Housing and Urban Development Bill

HL Deb 22 March 1993 vol 544 cc79-156

House again in Committee on Schedule 8.

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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.

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.

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 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 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 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 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.

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 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 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 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.

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.

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 moved Amendment No. 138: Page 42, line 3, at end insert: ("(aa) the tenant has occupied the flat as his only or principal home—

1. (i) for the last three years, or
2. (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 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 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 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 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 moved Amendments Nos. 141 to 144 Page 42, line 8, leave out ("Subject to subsections (4) and (5) below,"). 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:

1. ("(5A) For the purposes of subsection (2) (aa) above—
   1. (a) any reference to the tenant's flat includes a reference to part of it; and
   2. (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.
2. (5B) In the case of a lease held by joint tenants—
1. (a) the condition in subsection (2) (aa) need only be satisfied with respect to one of the joint tenants; and
2. (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 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 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 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 moved Amendment No. 148D: Page 57, line 22, at end insert: ("() The lease shall provide for—

1. (a) the tenant to be liable for the remedy of any inherent defects; and
2. (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 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 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 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 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 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.

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 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 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.

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 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 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—

1. (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
2. (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 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 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 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 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 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.

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 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—

1. (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
2. (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—

1. (a) any reference (however expressed)—
   1. (i) in section 8 or 9(3) or (5) above, or
   2. (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
2. (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 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 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 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 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 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 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—

1. (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
2. (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 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 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 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 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 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 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 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 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 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, 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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—

1. (a) for rights and liabilities arising under contracts to which the manager is not a party to become rights and liabilities of the manager;
2. (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;
3. (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;
4. (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 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.

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 moved Amendment No. 169: Page 81, line 4, at end insert:

1. ("(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—
1. (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;
2. (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:
1. (i) they do not wish the relevant person to continue to carry out the management functions for the premises;
2. (ii) (if applicable) requiring the landlord to terminate the contract under which the relevant person is retained at the end of the contractual term;
3. (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.
2. (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 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 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 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 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 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"). 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 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 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.