Housing and Urban Development Bill

HL Deb 18 May 1993 vol 545 cc1651-732

3.9 p.m.

The Parliamentary Under-Secretary of State, Department of the Environment (Lord Strathclyde)

My Lords, I beg to move that the Bill be now further considered on Report.

Moved, That the Bill be further considered on Report.—(Lord Strathclyde.)

On Question, Motion agreed to.

Clause 9 [Premises with a resident landlord]:

Baroness Hamwee moved Amendment No. 25:

Page 10, line 16, at end insert ("and ( ) the freeholder or a parent or grandparent of the freeholder was the owner of the freehold of the premises at the date when any written permissions required by law for the conversion of the premises into flats were given by the relevant authorities or, if no such permissions were obtained, for a period of not less than twelve months ending on the date on which building work necessary for the conversion commenced.").

The noble Baroness said: My Lords, under Clause 4(3) certain premises are excluded from the right to enfranchisement. That subsection excludes premises where there is a resident landlord. It refers to the premises as not containing more than four units. Your Lordships have discussed, and will continue to discuss, the appropriate number of units to which the resident landlord provision will apply. Clause 9 gives the definition of a resident landlord. The amendment asks your Lordships to focus on the reasons why, and the extent to which, a resident landlord and the premises which he owns should not be subject to the enfranchisement provisions of the Bill.

Many noble Lords have received several heartfelt representations from people living in leasehold flats or in leasehold houses who have experience of the effect of the enfranchisement legislation as it applies to houses. I live in a leasehold flat and again I must declare an interest. I have a resident landlord but it is not for that personal reason that I bring the amendment before the House. I bring it in particular because of a letter which I have received from a couple who live in just such a flat. They write: Whilst we acknowledge that it is entirely proper to protect the interests of those who in good faith have divided their family homes to create leasehold flats, we feel that a sharp distinction should be drawn between people in this position and those who, in buying a conversion flat which carries with it the freehold to the entire house, happen to acquire, possibly as a very inexpensive adjunct to their purchase, the freehold to whatever leasehold flats there might be in the building, and who do so with no previous interest or investment whatever in the homes of the lessees".

In Committee, the noble Lord, Lord Coleraine, moved an amendment to restrict the application of the resident landlord provision. He said that the purpose of that provision should be to recognise the position of someone who finds that his family home has become too large or too expensive and who converts it and sells off parts. Your Lordships may agree that that is a good underlying objective. The noble Lord referred to the point made by my correspondents; that anyone who happens to buy a freehold, because it is the only way they can acquire the possession of a particular flat, has no real claim as a freeholder to be treated any differently than an outside freeholder.

Replying to that amendment the Minister said: Most importantly our provisions allow successors in title to a freehold to continue to benefit from the exemption. Where a person has inherited the family home, in which perhaps he grew up, he has the same claim as the person who converted the property to retain the freehold".—[Official Report, 15/3/93; col. 1269.]

The purpose of the amendment is to recognise that position. A property which has been in a family for two or three generations should be allowed to remain in the family but the freeholder who happens to own the freehold as an adjunct to his own flat should be excluded. The purchaser who happens to own the freehold of a small block of flats attached to his own flat should be excluded. I beg to move.

Lord Monson

My Lords, under certain conditions I should have no hesitation in supporting the noble Baroness's amendment, which she has explained so well. The conditions are that in turn she and her supporters agree to support my amendment. to Clause 4, which she will know of, when I reintroduce it on Third Reading. It will provide that in addition to small properties larger properties can benefit from the concessions contained in that clause.

The object of Amendment No. 25 is to ensure that where a residential landlord is excluded from the obligations imposed by the Bill—that is, to submit to a forced sale of the freehold—he or she must be genuine long-term occupants and not someone who bought the property only a month or so previously. That proposition is difficult to quarrel with.

In order to achieve a fair balance the provision must be backed up by the relaxation of the highly arbitrary, illogical, and hence unfair, size restriction contained in Clause 4. Apart from anything else, the larger a house the more difficult and costly to maintain it will be, in particular if its grounds are large. Therefore, it is more likely a family will be pushed into sub-dividing the house and selling off the leases. I look forward to a favourable response to my offer from the noble Baroness.

3.15 p.m.

Lord Coleraine

My Lords, as the noble Baroness said, I moved a similar amendment in Committee. She rehearsed the reasons which I gave for moving the amendment; that resident landlord exemption should be limited to cases in which a family home has been converted and sold on long leases. The provision in the Bill goes far wider than that.

Furthermore, I wished that the Bill provided for the case of a resident landlord who was a leaseholder. At present such a person has no right to claim the resident landlord exemption. Although he cannot be turned out on to the street if his tenants enfranchise against him, he will end up as their tenant, which is undesirable. There are infelicities in the drafting of the clause. I expressed sympathy with the amendment moved by the noble Lord, Lord Monson, last week but I must add the gloss that my sympathy will continue if Amendment No. 25 is accepted. However, I do not see any particular reason why the two amendments should be linked together. My support of the amendment tabled by the noble Baroness stands on its own.

Lord Strathclyde

My Lords, we debated one amendment on the resident landlord's exclusion when we considered Clause 4. It was that tabled by the noble Lord, Lord Monson, to widen the exclusion. We now consider the amendments tabled by the noble Baroness, Lady Hamwee. They are intended to narrow the resident landlord's exclusion.

We have heard that one of the amendments tabled by the noble Baroness would apply an additional qualification that would require the freeholder, or a parent or grandparent of the freeholder, to have been the owner of the premises when permission was obtained for its conversion into flats or, where no permission was obtained, to have occupied the premises for the 12 months prior to the conversion.

The second of the noble Baroness's amendments would remove from the Bill a provision that enables recent purchasers of the freehold to qualify as resident landlords where the previous freeholder was a resident landlord and the new freeholder—or an adult member of his family—has moved into the property within 28 days of acquiring it and has remained in residence continuously since then.

When we considered the proposed amendment to Clause 4, tabled by the noble Lord, Lord Monson, I said that I could see why those on the side of the landlord would want to widen or to extend the resident landlord's exemption and as a result exclude more flats from the right to enfranchise. I also said that I could see why those on the side of the tenant would want to narrow the resident landlord's exemption. I also said that our purpose in limiting the resident landlord exclusion was to exclude smaller blocks that are or were the landlord's home. We considered restricting the resident landlord's exemption to premises where the freeholder was the owner of the premises when the conversion took place but decided against doing so.

We are prepared to allow those resident landlords living in small converted blocks to be exempt from the enfranchisement provisions in this Bill even though they may not have been the landlord at the time of conversion, especially where they have purchased their interest from another resident freeholder. Such landlords may well have purchased the premises with a view of converting them back into a house or with the intention of acquiring the other flats for use by members of their family. They may equally have been concerned to buy a home where they knew that they would have a degree of control over the building as a whole, or of the garden perhaps.

I consider the amendments to be too restrictive. I have said that much of the Bill is a delicate task of balancing the different rights and interests of different groups of people. I believe that we have that balance about right. We do not wish to alter or change the resident landlord's exemption. On the basis of that explanation, I hope that the noble Baroness will withdraw the amendment.

Baroness Hamwee

My Lords, I am grateful to the noble Lord, Lord Coleraine, for his support. As regards the point made by the noble Lord, Lord Monson, the analysis given by the noble Lord, Lord Coleraine, and the Minister is correct. On this side of the House we do not seek to be on the tenant's side to the exclusion of the landlord's point of view. Landlords have rights too. I should not like it to be thought that the picture is entirely black and white. However, we do not seek to widen the exclusion.

Amendment No. 26, to which the Minister referred, is in part consequential although there are the other effects which he mentioned. I take issue on part of his analysis of the situation; for example, in relation to somebody who has bought a converted house with the intention of reconverting it or allowing family members to use the other flats. After all, the person is subject to the provisions of the leases of those other flats and would have to buy out the leaseholders or come to some arrangement with them unless the leases are on the very point of expiry. Therefore, the picture which the noble Lord paints is not as simple as he makes it sound. Quite a number of agreements would have to be entered into by the various occupants of the flats.

Having control over the building and the garden is not fundamental to the issue. That is either a matter for agreement or for the application of the provisions of the leases as to how the structure of the building is to be maintained, the garden is to be cared for, and so on. I recognise that we are not making a great deal of progress on this issue and that I have not won over the Government. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 26 not moved.]

The Lord Advocate (Lord Rodger of Earlsferry) moved Amendment No. 27: Page 10, line 32, at end insert: ("( ) In paragraph (b) of each of subsections (1) and (2) any reference to a flat includes a reference to a unit (other than a flat) which is used as a dwelling.").

The noble and learned Lord said: My Lords, in moving Amendment No. 27, I shall speak also to the other amendments grouped with it.

The purpose behind this group of amendments is to address the rare but possible case of a house within an enfranchiseable building. I have in mind a large block of flats or a terraced building with a leasehold house located in the middle.

The Government's policy is that as many buildings as possible should qualify for collective enfranchisement. Although there is nothing in Part I to prevent the enfranchisement of a building which includes a dwelling other than a flat, nevertheless we feel that it should be made quite clear on the face of the Bill that where such a building occurs, the building as a whole will qualify.

The amendments give effect to that policy and are of a technical nature, but I shall attempt a brief summary of the effect of each. Amendment No. 27 reflects the possibility that the premises occupied by a resident landlord are in fact a house rather than a flat. Amendment No. 33 deals with the fact that the mandatory leaseback provisions will apply to houses as well as flats in a building; and Amendment No. 56 reflects the possibility that there may be such houses which are liable to mandatory leaseback but which were not mentioned in the initial notice. The amendments to Schedule 8, Amendments Nos. 76 to 92 inclusive, deal with a number of consequential concerns, and in particular, the application of the mandatory leaseback provisions to secure tenancies of premises other than a flat. Amendment No. 92 to Schedule 9 in relation to local authorities also recognises the existence of such tenancies. Lastly, Amendment No. 94 re-defines the meaning of "unit" in Clause 35 to take account of the fact that there may be separate sets of premises used for the purposes of a dwelling which are not flats.

These amendments are desirable to make the matter clear. I beg to move.

On Question, amendment agreed to.

Clause 10 [Right of qualifying tenant to obtain information about superior interests etc.]:

[Amendment No. 28 not moved.]

Clause 11 [Notice by qualifying tenants of claim to exercise right]:

Lord Renton moved Amendment No. 29: Page 13, line 25, leave out ("two-thirds") and insert ("three-quarters").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 30 and 30A. Amendment No. 30A is referred to in the list of groupings but is not numbered on the Marshalled List. That is a small omission which can be rectified by your Lordships writing "30A" by the side of the amendment on the Marshalled List. Amendments Nos. 41 and 41A are amendments to a schedule which are also relevant and consequential.

The purpose of this group of amendments is to ensure that in a block of flats, at least half the tenants and the occupiers of at least half the flats agree to collective enfranchisement. However, under the Bill as it stands, as a result of the combined effects of Clauses 3 and 11, collective enfranchisement can take place even though only four-ninths of the tenants want it to happen. Surely it is wrong that the minority can dominate the majority in that way.

It arises because under Clause 3, two-thirds of the tenants have to become qualifying tenants to enable Chapter I of the Bill to operate. Under Clause 11, with which we are now dealing, two-thirds of those qualifying tenants have to give notice of a claim to exercise the right to collective enfranchisement. We all know that two-thirds of two-thirds is only four-ninths. That matter can surely be rectified.

Your Lordships will see that Amendment No. 29 seeks to leave out "two-thirds" and insert "three-quarters". That means that we achieve exactly half because three-quarters multiplied by two-thirds gives us one-half.

I hope that the amendments which follow are not over-zealous and it may be that they are not all necessary. However, to be absolutely sure that my noble friend on the Front Bench has something to work on, something to help us achieve the desired object, I have tabled Amendment No. 30 which states: who together represent not less than half of the tenants … in the premises assuming that no flat may have more than one tenant at any time". and Amendment No. 30A which states: who together occupy not less than half the number of flats on the premises". That overcomes the possible small problem that there may be several flats with more than one qualifying tenant which could distort rather badly the arithmetic. Therefore, something along the lines of either or both Amendments Nos. 30 and 30A is desirable.

I do not think that I need trouble your Lordships very much with Amendments Nos. 41A and 42A which are amendments to Schedule 3, which also has a bearing on the matter. However, I have to confess that they were tabled last evening in rather a rush. That is why I must apologise for the fact that they have been starred. Nevertheless, I have been advised that they are a necessary consequence. If the drafting is not quite right, my noble friend Lord Strathclyde can easily have it put right at a later stage.

I hope that I have said enough to ensure that collective enfranchisement should follow the rules of democracy so that the minority cannot rule the roost, as I am afraid happens under most systems of voting. But why should we let it happen under the Bill? I beg to move.

3.30 p.m.

Lord Boardman

My Lords, I express strong support for my noble friend as regards Amendment No. 29. He is absolutely right to press the point that two-thirds of two-thirds should be turned into 50 per cent. (one half) of the participating tenants. However, I am less happy about Amendments Nos. 30 and 30A only because they would appear to compete with Amendment No. 31 to which I have already spoken and which was coupled with Amendment No. 14. I understood that that amendment and that group, of amendments were satisfactory to my noble friend on the Front Bench.

I feel that Amendments Nos. 30 and 30A conflict with Amendment No. 31, which I hope my noble friend will continue to support. I should also mention Amendment No. 41A to which my noble friend spoke. If Amendment No. 30 is accepted, it may be necessary formally to amend the former amendment which relates to Schedule 3.

Baroness Gardner of Parkes

My Lords, I oppose the group of amendments. I believe that this is yet another way of trying to abuse the possibility of leaseholders being able to franchise. It is not a progressive step; indeed, it is definitely against the interests of leaseholders. I think that my noble friend Lord Renton has overlooked the fact that we had quite a lengthy discussion on rounding fractions up and down. It was agreed that they should be rounded down. The present proposal therefore would work very definitely against people who were exactly on or just above the half by a fraction. They would then find themselves disenfranchised as a result.

I am most concerned about the statement made by my noble friend Lord Boardman that Amendment No. 31 should be more or less considered as part of a package with Amendment No. 14. I understood that it would be, but that it would also be considered in conjunction with Amendment No. 160. However, he has now withdrawn that amendment and therefore I believe that he has put that whole package into a different position. I hope—

Lord Boardman

My Lords, perhaps my noble friend will recall that Amendment No. 160 was part of a package containing Amendments Nos. 1 and 5 and has nothing to do with Amendment No. 14.

Baroness Gardner of Parkes

My Lords, I shall continue with my remarks after that interruption. I believe that there is a very definite linkage between all the amendments put forward by my noble friend Lord Boardman. They are all very specifically connected in different ways. Therefore, when one of those vital amendments has been withdrawn, we must certainly review every other one of them very carefully. As I said, I oppose the group of amendments.

Lord Williams of Elvel

My Lords, I had intended to say more or less what the noble Baroness, Lady Gardener of Parkes, just said. We had a dispute about the rounding up and down of fractions. Anything which, in our view, enables more people to enfranchise is welcome. If the amendment's arithmetic—and goodness knows the noble Lord, Lord Renton, went through rather complicated arithmetic—allows more people to enfranchise, then perhaps I am mistaken about what the noble Lord seeks to do.

However, on the other hand, if what the noble Baroness, Lady Gardner of Parkes, indicates is correct in that the arithmetic would in fact militate against enfranchisement—that is, narrow the universe of people who can enfranchise —then, naturally, as we have opposed such measures during the course of the Bill, we will oppose those presently before the House. I very much hope that the Minister will clarify your Lordships' minds as regards exactly what the amendment of the noble Lord, Lord Renton, would achieve.

Having listened to the noble Lord, Lord Renton, I am in some doubt about whether his amendment is meant to help or hinder enfranchisement. As I said, if it would help enfranchisement, we shall support it. But I take the point made by the noble Baroness, Lady Gardner of Parkes.

Lord Campbell of Alloway

My Lords, I support the amendments tabled by my noble friend Lord Renton basically for the reasons that he gave and, put in one phrase, because they ensure what I see as fair play between the landlord and the tenant. I understand the view put forward by the noble Lord, Lord Williams of Elvel, but I do not accept that anything that widens the right of enfranchisement is welcome. It may be welcome so long as there is fair play between the landlord and the tenant.

I was interested to hear my noble friend the Minister refer to striking a fair balance. That is my approach. With respect to your Lordships, I support the approach put forward by my noble friend Lord Renton, or that of my noble friend Lord Boardman which more or less marries, save for the relationship with Amendment 14. With respect to my noble friend Lady Gardner of Parkes, I totally agree that Amendment No. 160 to which I have referred in the past is not really relevant to that consideration. I support the broad drift of the amendments because they ensure fair play. I hope that they will commend themselves to my noble friend the Minister as having the right balance.

Baroness Hamwee

My Lords, it would of course be of benefit to your Lordships to hear the Minister's analysis of the effect of the amendments before responding. However, I think that the noble Lord, Lord Renton, explained them pretty clearly. I take issue with the noble Lord's definition that the proposal would achieve democracy. It would achieve a position where enfranchisement could proceed if half the tenants wanted it to; but it is not necessarily the case that the other half would not want to enfranchise, as there may be some particular disqualification or problem on their part. It is not a situation where the tenants who do not fall within the 50 per cent. (the figure that we would end up under the amendment of the noble Lord, Lord Renton) would be disadvantaged because there would still be a landlord, whether it be the existing landlord or the new collective landlord. Therefore, there would not be the disadvantage that prompts what is, on the face of it, a very attractive suggestion of democracy.

I agree with the noble Baroness, Lady Gardner of Parkes, who reminded us quite appropriately that there will be occasions when the arithmetic brings us to or near the cusp of the right number, as is the case now where we are rounding down the numbers in a way which is to the disadvantage of tenants who wish to enfranchise. For the reasons given by the noble Baroness, I do not support the group of amendments.

Lord Strathclyde

My Lords, my noble friend Lord Renton moved his amendments most eloquently. It was only during the course of the debate that followed that I became slightly confused as to his intentions. I shall refer back to what I believe my noble friend said. I understand the concern that a block should only be able to enfranchise where a significant majority of the long lease-holders are in favour. It is important that those tenants with the greatest financial stake in the property should decide whether or not to proceed with enfranchisement. That is why we have the two-thirds requirement, which represents a significant majority.

However, as I said earlier, there is a balance to be achieved here. We do not wish to make the provisions too restrictive. My noble friend's suggestion that we should increase the number of qualifying tenants required to participate from two-thirds to three-quarters would exclude many blocks from enfranchisement. That is not the intention of the Bill and therefore I cannot accept his suggestion.

I do, however, understand the concern that four-ninths of the tenants in a block can trigger enfranchisement. I accept that there is very real concern that this is less than a majority of the number of tenants of flats in the building. In practice, though, this occurrence is likely to be rare and the requirement remains that a substantial majority of those eligible to participate have to affirm positively that they wish to do so.

However, we are a Government who listen and the concern that less then a majority could enfranchise is a real one. I am therefore prepared, if it is the House's wish, to come back with my own amendment—that of my noble friend is flawed —at Third Reading to ensure that half the tenants of flats in the block must participate in giving the initial notice. That does not affect any of the other fractions. It simply raises the level from four-ninths to 50 per cent.

My noble friend Lord Boardman was quite correct in noticing that Amendment No. 30A seeks to reintroduce a residency test. However, I do not think that that was the intention. I ask my noble friend Lord Renton not to move that amendment because it is part of a group of amendments which will no doubt be spoken to by my noble friend Lord Boardman. In the light of that reassurance I hope that my noble friend can withdraw his amendment. I remain committed to bringing back an amendment on Third Reading.

Baroness Gardner of Parkes

My Lords, before the noble Lord sits down, will he say whether he is willing to look again at the fractions as regards increasing or decreasing them?

Lord Strathclyde

My Lords, that is an entirely different matter from the amendment we are dealing with today.

Lord Renton

My Lords, I am exceedingly grateful to my noble friend Lord Strathclyde for the open mindedness that he has shown on this matter and for the undertaking that he has given to move a government amendment on Third Reading. I am also grateful to those noble Lords who have been so frank as to express doubts. It is always right that doubts should be expressed so we can understand each other better. I shall not attempt to go over the ground again because it is now unnecessary for me to do so. All that I will do is to ask leave to withdraw my amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 30 and 30A not moved.]

Lord Boardman moved Amendment No. 31: Page 13, line 27, at end insert: ("and not less than one-half of the qualifying tenants by whom the notice is given must satisfy the residence condition.").

The noble Lord said: My Lords, I have spoken to this amendment. I beg to move.

Baroness Gardner of Parkes

My Lords, I am concerned about this amendment. I am not sure that it is not introducing yet another different point. I should like to make quite sure that the amendment is simply connected to Amendment No. 14 and that it does not in any way widen the implications of this matter.

Lord Williams of Elvel

My Lords, I rather agree with the noble Baroness. The noble Lord, Lord Boardman, may have spoken to this amendment but I understood that the Minister had expressed some sympathy with the group of amendments we discussed in which Amendment No. 31 was included. Therefore, for the House now to accept Amendment No. 31 as it is moved seems to me to be not consistent with what the Minister said on the first day of Report. I hope that the Minister may be able to say that he accepts the thrust of the group of amendments that the noble Lord, Lord Boardman, introduced, but not necessarily their wording.

3.45 p.m.

Lord Strathclyde

My Lords, I suspect there is some confusion here. I understand that Amendment No. 31, which was not grouped with the amendments that we have just discussed, is consequential to Amendment No. 14 which was accepted by the House last Tuesday. In the previous debate I was speaking to Amendment No. 30A in the name of my noble friend Lord Renton which I believe has a similar purpose to Amendment No. 31. However, Amendment No. 31 is the amendment which should be accepted, and of course Amendment No. 30A was withdrawn by my noble friend. I hope that I have cleared up the confusion rather than increased it.

Lord Campbell of Alloway

My Lords, that is my understanding of the position and I was present when it was discussed.

On Question, amendment agreed to.

[Amendment No. 32 not moved.]

Baroness Hollis of Heigham moved Amendment No. 32A: Page 13, line 39, at end insert: ("( ) contain a statement whether, during the preceding 12 months, notice has been served on the qualifying tenants under section 36(2) (c) (i) (right to acquire a new lease);").

The noble Baroness said: My Lords, in moving Amendment No. 32A I wish to speak also to Amendment No. 96 which is consequential upon Amendment No. 32A. The two amendments propose that if a leasehold tenant who gives notice of his wish to extend finds that after 12 months no Section 11 notice—that concerns a wish to enfranchise—has been issued, that tenant may exercise his right to extend. That, of course, does not preclude any subsequent efforts at enfranchisement.

We believe that these two amendments are key amendments if we wish to improve the situation of leaseholders. The Government want to enfranchise leaseholders as do we on this side of the House. The Government wish to place no hurdle in the way of enfranchisement which might bribe leaseholders to do other than enfranchise, and neither do we. However, we believe the Government are deeply inconsistent. On the one hand, leaseholders who would like the right to enfranchise but who, for example, fail the low rent test are being refused the right to enfranchise. But other leaseholders, who may have tried but failed to enfranchise because they could not attain the necessary majority, are to be punished twice over and denied not only the right to enfranchise but also the right to extend. That is profoundly unfair.

As a result of this Bill there would be three classes of leaseholders. First, there would be those who have exercised their right to enfranchisement; secondly, those who are not eligible to enfranchise but who have chosen to extend; and, thirdly, those who have failed to enfranchise, through no fault of their own very often, but who are then denied the right to extend. In other words, the Government have arbitrarily said that some qualifications stop leaseholders enfranchising but they can still extend—for example where shop space is involved—but that other qualifications which stop them enfranchising, such as the majority provision, will also stop them extending. We believe that distinction to be arbitrary, unfair and unnecessary. In Committee the Government advanced only one argument against this twin-track amendment; that is, that if leaseholders can extend as well as enfranchise, they will not enfranchise because they can extend.

If I can persuade the Minister that this is not the case, can I hope that he will support this amendment or come back with a similar amendment? If leaseholders have a free choice, has the Minister any reason to believe that they will seek to extend rather than enfranchise and thus in the Government's view undermine the purpose of the Bill? We believe that that could only be the case if extension were cheaper than enfranchisement, which it is not. Where there are long leases, it is as cheap to enfranchise as to extend and the vast majority of leases now last for more than 70 years. Only 3 per cent. of leases fall below 60 years. Therefore, the financial difference between choosing extension or enfranchisement is minimal.

Perhaps it is thought that leaseholders would gain more control over their flats if they were to take one course rather than the other. However, most complaints about leasehold property are not about the length of leases but about bad management. It is the landlord and the managing agent that leaseholders wish to remove and that can only be done easily by enfranchisement. Therefore, as regards arguments of cost and control, leaseholders will surely prefer to enfranchise rather than extend. Is that view supported by research evidence? The evidence from the Consumers' Association indicates that half of leaseholders might wish to enfranchise. Only one in 10 would pay the same money for a lease extension. The Government have advanced only one argument: that if people can extend they will not enfranchise. I hope that I have shown that that is not the case.

If the amendment is not accepted and people cannot extend what do we find? We all know that, unlike houses, in the case of flats one person's right to enfranchise depends upon his neighbour's equal willingness to do so. Exercising my right is conditional upon others exercising theirs. I speak as one who, as a Crown lessee, has no financial interest in this issue. What does my ability to exercise that right depend on? It depends on the random composition of the other leaseholders at any one moment in time. It depends not on my wishes but on the composition of the rest of the flats. If there are too many elderly people among my neighbours, too many poor first time buyers who cannot afford to buy the freehold, too many in the process of buying or selling their property, or perhaps one occupant who may have become unemployed, another recently divorced or another in ill health, then my opportunity to enfranchise has gone. All the rest of the hopes of the other leaseholders will have disappeared with it.

Is it proper that such a right should be so much of a lottery? Is it right that it should be so conditional and circumstantial, depending on the random snapshot of my neighbours? A lottery is no fair basis for social policy and certainly not a fair basis for this Bill.

If your Lordships were minded to accept the amendment, in such circumstances the leaseholder would have a fallback right—the right to extend. He would normally want to do so only where he has a stable and reliable landlord and probably transient and less reliable neighbours. The amendment would also protect the Government's position—the wish to privilege enfranchisement—by giving a 12 month delay before that right of extension can be triggered. If that right is triggered it does not in any way impede a later right to enfranchise.

The Minister may say that it is a question of either one or the other. I beg him not to take us down that path. If that is the case then those who are entitled but fail to enfranchise because they cannot overcome that last hurdle of the majority end up neither owning nor controlling their freehold. They will therefore sit on a declining asset, whose value will fall. They will be increasingly reluctant to repair and maintain the property, in turn damaging the property of their neighbours and making future enfranchisement—which the Government want, as do we—even less likely.

Therefore, I hope that if I have persuaded your Lordships I can also persuade the Government to accept these two amendments. I beg to move.

The Earl of Lytton

My Lords, I should like to speak briefly in support of the amendment moved by the noble Baroness, Lady Hollis, for all the reasons she has given so eloquently and, particularly, because of the middle tier of tenants who stand to fall through the net.

There is another reason which the noble Baroness did not mention, and it may be appropriate for me to do so. I believe that the general right to a lease extension is as near as one can come to the consensus view within the industry itself. For that reason it has a great deal to commend it. I urge the Government to consider the matter very carefully. The smart money must be on the general right of lease extension, in particular where the right to enfranchise is difficult to the point of impossibility to achieve. I believe that the fiery hoop of enfranchisement will be a very difficult test. Therefore, I urge the Government to think carefully about this fallback position.

Lord Coleraine

My Lords, I should like to support the amendment moved by the noble Baroness. She drew attention to the evidence that in the generality of cases flat owners will view lease extensions as a second best to enfranchisement. Generally, if two alternatives are available flat owners will opt for collective enfranchisement in order to secure the rights of freehold owners over their homes.

Nevertheless, central London is perhaps a special case. For the most part the great London estates provide excellent management. It may be expensive but expense is not necessarily the prime consideration of those who live in those flats. If those flat owners would prefer to remain lessees of an independent landlord and do not want to go through the considerable aggravation and expense inherent in collective enfranchisement in order to participate in the on-going problems of ownership of the freehold reversion to flats, then I for one see no reason why they should be compelled to enfranchise. Why should they be treated like children, being told what is best for them?

I have never made a secret of my hope that this Bill might provide a clear escape route both for the estates and their lessees. I reaffirm my hope by supporting the amendment of the noble Baroness. The way we own our homes should not be a matter for social engineering by the man in Whitehall.

I note in addition that the amendment will leave the lease extension route open to those flat owners who cannot come to terms with their neighbours and are excluded from an original enfranchisement or who cannot participate because they cannot raise the money. It will save them from what otherwise seems likely to be an appreciable fall in the value of their leases. It will also enable their successors to escape from a second-class leasehold tenure. That is my overwhelming reason for supporting the amendment. It has a general application.

The failure of the Bill as drafted to protect the interests of such lessees, as much as any other aspect which I and other noble Lords have criticised, ultimately casts doubt on the good sense and good intentions of those who have conjured up and fleshed out this part of the detail of the legislation. I believe that that view would be shared by some of those who oppose Part I of the Bill root and branch.

Baroness Hamwee

My Lords, I too support the amendment moved by the noble Baroness. It is grouped with Amendment No. 96, to which I have added my name. I apologise to your Lordships that my name was not attached to the first amendment in this grouping, as the two are very closely linked.

The reasons for supporting the amendment have been well rehearsed and I shall not go over the ground again. However, many of the representations which have been made to your Lordships have been in the form of a question as to why the Government seemed at earlier stages—although I hope that they may have changed their mind—to have set their face against choice on the part of tenants who may find themselves in this particular position. They are categorised by the Government as first or second-class citizens, depending on whether or not they can enfranchise, without the opportunity to choose between the two options.

I hope that when he replies the Minister can indicate to your Lordships the effect of the amendment relating to the residence qualifications which was accepted last week on the numbers affected and the qualifications applying to particular residents and to neighbouring residents. In other words, is there not now a greater need to allow for the choice which is encompassed by the amendments, given that there is a greater hurdle to overcome because we have accepted a residence qualification for enfranchisement?

Baroness Gardner of Parkes

My Lords, I too support the amendment. Noble Lords who have implied during the course of the debate on the amendment that one would be able to extend one's lease for nothing and thus increase one's equity are suffering under a misapprehension. It will be costly even to extend one's lease. Leases cost money. However, I have no objection to that.

The value of the opportunity for people to extend their lease is considerable. People can become desperately worried if they cannot sell their property because no bank or building society will lend on the property since the lease is becoming too short. It would be wrong to leave people in a position where they have no hope of enfranchising and yet have no opportunity to extend their lease. The landlord would be well protected by the residential qualifications that have been accepted. Therefore, I believe that the amendment should be acceptable to the whole House. I hope that the Minister will take it seriously.

4 p.m.

Lord Williams of Elvel

My Lords, I have no wish to add to the arguments put forward by my noble friend Lady Hollis. However, at an earlier stage of the Bill I had understood that this was a twin track amendment which those speaking for Smith's charities and others would support. We have not heard voices in the debate on the amendment which were prominent in Committee. Perhaps we might hear from them.

Lord Hamilton of Dalzell

My Lords, since I am challenged to reply on the issue, perhaps I may say this. Henry Smith's Charity has a policy of offering long leases to its tenants.

Lord Strathclyde

My Lords, I am sure that my noble friend has satisfied the noble Lord with that reply.

Of course, it is an opportunity once again to debate the amendment which the noble Baroness moved in Committee. We had a substantial debate at that time. At the end of that debate I said that I would consider the question again. I have done so. I stated earlier that Part I of the Bill is about a concept. We seek to reform residential leasehold tenure by delivering enfranchisement. The purpose of the Bill is to guide owners of flats down that route. We aim to allow flat owners to take collective control of their property and manage it to suit themselves, not a remote commercial landlord. I said, too, that enfranchisement is the only worthwhile goal and that there are no acceptable alternatives or fallback states. Nothing else would in fact change the landlord.

Again we have had a most interesting debate. There has been a great deal of support for the amendment. I assure the House that I have listened to the arguments carefully and have considered the matter at length. The noble Baroness, Lady Hollis, pleaded for the Government to change their mind. I have decided that there is, after all, a case for giving all qualifying tenants the option of purchasing a new lease.

The amendment put forward by the noble Baroness is not acceptable as drafted. However, I undertake to return at Third Reading with my own amendments to give the option of a new lease under Chapter II to qualifying tenants of flats. Although the concept will be simple, with the right applying to everyone without a period of notice, I fear that the drafting will be complex because we shall need to take account of the interaction between the collective enfranchisement and lease renewal processes. In view of the support that the concept has received during today's debate I hope that that receives the support of the Whole House.

Baroness Hollis of Heigham

My Lords, I am absolutely delighted that the Minister has replied in the way that he has. I thank all noble Lords for the support that they have given.

Perhaps I may tempt the Minister to tell us a little more as to what the amendment may indicate that he proposes.

Lord Strathclyde

My Lords, it is Report stage. With the leave of the House therefore I simply say this. We have decided to widen the ability to extend a lease to all tenants. The only difference between our concept and that of the noble Baroness is that we would not have a time limited period because that simply adds another complexity which, on balance, is probably not worth having.

Baroness Hollis of Heigham

My Lords, I am grateful to the Minister for that clarification. Under the circumstances, I am absolutely delighted to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Strathclyde moved Amendment No. 33: Page 13, line 46, after ("flats") insert ("or other units").

On Question, amendment agreed to.

Lord Boardman moved Amendment No. 34: Page 14, line 14, leave out ("and").

The noble Lord said: My Lords, the amendment has already been debated. I beg to move.

On Question, amendment agreed to.

Lord Boardman moved Amendment No. 35: Page 14, line 16, at end insert (", and (iii) if it is claimed that he satisfies the residence condition, particulars of the period or periods falling within the preceding ten years for which he has occupied the whole or part of his flat as his only or principal home;").

The noble Lord said: My Lords, the amendment has already been debated. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 36: Page 14, line 18, leave out ("by those tenants").

The noble Lord said: My Lords, the amendment has already been debated. I beg to move.

On Question, amendment agreed to.

Viscount Goschen moved Amendment No. 37:

Page 14, line 19, after ("address") insert ("in England and Wales").

The noble Viscount said: My Lords, in speaking to the amendment, I should like to speak also to the other amendments that are grouped with it.

The amendments require that an address for the service of notices relating to enfranchisement or lease extension must be an address in England and Wales. This applies both to the nominee purchaser's or tenant's address for service and to the reversioner's or landlord's, and to the address for service of anyone acting for them. The Land Registry requires that all notices registered with it must have an address for service in England and Wales. The requirement will also be helpful to all parties. The fact that documents do not have to be sent abroad should speed up the process of enfranchisement or lease extension and will save unnecessary expense. The precedent in the Landlord and Tenant Act 1987 supports the amendment. I beg to move.

Lord Williams of Elvel

My Lords, I am grateful to the noble Viscount for moving the amendment which he has explained carefully. I have a small point on the drafting. The expression used in all the amendments is, "in England and Wales". The noble Viscount will be aware that Wales is separate from England geographically., Should not the drafting be "in England or Wales"? Clearly one cannot have an address in England and Wales if the two are geographically separate.

Viscount Goschen

My Lords, I believe that the drafting is well precedented in other legislation and that it is correct.

On Question, amendment agreed to.

Lord Boardman moved Amendment No. 38:

Page 14, line 22, at end insert:

("( ) In a case where the tenant's lease is held by joint tenants subsection (3) (e) (iii) shall have effect as if any reference to the tenant were a reference to any joint tenant by virtue of whose occupation of the flat in question it is claimed that the residence condition is satisfied.").

The noble Lord said: My Lords, the amendment has already been debated. I beg to move.

On Question, amendment agreed to.

Schedule 3 [The initial notice: supplementary provisions]:

Viscount Goschen moved Amendment No. 39:

Page 182, line 9, after ("where") insert ("at the relevant date").

The noble Viscount said: My Lords, the amendment has already been debated. I beg to move. On Question, amendment agreed to.

Lord Boardman moved Amendment No. 40:

Page 182, line 13, at end insert (", or

( ) (if it is claimed in the notice that he satisfies the residence condition) does not satisfy that condition,").

The noble Lord said: My Lords, the amendment has already been debated. I beg to move.

On Question, amendment agreed to.

Viscount Goschen moved Amendment No. 41:

Page 182, line 15, after ("fact") insert ("properly").

The noble Viscount said: My Lords, the amendment has already been debated. I beg to move. On Question, amendment agreed to.

[Amendment No. 41A not moved.]

Lord Boardman moved Amendment No. 42:

Page 182, line 16, at end insert (", and not less than one-half of the qualifying tenants by whom it was so given then satisfied the residence condition.").

The noble Lord said: My Lords, the amendment has already been debated. I beg to move.

On Question, amendment agreed to.

[Amendment No. 42A not moved.]

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

Viscount Goschen moved Amendment No. 43:

Page 18, line 29, after ("address") insert ("in England and Wales").

The noble Viscount said: My Lords, the amendment has already been debated. I beg to move.

On Question, amendment agreed to.

Viscount Goschen moved Amendments Nos. 44 and 45:

Page 18, line 38, after ("address") insert ("in England and Wales").

Page 19, line 6, at end insert ("in England and Wales").

The noble Viscount said: My Lords, the amendments have already been debated. I beg to move.

On Question, amendments agreed to.

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

Viscount Goschen moved Amendments Nos. 46 and 47:

Page 20, line 30, after ("address") insert ("in England and Wales").

Page 21, line 1, after ("address") insert ("in England and Wales").

On Question, amendments agreed to.

Clause 15 [Access by relevant landlords for valuation purposes.]

Lord Strathclyde moved Amendment No. 48:

Page 22, line 7, at end insert:

("( ) Once the initial notice has been given in accordance with section 11, the nominee purchaser and any person authorised to act on his behalf shall have a right of access to—

1. (a) any part of the specified premises, or
2. (b) any part of any property specified in the notice under section 11(3) (a) (ii),

where such access is reasonably required by the nominee purchaser in connection with any matter arising out of the notice.").

The noble Lord said: My Lords, I have tabled this amendment in response to my agreement to consider further, after the debate in Committee, the matter of whether the purchasing tenants should have reciprocal rights of access to parts of the property for valuation purposes. I said then that it would not be right if individual tenants, or even groups acting together, were able to gain access by right to other parts of the block of flats before a nominee purchaser gave an initial notice. Such a right would be an unjustifiable imposition on the landlord and a gross intrusion on the privacy of non-qualifying tenants.

I have reflected on the merits of the argument and I am more than ever convinced that it is wrong to allow tenants a right of access before they have initiated the enfranchisement process. For example, if the right were to be exercisable only in relation to an eligible building, it would be necessary to predetermine eligibility. Secondly, the number of times the right could be exercised in a given period would have to be limited, for obvious reasons. A consequence would be that a group of tenants genuinely wishing to give an initial notice might not have a right of access because other groups, with no prospect of promoting a buy-out, have already claimed the right.

However, I see considerable advantages in allowing the nominee purchaser a right similar to that given to the reversioner and relevant landlords after the initial notice is given. Although it would not be of any benefit before the participating tenants decide to launch their bid, the nominee would be able to inspect the state of repair of any part of the premises which is to be acquired and to obtain more detailed information about the premises so that a more accurate valuation can be made. This will mean that the nominee or his agent and the reversioner will be able to negotiate on a much more equal basis, and so it will be fairer.

The new right would also be useful if there was a dispute about the 10 per cent. commercial floor space in the building. The amendment is drafted to allow the nominee or his agent access at any reasonable time to any part of the specified premises, together with any appurtenant property or common parts specified in the notice, where such access is reasonably required. in connection with any matter arising out of the initial notice. It is modelled on the existing right given in Clause 15 to the reversioner and relevant landlords, and also requires the giving of 10 days' notice to the occupier. The House will recall that an amendment was made in Committee increasing the period of notice from three days.

The amendment will put the parties to enfranchisement on a more equal footing and will improve the Bill. I urge the House to support it. I beg to move.

Lord Williams of Elvel

My Lords, we are grateful to the Minister for the amendment. It responds to the arguments which we raised in Committee and which came from all sides of the Committee. I believe that the Government have gone as far as they can. Of course, they have not gone the whole way and I take issue with the Minister on the first part of his amendment. He explained that in the Government's view it was not right to allow a prospective nominee purchaser or tenant to have access to a building before the initial notice had been given. It is difficult to see how an initial notice could be given without such access, because the initial notice must be on behalf of a nominee purchaser acting on the collective behalf of a two-thirds majority of the qualifying tenants.

I do not understand—perhaps the Minister can help me—how, at the first stages of enfranchisement, a qualifying tenant can make up his or her mind whether to go into this rather complicated process without knowing the state of the premises around him or her. He or she may be in a block of 30 flats, with no right to inspect the roofs, gutters or whatever it may be. I accept that the nominee purchaser may be able to go in after the initial notice, and that initial notice may thereby be withdrawn because of the state of repair of the premises. However, I believe that the Government could have gone further in that once an initial notice was contemplated in some form—and I shall not go into the drafting—it would be appropriate for the nominee purchaser or the prospective nominee purchaser or at least the prospective tenants who would like to give such notice to view. The person authorised should have a view on the value and state of repair of the premises. That is the only point on which I take issue with the Minister.

I hope that in his reply the noble Lord will be able to convince me that I am being over-suspicious. I do not believe that I am, and if we have to accept half a loaf I shall happily do so rather than have no loaf at all. I thank the Minister for conceding something which was debated in Committee but, so far as we are concerned, going only halfway towards the right solution.

4.15 p.m.

The Earl of Lytton

My Lords, I support the amendment in principle and, for the reasons which the noble Lord, Lord Williams, has just given, I appreciate the difficulties involved.

There is one matter which worries me on which perhaps the Minister could give me reassurance. Clearly, a complicated process is involved with enfranchisement. Following inspection by the group of enfranchising leaseholders, there may be other inspections that need to be carried out, perhaps by someone looking at the structure and subsequently by someone on behalf of a finance source looking at the property from its point of view.

As I understand it, even if it is not stated in the lease expressly, there is an implied covenant for part enjoyment. Certainly, if I were a non-participating tenant, I should be worried at the prospect of various different people tramping in and out of my flat, putting me to inconvenience, particularly if I worked shifts or at nights or if it were otherwise inconvenient for me to be in during the normal working day when someone wished to inspect the property.

I invite the Minister to comment on that and to give the House reassurance that that concept has been taken on board and that the test of reasonableness will be taken to apply throughout.

Baroness Gardner of Parkes

My Lords, on the point raised by the noble Lord, Lord Lytton, I believe that built into most leases is the assumption that an appointment will be made, except in an emergency. Therefore, there should not really be a problem about disturbing people who work at night and sleep during the day. Most people buying a flat now are advised that they should have a survey of the whole block, not just of their own flat. Many surveyors say that it is no good just looking at one flat. If it is one in a block of 50, it is important to look at what may happen to the roof and other parts. Frequently, people now have a total inspection carried out, not of the interior of other people's flats but of their own and all the common parts: the heating and boiler systems and so on. Thus, I do not believe that the inspections present a difficulty, but they are important.

Lord Strathclyde

My Lords, I believe that the noble Lord, Lord Williams, was right when he said, in his first few sentences, that this amendment is probably as far as the Government can go. It is, but perhaps I may explain why. Giving a Section 11 notice is an initial notice. It will be part of what could be a lengthy process of negotiation with a landlord. There will be many issues to decide on exact valuations, particularly if many flats are involved. Some will and some will not qualify; there may be commercial property; there may be cases which give rise to claims for injurious affection, and so on. So there will be plenty of time after the initial notice is given for the full and proper valuation to take place. I have accepted in the amendment that that means that access is required. That is the practical reason for the amendments being brought forward.

However, there is a much more serious aspect. Right of access to a personal property for third parties is exceptional and should be exceptional. Access is normally allowed with a warrant for very clearly defined purposes. If we were to accept a free-for-all in the Bill, it would allow any person to inspect their neighbour's flats at any time. That is something that we should not contemplate with ease.

I have been trying during the course of today to strike a balance. I believe that the amendment strikes the right balance and therefore I am encouraged by the general welcome that it has received. I understand the noble Lord, Lord Williams, saying that it does not go far enough, but I hope that he will be able to accept it as it is.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 49:

Page 22, line 8, leave out ("That right of access") and insert ("A right of access conferred by this section").

On Question, amendment agreed to.

Clause 17 [Effect of initial notice as respects subsequent transactions by freeholder etc]:

Viscount Goschen moved Amendment No. 50:

Page 23, line 6, leave out ("to acquisition on that date") and insert ("on that date to acquisition").

The noble Viscount said: My Lords, this amendment has already been debated. I should like to move Amendments Nos. 50 and 51 en bloc. I beg to move.

Lord Williams of Elvel

My Lords, before we move on to the Question, it is my understanding from the grouping list that Amendment No. 51 has not been debated. If it has been debated, then the grouping list is wrong. So far as we are concerned, we are prepared to accept Amendment No. 50 on the basis that it has been accepted, but we shall not accept Amendment No. 51 unless it is properly moved and debated by noble Lords.

On Question, amendment agreed to.

Clause 18 [Right of reversioner to require evidence of tenant's right to participate]:

Lord Rodger of Earlsferry moved Amendment No.51:

Page 24, line 24, leave out subsection (3) and insert:

("(3) Where—

1. (a) the nominee purchaser fails to comply with a requirement under subsection (1) in the case of any person within the period mentioned in subsection (2), and
2. (b) the initial notice would not have been given in accordance with section 11(2) (b) if—
   1. (i) that person, and
   2. (ii) any other person in the case of whom a like failure by the nominee purchaser has occurred,
   had been neither included among the persons who gave the notice nor included among the qualifying tenants of the flats referred to in that provision,

the initial notice shall be deemed to have been withdrawn at the end of that period.").

The noble and learned Lord said: My Lords, I am as anxious as the noble Lord opposite not to be deprived of the chance to explain this amendment to the House. Your Lordships will perhaps recall that under Clause 18 a reversioner may require the nominee purchaser to deduce the title of any participating tenant.

In Committee my noble friend Lord Coleraine raised the particular issue in relation to this provision and pointed out that it seemed to him harsh that Clause 18 (3) deems the initial notice to be withdrawn where the nominee purchaser cannot deduce the title of the property of any participating tenant, even one. That would be true under present drafting, even where there were still two-thirds of the qualifying tenants who had signed the initial notice whose title could be deduced. The noble Lord felt that the initial notice should be deemed to be withdrawn only where the failure to deduce title brought the number of participating tenants who can deduce title below the requisite two-thirds of qualifying tenants to enable enfranchisement.

Even when I listened to the debate I thought that the arguments were ones of force. We have considered them. In the light of that consideration we have concluded that it is right that if title cannot be deduced on behalf of a participating tenant the initial notice should nonetheless not be deemed to be withdrawn provided that, if that particular tenant is disregarded as a participating tenant and also as a qualifying tenant, in that situation the initial notice has nevertheless still been given by two-thirds of the qualifying tenants, and those qualifying tenants still constitute not less than two-thirds of the number of flats in the building. I hope that that is clear. That is what the amendment seeks to achieve. I beg to move.

Lord Coleraine

My Lords, I am grateful to my noble and learned friend for bringing the amendment forward this afternoon. I am advised by the Law Society that it meets the points that I made on its behalf in Committee.

Lord Williams of Elvel

My Lords, I also thank the noble and learned Lord for bringing forward this amendment and allowing noble Lords to debate it. It is part of the job of this House, as a revising Chamber, for the Opposition from time to time to correct the Government Front Bench when it tries to slide through amendments without any proper debate. The noble Lord, Lord Coleraine, made the case in Committee and the noble and learned Lord has accepted it. We shall certainly not oppose the amendment.

On Question, amendment agreed to.

Clause 19 [Reversioner's counter-notice]:

[Amendment No. 52 not moved.]

Viscount Goschen moved Amendments Nos. 53 to 56:

Page 25, line 50, leave out ("the right of access conferred by subsection (I) or') and insert ("a right of access conferred by"). Page 26, line 1, after ("address") insert ("in England and Wales"). Page 26, line 3, leave out ("In this section any reference") and insert ("The reference in subsection (3) (a) (ii)"). Page 26, line 7, after ("flats") insert ("or other units").

The noble Viscount said: My Lords, these amendments have already been debated. I beg to move them en bloc.

On Question, amendments agreed to.

Clause 21 [Tenants' claim liable to be defeated where landlord intends to redevelop]:

Viscount Goschen moved Amendment No. 57:

Page 27, line 24, leave out ("premises") and insert ("flats").

The noble Viscount said: My Lords, this amendment has already been debated. I beg to move.

On Question, amendment agreed to.

Clause 23 [Applications where reversioner fails to give counter-notice or further counter-notice]:

Viscount Goschen moved Amendment No. 58:

Page 30, line 15, after ("flats") and insert ("or other units").

On Question, amendment agreed to.

Schedule 4 [Vesting orders under Sections 22 and 23]:

Viscount Goschen moved Amendments Nos. 59 and 60:

Page 183, line 26, leave out ("and (5)").

Page 183, line 26, at end insert:

("(2A) Where, at any time after a vesting order is made but before the interests falling to be vested in the nominee purchaser by virtue of the order have been so vested, any acquiring authority (within the meaning of section 28) serves notice to treat as mentioned in subsection (1) (a) of that section, the vesting order shall cease to have effect.

(2B) Where sub-paragraph (2A) applies to any vesting order, then on the occasion of the compulsory acquisition in question the compensation payable in respect of any interest in the specified premises (whether or not the one to which the notice to treat relates) shall be determined on the basis of the value of the interest subject to and with the benefit of the rights and obligations arising from the initial notice and affecting the interest.").

The noble Viscount said: My Lords, these amendments have already been debated. I beg to move.

On Question, amendments agreed to.

Clause 24 [Applications where relevant landlord cannot be found]:

Lord Coleraine moved Amendment No. 61:

Page 31, line 20, at end insert (", he having died, no grant of representation has been obtained or the freehold of the premises has vested in the Crown as bona vacantia, or").

The noble Lord said: My Lords, this is a technical amendment which I moved in Committee, again at the request of the Law Society. It deals with procedures to be followed where the landlord has died and his will has yet to be proved while no advance representations have been received on the landlord's interests as invested in the Crown. Since the Committee stage my noble friend has written to me to point out that legislation implementing a Law Commission report will shortly be introduced which will, as I understand it, obviate the need for the amendment. I say to my noble and learned friend that it might be wrong to anticipate future legislation in this way, and that my amendment should be accepted now. In due course it can either be deleted by new legislation or allowed to wither on the vine. I beg to move.

Lord Williams of Elvel

My Lords, I support the noble Lord in his amendment, at least in the argument that we cannot anticipate future legislation, particularly coming from the Law Commission. There are, as the Jellicoe Committee indicated—if I may refer to that committee for a moment—many issues on which the Law Commission has pronounced which have been sitting in a pigeon-hole somewhere waiting for legislation. Is it not therefore right not to wait for pronouncements from the Law Commission but to accept the amendment of the noble Lord, Lord Coleraine, as it stands?

Lord Rodger of Earlsferry

My Lords, as my noble friend Lord Coleraine and the noble Lord, Lord Williams, have indicated, this matter is part of a wider problem which has been considered by the Law Commission. I stress that point. The Law Commission has reported on this matter and the Government have accepted that report in principle. In those circumstances we are dealing with part of a wider problem which the Government intend to resolve by means of legislation. It is correct that I cannot anticipate exactly when that legislation will come forward, beyond saying to noble Lords, that it will be brought forward at the first suitable legislative opportunity.

The present system—although, as the Law Commission pointed out, it could be improved—is nonetheless a system which works. Notice can be served in the names of the personal representatives and, in the case of intestacy, on the President of the Family Division. That system, though not perfect, exists and is operated in other areas of landlord and tenant. With respect, it seems to us that it would be proper to maintain the present Bill in line with the existing legislation in other parts of land law and in due course to sweep up this matter in the reform of the whole of the law. That would be in line with the way in which it is tackled by the Law Commission. In my respectful submission, the balance of convenience lies in that way. I hope that in the light of that explanation the noble Lord will withdraw his amendment.

4.30 p.m.

Lord Swinfen

My Lords, before my noble and learned friend sits down, perhaps I may say that he has not explained to the House—certainly not to me—what harm it would do to accept this amendment which would, as I see it, be pure common sense. What harm, if any, would it do?

Lord Rodger of Earlsferry

My Lords, with the leave of the House, I simply say that, for the reasons I have given, it would be appropriate to have this matter dealt with along with the other matters relating to this whole area of the law. I cannot put the matter higher than that.

Lord Williams of Elvel

My Lords, with the leave of the House, before the noble and learned Lord sits down, will he say which of the 26 Law Reports which have been accepted by the Government and are due for legislation cover this particular matter? Will this matter have priority over the other 25 reports in future legislation?

Lord Rodger of Earlsferry

My Lords, again with the leave of the House, the report is the report called Property Law, Title on Death, which was Law Commission Report No. 184. It has been accepted and it is desired to give this matter priority. However, I cannot indicate more precisely exactly when this matter will be brought before Parliament. But it is a matter which has been considered. The report has been accepted. It is not a report which has not been accepted by the Government or which is under consideration by the Government. It has been accepted by the Government. It is a matter of finding a parliamentary slot for it.

Lord Coleraine

My Lords, the reply given by my noble and learned friend has been shown to be unsatisfactory in so far as he anticipates legislation which is still promised. The noble Lord, Lord Williams of Elvel, reiterated the concerns of many people about the enactment of the Law Commission's reports. I am sure the intentions are that this matter should be in legislation at an early date. At the same time, the principles on which we normally act are that a Bill is considered and legislation is enacted on the basis of the law as it is at the time of consideration by Parliament.

I understand that my noble and learned friend said that in the last resort the amendments were not necessary and that the point could be overcome in some other way. I note that he does not dissent from that assessment of his view of the situation and on that basis I feel it best, with some reluctance, to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 25 [Supplementary provisions relating to vesting orders under section 24(1)]:

Lord Rodger of Earlsferry moved Amendment No. 62:

Page 33, line 23, leave out ("the court thinks fit") and insert ("may be determined by a leasehold valuation tribunal to be appropriate").

The noble and learned Lord said: My Lords, the purpose of these amendments is to clarify the role of the leasehold valuation tribunal and also provisions which deal with costs before the tribunal. The amendments are largely of a technical nature. I do not wish to take up noble Lords' valuable time discussing them in detail unless some particular explanation is required. In broad terms, Amendments Nos. 62 to 65 and 104 to 107 clarify the situation, making clear that when the acquisition is to be effected by vesting order in relation to a missing landlord's interest, the terms of the acquisition are to be determined by the tribunal, that being the body best suited to dealing with these kinds of technical amendments.

Amendments Nos. 74, 118, 165, 167 and 169 deal with matters relating to costs that arise by virtue of a dispute before' the tribunal. Amendments Nos. 74, 118, 167 and 169 again clarify the position that costs which are incurred in proceedings before the tribunal may not be recovered by an order of court. Finally, Amendment No. 165 clarifies the jurisdiction of the tribunals in connection with the liability for costs. With that explanation, I beg to move.

On Question, amendment agreed to.

Lord Rodger of Earlsferry moved Amendment Nos. 63 to 65:

Page 33, line 29, leave out ("the court thinks fit, a vesting order under section 24(1) may") and insert ("a leasehold valuation tribunal so determines in the case of a vesting order under section 24(1), the order shall").

Page 33, line 31, leave out ("is") and insert ("was").

Page 33, line 44, leave out from ("(4)") to ("it") in line 48 and insert ("In connection with the determination by a leasehold valuation tribunal of any question as to the interests to be conveyed by any such conveyance, or as to the rights with or subject to which they are to be conveyed,").

On Question, amendments agreed to.

Viscount Goschen moved Amendments Nos. 66 and 67:

Page 34, line 7, leave out from ("which") to ("and") in line 8 and insert ("would be payable in respect of that interest in accordance with Schedule 5 if the interest were being acquired in pursuance of such a notice as is mentioned in subsection (1) (b);").

Page 34, line 20, at end insert: ("( ) Where any interest is so vested in any person or persons, section 29(5) shall apply in relation to his or their acquisition of that interest as it applies in relation to the acquisition of any interest by a nominee purchaser.").

The noble Viscount said: My Lords, Amendments Nos. 66 and 67 have already been spoken to and were grouped with Amendment No. 4. I beg to move the amendments en bloc.

On Question, amendments agreed to.

Schedule 5 [Purchase price payable by nominee purchaser]:

Lord Coleraine moved Amendment no. 68:

Page 184, line 35, at end insert:

("( ) on the assumption that neither the vendor nor a successor in title to the vendor nor any tenant under a lease whose interest is superior to that of a participating tenant will at any time in the future buy or seek to buy the interest of the nominee purchaser or of a participating tenant, or of any successor in title to the nominee purchaser or to a participating tenant, in the specified premises;").

The noble Lord said: My Lords, Schedule 5 to the Bill contains the all important valuation provisions fixing the price that will be paid on collective enfranchisement. I shall move three amendments dealing with those provisions and speak now to Amendments Nos. 68 and 69 in my name. The amendments are grouped with my Amendment No. 161 which amends Section 31 of the Landlord and Tenant Act 1987. In the interests of saving time, I shall not move that amendment. I speak to it now only to the extent of pointing out that similar considerations to those which I shall address in the case of collective enfranchisement apply in the case of acquisition orders under Part I of the 1987 Act.

The first part of the price to be paid by the nominee purchaser is the freeholder's value of the reversion, calculated as set out in paragraph 3 of Schedule 5. My noble friend Lord Strathclyde made it clear in Committee that, in the case of commercial premises and non-participating tenants, that price will be the open market price and will include any speculative or hope value that the market will pay for the reversion. He explained that, in the case of the reversion to leases of the participating tenants, however, the nominee purchaser will not pay the hope value element of the market price. The hope value will form part of marriage value, the second element of the price, at the next stage of the valuation process. My noble friend made that clear. I need say no more now about the reversion of the non-participating tenant. There is no problem there. These amendments are solely concerned with the leases of the participating tenants.

Until now the Government have been less than clear in explaining how the Bill excludes hope value in the calculation of the first stage of the assessment of the price to be paid for their reversions. The words in brackets in paragraph 3(1) of Schedule 5: (with neither the nominee purchaser nor any participating tenant buying or seeking to buy)", do not, by their normal and ordinary meaning, exclude hope value. They exclude the tenants as present purchasers, but they do not in terms exclude the possibility that there will be a speculator prepared to pay over the odds in the hope of doing deals with tenants at a later date which will enable him to make his turn by sharing windfall marriage value with the tenants.

That is what we know happens in auctions and reversions to leases to blocks of flats. It is often the territory of anti-social speculation. The speculator fixes his price in the knowledge that tenants wishing to sell or mortgage would have to buy lease extensions in order to effect marriage by purchase or they will sell their leases to him and effect marriage by sale. A hypothetical speculator will see the prospect of harvesting marriage value in both ways and therefore will be prepared to make a hope value payment of part of the marriage value in advance in order to secure the opportunity.

I moved the probing amendment which we discussed in Committee. My noble friend gave me his assurance that my fears were groundless and said that what I feared was not the case. On 22nd March he said: Marriage value, but not hope value, will be payable for the flats of participating tenants and hope value will be payable for the flats of non-participating tenants".—[Official Report, 22/3/93; col. 42.]

That made the Government's intentions clear and at that stage I thanked my noble friend and withdrew my amendment. Unfortunately he did not explain why the words had the effect that he claimed for them. I have since corresponded with my noble friend and yesterday I met him, my honourable friend Sir George Young and officials. I have been informed that my amendments are considered to be unnecessary and that the words in brackets exclude the speculator's bid in the short term but might allow it in the very long term. I stress the word "very" because I should have thought that in assumptions of this kind the point at which the short term became the long term was the moment of the completion of the hypothetical sale to the speculator.

I am assured that the possibility of the speculator starting at that point to conduct deals with the lessees, which he would normally expect to do over the following five or 10 years, given the short length of time that people live, in their flats, is also excluded by the words in brackets. I am told that it is only in regard to the very long term that the words in brackets may be ineffective. In those circumstances, hope value might be a consideration but it would be minimal. I gain some reassurance and comfort from those words but I confess that I do not understand the argument. I hope that my noble friend will be able to expand upon it and justify it, and clarify the Government's intention by using the words in brackets in paragraph 3.

My submission is that until the case is argued through on first principles, or otherwise justified, the bracketed words can only be understood in their apparent sense of not excluding the speculator's bid.

It may be of assistance if I refer briefly to dicta in the judgment of Lord Denning in the Court of Appeal in the case of Official Custodian for Trustees & Others v. Goldrich reported in 26th Property and Compensation Reports 1973, page 191. Lord Denning spoke of the special incentive which was used by freeholders in enfranchisement cases at that time to counteract a valuation technique known as the adverse differential. The so-called special incentive had been argued and accepted in some cases by that time. Especially for large estates of houses, an investor purchaser's bid would be uplifted by the thought that, if he bought the freehold reversion to a house that was subject to a lease, he would probably be able to buy in the leasehold interest at a later date and thus reap the inherent marriage value.

Lord Denning disapproved of the adverse differential and the special incentive. He described the special incentive as a very speculative and uncertain element. However, he stated that he did not rule out the possibility that there might in some cases be evidence which would justify its use. That is the position today. I understand that since that case the special incentive argument has seldom been advanced on behalf of freeholders when low-rated houses are enfranchised. For those houses it may be a speculative and uncertain element, but my understanding is that blocks of flats often present a special incentive to the speculator to pay something extra with the hope of achieving marriage by sales or marriage by purchases. The amendments are necessary if the effect which the Government confess to desire is to be achieved.

Although the same principle applies in the case of single units, houses and flats, whether enfranchisement of house cases or lease extensions for flats, it becomes a significant factor in valuation only in relation to blocks of flats. Therefore, I have limited my enfranchisement amendments in this group to the case of a block of flats. I beg to move.

4.45 p.m.

The Earl of Lytton

My Lords, in the context of valuation, which is a field in which I am involved in my capacity as a chartered surveyor, one aspect that frequently emerges is that the more one knows about it, the more one realises that one does not know. That situation is true in many areas of detailed expertise.

The subject of speculators is always a vexed one. They are an éminence grise that appears from behind other obstructions in almost every field of endeavour. They appear in both counts: they are landlords and tenants and external forces, and they cannot be totally eliminated from the marketplace. There is an element of speculation when people feel that they can achieve some element of gain over and above the purchase price. There would not be an incentive for anyone to purchase anything were that not the case. Therefore, we are dealing with a matter of quantum that cannot be wholly sifted from the valuation exercise.

I am not clear whether the noble Lord, Lord Coleraine, intended that the amendments should create a predisposition towards eliminating certain elements of value. If that is the case, I take issue with the noble Lord. Such a predisposition would be wrong because the Government have clearly stated that they will compensate landlords fairly and that tenants will pay a fair price. Much play has been made of that matter and I agree with that principle.

Secondly, the amendment sets in place the authority and jurisdiction of leasehold valuation tribunals, with which I agree. That is the expert forum in which vexed matters of valuation, including what is included in a valuation and the resultant figure, will ultimately be determined. It is very important that we should not create a predisposition or a fetter to the way in which the leasehold valuation tribunal carries out its work. Therefore, in so far as that is the intention of the amendments, I shall not support them.

Can the Minister clarify, in the context of the amendment, the position of qualifying tenants who do not participate? Non-participants are excluded from the marriage value when it is calculated in accordance with paragraph 4 of Schedule 5. I should like to know whether it is anticipated that the valuation tribunals will take account of hope value and that that can be valued in accordance with paragraph 3, which looks at the freehold interest as it stands. I should be most grateful for clarification of that point.

Lord Strathclyde

My Lords, the issue that is raised by my noble friend Lord Coleraine is a complex one, of some detail, in our valuation provisions. I hope that noble Lords will be relieved if I keep my response as simple as possible.

Our valuation provisions are designed to reproduce the open market as closely as possible in order to give a fair price. The price is composed of three elements: the open market price of the landlord's interest, at least half the marriage value, and compensation for any severance loss. In the first element, which is the price a third party would pay for the landlord's interest, we have excluded the bid which would be made by the participating tenants and the nominee purchaser from the market as that would have artificially inflated the price. Their special interest is reflected in the marriage value, which is calculated separately.

When valuing the landlord's present interests, any hope value element in the open market value of non-participating tenants' flats is included, as it is only nominee and participating tenants who are assumed not to be in the market.

However, we cannot exclude the tenants and the nominee purchaser from the market for all time. Perhaps I should mention to the noble Earl, Lord Lytton, that non-participating tenants are outside the marriage value, but they do come into hope value. The noble Lord was correct in the way in which he described the situation.

It is possible that a third party might, in an open market transaction, pay more on the assumption that tenants may wish to extend their leases in the future. Because the open market might provide that the tenants pay a slightly increased price to reflect a speculator's bid, it is right that the Bill's provisions should allow this too. The noble Lord has argued that assumptions made for flats should be different from those for houses because a speculator is unlikely to bid more for a house. I agree that the two cases might be different, just as I agree that the open market price for every block of flats will need to be assessed separately to take account of each one's unique situation.

That is the way the open market works and that is what we have provided for in the Bill. We cannot prescribe that a speculator's bid will or will not influence price. That is a matter for the professionals in each case. We have simply allowed that possible hope value should be taken into account as it is in the open market. This will only have a marginal influence on price. What is important is that there is no element of double counting. The price of a landlord's interest might rise because of hope value, but by doing so it would automatically reduce the marriage value payable.

If the market would include a speculator's bid, then it would be unfair to the landlord to exclude this element in our provisions. Tenants will not have to pay for the same interest twice. The price therefore remains fair. On that basis, I ask my noble friend to withdraw his amendment.

Lord Coleraine

My Lords, perhaps I may answer, first, the point made by the noble Earl, Lord Lytton. He suggested that the amendment tries to eliminate certain elements of value. In fact, the amendment is trying to refine the valuation formulae in the Bill so that it is clear where certain elements of value fall; in particular, whether they fall on the side of marriage value or whether they form part of the freeholder's value of the reversion. The noble Earl and I will be agreed that the valuation provisions in the Bill are artificial. It would be very much better if much more discretion was left to the valuer and general valuation assumptions were put into the Bill which the valuers have the task of bringing sense to. I do not think that anything in my amendment creates artificiality. In my amendment I am simply trying to clarify definitions.

My noble friend the Minister said in replying that he would try to keep his exposition as simple as possible. We might have expected that. It is a tendency when dealing with valuation matters, especially when Ministers may be replying to an amateur, such as I, in these matters, to keep things simple. I would rather not say more about his reply at this stage because it was my impression that the assurance which he gave me in Committee, and on the strength of which I withdrew what was a probing amendment, is not being honoured, as it were. I should like to read very carefully what he has said and consult with those who have raised these concerns with me. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 69 not moved.]

The Deputy Speaker (Baroness Serota)

My Lords, in calling Amendment No. 70, I should point out to the House that, if it is agreed to, I cannot call Amendment No. 71.

Lord Coleraine moved Amendment No. 70:

Page 185, line 37, leave out from ("seller,") to end of line 39.

The noble Lord said: My Lords, this amendment is grouped with Amendment No. 71, which stands in the name of the noble. Lord, Lord Monson. I shall also speak to Amendment No. 113 to Schedule 12. I moved this amendment in Committee and I have brought it back today because of the reply which I received from the Minister at that time. My noble friend may have himself been in difficulty because of the nature of his briefing or how he read his brief. The fact is that, although the amendment was not grouped with earlier amendments, my noble friend had spoken to it with an earlier grouping.

I put to him a number of points which I hoped he would be able to answer. He began, instead, by saying: I had hoped that at this stage of the Committee proceedings we might all feel that we had discussed valuations to such an extent that we could have skipped the amendment".—[Official Report, 22/3/93; col. 54.] I may have been wrong in not sharing that perception. I had given some care and thought, as I thought, to explaining why the sharing of marriage value was not something to be subjected to a quick once-over by a Minister. Marriage value has barely been touched on by Ministers in either House in other than the most simplistic terms. My noble friend went on: However, as my noble friend Lord Coleraine put the matter. I understand that I have to do some more explaining". —[Official Report, 22/3/93; col. 54.] I shall try to explain the position briefly but it is clear to me from the debate in Committee that brevity may not be easy nor in the interests of good legislation. I hope that the House will bear with me if I seem to embark on a long journey. But as I said when introducing the amendment in Committee, from the point of view of flat owners this is one of the most important amendments that is likely to be made to the Bill.

Paragraph 4 of Schedule 5 provides that the nominee purchaser will pay to the reversioner the share of marriage value which would have been agreed between the parties on the sale in the open market by a willing seller. So far, so good. But the paragraph goes on to provide that the reversioner's share of marriage value should never be less than half. This provision negates the open market assumptions which are meant to provide the operating framework of the valuation provisions of the Bill—the free market and the assumption that negotiations are carried out between a willing buyer and a willing seller.

My noble friend tried, to justify the 50 per cent. floor in several ways. In the earlier of the debates in Committee he said: We have provided that the landlord should receive at least half the mari,jage value, as an equal division of marriage value is very common".

I can say with reverse logic that the nominee purchaser should receive at least half the marriage value too. He continued: By specifying 50 per cent., we hope to reduce the scope for argument thereby making enfranchisement quicker and cheaper".—[Official Report, 22/3/93; col. 26.]

There is no merit in a provision that gives flat owners a right and then in this way largely destroys their ability to assert it. It is like saying to a man, "If you fight with your hands tied behind your back, it is less likely that you will get hurt and certainly your opponent will be saved a lot of trouble". The point which my noble friend made really cannot be accepted.

It was on the strength of a few comments in the earlier debate that my noble friend told the Committee in reply to my amendment that he thought that he had already said the last word on the subject. He said: Until now the Committee has agreed that our valuation provisions are fair". When, may I ask, has the principle "heads I win, tails we draw" been considered fair? Has the Committee expressed any opinion? I think not. My noble friend Lord Carnock, for one, must have been surprised to hear his speech dismissed as expressing agreement that the valuation principles are fair. His had been a most cogently argued close analysis of the foundations of sand on which the valuation provisions of the Bill are based. My noble friend the Minister then said: The 50 per cent. floor is a recognition of how the market works in practice". That statement, as a statement of how the market works, from a Minister in a Conservative Government, cannot be accepted as a statement of fact.

In central London, because of a monopoly situation and the fact that the big landlords are genuine investors and not speculators, the great estates may be able to exact as much as 85 per cent. and more of marriage value. But that is not true of 95 per cent. of blocks of flats where deals are struck daily which depart from any 50/50 sharing of marriage value—sometimes one way, sometimes the other. In case my noble friend is tempted to suggest that his provision strikes a balance, as he on occasion does—a compromise he might say—let me say at once that one cannot compromise between asparagus and a rotten turnip. All the provision does is thwart the legitimate expectations of the great majority of flat owners all over the country to enfranchise in the interests of a few handfuls of well to do landlords.

From here my noble friend moved to his conclusion in that debate. He said: It is in the interests of all parties that there should be a base for normal valuations so that enfranchisement can be as simple as possible. I find it surprising that my noble friend Lord Coleraine should seek to take away that aspect of valuation since it allows the Government to argue that valuation is determined on a fair basis".—[Official Report, 22/3/93; col. 54.] It allows the Government to argue nothing of the sort. My noble friend did not answer the questions that I put to him so I tabled a Question for Written Answer, and his Answer was given on 14th April. That Answer was misleading; it was incorrect. In it he repeated the statement which he had made previously in debate: The Royal Institution of Chartered Surveyors agrees that the [Government's valuation] proposals follow market practice". [Official Report, 22/3/93; col. 26.] That claim by the Government is so crucial, given the Government's insistence that the nominee purchaser will pay the market price for the reversion, that I propose to read in full the relevant two paragraphs of a letter from Michael Chambers, the director of public affairs in the RICS. Mr. Chambers wrote to me on 28th April as follows: Turning to the question of marriage value the Minister is not quite right in what he says about our views. The marriage value formula in the Bill—that the landlord should have at least 50%—is clearly a political rather than a valuation judgment. There may be cases where landlords accept less than 50% of the marriage value. In view of the compulsion on landlords implicit in the Bill a case might be made for giving the landlord a minimum of 50% of marriage value but that, as I have said, is a political judgment. There are, of course, very many more cases in which the landlord receives more than 50% of marriage value. As you say, our view is that a rigid formula for valuation cannot be built into legislation and that the task is best left to the LVTs. The legislation gives a landlord the opportunity to convince an LVT that market practice would ordinarily leave him with more than 50% of marriage value". To that I add that the LVT should equally have the opportunity to award a tenant more than 50 per cent. of marriage value.

Then there is the Minister's Written Answer to my Question whether in the open property market, on the sale of the reversion to a block of flats, marriage value would be shared equally. The Minister replied: the practice in the marketplace is reflected by decisions of the Lands Tribunal in respect of house enfranchisements. That is patently incorrect. What may be true of houses cannot said ipso facto to be true of blocks of flats. Considering that there is an unfettered free market in reversions to flat leases, and no general rule that marriage value is shared equally, I feel constrained to say that it takes a monumental chutzpah to disregard what actually happens in the market and make a rule instead out of the lands tribunal's decision on the particular facts of two house enfranchisement cases.

With flats, as with houses, there are cases where marriage value is shared equally and others where one or the other side in a negotiating situation will achieve a higher share depending on the relative strengths of the bargaining positions. But I consider it more likely that unequal sharing will take place with blocks of flats than with houses.

The sharing of marriage values should be left to valuers and tribunals to decide and they should not be directed to value with the fetter of the 50 per cent. floor. My mailbag may be flooded tomorrow, but to date I have yet to hear of a valuer who treats the artificiality of Schedule 5 with anything but the utmost professional contempt. I beg to move.

Lord Carnock

My Lords, I support this amendment. There are only two reported cases of a lands tribunal dealing with valuations on the enfranchisement of houses under the 1967 Act. In each case the marriage value was divided equally between the landlord end the tenant. In making the decision, the tribunal would have taken all the circumstances into account, including the way in which the market works. The market works differently from time to time and from place to place. There appears to be no need to introduce into the Bill a provision of this kind relating to marriage value.

There may well be occasions when valuers, in the exercise of their professional judgment, might think it right that the landlord should get less than 50 per cent. and in others more than 50 per cent. In my opinion, the introduction of this provision introduces into the Bill an element of inflexibility which is not desirable. There appears to be no logic in providing that in all cases landlords are to get not less than 50 per cent.

I should also point out that under paragraph 9(2) of Schedule 5, where there are intermediate leasehold interests, the freeholder is obliged to account to them for a proportionate part of his marriage value in accordance with the value of their interests. That is the equitable method of division. I do not understand why a different method is to be used for determining the share of marriage value to be awarded to the tenant and that the judgments of the valuers themselves in that respect are to be overridden.

Lord Monson

My Lords, this might be an appropriate moment for me to speak to Amendment No. 71 which is grouped with Amendment No. 70. Perhaps I may, first, speak very briefly to Amendment No. 70 in reply to the noble Lords, Lord Coleraine and Lord Carnock. This part of the Bill is essentially about compulsory purchase. Whatever may have been the case in 1967, nowadays it is generally accepted that, where compulsory purchase is deemed to be necessary, whether for the purposes of leasehold enfranchisement or building a Channel tunnel, the state has a duty to ensure that the compensation payable for the property which has been taken away from the unwilling owner should be as generous as possible.

I now turn to Amendment No. 71. To allay suspicion, perhaps I may emphasise that this amendment does not in any way constitute an attempt to restrict the proportion of tenants who can enfranchise. On the contrary, its object is purely to ensure "fair play", to borrow a phrase so aptly employed by the noble Lord, Lord Campbell of Alloway, when speaking earlier this afternoon to Amendment No. 29.

Many of your Lordships will have seen the startling figures used by Savills derived not only from their own analyses, but also from estimates supplied by other well known and reputable estate agents, which show that profits of up to £276,000 will be obtained on enfranchisement of the larger Belgravia properties under the terms of the Bill as it stands, where the lease has between 30 years and 35 years to run. That is a profit of over 22.5 per cent: my own estimates at Committee stage were too modest and conservative. This will come about because of the quirks of marriage value where short or medium length leases are concerned. With leases with 80 or more years to run, the profits under formulae currently contained in the Bill are not wholly unreasonable: they will work out at a little over 5 per cent. which I believe is acceptable. But profits of well over 20 per cent. and over £250,000 in cash terms, are not acceptable, as I am sure that noble Lords will agree, in particular those noble Lords on the Labour and Liberal Democrat Benches.

We should also bear in mind that, despite the partial success of the noble Lord, Lord Boardman, a week ago as regards Amendment No. 14, most of those making profits in the £250,000 range will come from overseas. In many cases the properties will not be their principal private residences, as that phrase is commonly understood. In Committee the noble Lord, Lord Strathclyde, seemed to suggest that valuers would be able to take the nationality and the residence qualification of the leaseholders into account when determining fair prices but, of course, there is no way in which that would be allowed.

My amendment would go some way towards reducing those excessive unearned profits. In Committee I suggested a figure of 75 per cent., which attracted a lot of support. Many of your Lordships felt that I should have pressed the amendment. I did not do so at the time because there were other equally important—if not more important—amendments on which to concentrate. I have reduced the figure from 75 per cent. to 66⅔ per cent. to make it more acceptable to the Government. I hope that the Government and the House as a whole will accept it.

Baroness Gardner of Parkes

My Lords, I should like to support Amendment No. 70, moved by my noble friend Lord Coleraine, and to oppose Amendment No. 71, tabled by the noble Lord, Lord Monson. I do not intend to go in detail into the reasons why I support Amendment No. 70 because we have given the matter careful consideration in the past. However, it is because I believe that the leasehold valuation tribunal will have an important role in itself and therefore it should not be necessary to give a guaranteed minimum of the marriage value to the freeholder.

Various leaseholders have written to me asking me to table an amendment. It was, however, too late in our consideration of the Bill for me to do so. They said that in all the many years in which they had lived in their properties—perhaps for 50 years or more—they had had full repair obligations, which they had undertaken willingly, and that although they would get the benefits of the improvements that they have made, all their years of loving care and attention had not been taken into account in setting that minimum 50 per cent. They felt that some weight should be attached to that, and I feel that the leasehold valuation tribunal would be able to do this.

I am interested that the noble Lord, Lord Monson, has reduced the figure from the 75 per cent., which he suggested earlier, to 66⅔ per cent. It seems as if we are bargaining in this Chamber about the percentage. The noble Lord always has 'original ideas and therefore it does not surprise me that he has tabled this amendment as another attempt. However, if I am opposed to 50 per cent., I am even more strongly opposed to 66⅔ per cent. I believe that the matter should be determined by the leasehold valuation tribunal and, for that reason, I support Amendment No. 70, and oppose Amendment No. 71.

Lord Boardman

My Lords, I oppose the amendment tabled by my noble friend Lord Coleraine. I rise only because he summed up in a few words what I believe is a misconception which affects many of those who take his line on this part of the Bill. He used the words—I wrote them down—that my noble friend on the Front Bench had ignored the "legitimate expectations" of thousands of leaseholders up and down the country.

My noble friend Lord Coleraine has proceeded on the basis that everyone who bought and signed a lease was entitled to assume that at some time in the future a kindly, considerate government would say, "Look, you haven't made a very good deal. We will help you out and give you a chance to buy the freehold". I find it remarkable that that approach is taken by noble Lords in all parts of the House. People have entered into contracts to take a lease for a certain time at a certain rate. The Government reckon that changes are to be made as a matter of, perhaps, social justice and they have made proposals which can only be extremely generous to those who are not legally entitled to them and who, to use my noble friend's words, had no "legitimate expectation" that any change would be made in their favour. I oppose the amendment.

5.15 p.m.

The Earl of Lytton

My Lords,I have some difficulty with the amendment in the name of the noble Lord, Lord Coleraine, and probably, on balance, would oppose it, but not for reasons which would be self-evident. I should like to pick up on a point that he made on a previous amendment regarding the difficulties of valuation. I agree that they are acute. We are endeavouring to value an element, which occurs with the combination of an interest in a property not normally separately identified. Therefore, we have created straightaway in the context of the Bill something which is artificial and which is not normally valued in this way. In practice, things such as the marriage value are simply lumped together as "part of the deal"—if I can use that rather inelegant term— and, after some negotiation, a figure is struck.

The circumstances relating to dwelling houses are a little different because there is a ready-made market in freehold dwelling houses. At the moment, however, there is not a ready-made market in freehold, self-contained flats. That will come in the future. So we are contemplating a new market phenomenon. I dislike the formula contained in paragraph 4 of Schedule 5 and have made no secret of my anxieties about it. I feel that it can be read in more than one way, one of which would, in my view, be unsatisfactory in terms of standards of fairness when reaching the element which is called "marriage value" —never mind how one sets about dividing that up between the landlord and the long leaseholder thereafter. But there it is. It has been put to me that if anybody has any better ideas about how the schedule should be formulated, they are most welcome to make suggestions. I have not been able to come up with a better one and have to admit defeat on that.

There is a further element to consider—and that is the compulsory element. When I first started my seven-year stint as a public servant, one of the things with which I had to deal was compulsory purchase, relating mainly to road schemes. I was always told that in the context of compulsory purchase, as a valuer one had, to some extent, to be a custodian of the public purse, but one had always to give the benefit of any reasonable doubt to the claimant. With that still ringing in my ears after all this time has passed—I have long since ceased to be a public servant in that organisation—I feel that the benefit of what I see as considerable doubts in this area (for the reasons that I have explained) should probably, on balance, be given to the freeholder from whom the interest is being acquired. I think that the Government have got it about as nearly right as we shall ever get it. I am sure that the Minister will tell me if I am speaking for him, but I think that the reason why the 50 per cent. test has been used as a benchmark is because of the manifest uncertainties which attend this Bill and its operation in practice. On balance, I do not support the amendment of the noble Lord, Lord Coleraine.

Baroness Hamwee

My Lords, I support the amendment moved by the noble Lord, Lord Coleraine, and oppose the later amendment which stands in the name of the noble Lord, Lord Monson. We might have had an interesting debate if, instead of "whichever is the greater", the words in paragraph 4 had been "whichever is the lesser". I am not sure, however, that we did not have that debate on the last occasion we debated the Bill. Had paragraph 4 provided for either the result after a formula had been applied in the way in which sub-paragraph (a) does or for 50 per cent. of X pounds—whichever was the greater or the lesser—I could have seen some merit in it because a fairly reasonable degree of certainty might have been provided. As it is, the greater amount is to be either the result of the application of the formula or 50 per cent. of the result of that formula.

As the noble Lord, Lord Coleraine, said, the leasehold valuation tribunal will have to be involved. Since that is so and since many of your Lordships have said that we should be aiming at an appropriate balance, I believe that it would be better for the tribunal, dealing with the detail of a particular case, to arrive at that balance than for this House at a distance (in geography, time and in every other sense) to attempt to provide that balance and to impose it.

Lord Hamilton of Dalzell

My Lords, I support the remarks made by my noble friend Lord Boardman. What gets at me is that it is a compulsory purchase provision. I have great sympathy on this issue with my noble friend the Minister. It seems to me that he is sitting as Solomon, but 'the rules seem to provide that he must cut the baby in half regardless of the argument. If it were a question of the mother making the most wise, as a freeholder I should expect to obtain something over 100 per cent. of the marriage value. I do not suppose that that will greatly help my noble friend. I am inclined to come down on the side of the noble Earl, Lord Lytton, and say that my noble friend's only option is probably to cut the baby in half, or I might support the amendment tabled by the noble Lord, Lord Monson, as being the best of my alternatives.

Lord Williams of Elvel

My Lords, there is no doubt that paragraph 4 of the schedule is rather confused. There is in paragraph 4(1) (a) a procedure for determination by a leasehold valuation tribunal. Perhaps I may quote the Bill as drafted. It provides:

which in its opinion would have been determined by an agreement made at the valuation date between the parties on a sale on the open market by a willing seller". If the sentence were to stop there, the provision would be comprehensible. That is what bodies of all descriptions do when there is no clear open market. As drafted, the Bill goes on to qualify that sentence. It states:

or 50 per cent. of that amount". I shall not bandy percentages with the noble Lord, Lord Monson, because I do not believe that is profitable, but I believe that the noble Lord, Lord Coleraine, has an important point. Either the leasehold valuation tribunal is the arbiter of these things or it is not. It cannot be the arbiter of these things subject, as the noble Baroness, Lady Hamwee, said, to an overriding decision by the House qualifying what might have been achieved under the views of the leasehold valuation tribunal on the open market. The Government must have a look at this provision. It is for that reason that I have a tendency to support the noble Lord, Lord Coleraine.

Lord Strathclyde

My Lords, yet again we come to an issue we debated extensively in Committee. I explained then why we have the current valuation provisions and how they are calculated. Our provisions are based on the open market price for the landlord's asset. That is fair to both parties. I do not believe that there is anything confusing within the schedule.

The issue which raised most debate then was that of marriage value, which is how the market puts a monetary value on the tenants' special interest in acquiring the property. Marriage value is the difference between the aggregate value of the freehold and leasehold interests before and after enfranchisement.

Amendments Nos. 70 and 113 tabled by my noble friend Lord Coleraine would delete the marriage value floor. As I explained in Committee when discussing these very amendments, these amendments are not necessary. We have provided that the landlord should receive at least half the marriage value as an equal division of marriage value is very common. That recognises that the parties have to reach an agreement or the marriage value is lost.

I had difficulty following my noble friend's argument. I could not work out whether he was agreeing or disagreeing with me that the practice was common. He prayed in aid a letter that he had received from Mr. Chambers of the RICS. It struck me that that letter, which he quoted, supports my view rather than his, because I believe I am right in saying that the letter says that there may be cases where landlords accept less than 50 per cent. It goes on to say that there are of course many more cases in which the landlord receives more than 50 per cent. of the marriage value. There could be cases where the landlord received less than 50 per cent. of marriage value, but that is only likely where the landlord is keen to sell and the tenants are not that keen. That is not similar to the situation with enfranchisement under this statute.

Again we discussed the issue behind Amendment No. 71 tabled in the name of the noble Lord, Lord Monson, in Committee. In Committee he suggested that the marriage value floor be raised to 75 per cent. Here he has asked that it be raised to 66⅔ per cent. The amendment is also unfair. Tenants should not have to pay more to enfranchise than they would in the open market. If a landlord were to sell to any other purchaser then the extra value would not be released. Enfranchisement maximises a landlord's potential gain from his asset. A landlord will receive all of his potential marriage value at enfranchisement. If there were no enfranchisement any marriage value would occur only as and when tenants wished to extend their leases.

The noble Earl, Lord Lytton, and my noble friend Lord Hamilton of Dalzell made the most valid points; that is, that we are seeking to achieve some sort of balance here. There are two amendments before the House: one which seeks to make the valuation more attractive to tenants and the other which seeks to make the valuation more attractive to landlords. Neither is appropriate; neither will be accepted by the Government. If pressed to a vote, the House should follow the Government's view that 50 per cent. is fair.

Lord Coleraine

My Lords, I am grateful to all noble Lords who have spoken. The legitimate aspirations of flat owners are not for them to be given something for nothing. They have to be considered in the context that the Government are legislating a Bill providing for the enfranchisement of some flats and long lease extensions for other flats. In that context, the legitimate expectations are that the proposals should be market-based, as the Government have said would be the case, and that the normal compulsory purchase assumption will apply—because it is a compulsory purchase—and the landlord and the flat owner are deemed to be willing purchasers.

Once one makes that assumption, the only way in which one can have a valuation formula which meets the legitimate expectations is to have the formula in the Bill before the marriage floor is reached, and for the formula to be put to a valuation tribunal to be considered.

My noble friend the Minister has read carefully the letter I received from the RICS. He said that there may be cases where the landlord will receive less, but we all know the circumstances in which the RICS, and surveyors generally, have to operate in London. The statement that the RICS made that the provisions do not reflect market value or how the market works was circumspect and rather courageous. Because what surveyor wants to breakfast with Grosvenor and to be seen to be lunching with Coleraine?

What it comes down to in the end is that the Government's decision is exactly as the RICS put it to me: it is a political decision. In the circumstances, it is right that I should seek the opinion of the House on the matter.

5.29 p.m.

On Question, Whether the said amendment (No. 70) shall be agreed to?

Their Lordships divided: Contents, 81; Not-Contents, 172.

Division No. 2
CONTENTS
Airedale, L.	Knutsford, V.
Aldenham, L.	Lawrence, L.
Allenby of Megiddo, V.	Lindsay, E. [Teller.]
Boardman, L.	Lytton, E.
Boston of Faversham, L.	Milner of Leeds, L.
Brougham and Vaux, L.	Monson, L.
Carmichael of Kelvingrove, L.	Nicol, B.
Cavendish of Furness, L.	Palmer, L.
Clark of Kempston, L	Pearson of Rannoch, L.
Dean of Beswick, L.	Peston, L.
Dormand of Easington, L.	Pitt of Hampstead, L.
Ewing of Kirkford, L.	Rankeillour, L.
Galpern, L.	Renton, L.
Geraint, L.	Rochester, L.
Gladwyn, L.	St. John of Bletso, L.
Graham of Edmonton, L.	Saltoun of Abernethy, Ly.
Grantchester, L.	Sefton of Garston, L.
Grey, E.	Shrewsbury, E.
Hamilton of Dalzell, L.	Somerset, D.
Hamwee, B. [Teller.]	Strange, B.
Hertford, M.	Sudeley, L.
Hilton of Eggardon, B.	Swinton, E.
Hollis of Heigham, B.	Tordoff, L.
Houghton of Sowerby, L.	Walpole, L.
Howie of Troon, L.	Whaddon, L.
Jeger, B.	White, B.
Johnston of Rockport, L.	Williams of Elvel, L.
Judd, L.	Winchilsea and Nottingham, E.
Kindersley, L.	Young of Dartington, L.
Kinloss, Ly.
NOT-CONTENTS
Astor, V.[Teller.]	Hooper, B.
Auckland, L.	Howe, E.
Barber, L.	Kitchener, E.
Bauer, L.	Lauderdale, E.
Blatch, B.	Long, V.
Blyth, L.	Lucas of Chilworth, L.
Bolton, L.	Marlesford, L.
Borthwick, L.	Mersey, V.
Boyd-Carpenter, L.	Monckton of Brenchley, V.
Braine of Wheatley, L.	Murton of Lindisfarne, L.
Brookeborough,V.	Norfolk, D.
Bruntisfield, L.	Norrie, L.
Buxton of Alsa, L.	Orkney, E.
Cadman, L.	Oxfuird, V.
Carnegy of Lour, B.	Park of Monmouth, B.
Carnock, L.	Prentice, L.
Clanwilliam, E.	Reay, L.
Cumberlege, B.	Rees, L.
Dormer, L.	Rodger of Earlsferry, L.
Elliot of Harwood, B.	Saint Albans, D.
Fairfax of Cameron, L.	St. Davids, V.
Ferrers, E.	Sanderson of Bowden, L.
Fraser of Carmyllie, L.	Sharpies, B.
Gardner of Parkes, B.	Shuttleworth, L.
Goschen, V.	Skelmersdale, L.
Granard, E.	Soulsby of Swaffham Prior, L
Harding of Petherton, L.	Stodart of Leas ton, L.
Harmar-Nicholls, L.	Strathclyde, L.
Harmsworth, L.	Strathmore and Kinghorne, E [Teller.]
Harvington, L.
Henley, L.	Thomas of Gwydir, L.
Holderness, L.	Torphichen, L.
HolmPatrick, L.	Torrington, V.

Trumpington, B.	Wakeham, L.[Lord Privy Seal.]
Ullswater, V.
Vivian, L.	Wynford, L.
Wade of Chorlton, L

On Question, Motion agreed to.

Resolved in the negative, and amendment disagreed to accordingly.

5.39 p.m.

Lord Monson moved Amendment No. 71:

Page 185, line 38, leave out ("50") and insert ("66⅔"):

The noble Lord said: My Lords, I beg to move. I do not intend to repeat all the arguments which I made less than half an hour ago. However, I must express astonishment that the Government Front Bench, the Labour Party and the Liberal Democrat Party have expressed no shock or indignation at the revelation that certain individual leaseholders stand to make unearned profits of more than £250,000 if the Bill is left unamended. I suppose that as a result the general public will draw the conclusion that none of the three main political parties disapproves of such large unearned gains, and that indeed they endorse them.

I am in rather a quandary. I sense that many noble Lords support the amendment. On the other hand, only one noble Lord has risen to speak in favour of it and that was very much a qualified endorsement. Unless there is any verbal indication that any noble Lord would prefer me to proceed with the amendment, I shall beg leave to withdraw it while reserving the right to return to the matter on Third Reading.

Lord Williams of Elvel

My Lords, it was my understanding that we had discussed the amendment not only in Committee but also when discussing other amendments grouped with this one, on which we have just voted. I regret that the noble Lord, Lord Monson, has felt fit to raise the matter again. If the noble Lord were to put the matter to a Division we should oppose him.

Lord Monson

My Lords, I beg leave to withdraw the amendment.

The Deputy Speaker (Baroness Lockwood)

My Lords, is it your Lordships' pleasure that the amendment be withdrawn?

Lord Williams of Elvel

No, my Lords.

The Deputy Speaker

My Lords, the Question is, That the amendment be agreed to.

On Question, amendment negatived.

Lord Coleraine moved Amendment No. 72:

Page 185, line 40, after ("is") insert ("that part of").

The noble Lord said: My Lords, in speaking to this amendment I shall speak also to Amendments Nos. 73 and 144. Amendment No. 144 deals with the same point in relation to lease extensions. The point is the same in both cases but the issues are slightly different.

This is a more straight forward group of amendments and the point at which it is directed has not previously been touched upon in our debates. In the context of the Bill marriage value should be seen as the value released or created on the merger of the freehold and leasehold interest. That is a windfall profit—and I feel perfectly at ease with that phrase. It is a profit to be shared between the parties.

In many cases the marriage value can be found by deducting the sum of the values of the existing freehold and leasehold interest from the value of the merged interest which will be created on enfranchisement. However it would be unsound and illogical to turn that formula into a definition of marriage value, which is what the Bill appears to do. That definition produces a gross windfall gain or marriage value but it fails to reflect that the windfall profit, which is relevant in the economic and political terms of the Bill, should be a net marriage value.

For the first time in this Bill, payments must be made on enfranchisement for injurious affection or severance loss. If, for example, the payments of compensation exceed the gross marriage value, there will be no windfall profit and the sum to be shared as marriage value in accordance with paragraph 4 (2) should be nil. However, whatever happens, the compensation payable for injurious affection or severance loss will fall to be paid in full. Where no windfall profit exists, to avoid double counting, no additional payments should have to be made by a nominee purchase of the marriage value. Amendments No. 72 and 73 are designed to achieve that. The valuers would decide in a quasi-merger situation what is the windfall profit to be shared as a marriage value. I beg to move.

Lord Strathclyde

My Lords, we have debated the division of marriage value, but these amendments attempt to redefine marriage value.

Amendments Nos. 72 and 73 seek to change our definition of marriage value to an actual merging of interests. I have to say that this is a nonsense in valuation terms. For houses there is a merging of interests because the former tenant will become the freeholder. For flats there is no such merging, the freehold and leasehold interests will remain separate. However, although marriage value for flats is notional there is a real increase in value as interests are brought under the same control. Because the interests are not merged it was necessary that we define the term. That is why we have attributed marriage value for flats to the ability of participating tenants after enfranchisement to grant themselves new leases for little or no premium.

Equally I find my noble friend's Amendment No. 114, which affects the marriage value calculation where a new lease is claimed, unhelpful. I note that the amendment affects only lease renewal but the issues raised relate to our wider valuation provisions. I understand that my noble friend considers severance compensation to be a cost of enfranchisement or lease renewal to be shared in the same way as the profit in the form of marriage value is shared. My noble friend has argued also that severance is only unlocked because marriage value is paid and, therefore, it is equitable that the tenant should pay the marriage value net of severance. I consider that that is a misunderstanding of the nature of marriage value and of severance compensation. First, I consider it right that a tenant should pay the landlord's costs for enfranchisement or lease renewal including severance. The tenant is the party who wishes to buy and it is right that he should bear the costs of the purchase on the open market. Where a landlord has no original desire to sell, the tenants might well pay costs.

Severance compensation is a legitimate cost of the landlord like any other. It represents the loss in value of other property which the landlord holds attributable to the loss of the property which is purchased. It does not depend on the fact that the property is acquired by the tenants but that it is lost to the landlord. It would arise in a third party transaction. Our aim in addressing the landlord's other property is to ensure that he is in the same financial position as regards that property as he would have been without the purchase. Therefore, severance compensation is quite separate from marriage value and would arise on the sale of a premises whether or not marriage value were released. It represents a real loss to the landlord unlike marriage value, which is a gain to both parties. I consider that that cost should properly be borne by the tenant like any other of the landlord's costs. Therefore, I consider that the amendments are unhelpful and unnecessary and I ask my noble friend to withdraw them.

Lord Coleraine

My Lords, the only problem with what my noble friend has read out to the House is that it does not bear on the amendment as on the Marshalled List or as spoken to. It was never my suggestion that the tenant should not pay the injurious affection costs or the landlord's costs or that those items should be shared, as the Minister seems to suggest. I hope that the Minister will read the debate. In view of the way in which he has replied, it seems to me that I can do no other than beg leave to withdraw the amendment.

The Deputy Speaker

My Lords, is it your Lordships' pleasure that the amendment be withdrawn?

Lord Strathclyde

No, my Lords.

The Deputy Speaker

The question is, That the amendment be agreed to.

On Question, amendment negatived.

[Amendment No. 73 not moved.]

Clause 30 [costs of enfranchisement]:

Lord Rodger of Earlsferry moved Amendment No. 74:

Page 39, line 4, leave out subsection (5) and insert:

("(5) The nominee purchaser shall not be liable under this section for any costs which a party to any proceedings under this Chapter before a leasehold valuation tribunal incurs in connection with the proceedings.").

On Question, amendment agreed to.

5.45 p.m.

Lord Renton moved Amendment No. 75:

After Clause 33, insert the following new clause:

(".—(1) This section applies where—

Tenant's right to lease back

1. (a) under paragraph 5 of Schedule 8 the freeholder is entitled to require the grant to himself of a lease of a flat;
2. (b) the freeholder is immediately before the appropriate time the landlord (or a landlord) of the flat for the purposes of Part I of the Landlord and Tenant Act 1987 (tenants' right of first refusal); and
3. (c) for the purposes of Part I of that Act there is then a qualifying tenant of the flat (within the meaning of the expression "qualifying tenant" for those purposes in that Act but called in this Act in relation to the flat "the first-refusal tenant").

(2) Where this section applies and the freeholder does not require the nominee purchaser to grant him a lease of the flat in accordance with section 33 and paragraph 7 of Schedule 8, the nominee purchaser shall, if the first-refusal tenant by notice requires the nominee purchaser to do so, grant to the first-refusal tenant a lease of the flat in accordance with section 33 and paragraph 7 of Schedule 8 but replacing references in those provisions to the freeholder by references to the first-refusal tenant.

(3) For the grant of a lease of the flat under this section the first-refusal tenant shall pay an amount equal to the decrease in the price payable by the nominee purchaser for the freehold that would have occurred under Schedule 5 if the freeholder had required a lease of the flat to be granted to himself in accordance with section 33 and Schedule 8.

(4) Any value that is to be determined by what an interest might be expected to realise if sold on the open market by a willing seller with neither the nominee purchaser nor any participating tenant buying or seeking to buy shall be determined assuming also that the first-refusal tenant is not buying or seeking to buy.").

The noble Lord said: My Lords, Amendment No. 75 deals with some tenants' rights to a lease back. The amendment was not drafted by me. I should not be capable of such drafting nor should I enjoy drafting it. However, I must tell your Lordships that it was drafted by a very experienced Chancery Queen's Counsel. I find the matter unbelievably complicated and it would be an understatement were I to tell your Lordships that I have difficulty in understanding it.

Lord Archer of Weston-super-Mare

My Lords, I assure my noble friend that if he does not understand it, there will be none of us who do.

Lord Renton

My Lords, it is very kind of my noble friend Lord Archer of Weston-super-Mare to say that. I am assured that the purpose of the amendment is fairly simple and is very laudable. I shall do my best to explain the matter.

It is to be read with Clause 33 and part of Schedule 8. Under the Bill as it stands we are taking away without compensation the rights under the Landlord and Tenant Act 1987 of statutory and other regulated tenants to join in acquiring the freehold or the right to obtain a long lease. I believe that it is called the tenant's right of first refusal. Amendment No. 75 is intended to correct that. I understand that it would not cost the original freeholder anything and that it would enable long leaseholders to buy the freehold more easily and in a less costly manner.

It is an injustice that the tenants under the 1987 Act, to whom I referred, should have their rights under that Act taken away without any compensation. Whatever method is used—and this is merely an attempt to put before the Government a method of achieving the purpose—surely we should do something about it. Therefore, even though the terms of the amendment may not be found to be comprehensible or acceptable, nevertheless, I beg to move it hopefully.

Lord Williams of Elvel

My Lords, I, too, share the difficulty of the, noble Lord, Lord Renton. In his final sentence, he said that even if the amendment was not comprehensible or acceptable he still wished to move it. Having listened to the noble Lord, I am bound to say that I am no clearer as to what the amendment seeks to achieve. I can understand that there was considerable problem with the drafting. Indeed, the rubric of the proposed new clause refers to the, tenant's right to lease back". I believe that that was discussed at earlier stages of the Bill. However, I should be interested to hear from the noble and learned Lord—who is, perhaps, the Minister who will reply, given his judicial understanding—what exactly the amendment really would achieve and whether it would achieve anything that we have not already debated in Committee.

Lord Rodger of Earlsferry

My Lords, it is with some apprehension that I rise to speak to the amendment. However, I approach it with the assurance of my noble friend Lord Archer of Weston-super-Mare that I will not be able to understand it any more than the rest of your Lordships. Nonetheless, it seems to be my lot to speak in reply. As I understand it, the amendment of my noble friend Lord Renton—and I call it that, despite what he said—is an attempt to recompense the non-qualifying tenants in a block which is to be enfranchised for the fact (and this is a point upon which he laid stress) that the right of first refusal under the Landlord and Tenant Act 1987 will not operate on a disposal under the Bill's provisions.

It is right to stress that under the 1987 Act the tenants with such a right are a wide class which includes many renting tenants in the private sector. I should like, first, to point out that the right of first refusal under the 1987 Act does not apply where the disposal of the freehold is not voluntary. For example, if noble Lords look at Section 4 of the 1987 legislation, they will see that the right of first refusal cannot be exercised either if the sale is in pursuance of a court order, such as a compulsory purchase order or an order for property adjustment in matrimonial proceedings. Those are two examples. Therefore, there are no grounds for breaching that principle when dealing with disposals in this case which are unwilling disposals resulting from collective enfranchisement. That is my first point.

However difficult it may be to follow exactly the detail of my noble friend's amendment, I think it is plain that the amendment would not give the tenants rights which are equivalent to those under the right of first refusal legislation. Under those rights, tenants have the collective right to buy the landlord's interest and then to take over the management of the block. As I understand it, the proposed amendment would not give the non-qualifying tenants those rights; rather, it would simply grant them an individual long lease but with no control over the management of the block. I believe that it effectively gives a right to a 999-year lease renewal to a tenant who does not qualify for collective enfranchisement but who would qualify for the right of first refusal. As I have explained, that is a different right.

Therefore, it is plain that the amendment would not give non-qualifying tenants rights equivalent to those that it is supposed they have lost; nor, I think, would it be appropriate in connection with enfranchisement which is a non-voluntary disposal. My noble friend Lord Renton laid stress on the fact that the effect of the Bill as it stands is to take away a right under the 1987 Act. I believe that my noble friend is not quite right to say that: it is, indeed, the case that tenants' rights of first refusal are not necessarily irretrievably lost under the legislation. For example, if a lessee with a superior interest—that is, an interest above that of a non-qualifying tenant—was subsequently disposed to sell and dispose of his interest then, in that situation, the tenant's right of first refusal would subsist and could be exercised.

Equally, let us think of an example where there is no intermediate lease and where the nominee purchaser—or one could call him the landlord who had taken over after enfranchisement—wished to dispose of the interest once the enfranchisement was completed. In that case, the right of first refusal would, if appropriate, still subsist and could still be exercised under the 1987 Act. To that extent, I believe that my noble friend's amendment proceeds on a misunderstanding of the position.

Looking at it in more down-to-earth and practical terms, the amendment would cause considerable uncertainty for the qualifying tenants. My understanding is—and it is not quite clear—that the new leases would be negotiated after the process of collective enfranchisement had been completed; in other words, having completed the acquisition, the nominee purchaser would then have to start negotiations with the first refusal tenants. That would inevitably have the effect of making the enfranchisement process much more lengthy and complex.

In the light of that explanation, I hope that noble Lords will be convinced that the amendment is inappropriate and unworkable. The amendment goes further than giving a right of first refusal: it gives renting tenants in the private sector the right to buy, because they could trade in their tenancy for a long lease. That goes much further than the policy behind the Bill. In all the circumstances, I ask my noble friend to withdraw the amendment.

Lord Renton

My Lords, I am full of admiration and gratitude. I am also grateful to my noble and learned friend the Lord Advocate for the patient study that he must have undertaken in order to demolish the effect of the amendment, as well as to try to understand it which he did so much better than I could have done. I shall, naturally, wish to consult the very learned Queen's Counsel who put me up to this.

A noble Lord

Shame!

Lord Renton

My Lords, I hope not to trouble your Lordships any further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6 p.m.

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

Lord Rodger of Earlsferry moved Amendments Nos. 76 and 77:

Page 200, line 40, leave out ("held by") and insert ("or other unit let to").

Page 200, line 41, after ("flat") insert ("or other unit").

The noble and learned Lord said: My Lords, these amendments have already been spoken to. I beg to move.

On Question, amendments agreed to.

Baroness Hollis of Heigham moved Amendment No. 78:

Page 201, line 10, at end insert ("; or

(c) the immediate landlord under the secure tenancy is a public sector landlord.").

The noble Baroness said: My Lords, in moving Amendment No. 78, I wish to speak also to Amendments Nos. 79, 81 and 82. I am afraid I must also inform your Lordships that this is a somewhat technical and decidedly modest amendment. However, the Government may find it useful and might be minded to accept it. As I have said, we believe that this is a modest amendment which would close a loophole which we think the Government did not intend.

The amendments refer to those mixed blocks of former council or housing association flats where many tenants have exercised the right to buy, but other tenants remain secure tenants of the local authority or assured tenants of a housing association. At the moment when a former council or housing association tenant exercises the right to buy, he buys a lease and the local authority or the housing association remains the freeholder. This protects the right of the remaining renting tenants to remain with their social landlord. Rightly, Schedule 8 provides for immediate and mandatory leaseback to local authorities or housing associations of those flats held by renting tenants when those exercising the right to buy seek to enfranchise. So far so good. However—this is why I think this is a technical amendment—the actual wording of paragraphs 2 and 3 of Part II of Schedule 8 restricts the mandatory leaseback arrangements to those instances where the local authority or housing association owns the freehold of the flats.

While it is accepted that in the vast majority of instances the local authority or housing association will own the freehold, this is not always or invariably the case. There are a minority of developments where the council or association holds only a leasehold interest but nonetheless that is of sufficient length to enable secure tenants to exercise the right to buy. In those few cases, qualifying leaseholders exercising enfranchisement under this part of the Bill would acquire the freehold and all leasehold interests superior to their own, including that held by the council or housing association. In other words, they would displace the local authority or the housing association as regards the remaining renting tenants.

Because the council or housing association was not the freeholder, it would not therefore, as this schedule would otherwise allow, have a mandatory leaseback of flats let on short tenancies. Renting tenants therefore would lose their social landlord without even being consulted. In the case of secure tenants, they would lose their secure tenancy. This is obviously not the Government's intention. We are entirely at one with them in their intention that local authority or housing association tenants should be protected if they continue to rent and that their landlord will not change if other right to buy tenants exercise their right to enfranchise.

However, as presently drafted, the Bill will exclude a small number of council or housing association tenants from that protection. Over their heads their landlord would become the nominee purchaser. We do not believe that that was the intention of the Government. The amendments would rectify that position by extending the provisions and protection given by Schedule 8 to all local authority and housing association tenants regardless of whether the council or housing association was the freeholder. I beg to move.

Lord Rodger of Earlsferry

My Lords, these amendments require public sector intermediate landlords of secure tenants and housing associations who are intermediate landlords of other non-qualifying tenants, to take a mandatory leaseback of the flats in question. I understand the concern of the noble Baroness to preserve the existing rights of such tenants and not to foist on them a change of landlord. In this respect the amendments are, however, unnecessary.

Subsection (2) of Clause 2 provides that the interests to be acquired by the tenants shall include the interest of any intermediate leaseholder

which is superior to the lease held by a qualifying tenant". As secure tenants and other renting tenants are not qualifying tenants, it follows that where their public sector or housing association landlord is not the freeholder but an intermediate leaseholder, the landlord's interest will not be among those acquired under the enfranchisement provisions of Part I.

The amendment takes no account of the possibility that there may be a chain of intermediate leaseholders and possibly even another public sector landlord superior to the immediate landlord who has the so-called leaseback right. At the top of the chain just below the freeholder there may be a private sector landlord. It is difficult to see what the effect of the amendment would be in that situation.

In any event the effect of the amendment would be singularly dramatic because it would mean that if, for example, one had a public sector landlord or a housing association which had only a 30-year lease, by virtue of paragraph 8 of Schedule 8 the public sector landlord or the housing association would suddenly obtain a 999 year lease which would be a far greater interest than the lease they currently hold.

The provision, as drafted at present, is designed to deal with the situation where the bodies concerned are freeholders. They would be gaining a far greater interest in the property than they currently hold—a 999 year lease, no less—while the whole purpose of the leaseback provisions is to give a former freeholder an interest in the flats which, although diminished, is as close to a freehold interest as possible.

In that light of that explanation, I hope that the noble Baroness may be prepared to withdraw the amendment.

Baroness Hollis of Heigham

My Lords, I thank the noble and learned Lord for his detailed reply. As I understand it, the first part of his argument is that the amendments are unnecessary and the second part of his argument is that they are undesirable. Clearly I am less concerned about the fact that they are undesirable than that they are unnecessary. In the light of the reply, I shall consult the National Federation of Housing Associations to see whether it is content with the position. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 79 not moved.]

Viscount Goschen moved Amendment No. 80:

Page 201, line 16, at end insert:

("( ) In this paragraph any reference to a flat includes a reference to a unit (other than a flat) which is used as a dwelling.").

The noble Viscount said: My Lords, this amendment has already been spoken to. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 81 and 82 not moved.]

Viscount Goschen moved Amendment No. 83:

Page 201, line 25, at end insert:

("( ) In this paragraph any reference to a flat includes a reference to a unit (other than a flat) which is used as a dwelling.").

The noble Viscount said: My Lords, this amendment has already been spoken to. I beg to move.

On Question, amendment agreed to.

Lord Coleraine moved Amendment No. 84:

Page 201, line 47, leave out ("appropriate time") and insert ("relevant date").

The noble Lord said: My Lords, in moving Amendment No. 84, I wish to speak also to Amendments Nos. 85 and 86 which together seek to amend the Bill in order to provide that freeholders bring up the question of leasebacks at an appropriate stage in the enfranchisement timetable and do not leave the matter until the very last minute, which could only cause confusion to all concerned.

My noble friend may, after hearing what I have to say, assure me that this matter is already covered by Clause 19 but at the present time I have my doubts about that. I raised this matter in Committee on 22nd March but my noble friend seemed to have understood that my concern was to prevent a freeholder asking for a leaseback in respect of a flat only where there had been a change of circumstances after service of the reversioner's counter-notice, and as a consequence of that change the flat had become one to which leaseback provisions might apply. That was not my point. My concern is wider than that.

Clause 33 of the Bill provides the right of the freeholder to ask for leasebacks and the clause provides that such leases shall be granted, as are required to be granted by Part III of Schedule 8. I dealt with the detail of that point in Committee, but Schedule 8 provides that those facts may be requested at any time until the actual sale of the property to the nominee purchaser, which would be after the price and other details had been agreed. It seems to me that that would delay matters too much.

It is true—and this may be why my noble friend did not take up my point in Committee—that Clause 19(3) requires the reversioner in his counter notice to specify his leaseback proposals. However, I do not see any fetter in this clause, or elsewhere in the Bill, on the right of the freeholder to ask for further leasebacks at a later stage. It is my opinion that the subsection, which must be read with Clause 33 and Schedule 8, does not bind the reversioner. I should have said the freeholder, because although the reversioner gives the notice, it is the freeholder alone who is entitled to leasebacks, even when the substantial reversionary owner is in fact a long leaseholder. I note that that point has been picked up with some anxiety by the Law Society in its most recent briefing on the Bill.

I believe that the subsection does not restrict the freeholder to those leasebacks which he has specified in his counter notice, that the later clauses of the Bill prevail and that the reversioner or freeholder can freely ask for further leasebacks later. I do not believe that that is what my noble friend intends. I beg to move.

Lord Rodger of Earlsferry

My Lords, as my noble friend said, this matter concerns the timing in relation to leaseback. At present paragraph 5(1) of Schedule 8 indicates that the reversioner may require a leaseback of any flats and units which are not let to qualifying tenants immediately before the appropriate time. Therefore, as my noble friend said, there is scope for a reversioner to change his mind shortly before completion, creating additional costs for the tenants and potential delay in completion. At issue, therefore, is whether the reversioner should be able to require a leaseback right up to the appropriate time, or whether that right should be restricted to some point at an earlier stage in the enfranchisement process.

Amendment No. 84 would restrict the optional leaseback rights to those flats and units which are not let to qualifying tenants at the time when the participating tenants give their initial notice—the relevant date, to use the terminology of the Bill, rather than at the appropriate date. Amendment No. 85 restricts the leaseback by the reversioner to those flats and units specified by him in his counter notice under Clause 19. We do not believe that that would be fair and reasonable.

We anticipate that in practice the problem of last minute changes is most likely to occur where there has been a change in the tenancy of a flat. For example, a qualifying tenant who did not participate may have forfeited his tenancy and the flat may be either vacant or newly let on a renting tenancy. In those changed circumstances should the reversioner be able to require a leaseback of that flat? We think that he should.

The scenario also works in reverse. For example, a secure tenant of a public sector landlord may exercise his right to buy the lease on his flat, thus becoming a qualifying tenant after the initial notice has been given. As has been explained many times, the policy is that all interests superior to a qualifying tenancy should be purchased, and the reversioner cannot require a leaseback of a qualifying tenant's flat. As presently drafted, the provision ensures that there are no obstacles if the new qualifying tenant elects to participate in enfranchisement at a subsequent date (after the initial notice) or, indeed, to post-enfranchisement negotiations between the qualifying tenant and the new landlord.

On the other hand, if my noble friend's amendment were to be accepted and the leaseback provisions were applied on the relevant date only—at the time when the notice was given —instead of at the later stage (the appropriate time), then no account could be taken of the category of tenant who becomes a qualifying tenant after the initial notice has been given. Just as we see disadvantages in the other situation, we see disadvantages in the effect the amendment would produce in that situation.

I accept that last minute changes may involve extra cost, inconvenience and delay, but that is inherent in a procedure which evolves over a period of time. If one ' accepts that freeholders should have the right to a leaseback of non-qualifying flats and units, it seems right in principle that that should be assessed at the last available moment. Similarly, flats previously specified in the counter notice as those which the freeholder wished to lease back may be let subsequently to somebody who is a qualifying tenant. Again, it would be wrong if the freeholder and that tenant were bound by the freeholder's counter notice, given perhaps months previously, simply to avoid mere inconvenience to the participating tenants. I believe that the inconvenience would be bought off at too high a price, and the proposal would be contrary to the thinking which underlies the Bill.

For those reasons I ask my noble friend to withdraw the amendment.

6.15 p.m.

Lord Coleraine

My Lords, I am grateful to my noble and learned friend for his detailed and technical reply. I shall want to read it, but it seems to me that he has seen the point that there will be occasions when freeholders may seek to use their right of leaseback in order to embarrass intending flat enfranchisers. I hope that in due course, if that turns out to be the case, speedy measures would be taken to bring such abuse to an end.

I understand the points which my noble and learned friend made about freeholders having the right to leasebacks where there have been changes of circumstance such as he described. I am happy to leave the matter there, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 85 and 86 not moved.]

Viscount Goschen moved Amendments Nos. 87 to 92:

Page 202, line 4, after ("flat") insert ("or other unit").

Page 202, line 9, at end insert ("or other unit").

Page 202, line 12, leave out ("("the relevant flat")") and insert ("or other unit ("the relevant unit")").

Page 202, line 15, leave out ("flat") and insert ("unit").

Page 202, line 17, leave out ("flat") and insert ("unit").

Page 206, line 16, at end insert:

("( ) In this paragraph—

1. (a) any reference to a secure tenancy of a flat is a reference to a secure tenancy of a flat whether with or without any yard, garden, garage, outhouses or appurtenances belonging to or usually enjoyed with it; and
2. (b) any reference to a flat includes a reference to a unit (other than a flat) which is used as a dwelling.").

The noble Viscount said: Amendments Nos. 87 to 95 inclusive have already been spoken to. I beg to move Amendments Nos. 87 to 92 en bloc.

On Question, amendments agreed to.

Clause 35 [Interpretation of Chapter I]:

Viscount Goschen moved Amendments Nos. 93 to 95:

Page 41, line 37, at end insert ("(unless the context otherwise requires)").

Page 42, line 14, leave out ("either a flat or") and insert:

1. ("(a) a flat;
2. (b) any other separate set of premises which is constructed or adapted for use for the purposes of a dwelling; or (c)").

Page 42, line 25, leave out ("as to the terms of acquisition or any other matter") and insert ("in relation to all or any of the terms of acquisition").

On Question, amendments agreed to.

Clause 36 [Right of qualifying tenant of flat to acquire new lease]:

[Amendment No. 96 not moved.]

Lord Strathclyde moved Amendment No. 97:

Page 43, line 8, at end insert:

("( ) For the purposes of this Chapter a person can be (or be among those constituting) the qualifying tenant of each of two or more flats at the same time, whether he is tenant of those flats under one lease or under two or more separate leases.").

The noble Lord said: My Lords, this group of amendments is concerned with improvements and tidying up of the test of residence which during the Committee stage your Lordships agreed to add to the lease renewal provisions of Chapter II. I said when I moved those amendments that I would like to return with further amendments if it seemed appropriate to do so.

I wish to add to the details which must be given with the notice of claim under Clause 38 information about the periods of occupation of the tenant—and joint tenants where applicable—which enable him to satisfy the new residence test. We had originally assumed that the landlord could challenge through his counter notice. On reflection we decided that such challenges about occupation would be more likely in the absence of information to the contrary, and could result in delay and extra litigation. Therefore we felt that it would make sense and be entirely reasonable to require the tenant to give the information in the first instance.

Finally, I believe that it is advisable to clarify the situation where a tenant can in fact satisfy the residence test in respect of more than one flat. For example he might have lived in one flat in a block for three years and then moved to another for at least three years. If he is still a qualifying tenant in respect of flats in which he has resided, perhaps because he has retained his long lease and sublet on a short-term basis, we believe that he should be entitled to renew his lease on such flats as well as on his present home. Amendment No. 97 makes it clear that he can do so.

I commend the amendments as being helpful to the effective operation of residency qualification for lease renewal. I beg to move.

Lord Williams of Elvel

My Lords, we are grateful to the Minister for moving Amendment No. 97 and speaking to Amendments Nos. 98, 99 and 101. However, I wish to be certain that I understand exactly what Amendment No. 97 provides. Am I correct in thinking that a person, male or female, can be a tenant, a leaseholder, under several leases in one block of flats—whether he or she sublets is neither here nor there—and therefore will be a qualifying tenant in respect of all those leases? Is it therefore right —I do not argue one way or the other; I seek to understand what the Government put forward—that someone can be a leaseholder of, say, 10 flats out of 12 and may sublet nine out of the 10 flats and still be a qualifying tenant for the purposes of enfranchisement? I ask the question not because I oppose what the Government are doing, but simply for clarification. I wish to ensure that I have understood the thrust of Amendment No. 97.

Lord Strathclyde

My Lords, it is perfectly fair for the noble Lord to ask the question. He asked it in terms of leasehold enfranchisement. These provisions relate to leasehold extension, not to leasehold enfranchisement. Therefore, perhaps I may pose the question in terms of leasehold extension. What the noble Lord says is right. Amendment No. 97 seeks to clarify the position of a tenant who satisfies the residency test in respect of more than one flat. Whether he satisfies that test is, of course, a question of fact. Therefore, he can be a qualifying tenant in respect of each. That allows him to qualify for leasehold extension.

Baroness Gardner of Parkes

My Lords, before the noble Lord sits down, perhaps I may ask this question. Does the provision cover the large family who need to occupy more than one flat?

Lord Strathclyde

My Lords, it could do. As I said in reply to the noble Lord, Lord Williams, residency is a matter of fact. In these amendments we seek to clarify not so much what we mean by residency but what classes of tenants will have to meet the residency test. They either occupy more than one flat or have a lease on more than one flat. They could well include the kind of people to whom my noble friend refers.

On Question, amendment agreed to.

Clause 39 [Notice by qualifying tenant of claim to exercise right]:

Lord Strathclyde moved Amendments Nos. 98 and 99:

Page 45, line 31, leave out ("and").

Page 45, line 35, at end insert ("; and

(iv) particulars of the period or periods falling within the preceding ten years for which the tenant has occupied the whole or part of the flat as his only or principal home;").

On Question, amendments agreed to.

Viscount Goschen moved Amendments Nos. 100 and 101:

Page 45, line 44, after ("address") insert ("in England and Wales").

Page 45, line 47, at end insert:

("( ) If the tenant's lease is held by joint tenants, the reference to the tenant in subsection (3) (b) (iv) shall be read as a reference to any joint tenant with respect to whom it is claimed that the condition in section 36(2) (b) is satisfied.").

On Question, amendments agreed to.

Clause 40 [General provisions as respects effect of tenant's notice]:

Viscount Goschen moved Amendment No. 102:

Page 47, line 9, after ("landlord") insert ("in subsections (1) and (2) above").

On Question, amendment agreed to.

Clause 42 [Landlord's counter-notice]:

Viscount Goschen moved Amendment No. 103:

Page 47, line 45, after ("address") insert ("in England and Wales").

On Question, amendment agreed to.

Clause 48 [Supplementary provisions relating to vesting orders under section 47(1)]:

Viscount Goschen moved Amendments Nos. 104 to 108:

Page 53, line 22, leave out ("the court thinks fit") and insert ("may be determined by a leasehold valuation tribunal to be appropriate").

Page 53, line 27, leave out ("the court thinks fit, a vesting order under section 47(1) may") and insert ("a leasehold valuation tribunal so determines in the case of a vesting order under section 47(1), the order shall").

Page 53, line 29, leave out ("is") and insert ("was").

Page 53, line 42, leave out from ("with") to ("it") in line 44 and insert ("the determination by a leasehold valuation tribunal of any question as to the property to be demised by any such lease, or as to the rights with or subject to which it is to be demised,").

Page 54, line 24, at end insert ("; and subsections (6) and (7) of that section shall apply in relation to a lease granted in accordance with this section as they apply in relation to a lease granted under that section.").

On Question, amendments agreed to.

Clause 51 [Effect on tenant's notice of giving of initial notice under Chapter I]:

Viscount Goschen moved Amendments No. 109 to 111:

Page 55, line 37, leave out from ("23(6) (a) or (b)") to end of line 39 and insert ("and the interests which by virtue of the order fall to be vested in the nominee purchaser for the purposes of Chapter I have yet to be so vested.").

Page 55, line 44, after ("(a)") insert ("if").

Page 55, line 46, after ("applies,") insert ("the determination becomes final,").

On Question, amendments agreed to.

Clause 53 [Obligation to grant new lease]:

Viscount Goschen moved Amendment No. 112:

Page 57, line 36, at end insert:

("(6) It is hereby declared that nothing in any of the provisions specified in paragraph 1(2) of Schedule 9 (which impose requirements as to consent or consultation or other restrictions in relation to disposals falling within those provisions) applies to the granting of any lease under this section.

(7) For the purposes of subsection (6) paragraph 1(2) of Schedule 9 has effect as if tile reference to section 79(2) of the Housing Act 1988 (which is not relevant in the context of subsection (6)) were omitted.").

On Question, amendment agreed to.

Schedule 12 [Premium and other amounts payable by tenant on grant of new lease]:

[Amendments Nos. 113 and 114 not moved.]

Viscount Goschen moved Amendment No. 115:

Page 217, line 6, leave out from ("to") to end of line 7 and insert ("the tenant's lease for the time being and to any leases intermediate between the interest in question and that lease.").

The noble Viscount said: My Lords, the amendment has already been spoken to. I beg to move.

On Question, amendment agreed to.

Clause 54 [Terms on which new lease is to be granted]:

Viscount Goschen moved Amendment No. 116:

Page 59, line 8, after first ("the") insert ("person who is for the time being the tenant's immediate").

The noble Viscount said: My Lords, the amendment has already been spoken to. I beg to move.

On Question, amendment agreed to.

Clause 55 [Grant of new lease where interest of landlord or tenant is subject to a mortgage]:

Lord Coleraine moved Amendment No. 117:

Page 60, line 29, leave out ("its execution") and insert ("the date on which the lease is received from Her Majesty's Land Registry following its registration.").

The noble Lord said: My Lords, this is a technical amendment to an obscure corner of the Bill. It has been recommended to me by the Law Society.

The point concerns the need to deliver a new lease —it is a lease, and not a counterpart lease—within one month of its execution. The circumstances are that the lease will have to go to the Land Registry and it may be some time before the lease is finally reissued as part of the title deeds with the Land Registry. In the circumstances, I consider that the time should be one month from the date on which the lease is received from the Land Registry following its registration. I beg to move.

Lord Rodger of Earlsferry

My Lords, technical though the amendment may be, and tucked away though it may be in an obscure part of the Bill, it is a most helpful amendment. I am grateful to my noble friend for moving it. It makes a practical suggestion and puts into the Bill the practical fact that it will be possible for someone to pass over the lease within a month of its return from the Land Registry instead of, as presently drafted, within a month. It is understood that it may take longer than a month for the lease to come back from the Land Registry.

In those circumstances it is a practical amendment. I commend it to the House.

On Question, amendment agreed to.

Clause 57 [Costs incurred in connection with new lease to be paid by tenant]:

Viscount Goschen moved Amendment No. 118:

Page 62, line 35, leave out subsection (5) and insert:

("(5) A tenant shall not be liable under this section for any costs which a party to any proceedings under this Chapter before a leasehold valuation tribunal incurs in connection with the proceedings.").

The noble Viscount said: My Lords, Amendment No. 118 and Amendments Nos. 119 to 128 have already been spoken to. I beg to move.

On Question, amendment agreed to.

Clause 58 [Landlord's right to terminate new lease on grounds of redevelopment]:

Viscount Goschen moved Amendment No. 119:

Page 63, line 28, leave out ("In this section any reference") and insert ("Except in subsection (1) (a) or (b), any reference in this section").

On Question, amendment agreed to.

Schedule 13 [Provisions supplementary to section 58]:

Viscount Goschen moved Amendments Nos. 120 to 125:

Page 218, line 37, after ("and") insert ("(except in the case of the reference in paragraph 5(1) (b) to the flat as a dwelling)").

Page 219, line 1, leave out sub-paragraph (2) and insert:

("(2) Where the application for possession was made by virtue of section 58(2) (a), then—

1. (a) (unless paragraph (b) below applies) an order of the court under this paragraph shall not fix a date earlier than the term date of the lease in relation to which the right to acquire a new lease was exercised;
2. (b) in a case where section 58(2) (a) applies in accordance with section 58(3), an order of the court under this paragraph shall not fix a date earlier than the term date of the lease in relation to which that right was first exercised.").

Page 219, line 3, after ("date") insert ("referred to in sub-paragraph (1)").

Page 219, line 39, leave out ("the flat in question") and insert ("any property").

Page 220, line 13, after ("that") insert ("(subject to paragraphs (a) and (b))").

Page 220, line 33, after ("or") insert (", if already made,").

On Question, amendments agreed to.

Clause 59 [Interpretation of Chapter II]:

Viscount Goschen moved Amendments Nos. 126 to 128:

Page 64, line 1, after ("(2)") insert ("Subject to subsection (3),").

Page 64, line 6, at end insert:

("(3) Subsection (2) does not apply—

1. (a) to any reference to a flat in section 44 or 52(1); or
2. (b) to any reference to a flat (not falling within paragraph (a) above) which occurs in the context of a reference to any premises containing the flat.").

Page 64, line 6, at end insert:

("( ) In the application of section 7 for the purposes of this Chapter (in accordance with section 36(3)) references to a flat shall be construed in accordance with subsection (2) above, instead of in accordance with subsection (7) of section 7.").

On Question, amendments agreed to.

Clause 62 [Additional "low rent" test]:

Lord Carnock moved Amendment No. 129:

Page 65, leave out lines 20 to 26 and insert:

("(b) where—

1. (i) the tenancy 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 property had a rateable value at the date of the commencement of the tenancy or else at any time before 1st April 1990,").

The noble Lord said: My Lords, I have already spoken to the amendment. I beg to move.

Lord Williams of Elvel

My Lords, the noble Lord stated that he had already spoken to the amendment. He moved it, I believe, in the expectation that the House accepts it. Is that the view of the noble Lord? Has he spoken to it before and has it been accepted by the House?

Lord Carnock

My Lords, I have spoken to the amendment. It was accepted by the House.

On Question, amendment agreed to.

Clause 63 [Price payable by tenant on enfranchisement by virtue of section 60 or 61]:

Lord Boardman moved Amendment No. 130:

Page 66, line 8, at end insert ("in any such case—

( ) if in determining the price so payable there falls to be taken into account any marriage value arising by virtue of the coalescence of the freehold and leasehold interests, the share of the marriage value to which the tenant is to be regarded as being entitled shall not exceed one-half of it; and").

The noble Lord said: My Lords, I speak also to Amendments Nos. 131, 134 and 135. The amendment refers to evaluation of houses which become capable of enfranchisement. The purpose of the amendment is to put the evaluation of those houses on the same basis as will apply to the evaluation of flats.

As the Bill is at present drafted there is no share of the marriage value which statutorily goes to the freeholder on the enfranchisement of a freehold house. My amendments propose that that should be done. The provisions in the 1967 Act do not specifically give marriage value—it is not referred to there at all. My amendment does not propose a change in the provisions, but that they should apply only to those houses that become capable of enfranchisement under the Bill. The proposal is that they should be in exactly the same position as will apply to flats in the Bill. The amendments are simple and I hope that my noble friend will see the fairness and justice of the same provisions as are being invoked for flats to make them enfranchiseable being applied to houses. I beg to move.

6.30 p.m.

Lord Clark of Kempston

My Lords, I support my noble friend Lord Boardman. He has a logical point, we cannot deal with houses in a different way from flats as regards marriage value. We have had this debate many times during the passage of the Bill; consequently, I do not intend to detain your Lordships for any length of time. I merely wish to say that I hope that my noble friend will be able to accept the amendment which I believe is extremely fair.

Baroness Gardner of Parkes

My Lords, I oppose the amendment. It would be wrong to change the basis of the 1967 Act as the amendment would do. Under that Act, people have been able to enfranchise, and some have been discriminated against because of possibly a small difference in rateable value. Those who will now be able to enfranchise their houses should be covered in the same way as those who were covered under the 1967 Act, which has worked well. There are excellent precedents for it and people have had no difficulty in establishing the values. It has been going on since the 1967 Act carne into force.

I also believe that the argument applies which I made earlier that people taking full responsibility for all repairs, even though that was an obligation under the lease, have sometimes found them onerous burdens on tenants of the properties. That is another reason why the minimum marriage value should not be added, and I hope the Government will reject the amendment.

Lord Coleraine

My Lords, I join my noble friend Lady Gardner in asking the Minister to reject the amendment. The provisions for the valuation of houses have existed in their present form since the 1967 and 1974 Acts. It is true that the House has just rejected an amendment which would have brought flats under the same provisions as those which have affected houses. However, it seems to me that the mere fact that flats will be valued much more harshly against the flat owners than are houses is no reason why I should be dog-in-the-manger to the extent of saying that houses should be subjected to the same change in the long-established valuation provisions.

Lord Strathclyde

My Lords, the amendments ensure that the landlord will receive at least 50 per cent. of any marriage value for the higher value houses newly enfranchised under the Bill. This is in line with the provision in the Bill for the valuation of flats.

The freehold of medium value houses is valued on the assumption that the tenant is in the market, which has been accepted for 20 years as a fair valuation basis. However, unlike our provisions for flats, the separate elements which make up the open market price for houses are not specified in the 1967 Act. My noble friend wishes to make clear, in the valuation of high value houses newly enfranchised under this Bill, that the landlord should receive at least 50 per cent. of the marriage value. Perhaps that point is what worries my noble friends Lady Gardner and Lord Coleraine. It only affects the valuation of high value houses newly enfranchised under the Bill.

As I explained earlier, a 50 per cent marriage value split is the usual one, which is why we have provided the floor for flats, making the valuation process simpler and cheaper. Of course, it is still open to the landlord to argue for a greater share where that is what the market would provide. My noble friend's amendments would therefore have little practical impact on the actual price payable for the enfranchisement of higher value houses.

However, we hope that the amendments would make the valuation of high value houses quicker and cheaper. That is consistent with the aims of the Bill, therefore, I am happy to accept the amendments.

Lord Boardman

My Lords, I am grateful to my noble friend and I commend the amendment to the House.

On Question, amendment agreed to.

Lord Boardman moved Amendment No. 131:

Page 66, line 9, leave out ("in any such case").

On Question, amendment agreed to.

Lord Hamilton of Dalzell moved Amendment No. 132:

Page 66, line 21, leave out ("by virtue of any one or more of the provisions of sections 1A and 1B above,").

The noble Lord said: My Lords, this amendment is coupled with Amendment No. 133A in my name. I am most encouraged by what my noble friend said about the previous amendments because the basis of the ones that I now propose is much the same. They bring the compensation payable for freeholders subject to enfranchisement under the 1967 and the 1974 Acts into line with those brought into enfranchisement by this Bill, by allowing them compensation for injurious affection.

In case any noble Lords have doubt about what "injurious affection" is, I quote the verdict of my right honourable friend the Secretary of State: Injurious affection is a precise valuation term to quantify in money terms the loss of redevelopment potential or any other loss of value on land now in the landlord's ownership which he keeps after the enfranchisement of other property. It is not a general compensation to cover compulsory purchase by tenants. It has only that limited meaning". The Government have accepted the principle of injurious affection for those who come under the present legislation, for higher priced houses. Having admitted, by doing so, that this is a sum due in equity to the land owner, it is hard to see the justice of refusing to grant the same principle to those houses enfranchiseable under the previous legislation. There is nothing retrospective about the amendments. That perhaps gives them rather unusual characteristics in relation to the rest of the Bill.

It may come as some surprise to your Lordships that there are still houses being enfranchised which have been eligible for 25 years, but I have evidence. A neighbour of mine in the country had a property enfranchised last year, so it is a live issue. I very much hope that the kind thoughts applied by my noble friend to the previous amendments will be applied to this one. I beg to move.

Lord Strathclyde

My Lords, I am grateful to my noble friend for explaining his amendments. We debated the issue of severance compensation for houses in Committee. Noble Lords then accepted amendments which provide severance for high value houses. These amendments seek to go much further than the Committee's decision then and allow landlords to claim severance for all houses enfranchised under the 1967 Act.

Parliament in 1967 did not provide severance compensation for the low value houses then enfranchised. When we came to look at the enfranchisement of flats, we considered that they were a different case from houses and we concluded that severance compensation ought to be paid if justified. For example, the loss of a single block of flats from an estate could affect the value of the remaining blocks and development potential of adjacent land. We have now also provided severance for higher value houses, because we were convinced, as in the case of flats, that there was a real possibility that the loss of a high value house from an estate could impact on the value of a landlord's other property. Such a case could be where a dower house on a country estate is enfranchised and creates an island in different ownership and control. There could be a demonstrable loss of value to the estate in these circumstances, therefore, the case for compensation is entirely justified.

However, many eligible houses will already have been enfranchised; and in the case of 1967 houses the landlord's estate will have been broken up, so there will be no possibility of future damage to other property. For low-value houses I am concerned about the potential impact of applying severance. That could considerably increase the relative price of enfranchisement of such property or could be used by landlords to deter enfranchisement.

The House has accepted that severance should apply to high-value houses but that it is neither necessary nor desirable to apply it to all houses. I am afraid to say to my noble friend that I cannot accept his amendment. He has not made the case. I hope that in the light of the success that he has had in other parts of the Bill, he may withdraw his amendment.

Lord Hamilton of Dalzell

My Lords, I am naturally extremely dissatisfied with that response. The 1967 Act has rankled with land-owners in the country for a long time. Many land-owners feel that they are being kicked in the teeth, having done a tremendous job in providing cheap accommodation for people in the countryside for which they have had no thanks whatever from any government at all. Now we have people inviting us to provide cheap land so that people can be accommodated in the countryside. It is a diabolical liberty to expect us to do those sorts of things when the Government treat us like this. Nevertheless, I can see that I shall not make much progress. I am grateful that the Minister accepted the amendments of my noble friend Lord Boardman, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Strathclyde moved Amendment No. 133:

After Clause 63, insert the following new clause:

Exclusion of right to enfranchise in case of houses let by charitable housing trusts

(" .—(1) Section 1 of the Leasehold Reform Act 1967 (tenants entitled to enfranchisement or extension) shall be amended as follows.

(2) In subsection (3) (excepted cases) there shall be added at the end— or, in the case of any right to which subsection (3A) below applies, at any time when the tenant's immediate landlord is a charitable housing trust and the house forms part of the housing accommodation provided by the trust in the pursuit of its charitable purposes.

(3) After subsection (3) there shall be inserted—

"(3A) For the purposes of subsection (3) above this subsection applies as follows—

1. (a) where the tenancy was created after the commencement of Chapter III of Part I of the Housing and Urban Development Act 1993, this subsection applies to any right to acquire the freehold of the house and premises; but
2. (b) where the tenancy was created before that commencement, this subsection applies only to any such right exercisable by virtue of any one or more of the provisions of sections 1 A and 1 B below;

and in that subsection "charitable housing trust" means a housing trust within the meaning of the Housing Act 1985 which is a charity within the meaning of the Charities Act 1993."").

The noble Lord said: My Lords, in Committee my noble friend Lord Middleton moved an amendment which in effect would have excluded tenants of charitable housing trusts from the leasehold enfranchisement and the lease extension provisions of the Leasehold Reform Act 1967. The House may remember that my noble friend rightly pointed out that under the provisions of the Bill charitable housing trusts are exempt where the accommodation is provided by the trust in pursuit of its charitable purposes. My noble friend wanted leasehold houses which are managed for charitable purposes to be treated in the same way as leasehold flats, so that an owner could transfer land for local needs housing to a charity knowing that its ownership will remain with that charity. When moving his amendment in Committee, my noble friend said that the amendment was not intended to protect charities holding houses as an investment. The House will no doubt understand that I do not wish to open yet again a debate on a general exemption for charities.

In Committee I expressed some sympathy with my noble friend's amendment and said that I was conscious that it would appear to be an anomaly to exempt charitable housing trusts from the provisions of the Bill and not from the provisions of the 1967 Act. Nevertheless, I was, and I am still, concerned that any amendment does not take away existing rights of enfranchisement from leaseholders who are already entitled to them under the 1967 Act. We are, under this Bill, in the business of giving away rights to tenants.

I promised to look at my noble friend's amendment and to return with an amendment that would extend the charitable housing trust exemption to leaseholders of houses, but only those brought within the scope of the Leasehold Reform Act for the first time by this Bill and to leases of any house entered into after this Bill's provisions come into force. That is precisely what Amendment No. 133 does. It will not affect existing leaseholders of houses who already have the right to enfranchise under the 1967 Act. Amendment No. 237 is a consequential amendment to the Long Title of the Bill required by Amendment No. 133 because we are altering the rights under the 1967 Act. I hope that meets with the approval of the House, and I beg to move Amendment No. 133.

6.45 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the noble Lord for explaining the amendment. I have one question—not that I wish to challenge the amendment. How will it operate in practice? There are certain houses which may qualify under the Leasehold Reform Act at the moment, before the Bill finishes its passage through Parliament, receives Royal Assent and is commenced under a commencement order, as it will be. They will operate under one system until such time as the Act has its commencement order. But the same group of houses, as I understand it, will operate under a different system once the Act is, if I may use the ungainly expression, commenced. Is that interpretation right or wrong? Perhaps the noble Lord Can help me on that point.

Lord Strathclyde

No, my Lords. There will be no changeover of status as a result of this Bill reaching the statute book, as I understand it. The amendment will, after enactment, affect new leases brought into place by people who wish to give long leases on a charitable basis. As the Bill was originally drawn up, that was not possible.

On Question, amendment agreed to.

Schedule 14 [Section 9 of the Leasehold Reform Act 1967, as amended]:

[Amendment No. 133A not moved.]

Lord Boardman moved Amendment No. 134:

Page 224, line 10, at end insert ("in any such case—

( ) if in determining the price so payable there falls to be taken into account any marriage value arising by virtue of the coalescence of the freehold and leasehold interests, the share of the marriage value to which the tenant is to be regarded as being entitled shall not exceed one-half of it; and").

The noble Lord said: My Lords, on behalf of my noble friend Lord Peyton, I beg to move this amendment, which we have debated.

On Question, amendment agreed to.

Lord Boardman moved Amendment No. 135:

Page 224, line 11, leave out ("in any such case").

On Question, amendment agreed to.

Clause 64 [Estate management schemes]:

Lord Strathclyde moved Amendment No. 136:

Page 67, line 16, leave out ("section 66") and insert ("sections 66 and (Applications by certain public bodies)").

The noble Lord said: We now come to the various amendments that I promised in Committee I would bring forward on estate management schemes. In moving Amendment No. 136, which is a drafting amendment, I should like to speak to the other amendments with which it is grouped, and in particular Amendment No. 147, which inserts a new clause into the Bill.

In Committee, I indicated in response to a question from my noble friend Lord Peyton that we were considering whether the provisions on estate management schemes could be further improved. I had already had meetings with my noble friend Lord Lindsay and the noble Baroness, Lady Hollis, who in Committee expressed various anxieties, particularly with regard to heritage properties and default powers for local authorities. I invited my noble friend Lord Peyton and others to meet with me to discuss estate management schemes. I have had meetings with my noble friends Lord Peyton and Lord Cavendish and the noble Lord, Lord Palmer, and a further meeting with my noble friend Lord Lindsay. As the House will understand, there has been a great deal of consultation on the matter.

I should like to point out that our starting point on estate management schemes was to reintroduce the provisions already contained in Section 19 of the Leasehold Reform Act 1967. We have tried to improve upon those provisions by simplifying the procedure and transferring responsibility for the approval of schemes from the High Court to local leasehold valuation tribunals. In general, it will no longer be necessary to apply to the Secretary of State for certificates before seeking approval of a scheme.

At the same time we do not want to change the existing nature of estate management schemes, which are essentially a means to enable landlords to continue to enforce positive covenants against the owners of enfranchised properties. But we do not want to make new estate management schemes more onerous for tenants than schemes already approved under the 1967 Act, thereby undermining the object of enfranchisement and perpetuating the landlord and tenant relationship. Nor do we want estate management schemes to be used to frustrate enfranchisement.

I am anxious to ensure that proper consideration should be given to heritage matters by leasehold valuation tribunals in considering applications for estate management schemes. In Committee I welcomed an amendment requiring that tribunals "shall" have regard to the past development and present character of an area and to architectural or historical considerations when considering whether or not to approve a scheme.

I promised in Committee that I would bring forward amendments at Report stage to give English Heritage and local planning authorities the right to promote estate management schemes in conservation areas where the landlord or a representative body has not done so. That is what the new clause introduced by Amendment No. 147, and the associated drafting amendments, do.

The Bill already requires that schemes must include provision for terminating or varying them if circumstances change and that schemes may also include provision for the transfer of powers to a local authority or other body authorised for that purpose. We are prepared to accept the amendment, which my noble friend Lord Peyton did not move in Committee but which he has tabled again at Report (now Amendment No. 141) to make this a requirement. Since he is not in the Chamber I may move it formally on his behalf.

I am aware that there is cross-party support for giving English Heritage and local planning authorities some additional rights in conservation areas. I have noted that one amendment (Amendment No. 141B) tabled by the noble Baroness, Lady Hollis, the noble Lord, Lord Palmer, and my noble friends Lord Cavendish of Furness and Lord Montagu of Beaulieu, would in effect enable leasehold valuation tribunals to transfer rights and powers to representative bodies, including English Heritage and local planning authorities, on application from such a body, where the tribunal is satisfied that the landlord has failed to exercise his rights and powers. I also note that another amendment (Amendment No. 142A) would enable English Heritage and local planning authorities to be consulted as "persons interested" in schemes within conservation areas.

I have some reservations over the detail of these amendments. I also have some sympathy with what they attempt to do. Although I do not wish to debate those amendments in detail at this stage, I can say that I am sympathetic to the underlying principle.

Turning to this particular group, we propose by these government amendments to give English Heritage and local planning authorities the power to apply for estate management schemes in respect of estates within conservation areas where no scheme has been approved. They will have six months, beyond the initial two year time limit, within which to apply for approval of a scheme.

English Heritage and local planning authorities will need to satisfy the local leasehold valuation tribunal that a scheme could have been approved for the area under Clause 65, had a suitable application been made by the landlord or tenants, and that the area will benefit from an estate management scheme.

The leasehold valuation tribunal will be required to apply the same criteria in deciding whether to approve a scheme as it would have done if the application had been made by a landlord or a representative body.

Our amendments also provide that estate management schemes promoted by English Heritage or a local planning authority should not affect the price payable on enfranchisement. Most estate management schemes will enhance their area and may increase the value of properties subject to the scheme. But we cannot see why landlords should benefit from this increase where they have not themselves promoted the scheme. We consider that only fair and reasonable.

I commend these amendments to the House and formally move Amendment No. 136.

Baroness Hollis of Heigham

My Lords, on this side of the House we are very happy to support these amendments. We should like to speak more fully to the issues of conservation areas, EMAs and the like, when we come to the amendments tabled in our name.

Baroness Gardner of Parkes

My Lords, I should like to ask the Minister a couple of questions in regard to these amendments. I am a great supporter of management schemes. I believe that they are very desirable. Will they cover the situation which now exists in many properties in central London whereby, under the present terms of their lease, people are obliged not to use a flat roof because it overlooks next door, or a condition of the lease is not to have any washing on display? Will such things be included in management schemes? If so, would the position which has just been mentioned where the lease would be revocable or able to be cancelled at six months' notice still apply? Many such conditions have been attached to leases in order to protect residents and enhance the surroundings in view of the fact that people live in such close proximity to each other.

I know that town planning has a certain effect. When I applied to build my house, which is freehold, a woman in the house behind objected on the grounds that she wanted to be able to run up and down stairs without anything on. The town planning committee said that it was a most unusual ground for objection. Very shortly after I moved into the house, she moved out. I do not know whether or not the two moves were connected. I wonder what consideration has been given to the point about conditions attached to leases which are beneficial both to the residents of the house or flat and adjoining areas. I wonder where that would fit in in management terms.

Lord Strathclyde

My Lords, my noble friend makes a fair point. Originally we wanted these schemes to have as light a touch as possible. We accept that in certain important parts—conservation areas and such—it is necessary to have estate management schemes. In terms of the specific questions raised by my noble friend, it depends on the type of scheme that is promoted by the existing landlord to the valuation tribunal and its decision as to what is reasonable. It may well include some of the conditions that my noble friend mentioned but that will be decided at the time on the basis of the proposal put forward.

On Question, amendment agreed to.

Viscount Goschen moved Amendment No. 137:

Page 67, line 26, leave out ("through a nominee purchaser under") and insert ("in accordance with").

The noble Viscount said: My Lords, this amendment has already been spoken to. I beg to move.

On Question, amendment agreed to.

The Earl of Lindsay moved Amendment No. 138:

Page 68, line 9, after ("incurred") insert ("or to be incurred").

The noble Earl said: My Lords, this amendment would enable an estate management scheme to include provisions for an accumulation fund if approved by a leasehold valuation tribunal. The purpose of such a fund would be to meet a long-term cost of a large but anticipated nature. It would comprise a reserve fund designated to that end in which members' annual contributions would accumulate.

A good example of a large periodic but anticipated cost is the resurfacing of roadways, parking areas, courtyards, pedestrian areas and so forth. Cobbled, tiled and paved surfaces can be hugely expensive to relay. Even less costly services can still involve considerable expense. I live in a mews where the 17 mews house owners are responsible for the asphalted roadway. To resurface the roadway at today's prices would by itself cost each owner the equivalent of four times this year's annual service charge. Thus, if we were meeting that cost this year without a reserve fund the annual charges would have jumped 500 per cent. on the norm. A five-fold increase for something like asphalt is dramatic enough. But the renewal of cobbles, ironwork, balustrading, stucco facades and so forth would involve periodic increases of a much greater nature.

Many estate management schemes, especially those in conservation and heritage areas, will have to repair or replace exactly those kinds of feature. It is important to stress that the main beneficiaries of an accumulation fund are the members of the scheme. It is the members who are spared sudden five-fold or ten-fold increases in service charges—increases which would, for instance, see a £400 charge soar up to £2,000 or £4,000 in a single year.

Not only does such a fund prevent extraordinary long-term costs falling as a single blow on just those whose membership of a scheme happens to coincide with the repairs. It also allows everybody in a scheme to contribute to long-term, accumulating wear and tear on a totally fair and proportionate basis, even if they only stay for a short time or even if, after many years, they sell up and leave just before the bill for repairs or renewal has to be met.

The second significant beneficiary, after the members, is the fabric or feature for which such a fund is designated. No one wishes to face sudden and exceptional charges. That reluctance can become especially entrenched among those members of a scheme who are non-occupiers. In those circumstances, either the need for repair or renewal is resisted for as long as possible or a cry goes up for the cheapest possible fix to be found, whatever the aesthetic consequences. That is to be regretted wherever it happens; but it is of serious concern in conservation and heritage areas and in any area that is endowed with some degree of merit or co-ordination of concept.

I feel strongly about this matter because I know from my own first-hand experience how a long-term cost which has to be met in one sudden lump can prompt both genuine financial difficulties and intractable arguments; I know the determination with which too many will then lobby for a cheap but questionable compromise; and I know the deterioration that can thus be inflicted on the architectural fabric, the heritage and therefore the ambience of an area.

On a positive note, and in support of the amendment, I also know the ease with which accumulation funds can be set up, run and safeguarded. I know the extent to which they are accepted as fair and preferable by participating members. I know the success with which they can be geared to meet otherwise onerous obligations, and I know the benefits that accrue to everyone from being able to commission at the right time that for which the fund is designated, be it the correct cobbles, the appropriate ironwork, the right stucco, the proper craftsmen, or whatever.

In case my noble friend the Minister is worried about procedure and safeguards, there is, in addition to the practical experience of myself and others, the accumulated experience of professional bodies whose codes of practice cover the setting up and administration of the accumulation funds. The imminent Royal Institute of Chartered Surveyors' code covers that matter in detail and will provide an up-to-date and authoritative guide on procedure.

I draw the Minister's attention to Clause 79 of the Bill which allows the Secretary of State to approve any code of practice which could promote desirable practices in relation to the management of residential property. Such codes will guide and protect those establishing, administering and contributing to accumulation funds as well as the leasehold valuation tribunals which would assess them.

It is in everyone's interest that estate management schemes work as efficiently and as fairly as possible and that recognised flaws are dealt with at that stage. The amendment proposes a successful and prudent solution to a problem that can be foreseen with ease and a problem that is already evident in comparable situations. The beneficiaries of the amendment will be the members of the schemes and the architectural heritage that they contain. I beg to move.

7 p.m.

Baroness Hamwee

My Lords, the noble Earl has hit on an important point. Until he drew the attention of noble Lords to that matter, I had not appreciated that it might be possible to provide a fund for costs to be incurred in the future. It is an immensely important point and I hope that the Government will agree to the amendment.

Lord Cavendish of Furness

My Lords, my noble friend's amendment strives to protect the architectural heritage of this country. I too had missed that point and I hope that the Minister will be able to look sympathetically on the amendment.

Baroness Gardner of Parkes

My Lords, I support the amendment. It is splendid. I should like to know whether it would be obligatory to set up such a system or whether it would be enabling.

Lord Kindersley

My Lords, I should like to support the amendment of the noble Earl, Lord Lindsay, as being eminently practical and very important to the Leasehold Reform Act.

As far as Smith's charity is concerned, on whose behalf I have spoken in the past, it will be an absolutely vital element. As noble Lords will understand, one of the features of the long leasehold system is that there is a continuous stream of income from which provision can be made for large capital non-recurring expenditures. With freeholders perhaps forming a large part of an estate in future, that will be a risk that one will take in getting the money from freeholders. Management agreements do not necessarily stand up when money of a substantial nature is required. From a charity's point of view, it would be impossible for the trustees to run an estate where they were not allowed to form funds in advance for major items of capital expenditure. I have previously mentioned the major items of capital expenditure made by Smith's charity on behalf of their tenants in the estate.

Baroness Hollis of Heigham

My Lords, we also support Amendment No. 138. It would extend what is currently best practice; that is, to amortise major capital costs over all the members over a number of years. It is sensible and we entirely support it.

Lord Strathclyde

My Lords, I have every sympathy with what my noble friend is trying to do. I appreciate that in certain circumstances it may be desirable for landlords of estate management schemes to be able to charge costs prospectively, or set up sinking funds.

However, I regret that I have strong reservations about the proposal. I am reluctant to agree to anything that would perpetuate the landlord and tenant relationship in respect of service charges. One of the objectives of enfranchisement is to release tenants from that regime.

If such a relationship were perpetuated in respect of estate management schemes, I would be very concerned about protecting the funds that were paid in advance and about the fact that those making such payments might not be able to challenge the reasonableness of the payments that they would be asked to make. To give the landlords of estate management schemes the power to collect payments in advance or to set up sinking funds is not enough.

I am sure that noble Lords are aware—and if they are not, then I shall tell them—of the large number of complaints that have been made not only to the Department of the Environment but also to the Department of Trade and Industry, about company landlords not carrying out works, using funds from one source to cover a shortfall elsewhere and even absconding with funds overseas to South America or Northern Cyprus. I do not for one moment include my noble friend and the Smith's charity in that description. However, sinking funds create very substantial problems. In the past they have been notoriously abused and the Government have gone to some length to protect leaseholders by strengthening the Landlord and Tenant Act 1985 and by introducing the Landlord and Tenant Act 1987. I should want to ensure that any payments made in advance are held in trust for the benefit of those making such payments in the same way as payments made by leaseholders under the terms of their leases are protected by Section 42 of the Landlord and Tenant Act 1987.

At the moment, payments made in respect of estate management schemes would not be protected in that way. I would also wish to ensure that those making advance payments have the right to challenge the reasonableness of such payments in the same way as leaseholders can under the Landlord and Tenant Act 1985. My noble friend's amendment would give landlords carte blanche to raise what funds they considered necessary, without giving those who are required to make payments any form of protection.

Despite the fact that there has been considerable support for the amendment, I hope that my noble friend can understand the very great impracticalities of taking the matter any further. What my noble friend stated about sinking funds is quite correct and there is no bar to tenants voluntarily getting together and making sinking funds work.

Baroness Hamwee

My Lords, with the leave of the House, would the Government be open to an amendment at the next stage which used such words as "reasonably to be incurred" and with a provision for either the money to be held in a trust fund or by some arrangement with joint names? It is obviously dangerous to draft an amendment on the spot, but his objections to the amendment should be capable of being dealt with.

Lord Strathclyde

My Lords, my reservations of drafting are clear but they are not the substantial ones. I am advised that it is difficult to devise a regime to include in the Bill all the possible protections that one could think of.

There is a more substantial reservation and that concerns the desire for individual tenants, when they have bought the freehold, to make decisions for themselves or collectively with their neighbours in the way that many people do, and the desire not to perpetuate the landlord and tenant relationship in respect of service charges. I believe that those matters are all-important which is why I ask my noble friend to withdraw the amendment.

The Earl of Lindsay

My Lords, I thank the Minister for that patient reply and for the various meetings that have been held outside the House to discuss some of the issues of estate management schemes. I should also like to thank all noble Lords who have spoken in support of the amendment.

I should like to point out to the noble Baroness, Lady Parkes, that the accumulation funds would not be obligatory. They would only apply within an estate management area where the fabric was deemed to be of such a nature that the expense of its repair or renewal would be considerable and sudden. Therefore, rather than that huge cost landing in one year on all the members in the scheme but not on the members who have just left the scheme the year before, having being there for many years, an application would be made to the leasehold valuation tribunal for an accumulation fund for that scheme.

The leasehold valuation tribunal will assess applications for such accumulation funds. The application would designate that part of the fabric that the fund is destined for. Rather than being a general fund for miscellaneous future expenses, it would be specifically for a cobbled breakway, for railings or a large stucco facade.

My noble friend the Minister was worried that it might perpetuate the landlord-tenant relationship. In fact, many of the expenses that these accumulation funds are designed to meet are expenses that landlords in the past have met out of their own pockets. Therefore, these expenses are slowly being transferred to the enfranchising tenants of estate management schemes. They are taking on extra responsibilities and are therefore having to fund repairs and renewals that normally would not have come to them quite so directly. I stress that I have direct experience of the volume of the bill that can suddenly arrive. It can be five, 10 or 15 times greater than the normal service charge.

On protecting the funds, which my noble friend was very worried about, I would make two points. First, from my own practical experience, protecting the funds is simple and straightforward. If one tries to imagine the worst possible horror, one can probably work oneself into quite a lather about it, as one could about almost any financial transaction. But in fact it is quite easy to put the funds into an account which is safe, as it were, from direct access by the person who is running the estate management scheme, and which can be activated only by a certain number of members of the scheme. If the members of the scheme want to challenge the purpose or the validity of an accumulation fund bid, they will have that opportunity in front of the leasehold valuation tribunal. The LVT will have to approve both 'the purpose of the fund and, as it were, the safety of the fund. There is protection at that stage. The LVT need not give permission for any fund to start if it believes either that the purpose is weak or that the protection is weak.

I listened to what my noble friend said. However, on this issue I should like to seek the opinion of the House as I believe that what I propose would be of great value both to the tenants of the scheme and to the architectural fabric of the scheme. I beg to move.

7.12 p.m.

On Question, Whether the said amendment (No.138) shall be agreed to?

Their Lordships divided: Contents, 59; NotContents,71.

7.20 p.m.

The Earl of Lindsay moved Amendment No. 139:

Page 68, line 18, at end insert:

("( ) An estate management scheme shall include provision for terminating the scheme upon the expiry of six months' notice in writing by the landlord to the occupiers of the house and premises within the scheme").

The noble Earl said: My Lords, the Bill currently provides for management schemes to contain provisions enabling them to be varied or terminated, but only where a change of circumstances makes it appropriate or with the approval of the leasehold valuation tribunal.

It is quite possible that a landlord who establishes an estate management scheme may find his property interests in the area diminishing as a consequence of enfranchisement, but may be prevented from ending his obligation to continue to run the scheme—possibly at significant cost to himself —if the situation is not deemed to be an appropriate change of circumstances, which is what the Bill provides.

Given the potentially open-ended burden a landlord faces, it is not unreasonable for landlords to be given a clear right to terminate schemes by notice such as this amendment will provide. I beg to move.

Lord Strathclyde

My Lords, I thought that my noble friend had already spoken to this amendment because it is grouped with a previous one. It may be that he was not quite satisfied by my answer so perhaps I can give him some more.

I have no objection to estate management schemes containing provisions that enable their termination by a notice from the landlord for the time being on the occupiers of premises within the scheme. Where I differ from my noble friend is that I do not believe that that needs to be a requirement for inclusion in all schemes. Clause 64(2) requires that all schemes shall make provision for terminating or varying all or any of the provisions of the scheme if a change in circumstances makes it appropriate. It also provides that that may be done by or with the approval of a leasehold valuation tribunal.

There would be nothing to stop the promoters of a scheme to include a termination provision along the lines of that proposed by my noble friend, but I cannot see why that should be a requirement of all schemes. I prefer to leave it to the promoters of the scheme and the leasehold valuation tribunal, in approving the terms of schemes, to decide what sort of termination or variation clause is suitable for a particular scheme. I hope that that will satisfy my noble friend.

The Earl of Lindsay

My Lords, I thank the Minister for that reply. It does satisfy me. I was not seeking that this should be a requirement of all applications for schemes; but where a landlord feels it appropriate, he should be able to do so. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 140 not moved.]

Lord Strathclyde moved Amendment No. 141:

Page 68, line 26, leave out ("may") and insert ("shall also").

The noble Lord said: My Lords, this amendment stands in the name of my noble friend Lord Peyton who is not in his place. In his absence, I move it on his behalf because it is an amendment which we believe is worth accepting. It is also rather better than Amendment No. 141A which is in the name of the noble Baroness Lady Hollis and others and which is exactly the same amendment as that tabled by my noble friend Lord Peyton.

When moving the Government's amendments on estate management schemes earlier, I said that we were sympathetic to Amendment No. 141 tabled by my noble friend Lord Peyton. Clause 64(2) already provides that estate management schemes shall include provision for terminating or varying schemes if a change in circumstances makes it appropriate. Clause 64(4) (a) provides that schemes shall include provision for identifying the person who, for the purpose of the scheme, is to be treated as the landlord. However, subsection 4(b) only provides that schemes may include provision for transferring all or any of the powers conferred on the landlord to a local authority or other body.

We agree that all schemes should include provision for the transfer of powers to another body where there is a change in circumstances. Whether such a transfer needs to be a local authority or other body, including a representative body or a body specially constituted for that purpose, will depend on the nature of those powers and the provisions of the scheme. We therefore agree that this should be a requirement, and I am prepared to accept Amendment No. 141.

Amendment No. 141A has exactly the same effect, but I prefer the wording in Amendment No. 141. In moving the Government's earlier amendments, I also mentioned that we had considered giving English Heritage and local planning authorities much wider default powers that might enable them to take over existing estate management schemes where the landlord, for the purpose of the scheme, has failed to exercise his powers.

I admitted that that caused us some difficulty. As a general principle, it would be for the ex-tenants that have enfranchised—those subject to the estate management scheme in the event of the landlord failing in his duties—to apply for transfer of the scheme to a representative body. The obligations and rights under a scheme are essentially of a contractual nature. I feel that a representative body consisting of the ex-tenants should perhaps have priority over English Heritage or a local planning authority in taking over a scheme where the landlord has failed to exercise his duties. The ex-tenants might object to the transfer to a third party and might want to take over the scheme themselves.

Lord Williams of Elvel

My Lords, I am sorry to intervene. Is the noble Lord speaking to Amendments Nos. 141, 141A, 141B, 142A and 144A, as in the grouping?

Lord Strathclyde

No, my Lords. I have spoken just to Amendment No. 141. Perhaps I should just leave it at that. I beg to move.

On Question, amendment agreed to.

[Amendment No. 141A not moved.]

Baroness Hollis of Heigham moved Amendment No. 141B:

Page 68, line 30, at end insert:

("; and (c) may include, where the scheme is for an area wholly or partly within a conservation area, provision for the leasehold valuation tribunal at their discretion to transfer to a representative body the rights and powers conferred by the scheme where, upon the application of such a representative body, the tribunal is satisfied that the landlord for the time being has failed, to the material detriment of the amenity of the area of the scheme, to exercise the rights and powers conferred by the scheme; and for the purposes of this subsection a representative body may include any local planning authority for the whole or any part of the area of a scheme and, in relation to a scheme wholly in England, the Historic Buildings and Monuments Commission for England.").

The noble Baroness said: My Lords, in moving this amendment, I shall also speak to Amendments Nos. 142A and 144A standing in the names of myself and the noble Lords, Lord Cavendish of Furness, Lord Palmer and Lord Montagu of Beaulieu. First, we are grateful and pleased that the Government have accepted Amendment No. 141. I am delighted not to be pressing Amendment No. 141A as an alternative.

I am also very pleased that the Government have already indicated that they have sympathy with the principles that we are arguing for in Amendment No. 141B. I am entirely happy, if the Government are minded to come back with an alternative appropriate amendment at Third Reading, to withdraw it at the end.

It is perhaps worth placing on record and seeking your Lordships' support for the issues which are at stake here. We all accept that owner occupation is not unqualified simply because my enjoyment of my property is intimately affected by my neighbour's use of his. It is a role for planning authorities as regards the blocking of light and the incidents mentioned by the noble Baroness, Lady Gardner of Parkes. How much more is owner occupation qualified when the house itself is an important part of the streetscape and in a conservation area; where an early Victorian crescent may be deformed by PVC push-open windows to replace painted wooden sash windows; or when York facing is added to pink-rose brickwork; or when flat-roofed porches break the harmony of window and doorlines.

English Heritage, in its latest fifth draft circular on conservation area practice and the local authority historic towns forum, are extremely worried. I believe that the Minister will know that as he has been involved in some of the meetings. They are extremely worried about the incremental deterioration of conservation areas of historic quality. How much more are we to be worried when such properties include a significant number of flats which may have come from conversions of what were originally and architecturally houses in conservation areas and which have been customised by Austrian blinds and cassata painting, which may seriously damage the amenity and character of an historic area. That is why both in Committee and on Report so many of us all around the House have been worried about some aspects of the enfranchisement of flats in historic, conservation and heritage areas.

The Government have rightly proposed—and we have given it enthusiastic support—the concept of estate management agreements (or EMAs) to ensure mutual guardianship. Where the former landlord and the former leaseholders are willing, they may establish, so to speak, interlocking covenants (or an EMA) to protect both themselves and us—their street frontage and the historic character, coherence and quality of the former leasehold estate.

But what happens if they will not do that? I pay tribute to the Government now because of their amendment to which we shall be speaking later. It permits local authorities and English Heritage to set up EMAs. That recognises that in the few—the, I hope, very few—cases where there are neglectful owners, the local authority may, on application to the leasehold valuation tribunal, protect and guard the public interest in that heritage property. The Minister has also accepted the amendment tabled by the noble Lord, Lord Peyton, which we support also, which requires the local valuation tribunal to consider architectural and historical interest in determining EMAs. We are delighted about that. Equally, the Government have permitted such EMAs to have a clause allowing landlords or former leaseholders to transfer the management and monitoring of an EMA to the local authority at their request.

All of that is splendid, and we welcome it. Almost all of the pieces of the jigsaw are now in place to protect heritage and conservation areas. But one black hole still remains. We are seeking tonight to get the Government's agreement, in principle, to fill it. What happens if an estate management agreement, constructed by landlord and leaseholders, exists and, although it is not being respected, the landlord and the former leaseholders do not wish to transfer its management to the local authority? What arrangements are in place to protect the public interest when the landlord and the former leaseholders default on the EMA, especially when the landlord's longer term financial interest slowly declines as the years pass?

The obvious remedy is that the local planning authority (and, if necessary, English Heritage) should have the power to seek the transfer—that is, the monitoring and enforcement—of an estate management agreement to the 'local authority, alongside the optional power of a landlord or the former leaseholders to do so. Of course, in all cases, the leasehold valuation tribunal should be the umpire of that propriety.

It cannot be sensible to give local authorities the power to set up an EMA in a conservation area where one does not exist but to refuse to give the local authority the powers to make one stick where it does exist but is being ignored. In other words, it is absurd to give local authorities the greater power but to deny them the lesser power. Indeed, we fear that there could be the nightmare scenario of former landlords and leaseholders setting up an EMA which they have no intention of respecting simply to extract—to ringfence —this area from that in which the local authority or English Heritage has the power to intervene. I do not think that that is likely to happen, but if it does, it will blot and cause to deteriorate for all time that in which we all have property—our historic heritage.

If the local authority or English Heritage has reserve or default powers—even though, given their current financial situation, they will use them only when they regard the position as extreme—it is that much more likely that the original covenanters (that is, the landlord and the former leaseholders) will respect the EMA. They will know that if they do not do so, the local authority may seek to police it by appealing to the leasehold valuation tribunal. It is therefore that much more likely that the spirit of the EMA will be observed by its original partners, which is what we all want. Otherwise we would have the EMA without a sanction for those neglecting or failing to observe it, and that cannot be sensible. We put this to the Minister at Committee stage when he said that the Government were minded to consider default powers. He has made encouraging noises tonight which we very much hope will be followed by appropriate support. It may be that these are not precisely the right amendments, although they have been drafted by English Heritage, to attract the support not only of Members of this House but, we hope, of the Government also. In the hope that we shall get the Government's support, as well as the support of the House, for the amendments, I beg to move.

Lord Cavendish of Furness

My Lords, my name is attached to this group of amendments and I rise to support them. I, too, thank my noble friend the Minister for moving Amendment No. 141 in the name of my noble friend Lord Peyton. It will be extremely welcome news to English Heritage.

The noble Baroness, Lady Hollis, dealt exhaustively and ably with the amendments and there is very little to add. As I have said before, I believe that the whole Bill neglects and perhaps even runs contrary to heritage interests. Hence my previous amendments on heritage areas which, unfortunately, did not find echoes with the Government. This group of amendments goes substantially towards meeting our objections, even if they do not go as far as I would like. It is not clear to me what difficulty my noble friend the Minister has with the wording. It seems to me that we have spoken a little to these amendments on two previous occasions this very afternoon but I, too, shall wait patiently until Third Reading if my noble friend has some difficulty now. Meanwhile, I would welcome assurances on the principle of the amendments.

Lord Strathclyde

My Lords, the Government are sympathetic to these amendments and agree with them in principle. By saying so, I hope that I can cut short the debate. As a general principle it would be for the ex-tenants who have enfranchised, those subject to the estate management scheme, in the event of the landlord failing in his duties, to apply for transfer of the scheme to a representative body.

The obligations and rights under a scheme are essentially of a contractual nature and I feel that a representative body consisting of the ex-tenants should perhaps have priority over English Heritage or a local planning authority in taking over a scheme where the landlord has failed to exercise his duties. The ex-tenants might object to the transfer to a third party and might want to take over the scheme themselves. However, I am prepared to consider whether this should be left to the discretion of the leasehold valuation tribunal. My concerns here relate to the difficulty a leasehold valuation tribunal might have in determining whether there has been a failure on the part of the landlord for the time being to exercise the rights and powers conferred on him by the scheme and whether this has been to the detriment of the amenity of the area.

I do not want to sound discouraging because I should like to consider Amendment No. 141B with a view to improving it and to tabling something at Third Reading. I hope that that will meet with the approval of my noble friend Lord Cavendish and the noble Baroness, Lady Hollis. We may want to make it clear that leasehold valuation tribunals would only agree to a particular applicant or representative body taking over existing schemes if, in their opinion, there was some benefit to the heritage of the area or to the ex-tenants who are subject to the scheme.

The noble Baroness spoke also to Amendment No. 142A which would enable English Heritage and local planning authorities to be considered as "persons interested" for consultation purposes where a proposed scheme is in a conservation area. I have no objection to those bodies being consulted and I am prepared to consider this amendment and come up with something at Third Reading.

As I have said, the Government are therefore sympathetic to these amendments and agree with them in principle. I shall bring forward amendments on Third Reading.

Baroness Hollis of Heigham

My Lords, I thank the Minister for that helpful reply. I hope that, on reflection, he will not find some of the obstacles that he has mentioned to be insuperable. After all, there is no problem about bodies, courts and tribunals determining when a material failure to observe something has occurred. It happens in relation to building repairs notices and with listed properties all the time. It is done week in, week out, by local authorities, planning authorities and English Heritage. I am sure that that will not pose a problem for the Minister.

We have no objection to the principle that he has enunciated of producing what perhaps I may call a "hierarchy of observation" of an EMA so that if the landlord fails, the tenants or former leaseholders "may" take over the scheme. It is only if they do not do so that one may bring into play the local authorities and English Heritage. That does not present a problem. All that we are trying to ensure is that we do not end up without anybody ensuring that an EMA is observed. In the spirit of the Minister's response, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 65 [Approval by leasehold valuation tribunal of estate management scheme]:

Lord Strathclyde moved Amendment No. 142:

Page 68, line 45, after ("must") insert (", subject to section (Applications after expiry of two-year period),").

The noble Lord said: My Lords, in considering the representations made to me about estate management schemes —I am sure your Lordships will acknowledge that we have had an open mind about the various improvements that have been suggested—we have tried to come up with a package of measures that are workable and acceptable to both landlords and their enfranchising leaseholders.

One area where we have been minded to make an amendment is to allow landlords to apply for the approval of estate management schemes after the two-year time limit has expired. The two-year time limit has been imposed to ensure that applications for estate management schemes are made as soon as possible after the coming into force of the enfranchisement provisions so that enfranchisement is not delayed unduly.

However, I am aware that there may be many reasons why a landlord or a representative body may not be able to apply for approval of a scheme within the two-year time limit. There may be a leasehold development that is not yet complete or a redevelopment or refurbishment of existing buildings that contribute to or form part of an estate containing flats that have yet to be let or re-let on a leasehold basis. There may also be a need for developers to apply for estate management schemes in respect of new developments where there is likely to be a benefit to the area. We have therefore agreed to allow landlords to apply in certain circumstances for approval of a scheme after the two-year time limit.

I hope that your Lordships will find this proposal a sensible relaxation of the two-year time limit. I beg to move.

[Amendment No. 142A not moved.]

Viscount Goschen moved Amendments Nos. 143 and 144:

Page 70, line 26, after ("appropriate") insert ("(if at all)").

Page 70, line 31, at end insert ("(if at all)").

The noble Viscount said: My Lords, these amendments have already been spoken to. I beg to move.

[Amendment No. 144A not moved.]

Clause 66 [Applications by two or more landlords, or by representative body]:

Viscount Goschen moved Amendments Nos. 145 to 147:

Page 71, line 32, at end insert:

("( ) Where any such scheme confers any rights or powers on the representative body in accordance with subsection (4) above, section 65(10) and (11) (a) shall have effect with such modifications (if any) as are provided for in the scheme.").

After Clause 66, insert the following new clause:

Applications after expiry of two-year period

("—(1) An application for the approval of a scheme for an area under section 65 (including an application in accordance with section 66(1) or (3)) may be made after the expiry of the period mentioned in subsection (1) of that section if the Secretary of State has, not more than six months previously, consented to the making of such an application for that area or for an area within which that area falls.

(2) The Secretary of State may give consent under subsection (1) to the making of an application ("the proposed application") only where he is satisfied—

1. (a) that either or both of the conditions mentioned in subsection (3) apply; and
2. (b) that adequate notice has been given to persons interested informing them of the request for consent and the purpose of the request.

(3) The conditions referred to in subsection (2) (a) are—

1. (a) that the proposed application could not have been made before the expiry of the period mentioned in section 65(1); and
2. (b) that—

1. (i) any application for the approval under section 65 of a scheme for the area, or part of the area, to which the proposed application relates would probably have been dismissed under section 65(9) (a) had it been made before the expiry of that period; but
2. (ii) because of a change in any of the circumstances required to be considered under section 65(3) the proposed application would, if made following the giving of consent by the Secretary of State, probably be granted.

(4) A request for consent under subsection (1) must be in writing and must comply with such requirements (if any) as to the form of, or the particulars to be contained in, any such request as the Secretary of State may by regulations prescribe.

(5) The procedure for considering a request for consent under subsection (1) shall be such as may be prescribed by regulations made by the Secretary of State.").

After Clause 66, insert the following new clause:

Applications by certain public bodies

(" .—(1) Where it appears to a leasehold valuation tribunal after the expiry of the period mentioned in section 65(1) that a scheme could, on the application of any landlord or landlords within that period, have been approved under section 65 as an estate management scheme for any area or areas within a conservation area, an application for the approval of the scheme under that section may, subject to subsections (2) and (3) below, be made to the tribunal by one or more bodies constituting the relevant authority for the purposes of this section.

(2) An application under subsection (1) may only be made if—

1. (a) no scheme has been approved under section 65 for the whole or any part of the area or areas to which the application relates ("the scheme area"); and
2. (b) any application which has been made in accordance with section 65(1), 66(1) or 66(3) for the approval of a scheme for the whole or any part of the scheme area has been withdrawn or dismissed; and
3. (c) no request for consent under section (Applications after expiry of two-year period)(1) which relates to the whole or any part of the scheme area is pending or has been granted within the last six months.

(3) An application under subsection (1) above must be made within the period of six months beginning—

1. (a) with the date on which the period mentioned in section 65(1) expires, or
2. (b) if any application has been made as mentioned in subsection (2) (b) above, with the date (or, as the case may be, the latest date) on which any such application is withdrawn or dismissed,

whichever is the later; but if at any time during that period of six months a request of a kind mentioned in subsection (2) (c) above is pending or granted, an application under subsection (1) above may, subject to subsection (2) above, be made within the period of—

1. (i) six months beginning with the date on which the request is withdrawn or refused, or
2. (ii) twelve months beginning with the date on which the request is granted,

as the case may be.

(4) A scheme approved on an application under subsection (1) may confer on the applicant or applicants any such rights or powers under the scheme as might have been conferred on the landlord or landlords for the time being.

(5) For the purposes of this section the relevant authority for the scheme area is—

1. (a) where that area falls wholly within the area of a local planning authority—
   1. (i) that authority; or
   2. (ii) subject to subsection (6), that authority acting jointly with the Historic Buildings and Monuments Commission for England ("the Commission"); or
   3. (iii) subject to subsection (6), the Commission; or
2. (b) in any other case—
   1. (i) all of the local planning authorities within each of whose areas any part of the scheme area falls, acting jointly; or
   2. (ii) subject to subsection (6), one or more of those authorities acting jointly with the Commission; or
   3. (iii) subject to subsection (6), the Commission.

(6) The Commission may make, or join in the making of, an application under subsection (1) only if—

1. (a) the whole of the scheme area is in England; and
2. (b) they have consulted any local planning authority within whose area the whole or any part of the scheme area falls.

(7) Where a scheme is approved on an application under subsection (1) by two or more bodies acting jointly, the scheme shall, if the tribunal considers it appropriate, be made subject to conditions (enforceable in such manner as may be provided by the scheme) for securing that those bodies co-operate in the administration of the scheme.

(8) Where a scheme is approved on an application under subsection (1)—

1. (a) section 65(10) and (11) (a) shall (subject to subsection (9) below) have effect as if any reference to the landlord, or the landlord for the time being, for the area for which an estate management scheme has been approved were a reference to the applicant or applicants; and
2. (b) section 65(11) (b) and (c) shall each have effect with the omission of so much of that provision as relates to the adjustment of any such price as is there mentioned.

(9) A scheme so approved shall not be enforceable by a local planning authority in relation to any property falling outside the authority's area; and in the case of a scheme approved on a joint application made by one or more local planning authorities and the Commission, the scheme may provide for any of its provisions to be enforceable in relation to property falling within the area of a local planning authority either by the authority alone, or by the Commission alone, or by the authority and the Commission acting jointly, as the scheme may provide.

(10) For the purposes of—

1. (a) section 9(1A) of the Leasehold Reform Act 1967 (purchase price on enfranchisement) as it applies in relation to any acquisition such as is mentioned in section 64(1) (a) above, and
2. (b) paragraph 3 of Schedule 5 to this Act as it applies in relation to any acquisition such as is mentioned in section 64(1) (b) above (including that paragraph as it applies by virtue of paragraph 7 or 11 of that Schedule),

it shall be assumed that any scheme approved under subsection (1) and relating to the property in question had not been so approved, and accordingly any application for such a scheme to be approved, and the possibility of such an application being made, shall be disregarded.

(11) In this section, "conservation area" and "local planning authority" have the same meaning as in the Planning (Listed Buildings and Conservation Areas) Act 1990; and for this purpose paragraphs 4 and 5 of Schedule 4 to that Act (further provisions as to exercise of functions by different authorities) shall have effect as if—

1. (a) any reference to section 69 of that Act were a reference to subsection (1) of this section; and
2. (b) any reference to a determination or designation under that section were a reference to an application under subsection (1) of this section.").

The noble Viscount said: My Lords, these amendments have already been spoken to. I beg to move.

Clause 67 [Effect of application for approval on claim to acquire freehold]:

Viscount Goschen moved Amendments Nos. 148 to 155:

Page 71, line 33, leave out ("subsection (5)") and insert ("subsections (5) and (5A)").

Page 71, line 36, after ("area") insert ("or a request ("the request for consent") is made for consent under section (Applications after expiry of two-year period)(l) in relation to any area").

Page 71, line 37, after ("application") insert ("or request").

Page 72, line 2, after ("application") insert ("or the request for consent").

Page 72, line 8, after ("application") insert ("or the request for consent").

Page 72, line 43, at end insert:

("(5A) Where the request for consent is withdrawn or dismissed, subsection (1) does not apply at any time falling after the date on which the request is withdrawn or refused, as the case may be; and where the request is granted, subsection (1) does not apply at any time falling more than six months after the date on which it is granted (unless that subsection applies by virtue of an application made in reliance on the consent).").

Page 72, line 44, after ("(5)") insert ("or (5A)").

Page 73, line 25, after ("66") insert ("or (Applications by certain public bodies)").

The noble Viscount said: My Lords, the amendments have already been spoken to. I beg to move.

Clause 68 [Variation of existing schemes]:

Lord Strathclyde moved Amendment No. 156:

Page 73, line 26, at beginning insert-

(".—( ) Where a scheme under section 19 of the Leasehold Reform Act 1967 (estate management schemes in connection with enfranchisement under that Act) includes, in pursuance of subsection (6) of that section, provision for enabling the termination or variation of the scheme, or the exclusion of part of the area of the scheme, by or with the approval of the High Court, that provision shall have effect—

1. (a) as if any reference to the High Court were a reference to a leasehold valuption tribunal, and
2. (b) with such modifications (if any) as are necessary in consequence of paragraph (a).").

The noble Lord said: My Lords, in moving the Government's previous amendments on estate management schemes, I mentioned that we have tried to improve upon the provisions contained in Section 19 of the Leasehold Reform Act 1967 and to simplify the procedure for seeking approval of such schemes by transferring the responsibility for approval of schemes from the High Court to leasehold valuation tribunals. That is what Amendment No. 156 does.

The remaining amendments in this group are all consequential drafting amendments. I urge the House to accept the amendment. I beg to move.

Viscount Goschen moved Amendments Nos. 157 to 159:

Page 73, line 26, leave out from ("under") to ("may") in line 28 and insert ("that section").

Page 73, line 28, leave out ("the High Court") and insert ("a leasehold valuation tribunal").

Page 73, line 36, at end insert:

("( ) Any application made under or by virtue of this section to a leasehold valuation tribunal shall comply with such requirements (if any) as to the form of, or the particulars to be contained in, any such application as the Secretary of State may by regulations prescribe.

( ) In this section any reference to a leasehold valuation tribunal is a reference to such a rent assessment committee as is mentioned in section 142(2) of the Housing Act 1980 (leasehold valuation tribunals).").

The noble Viscount said: My Lords, the amendments were spoken to with the previous amendment. I beg to move.

Clause 72 [Rights exercisable in connection with management audits]:

[Amendments Nos. 159A and 159B not moved.]

Viscount Goschen

My Lords, I beg to move that further consideration on Report be now adjourned.

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