ABOLITION OF LOW RENT TEST IN NON-RURAL AREAS (Hansard, 10 July 1996)

HL Deb 10 July 1996 vol 574 cc370-84 370

§ (" .—(1) The Leasehold Reform, Housing and Urban Development Act 1993 shall be amended as follows—

(a) in section 5, the words "at a low rent" shall be omitted in both places they occur; and
(b) section 8 shall cease to have effect.

§ (2) The Leasehold Reform Act 1967 shall be amended as follows—

(a) in section 1(1)(a), for the words "at a low rent" there shall be substituted the words "and is not an excluded tenancy under subsection (1A) below";
(b) after section 1( ) there shall be inserted—

§ "(1A) A tenancy is an excluded tenancy for the purposes of this section if—

(a) the house which the tenant occupies under the tenancy is in an area designated for the purpose of this section as a rural area by the Secretary of State;
(b) the freehold of that house is owned together with adjoining land which is not occupied for residential purposes;
(c) the tenancy was granted on or before the day on which Part III of the Housing Act 1996 came into force; and
(d) the freeholder satisfies the Leasehold Valuation Tribunal that the house—

(i) is leased at an annual rent less than one-half of the current annual letting value of comparable properties in the designated rural area concerned,
(ii) is occupied by a member of the family of the freeholder or former freeholder of the estate within which it is situated or has been leased on terms related to such future occupancy, or
(iii) is occupied by an employee or former employee of that freeholder.

§ An application to the Leasehold Valuation Tribunal in accordance with paragraph (d) above shall be made by the freeholder within two months of his receipt of the relevant notice of the leaseholder's claim to enfranchise under the terms of this Act."; and. (c) sections 4 and 4A shall cease to have effect.").

§ The noble Viscount said: My Lords, as I did at Committee stage, I must declare an interest in this amendment. I am a long leaseholder of a London flat. In moving the amendment I shall speak also to Amendments Nos. 155, 155A and 159. Amendment No. 155A is tabled in the name of my noble friend Lord Coleraine. He has asked me to make his apologies to the House. Because of another commitment he cannot be here tonight. He asked me to propose the amendment on his behalf.

§ All these amendments deal with limitations on the right to enfranchisement, specifically the low-rent test and the special limitations in designated rural areas. The principle of granting the right of enfranchisement to certain tenants has already been accepted on the basis that it is desirable and equitable, despite some objections made by noble Lords to revising contracts already made between freeholders and tenants.

§ These rights are given where the length of the lease is such as to give the tenant in effect an equity interest in the property. But where the lease is for a relatively short period, say, less than 21 years, it is almost invariably let at a rack rent based on the current market value. In such cases the tenant can claim no equity in the property and the lease should clearly not be enfranchisable.

§ However, it has been argued that there is an appreciable number of long leases let at or near rack rents and that these leases should be excluded tenancies for the purposes of enfranchisement. This is the justification for the low-rent test. The fact is that the evidence supporting this argument is extremely flimsy. Only six examples have been provided by the British Property Federation where it is alleged that long leases have been granted on a commercial rental basis where no premium has been paid. No detailed information has been provided on the ground that it is confidential. I understand that a few other cases have been quoted, but with even less information available. It is surely clear that these few examples, even if relevant at all, are very special cases and should not determine the content of an Act of Parliament.

§ Amendment No. 151 therefore seeks to delete the low-rent test entirely in both urban and rural areas by introducing a new Clause 104. The revised clause contains certain requirements which, if satisfied, will provide for the tenancy to be excluded from the rights of enfranchisement in rural areas. I draw attention 372 particularly to the fact that paragraphs (a) to (c) of subsection (2) are "and" requirements—that is, all of them have to be satisfied if the tenancy is to be excluded—but that paragraph (d)(i) to (iii) contains "or" requirements; namely, only one of them has to be satisfied.

§ I believe that the provisions in this part of the amendment give adequate protection to the owners of estates and provide a fair balance between long leaseholders and freeholders. In rural areas they exclude from the right to enfranchisement properties forming an integral part of an estate which are required for the responsible stewardship of it.

§ As regards Amendment No. 159, since the sole purpose of the existing Clause 104 is to bring Schedule 9 into force, Amendment No. 159 is consequential to Amendment No. 151. If Amendment No. 151 is passed, then Amendments Nos. 155 and 155A will not be moved, for Amendment No. 155 deals only with the special exclusions for tenancies in rural areas. It is more restrictive as it does not deal with the low-rent test in general and therefore is less satisfactory than Amendment No. 151. However, it would certainly be an improvement on Schedule 9 as it now stands.

§ Amendment No. 155A will not be required if Amendments Nos. 151 or 155 are passed. It is more restrictive still than Amendment No. 155 but would remove some anomalies from the existing Bill including, for instance, those in the village of Adlestrop where, under the Bill as now drafted, some very long leases over 75 years will be enfranchisable and others will not.

§ It is surely inconceivable that categories of leases for which this exemption is sought will have been granted for more than 50 years. However, to be on the safe side, Amendment No. 155A limits the rural exception to leases of less than 75 years.

§ I realise that these are difficult issues with strongly held views on each side of the argument, but I sincerely believe that Amendment No. 151 both clarifies the law and provides a much more equitable and sensible balance between landlord and tenant. No doubt the amendment needs tidying up by experts. These are complicated issues. I hope very much that Her Majesty's Government will support the amendment in principle and bring forward a better worded amendment at Third Reading. I beg to move.

§ Lord Dubs
My Lords, I support Amendment No. 151. Indeed, I had intended putting my name to it. The amendment goes to the heart of the difficulties we have with the present system. There is a perceived sense of unfairness among leaseholders. I am sure that all of us have had letters from leasehold organisations and from individual leaseholders, complaining about unfairness and anomalies in the present system.
Amendment No. 151 seeks to put right the majority, if not all, of the anomalies that I have had drawn to my attention. It is a sensible way forward. I have some further amendments dealing with aspects of the matter which we shall come to later. In the meantime 373 Amendment No. 151 establishes clearly the main point of principle. I hope that the Government will look at it sympathetically.

§ Lord Carnock
My Lords, I support these amendments for the reasons already given.

§ Lord Strabolgi
My Lords, I too support the amendment so ably moved by the noble Viscount, Lord Caldecote. The Government contend that many of the leases are really rented property and are not leasehold in the normal course of events. That is one of the reasons why, for some extraordinary reason, they increased the period from 21 years to 50 years.
The Leasehold Enfranchisement Advisory Service knows of no long lease that is at a market rent or anything approaching it. Ministers have not produced a single example. I have seen the paper that was sent to the department by the British Property Federation on which it is basing its decisions. It seems to believe that it is clear evidence, but, as the noble Viscount, Lord Caldecote, said to me, most of it appears pretty dubious. I understand that the department has not seen the leases in question. The British Property Federation has refused to give any further details, claiming that the matter is confidential. It looks pretty phoney to me.
There is a four-storey terraced house in Chelsea let at a peppercorn rent for nine months from £600 a year and now there is a current rent of £9,000. There is another four-storey house in Chelsea where, in 1975, it was claimed there was a rent of only £600 a year—£600 a year for a four-storey house in Chelsea!—and where the current rent is now £3,000. And so it goes on. This looks pretty dubious. I hope that the department will try to base its evidence on something wider and that it will consider doing away with the low-rent test altogether because it has driven a coach and horses through this legislation. All the landlords need to do is to put up the rent so the leaseholder does not qualify. As I said in Committee, do the Government believe in leasehold enfranchisement or not? Is it just something that is put into the Conservative election manifestos and then nothing is done about it, or is it something that they really want to proceed with? That is the test that they are required to apply. I hope the Government will consider these amendments seriously because I am sure it is the right way to proceed.

§ Lord Cochrane of Cults
My Lords, I am entirely persuaded by my noble friend Lord Caldecote's argument and agree that his amendment deserves support on all sides of the House. I hope my noble friends on the Front Bench will observe that possibly my noble friend's amendment is wiser than their proposals.

§ 8.30 p.m.

§ Baroness Hamwee
My Lords, I too support the amendment. I supported amendments to a similar effect at the last stage and I am happy to stand my ground, despite having been duffed up orally on the basis that I was suggesting that contracts were things easily to be put aside. That was not what I said and it is not what 374 I am saying now. But I do believe that enfranchisement and a fair scheme which does not leave certain leaseholders without rights is the correct way to go forward. Like the noble Lord, Lord Strabolgi, I am concerned about any scheme which allows landlords to find devices to avoid it. It is always difficult to exclude avoidance devices but this test seems to have been something of an open invitation.
I was initially concerned about the exclusion of the test in rural areas but I think that the noble Viscount's amendment is ingenious in hedging the matter with such conditions that it is only in very closely defined circumstances that the test would not apply.
Like the noble Lord, Lord Strabolgi, I too have had a number of items of correspondence from people who have expressed their disappointment that, despite a manifesto pledge from the Conservatives, the issue is still unresolved.

§ Lord Selsdon
My Lords, I had not intended to intervene on this amendment and I am slightly surprised by the agreement that exists across the whole House. But your Lordships' House is known for finding issues, however small, where there is an element of unfairness, and one can usually win an argument in your Lordships' House when one says, "This is unfair to the minority", however small that minority may be.
In my noble friend's intervention he indicated that there is a sense that there is unfairness to one group and perhaps fairness to another. The noble Lord, Lord Strabolgi, raised the issue of value or equity participation and rent. At Second Reading I took the liberty of pointing out that we have moved into a new world where inflation is no longer a worry. Historically, people bought fixed assets on borrowed money because in an inflationary environment they saw a capital gain. Hence property investors, whether they were the great, responsible estates or small speculators, would seek to own a leasehold or a freehold because of the capital gain. Arguments about a rent of £600 or a small amount are irrelevant. I know that people put them forward in order to defend their position, but we all know that the differential between rentals and capital values today no longer applies in the same way as it did a few years ago.
I do not think that the amendment is drafted in a way which would prevent further confusion, but it is an area that perhaps the Government ought to consider more closely because if in your Lordships' House we detect an element of unfairness to a minority it is worth looking at.

Lord Lucas
My Lords, I knew it would not last. Here I am, back on my own again, not a friend in the House in front of me or behind me. Still—there we are—that is the way it goes. But when my noble friends look at all the changes we have made and are making in this area of leasehold enfranchisement, and particularly in the area of the low rent test and associated parts of the legislation, I think they will agree that we have gone a long way to dealing with problems which have existed in the past, although we cannot go as far as they wish. My noble friend Lord Caldecote, and indeed the noble Lord, Lord Strabolgi, said that we 375 should not legislate on the basis of a few exceptions produced by the British Property Federation. I entirely agree.
I also feel that we should not, when we come to the point, legislate on the basis of a few villages in Gloucestershire which happen to be left outside another more general provision. Our basis for liking the existence of the low rent test is that we feel there is a genuine overlap in lease lengths between leases let at market rents and those let at a premium on ground rents. If we abolish the low rent test for all long leases we should be introducing we feel an unnecessary rigidity into the market, making it impossible for anyone to offer more than 21 years' security of tenure at a market rent without risk of being deprived of the freehold.
We like the idea of two cut-off dates: below 21 years, and above a certain figure—presently 50 years but we will be discussing that later on and, I hope, coming to a view on what that figure should be. As I said at Committee stage, that is something which the Government have been considering. But between the two we feel that there should be the option. Either it should be possible to let on a lease at a premium or it should be possible to have a full market rent. A 25-year lease is not uncommon, and we do not see why that should be forced to be enfranchisable, even if it was intended to make it at full market rent, or why, alternatively, full market rents should be restricted to below 21 years. We prefer to leave the structure of the market with this flexibility. That is why we do not want to move on the existence of the low rent test.
Amendment No. 151 also deals with the rural exemption. It may help the House if I refer to the government scheme which is set out in Schedule 9. The tenancy will be excluded under the rural exemption if the house is in a designated rural area, the freehold is occupied together with non-adjoining residential land—and a later amendment will deal with that to tighten up possible abuses there—and the tenancy was granted on or before the day on which Clause 104 of this Bill comes into force. So it is a provision which is looking back, dealing with the way things used to be arranged and ensuring that this Bill does not upset them. I shall come in due course to the way in which things will operate in the countryside in future.
We want to preserve the integrity of rural estates where houses have been let on long leases so that the expectation that they will be restored to the freeholder for future generations is not frustrated.
My noble friend Lord Caldecote has built on the rural exemption set out in Schedule 9 by adding further restrictions to narrow the class of case which would qualify. These are that the annual rent is less than one-half of the letting value for comparable properties or that it is occupied by a member of the freeholder's, or former freeholder's family, or has been leased on terms related to such future occupancy, or that it is occupied by an employee or former employee of that freeholder. My noble friend has introduced a separate additional test in Amendment No. 155A which would remove leases exceeding 75 years in length from the rural exemption, so making them enfranchisable even if they fulfil all 376 the other conditions for the rural exemption. It has been argued that alienation effectively for two generations should permit enfranchisement. We do not believe that it would be wise to permit the break-up of rural estates, even in these circumstances because of the disruption it would cause to the balance of rural life and the complexity which it would add to enfranchisement rights.
My noble friend has criticised the present version of the rural exemption for being too wide, but we feel that he has introduced something far too narrow. What I believe we should be looking at is the relationship between the house and the estate of which it is part, not the relationship between the leaseholder and the freeholder. The principle is not who occupies the house, but that it has been let on a long lease at a rent which exceeds the threshold for the low rent test. That would exclude from enfranchisement properties let at higher rents for estate management purposes. The rural exemption is framed to formulate that distinction.
As to the future, landlords in rural areas will be able to grant leases at rents above the threshold for the low rent test, up to the very long lease limit, whatever that may be. As I have said, we shall discuss that later. Secondly, and on a longer view, some tenancies terminable on a death or a marriage are not enfranchisable. The main excluded tenancies of this type are described in Section 3 of the 1967 Act and in Section 7 of the 1993 Act.
This is a somewhat recondite corner of property law and I do not propose to go into it in detail. However, the effect is that certain types of life tenancy do not fall within either Act and nothing in Schedule 9 changes that broad position. It would therefore be possible for a landlord to offer an employee or a relative a house for their life or for some known life and that would not be enfranchisable under the Act. We believe that that offers the rural communities sufficient flexibility to plan the use and occupation of properties associated with an estate in the future and we do not therefore need to continue the rural exemptions for the future, although we do need to look at them in terms of protecting what has happened in the past. For those reasons, I am afraid that I cannot give my noble friend any comfort on any of his amendments. Nonetheless I hope that he will feel able to withdraw them.

§ Lord Selsdon
My Lords, before my noble friend sits down, I should not like him to feel that he is friendless. I did not say that I was opposed to the low rent test. I simply think that it is a bit unfair that there has to be a transition. It is important to create an element of stability in the market whether the period is to be 21 years or 50 years. Let us ensure that all sides of the House accept that that is reasonable.
I should like to draw attention to one simple anomaly. The 1993 Act was not perfect. Following that Act, a number of freeholders decided in good will to grant longer leases (of over 50 years) to a number of people. Their fear now is that having 377 granted those longer leases, the properties immediately become enfranchisable in terms of freeholds. Such elements create a certain instability. Perhaps the noble Lord, Lord Dubs, will be prepared to say that he thinks that 21 years or 50 years are acceptable so that at least we know where we stand, because people who tinker with the years cause lots of problems.

§ Viscount Caldecote
My Lords, in view of the wide support on all sides of the House, I am extremely disappointed that my noble friend on the Front Bench was not able to be more sympathetic to the amendment. He said that the Government have gone a long way to meet some of the points made in Committee. I submit that the Government have gone a short way and that we have not gone nearly far enough along the road that many of us would like. That is clear from the view that has been expressed today.
I did not think that my noble friend's arguments about the dangers and difficulties of abolishing the low rent test were at all convincing. He argued on the basis of maintaining the flexibility in the market. Is he really saying that there are going to be many long leases, however defined, let at rack rents? I do not think that that is true. As I have said, I am extremely disappointed by the Government's response. Although I do not want to press the amendment at this stage, I reserve the right to think about it again and, having read the reply in Hansard, to return with it at Third Reading. On that basis, I beg leave to withdraw the amendment.

§ Amendment, by leave, withdrawn.

§ Schedule 9 [Low rent test: extension of rights]:

§ Lord Lucas moved Amendment No. 152: Page 160, line 43, after ("purposes") insert ("and has been owned together with such land since the coming into force of section 104 of the Housing Act 1996").

§ The noble Lord said: My Lords, in moving Amendment No. 152, I should also like to speak to Amendment No. 154. Amendment No. 152 is an anti-avoidance measure for the rural exemption to the low rent test. In Committee, my noble friend Lord Coleraine pointed out that there was nothing to prevent the freeholder of a house in a rural area that would have been enfranchisable from buying an adjoining plot of non-residential land, thus taking advantage of the rural exemption.

§ The Government reflected on my noble friend's observation and concluded that adjoining land qualifying the house for the rural exemption must have been held together with the house continuously since the coming into force of the Bill. My amendment is to that effect. It ties in with the provision in new section 1AA(3)(c) of the Leasehold Reform Act 1967, which requires that the tenancy itself must have been granted on or before commencement. I believe that this is a useful anti-avoidance measure. I beg to move.

§ On Question, amendment agreed to.

§ [Amendment No. 153 had been withdrawn from the Marshalled List.]

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§ 8.45 p.m.

§ Lord Lucas moved Amendment No. 154: Page 160, leave out line 45 and insert ("that section came into force").

§ On Question, amendment agreed to.

§ The Deputy Speaker (Lord Burnham)
My Lords, we now come to Amendment No. 155 and I must advise the House that if this amendment is agreed to, I cannot call Amendment No. 155A.

§ Viscount Caldecote moved Amendment No. 155: Page 160, line 45, at end insert ("and (d) the freeholder satisfies the Leasehold Valuation Tribunal that the house—

(i) is leased at an annual rent less than one-half of the current annual letting value of comparable properties in the designated rural area concerned,
(ii) is occupied by a member of the family of the freeholder or former freeholder of the estate within which it is situated or has been leased on terms related to such future occupancy, or
(iii) is occupied by an employee or former employee of that freeholder.

An application to the Leasehold Valuation Tribunal in accordance with paragraph (d) above shall be made by the freeholder within two months of his receipt of the relevant notice of the leaseholder's claim to enfranchise under the terms of this Act.").

§ The noble Viscount said: My Lords, I have already spoken to this amendment. As drafted, it relates to Amendment No. 151, although it is much more restrictive and deals solely with rural restrictions.

§ My noble friend referred to the importance of not breaking up rural estates. This amendment would precisely prevent that by ensuring that all properties required in connection with the estate, and for the proper management and stewardship of the estate, are excluded from the enfranchisement provisions. I cannot see how my noble friend can say that that contributes to the break-up of estates. It simply enables properties to be enfranchised which now have nothing to do with the estate but which might well have had something to do with it 50 or 100 years ago when hundreds of people worked on the farms instead of two or three. Can my noble friend comment on that point? I beg to move.

§ Lord Hamilton of Dalzell
My Lords, my noble friend on the Front Bench says that he is friendless in this debate. I assure him that he is not. As there seems to be a sort of batting order about the number of noble Lords who speak, I think that perhaps I should voice my opinion on this, although I did so in Committee and I have not changed my opinion since then. The trouble with my noble friend Lord Caldecote is that he will not be satisfied until every single house in the country which was previously leasehold is taken over by the leaseholders. When I listen to these debates—

§ Viscount Caldecote
My Lords, that is quite unfair. I made a particular distinction in the amendment between those houses that are required for the operation of the estate—it is absolutely right that they should not be 379 enfranchisable—and those that are not. I have no wish at all to make all houses enfranchisable, as my noble friend says, now or at any time in the future.

§ Lord Hamilton of Dalzell
My Lords, I hear what my noble friend says, but how is he to judge what is part of an estate and what is not? Personally, I have spent a vast sum of money on making sure that houses on my estate are free to be let to people on my estate because I do not depend on the fact that agriculture will always remain a profitable occupation. I have put myself in such a position that there are no longer any leaseholders at all on my estate.
During this debate and debates on other aspects of this Bill, I hear noble Lords from the other side of the House complaining that there is no security of tenure. Of course there is no security of tenure. Security of tenure has been destroyed. My noble friend Lord Caldecote would want to make a proper job of it and destroy it altogether.
Perhaps I may cite a particular instance. I had a chap on a 12-year lease who had done various improvements to his house to suit his own convenience. He asked me for another 12-year lease. I was just on the point of granting it to him so that he could do further things to amuse himself and make himself more comfortable when leasehold enfranchisement loomed on the horizon. He has now become a statutory rent holder on a rack rent and can do nothing in his house. That is much to his inconvenience. It is beyond belief that people like my noble friend should insist endlessly on forcing through this issue when clearly the intelligent course is to leave it as it is.

Lord Lucas
My Lords, I appear to be striking a reasonable balance between my noble friends on this matter. I understand what has been said by my noble friend Lord Hamilton of Dalzell, which illustrates some of the problems to which this amendment gives rise. I believe that we should be looking at the relationship between the house and the estate of which it is part, not the relationship between the leaseholder and freeholder. The principle should be based not on who occupies the house but on whether it has been let on a long lease at a rent which exceeds the threshold for the low rent test. We believe that that is the right way to treat it, rather than looking at family or employment relationships which do not describe the relationship between the two bits of property. The basis of my opposition to the amendment of my noble friend is practicality and trying to ensure that things work in the right way, rather than a matter of settled principle. The matter has been given considerable consideration since Committee stage, and we believe that we are striking the right balance.

§ Viscount Caldecote
My Lords, I do not wish to make life difficult for my noble friend, but I find his logic extremely difficult to follow. However, on the basis of what I said earlier, I beg leave to withdraw the amendment.

§ Amendment, by leave withdrawn.

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§ Viscount Caldecote moved Amendment No. 155A: Page 160, line 45, at end insert ("and ( ) the tenancy was granted for a term of years certain not exceeding seventy-five years.").

§ The noble Viscount said: My Lords, Amendment No. 155A is a fallback if the House does not accept either of the other amendments in my name. It would remove some glaring anomalies in certain villages, of which I gave one example. I do not want to use that particular village as an argument in itself; it is merely an example. I believe that a period of 75 years provides a very much better balance than that which exists now in settling these difficult matters. I beg to move.

Lord Lucas
My Lords, this is not a matter that we can accept. Although I understand the argument that is advanced by my noble friend, the Government prefer to stick to the basic principle of trying to preserve the arrangements which have been made in the countryside in the past for the purposes of keeping together an estate. We should not try to alter the law of the land to rescue a few villagers in one village who find themselves unable to benefit from the Bill as it currently stands. We do not disadvantage anyone in this Bill, but that a few people may not benefit as a result should not weigh with us too heavily in making sure that we have the principle right. I believe that that is what we have done.

§ Viscount Caldecote
My Lords, on the basis of what I said earlier, I beg leave to withdraw the amendment.

§ Amendment, by leave, withdrawn.

§ Lord Dubs moved Amendment No. 156: Page 161, line 46, leave out ("50") and insert ("35").

§ The noble Lord said: My Lords, I beg to move Amendment No. 156 and speak also to Amendments Nos. 157 and 158. The noble Lord, Lord Selsdon, asked me what was the correct period of time. The purpose of these amendments is to make progress in answering that question. For the sake of consistency, I still prefer Amendment No. 151 in the name of the noble Viscount, Lord Caldecote. In principle, I believe that that is a better approach. However, in Amendment No. 156 I seek a compromise.

§ When this matter was discussed in Committee I was curious about where the 50 years had come from. The noble Lord, Lord Lucas, said: In all of my relatively short years as an accountant 50 years has been a figure of great significance as regards leases. Fifty years is the point at which a lease begins to depreciate. Beyond that, for longer terms, a leasehold is essentially freehold and can be treated in the same way for accounting purposes. Below that it is a depreciating asset. That is why the figure of 50 was chosen". [Official Report; 18/6/96; col. 194.]

§ I understand the point about depreciation. Perhaps I should put the arguments on the other side. First, there is a commitment by the Conservative Party to take firm steps to enfranchise leaseholders. Secondly, there is a move from 21 years to 50 years in this Bill. Fifty years is a long time. Many leaseholders who hope to have the opportunity to enfranchise now find themselves unable to do so because they have been in their homes for a 381 number of years, and the period remaining is less than 50 years. If one chooses a period as long as 50 years it will be possible to circumvent the intentions of enfranchisement simply by having leases of a certain length.

§ Where does the period of 35 years come from? I am bound to say that it is the mid-point between 21 and 50. I cannot give any rational justification for it. I believe that the proposal is none the worse for that. There must be some basis for doing it. Logic suggests that 50 years is far too long a period. The Minister was reluctant that it should be reduced to 21 years. I put down the amendment in the hope that it will tempt the Minister to be conciliatory and agree that the proposal is acceptable. I admit that there is no particular reason for choosing 35 years other than that it is the mid-point between two different figures. However, it has the merit that it will do justice to a good many leaseholders who will be able to enfranchise but who would otherwise not be permitted to do so. I beg to move.

§ Lord Strabolgi
My Lords, I support the amendment. As I said in Committee, I was concerned and shocked when the Government suddenly increased the period from 21 to 50 years. It means that all leaseholders with fewer than 50 years cannot enfranchise. If landlords take advantage of the low rent test it makes the position virtually impossible. However, the Government have refused to budge. As my noble friend has said, this is a compromise, and it is one that I hope the Government will accept. Although it is a halfway house, I believe that it will go some way to solve the problem.

§ Baroness Gardner of Parkes
My Lords, I apologise that I was delayed in returning to the Chamber. I arrived just in time to hear the noble Lord, Lord Dubs, moving the amendment. This is a matter in which I have taken an interest throughout and I should like to speak to it. I am rather concerned about reducing the period from 50 years. I am a great supporter of enfranchisement, and it is a pity if we do not have it. However, I believe that the period of 35 years is neither here nor there. I would rather that 21 years or 50 years was treated as the figure. Having gone into the matter fairly thoroughly, I am convinced that if one does not take a period considerably in excess of 21 years—that is why I come back to the 50 years—people will not be prepared to invest in property. It means that they will have no firm possibility of buying or holding property as an investment.
Enfranchisement has been a disappointment for a number of people who have believed that they will get something for nothing. To enfranchise one's lease, whatever its length, appears to be a costly exercise. The shorter the term the more costly it is. People have been very disappointed by that. I believe that major developers who would be prepared to invest in the construction of flats would hardly be interested in doing it if everything was to be enfranchised under them. The position might be different if the property was built as commonhold and sold freehold from the start. That is the Australian system, which I very much favour. 382 A sinking fund is established for a new building. I do not believe that 35 is a satisfactory compromise, and I am not in favour of the amendment.

§ 9 p.m.

§ Lord Selsdon
My Lords, it is important that we should all agree on the year. In many parts of the world leases are granted for 49 years. The only reason why the term should be 50 years that I can think of is: Now of my three score years and ten Twenty will not come again. Take from seventy years a score, That leaves me only fifty more, And fifty years is little room To see the cherry hung with bloom". I do not believe that it matters, because people do not stay in houses for 50 years. They stay only for short periods. In order to produce stability in the property market we must give assurances to leaseholders, potential tenants, potential investors and banks which might lend that whatever is agreed as a result of the Bill will remain for a determinable period.
I do not see the point of 35 years. I do not believe in compromises. I believe that 50 years is reasonable because, as your Lordships will know, it is the period over which a bank will lend money. We should agree the period, whether it is 50 years or 21 years. If noble Lords opposite would agree not to alter whatever period is decided, we should introduce a certain amount of stability. I regard the period of years as being critical to the total market.

§ Lord Carnock
My Lords, I support the amendment. Under the Bill the particularly long lease is defined as a lease whose original term is for more than 50 years. In the human experience, a term of 21 years may be taken as approximating to the period of the minority and a term of 35 years as approximating to the period of generation. Therefore, I see human reasons for attributing significance to the periods of 21 and 35 years.
However, a term of 50 years has no significance in the context of the human experience. It is a term used in the context of capital gains tax, where leases of more than 50 years are assumed to have a value equivalent to a freehold. Even in that context, the depreciation in the value of the leasehold interest as the term is eroded by time from 50 years to 35 years is relatively small.
As the term reduces from 35 years, the value of the leasehold interest diminishes with ever-increasing rapidity until ultimately it reaches a value approaching zero. Moreover, 35 years is already recognised in our stamp duty laws as a significant boundary demarcation. Stamp duty on the grant of leases for terms of more than 35 years is very considerably higher than for shorter terms. For those reasons I support the amendment.

§ Baroness Hamwee
My Lords, I too support the amendment, although with the reluctance expressed by the noble Lord, Lord Dubs. I too should prefer to see a period of 21 years, which I have always regarded as accepted in the property world as meaning something. We have heard some interesting commentaries on 383 35 years as a generation and on 50 years in a rather more extravagant explanation than the prosaic accountants' and auditors' explanation given at the last stage from the Government Front Bench. If we are unable to address the low rent test in the way that leaseholders have been asking, to fail to address the long lease part of the test seems to me to be something of a double whammy.

Lord Lucas
My Lords, we touched briefly on the problem when discussing the amendments tabled by my noble friend Lord Caldecote. As I said in Committee, the figure of 50 is not one to which we have any permanent attachment. I shall resist the suggestion of the noble Lord, Lord Strabolgi, that we have been moving it from 21. The figure of 21 has remained where it was fixed for some time. It is the boundary between something which, presumably, is always rented property and the zone above in which a leasehold can exist.
The question of the point at which the leasehold should exist used to be infinite but has been brought down by another place to 50. We are discussing whether we should move that further. Certainly it has never been in the Government's contemplation that it should be reduced to 21. As I said when replying to my noble friend's amendment, we are decided that there should be a period between 21 years and a higher limit where it is possible for it to be either an enfranchisable lease or a rented property. We do not feel comfortable with the idea that the property market should be restricted to giving 21 years' security. We wish it to be able to give a longer period.
The question of where that upper boundary should be clearly excites some differences of opinion. The noble Lord, Lord Strabolgi, and the noble Baroness, Lady Hamwee, would like 21 years. My noble friend Lady Gardner would like 50 years. I believe that if we move away from 50 years the concerns of my noble friend about investment are unlikely to be devastating in practice. The institutions which are building residential property in connection with commercial property—flats above shops, which will commonly be the case in inner cities and other situations—are protected from enfranchisement under the Bill—and properly so, because they have a great interest in the continuing good management of the property as a whole. Those who are building purely residential properties will generally be wishing to obtain the maximum money immediately. They will at least be selling long leases and the residual freehold will be of little interest to them. The fact that they will have to dispose of the freehold to those leaseholders who wish to buy it, should not, if they are selling leasehold properties, be of much weight in their overall investment decisions.
Therefore, we are prepared to consider moving away from 50 years and there are some good reasons why we should do so. A number of leases let about 50 years should, in all conscience, be enfranchisable. As noble Lords have pointed out, at 50 years a leasehold is considered equivalent to freehold in valuation for capital gains tax purposes and for general accounting principles. That would argue that at 50 years the value is with the occupier and not with the freeholder. 384 Therefore it should be enfranchisable. We do not want to find ourselves in a position where people are constructing devices to avoid enfranchisement by putting together leaseholds of 50 years and finding that there is a real market for them. At 50 years, you could argue that you could get a 25-year mortgage and still have 25 years left at the end of it; so we are convinced of the need to drop the figure.
The noble Lord, Lord Dubs, has proposed 35 years. My noble friend Lord Carnock has pointed out that that is an existing threshold for stamp duty, which perhaps gives us some excuse for liking 35 years. It is also the point at which, as I understand it, the value becomes one-third with the freeholder and two-thirds with the leaseholder. Perhaps there is an attraction in 35 from that point of view. However, as the noble Lord points out, this is not really something which is an exact science. It is a matter of choosing something and, as my noble friend Lord Selsdon said, sticking by it so that people can be confident of what the pattern will be for some while in the future. Since the noble Lord, Lord Dubs, and his party like 35 and since 35 appeals to us, we propose to accept these amendments.

§ Lord Dubs
My Lords, one is permitted to be a little surprised at times. I am delighted by what the Minister says. It is an improvement. It does not go as far as I would have wished, given Amendment No. 151, but I think it will improve the situation for quite a number of leaseholders between the 35 and the 50 years. For that reason, I thank the Government for having come some way to meet us.

§ On Question, amendment agreed to.

§ Lord Dubs moved Amendment No. 157: Page 162, line 10, leave out ("50") and insert ("35").

§ On Question, amendment agreed to.

§ Lord Dubs moved Amendment No. 158: Page 162, line 14, leave out ("50") and insert ("35").

§ On Question, amendment agreed to.

§ [Amendment No. 159 not moved.]

§ [Amendment No. 160 had been withdrawn from the Marshalled List.]

§ Lord Dubs moved Amendment No. 160A: Before Clause 106, insert the following new clause—