Housing and Urban Development Bill

HL Deb 11 May 1993 vol 545 cc1252-72

Consideration of amendments on Report resumed. Clause 5 [Qualifying tenants]:

Baroness Hamwee moved Amendment No. 13:

Page 6, line 7, at end insert:

("(2A) Subsection (I) does not apply where the immediate landlord under the lease is a registered housing association and all the flats in the premises are—

1. (a) particularly suitable, having regard to their location, size, design, heating systems and other features, for occupation by persons of pensionable age, and
2. (b) are occupied by persons of pensionable age or physically disabled persons, and
3. (c) have special facilities which include the services of either a resident warden or a non-resident warden and a means for calling them.").

The noble Baroness said: My Lords, this is the opposite of moving an amendment immediately after Question Time in the early afternoon, when one struggles to make oneself heard against the noise of departing Peers. I hope that there will be the noise of Peers coming into the Chamber, but I dare say that they are otherwise engaged.

Amendment No. 13 is very similar to one which I moved at Committee stage. It is to exclude from the enfranchisement provisions the properties described in the amendment. That is where the immediate landlord is a registered housing association and all the flats in the premises—that is a change because the amendment refers to all the flats—are particularly suitable as regards location, size, design, heating systems and other features for people of pensionable age and are occupied by people of that age or by those who are physically disabled, and have special warden facilities, as described. I have stressed the word "and" between each of those three criteria because they are additional and not alternative.

The provision is designed to exclude sheltered housing schemes from the Bill. As I said in Committee, it would, as I understand it, affect schemes only where a housing association had not received housing association grant, as HAG-funded schemes require an association to retain 20 per cent. of the equity.

It was a proposal which received widespread support at Committee stage: that leasehold enfranchisement should not apply to warden services and other special provisions which fall within sheltered housing in order not to lose from housing stock this type of provision. The wording of the clause is close to that of the Housing Act 1985 which excluded sheltered housing from the right-to-buy provisions. At Committee stage the Minister said that it was unclear, as the matter was then drafted, of which lease the registered housing association must be the immediate landlord. I hope that, with a slight change of wording, the amendment has helped, as was the intention.

His other argument was based on the use of restrictive covenants in a lease. He said that he understood the concern that, after enfranchisement, new freeholders might sell the properties to other people who were not elderly or disabled, but that the matter could he dealt with by way of a restrictive covenant. I disagreed with him then and, if he repeats the argument, I shall do so again, because a restrictive covenant can be altered by agreement between those who are concerned. It is precisely in order to avoid that agreement, which would override the provisions, that I seek to include the new provision in the Bill. I beg to move.

Lord Monson

My Lords, I gladly support this amendment. It seems the height of folly to upset the smooth-running existing arrangements of sheltered housing. I fully concur with the noble Baroness when she says that restrictive covenants are not the answer because they can so easily be altered or got round.

Baroness Hollis of Heigham

My Lords, we on this side very much support the amendment which is straightforward. It seeks to ensure that leaseholders, like tenants of local authority sheltered housing provided by a housing association, should not see that property pass from its primary usage—that is, supporting the elderly in the community—to some other use. It means, for example, that if the current leaseholder dies, having enfranchised, there is nothing to stop his or her heirs selling that property on for some other use totally independent of that for which it was designed, thus subverting the viability of the entire sheltered housing scheme. It is a very limited amendment, but it will ensure that sheltered housing remains for its primary purpose, which is to enable the elderly to stay within the community. We very much support it.

Lord Monk Bretton

My Lords, I should like briefly to support the amendment. The conclusion that one must reach is that the Government's position is, "It may never happen", but I think that we risk a muddle. There is a risk that parts of such homes for the elderly will be enfranchised. There will then be difficulties with the warden service because mixed occupation is bound to jeopardise that. Although it may never happen, it most certainly could, and I hope that my noble friend will take a further look at this matter.

As far as I can see at the moment, registered charitable housing trusts are exempted from the provisions, but charitable housing associations, which have provided this type of housing on long leases, are not. The question relating to those housing associations is whether there was a charitable element to their work. I believe that there was because they got the schemes together originally, ensuring that the housing was built. Although the property was sold off on long leases to those people whom they wished to help but who had more means than some of the others, there remains the fact that they got the schemes off the ground and provided warden services to those people on the same basis as they provided warden services to everybody else. Therefore, there is a definite charitable element to their work.

I hope that my noble friend will give some thought to ensuring that charitable housing associations which provide such houses for the elderly will be treated in the same way as registered charitable housing trusts.

8.45 p.m.

Lord Strathclyde

My Lords, I am grateful to the noble Baroness, Lady Hamwee, for the way in which she moved her amendment. As she rightly said, we discussed this issue in Committee and I promised then that I would consider it further. I am sorry to say that our position has not changed, but perhaps we can now consider why.

I do not believe that there is any justification for denying long leaseholders in sheltered housing the right to enfranchise. As I said in Committee I understand the concerns which have led to this amendment being tabled: that once the freehold has been bought the flats may be sold to people who are not already elderly or disabled and they will therefore move out of the sheltered housing market. I said that that is not a valid concern because any restrictive covenants in the leases, which might specify, for example, that the flats were only to be let to the elderly, would remain. The noble Baroness said that if I produced that argument she would not agree with it, but I do not know why she would not agree because such covenants could not be changed unless both parties to the lease agreed. Is it not fair enough that where a landlord and a leaseholder have agreed to change the covenant those tenants should be able to decide whether or not they want to enfranchise, just like any other class of leaseholder?

We have also heard the view expressed that people who live in sheltered housing do not really want to enfranchise and so we need not bother to give them the opportunity, but it is wrong to discriminate in that way. Why should a long leaseholder be denied the collective right-to buy the freehold simply because he or she lives in a sheltered housing block owned by a housing association? To deny people this right simply because of the type of accommodation in which they live would be tantamount to suggesting that such people are incapable of making an informed decision about the accommodation in which they live. The whole of this legislation is about giving people that ability and that choice.

Of course, there will be residents who, for whatever reason, do not wish to participate in buying the freehold. That is their choice. The important point is that they are able to make that choice. Those who choose not to join in would not be disadvantaged, as the terms of their leases would remain after enfranchisement. Any services, such as a resident warden, would be maintained.

As for tenants who do not qualify for enfranchisement, the terms of their tenancies would also be unaffected. In fact, such tenants may not even have a change of landlord, because a lease superior to the interest of a non-qualifying tenant is not liable to acquisition. If the tenant on a short tenancy rents direct from the freeholder, the freeholder will have the option of taking a leaseback of that flat if he so wishes.

What the noble Baroness had to demonstrate was that there is a real reason for stopping tenants of sheltered housing from being able to enfranchise, and I am not at all convinced that the noble Baroness has come up with compelling arguments.

I turn now to the point raised by my noble friend Lord Monk Bretton. Where such bodies are involved in charitable works, they would be excluded because "housing associations" may include housing trusts. Therefore, registered housing associations can, under certain circumstances, be charitable housing trusts and therefore would not be covered by the legislation. It is important to get the practical aspects of this right. All that I am saying is that where tenants have the ability to change their tenure and are not constricted by leases, they should have the opportunity to seek enfranchisement.

Baroness Hamwee

My Lords, we do not seem to have advanced a great deal. The Minister has invited me to expand on certain points underlying this amendment, and I shall gladly do so. He said that this would be a denial of a right to a particular group of tenants. I must make it clear for the record that I am not suggesting—and I do not believe that any of your Lordships who have supported the amendment would suggest—that those tenants are incapable of making an informed decision, which is what the Minister said.

The balance must be between the rights of an individual tenant and the interests of the preservation of a particular and specialised type of housing stock. From the way in which I and other noble Lords have dealt with the general thrust of the Bill and the. rights of tenants to enfranchise I think that the Minister must take seriously support for this exclusion when it comes from those of us who have supported tenants' rights.

We are not talking about a private landlord; we are talking about housing associations. They are quite different animals. The Minister asked why restrictive covenants would not do; the answer is that it is precisely because they would allow the overriding of the provisions of the Bill. Where there are restrictive covenants between two parties, they can, of course, agree to vary those covenants or to lift them altogether. It would need the provision of legislation to prevent that agreement. It perhaps takes us back somewhat to the arguments that we had at the beginning of the afternoon. But the very fact that restrictive covenants can be altered by agreement is why I seek to insert the provision in the Bill, rather than leaving it to the lease or other arrangements between the tenant and the housing association.

The Minister mentioned the charitable housing trusts. As I understand it there are very few of them. Registered housing associations do not generally fall within that category. That is why the additional separate amendment has been put forward. Sheltered housing was excluded from the right-to-buy provisions of the 1985 Housing Act. Given the support for the proposal from all sides of the House both today and on previous occasions, and given the fact that the Minister has not given me any hope that we may return to the matter again, I should like to test the opinion of the House.

8.51 p.m.

The Deputy Speaker (Lord Airedale)

My Lords, the Question is, That Amendment No. 13 be agreed to? As many as are of that opinion will say, "Content". To the contrary, "Not-Content".

Noble Lords

Not Content!

The Deputy Speaker

My Lords, I think the "Not-Contents" have it. Clear the Bar.

Division called.

8.55 p.m.

The Lord Chancellor

My Lords, Tellers for the Not-Contents have not been appointed pursuant to Standing Order No. 51. A Division therefore cannot take place, and in accordance with Standing Order No. 54, which provides that no proposal to reject a Bill should be agreed to unless there is a majority in favour of such a rejection, I declare the amendment agreed to.

The Lord Chancellor

My Lords, I call Amendment No. 14: the Lord Boardman.

[Amendment No. 14 not moved.]

The Lord Chancellor

My Lords, I call Amendment No. 15: the Lord Strathclyde.

Noble Lords

It should be 14!

Viscount Goschen

My Lords, I have already spoken to Amendments Nos. 15 and 16 when I moved Amendment No. 4.—

Lord Williams of Elvel

My Lords, I was not aware that Amendment No. 14 had been called by the noble and learned Lord.

The Lord Chancellor

My Lords, I called Amendment No. 14 and it was not moved.

Lord Williams of Elvel

My Lords, I am sorry and I apologise to the noble and learned Lord. In the confusion, I was not aware that the noble and learned Lord had called the amendment. Therefore, if he will permit me, I should like to speak to the amendment.

Baroness Gardner of Parkes

My Lords, no!

Lord Williams of Elvel

My Lords, I am afraid that I did not hear the noble and learned Lord call Amendment No. 14. It was simply that, in the confusion—

Lord Boardman

My Lords, I have only just come back to the Chamber having responded to the call for a Division. I am now told that Amendment No. 14 standing in my name has been called. I should like the opportunity to move it.

The Lord Chancellor

My Lords, I called Amendment No. 14 after I announced the result of the non-Division in respect of Amendment No. 13. I do not think that I called it particularly silently, at least I certainly did not intend to do so. But, on the other hand, it appears that my call was not universally heard. I think, therefore, that the justice of the case requires that I call the amendment again.

I call Amendment No. 14 standing in the name of the noble Lord, Lord Boardman.

Lord Williams of Elvel

My Lords, I am most grateful to the noble and learned Lord. I was in the Chamber throughout but I did not hear—perhaps because my hearing is defective—the noble and learned Lord call Amendment No. 14. Therefore, I am very happy to move that amendment formally in the expectation that the noble Lord, Lord Boardman, will make a speech upon it. I think that the amendment needs to be discussed.

Lord Coleraine

My Lords, before the matter goes any further, I should like to point out that I was also present in the Chamber when my noble and learned friend called the amendment. I heard that it was not moved and then my noble and learned friend called Amendment No. 15.

Baroness Gardner of Parkes

My Lords, that is true.

The Lord Chancellor

My Lords, I certainly called Amendment No. 14 to the best of my ability. I waited for a while but nothing happened, so I declared it not moved and went on to call Amendment No. 15. On the other hand, we are all rather fallible—myself particularly—and I think, therefore, that in all the circumstances it is only just that I should re-call Amendment No. 14. I shall do so now.

9 p.m.

Lord Boardman moved Amendment No. 14: After Clause 5, insert the following new clause:

("Qualifying tenants satisfying residence conditiun

,—(1) For the purposes of this Chapter a qualifying tenant of a flat satisfies the residence condition at any time when the condition specified in subsection (2) is satisfied with respect to him.

(2) That condition is that the tenant has occupied the flat as his only or principal home—

1. (a) for the last twelve months, or
1258
2. (b) for periods amounting to three years in the last ten years,

whether or not he has used it also for other purposes.

(3) For the purposes of subsection (2)—

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 subsection.

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

1. (a) the condition specified in subsection (2) need only be satisfied with respect to one of the joint tenants; and
2. (b) subsection (3) 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).").

The noble Lord said: My Lords, I shall speak also to Amendments Nos. 34, 35, 38, 40 and 42. Under the Bill two-thirds of the long leaseholders of the block must participate in the application to enfranchise, and unfortunately none of them need be resident, as your Lordships will know from a previous amendment. There are amendments down, which may well commend themselves to my noble friend the Minister, allowing that figure to be stepped up to three-quarters.

Amendment No. 14 improves the situation in that it requires half of the participating leaseholders—I remind your Lordships that two-thirds of the leaseholders must qualify, and that two thirds must then participate—to be residents. So there will be a significant residents' entity in the participating leaseholders.

Secondly, the amendment excludes companies from being residents. As the Bill stands, the whole block could be acquired by company leaseholders. The amendment—I believe in all fairness—excludes companies and corporations from qualifying as residents. Thirdly, the amendment relates to the definition of resident. Throughout the Bill resident is defined as someone who has occupied the flat as his only or principal home for the last three years or for periods amounting to three years in the last 10 years. That definition was used also in the 1967 Act.

The amendment extends that definition by qualifying as a resident one who occupied the flat as his only or principal home for the last 12 months or for periods amounting to three years in the last 10 years. That overcomes the problem, which has been referred to, of residents who have only recently taken up residence. It was a point referred to by the noble Lord, Lord Williams. Limiting the period to three years might exclude a number of people. The amendment widens the definition to 12 months. Although I am less happy with that than I am with the exclusion of non-residents, the amendment goes a long way towards solving the problem of enabling residents to enfranchise, to which my noble friend the Minister referred, and towards meeting some of the principles in respect of which the Bill, without the amendment, would be offensive. I beg to move.

Lord Williams of Elvel

My Lords, I am glad that we have the opportunity to discuss the amendment. We had this debate earlier, and I believe that the noble Lord, Lord Boardman, was right to ungroup—if I may use that inelegant expression—Amendment No. 14 from the previous amendments. We support entirely the position in subsection (3) of the amendment. We do not believe that there should be companies and absentee landlords who can do what they like and create what I believe are called "artificial persons". We support that principle. I promise the noble Lord our support on that part of the amendment.

We have some difficulty, however, with subsection (2) which imposes a restraint on enfranchisement. It is not to our liking. I and my colleagues should like to think about it. But if the Government were prepared to look seriously at the provision and possibly include it in the Bill, that is something that we might have to live with. It is something that I and my colleagues in the other place might well object to. Nevertheless, it is probably better than nothing.

Perhaps I may return to what I said earlier. We recognise that there is a problem over residence. We recognise that "residence" is difficult to define. One of the things that we can define quite easily, and which would exclude enfranchisement, is leases owned by corporations, or those standing in for corporations, which are not themselves real people, but which are leaseholders. We are anxious to encourage the enfranchisement of real people who are leaseholders. I say to the noble Lord, Lord Boardman, that our reaction to the amendment is that we agree with anything which is against absentee landlords and artificial persons but as regards residents, we have had our doubts about "the last twelve months". We shall see.

Lord Peyton of Yeovil

My Lords, I look forward with unusual eagerness to reading the Official Report of what the noble Lord, Lord Williams, has just said so that I can understand on which side of the argument he intended to descend. He appeared to be saying not much more than that this is a curate's egg amendment; there are bits which are bad and there are bits which are good. He left me very confused and muddled. The reason for my speaking is to give my noble friend on the Front Bench a chance to get his wit together more powerfully than mine so that he can understand exactly what the noble Lord, Lord Williams, said and meant to say and, moreover, so that my noble friend might understand what his right honourable and honourable friends down the passage might say when the amendment, if it is passed, reaches them.

I wish to make a personal comment about the amendment. I cannot help but feel some deep regret that my noble friend Lord Boardman did not decide to vote on the earlier amendment. At least that 'would have had the advantage of making the views of some of us on this side of the House very clear without necessarily impeding the progress of this compromise. It goes some of the way to pleasing the noble Lord, Lord Williams, but not all the way.

The debate is becoming confused. This little amendment, which is now before us, is welcome because it goes some way towards acknowledging that the Government have not been wholly right in the argument. At the same time I take the opportunity to express my considerable regret that earlier today we were unable to express a clear opinion on the mistaken course which the Government have adopted.

Lord Palmer

My Lords, I would first like to pay great tribute to the noble and learned Lord the Lord Chancellor for his sense of fair play in this matter. I too have put my name to the amendment. Unlike the mover of the amendment, Lord Boardman, I did not leave the Chamber and I certainly failed to hear. I am the third youngest person in the Chamber tonight and I reckon that my hearing is quite good. We owe a great gratitude to the noble and learned Lord for showing an amazing sense of fair play.

It also gives me enormous pleasure to support the noble Lord, Lord Boardman, as it appears that there is no logical reason at all why a non-resident should benefit from the Bill. I sincerely hope that your Lordships will give the amendment full support. I support the amendment.

Baroness Gardner of Parkes

My Lords, I would like to bring before the House the matter of—

Noble Lords

Order!

Lord Strathclyde

My Lords, my noble friend Lady Gardner is out of order in speaking from the Bishops' Bench.

The Earl of Onslow

My Lords, we have not as yet allowed women priests in the Church of England. However, I am sure that my noble friend Lady Gardner will make an excellent successor to Archbishop Cranmer.

My noble friend Lord Boardman withdrew Amendment No. 5 on the undertaking of my noble friend on the Front Bench to accept the amendment, to all intents and purposes. I suggest that that was the case because it was within the bounds of possibility that he would have lost. If my noble friend on the Front Bench does accept the amendment I sincerely hope that he will be careful not to say, "I accept the amendment in principle", after which one's old chum "drafting errors" will come into play. Off the Minister will go and say, "I think that I will accept the amendment", and the Government will introduce an amendment along the same lines at Third Reading. If that is to be the case I sincerely hope that my noble friend on the Front Bench will not be tempted to water down the amendment just a little on the grounds of legislative clarity. I sincerely hope that he will not attempt a fast one like that. I do not believe that he will, but I hope that he is warned that some of us will be on the look-out if he does.

Baroness Gardner of Parkes

My Lords, I am concerned about a principal and only resident. What will be the situation of someone with a large family occupying two flats? Will that person be able to enfranchise only one of the flats and not the second in which the other half of the family lives? I should be sorry to rule out such people. There are people with big families who cannot fit into one flat in certain blocks. I know of a number of such cases.

I am also sorry that we are debating Amendment No. 14 because we had passed on and Amendment No. 15 had been called. However, the main reason for my objection to returning to the amendment is that it was tabled so late that we have not had time to consider in careful detail how it and Amendment No. 31 mesh together. It may be that it is quite a good compromise but I feel that the amendment has not been tabled long enough for noble Lords to consider its full ramifications. That is why I feel a degree of anxiety about the amendment.

9.15 p.m.

Baroness Hamwee

My Lords, the noble Lord, Lord Peyton, was less than generous in claiming not to understand the points made by the noble Lord, Lord Williams. I take a similar view to that of the noble Lord, Lord Williams. I support the exclusion from qualification of a "company" or "artificial person". However, those of us who do not wish to see a residence test would prefer it not to be included. If it is to be included, then the shorter the period of residence the less objectionable that would be. I hope that that makes the position quite clear.

I am not sure whether Amendment No. 31 is being spoken to with this amendment. The noble Lord, Lord Boardman, has not referred to it but the amendments seem to go together. I am rather mystified as to what is intended by Amendment No. 31. It requires explanation.

Lord Boardman

My Lords, Amendment No. 31 provides that half the participant tenants must be resident. Two-thirds must be qualifying tenants; at present two-thirds of those must participate without any residential qualification. Amendment No. 31 says that half of those two-thirds must be residents in order that they can participate.

Baroness Hamwee

My Lords, that explanation is rather difficult to follow without an algebraic calculation before me but, nevertheless, I thank the noble Lord for that intervention.

Lord Coleraine

My Lords, like the noble Baroness, Lady Hamwee, and unlike my noble friend Lord Peyton of Yeovil, I read the lips of the noble Lord, Lord Williams of Elvel, and I understood all that he said. One must be particularly wary and respectful of such a skilfully drafted amendment as that brought forward about eight weeks after the matter was last discussed and immediately before it is to be discussed on Report.

Other noble Lords will be as grateful as I am for the occasions on which my noble friend sitting behind me reminds us of our interests. On this occasion I declare once again my interest in that I am a lessee of a flat which has been my home for 17 years. During the whole of that period it has not been my sole residence. Therefore, I wish to address a few remarks on the question of residence.

I must tell the House and my noble friend Lord Boardman that this proposed clause and the way in which it deals with residence—sole or principal residence—is clearly in breach of the Conservative Party manifesto where residence alone is referred to. It is also clearly in breach of the two pamphlets issued by the Department of the Environment and the Welsh Office, to which I referred earlier. It makes no difference that Section 36 was amended at an earlier stage in these proceedings to introduce a sole and principal residence amendment to lease extensions. That also was in breach of the manifesto and the documents. I hope that my noble friend will resist the amendments.

Lord Strathclyde

My Lords, this is the third time that I rise to address the House on the residency test. We are now dealing with this amendment separately from Amendment No. 1.

The Government have always resisted a residency test. They do not do that on the basis of principle because, as I explained earlier this afternoon, we have included residency tests in all other aspects of leasehold enfranchisement and extension. However, we object to it on the basis of practicality. The noble Baroness, Lady Hamwee, the noble Lord, Lord Williams, and I have given many examples of how a residency test would prevent leasehold enfranchisement. Some of my noble friends have also given examples of that.

However, I have always maintained that there may well be a way through which would deal with my problems as regards a residency test. I believe with the introduction of this new clause that I have been outmanoeuvred by my noble friend.

The amendment allows qualifying tenants to choose between occupation of the flat or part of it as an only or principal home for either the preceding 12 months or for periods amounting to three years out of the last 10. The second year of the test means that people who have recently let out their flats because, for example, they have gone abroad for a period, would not be denied the opportunity to join in collective enfranchisement. In the case of joint tenancies, only one of the tenants need satisfy the condition. Occupation does not have to have been under the qualifying lease. So, for example, someone who has lived in a flat owned by his or her parents and has recently inherited a long lease, or a former secure tenant who has exercised the right to buy, will be able to participate.

The test contained in the new clause is intended to prevent a majority of non-resident long leaseholders purchasing the landlord's interest. Our declared policy, on which I have pronounced many times, is that flat owners should be able to gain ownership and control of their blocks. That point was echoed by the noble Lord, Lord Williams. The test that has been proposed by my noble friend Lord Boardman does not seriously interfere with that objective. Therefore, with the noble Lord, Lord Williams, I understand that my noble friend has come forward with something that could work. It clearly signals that flat owners cannot take over if only a minority of the participants lives or has lived for significant periods in the flats. The noble Lord, Lord Williams, said that this Bill was about encouraging "real people" to enfranchise. That is the Government's position. I feel that my noble friend has produced something that does encourage "real people" to enfranchise.

My noble friend Lord Onslow suggested to me that I should not take back this amendment and promise a redrafting. Having listened to the debate earlier this afternoon, and indeed to the short debate that we have had this evening, and seeing the strength of the presence of my noble friends on the Back Benches, I should like to propose to my noble friend Lord Boardman that he should move his amendment. The Government will accept it, and if there are any drafting errors we can sort them out at Third Reading.

Lord Boardman

My Lords, I thank my noble friend for that somewhat surprising concession, following the events of the past few weeks. I welcome it. I much appreciate the great support that noble Lords have given by being here and speaking not only on this amendment but in particular on the earlier amendments, which made it clear that we on this side of the House felt that residential occupation by an element of the leaseholders was an important part I am delighted that my noble friend has been happy to accept the amendment.

On Question, amendment agreed to.

Clause 6 [Meaning of "long lease"]:

Viscount Goschen moved Amendments Nos. 15 and 16:

Page 7, line 41, leave out from ("Where") to ("then") in line 43 and insert ("in the case of a flat there are at any time two or more separate leases, with the same landlord and the same tenant, and— ( ) the property comprised in one of those leases consists of either the flat or a part of it (in either case with or without any appurtenant property), and ( ) the property comprised in every other lease consists of either a part of the flat (with or without any appurtenant property) or appurtenant property only,").

Page 8, line 1, at end insert: (""appurtenant property" has the same meaning as in section 1;").

The noble Lord said: My Lords, I have already spoken to Amendments Nos. 15 and 16 with Amendment No. 4. I beg to move them en bloc.

On Question, amendments agreed to.

The Deputy Speaker

My Lords, in calling Amendment No. 17, I have to say that if it were to be agreed to I could not call the next one.

Clause 7 [Leases at a low rent]:

Lord Carnock moved Amendment No. 17:

Page 8, leave out lines 13 to 16 and insert: ("(1) For the purposes of this Chapter a lease of a flat is a lease at a low rent if either no rent was payable under it in respect of the flat during the initial year or the aggregate amount of rent so payable during the period of twelve months immediately preceding the relevant date did not exceed £300 if the flat is in Greater London, or £75 if elsewhere, or the aggregate amount of rent so payable during the initial year did not exceed the following amount, namely—").

The noble Lord said: My Lords, I have already spoken to this amendment with Amendment No. 6 in accordance with the grouping as it then was, since when the noble Lord, Lord Williams of Elvel, has indicated that he wishes to speak to Amendment No. 17 in its place in the Marshalled List. He inquired whether I would agree to the de-grouping of the amendment, which I gladly did. In the circumstances, I could speak further to this amendment but I do not think that the business of the House would be in any way furthered if I did so. Accordingly, I beg to move.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord, Lord Carnock, for his introduction to this amendment. It is one of the important points in the Bill, at least in Part I of the Bill which concerns the low rent test. The noble Lord, Lord Carnock, allied with the noble Viscount, Lord Bridgeman, and the noble Lord, Lord Annan, introduced a series of amendments which go some way, in our view, to mitigating the damage which the Government are doing to the Bill, as drafted, as regards the low rent test. Our view on the low rent test was clearly stated in Committee. We believe that there is no case for including it. After all, it disenfranchises on a more or less random basis many leaseholders who would otherwise be in a position of enfranchising. It goes against the general thrust of not only this Bill but also the 1967 Act.

Nevertheless, I have to accept that in Committee your Lordships decided against the abolition of the low rent test. We were advocating its abolition and we shall continue to do so. Therefore, we have to go to certain fall-back positions. One of the fall-back positions that is available is that advocated by the noble Lord, Lord Carnock.

There are certain disadvantages to the noble Lord's amendment. One of them is that, as regards the position in London, the amendment does not quite achieve what the noble Lord hopes it will achieve. But the main advantage, in our view, is that the amendment achieves at least a mitigation of the damage that the Bill as drafted will cause to leaseholders outside London. As I have pointed out on I do not know how many occasions, 75 per cent. of leaseholders who are affected by this Bill live outside London. Even in London, as far as I am concerned, we are not talking about the great estates. We are talking about those leaseholders who live in areas of northern London who would benefit from the noble Lord's amendment.

I have said all along that we will support any amendment, provided it is reasonable, that mitigates the damage which is done by the low rent test as presently incorporated in the Bill. I stick to that position. Therefore, although I have certain quarrels with the noble Lord, Lord Carnock, on the details of what we are discussing, nevertheless I believe this is a good amendment in the context of the day. The question is: what will the Government do about it? Alas, I suspect the Government will do nothing. I suspect that the noble Lord, Lord Carnock, in moving this amendment will meet a total brick wall from the Minister on the Benches opposite. I think that would be a pity; not because, philosophically, the Minister or the Government in general are opposed to what the noble Lord, Lord Carnock, is suggesting, but it would be a pity if there were no consideration of Amendment No. 24. That amendment seems to add a new dimension to the rateable value equation which is at present in the Bill. Even if the Government are wholly opposed—like a brick wall—to any adaptation of the low rent test, I believe that, as in capital gains tax, indexation of rateable value should be considered very seriously.

I say all that in the reasonable expectation that the noble Lord, Lord Carnock, will not receive any help or comfort from the Government. Nevertheless, I wish to place on record that we support the noble Lord in his Amendments No. 17 and, in particular, No. 24. I hope that the Government may in the course of time have second thoughts, as they have on other occasions.

9.30 p.m.

Lord Wolfson

My Lords, I too should like to support my noble friend Lord Carnock's amendment. I should have liked it to have gone further. I supported a complete repeal of the low rent qualification at Committee stage. I agree with the views of the noble Lord, Lord Williams, on the subject. I hope that my noble friend the Minister will not find the bricks behind him too hard and will be able to offer this concession. It is not only very much within the spirit of the Bill but also of the manifesto before the general election.

Lord St. John of Bletso

My Lords, I wish to restate my support for the amendment. As the noble Lord, Lord Williams, mentioned, the proposed rent threshold is aimed particularly at the lower to middle end of the property market. Without the amendment many leaseholders will be unjustifiably disfranchised, which is against the objectives of the Bill.

Baroness Hamwee

My Lords, this seems to be a time of the evening for modified rapture. Like other noble Lords I should have preferred to see a more far-reaching amendment. However, we covered the ground of whether or not there should be a low rent test at all on a previous occasion. Given the outcome of that debate, I too should like to say for the record that I support the amendments in the name of the noble Lord, Lord Carnock.

One of the points that I made when we discussed the low rent test at the previous stage was the manipulation of the provisions of legislation by solicitors in drafting leases. Leases state, for instance, that the rent would be such and such an amount or £1 more than the amount which was required in order to take the lease out of the provisions of the Leasehold Reform Act. Shortly after the Committee stage I took the wrapper off a legal professional journal and out fell a flyer for a seminar entitled "Residential Leases -The New Law (and how to use it)". The document began with a quote from a member of the profession: These new leasehold rules should bring in lots of work for solicitors—if they can get their act together in time". Continuing with the promotion of a seminar on how to make the best use of the clients of the proposed legislation the document quite bluntly said: The Bill could have been called 'The Conveyancing and Practice Development Bill'. This seminar will tell you how to take full advantage". I recognise that I am speaking against members of my own profession in mentioning that, but it is a point which should be made in arguing for simple and not manipulable legislation.

Lord Coleraine

My Lords, as it was I who moved the amendment which was defeated in Committee, I should merely like the record to show that I warmly commend both the amendments to the House.

Lord Monk Bretton

My Lords, I also wish to say a word in support of the amendment of my noble friend Lord Carnock. I feel that without it there will be far fewer enfranchisements of flats in areas mostly outside London. Not only will there be fewer enfranchisements, but there will also be many anomalies, together with many disappointments. I wish to emphasise that I think it would lead in the end, only too quickly, to demands for further legislation which would probably be more radical.

Lord Strathclyde

My Lords, this is, of course, yet another issue which we debated at some length in Committee, the issue of the low rent test. At that time the Committee voted decisively in favour of retaining the test. The amendments before us seek to amend the structure of that test. I am not convinced that the amendments are of much benefit, but I generally feel that the low rent test should not be amended. The test marks the extent of the transfer of ownership from the landlord to the lessee. This is crucial in determining whether enfranchisement should be allowed to take place at all. The low rent test has been recognised and accepted for many years by the property market as the threshold indicating that equity has been transferred and effective owner occupation commenced. A landlord knows that his interest in a property let on a low rent is effectively lost to the lessee.

The low rent test appears in roughly the same form in several important pieces of landlord and tenant legislation, and I listed them in Committee. I would therefore not be willing to amend the current form of the test. However, perhaps that is an argument against what the noble Baroness, Lady Hamwee, said. The fact is that this is a test which has been well precedented and well used in the courts and by professionals both in property and in the legal profession, and that is another reason why it should not be changed. To change the rules at this stage would upset the property market and affect the basis on which quite proper transactions were entered into.

It is for those reasons that it is difficult for me to accept Amendment No. 17. Adding a new limit to the test would unnecessarily complicate it and would disturb the workings of the well-established and accepted rules. Perhaps my noble friend Lord Carnock, who moved the amendment most eloquently, could reflect on that to see whether he could propose something better.

I also have reservations about Amendments Nos. 22 and 24. At this stage I am not certain whether my noble friend spoke to Amendment No. 22. He indicates that he did not. I have trouble in supporting Amendment No. 24 which introduces the suggestion that the rateable value should be increased in line with the retail prices index. As I explained, the low rent test is well established and has worked since both the last rating revaluation and the abolition of domestic rating. The RPI is notional. It is in no manner fixed to capital or property rental prices, nor does it take account of regional variation, which is marked in property. I suspect that any link between increases in ground rents and retail prices is likely to be tenuous.

I know that my reply is disappointing to my noble friends but I cannot accept the amendments which would upset the long-term operation of the property market where leases are based on a long established and understood test.

Lord Carnock

My Lords, I have a heavy heart at hearing that reply. Not a single Member of the House has spoken against my amendment. In relation to indexation, my noble friend on the Front Bench indicated that the two-thirds test was proven and had been working satisfactorily. I have to say that that is really not the case. The reason that it is not is that during the period from 1st April 1973 to 31st March 1990 the retail prices index rose by 421 per cent. Throughout that period ground rents were rising at a rate not appreciably different. Throughout that period the rateable value remained fixed because the policy of the Government which existed when the low rent test relating to rateable values was introduced envisaged that there should be quinquennial valuations. The principle of quinquennial valuations was abandoned.

The result is that if one considers two identical flats, one let on, say, 1st April 1973 and the other let in March 1990, there will be very different results upon the application of the low rent test. The low rent test has been rendered perverse, giving false results, because the rateable value has remained fixed and the ground rent or rents have been escalating.

It is a fundamental rule of arithmetic that when making comparisons one compares like with like. At the inception of the low rent test, like was being compared with like but toward its termination like was not being compared with like. The test therefore gave perverse results.

In the circumstances and at this hour of the night, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Colerainemoved Amendment No. 18: Page 8, line 13, after ("flat") insert ("entered into on or before the date of the passing of this Act (or after that date but in pursuance of a contract entered into before that date)").

The noble Lord said: I shall speak to this amendment, which is a paving amendment for Amendment No. 20, and also to Amendment No. 21, which is consequential. Amendment No. 20 provides that a lease entered into after the passing of the Act, otherwise in pursuance of an earlier contract, is a lease at a low rent. Paragraph (a) reads: either no rent was payable under the lease in respect of the flat during the initial year or the aggregate amount so payable during that year did not exceed two-thirds of the rent at which the flat might on the date the lease was entered into reasonably have been expected to be let from year to year if the tenant undertook to pay the Council Tax and all other usual tenant's taxes and to bear the cost of repairs and insurance and the other expenses, if any, necessary to maintain the flat in a state to command that rent".

The Government have made clear that there is general dissatisfaction with the residential long leasehold system as it exists in England and Wales, particularly with regard to flats. They propose that rights of either enfranchisement or lease extension should attach to flat leases where, at the time the lease was granted, the property in the flat substantially passed to the tenant.

As your Lordships know, in Committee I moved an amendment which would have removed the low rent test altogether but it did not satisfy the requirement that in every case property must be shown to have passed when the lease was granted. The amendment was rejected by the Committee.

It is fair to say that the Government's sincerity in their whole attitude to the low rent test and the long leasehold system as it applies to residences will be most clearly tested by the response to this amendment. I tabled and spoke to a similar but much less satisfactory amendment in Committee, Amendment No. 155A, which was related to houses. The debate can be read in the Official Report of 22nd March at col. 113 to 117. The Minister's reply is there to be read.

As I said, this is the better amendment. I should like to draw the attention of the House to what at present is happening in the market to the kind of long leases where the Government are saying that the property is not passing to the lessee. I have with me particulars of a block of four flats recently for sale in Mount Street, Mayfair. The lower two flats of the four are for sale at £475,000 each on new 83-year leases. I must be careful what I refer to as "ground" rent; the Minister would feel constrained to call it a "rack" rent. The ground rent is to be one quarter of I per cent. of the premium. At a ground rent—or a rack rent, call it what you will —of £1,187.50, the property and the flat, under the Bill and in accordance with the Government's reading of the situation, is to be deemed to have remained with the freeholder. The two upper flats are for sale at £400,000 and £350,000 respectively on the same rent terms, and they just scrape through. Their leases are seen by the Government to be true ground rent leases.

It is sheer hallucinating madness. My amendment is drafted to replicate a rates revaluation as of the date of the grant of the lease. The precedent is in Section 19 of the General Rate Act 1967. In my view, the amendment provides the safeguards which the Government claim are required for the protection of freeholders in the case of leases granted after the passing of the Act.

In case it should occur to my noble friend when replying to my amendment that it will involve complicated valuations, let me say straight away that it will not do so. If the amendment were in place, either proper rack rents would be granted on short leases, or landlords would grant leases for proper ground rents in order to maximise their capital considerations; there would be no cases where any lease was granted for 21 years or more at a rent anything like the rent limits which the amendment imposes. I beg to move.

9.45 p.m.

Lord Boardman

My Lords, I find the amendment extremely confusing. There seems to run through so much of the debate a philosophy that anyone who enters into a contract to take a flat is somehow entitled to read into it that he is entitled to enfranchise it. My noble friend referred to flats which are advertised for sale. One wonders whether one should put a footnote at the bottom, saying that the flat will qualify for a kindly government to make them a present of the flat or that the ground rent is fixed at a rate which will not entitle a kindly government to do that.

I find the conception that they can enter into a perfectly ordinary agreement—they know what they are buying, what the ground rent is and what they have to pay—and then people like my noble friend turn round and say, "They should have the right to enfranchise. The Government should allow it". I find it to be cloud cuckoo land and I hope my noble friend on the Front Bench will not support the amendment.

Lord Strathclyde

My Lords, these amendments would affect the future determination of a low rent by disapplying the current test and introducing a new test with an anti-avoidance device for leases granted after the enactment of the Bill.

We have discussed the provisions of the low rent test at some length. Its purpose is clear. The current test has been in existence for many years and all landlords and tenants will be aware of its provisions. It cannot be altered lightly.

My noble friend argues that a lease may be deliberately set to fail the test and be unenfranchisable. That is true, but it may be with the agreement of both parties. The point is that where that has happened, the tenant will know before purchase, because of the certainty of the test, that his lease will not be able to be enfranchised and he will therefore pay less for the lease. Equally, a developer will have the benefit of the long established test to ensure that leases are enfranchisable and he can therefore charge a higher premium for such leases.

Landlords and tenants are free to enter into future leases which will or will not pass the existing test, both parties being aware of whether or not the lease will pass. There would therefore be no point in complicating matters by tinkering with the established test and introducing a different test with an anti-avoidance device for leases granted after enactment of the Bill. Again, I suspect that my reply will disappoint my noble friend, but I do not believe that he has made a case for me to accept the amendment.

Lord Coleraine

My Lords, I believe that the proposition put forward by my noble friend—that there will be a differential market between new leases granted with the right to enfranchise and those granted without the right to enfranchise—is a very suspect one given the fact that anyone enfranchising has to pay the full price, and certainly more than the freeholder will get if he puts it on the market elsewhere. I am sorry, but not surprised, that my noble friend has been able to say only a little about the question of property passing. I believe that everything he has said shows what the Government's attitude is to low rents and what they really feel about the question of property passing. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Carnock moved Amendment No. 19:

Page 8, leave out lines 20 to 25 and insert:

("(b) where—

1. (i) the lease was entered into either on or after 1st April 1963 but before 1st April 1990, or on or after 1st April 1990 in pursuance of a contract made before that date, and
2. (ii) the flat had a rateable value at the date of the commencement of the lease or else at any time before 1st April 1990,").

The noble Lord said: My Lords, in moving this amendment I also wish to speak to Amendment No.129 in Clause 62 which is grouped therewith. The purpose of the amendment is to make clear that subsection (1) (b) of Clause 7 applies only to a flat the lease of which was entered into on or after 1st April 1963 and before 1st April 1990 and where the flat actually had a rateable value at the date of the commencement of the lease or at any time before 1st April 1990. Under the Bill as drawn the paragraph could have purported to apply to a flat which had no rateable value at any relevant time, so that the provision at the end of paragraph (b) relating to two-thirds of the rateable value could not operate. Therefore, there appears to be an omission in the Bill which will be supplied by the amendment. Where such a flat has no rateable value it will be covered by the provisions of paragraph (c), which is of a sweeping-up character. The£ 1,000 threshold will apply if the flat is in Greater London and the £250 threshold will apply if it is situated elsewhere. Amendment No. 129 to Clause 62 corrects a similar omission in relation to the provisions affecting long leasehold houses. I beg to move.

Lord Strathclyde

My Lords, I have listened with great care to the arguments advanced by my noble friend in relation to the case where a property has no rateable value. I accept that this could have happened because when the lease of a property was entered into the property was not habitable or because the property was simply not registered in time before rates ceased to exist, perhaps because it was part of a new development. There is a special case here as it will not be possible to apply the low rent test to these properties.

On that basis, and if it is the wish of the House, I consider Amendments Nos. 19 and 129 to be reasonable and am happy to accept them.

Lord Carnock

My Lords, I am grateful to the Minister for his reply.

On Question, amendment agreed to.

[Amendments Nos. 20 and 21 not moved.]

Lord Carnock had given notice of his intention to move Amendment No. 22:

Page 9, line 5, at end insert ("and (f) for the purpose of determining the proportion that the rent payable in respect of the flat during the initial year hears to the rateable value of the flat, the rateable value shall be adjusted to take into account any improvements (whether made before the appropriate date or within five years thereafter; but, if made thereafter, made only with the consent of the landlord, or, if such consent is not given, approved by the court for this purpose).").

The noble Lord said: My Lords, I have already spoken to this amendment. I do not propose to move it.

[Amendment No. 22 not moved.]

Lord Rodger of Earlsferry moved Amendment No. 23:

Page 9, line 28, at end insert: ("(7) In this section any reference to a flat let under a lease includes a reference to any appurtenant property (within the meaning of section 1) which on the relevant date is let with the flat to the tenant under the lease.").

The noble and learned Lord said: My Lords, in moving this amendment I shall speak also to the amendments which are grouped with it. These amendments deal with a technical and drafting matter. They have been drafted to ensure that in certain cases where there is a reference to "flat", the reference has the precise meaning which is designed for the particular context.

It may be convenient if I deal, first, with Amendments Nos. 23 and 28. Your Lordships will recall that the definition of a flat which applies in Chapter I is the general definition for that chapter which is found in Clause 91(1). But for the purposes of Chapter II there is a drafting gloss on that general definition in Clause 59(2). Your Lordships will see that "appurtenant property" is included within this definition of a flat for Chapter II but is defined separately in Clause 1(7) for the purposes of Chapter I.

The drafting in that way is deliberate. The effect of this difference in treatment is that a group of enfranchising tenants, each with a single lease of a flat and garage, will have the right to acquire the building in which the flats are located, but also, if they wish, they may acquire the appurtenant property demised by their leases. I have already explained that the policy reasons for this were to keep to a minimum the amount of property that has to be acquired while leaving the extent of enfranchisement flexible.

However, on this approach a potential difficulty arises because of the rent test in Clause 7. Clause 7(1) applies the rent test only to the rent and rateable or letting value which applies to the flat itself, even where, for example, the tenant has one lease of the flat together with a garage. On the current drafting it is a suggestion at least that in such a case the rent would need to be apportioned between the flat and the garage before the rent test could be applied. It also follows that the rateable value might also have in such cases to be apportioned where there is no separate rating on the garage. The effect of all this would be cumbersome.

To avoid these complications it has been decided that the low rent test should apply to the flat, together with any appurtenant property enjoyed with it. That is the effect of Amendment No. 23. Amendment No. 28 is simply consequential on Amendment No. 23 in that it directs that, for the purposes of the low rent test and its application under Chapter II, the meaning of "flat" shall be construed in accordance with Clause 59(2) rather than Clause 7(7). Amendment No. 128 does the same, in effect, for Chapter II.

The remaining amendments, Amendments Nos. 57, 119, 120, 123, 126 and 127, provide a gloss on the meaning of flat in cases where the landlord denies tenants the rights of collective enfranchisement or lease renewal on the ground that he proposes to redevelop. The current drafting requires only that the landlord must show that he has a reasonable need to obtain possession of the premises, which, as it stands, may mean that he would need only to show that he intended to obtain possession of appurtenant property demised with the flats. That is not thought to be satisfactory. The effect of the amendments is that the landlord, before he can invoke this exception, must show that he could not redevelop the premises without obtaining possession of the flats. These are technical amendments. I beg to move.

Lord Williams of Elvel

My Lords, I too shall speak to the amendments which the noble and learned Lord has spoken to. I have one question for him. This Bill has been through another place. It has also been in Standing Committee in another place. It has been through this House in Committee and here, on Report, we still have technical amendments moved by the Government which may be justified. But for goodness sake, cannot the Government get the drafting right before they go through all the procedures of Parliament? That is the job of the noble and learned Lord, the parliamentary draftsmen, the Bill team and the rest. Why are we at this time of night not debating the real issues of the Bill but technical amendments which the Government recognise are deficiencies in the Bill?

Lord Rodger of Earlsferry

My Lords, one of the purposes of going through the procedures both in Committee and on Report is that matters of technical detail, where necessary, can be put right. It would surely be a far worse situation if the Government were not to put right, and not take the opportunity of putting right, defects which emerge. As everybody recognises, this is a complex Bill. Everyone recognises that it is difficult. A highly technical area of the law involving conveyancing is concerned.

In that situation it is very difficult to get matters right at the very first instance. It is much to be preferred that as these wrinkles emerge—which is what they are—the machinery goes through and one examines the Bill in accordance with parliamentary procedures, it is proper that these wrinkles are put right. I do not apologise for bringing this amendment before the House.

On Question, amendment agreed to.

[Amendment No. 24 not moved.]