HL Deb 22 March 1993 vol 544 cc61-78

Valuation of freehold and leasehold interests

18.—(l) Where—

  1. (a) the value of any freehold interest (as determined in accordance with paragraph 11(1)), or
  2. (b) the value of any leasehold interest (as determined in accordance with paragraph 11(2)),
is a negative amount, the value of the interest for the relevant purposes shall be nil.

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

  1. (a) beginning with the interest which is nearest to the negative interest and continuing (if necessary) with any such other superior interests in order of proximity to the negative interest;
  2. (b) until the aggregate amount of the reduction is equal to the negative amount in question; and
  3. (c) without reducing the value of any interest to less than nil.

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

  1. (a) beginning with the interest which is inferior to every other of those interests and then in order of proximity to that interest; and
  2. (b) with any reduction in the value of any interest for the relevant purposes by virtue of any prior application of sub-paragraph (2) being taken into account.

(4) For the purposes of sub-paragraph (2) an interest has a positive value if (apart from that sub-paragraph) its value for the relevant purposes is a positive amount.

(5) In this Part of this Schedule "the relevant purposes"—

  1. (a) as respects any freehold interest, means the purposes of paragraph 10(1) (a); and
  2. (b) as respects any leasehold interest, means the purposes of paragraph 10(2) (a).

Calculation of marriage value

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

  1. (a) when held by the person from whom it is to be acquired by the nominee purchaser, or
  2. (b) when acquired by the nominee purchaser,
is a negative amount, then for the purposes of paragraph 4(2) the value of the interest when so held or acquired shall be nil.

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

  1. (a) any reference to paragraph 18(1) were a reference to sub-paragraph (1) above; and
  2. (b) any reference to the relevant purposes were, as respects any interest, a reference to the purposes of paragraph 4(2) as it applies to the interest when so held or acquired.

(3) In this paragraph any reference to any provision of paragraph 4 is a reference to that provision as it applies in accordance with paragraph 12(1).

(4) References in paragraph 20 or 21 to paragraph 18(2) or (3) do not extend to that provision as it applies in accordance with sub-paragraph (2) above.

Apportionment of marriage value

20.—(1) Where paragraph 18(1) applies to arty interest in any property to which paragraph 12(1) applies, the value of the interest for the purposes of paragraph 12(2) shall he nil, unless sub-paragraph (2) below applies.

(2) Where, in the case of any property, paragraph 18(1) applies to every interest which is to be acquired by the nominee purchaser—

  1. (a) sub-paragraph (1) above shall not apply for the purposes of paragraph 12(2); and
  2. (b) any division falling to be made on the proportional basis referred to in paragraph 12(2) shall be so made in such a way as to secure that the greater the negativity of an interest's value the smaller the share in respect of the interest.

(3) Where in the case of any property—

  1. (a) paragraph 18(2) operates to reduce the value of any such superior interest as is there mentioned ("the superior interest"), and
  2. (b) after the operation of that provision there remains any interest which is to be acquired by the nominee purchaser and whose value for the relevant purposes is a positive amount,
the value of the superior interest for the purposes of paragraph 12(2) shall be the value which (in accordance with paragraph 18(2)) it has for the relevant purposes.

(4) Where in the case of any property—

  1. (a) paragraph 18(2) operates to reduce the value of any such superior interest as is there mentioned ("the superior interest"), but
  2. (b) after the operation of that provision there remains no such interest as is mentioned in sub-paragraph (3) (b) above,
the value of the superior interest for the purposes of paragraph 12(2) shall be the value which it has for the relevant purposes apart from paragraph 18(2).

Adjustment of compensation

21.—(1) Where in the case of any property—

  1. (a) paragraph 18(2) operates to reduce the value of any such superior interest as is there mentioned ("the superior interest"), and
  2. (b) apart from this paragraph any amount of compensation is payable by virtue of paragraph 13 to the owner of any relevant inferior interest in respect of that interest,
there shall be payable to the owner of the superior interest so much of the amount of compensation as is equal to the amount of the reduction or, if less than that amount, the whole of the amount of compensation.

(2) Where in the case of any property—

  1. (a) paragraph 18(2) operates to reduce the value of two or more such superior interests as are there mentioned ("the superior interests"), and
  2. (b) apart from this paragraph any amount of compensation is payable by virtue of paragraph 13 to the owner of any relevant inferior interest in respect of that interest,
sub-paragraph (1) shall apply in the first instance as if the reference to the owner of the superior interest were to the owner of such of the superior interests as is furthest from the negative interest, and then, as respects any remaining amount of compensation, as if that reference were to the owner of such of the superior interests as is next furthest from the negative interest, and so on.

(3) In sub-paragraph (1) or (2) "relevant inferior interest", in relation to any interest whose value is reduced as mentioned in that sub-paragraph ("the superior interest"), means—

  1. (a) the negative interest on account of which any such reduction is made, or
  2. (b) any other interest in the property in question which is to be acquired by the nominee purchaser and is intermediate between that negative interest and the superior interest;
but sub-paragraph (1) shall apply in the first instance in relation to any amount of compensation payable to the owner of that negative interest, and then, for the purpose of offsetting (so far as possible) any reduction remaining to be offset in accordance with sub-paragraph (1) or (2), in relation to any amount of compensation payable to the owner of such interest falling within paragraph (b) above as is nearest to that negative interest, and so on in order of proximity to it.

(4) To the extent that an amount of compensation is payable to the owner of any interest by virtue of this paragraph—

  1. (a) paragraph 10(1) (c) or (as the case may be) paragraph 10(2) (b) shall have effect as if it were an amount of compensation payable to him, as owner of that interest, in accordance with paragraph 13; and
  2. (b) the person who would otherwise have been entitled to it in accordance with paragraph 13 shall accordingly not be so entitled.

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

  1. (a) according to the order determined by paragraph 18(3) (a); and
  2. (b) with there being taken into account any reduction in the amount of compensation payable to any person by virtue of paragraph 13 which results from the prior application of the preceding provisions of this paragraph.").

On Question, amendments agreed to.

On Question, Whether Schedule 5, as amended, shall be agreed to?

Lord Gisborough

The Government's 1992 document said that the purchase price should include sums to compensate for injurious affection. The document explains that this term means damage to potential value from which the freeholder might have benefited if a sale had not been forced. Paragraph 5 of Schedule 5 is, I understand, intended to provide for this element of the purchase price. However, the drafting of the paragraph is obscure and it makes no mention of compensation to reflect compulsory purchase.

I feel that that principle should be clearly stated so as to give proper guidance to a leasehold valuation tribunal when assessing the price to be paid for the freehold. I should be grateful if the Minister would comment on the clarity of that paragraph.

Lord Strathclyde

Perhaps I may explain what we are trying to do in Schedule 5 and how it sets out our proposals for fair valuation. The price payable by the nominee purchaser for the premises is the sum of the value of the present interests of the landlords on valuation day, at least half the marriage value and any compensation due.

The first element assumes a nominee purchaser, that participating tenants are not in the market and that the seller is willing to sell. The assumption is made that the interest which is to be acquired will be subject to existing leases, rights and burdens and any new rights to be created on enfranchisement, and assuming that the tenants have no rights in enfranchisement or lease extension under the Act.

The conveyance terms are assumed to be those provided for in Schedule 6. Improvements made by the participating tenants at their own expense are disregarded. These assumptions ensure that the valuation is fair. Furthermore, on the points raised by my noble friend Lord Gisborough, I believe that this is well understood by the tribunals and therefore the problem does not arise.

Lord Gisborough

I thank my noble friend.

Schedule 5, as amended, agreed to.

6.15 p.m.

Clause 29 [Costs of enfranchisement]:

[Amendment No. 118 not moved.]

Lord Williams of Elvel moved Amendment No. 119: Page 38, line 27, leave out subsection (7).

The noble Lord said: This amendment stands in my name and that of my noble friend Lady Hollis. Under the Bill, the costs of enfranchisement with which Clause 29 deals are to be paid by those who wish to enfranchise, but subsection (7) makes all those who will potentially bear the costs liable for the costs of everyone. In other words, there is joint and several liability.

In the case where one leaseholder, or maybe two or three, default on the costs or for one reason or another cannot pay and go bankrupt, the costs then fall, as I understand it, on the other leaseholders who are enfranchising. That seems to me to be rather harsh, or at least it seems to argue an enormous faith on behalf of those enfranchising leaseholders in the honesty and probity of their fellow leaseholders. That is not always the case either in London or elsewhere.

I understand that someone must pay the money, but it seems to me to be somewhat unfair that all are jointly and severally liable. Thus, if out of 10 leaseholders enfranchising, nine go bust, the one has to pay the full cost.

This is, of course, a probing amendment. It is not designed to change the Bill. But I seek the Government's explanation of what seems to me to be rather a harsh measure. I beg to move.

Lord Selsdon

The noble Lord, Lord Williams, has raised the question of costs and it is quite a worrying matter with the complexity of the situations that may arise. I was asking how much it would cost, almost to express it as a percentage of the total value. If we consider a flat which is on a reasonably long leasehold, it seems to me that the cost of enfranchisement might be as high as 2½ or 3 per cent. of the value of that leasehold interest. It could be a much higher proportion, therefore, of the consideration paid to the freeholder. However, people are entering this with a reasonably open mind. They know that there are costs which will have to be borne. There will be a certain unfairness. We hope that the tenants will speak for themselves, but I do not think that the costs can possibly fall on the freeholder. It is a difficult matter and I believe that this is a good probing amendment.

Lord Rodger of Earlsferry

The position is, as the noble Lord said, that under Clause 29(7) provision is made for joint and several liability on those who are liable for the cost under Clause 29 or elsewhere in the Bill.

Members of the Committee will notice that we are dealing here with the liability for costs incurred by the reversioner or any other relevant landlord. It seems to us that at the end of the day—and, as I understand it, there is no dispute about this on the part of the noble Lord—someone must bear the costs. After all, they have been incurred and are recoverable only to the extent that they are reasonable. The costs must be recovered and this provision seems to us to be the only proper way of dealing with the matter. It would not be right that a landlord should have difficulty in selecting some person against whom he should have the right to recover costs. It appears to us that those who are participating in the venture should be liable at the end of the day jointly and severally for the reasonable costs incurred by the landlord.

That may mean that people entering such a venture will have to select with care those with whom they participate. When they are considering whether to participate at all, they must consider the whole picture. We have stressed from the outset that this is not a venture which is to be entered into lightly. One has to consider, before embarking on the enterprise, the whole nature and undertakings which are being entered into when the considerable process of enfranchisement takes place. It is an aspect of that that at the end of the day, in so far as those participating are liable for the costs of the reversioner, it is a joint and several liability.

Lord Williams of Elvel

I am grateful to the noble and learned Lord, so far as he went, which was simply to repeat the clause in the Bill and explain that that is the Government's view. However, it does not seem to me to answer the point that I raised. I agree that there is no dispute about recovery of the reversioner's cost. It clearly has to be recovered and must be recovered from the enfranchisers. I agree with that. However, as the noble Lord, Lord Selsdon, rightly remarked, the costs could be extremely high.

If we take a block of 20 or 30 flats—and there are many blocks of that nature—the freeholder will have to have extensive legal advice, possibly extensive valuing advice, accounting advice, tax advice, all kinds of advice. Those costs could be quite prohibitive. In a block of flats of, say, 20 leaseholders who are qualifying tenants and get the two-thirds majority, in order to engage in enfranchisement each and every one of those potential enfranchisers would have to investigate the financial status of his colleagues. I would not enfranchise along with the noble and learned Lord the Lord Advocate if we lived in the same block of fiats unless I were sure that he could pay the bill at the end. That would be an extremely difficult and tricky operation. I do not quite understand how it would work in practice. That is the point I am trying to make.

I accept that there may be no other solution—other than some insurance scheme that might meet the bill —but the Government need to bear that matter clearly in mind. A problem of cost should not be a barrier to enfranchisement.

Lord Rodger of Earlsferry

I cannot add very much. I believe that the noble Lord accepts that reasonable costs must be recoverable. It is very difficult to see how one could select from those embarking upon the exercise of enfranchisement those who would bear the costs and those who would not. At the end of the day, I respectfully submit that the correct way to proceed is as proposed in the Bill.

Having said that, I accept that there may be practical difficulties facing those who embark upon that course. But those are among the matters which people will have to take into account when they do so.

Lord Williams of Elvel

With respect, the onus could be laid on the reversioner to claim against all enfranchisers by simply leaving out the words "jointly and", leaving it as several liability rather than a joint and several liability.

Lord Rodger of Earlsferry

If one simply had several liability, that would lead to the reversioner having the greatest difficulty in recovering his costs. It does not seem fair that the reversioner in that situation should have to go around trying to recover a portion here and a portion there. One has to bear in mind that this enterprise is set in train by the qualifying tenants and set in train, in one sense, against the reversioner. In that situation it would not be right that the reversioner should have laid upon him the burden of somehow or other building up the entire recovery of the cost. We believe that this is the correct way to proceed.

Lord Williams of Elvel

I do not believe that we shall get much further with the argument. The Government take that view. I merely set out the problems. I accept that the reversioner has to be able to reclaim his costs and reclaim them quite easily. But I warn the Government that it will be a serious barrier to enfranchisement, particularly of larger blocks of flats. In my view, it will work against the Government's policy.

Baroness Hamwee

Before the noble Lord sits down, I wonder whether the Minister can help us as to the position of the nominee purchaser. We have been talking as if we were dealing only between the reversioner and the enfranchising leaseholders. As I read the provision, the nominee purchaser has a position and may be a body corporate.

Lord Rodger of Earlsferry

That is correct, as one sees under Clause 29(1) in that situation, the nominee purchaser shall be liable". It may indeed be a corporation of some sort. In that situation again a problem could arise; for example, of the corporate body not having any assets. It is precisely that sort of situation where it would be important for the reversioner to be able to go against other persons were that to be appropriate.

Lord Williams of Elvel

I was regarding the nominee purchaser as being transparent. Clearly the noble Baroness is right when she says that it could be a limited company. But if there were a joint and several guarantee, as is required under the clause, then the company itself would become transparent. As I said, I do not think that we can get much further on the matter, but I wanted to point out to the noble and learned Lord that that might militate against enfranchisement. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Lytton moved Amendment No. 119A: Page 38, line 29, at end insert:

  1. ("(8) At any time after receipt of the initial notice the reversioner may, by notice in writing given to the nominee purchaser, require the nominee purchaser to deposit with the reversioner, or a person nominated by him in the notice as his agent or as stakeholder, a sum equal to £100 multiplied by the number of participating tenants by whom the initial notice is given, on account of the price payable for the freehold of the specified premises and any other sums payable by the nominee purchaser in accordance with the provisions of this Act; and the nominee purchaser shall, within 14 days of the giving of the notice, pay the sum demanded to the reversioner or person nominated by him.
  2. (9) The Secretary of State may by order amend subsection (8) above by substituting for the amount of £100 or for such other amount for the time being specified there such other amount as is specified in the order.
  3. (10) The deposit payable under subsection (8) above shall be returned to the nominee purchaser if the initial notice ceases to have effect by virtue of section 20(4) or 27(4).").

The noble Earl said: This is a probing amendment. I hope that it may provide some further insight into the matter that we have just discussed. It is intended to provide a situation similar to that under the Leasehold Reform Act, whereby the enfranchising tenant can be required by the landlord to pay a deposit on account of expenses. The point behind that must be clearly understood; namely, it is an attempt to make sure that the freeholder is not left out of pocket in a manner which would make it difficult for him to recover his expenses.

One would hope that freeholders will not attempt to work the levers in order to add to the expense of enfranchising tenants. It is probably safe to say that those landlords who have always conducted themselves with a degree of probity will play the game by the rules of propriety and those who are not so inclined will not. The Bill may be intended to catch those in the latter rather than in the former category.

I realise that the amendment is defective in that it does not specify that repayment of the sums would be made "less deductions" on account of the freeholder's expenses. That is one reason why it can only be a probing amendment. It seems to me wrong that the landlord (the freeholder) should be exposed to a difficulty of recovering costs under this Bill which is not on all fours with the Leasehold Reform Act 1967. I believe that that requires some further explanation from me.

The costs which a landlord can recover from the enfranchising tenant under the 1967 Act are set out in Section 9(4) of that Act. The equivalent can be found in Clause 29(1) of this Bill. The difference is that under Section 22(2) of the 1967 Act and the regulations made under it, a deposit of three times the annual ground rent, or £25, whichever is the greater, can be demanded by the landlord. Although on some ground rents, I admit, that might produce an exceptionally high figure, in many cases it would not, having regard to the likely cost of legal expenses alone.

Under the Bill, if participating tenants withdraw after putting the landlord to expense, that freehold landlord can recover the expense only by way of an ordinary action in the county court. He would certainly not be able to recover the amount due under a service charge—because it would be an improper item in service charges—or by threatening forfeiture. That problem needs to be addressed.

It is certainly not my intention that the measure in my amendment should be any sort of up-front penalty to prevent enfranchisement proceeding. The Committee will note from the wording of the amendment that there is provision for the Secretary of State to make alteration to the figure in question. But that can only apply nationally under the terms of the Bill. I agree that it would not sift out hard cases. It seems to me right that where compulsion is used against a freeholder, he should at least be given some sort of security—perhaps by the tenants placing a sum on deposit with a solicitor—to cover those costs. That would to some extent meet the point made by the noble Lord, Lord Williams of Elvel, about the ability of people to pay and the question of joint and several liability. At least there would then be a fund which would enable some of the disbursements—though almost certainly riot all—to be defrayed. I beg to move.

Lord Rodger of Earlsferry

Like the previous amendment, Amendment No. 119A raises an interesting issue. As I understand it, the amendment would allow the reversioner to require a deposit from the nominee purchaser towards the purchase price of the freehold and other costs. It is to be paid within 14 days but is to be returned if the initial notice ceases to have effect, either because the landlord has obtained a court order preventing the tenants from enfranchising on redevelopment or because an acquiring party has served a notice to treat.

As the noble Earl said, to some extent the requirement has a precedent in the 1967 legislation, although the provisions there are slightly different. Under the 1967 Act this is the only deposit which was required to be paid, whereas under this legislation there would be a requirement to pay a deposit on exchange of contracts. There is therefore that difference.

I am sympathetic to the principle of a preliminary deposit —not so much as a deterrent to those about to embark upon the process of enfranchisement, but rather for the reasons explained by the noble Earl. However, the form of the amendment is not one that we can accept. I therefore ask the noble Earl to withdraw it on our undertaking that we shall give further consideration to the question of deposits, in particular how the matter can best be taken forward in the context of the Bill. On that basis, I ask the noble Earl to withdraw the amendment.

The Earl of Lytton

It would be entirely churlish of me not to withdraw the amendment on the basis that the noble and learned Lord will give the matter further consideration. I welcome some input into the matter. I am grateful to him for taking on board the basic principle I was trying to put forward. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 29 agreed to.

6.30 p.m.

Clause 30 [Conveyance to nominee purchaser]:

The Earl of Lytton moved Amendment No. 120: Page 38, line 38, at end insert: ("() Before any conveyance to a nominee purchaser can be executed proof must be supplied that a majority of qualifying tenants continue to support the exercise of their right to collective enfranchisement.").

The noble Earl said: Amendment No. 120 is intended to ensure that as the enfranchisement process proceeds, at a subsequent point—not simply at the initial point when the notice is served on the freeholder —there remains a majority of qualifying tenants to continue to support the exercise of the right to collective enfranchisement.

At Second Reading and earlier in Committee I said that my anxiety has always been that a majority of tenants would trigger the enfranchisement process, but that there was no guarantee that as time proceeded all those tenants would remain in the game. The number could be whittled away by all manner of things—the prospect of the expense, the time lag and other factors.

It is possible—I shall be grateful if the Minister will comment on the point specifically—that at the end of the day when it comes to exchanging contracts, there may be only one tenant dealing with the matter for the other enfranchising tenants; nobody else would be supporting it. It does not seem right that one person can acquire by default in that manner.

The fault seems to be that in assessing the right to enfranchise, a snapshot approach is taken. With regard to the support from the tenants in the building, one is looking at the situation at a single moment in time. The Minister may say that if there is wastage over time, if negotiations are protracted and drawn out, people may fall by the wayside. It is certainly not my intention in moving the amendment to try to make that more rather than less likely.

But another matter arises. I refer to the possibility of the misappropriation of the freehold. I am anxious about that and it may be that the case with which I was personally involved is unique in the country. It is unlikely, but possible. The situation could arise where there were seven tenants in a block of 10 flats and they initially indicated that they wished to enfranchise. However, all but one had second thoughts and withdrew and only one was left to proceed. That tenant could decide to vest the matter in a mariner convenient to him and which suited his commercial purposes rather than the purposes of the other occupiers in the building.

It is the failure of the Bill to bond together the enfranchisement process and the continuation of the occupation of the building that causes me anxiety. That is the reason I tabled the amendment. I wished to ensure that there was a further test before the conveyance to the nominee purchaser could be executed. There must be further proof to show that it is supported by the majority. If nothing else, it would ensure that the majority were aware of what was happening. The legislation would contain an insistence that the matter be referred back to them should they later not support the application.

It is a rather complicated point. I hope that I have explained it satisfactorily. I beg to move.

Baroness Gardner of Parkes

I should like to ask a question on the amendment. I believe it ties in with what the Minister said he would take away and reconsider. What is the financial position if the situation reaches the stage where only one person is interested and considerable costs have been incurred? Provisions must be made to look at what happens to the money that various people have paid out.

Lord Rodger of Earlsferry

Taken as a whole, the amendment is inconsistent with what is the desired aim running as a theme through the Bill—that is, that the procedure for enfranchisement should run as quickly as possible once it has been initiated by the Section 11 notice of claim. Once the reversioner has been satisfied that the qualifying criteria were met, or once that has been dealt with by the tribunal, from that moment onwards the participating tenants do not need to prove that they have sufficient numbers.

The effect of the amendment would be to increase the scope for delay and for uncertainty. It could lead to an increase in costs especially if one were to have a situation where the landlord disputed, for example, that the numbers necessary were available, or whether the information supplied was correct. There may be room for confusion. That could only lead to further delay. In that situation, the amendment would not help the position of the tenants. It would lead to confusion.

The noble Earl asks whether it is possible that the stage could be reached where there was only one participating tenant. Under the strict theory of the Bill, that is correct. But I would imagine that given that the cost to an individual tenant is likely to increase as the numbers participating decline—at the end of the day they have to buy out the whole asset —one would not expect an individual to wish to continue if he or she could not afford it. So there is in some sense an economic check, but taking the whole situation we believe that this kind of amendment would cause more trouble than it would bring benefit. The procedure which we have adopted is that of checking at one stage only. In that situation I would ask that the amendment be withdrawn.

A noble Lord

Can my noble friend explain whether, having initiated serving the notice under Section 11 by the nominee tenant, there is a time limit? Is the freeholder then left in limbo? Supposing it is necessary for the freeholder to sell his interest at that point, how is he going to ensure that his own interests are not damaged by an unnecessary delay? But there may be a time limit in the Bill which I have not seen.

Lord Rodger of Earlsferry

There are many time limits scattered throughout the Bill, and there is machinery at various stages for ensuring that the next stage is taken. To that extent, there is machinery to advance the process.

The Earl of Lytton

I am grateful to the noble and learned Lord for his response. This is a probing amendment, and clearly I understand his point that it is defective and it would not be helpful in terms of the long-term benefits that are intended under the Bill for this sort of provision to be included. But I think the Minister must understand that I have reservations about how the Bill is going to work in practice. I also have reservations about the lack of tying in between the occupation of the building and its ultimate ownership.

I was not particularly heartened by the comment the Minister made when the Committee last sat. I understood him to refer to a form of serial enfranchisement where this would continue and if you did not like the situation you would do it again. That would be difficult and complicated. I hope that I misunderstood him on that occasion. I should not like to think that we would allow a Bill through the House which produced effects of that sort. But, subject to the reservation that I may come back to this at a future date, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 30 shall stand part of the Bill?

Lord Williams of Elvel

Before we leave Clause 30, I wonder whether I may ask the noble and learned Lord one or two questions about the rather shadowy figure of the nominee purchaser. I am sorry that I have not given notice of this matter. Perhaps I should have raised it earlier in the Bill under Clause 13, but I am a little concerned.

There is a lot in the Bill about the nominee purchaser. We are not quite sure what he or she is, whether he or she is to be a person, a corporation, a resident corporation or a foreign corporation, or what legal liabilities the nominee purchaser has. What are the possibilities of the nominee purchaser defaulting? What happens if the nominee purchaser runs off to Brazil with the money? There are many questions about this shadowy character or corporation which are not answered in the Bill.

I wonder whether the noble and learned Lord could give thought to this and not necessarily answer me now but perhaps write to me, or at a later stage in the Bill give me the benefit of the Government's view about a whole range of questions about the liabilities of the nominee purchaser that seem to be unclear in the Bill as drafted at present.

Lord Rodger of Earlsferry

A fairly formidable agenda has been given. The general principle that lies behind the Bill is not to specify what the characteristics of the nominee purchaser should be: this is to allow the tenants to choose the form of nominee purchaser which may best suit their particular circumstances. It may suit them best to have a company; or it may be better to have an individual or more than one individual. The way in which the liability would be shared out among those would largely depend on the particular circumstances chosen by the participating tenants.

That having been said, there are other points which the noble Lord raised which perhaps I may come back to either in writing to the noble Lord or at a later stage.

6.45 p.m.

Lord Williams of Elvel

I am most grateful to the noble and learned Lord. I am sure that he understands the problems that vex me at present. The nominee purchaser is going to have to sign a contract, which requires all sorts of conditions including solvency and the ability to meet the terms of the contract, and he must not be negligent. There are all sorts of considerations which the noble and learned Lord understands much better than I do. I should be most grateful if he could write to me on these matters at a later stage.

Clause 30 agreed to.

Schedule 6 [Conveyance to nominee purchaser on enfranchisement]:

Schedule 6 agreed to.

Clause 31 [Discharge of existing mortgages on transfer to nominee purchaser]:

Clause 31 agreed to.

Schedule 7 [Discharge of mortgages etc.: supplementary provisions]:

Schedule 7 agreed to.

Clause 32 [Nominee purchaser required to grant leases back to former freeholder in certain circumstances]:

Clause 32 agreed to.

Schedule 8 [Grant of leases back to former freeholder]:

[Amendment No. 124 not moved.]

The Earl of Lytton moved Amendment No. 124A: Page 192, line 5, leave out from ("is") to end of line 6 and insert ("immediately before the appropriate time a flat let to—

  1. (a) a person who is not a qualifying tenant; or
  2. (b) a qualifying tenant who is not a participating tenant.").

The noble Earl said: This amendment seeks to extend the freeholder's right to lease back flats which are occupied by qualified tenants who do not wish to participate. I would explain straight away that this is a probing amendment.

Currently the Bill provides that a landlord whose property is enfranchised has a right to lease back certain units in a block which are ineligible for enfranchisement, that is, those let for commercial or short-term residential uses. This amendment would serve to widen the leaseback provisions to include flats which are eligible for enfranchisement but where the tenant does not choose to enfranchise.

This amendment would prevent qualifying tenants who do not wish to participate and who exclude their flats from a marriage value calculation when the purchase price is determined, thus depressing the sum paid to the freeholder, subsequently obtaining a new lease from the new freeholders, the enfranchising tenants, at some sort of discount.

This has been partly covered by the Government's acceptance of the disclosure of side agreements, but I am advised that this would not be entirely effective in practical terms, particularly where new leases are granted some time after the original freeholder ceased to have an interest in the property. So I feel that this is an important safeguard, and I would welcome the comments of the Minister on the amendment. I beg to move.

Lord Williams of Elvel

I am glad that the noble Earl said that this was a probing amendment, because it is one which, had it not been a probing amendment, we would not have wished the Government to accept. It appears to be intended to enable the freeholder to retain a leasehold interest in relation to any flats occupied by qualifying tenants who are not participating tenants. We oppose it on those grounds alone.

However, it also seems to us to have the effect of leaving the position of flats which are not occupied by tenants at all—that is, flats occupied by licensees or vacant flats —completely indeterminate. For that reason as well, we would wish to oppose the amendment.

Lord Strathclyde

The noble Lord, Lord Williams of Elvel, is quite right in what he says. However, given that this is a probing amendment, perhaps I may explain what it is that we are doing here.

The voluntary leaseback provisions encompass those units or flats which are not let to qualifying tenants, including rented flats and commercial units such as shops and offices. These are likely to be a significant source of income to the landlord and it is right that he should have the right to take a leaseback of them if he wishes to do so. Thus the voluntary leaseback provisions are primarily for the benefit of those landlords who derive income from certain non-qualifying units and flats and wish to continue to do so. We have, however, deliberately excluded flats let to qualifying but non-participating tenants from the voluntary leaseback provisions.

In Clause 2 we have stipulated that the participating tenants must acquire every leasehold interest which is superior to that of a qualifying tenant. Our intention is that there should be no immediate leasehold interest between residential long leasehold flats held by qualifying tenants and the freehold owned by the long lease purchaser of the participating tenants. To allow intermediate leases to remain or to create new ones via the leaseback provisions would make any future negotiations between a new freeholder and a qualifying tenant wishing to obtain a share of a freehold somewhat pointless. The leaseback landlord would still be able to exert management control and refuse to extend the lease. That is not what we wish to see. A qualifying tenant may have bought or inherited the lease of a flat where the previous tenant had decided not to participate in enfranchisement. The new freeholder, the nominee purchaser, may be quite willing to have a qualifying tenant on board, but the intermediate leaseback would mean that a share of the freehold would be of little worth to the qualifying tenant and he would not be able to claim the right to a renewed lease under Chapter II of the Bill.

I hope that that explains our position to the noble Earl. The amendment, even though it is probing, quite clearly runs counter to the policy aims in this part of the Bill. Therefore, I hope that my explanation gives the noble Earl some succour.

The Earl of Lytton

I cannot admit to it having given me any particular succour but the reply comes as absolutely no surprise. It has given me some further insight into the way in which the noble Lord views this matter. I certainly to not intend to pursue the amendment at this juncture. On that basis, I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Lord Coleraine moved Amendment No. 125: Page 192, line 10, at end insert: ("(4) This paragraph does not apply to a flat or other unit unless the freeholder shall have specified that flat or unit in reply to a leaseback notice served on him in accordance with section (leaseback notices) above.").

The noble Lord said: I spoke to this amendment in an earlier grouping. My reason for moving it formally today is to give my noble friend the chance to amplify or expand on the reply which he gave me at that time. The idea behind the grouping was to bring forward the date on which reversioners had to specify the properties that they would require leasebacks on. This was to enable flat owners to avoid the need to make expensive financial provisions to purchase the reversions to Rent Act properties which the reversion is going to want to keep in any case. In replying to the amendment on 15th March my noble friend said: The current provisions are that, once an initial notice is given to the landlord, he will be required to indicate which units he wishes to lease back". Before withdrawing my amendment I asked: Did I understand my noble friend correctly? Was I wrong in thinking that leaseback provisions could be brought into effect by the reversioner at or shortly before the time of completion? Does he say that those provisions can be flushed out of the reversioner with the counter notice? I note that my noble friend nods his head; he is saying that".—[Official Report, 15/3/93; col. 1279.]

What can be obtained with the counter notice is a statement by the reversioner of the units which he wishes to lease back. In order to reach the stage at which he is finally committed to lease back the properties, one has to look to Part III of Schedule 8. Paragraph 5 states that, this paragraph applies to any unit contained in the specified premises which is not immediately before the appropriate time a flat let to a person who is a qualifying tenant of it". The relevant words in that short extract are "the appropriate time". The paragraph then goes on: the nominee purchaser shall, if the freeholder by notice requires him to do so, grant to the freeholder a lease of the unit". The words "the appropriate time" are defined in paragraph 1 of the schedule as the time when the freehold of the specified premises is acquired by the nominee purchaser. I take that to mean the date of completion or, at the earliest, the date of a contract. Certainly, that would be after a valuation has taken place. The effect of the provisions is that the freeholder can stipulate that the nominee purchaser shall grant leasebacks at the very last stages of the proceedings, long after the valuation has taken place, and not at the earlier time of the serving of the counter notice to which my noble friend referred. This should be looked at further and I wait to hear what my noble friend has to say. I beg to move.

Lord Strathclyde

As my noble friend explained, this amendment was previously grouped with Amendment No. 51. The amendment was withdrawn and without it this amendment no longer makes sense. However, I have some sympathy with the concerns of my noble friend. Clause 18 provides that the reversioner should specify in his counter notice any flats or units which he wishes to lease back. I acknowledge that it is possible that between the counter notice stage and the execution of the conveyance, flats which were let to qualifying tenants may cease to be so let, perhaps because the qualifying tenant was precluded from participating due to forfeiture proceedings which were later completed. In such cases the landlord may decide that he wishes to lease back those flats and give notice to the tenants to that effect before the conveyance to the nominee purchaser is executed. We think that it would be wrong if this were to be disallowed, for the former freeholder would be unable to lease back a vacant flat. I acknowledge, however, that the last-minute leaseback request could cause inconvenience for the tenants.

There is, however, another possibility which gives us more concern. A flat which is rack-rented at the time of the counter notice could be subsequently let on a long lease to a qualifying tenant. In Clause 2 we have provided that all intermediate interests which are superior to that of a qualifying tenant shall be acquired in addition to the freehold. We do not wish there to be leasehold interests superior to that of a qualifying, but not necessarily participating, tenant. If that were to be the case, it would prove an obstacle to any subsequent election to participate by the tenant under Clause 12(3) or, indeed, to any future negotiations between the qualifying tenant and the new freeholder, the nominee purchaser. So to permit a leaseback of such a flat would run counter to our aims. We wish to consider this last point further, but I hope that my noble friend will withdraw the amendment.

Lord Coleraine

I am very glad to have my noble friend's sympathy. I shall await with interest the result of his deliberations. I am not at all sure that he is fully apprised of the difficulties that could affect intending enfranchisees if the reversioner wants to take back a leaseback on all the properties which previously he has indicated that he did not. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Williams of Elvel moved Amendment No. 126: Page 192, line 29, leave out from ("provisions") to end of line 32 and insert ("is agreed to by the nominee purchaser and the freeholder with the approval of a leasehold valuation tribunal.").

The noble Lord said: The purpose of this amendment is to ensure that the procedure for approving the terms of a lease under Part III of Schedule 8 is the same as the procedure under Part II.

It appears to be somewhat different. Where a flat in a block is occupied by a secure tenant or, if the landlord is a housing association, an assured tenant, Clause 32 and Schedule 8 require that on enfranchisement the former freeholder gets a 999-year lease on the flat and the tenant continues to enjoy nearly the same rights as before. Where the flat is not occupied by a qualifying tenant—that is, it is empty or is occupied by a licensee —the former freeholder may insist on a 999-year lease on the same terms as in the previous case but the lease must conform with Part IV of the schedule unless with mandatory leaseback landlord and nominee purchaser agree with the approval of the leasehold valuation tribunal. In the second case either the landlord or the nominee purchaser may apply to the leasehold valuation tribunal which may approve of a departure from Part IV.

The two cases are rather different. The reason is unclear. The object of the amendment is to make sure that local authorities are not put into the difficult position of having to assent to what is effectively the arbitration of the leasehold valuation tribunal, whereas in the case of a qualifying tenant arbitration does not come into it; it simply authorises it. Those representing local authorities feel quite strongly about it. They should like the wording in the schedule to be similar, both where it is the qualifying tenant and where it is not. I beg to move.

The Deputy Chairman of Committees (Lord Hayter)

I have to point out that if this amendment is agreed to I cannot call the next one because of pre-emption.

Lord Strathclyde

hope I have understood what is being proposed by the noble Lord, Lord Williams of Elvel. At the outset I was surprised that the noble Lord had tabled the amendment. What it appears to do is increase the scope for delay by requiring the approval of a leasehold valuation tribunal for something that can be settled by mutual agreement. The current arrangements for departures from prescribed terms on voluntary leaseback seem to me to be entirely appropriate in this instance. They allow for negotiation and co-operation between the parties rather than seek an imposed settlement.

If the noble Lord is worried that a departure made only by the mutual agreement of the parties may have an onerous effect on the interests of the sub-tenants, I can assure him that that is not the case. The terms of a voluntary leaseback will alter the terms of their existing leases and that particular problem does not arise. Having said that, I hope the noble Lord, Lord Williams of Elvel, will feel I have fully explained that aspect.

Furthermore, it seems odd that the noble Lord, Lord Williams, voices a concern about mandatory leaseback in Part II on this amendment which deals with voluntary leaseback in Part IV. Under this particular part, the aim is to protect secure tenants. I hope that with that explanation the noble Lord will feel able to withdraw his amendment.

Lord Williams of Elvel

I realise that this is a complex amendment and it is difficult to understand.

I am not sure that the Minister has quite understood what we are driving at. I think the best thing for me to do is to leave it there. Between now and Report stage we shall have made our point quite clear so that the Government can understand what we are asking for. I agree that it is a technical question; but it is something about which local authorities feel quite strongly. In the circumstances, I believe it is right for me to withdraw the amendment.

Amendment, by leave, withdrawn.

Viscount Goschen

I beg to move that the House do now resume. In moving this Motion, perhaps I may suggest that the Committee stage begin again at ten minutes before eight o'clock.

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

House resumed.