HL Deb 05 July 1995 vol 565 cc1104-9

3.59 p.m.

Report received.

Clause 11 [Assignments in breach of covenant or by operation of law]:

The Lord Chancellor (Lord Mackay of Clashfern) moved Amendment No. 1:

Page 7, line 41, after ("landlord") insert ("which is not an excluded assignment").

The noble and learned Lord said: My Lords, there are a number of amendments standing in my name, Amendments Nos. 1 to 4 and 6 to 8. These are all technical amendments, some of which arose out of consideration of amendments tabled by my noble friend Lord Jenkin of Roding which were not moved at the Committee stage. They are all technical and, with your Lordships' leave, I shall move Amendment No. 1 first and in due course I shall move Amendments Nos. 2 to 4 inclusive and Amendments Nos. 6 to 8 inclusive. In the meantime, I beg to move Amendment No. 1.

On Question, amendment agreed to.

Clause 19 [Right of former tenant or his guarantor to overriding lease]:

The Lord Chancellor moved Amendments Nos. 2 to 4:

Page 14, line 34, leave out from ("payment") to end of line 35.

Page 15, line 2, at end insert ("and that request has been neither withdrawn nor abandoned by that person").

Page 15, line 11, at end insert: ("() Where a claimant who has duly made a request for an overriding lease under this section subsequently withdraws or abandons the request before he is granted such a lease by the landlord, the claimant shall be liable for the landlord's reasonable costs incurred in pursuance of the request down to the time of its withdrawal or abandonment; and for the purposes of this section—

  1. (a) a claimant's request is withdrawn by the claimant notifying the landlord in writing that he is withdrawing his request; and
  2. (b) a claimant is to be regarded as having abandoned his request if—
    1. (i) the landlord has requested the claimant in writing to take, within such reasonable period as is specified in the landlord's request, all or any of the remaining steps required to be taken by the claimant before the lease can be granted, and
    2. (ii) the claimant fails to comply with the landlord's request,
  3. and is accordingly to be regarded as having abandoned it at the time when that period expires.
() Any request or notification under this section may be sent by post.").

On Question, amendments agreed to.

The Earl of Courtown moved Amendment No. 5:

After Clause 21, insert the following new clause:

("Landlord's consent to assignments

Imposition of conditions regulating giving of landlord's consent to

assignments

After subsection (1) of section 19 of the Landlord and Tenant Act 1927 (provisions as to covenants not to assign etc. without licence or consent) there shall be inserted—

"(1A) Where the landlord and the tenant under a qualifying lease have entered into an agreement specifying for the purposes of this subsection—

  1. (a) any circumstances in which the landlord may withhold his licence or consent to an assignment of the demised premises or any part of them, or
  2. (b) any conditions subject to which any such licence or consent may be granted,

then the landlord—

  1. (i) shall not be regarded as unreasonably withholding his licence or consent to any such assignment if he withholds it on the ground (and it is the case) that any such circumstances exist, and
  2. (ii) if he gives any such licence or consent subject to any such conditions, shall not be regarded as giving it subject to unreasonable conditions;
and section 1 of the Landlord and Tenant Act 1988 (qualified duty to consent to assignment etc.) shall have effect subject to the provisions of this subsection.

(1B) Subsection (1A) of this section applies to such an agreement as is mentioned in that subsection—

  1. (a) whether it is contained in the lease or not, and
  2. (b) whether it is made at the time when the lease is granted or at any other time falling before the application for the landlord's licence or consent is made.

(1C) Subsection (1A) shall not, however, apply to any such agreement to the extent that any circumstances or conditions specified in it are framed by reference to any matter falling to be determined by the landlord or by any other person for the purposes of the agreement, unless under the terms of the agreement—

  1. (a) that person's power to determine that matter is required to be exercised reasonably, or
  2. (b) the tenant is given an unrestricted right to have any such determination reviewed by a person independent of both landlord and tenant whose identity is ascertainable by reference to the agreement,
and in the latter case the agreement provides for the determination made by any such independent person on the review to be conclusive as to the matter in question.

(1D) In its application to a qualifying lease, subsection (1) (b) of this section shall not have effect in relation to any assignment of the lease.

(1E) In subsections (1A) and (1D) of this section—

  1. (a) "qualifying lease" means any lease which is a new tenancy for the purposes of section 1 of the Landlord and Tenant (Covenants) Act 1995 other than a residential lease, namely a lease by which a building or part of a building is let wholly or mainly as a single private residence; and
  2. (b) references to assignment include parting with possession on assignment."").

The noble Earl said: My Lords, this is the second time that this amendment has appeared in my name. When it was first moved in Committee it was debated but withdrawn in response to a plea for more time to consider it in detail. I hope that I am not trespassing on the territory of noble Lords opposite if I say that I believe that the additional time has not been wasted. I explained the amendment in considerable detail when moving it in Committee, and I shall be brief today.

The amendment introduces changes to Section 19 of the Landlord and Tenant Act 1927 which presently provides that, if a landlord draws up a lease which allows a tenant to assign with the landlord's consent, that consent cannot be unreasonably withheld. The changes would permit the landlord and tenant to agree in advance the conditions under which consent will be forthcoming and provide for a landlord not to be taken to be withholding consent unreasonably if he does so because the conditions have not been made out. The changes are to apply only to new leases and are not to apply to residential or agricultural leases. In effect, the amendment represents the essence of the compromise and the basis of the agreement between differing interests in the property industry which has enabled the Bill to get this far.

The point that the amendment called for more detailed consideration than was possible between its first being tabled and being moved in Committee was well made by the noble Lord, Lord Irvine of Lairg, and the noble Lord, Lord Meston. I hope that, with the benefit of the additional time since Committee, the amendment will be taken in the spirit of reason, compromise and agreement which has distinguished the passage of the Bill. I beg to move.

Lord Irvine of Lairg

My Lords, this was Amendment No. 61 in Committee. It is now Amendment No. 5 on Report. As he has said, I urged the noble Earl to withdraw the amendment and to move it on Report. He acceded to that course, I have no doubt rightly.

The amendment is complex, with wide ramifications. It was described by the noble Earl as the backbone of the package which had been agreed by the relevant interests. The amendment appeared on the Marshalled List only on Monday, 19th June, and there was considerable disquiet, of which I was made aware, that your Lordships had been invited to accept the amendment in Committee only two days later on Wednesday, 21st June, without time for mature consideration and the opportunity for discussion and consultation with interested parties.

Concerns had been expressed to me that this part of the package altered what I chose to describe as the balance of power between landlords and tenants and, although privity of contract liability was generally regarded as not defensible, the anxiety was that this part of the package was designed to enable landlords to obtain much more control over assignments once they had lost the benefit of privity of contract liability.

However, as well as drawing attention in Committee to those anxieties, I acknowledged that the changes embraced in the amendment applied only to new tenancies, that the relevant terms could only be terms that had actually been agreed by the relevant parties, and that the amendment was not capable of applying either to residential or agricultural tenancies.

Since the noble Earl was good enough to withdraw the amendment in Committee, I have now had the opportunity to reflect fully on the package, and in particular this part of it, and to consult with interested parties.

Under the law at present—under Section 19 of the 1927 Act as is—landlords are free to ban assignments. They will continue to be free to ban assignments if Section 19 is amended as proposed by the noble Earl. However, under the present law the practice is that landlords rarely impose an absolute prohibition upon assignments. That is because the landlord has the comfort that, if the assignee fails, he can sue the first tenant and later assignees together with their guarantors. He can do that because each assignee is highly likely to have given him a direct covenant to honour the lease until it expires.

However, a landlord who chooses to ban assignments outright under the present law is imposing harsh lease terms on his tenant and terms which are rarely imposed in practice. The tenant would find such a ban especially harsh if the lease were long. But if the lease is long, there are likely to be rent reviews. At each review the question asked is: what rent would these premises fetch if offered on the open market with these harsh assignment terms? If other landlords are universally banning assignments, then those lease terms would be regarded as normal; but if, on the other hand, as is the case in fact, other landlords are not generally banning assignments, then the restrictive landlord may well have to bear the economic cost of receiving a low rent after a review.

If the noble Earl's amendment is accepted, landlords under new leases will have a choice. They can either ban assignments or they can go down the route of allowing assignments to assignees who satisfy the conditions prescribed. Where there is a choice between being restrictive or not restrictive there will be a calculation to be made by the landlord about how to protect the rent at review. It is likely that many landlords will not risk their position at review by imposing a ban on assignment or by imposing unreasonable conditions, unless perhaps where they consider that the letting is of so special a nature as to require such a restriction.

The noble Earl's amendment allows the creation of conditions which would have been invalid under Section 19 as presently drawn. Yet to my mind, on consideration, it opens the way for landlords to take a less restrictive course of action than they might well have taken if privity liability had been modified and Section 19 had been left unchanged.

Whereas the package may not produce perfect justice in every case, I am satisfied, having had sufficient time to reflect on it, that it achieves a proper balance between the interests concerned, that it is likely to do justice at least in the great majority of cases, and therefore that it may go forward unopposed.

The Lord Chancellor

My Lords, I am very grateful to my noble friend for his courtesy in withdrawing the amendment at Committee stage so that the noble Lord, Lord Irvine of Lairg, and the noble Lord, Lord Meston, could have an opportunity to consider it further. I am glad that the result of that consideration has been as the noble Lord, Lord Irvine of Lairg, indicated. His explanation of how the clause will work accords with my understanding of it. It also accords with the support that was given to the clause in consultation once the agreement between the interests had been intimated to the Government.

As has been explained, the Bill will go ahead onto the statute book only by agreement. I am grateful that, so far as appears today, there is such agreement. I certainly strongly support the amendment.

The Earl of Courtown

My Lords, I thank my noble and learned friend the Lord Chancellor for his support and contribution to this important amendment. I also thank the noble Lord, Lord Irvine of Lairg, for his support and for the time he has taken to consider the amendment since the Committee stage.

On Question, amendment agreed to.

Clause 27 [Interpretation]:

The Lord Chancellor moved Amendments Nos. 6 to 8:

Page 19, leave out lines 41 to 44 and insert ("Subsection (2) does not apply in relation to covenants to pay money; and, for the purposes of any reference in this Act to a covenant falling to be complied with in relation to a particular part of the premises demised by a tenancy, a covenant of a tenancy which is a covenant to pay money falls to be so complied with if-").

Page 20, line 1, after ("determinable") insert ("specifically").

Page 20, line 16, at end insert: ("() For the purposes of this Act—

  1. (a) any assignment (however effected) consisting in the transfer of the whole of the landlord's interest (as owner of the reversion) in any premises demised by a tenancy shall be treated as an assignment by the landlord of the reversion in those premises even if it is not effected by him: and
    2. 1109
  2. (b) any assignment (however effected) consisting in the transfer of the whole of the tenant's interest in any premises demised by a tenancy shall be treated as an assignment by the tenant of those premises even if it is not effected by him.").

The noble and learned Lord said: My Lords, I spoke to Amendments Nos. 6 to 8 with Amendment No. 1. I beg to move that Amendments Nos. 6 to 8 be agreed to en bloc.

On Question, amendments agreed to.