likely to be enfranchised at some point. I very much hope that the Government may see some merit in the amendment. I beg to move.
Lord Williams of Elvel: Generally speaking, this looks like an unexceptionable clause and I should like to hear the Minister's views on it. I have one difficulty which perhaps the noble Lord, Lord Middleton, can clear up. The final line of the amendment states:
"provided by it in the pursuit of its charitable purposes".
Is the purpose of that to demonstrate that the housing accommodation is at a rent lower than the market rent —at what might be described as a charitable rent—and therefore is in pursuit of charitable purposes? Is that the idea? If it is, it seems to be a desirable amendment. If it is not the idea, it is not a desirable amendment.
Lord Middleton: That is not the idea. The idea is that the provision of housing for local needs for charitable purposes can be continued into the future without having the danger of being enfranchised.
Lord Williams of Elvel: Then "charitable" does not mean at a rent lower than the market rent. It could be rack-rented property.
Lord Strathclyde: Perhaps I may come in at this point because I understand the confusion that is in the mind of the noble Lord, Lord Williams of Elvel. I have some sympathy with what I understand is the purpose of the amendment.
As we have already heard in regard to Clause 3, charities will not be exempted from the Bill. However, as I explained then, long leaseholders of charitable housing trusts will not be qualifying tenants of their flats where they form part of the housing accommodation provided in pursuit of the landlord's charitable purposes. There is no exemption for charitable housing trusts in the Leasehold Reform Act 1967. The effect of this amendment would be to exclude all leaseholders of houses from the provisions of the 1967 Act where their landlord is a charitable housing trust and the accommodation is provided in pursuit of the trust's charitable purposes. The definition of charitable housing trust contained in the amendment is the same as in the Bill.
I have some sympathy with what is being said as to extending the exemption in the Bill to the Leasehold Reform Act. However, it would not be right or proper for us to take away rights of enfranchisement that
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already exist and from those leaseholders who are already entitled to them under the 1967 Act. The purpose of the Bill is to extend the right of leasehold enfranchisement. I have some sympathy with the purpose of the amendment. I am conscious that it would appear to be an anomaly to exempt charitable housing trusts from the provisions of the Bill and not from the provisions of the 1967 Act. Therefore, what I should like to suggest to my noble friend is that I take the amendment away with a view to tabling an amendment at a later stage that would apply the charitable housing trust exemption to those leaseholders who will be brought within the scope of that Act for the first time by the provisions of the Bill and to leases entered into after the coming into force of the Bill. The amendment will not apply to existing leaseholders who already have the right to enfranchise under the 1967 Act.
I hope that what I propose will meet with the support of the noble Lord, Lord Williams, and I hope that it goes far enough for my noble friend Lord Middleton to recognise that this is a sensible way forward.
10.45 p.m.
Lord Middleton: I am most grateful to my noble friend. With the assurance he has given, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No.160 not moved.]
The Earl of Lytton The Earl of Lytton moved Amendment No.160A:
After Clause 62, insert the following new clause:
("Purchase price
For subsections (I) to (2) of section 9 of the Leasehold Reform Act 1967 there shall be substituted the following—
"(1) The price payable (or a house and premises on a conveyance under section 8 above shall be the amount which would be payable for the house and premises pursuant to Schedule 5 to the Housing and Urban Development Act 1993 upon the assumption that the house and premises are specified premises and the valuation date for the purposes of the Schedule is the date when notice is given by the person acquiring of his desire to have the freehold".").
The noble Earl said: The purpose behind the amendment is to enable the houses enfranchised under the extension of the Leasehold Reform Act 1967 to be valued on an identical basis as flats. We have already discussed this matter with reference to the 50 per cent. of marriage value criteria. The intention is that the amendment should be substantially the same as one tabled in another place. The Minister's right honourable friend gave an assurance that he would bring forward an amendment but I note that the Government have not yet done so. It seems to me to be anomalous that there should be differential treatment in this particular instance. Therefore, I beg to move the amendment.
Lord Strathclyde: We have already debated at some length the valuation provisions in the Bill. The valuation provisions in Schedule 5 are similar to those in the 1967 Act for medium and high-value houses, which take into account the tenant's special interest in purchasing. The only material difference between the

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two valuation bases is the provision of severance compensation that your Lordships have already debated.
The 1967 Act provisions do not specifically identify marriage value as a separate element, although it is an element taken into account. The market in most cases provides that this element is divided. This recognises that the parties have to reach an agreement or the additional value will be lost. We specified the minimum 50 per cent. split in Schedule 5 in the hope that this would reduce the scope for argument, thereby making enfranchisement quicker and the costs lower. As the 1967 Act valuation for medium and high-value houses provides for open market value, where the landlord will normally receive half the marriage value, this is what the valuation will award to him.
Although I have sympathy for this amendment as it makes explicit the fairness of our valuation provisions, I am not sure that it is necessary. The marriage value is shared by the market and the 1981 Lloyd-Jones v. Church Commissioners case confirmed that this was the division that the Lands Tribunal had adopted.
I have two anxieties about the amendment. The first is that it would extend the valuation base to all houses. Parliament made the decision in 1974 not to take away from the leaseholders of low value houses rights to enfranchise under the original valuation basis, and this remains our policy. I am also concerned about the possible impact on the price of lower value houses. Therefore I am not sure that it is necessary to import the provisions of Schedule 5 into the 1967 Act. Nor could it simply be achieved by accepting the amendment. Schedule 5 has been specifically drafted to provide for flats and will be a nonsense in its present form if it is applied to houses. It is important that enfranchisement should be carried out at a fair price and should be seen to be fair. These are the elements of the valuation both in the 1967 Act for high and medium-value houses and in the current provisions for flats. It is not necessary to import Schedule 5 into the 1967 Act to achieve this. I do not consider that it would be right to affect the tenants of those houses who have existing rights to enfranchise, nor do I consider that it would be right to extend the compensation that such tenants should pay. I hope that the noble Earl can withdraw his amendment.
The Earl of Lytton: I thank the Minister for his considered reply. This was intended to be only a probing amendment, particularly in view of the lateness of the hour. I am more convinced by the thrust of the argument that it is not necessary than by the Minister's other arguments, but I will look at the matter again. On the basis that at a later stage of the Bill I may come back to the point, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 14 [Section 9 of the Leasehold Reform Act 1967, as amended]:
Lord Strathclyde Lord Strathclyde moved Amendment No. 161:
Page 214, line 9, leave out from ("shall") to end of line 10 and insert ("be determined in accordance with subsection (1A) above; but—
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(a) in any such case section 9A below has effect for determining whether any additional amount is payable by way of compensation under that section; and

(b) in a case where the provision (or one of the provisions) by virtue of which the right to acquire the freehold arises is section 1A(1) above, subsection (1A) above shall apply with the omission of the assumption set out in paragraph (b) of that subsection.").

On Question, amendment agreed to.
[Amendment No. 161A not moved.]
Schedule 14, as amended, agreed to.
Clause 63 [Estate management schemes]:
Lord Peyton of Yeovil Lord Peyton of Yeovil moved Amendment No. 161AA:
Page 66, line 2, leave out ("may") and insert ("shall").
The noble Lord said: At this hour of the night I believe that the subject of estate management is not one to embark on. I say to my noble friend that I shall be content to speak very briefly to the reasons why have tabled a scatter of amendments on the Marshalled List on the subject of estate management. My attention was caught by the note in the Bill about Chapter IV where it airily says:
"Chapter IV provides that landlords may apply to a Leasehold Valuation Tribunal for the approval of estate management schemes. Such schemes may be approved if the tribunal considers",
and so forth. I wonder why anybody should bother. A landlord who has lost or seen a great deal of his property enfranchised in a certain area, particularly where there is high amenity value and quality, may well ask himself why he should be bothered. He has no effective sanction other than to take to court a purchaser of a property who is unwilling to do whatever is required to comply with the general principles of the management of the estate. Why should he go to the expense and trouble of taking him to court with the very uncertain consequences which flow from such an action? I have yet to be convinced that the Government have given any serious thought to estate management. If they have not, they should do so now. Ministers may be tempted to say that estate management has worked perfectly well in other places. I have heard Dulwich mentioned.
I believe that there have been cases where those who have accepted responsibility in the past for estate management have come to the conclusion, in the light of experience, that the game is simply not worth the candle. Since I believe the matter to be of some importance and that failure to honour the principles of good estate management could be a disaster for many of our towns and cities, I hope that my noble friend will not just dismiss this matter lightly, but he will say that, on behalf of the Government, he is prepared to take the amendment away and give some serious thought whether the provisions of the Bill are adequate. I am of the opinion—I am ready to be convinced otherwise—that as things stand the Government have taken too much for granted. I beg to move.
Baroness Hollis of Heigham: In this respect, if not all others, I am sure that the noble Lord, Lord Peyton, is correct. There are many holes in the arrangements proposed on the face of the Bill for estate management

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agreements. We have a whole sequence of amendments, some of which are to be moved by the noble Earl, Lord Lindsay. They seek to plug those gaps. On our side we shall be speaking more substantively to Amendments Nos. 163 and 164. At this stage, I should like to echo the anxieties expressed by the noble Lord.
Lord Strathclyde: I am delighted that my noble friend should have such anxieties about estate management schemes. He is quite correct in saying that these are very important provisions in the Bill. It is important that we get them right. The lateness of the hour should not preclude the discussions which we have on them. I am very grateful to the noble Baroness for saying that she hopes to make some substantive points. Indeed, the noble Baroness, my noble friend Lord Lindsay and I have already held discussions on the Bill. I do not think for one minute that this part of the Bill has been drafted perfectly. I shall be bringing forward—
Lord Peyton of Yeovil: Did my noble friend say that the Bill has or has not been drafted perfectly? That is important.
Lord Strathclyde: What I said, as I hope the record will show, is that this part of the Bill has not been drafted entirely to my satisfaction. I shall be bringing forward some amendments on Report to deal with some of the issues which will undoubtedly be raised during our discussions on the next few amendments.
We want estate management schemes that are workable, and acceptable to tenants and to landlords and their interests, so the experience and knowledge of my noble friends and noble Lords opposite will be invaluable. There is one further point I can make to my noble friend: in 1967 just over 200 landlords applied for estate management schemes. They thought it was worthwhile. I understand that generally speaking those schemes have worked well. We want local planning authorities and English Heritage to have the ability to apply to manage schemes in conservation areas. Those amendments will be useful when we bring them forward. I accept that there are complicated matters involved here, and I, speaking on behalf of the Government, am keen to ensure that the schemes will be workable.
Lord Peyton of Yeovil: I am not sure that I understood my noble friend correctly. Is he accepting my generous suggestion that he should have another look at this matter? If he is, I shall not move all the detailed amendments that I have put down. I put them down to ensure that there would be a discussion on this matter during which I would have an opportunity to sound my anxiety and alarm at the position under the Bill. I was deeply gratified to enjoy—I do not always find myself in this position—the support of the noble Baroness, Lady Hollis. That has made my evening.
I have now to ensure that I have understood my noble friend correctly. If he wants me to continue discussions on the detailed amendments, all well and good, I am content to do so. I am content with the astonishing admission by my noble friend, because
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Ministers are seldom so candid even at this hour of the night, that a whole section of the Bill has not been well drafted. Amen, amen! Hear, hear! I agree. Will my noble friend tell me how he would like to proceed from now on? He can be sure of my co-operation.
Lord Strathclyde: If my noble friend is asking for a meeting at which we can discuss some of the issues, then I am delighted to offer him that invitation and to extend it to anyone else who wants to join us.
Lord Peyton of Yeovil: On that basis, I can only beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Strathclyde Lord Strathclyde moved Amendment No. 161B:
Page 66, line 7, leave out ("work for the maintenance or repair or) and insert ("works of maintenance, repair, renewal or replacement in relation to").
The noble Lord said: This amendment and Amendment No. 161C are necessary to make it clear that where estate management schemes empower a landlord to carry out work for the repair or maintenance of property in which the tenants have acquired the landlord's interest or impose such obligations for repair and maintenance upon a tenant, such work can also include works of renewal or replacement. If the covenants contained in the leases provide for renewal or replacement of certain standards, then it is only right that an estate management scheme in respect of the same properties should make similar provisions. I beg to move.
Baroness Hollis of Heigham: We support the amendment.
On Question, amendment agreed to.
Lord Strathclyde Lord Strathclyde moved Amendment No. 161C:
Page 66, line 16, leave out ("maintenance or repair of the property or of") and insert ("the carrying out of works of maintenance, repair, renewal or replacement in relation to the property or").
On Question, amendment agreed to.
11 p.m.
The Earl of Lindsay The Earl of Lindsay moved Amendment No. 161D:
Page 66, line 17, after ("others"), insert ("including gardens and other planted areas.").
The noble Earl said: In moving the amendment, I shall speak also to Amendment No. 161J. The amendment is tabled to confirm that enfranchising tenants pay an equitable proportion of the costs of those amenities held freehold by the landlord which form no part of the enfranchisable property but which are for the benefit of all neighbouring tenants, whether or not they choose to use those amenities.
My noble friend the Minister drew my attention to Clause 63(3) (c), which provides that the landlord running the estate management scheme can impose obligations in respect of:
"property used or enjoyed by them in common with others".
The amendment is therefore in the nature of a confirming amendment. I have had support for it from outside the Chamber but it would be useful for everyone in the Committee to hear it. I wish to clarify the fact that the provision also enables landlords to levy contributions from those people who could enjoy the amenities but choose not to.
Amendment No. 161J is a probing amendment and relates to an issue which has not received nearly enough attention. It is the problem which can develop when a landlord decides that he wishes to dispose of his freehold amenity assets which have formed part of an enfranchisable area and which have been a fundamental part of the terms of enfranchisement. Such amenities—and I include crescent or square gardens and other planted and common areas—may have been enveloped into estate management schemes of which the landlord has never been part. However, if the landlord decides that he can no longer afford or justify the holding or maintaining of that asset, there must be some clear method by which he can rid himself of the freehold of the asset.
It is probably impossible to predict whether capital values will be involved; there could simply be a notional value. On the other hand, it may be that the asset is of such extraordinary significance in a strategic part of central London or somewhere on the south coast that its potential value is huge. It may be free of all planning constraints so it may have an immediate value. However, it may also be an amenity which is being enjoyed within an enfranchised area. Therefore, complications could arise when the landlord feels that he has to sell.
Another factor is that often all such amenity assets, especially those relating to gardens and crescents, have notable residual costs. Not many leasehold estates have never suffered some form of residual loss at the end of each financial year on their planted areas. That is a burden which potential recipients of the freehold title may take into account and decide that they do not wish to be given a freehold title by the landlord.
I also point to the experience of those in Dulwich. As a result of the extent of enfranchisement, Dulwich, which has been a successful Section 19 estate management scheme, is suffering from a dilemma which has been presented to it by its charitable status. Because it has lost so much of its freehold ownership, it can no longer justify the costs and resources needed to run the freehold assets. Therefore, Dulwich is obliged to rid itself of some of the open ground and land. This is a relevant point because we have discussed other charitable bodies which will be affected by the Bill. It may be that they will be obliged rid themselves of some of their very strategic amenity assets because of their charitable status.
Lastly, when the landlord decides that the asset must be removed from his own portfolio, the person who takes on the title, whether by a notional £1 purchase or whatever it may be, must be identifiable. It may be that the beneficiaries using the asset are very clearly defined and, therefore, they are the obvious recipients. It may be that the obvious recipients are totally unwilling to take on the responsibility, or they may be willing but unable to do so because of the costs involved. It may be that it is an asset which does not have one cohesive group of beneficiaries. Therefore, should the landlord he parting with the freehold, there is no obvious recipient of that freehold.
I stress to Members of the Committee that this is a probing amendment. This matter needs to be given more thought before we return to it. I beg to move.
Baroness Hollis of Heigham: We believe that these are sensible amendments. It is clearly the case that in certain heritage areas there will be common space which is crucial to the amenity and architectural and historical quality of the area which needs protection but which will not necessarily be transferred as part of the curtilage of the flats which are being enfranchised. Therefore, we need fail-safe arrangements to ensure that those public assets which, in a way, belong to all of us, are properly maintained. We believe that these amendments go some way towards achieving that.
Lord Strathclyde: Amendment No 161D is a drafting amendment. I have no quarrel with its intention or effect, but it is unnecessary and I shall demonstrate that. Amendment No. 161J is a probing amendment and I shall discuss that more fully.
The first amendment is unnecessary because Clause 63 already quite clearly provides that an estate management scheme can include obligations relating to works of maintenance or repair, and now (following the acceptance of Amendments Nos. 1618 and 161C) works of renewal or replacement, in respect of the property itself or other property used or enjoyed by the enfranchising leaseholders in common with others.
This could include common parking areas, communal gardens, patios, other planted areas, tennis courts, etc. The list is endless. Including a reference to the use of gardens and other planted areas would merely include just two examples of the type of common facility in respect of which a scheme might include obligations, and indeed the inclusion of such a specific reference might raise a doubt as to the extent of the other common areas that the provision applies to.
Of course, where the tenants enjoy the:
"use of gardens and other planted areas",
then an estate management scheme will be able to make provision for their maintenance.
Subsection (4) already provides that estate management schemes may include provision for allowing the landlord to transfer all or any of the powers that will be conferred on him by the scheme to a local authority or other body, including a body constituted for that purpose.
I should make it clear that, although Clause 63 enables estate management schemes to provide for the management of gardens or other amenity areas used in common, it does not enable such schemes to dictate how a landlord's interest in certain property should be disposed of; and nor should it.
I appreciate that the point about which my noble friend Lord Lindsay is most concerned is that a scheme should provide for the disposal of gardens and other areas used in common where the landlord may have disposed of all his other interests by way of enfranchisement and no longer wishes to retain the freehold.
An estate management scheme is intended to provide for the management of certain areas of property that are likely to become enfranchiseable under this Bill and to pass on duties previously contained in leases and make them enforceable against those occupying or with an interest in those

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enfranchised properties. It is concerned with regulating redevelopment, use or appearance of property but does not, and should not, dictate how people with an interest in properties affected by the scheme should dispose of their interests.
An estate management scheme should not be affected by the disposal of areas used in common, whether they be gardens or not. The leaseholders on an estate will still be subject to the covenants in their leases and those enfranchised properties covered by the scheme will still be subject to the obligations and benefits of the scheme irrespective of who the freehold owner of the area used in common is.
The new freehold owner will also still be subject to the estate management scheme. I remind my noble friend that the scheme must include provision for identifying who is responsible for managing the scheme as landlord at any one time.
I appreciate that it may be desirable for those persons occupying or with an interest in properties subject to an estate management scheme perhaps to be offered any areas used in common, particularly where they may be contemplating forming a body to take over such a scheme but it would be for them to reach an agreement with the freeholder. I do not think that the scheme should go as far as to dictate how and when such areas should be disposed of by the landlord. My noble friend said his amendment was a probing one. I hope that I have explained the intention of the section.
The Earl of Lindsay: I thank my noble friend for the length and depth of his answer. Certainly I shall read what he said more carefully tomorrow and give this subject some more thought. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
11.15 p.m.
The Earl of Lindsay The Earl of Lindsay moved Amendment No. 161E:
Page 66, line 19, leave out ("paragraph") and insert ("paragraphs (a) or").
The noble Earl said: This is an important amendment which seeks to clarify the costs relating to the duties of an estate management scheme as set out in Clause 63(3) (a). Clause 63(3) (a) states that an estate management scheme may provide,
"for regulating the redevelopment, use or appearance of property in which tenants have acquired the landlord's interest".
The amendment seeks to ascertain that these costs are properly recoverable. Clause 63(3) (c) sets out what costs can specifically be recovered. It mentions the duties outlined in paragraphs (b) and (c) but it fails to mention the duties outlined in paragraph (a). This matter is especially relevant because of the extent to which Section 19 estate management schemes have suffered from their comparative inability to recover those costs.
It is in everyone's interests that estate management schemes are made to be as successful as possible. The more successful they are, the longer they will run. If they are in a sense going to constitute privatised local authorities and they will be used to enforce covenants
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and regulations on everything from building regulations in use to car parking, aerials, pets and noise, it is valuable that they perform this function as efficiently as possible. It not only benefits the local residents but it takes some of the pressure off local authorities and other hard pressed organisations such as English Heritage.
It must be made quite clear to anyone applying for an estate management scheme and anyone running an estate management scheme that the considerable costs involved in acting as a local authority are fully and properly recoverable. As I have mentioned, it is the track record of Section 19s that makes this matter so important. My noble friend mentioned that some 200 applications were made for Section 19s and many have been successful. Dulwich has been mentioned in debating this Bill on previous occasions. Even successful Section 19s, and most especially Dulwich, have suffered from one uncontrollable and fairly irrecoverable cost. If two enfranchised freeholders fall out over some covenant or some practice, then the estate manager has to step in. Apart from the hours he may have to devote to the problem, he may have to initiate court action. Therefore, there are considerable internal and external costs. Dulwich and other Section 19 schemes have found it difficult to recover such costs retrospectively. In performing such a role managers often have to step in unrequested, which also generates costs and considerable unpopularity.
I acknowledge that Chapter IV of the Bill is more promising than Section 19 of the 1967 Act. One of the critical errors in relation to Section 19 was that costs relating to redevelopment, use or appearance were not included. I am nervous that once again they will not be included. I believe from the spirit of the concessions that they probably will be included, but as the Bill is presently drafted there is considerable doubt as to how effectively the matter is covered.
I shall also speak to Amendment No. 161F, which deals with costs of unusual proportions which can arise in the management of estates. The amendment proposes that there should be an ability for an estate management scheme to include provision for an accumulation or sinking fund aimed at meeting periodic investment of a large but anticipated nature. That would be done with the approval and blessing of the leasehold valuation tribunal.
It seems proper that short-term tenants should not escape long-term costs. In the same way it seems equitable that long-term costs should not suddenly fall like a thunderbolt on one or two years' service charges.
The first of the two principal beneficiaries of the amendment would be the fabric of an estate and the services of that estate. If the estate is within a conservation area there may be certain heritable attributes which can only be repaired using certain materials and craftsmanship. Although such renewal may occur only every 25, 50 or 75 years the costs will be disproportionately large. Even in an estate which falls outside conservation area legislation there might, for example, be a cobbled mews. It would be nice if the residents, through the estate management scheme,

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were able to afford to recobble the mews when that part of the fabric declined rather than being able to afford only a cheap replacement.
The second beneficiaries of an accumulating fund would be the tenants and residents themselves. I know from experience in the management company which I run for myself and other freeholders in North Kensington that when a large bill suddenly arrives for a repair there is universal disappointment. If there is any way of avoiding it everyone does their utmost either to delay the repair or ignore the fact that it needs to be carried out. If one ignores maintenance because the cost is frightening, slowly but surely the capital value of the area, including one's own freehold house, declines. If there is no accumulation fund but that bill must be met, it is unfortunate for those who are on the point of selling their house. Often the buyer discovers that an extraordinarily large service charge is just around the corner for recobbling, re-tarmacking or refencing a garden, as the case may be.
I maintain that both the fabric of estates under estate management schemes and the residents of the estates will benefit from some form of accumulation fund.
Thee details of the collection and operation of such a fund through an estate management scheme operator need to be clarified. It must be held in an interest-earning account and it needs to be held in trust or on behalf of the residents for that specified purpose. Therefore if the estate management scheme operator changes at any time, the fund remains protected and secure. I beg to move.
Lord Strathclyde: I have some sympathy with what my noble friend says. I am prepared to consider the amendments with a view to deciding whether the estate management provisions in the Bill can be improved in the way that the amendments intend.
The Earl of Lindsay: I thank my noble friend. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 161F to 161J not moved.]
Clause 63, as amended, agreed to.
Clause 64 [Approval by leasehold valuation tribunal of estate management scheme]:
[Amendment 161K not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 162:
Page 67, line 24, leave out ("may") and insert ("shall").
The noble Baroness said: I shall be brief since a similar amendment is on the Marshalled List in the name of the noble Lord, Lord Peyton. I believe that the Government may he minded to consider the amendment sympathetically.
The amendment provides that when considering whether to approve an estate management scheme, a leasehold valuation tribunal not only should take into consideration the benefit to the area, the tenants, and so on, but, as the Bill now provides, may have regard to its historical character, its architectural character and its heritage. The amendment provides that those considerations must be borne in mind, not merely that
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they may be borne in mind, by the leasehold valuation tribunal in determining whether to approve an estate management scheme. I beg to move.
The Chairman of Committees: I have to inform the Committee that if the amendment is agreed to, I shall be unable to call Amendment No. 162ZA, as a similar inspiration seems to have struck the noble Lord, Lord Peyton.
Lord Boardman: I have the pleasure 10 agree entirely with the noble Baroness. It is a very sensible amendment. I hope my noble friend will agree to it.
Lord Strathclyde: In a rare meeting, of minds, my noble friend Lord Peyton and the noble Baroness, Lady Hollis, put down exactly the same amendment. I am delighted to accept one of them. Which one is entirely up to the noble Baroness.
On Question, amendment agreed to.
[Amendment No. 162ZB not moved.]
The Earl of Lindsay The Earl of Lindsay moved Amendment No. 162ZC:
Page 68, line 29, leave out from ("scheme") to end of line 40.
The noble Earl said: The amendment queries the wisdom of compelling leasehold valuation tribunals to make the existence of an estate management scheme a factor in determining the price at which enfranchisement takes place.
As the Bill is drafted, it may be possible that a very comprehensive estate management scheme, with all the charges and obligations that go with it, could serve to penalise the landlord when calculations of enfranchisement are being worked out in front of a leasehold valuation tribunal. There is a danger under the provisions of the clauses that the tenant could successfully argue to the tribunal that the extent to which the scheme reaches into his otherwise freehold life depresses the value of that freehold. For instance, many estate management schemes might simply pick up roughly where the lease conditions left off. However, in many circumstances it might he a good idea if the estate management scheme went further than the original leases. Landlords applying for estate management schemes should be able to do so without feeling compelled to protect their own interests at future negotiations over enfranchisement values, in front of the tribunal.
It is also theoretically conceivable—and I bring this up because this is a querying amendment—that tenants may well want to keep an area where capital values are modest while they are applying for enfranchisement. They may only want some wonderful uplift to result from the estate management scheme after they have been to the tribunal and negotiated a slightly lower enfranchisement price. I should welcome it if my noble friend would explain the purpose and wisdom of the two paragraphs.
The final question I leave with my noble friend is this. If it takes up to two years to apply and obtain an estate management scheme, and if someone applies to enfranchise their leasehold prior to the institution of

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the estate management scheme, does the tribunal take a pot shot at guessing what it may be or does it ignore that altogether? I beg to move.
Lord Strathclyde: The Committee has heard that the effect of this amendment is to delete parts of subsection (11) so that where an estate management scheme has been approved and registered as a local land charge, the price payable on enfranchisement would not be affected by the existence of such a scheme. Where an estate management scheme has been approved and it is registered as a local land charge, then its existence cannot be denied.
The point is whether its existence and the obligations, rights and benefits it bestows should have any effect on the price payable under any subsequent enfranchisement. It is a matter of argument as to whether, in the circumstances of a particular scheme, the scheme is likely to affect the price payable on enfranchisement and whether it is likely to push the price up or down. Much will depend on the details of the scheme and the obligations and benefits it bestows.
What I can say to my noble friend, in asking him to withdraw his amendment, is that where estate management schemes are to be promoted by local authorities or English Heritage, in default of the landlord promoting such a scheme, then, when we bring forward our amendments at a later stage, we shall ensure that the landlord does not benefit from the existence of such a scheme. The landlord would have had two years within which to promote his own estate management scheme and having failed to get one approved should not benefit from the effect of one promoted by someone else. We shall provide that the price payable on enfranchisement will not take into account the effect of such a scheme. I ask my noble friend to withdraw his amendment.
The Earl of Lindsay: Will my noble friend repeat the last sentence which I missed? It seems to be pertinent.
Lord Strathclyde: I apologise. I said that we would provide that the price payable on enfranchisement would not take into account the effect of such a scheme.
The Earl of Lindsay: I think I understand my noble friend and am grateful for his reply. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 64, as amended, agreed to.
Clause 65 [Applications by two or more landlords, or by representative body]:
Viscount Goschen Viscount Goschen moved Amendment No. 162A:
Page 69, line 27, after ("scheme") insert ("under section 64").
The noble Viscount said: In moving Amendment No. 162A, I refer to Amendments Nos. 163A and 164A. These are all technical drafting amendments to clarify the meaning of Clauses 65 and 66. I beg to move.
On Question, amendment agreed to.
[Amendment No. 162B not moved.]
11.30 p.m.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 163:
Page 69, line 32, at end insert:
("(3A) Where it appears to a leasehold valuation tribunal that, in respect of an estate management scheme approved under section 64 above, the landlord for the time being has ceased to exercise all or any of the powers and rights conferred by the scheme on the landlord for the time being, the leasehold valuation tribunal shall, on an application made by a representative body within the meaning of this section, transfer such of these powers and rights as are the subject of the application to this representative body.").
The noble Baroness said: I wish to move Amendment No. 163 and speak to Amendment No. 164. I regret that we come to these amendments, as with the others we have discussed, so late in the evening as I believe that they are exceedingly important.
We have had a series of amendments, including these, which seek to bridge the right of the individual leaseholder to enfranchise on the one hand and the right of all of us to ensure that the heritage core of our conservation areas, which are held in trust for us all, are properly guarded and cared for.
We on this side do not believe that flat dwellers, just because they are flat dwellers, should be exempt from enfranchisement. Indeed, we challenged the amendments in the name of the noble Lord, Lord Cavendish, on an earlier day of the Committee stage, and we challenge the notion that heritage areas should be exempt because we believe that ownership is often a better guarantee that property will be kept in proper repair, than under a leaseholder with a declining asset in a sharply diminishing lease. All the evidence of the 1967 Act shows that such property is well maintained, and why not? People choose to live in heritage property very often because they have an affection for old buildings.
However, the point has been made several times that we accept that enfranchisement of flats is different from that of houses, simply because it is collective. Therefore, the interaction of one owner with another is much more marked. It would require collective agreements over and beyond, for example, a simple decision to paint frontages cream because if the creams are of different shades or are painted in different years, the result, as I said at Second Reading, is the effect of cassata ice cream.
What powers now exist to protect our heritage areas under the Bill as unamended? Individual listed buildings, which may represent between 10 per cent. and 25 per cent. of a conservation area, are obviously guarded by the listed building procedure, which controls facades, alterations and the like. The problem —it was a problem that we debated fully when we discussed the Planning and Local Government Bill some two years ago—was the lack of adequate controls for the rest of a conservation area over and beyond those associated with listed buildings, because permitted development rights presume in favour of the owner's wishes and idiosyncrasies in conservation areas. In the light of that, the Historic Towns Forum, with which I have been associated, has monitored the effect over the past few years. It is exceedingly worried

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about the increasing neglect of the heritage aspects of our conservation areas, as we see windows replaced by 1960s contemporary UPVC; doors replaced with Eldorado mahogany sunspray doors; brick walls replaced with Dallas ranch fencing; concreted front gardens; and the demolition of architectural detailing —all of it permitted now within conservation areas which are part of our heritage.
Article 4 directions which would overturn such permitted development rights mean that local authorities may have to pay compensation accordingly. That is impossible, even where the DoE is willing to grant Article 4 directions. It is notoriously reluctant to do so, despite commitments in the 1990 Act.
Hence, because conservation area protection at the moment is inadequate, and because much of our heritage area is made up of buildings other than listed buildings, we need additional protection for such core areas for those properties not listed. Hence, the Bill rightly and sensibly provides for estate management agreements—effectively, interlocking covenants sought by the landlord to be approved by the leasehold valuation tribunal. In so far as the Bill comes from the other place, it is full of holes, as the noble Lord, Lord Peyton, asserted and as the Minister cheerfully admitted—-the Minister is always cheerful —and incidentally that is a good reason for this Chamber to exercise its revising function if it is minded to revise.
What have we seen? We have seen that on the face of the Bill as presently constituted there is no power to permit anyone other than the landlord to set up an estate management agreement. If enfranchised, many landlords, especially if they retain their commercial interest, may do so. But for others there may well be a diminishing personal and financial interest, especially in the course of a generation, and they may walk away. That is why we welcome the Government's proposal to return at Report stage with an amendment permitting the setting up of EMAs by local authorities or English Heritage.
But one key gap—a second gap—is a power to vary under the 1967 Act so that such estate management agreements applying to houses should be able to go in future to the leasehold valuation tribunal rather than to the High Court. Again, we understand that such a proposal will come forward at Report stage, and obviously it is to be supported.
We also need to broaden the considerations that the valuation tribunal must bring to bear on the declaration of an EMA. That is why I was delighted that the Minister and Members of the Committee felt able to accept Amendment No. 162. We also need to strengthen the scope and range of the powers which the landlord can deploy within an EMA to ensure that the area is properly protected. That is why we welcomed and supported Amendments Nos. 161B, 16 IC and 161D. We also need powers, as the noble Earl, Lord Lindsay, drew to our attention, to protect the open spaces that do not form part of a curtilage.
All those are issues which should have been discussed more thoroughly in another place and brought forward with government sponsorship at an early stage. Without them, EMAs are riddled with
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holes. Above all—and this is the significance of Amendments Nos. 163 and 164—the biggest gap is the absence of an ability to ensure that, once estate management agreements are in place, they can be enforced. At the moment there is no way of doing so on the face of the Bill. There is nothing to enforce them; nothing to police them; nothing to make them stick. What is the point of having them?
Let us say that in good faith a landlord sets up an EMA. After a few years there may be a sharply diminished interest; perhaps he has sold adjacent commercial interest or perhaps there is a new heir to the property and the new heir finds the task of being a property manager fairly thankless. If the enfranchised leaseholders wish to, they can go to the leasehold valuation tribunal to vary the EMA; they can take it over themselves or, alongside the landlord, can request the local authority to do so.
But what happens if a landlord neglects to enforce an estate management agreement after a few years and the tenants or leaseholders collude with that neglect? After all, it saves them money. What then? What powers has anybody under the Bill as presently constituted to make that EMA stick? There must be default powers for local authorities and for English Heritage where the landlord is indifferent and leaseholders are acquiescent.
Obviously under the amendment local authorities would do so only where they could persuade the leasehold valuation tribunal that it was reasonable that they should intervene; in other words, where it was clear that an EMA had been neglected but there had been a substantial failure to enforce it. Given the pressure on local authority resources, it is not likely that they are going to intervene just for the sake of it; they will do so only where they see a cherished heritage area within a conservation area becoming run-down and at risk.
Local authorities clearly do have skills for the role. Many are not only running dozens of conservation areas but caring for their own listed buildings, and English Heritage has its way of caring for many of the English Heritage properties as well. In any case, their role has been well recognised by the DoE in its own prospective amendment, that where the landlord does not, the local authority may set up an EMA or its own. I would have thought that it would have been an appropriate step, even before that, to ensure that EMAs, once set up, could be enforced, and that is a gap which the amendment seeks to remedy if the Committee agrees.
To be properly effective, we shall need a subsequent amendment—which I hope the Government will bring forth, otherwise we shall—that all estate management agreements coming through the leasehold valuation tribunal should also be notified, with their terms, to the local authority in its capacity as a planning authority. In that way, it can ensure that it too can keep an eye on the enforcement of the EMAs.
I hope that the Government will take on all the: amendments. They are all of a piece. They fit together to make a reality of an estate management agreement which, while protecting the leaseholders rights, protects for all of us our heritage interests. If the

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Government do not; if we have a landlord-sponsored EMA which cannot be made to stick because neither landlord nor leaseholders have any interest in making it stick—because we have no default powers within local government—then heritage areas will remain highly vulnerable. I am sure that none of us in this Chamber wishes for that. I beg to move.
Lord Strathclyde: I have some sympathy with the amendments. I understand and accept the reasons for giving local authorities and English Heritage reserve powers. However, it is not a simple matter of references in the Act to a representative body to include reference to a local authority or English Heritage.
We are not convinced that such powers should be given to all local authorities in all circumstances. We are minded to give default powers to local planning authorities and English Heritage, but only in respect of designated conservation areas. We feel that local authorities and English Heritage should become involved only where there is a general interest or desirability in preserving and enhancing the character of an area given the limited resources that are likely to be available to it, and in effect that means limiting its involvement to conservation areas.
Every local planning authority has the power to designate conservation areas and English Heritage has the power to do so in Greater London. However, I do not consider that its involvement need necessarily be restricted to conservation areas it has itself designated. This raises various other questions as to whether the promoting authority should consult with the designating authority, whether there should be joint applications, whether schemes can straddle local authority boundaries, and so on. The noble Baroness touched on some of those.
As far as enabling local authorities or a representative body to take over an existing scheme where the landlord has ceased to exercise his powers or rights, I draw the Committee's attention to Clause 63(4) (b) which clearly states that estate management schemes may include provision for the transfer of powers to a local authority or other body. This need not necessarily be a representative body of the tenants.
Where an estate management scheme does not include provisions for transfer but later on it becomes desirable to include such provisions, they can be varied. Clause 63(2) requires that all schemes must include provision for terminating or varying the provisions of the scheme if a change of circumstances makes it appropriate. Variations will of course need to be done as required under Clause 63 by or with the approval of a leasehold valuation tribunal.
We have been considering all of these issues. As I mentioned earlier, we had hoped to have tabled an amendment for Committee stage. However, given the amount of work that is involved, it has not been possible to do so, but I promise to take this amendment away to consider it and will table something at a later stage. I hope that on the basis of that the noble Baroness will withdraw her amendment.
The Earl of Lindsay: Before the noble Baroness answers, I should like to say that I think it is important that some sort of back-up system operates both in designated areas and areas of strategic importance, as my noble friend said, and also in other areas. It occurs to me that the leasehold valuation tribunals may themselves care to check on progress, as it were, especially at mid-point in an estate management scheme, depending upon the length the award has been for.
Outside this Chamber my noble friend gave an indication that, depending upon the areas for which they were considering schemes, the leasehold valuation tribunals would have assessors who are experienced in heritage matters and surveyors who have experience of heritage properties. It may be that the LVT itself is a body that could be used when the alarm bells ring, without local residents having to support it. I can say from my personal experience that poor management is highly popular with residents, and therefore it is necessary to have some sort of safeguard.
Baroness Hamwee: Before the noble Baroness responds, the Minister has given welcome assurances about looking at this part of the Bill, and he uses the usual formula "At a later stage". It would be helpful to the Committee if we could have an assurance that that will be at the next stage. Otherwise we shall be in some difficulty. I see the Minister nods and agrees to that.
Baroness Hollis of Heigham: I am delighted that the amendments have received the support around the Committee that they have. It is entirely reasonable that estate management agreements should have default powers only in so far as they are within conservation areas. I think that is a perfectly reasonable narrowing of the amendment, if that is what the Minister has in mind. I look forward to seeing what the Government propose to table at Report stage. In the light of that, I am happy to withdraw the amendment.
Amendment, by leave, withdrawn.
Viscount Goschen Viscount Goschen moved Amendment No.163A:
Page 69, line 33, leave out ("the generality of").
On Question, amendment agreed to.
[Amendment No.164 not moved.]
Clause 65, as amended, agreed to.
Clause 66 [Effect of application for approval on claim to acquire freehold]:
Viscount Goschen Viscount Goschen moved Amendment No.164A:
Page 70, line 4, leave out ("provisions") and insert ("sections").
On Question, amendment agreed to.
Clause 66, as amended, agreed to.
Clause 67 [Variation of existing schemes]:
11.45 p.m.
Viscount Goschen Viscount Goschen moved Amendment No. 164B:
Page 71, line 41, at end insert ("within the area of the scheme").
The noble Viscount said: This is a drafting amendment. It is intended to make it perfectly clear

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that the variation of existing estate management schemes for the purpose of extending the scheme to properties that will now become enfranchiseable under the provisions of the Bill can apply only where those properties are located within the geographical area of the existing scheme. I beg to move.
On Question, amendment agreed to.
Clause 67, as amended, agreed to.
Clauses 68 and 69 agreed to.
Clause 70 [Management audits]:
The Earl of Lytton The Earl of Lytton moved Amendment No. 165:
Page 74, line 30, after ("acting") insert:
("(aa) he is a qualified surveyor belonging to the Royal Institution of Chartered Surveyors or the Incorporated Society of Valuers and Auctioneers and is not disqualified from acting,").
The noble Earl said: In moving this amendment I must declare an interest as a Fellow of the Royal Institution of Chartered Surveyors. The purpose of the amendment is to insert a new paragraph dealing with further considerations as to the nature of a person who is qualified for appointment for the purposes of a management audit.
At the moment the Bill reads:
"in accordance with subsections (2) to (6) of section 28 of the 1985 Act (meaning of 'qualified accountant') he has the necessary qualification and is not disqualified from acting".
The amendment would insert a new paragraph as follows:
"he is a qualified surveyor belonging to the Royal Institution of Chartered Surveyors or the Incorporated Society of Valuers and Auctioneers and is not disqualified from acting".
It may be that the juxtaposition of the clauses looks a little disingenuous in that it might appear that it is intended to mean that this qualified accountant has to be both an accountant and a member of the two bodies that I have referred to. That is not intended, whatever the effect might be.
The type of management audit envisaged in Clause 70 is one that surveyors and valuers are very well qualified to carry out. Many of them have considerable experience in dealing with these matters. I find it a little surprising that they are not referred to specifically in this clause. Moreover, it would be difficult to see how accountants as such could carry out the tasks allotted to them under the proposals in the Bill without drawing on the skills of qualified surveyors. It may well be that that is why the Bill reads:
"The auditor may appoint such persons to assist him in carrying out the audit as he thinks fit".
The Royal Institution of Chartered Surveyors advises me that it has discussed this aspect with the Institute of Chartered Accountants. The ICA has expressed no objection to the inclusion of provision for a qualified surveyor to act, if necessary, as the lead audit person. It may be that the Minister will feel that the term "qualified accountant" covers all kinds of professional men. I would prefer to see a more specific reference on the face of the Bill. I beg to move.
Lord Strathclyde: We have required that the auditor which the tenants appoint to undertake the audit on their behalf must be a qualified accountant. We consider that art accountant would be more
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familiar with the conduct of financial audits and will have a better understanding of the documents concerned.
We have recognised, however, that: an accountant may not necessarily have sufficient experience and knowledge to enable him to assess the condition of the property and the necessity and appropriateness of any works which have been carried out. That is why we have provided that the auditor may appoint persons to assist him in carrying out the audit. We had in mind that this might be a surveyor, particularly where there is to be an inspection of the property. He may also require legal assistance where the terms of the leases are in doubt.
We think it would be inappropriate for the auditor to be a surveyor. Most of the audit will centre on the accounts and receipts which relate to the service charge expenditure. That is the domain of an accountant. Where the audit extends beyond those documents and whether the work has actually been carried out, further professional advice and assistance may be required and in such cases the auditor may appoint someone to assist him, if he sees fit.
I cannot therefore see that the appointment of a surveyor in the first instance would be advantageous to the tenants. I hope that the noble Earl will withdraw the amendment.
The Earl of Lytton: I thank the Minister for his reply, but it is my understanding that surveyors and valuers accept responsibility for the entire preparation and audit of management accounts and therefore are well qualified.
Another point that arises out of the Minister's response is that if his logic is to be followed it means that two or possibly three people have to deal with the matter where one will do. Chartered surveyors, qualified and experienced in the matter of property management, clearly understand a large part of the legal and financial parameters that surround what they have to do, particularly in the light of the 1987 legislation.
I reserve my position on this matter but will consider carefully what the Minister has said. In the meantime, I beg to leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 70 agreed to.
Clauses 71 and 72 agreed to.
Clause 73 [Procedure following giving of notice under section 72]:
Viscount Goschen Viscount Goschen moved Amendments Nos. 166 to 168:
Page 76, line 31, leave out from ("any") to end of line 11 and insert ("document falling within section 71(2) (a) (ii) any facilities specified in relation to it under subsection (3) (c) (ii) of section 72;").
Page 77, line 12, after ("notice") insert ("under section 71").
Page 77, line 32, after ("notice") insert ("under section 71").
The noble Viscount said: These are drafting amendments. Amendment No. 166 is intended to clarify the meaning of subsection (1) (a) of Clause 73. Current drafting does not make clear that the auditor will be able to inspect all the documents that support

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the summary of costs supplied by the landlord in connection with the service charge. Amendments Nos.167 and 168 are minor drafting amendments. Their purpose is to clarify the references in subsections (4) and (7) to the giving of a notice as mentioned in subsection (3).
On Question, amendments agreed to.
Clause 73, as amended, agreed to.
Clauses 74 to 76 agreed to.
Clause 77 [Amendment of Part III of Landlord and Tenant Act 1987]:
Baroness Hamwee Baroness Hamwee moved Amendment No.168A:
Page 79, line 44, at end insert:
("(2A) In section 26 (qualifying tenants)—
(a) for subsection (1) there shall be substituted—
"(1) A person is a qualifying tenant for the purposes of Part I of this Act (tenants' rights of first refusal)." and
(b) subsections (2), (3) and (4) shall be omitted.").
The noble Baroness said: This is only a probing amendment. I apologise for the fact that it does not make the best bedtime reading. Part III of the Landlord and Tenant Act 1987 (the subject of Clause 77) enables qualifying tenants of flats contained in premises covered by Part III to acquire their landlord's interest in the premises without his consent. They can make an application to the court for an acquisition order. This right applies where the landlord has failed to discharge his obligations relating to repair, maintenance and so on and where the appointment of a manager is not an adequate remedy and the problem has still not been solved.
Generally speaking, the premises which fall within the definition of relevant premises for collective enfranchisement will also qualify under Part III of the 1987 Act. Premises excluded from collective enfranchisement are likewise generally excluded from the 1987 Act. Part I of the 1987 Act gives qualifying tenants of the relevant premises the right of first refusal when the landlord decides to dispose of his interest in the dwelling. The definition of premises for Part I is the same as the definition of premises for Part III but the definition of qualifying tenants is different. A person is a qualifying tenant for Part I if he holds any tenancy other than an assured shorthold business or service tenancy.
With that necessary bit of background, the specific purpose of the amendment is that it seeks to substitute in Part III of the 1987 Act the definition of qualifying tenant which is used in Part I. That will have the effect of giving holders of tenancies that are not long leaseholds at low rent the right to participate in this form of acquisition of the landlord's interest and not merely a right of first refusal when the landlord decides to dispose of the property. This will have the effect of extending the right of compulsory acquisition to long leaseholders whose leases are not at a low rent and to leaseholders with interests of less than 20 years.
I have tabled this amendment to ask the Government to explain the difference between the rights given under Parts I and III of the 1987 Act. On the face of it, there seems no good reason why tenants who have the right of first refusal should not also have
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the right of compulsory acquisition. They are at the mercy of landlords who fail to discharge their obligations in the same way as long leaseholders. I beg to move.
Lord Strathclyde: The noble Baroness has put the arguments for the amendment most eloquently; but I believe that she has ignored the fundamental difference between the two rights. One, the right of first refusal, arises only where the landlord wishes to sell. The other, compulsory acquisition, is initiated by the tenants, irrespective of whether the landlord wishes to sell or not, and is dependent on the fault of the landlord in his management of the property or the fulfilment of his obligations.
We think it right that those who exercise the right to compulsory acquisition should be those who have a substantial, long-term interest in the property: the long leaseholders. A qualifying tenant under the right of first refusal may also be a tenant who is renting the property or one who is a short leaseholder.
The similarities between compulsory acquisition and collective enfranchisement are clear, despite the former arising only where bad management or breach of obligations is proven. Perhaps that is the underlying purpose behind this amendment. If compulsory acquisition were to be extended to the private rented sector, there would be renewed cries from Members of the Committee for the same to be done for collective enfranchisement. And I have to acknowledge that our arguments against this would be diminished by such an event.
The Government have a fundamental objection to extending compulsory acquisition rights to the private rented sector. Renting tenants, as the noble Baroness knows, have their own remedies for breach of obligations in other legislation. We cannot therefore agree to this amendment.
Baroness Hamwee: At this time of night I have no wish to set off cries from anyone. I shall read the Minister's reply. In the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 77 agreed to.
Lord Boardman Lord Boardman moved Amendment No. 168B:
After Clause 77, insert the following new clause:
("Tenants' right to manage
.—(1) Subject to subsection (2), this section shall confer upon the tenants of fiats in premises falling within section 3(1) the right to appoint a manager to carry out such functions in connection with the management of those premises as the leasehold valuation tribunal shall think fit.
(2) The right to appoint a manager under this section shall only be exercisable where notice of appointment has been given to the freeholder of the premises by not less than half of the tenants of flats in those premises each of whom is a qualifying tenant as defined in section 5.
(3) The leasehold valuation tribunal shall upon application by a manager appointed in accordance with subsection (2) grant an order making provision for such matters relating to the exercise by the manager of his functions and such matters as are incidental or ancillary thereto as the leasehold valuation tribunal thinks fit.
(4) Without prejudice to the generality of the powers of the leasehold valuation tribunal provided in subsection (3) an order under this section may provide—

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(a) for rights and liabilities arising under contracts to which the manager is not a party to become rights and liabilities of the manager;

(b) for the manager to be entitled to prosecute claims in respect of causes for action (whether contractual or tortious) accruing before or after the date of his appointment;

(c) for remuneration to be paid to the manager by the freeholder or by the tenants of the premises in respect of which the order is made or by all or any of those persons;

(d) for the manager's functions to be exercisable by him either during a specified period or without limit of time.").

The noble Lord said: I too shall take this amendment briefly although it is one which can have a major impact on many thousands of leaseholders. Throughout the debate in Committee we have had many comments and criticisms made on the style of management and the bad management of management services which have been suffered by leaseholders. Obviously, we do not hear about the praise because people are not inclined to ventilate it although I imagine that it is many times greater than that of the complaints. There can be no doubt that complaints have been numerous and they are the ones which we most hear.
I gather that the Joseph Rowntree Foundation research undertaken last year into complaints coming from leaseholders found that the majority of them were made because of maintenance and not the cost of management or tenure. We have heard in debates in Committee that complaints have come from freehold occupiers where they have set up something on a voluntary basis. That is nothing to do with this Bill. The complaints have been numerous, but they have been as regards management rather than tenure and they have been most formidable.
The purpose of this clause is to try to deal with that point. It provides that for any qualifying block where there are two-thirds of long leaseholds, then a simple majority of those leaseholders can decide to take over the management of the building. They are given control over their own homes. In this case there is no main residence qualification which Members of the Committee will know I have referred to on a number of occasions. Here it is a simple majority of long leaseholders in a qualifying block who wish to take over the management. This amendment gives the means by which they can do so.
I believe that this will overcome a very large number of problems and many of the difficulties which have been referred to earlier in the debate and which we may be able to return to on Report. I hope that my noble friend will feel that this is a helpful amendment. It is meant to help leaseholders who have that problem. I hope that he will find that it is one which commends itself to him. I beg to move.
Midnight
Viscount Dilhorne: I support the amendment to a degree only. It is a good amendment. It places the responsibility for maintaining the property upon the person who will enjoy it (the tenant); but there is nothing especially novel in the scheme. I do not agree with some of the small print of the amendment, but that can be changed. As my noble friend said, the
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purpose is to enable the tenant to run his own property. That is something that happens regularly in France. There is an annual meeting of all the tenants at which they nominate the person who is to manage the property, and they decree, or agree, what should be done. It does away with having to go to leasehold valuation panels, and all the cumbersome procedures contained in the earlier clause. I support the amendment, because it follows an idea I had some years ago when the commonhold provisions were introduced, having experienced it in France in practice. I commend the amendment to my noble friend the Minister.
Lord Williams of Elvel: I support the amendment:, which fills an important gap. I shall not go over all the arguments that the noble Lord, Lord Boardman, used. I hope that the Government will pay attention to them and see some way of incorporating the proposal in the Bill. It seems to us generally to be a desirable objective. I hope that the Government share that view.
Baroness Hamwee: I support the amendment. It does not need to be said, but I shall say it because I have been having so many "spats" with the noble Lord, Lord Boardman, that I should like to take the opportunity of agreeing with him.
Lord Monson: Perhaps I may first express the view that it is the greatest of pities that we have to discuss important amendments like this one and the next in the small hours of Tuesday morning with, perhaps, a baker's dozen of Members of the Committee in the Chamber. We have made such good ground that one might have thought that we could have adjourned after Clause 77, but there it is.
I welcome the principle behind the amendment; but I must point out to the noble Lord, Lord Boardman, that in my experience self-management does not always equate with good management, any more than self-government of a country equates with good government. There are many reasons for that, but I suppose the main one is that a large number of independent-minded leaseholders find it difficult to agree on almost anything, whether it be the painting of the communal parts, the repair of the roof or anything else. Moreover, it is frequently difficult to get people to pay their due share of the insurance of the fabric of the building, maintenance charges and so forth. It sometimes needs a firm outside hand to extract from people what they should pay. As I said, the intention of the amendment is excellent, but I suspect that in practice the effect of the amendment, if accepted, would not be as beneficial in every case, as the noble Lord supposes.
Lord Strathclyde: There is a great deal of merit and attraction in the amendment. My noble friend Lord Boardman has succeeded in uniting all sides of the Committee. I accept that he has tried to be constructive. I have put a great deal of thought into the amendment to see how it would work. I have some problems with the practicalities of it. I hope that he will be able to explain why he believes that it will work.

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My worry is that as it is the landlord who is ultimately responsible for the satisfactory management of the block, it seems essential and fair that the choice and instruction of the managing agent should remain with him, because it would be inappropriate to give leaseholders the right to their landlord's role without their having purchased the freehold. It would present practical difficulties if the tenant wished to take action against the landlord, who continues to be responsible for the management of the block as whole.
I wish to give my noble friend an example. What would happen in the case where the tenants had instructed the manager not to do essential repairs—which was what they wanted—but later when the building began to disintegrate they decided to sue the landlord for breach of covenant? My noble friend Lord Dilhorne said that that is what happens in France. Of course, in France tenants have the freehold so they meet once a year to decide on who the managing agents should be. If this were a freehold situation I should have no problem at all.
The right to manage could lead to an increase in tension between landlords and their tenants if they change the managing agent frequently. It would also give rise to disputes between the landlord and the managing agent chosen by the tenants but responsible to the landlord. I am not aware of any evidence to suggest that transferring only a part of the landlord's responsibility would necessarily lead to better standards of management.
I have real worries that we could be creating a great conflict of interest in the property and I cannot believe that that will help anyone. The practical way for leaseholders of flats to take over the duties and responsibilities of their landlords is for them to take over the ownership and thus the control of the building for themselves. That is what collective enfranchisement achieves.
I recognise that my noble friend brought forward the amendment in a constructive spirit. It would be churlish to deny that it has been welcomed on all sides of the Committee. However, I hope that he can help me with those issues. If he cannot do so now perhaps he would like to think about them before Report.
Lord Boardman: I welcome my noble friend's commendation of the principle behind the amendment. I should like to reflect on how we can best deal with the problems which may arise. I was puzzled by his reference to the conflicts of interest which the provision would create, bearing in mind the massive number of conflicts of interest which will be created by carrying out the provisions of the Bill. It will enable 41 per cent. of the freeholders to buy the block, leaving nearly 60 per cent. without the ownership rights. Those conflicts worry me far more than any conflict which will arise under the management scheme.
I shall read with care what my noble friend said and I hope that we can produce something which will overcome his reservations. I believe that the provision could provide a real solution to many of the problems which worry leaseholders throughout that tenure. I shall come back on Report but in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 78 [Approval by Secretary of State of codes of management practice]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 169:
Page 81, line 4, at end insert:

("(6A) A failure on the part of any relevant person to comply with a code of practice for the time being approved under this section (insofar as it relates to the carrying out of management functions with respect to residential property) shall entitle the tenants of such property—

(a) to serve a notice on the relevant person requiring him to attend a meeting to account to the tenants for his failure so to comply;

(b) in default of such attendance by the relevant person, or if the tenants are not satisfied with the account given by the relevant person, to serve a notice on the landlord to the effect that:

(i) they do not wish the relevant person to continue to carry out the management functions for the premises;

(ii) (if applicable) requiring the landlord to terminate the contract under which the relevant person is retained at the end of the contractual term;

(iii) requiring the landlord to appoint as the relevant person a person nominated by the tenants on such terms as may be agreed between the landlord and the tenants as reasonable in the circumstances.

(6B) Any dispute arising under subsection (6A) above shall be referred for determination to the Leasehold Valuation Tribunal.").

The noble Lord said: The amendment is a variant on the theme which we have been discussing and need not repeat all the arguments. It is probably more consistent with the Bill than the blanket clause moved by the noble Lord, Lord Boardman, although I find that amendment very attractive.
I accept that there are problems with the drafting of my amendment and that tenants should be replaced by a recognised tenants' association as required by the Landlord and Tenant Act 1985. I also recognise that management contracts should not last longer than a year, otherwise one cannot change them. Nevertheless, it is one way of moving within the spirit of the Bill and in the direction indicated by the noble Lord. The tenants would not be responsible for management but any dispute under subsection (6) (a) would be referred for determination to the Leasehold Valuation Tribunal. That is not dissimilar from the referral to the court under Section 24 of the Landlord and Tenant Act 1987. The problem is that nowadays it is difficult to gain access to a court; it takes a long time. Therefore, I should have thought that the leasehold valuation tribunal was the right body to do that. As the noble Lord, Lord Monson, said, it is an extremely important matter. I beg to move.
Lord Monson: I support the amendment. The main catalyst for Part I of the Bill is the bad landlord or, more precisely, the bad freeholder. Most of us would agree that only a minority of freeholders fall into that undesirable category, and yet the blunderbuss effect of Part I peppers them all, whether they be good or bad. By building upon the 1987 Act—it is not quite as effective as it was originally thought to be—as this amendment does, the bad landlord is targeted. If you can deal with him, there is no need for the more

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controversial aspects of the rest of Part I. That is the path that I should have liked the Government to have taken from the outset. However, the amendment goes some way towards achieving the desirable effect of strengthening the 1987 Act.
Lord Rodger of Earlsferry: The noble Lord, Lord Williams, has mentioned certain problems with regard to the drafting of the amendment. Without dwelling upon that, I should say that the drafting suggests that the noble Lord, or whoever drafted the amendment, had in mind that the relevant person would be somebody who could be asked to attend a meeting. That might be so, but if Members of the Committee look at the provisions of subsection (8) (a) it will be apparent that "relevant person" is more widely drawn than that. For example, it would be wide enough to cover a tenants' management company, a superior landlord or another management company. Therefore, it is not necessarily apt to suggest that this should be a person who could be called along in all cases. For example, that would not apply as regards a management company.
It is fair to notice also that Clause 78(4) gives the Secretary of State the power to approve one or more codes of practice which are designed to promote desirable practice. He has power to approve parts of codes or to modify them and so on. It is obvious also that the codes may apply to private and publicly-owned properties—in other words, to public landlords, to blocks of flats, to hostels, to houses or to any other type of residential property. It is wide in its scope of tenure because it is clear from Clause 78(9) that it can apply to leases proper and also to licences. Therefore those codes of practice are extremely wide ranging. It does not appear to us that it would be appropriate in that situation for the kind of sanction which is envisaged here, even if it could be made to be practicable, given that they are extremely wide-ranging codes.
Another important matter as regards the codes is that it will be apparent from Clause 78(7) that the nature of the codes as envisaged is that they are the same type as those with which we are familiar; for example, the Highway Code or in industrial relations the codes on picketing and so on. It is envisaged that the code will have evidential status. A breach of the code would not give rise to liability in itself.
The amendment which is put down here would tend rather to change the status of the code and would, in our submission, change it in a way which would make it inconsistent with what is envisaged in the Bill as it stands. I understand that the amendment does not seek to make the code legally binding in the normal way: that is, it does not seek to lead to a direction of a court. However, it suggests that it should appear before the leasehold valuation tribunal. We consider that may not be an appropriate forum for settling disputes of this kind between landlords and their tenants, and certainly it is not a role which has been put before that body in the past. We consider that the code may be appropriate in the context of other remedies and it may help to strengthen these other remedies which are available under the 1987 Act. However, we believe this particular way of dealing
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with the matter is inappropriate. In those circumstances I hope the noble Lord will withdraw the amendment.
12.15 a.m.
Lord Williams of Elvel: I am grateful to the noble and learned Lord for his response. This is not the time of night to discuss in detail what he has said. What is in the Bill is not good enough and we shall have to return to this matter on Report. I hope the Government will provide something rather better than the provision they have in the Bill at the moment, because codes of practice—whether or not of Highway Code status—without any sanctions will simply be ignored. We do not want that to happen. However, I shall read what the noble and learned Lord has said. As I have said, I have no doubt that we shall return to this whole matter at the next stage of the Bill. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 78 agreed to.
Clause 79 [Jurisdiction of leasehold valuation tribunals in relation to enfranchisement etc. of Crown land]:
Lord Rodger of Earlsferry Lord Rodger of Earlsferry moved Amendments Nos. 169A and 170:
Page 82, leave out lines 24 to 28.
Page 82, line 30, leave out ("be in such form, and contain such particulars,") and insert ("comply with such requirements (if any) as to the form of, or the particulars to be contained in, any such application").
The noble and learned Lord said: In moving these amendments I shall speak also to Amendments Nos. 170A to 172. These are all technical amendments which deal with procedure and forms. They are intended to make the drafting of the Bill clearer. I shall speak also to Amendments Nos. 199 to 203, which are similarly technical amendments dealing with it be drafting of the Bill.
On Question, amendments agreed to.
Clause 79, as amended, agreed to.
Clause 80 agreed to.
Clause 81 [Jurisdiction of leasehold valuation tribunals]:
[Amendment No. 170A not moved.]
Lord Rodger of Earlsferry Lord Rodger of Earlsferry moved Amendments Nos. 171 and 172:
Page 84, leave out lines 17 and 18.
Page 84, line 24, leave out ("be in such form, and contain such particulars,") and insert ("comply with such requirements (if any) as to the form of, or the particulars to be contained in, any such application").
On Question, amendments agreed to.
[Amendment No. 173 not moved.]
Clause 81, as amended, agreed to.
Clause 82 agreed to.
Clause 83 [Agreements excluding or modifying rights of tenant under Chapter I or II]:
Viscount Goschen Viscount Goschen moved Amendments Nos. 174 to 176:
Page 85, line 25, leave out ("Schedule 13") and insert ("section 57").
Page 85, line 46, leave out ("Schedule 13") and insert ("section 57").

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Page 86, line 37, leave out ("32 of the Charities Act 1992") and insert ("36 of the Charities Act 1993").
The noble Viscount said: These are drafting amendments. I beg to move.
On Question, amendments agreed to.
Clause 83, as amended, agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 176ZA:
After Clause 83, insert the following new clause:
("Protection of occupants who are mentally handicapped or mentally ill
. Any provision in any lease or sublease of any residential flat which prohibits the lessee or sub-lessee from providing accommodation therein for a person who is mentally handicapped or mentally ill, shall be unenforceable, unless the behaviour of that person infringes the right of occupants of other flats in the same building to quiet enjoyment thereof.").
The noble Lord said: In the absence of the noble Lords, Lord Renton and Lord Rix, I move this amendment, which I believe is self-explanatory. I do not think I need go into it in any detail. The two noble Lords would have liked to be present but unfortunately at this late hour they cannot. I beg to move.
Lord Strathclyde: I am grateful that the noble Lord, Lord Williams, has moved this amendment in the absence of the noble Lord, Lord Rix, and my noble friend Lord Renton. I know that both of them were keen to speak to the amendment. However, my noble friend Lord Renton unfortunately was not feeling well and could not stay at this late hour. The noble Lord, Lord Williams, said in moving the amendment that it was self-evident. I sympathise entirely with the sentiment behind this amendment. People should not be prevented from being lessees of flats simply because they are mentally handicapped or mentally ill. That would be discriminatory and is clearly wrong.
I do not feel that the Committee is the appropriate place for such a discussion, or that the Housing and Urban Development Bill is an appropriate measure for the inclusion of provisions to prohibit discriminatory covenants. Part I of the Bill is concerned with enabling long leaseholders of flats to purchase their freehold, not with the provisions of covenants in individual leases. The proper place to prohibit such discriminatory covenants, whether imposed in leases or on freeholds, would be in a separate discrimination Bill.
On that basis, I hope that my noble friend and the noble Lord, Lord Rix, will read carefully in Hansard
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what I have said and will understand that I have every sympathy with their intention. I have no evidence that there is a problem. If the noble Lords have any evidence, I should very much like to see it. I hope that in their absence the noble Lord, Lord Williams, can withdraw the amendment.
Lord Williams of Elvel: I am grateful to the noble Lord. There is a chapter in every Bill called "Miscellaneous". There has been such a chapter in almost every Bill that I can remember. It is a sweeping up chapter. I should have thought that instead of having a separate Bill this provision could easily appear under "Miscellaneous". I hope very much that the noble Lord will give some thought to that suggestion.
Lord Strathclyde: My point was not that it was out of order for the amendment to be tabled, nor that it would be out of order for it to appear in the Bill. My point was that this is a serious issue and not one which is appropriate merely for inclusion in a Bill of this type. It is an issue which needs to be considered in the light of a general Bill aimed at non-discrimination, which is something that we can all support. I believe that that is the best way of dealing with such issues rather than addressing them in individual Bills. That is the point that I tried to make, and I hope that the noble Lord accepts it.
Lord Williams of Elvel: I accept that. The only problem is that we have a Bill in front of us; but if we have to wait for a non-discrimination Bill, we may have to wait for years and years. That is why the noble Lords, Lord Renton and Lord Rix, put down the amendment. However, I have no doubt that they will read carefully what the Minister said and that they will wish to return to the matter. I beg leave to withdraw the amendment.
Amendment, by leave; withdrawn.
Clauses 84 to 92 agreed to.
Viscount Goschen: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Midland Metro (No. 3) Bill
Committed to an Unopposed Bill Committee.
House adjourned at twenty-three minutes past midnight.