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House of Commons

Friday 8 March 1991

The House met at 9.30 am

PRAYERS

[ Mr. Speaker-- in the Chair ]

Leasehold Reform

9.36 am

Mr. Dudley Fishburn (Kensington) : I beg to move,

That this House believes that the law of leasehold as a method of providing residential tenure in flats or houses is in need of widespread reform.

I am delighted to have the chance to kick off a full-scale debate on leasehold reform, a subject in which I have taken an interest since entering the House. I am somewhat fearful, because this morning I shall probably speak for longer in one speech than I have in all debates put together over the two and a half years that I have been in the House. I am somewhat fearful also, because I recognise that English property law is about as complicated as it could be. There are good reasons for that. The development of English property law over the past centuries has been inextricably linked with the development of our political institutions and the evolution of our democracy.

I am pleased that the debate is taking place and to know that there are hon. Members representing a wide range of interests who realise that leasehold law as a means of residential tenure needs to be reformed throughout the country. Well over 1 million people live in leasehold accommodation. The Department of the Environment says that 1.5 million live in flats. If someone lives in a flat, almost by definition he lives under a leasehold arrangement. Although most of the leases are in and around London, many are in Wales, the north of England, on the south coast and in our grand Victorian cities. The Building Societies Association puts the number of people living under leasehold arrangements as high as 3 million.

It is good that so many hon. Members, doubtless stunned by the ever- increasing number of complaints about the leasehold system, wish to contribute to the debate. One, alas, is here in spirit only. My distinguished predecessor, Sir Brandon Rhys Williams, made leasehold reform one of his many lively campaigns. Although a far better parliamentarian than I shall ever be, he never had the good fortune, as I have, to have his name pulled out as No. 1 in the ballot for private Members' motions. If you see a shadowy figure trying to catch your eye, Mr. Deputy Speaker, I am sure that it will be Brandon's ghost come hot foot from heaven.

I have the good fortune to be the Parliamentary Private Secretary of my hon. Friend the Member for Hove (Mr. Sainsbury), the Minister for Trade, who in his early days had a keen interest--which he still maintains--in leasehold reform.

The law of leasehold, as it applies to residential housing in England and Wales, is essentially a Victorian 19th-century innovation. However, unlike most Victorian innovations, it has had little following elsewhere in the world. No other European country--with the single exception, on a small scale, of Denmark--has found it

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necessary to employ such a system to provide flats or houses for its home-owning citizens. I make that my first point so that we can be quite clear that there is nothing essential about leasehold law to the existence of a thriving housing market.

If we choose to be lumbered with a leasehold law, that is fine, but it is purely a burden of our own choosing. Do the citizens of Paris, Frankfurt, Madrid or Amsterdam miss out on some vital right? Are their housing policies less adequate than ours because they do not have leasehold law? Not a bit of it. Indeed, each and every one of those countries that inherited leasehold law from their common law past--America, Australia, Canada, and New Zealand--have found the working of the principle of leasehold cumbersome, unsatisfactory and inefficient. What did they do? They reformed the law and abandoned the principle.

In Sydney, Boston, Vancouver and Hobart, flats and houses used to change hands on leasehold ; now, each has introduced a system under which individual flats can be owned on freehold. So, too, has that best run of little countries, Singapore. As those countries cleared out the clutter of their colonial law, leasehold went for a Burton. Only the old country is left with the old ways.

I make that point to show that those of us who participate in today's debate calling for leasehold reforms are not, alas, bold politicians trying to break new ground ; rather, we are a group of tired old hacks--I speak for myself--trying to get rid of a tired old system, and one which others reformed many years ago.

What might be suggested during the debate, and what would be new ground for English residential leaseholders, is long-established law elsewhere in the English speaking world. Indeed, it would be an unnecessary law in continental Europe. Those who doubt the need for, or efficacy of, reform must cite the advantages that accrue to Britain alone in having leasehold law, because not one of the 600 million people whom we would loosely call our richer socialist neighbours would put up with such a system.

Before leaving that point, I wish to make one general observation. Of all the great capital cities in the world, London is the only one consistently to have had a net loss of population over the past two generations. Is that because in London alone it is not possible for a flat dweller, that most common urban animal, to own his property on any basis other than as a dwindling terminal asset, worth less every passing year as his lease diminishes? If that is thought to be too fanciful, we should remember that the cities of Boston and Sydney revitalised their inner urban areas once their citizens were permitted to own and to invest in freehold flats in the hearts of their cities.

The English law of leasehold rests on a lacuna. Traditionally, it has been possible under English law to sell a property with a negative covenant on it--for example, buy a certain building, and its facade can never be changed. However, it is not possible under English law to enforce a positive covenant--for example, buy a certain building, and its common parts must be maintained. It was to get around that single quirk in the law that Victorian speculative builders--I am delighted to say that my grandfather was one of them--quite literally built on leasehold law. To paraphrase the Book of Common Prayer : "On this one commandment hang all the law and the profits." Those Victorian builders, just like the converters of flats today, sold 99-year leases because it was a way of getting around the difficulty posed by the fact that

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they could not impose a positive covenant. It was most certainly not done so that, 99 years hence, the grandchildren-- undeserving creatures like myself--could scoop the pool.

Flats are sold on leasehold in England and Wales because there is no other way in which they can be sold, and that is a disgraceful monopoly which needs reform. We must establish clearly that all of the varieties of leasehold reform that we shall discuss today are about property reform ; they are not, and they must not be, about property grab. Look in this debate for an extension of the Government's highly successful policies of home ownership, but do not look for policies of confiscation.

I am often embarrassed by those few of my supporters in the campaign who say, "Good, these reforms will make us rich ; we will be given assets that we did not have before." I do not believe that any of my hon. Friends would seek either to abrogate the law of contract or, in passing reforms, seek to force assets to be transferred by Government diktat from one private individual to another at an artificial price. I shall shortly set out the range of policies needed for leasehold reform for flats and houses, in the cities and in the countryside.

Mr. John Fraser (Norwood) : What is the difference in principle between a private lessee buying out the interest of the landlord at a discount and the right of the council tenant to buy out the interest of the landlord at a discount?

Mr. Fishburn : I said that I did not think that the House would permit the Government to say, "We will take private assets from one individual and give them to another." I shall elaborate on that point later.

All the possibilities of leasehold reform are intended to improve the law and so to improve the lot of those living as leasehold tenants. They are also intended to encourage home ownership. However, not one of those aims is to say, as the hon. Member for Norwood (Mr. Fraser) appears to be suggesting, "Bad luck, mate--Parliament has decided to take your property and to give it to someone else." Those who seek to oppose the reforms that we shall be discussing today will need a better argument than that.

This Government have championed market rents and a free market in property. Each of the changes in leasehold reform that are before us is likely to increase the confidence of potential investors in residential accommodation.

I should at this stage declare an interest. I have been a resident on the Grosvenor estate continuously for 42 years. That is longer than 90 per cent. of that estate's residents, and certainly longer than the present Duke of Westminster. I imbibed leasehold reform, if not with my mother's milk, at least on my mother's knee. During that time, I have seen no fewer than three leases whittled away from underneath me or my family. However, I am now a statutorily protected tenant and therefore have no conflict of interest--as, alas, I do not have a lease--in promoting leasehold reform.

The standards of the big London landlords, and especially the Grosvenor estate that I know so well, are excellent and thorough. As landlords, they have played an important part in the conservation and the appearance of

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our capital city. Sadly, they are untypical ; they are also only a small part of that market, which now contains some 1.5 million people living in leasehold flats.

Let us briefly consider the range of leasehold reforms on offer. First, there are the proposals for commonhold, which have been put forward by the Lord Chancellor. I was lucky enough to assist at the birth of those proposals by introducing two ten-minute Bills on the subject. However, congratulations are hardly in order, because the pace of the reforms has been painfully slow. Commonhold, under different names, has already been undertaken in many other countries.

In England, the building societies, which see at first hand the troublesome state of leasehold law, were the first to propose that we adopt a commonhold system. When 100 building societies and 70 of the largest providers of market finance, including the high street banks, speak with one mind, it is worth listening. The present commonhold proposals are a tribute to them and, above all, to the Law Commission. It is worth noting that the idea was floated earlier by the Grosvenor estate, so we should be clear about the proposal's provenance. It springs from those who believe in home ownership, capital formation and private property. Commonhold will give leaseholders in a block of flats the legal framework, as a group, to buy and be positively bound to maintain the common parts of their block, overcoming that quirk of the positive covenant. For the first time, it will permit individual flat owners to own freeholds. Furthermore, owners as a group would be obliged to maintain the common parts of their building and pay for improvements to it. That is the ultimate leasehold reform, which is supported by the Law Commission, building societies, banks and estate agents, as well as more than 1 milllion tenants now living in leasehold blocks, from mansion blocks with 150 flats to converted town houses with perhaps only half a dozen. The law that will permit such a change is extremely detailed. The first draft, which could pass through the House with little delay, is already written, and is as thick as a telephone directory. The Lord Chancellor, on publishing it in November, asked for public comment by the end of February. Those comments are now in and are said to be overwhelmingly favourable. The reform would allow the few remaining political questions rapidly to be decided. When should the legislation be introduced? I believe that it should be introduced now. It would be the perfect candidate for the last year of this Parliament. If it is not introduced now, the Government and the Opposition should at least make a commitment in their manifestos to adopting the draft proposals for commonhold. They should say, "Elect us and we shall take this law from a draft to a reality."

As all the homework has been done and it is now only a matter of finding parliamentary time--both sides of the House being in agreement on the broad principles--the legislation could be introduced in the first year of a new Parliament, at the latest. Although this debate will focus on other issues thrown up by commonhold, unless we have a commitment in our manifestos to adopting it fairly and squarely, it will never go beyond a debating point.

Long leaseholders, who have or have had leases of 21 years or more, should have the right of enfranchisement to buy their commonhold at the market price, provided that the majority of them in each block--say, 75 per cent.- -vote so to do. For example, let us suppose that the year is 1993, there are 20 flats in a mansion block, each on a

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60-year lease, and 16 of those flat-owners vote for a commonhold, knowing the rights and obligations that the new law confers on them and the price that they will have to pay to buy out their former landlord--the owner of the block--so that they can become the freeholders. The leaseholders enfranchise themselves at that market value. The building goes commonhold and each flat converts from leasehold to freehold. The obligations for the upkeep of the flat fall on the commonholder and the commonhold association is obliged to look after the common parts.

Those obligations are clearly set out in the new draft law. Money put into a building increases the value of the common parts, such as the roof, the stairs and the outside walls, which is reflected in the worth of an individual flat, owned in perpetuity by the person who lives there. Individuals keep what they invest ; their flats are their assets, not someone else's.

Building societies, reluctant to lend on short and diminishing leases, would readily lend on such freeholds. As a consequence, their value would climb and when, later, the owner of a commonhold flat wished to sell it, he would find that the market value would be higher because he would be selling a freehold ; more money would be available to the purchaser because the building societies, which are so reluctant to lend on leaseholds, would willingly lend on a freehold. As all commonhold property would carry the same rights and obligations wherever they were, the market for such property would flourish. People would be selling not a pig in a poke but a standard asset as defined by law.

The owner of a commonhold flat would not find that the commonhold would prevent a row with the neighbours, that it would lower the bills or that essential maintenance work could be put off. But at least the result of that row, that bill, or that essential work would all be reflected in the value of his property--a property that was his in perpetuity.

Leasehold flats vary widely, depending on the terms of the lease, the residual freeholder, the head leaseholder, the managing agents, service charges and so on. However, commonhold flats would be identical in their legal parameters, transparent in their obligations and essentially undiminishing in their worth.

At present, residual freeholders cannot, in the absence of commonhold, sell their interest to the people who would value it most. The law does not permit them to sell the freehold to an individual flat owner. They can sell their total interest to a company formed by the leaseholders. That is a welcome recent innovation, but is too complicated to have become widespread. Under commonhold, a new market opens up for the first time. The residual freeholder can, for the first time, sell his residual interest and leasehold enfranchisement would allow him to sell what had become unsellable.

Mr. Gerald Bowden (Dulwich) : Will my hon. Friend explain how a commonhold association would deal with an original commonholder or his successor who fails to fulfil his obligations, in payment or otherwise? Would the ultimate sanction be forfeiture of his interest?

Mr. Fishburn : The ultimate sanction would be laid out in the law and would have the full effect of the commonhold law behind it. Any member of a block would be legally obliged to meet his commonhold payments,

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which would be identical to the legal obligations that exist today on any leaseholders. There would be no change in tenants' obligations.

I wish to set out the full range of leasehold reforms. The introduction of commonhold involves the Lord Chancellor. We are lucky to have a Scottish Lord Chancellor because, in Scotland, the apporoximate equivalent reform-- the flying freehold--was undertaken generations ago. As I said earlier, other countries have ordered their housing laws better.

However, the other necessary reforms reside in the Department of the Environment, where the slow progress towards commonhold appears rapid by comparison. The policy of the Secretary of State for the Environment should be to encourage the maximum amount of housing stock to come on the market and be filled. Only leasehold reform will unlock that unused stock of private housing. I know that the Minister of State welcomes commonhold as a vital adjunct to our housing policy, as I do.

Of all the changes that could be made in leasehold law, the easiest-- involving fewer than 20 words in an amendment to a single Act--and the least controversial and quickest to implement rests in the Landlord and Tenant Act 1987. As that Act comes under the aegis of the Under-Secretary of State for the Environment--my hon. Friend the Member for Suffolk, South (Mr. Yeo)--I am grateful that he is on the Government Front Bench. That is why, when I was asked by those who arrange these matters whether I should like the debate to be answered by the Solicitor-General or the Minister responsible for housing, I had no hesitation in choosing a Department of the Environment Minister.

The essential problem with leasehold is that, although someone may buy a 99 -year lease on a property and therefore have the overwhelming interest in it, the residual freeholder, whose remaining interest is tiny in comparison, still has a disproportionately large amount of clout over the person who owns the home. That clout, as I am sure we shall hear later, is used in an increasingly disreputable way throughout swathes of the country.

The problem is not with London's large traditional landlords--they are here to stay, are part of London's heritage and think in terms of generations. A different kind of landlord has recently developed in huge swathes of London. His time horizon is not 99 years but the scope for profit in 99 weeks. Few leaseholders will ever see or know their freeholders. For example, in Kensington, often freeholders are overseas investors or companies registered outside this country and are for ever churning over between themselves the legal documents on someone's home.

It has been widely proposed that residents' associations, as recognised in the Landlord and Tenant Acts 1985 and 1987, should be allowed to appoint their own managing agents, because that is where the trouble lies. The legal cog to permit that is found in section 44 in part V of the 1987 Act. The provision that landlords appoint managing agents after consulting leaseholders--which they never do--should be reversed. Leaseholders should have the ability to appoint the managing agents after consulting the landlords. After all, it is the resident leaseholders who pay the managing agents for their work. It is an old principle, which is accepted on both sides of the House, that he who pays the piper should call the tune-- residents' power to residents' associations.

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At the moment, the law is unsatisfactory : by allowing a landlord to choose the managing agent, it gives residents no right of veto. In case after case in my constituency, there have been managing agents who--believe it or not--once the whole market has been scoured, turn out to be 100 per cent. owned by the freeholders. There was a property in my constituency where the managing agent's fee rose to a modest 77 per cent. of the cost of the work done. After we kicked up a fuss, the amount was reduced to 42 per cent. of the cost of the work done. That is scandalous.

In a large block in my constituency with 182 flats, managing agents control a budget of more than £1 million a year. But they will not respond to the demands or wishes of residents or even meet the transparency of accounting required by law. The managing agents are strictly and exclusively the servants of the residual freeholder.

Mr. Hugo Summerson (Walthamstow) : I agree with most of my hon. Friend's comments. Does he agree that, from time to time, there are problems even in well-run blocks of flats, caused by one or two lessees who are not prepared to co-operate or to pay service or maintenance charges, however reasonable those charges may be? How would commonhold deal with those difficult people?

Mr. Fishburn : I am talking here about a reform that does not involve commonhold. Clearly a leaseholder is under a legal obligation to improve his flat. Because there is a legal obligation, the leaseholder should be able to choose the managing agent who does the required work. As I explained in answer to an intervention by my hon. Friend the Member for Dulwich (Mr. Bowden), there will be no difference between the legal obligations under commonhold and those under leasehold. There is no suggestion in any of the leasehold reforms that somehow one can get a free ride. If that happened, we would get not property reform but property collapse. I assure my hon. Friend the Member for Walthamstow (Mr. Summerson) that, in all the carefully thought out draft provisions of the Law Commission, there are the same legal obligations about upkeep of flats under commonhold as under leasehold.

To a good freeholder or good leaseholder the job of the managing agent must be strictly neutral. The agent oversees the work. That is a legal condition of the lease, and no financial advantage should accrue to either side. That being so, good freeholders do not mind much about who appoints the managing agent--the expensive work which needs to be done is paid for by the residents. That makes this reform of who appoints the managing agents all the more important. The Department of the Environment is about to undertake what it calls a detailed evaluation study of the working of the Landlord and Tenant Act 1987. It will find that, where leaseholders are involved, the law is very much in need of reform. There have been so many reforms of the Landlord and Tenant Acts 1985 and 1987, being the two most recent, that it is rather like local government Acts--the more Acts there are, the worse the situation clearly is. I know that the Government wish to review the Landlord and Tenant Act 1987 and I hope that, on their

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recent third attempt, they will continue the momentum to give leaseholders the rights that they have sorely lacked over past years.

I hope that the Department will review the malpractices of the many bad landlords who have been getting into this market during the past 10 years. I suggest that if the Department has a little money left over, it should employ one of those bad freeholders for a day's consultancy work and get out of him the ways in which such people manage to squeeze profits out of this area of the law involving the residual freeholder and the hapless leaseholder.

While the Department of the Environment is reviewing the existing leasehold reform legislation, it may care to consider those houses that were excluded from the Leasehold Reform Act 1967, which permitted leaseholders living in houses to buy their leasehold. The Act was flawed in two ways. First, it fixed a price formula. That allowed many leaseholders to acquire their freehold at artificially low prices, which meant that they exercised their right to convert and promptly sold on for a huge profit.

That runs into the problem that I laid out as one of the first principles-- transferring assets from one private individual to another. It was hardly property reform in that respect but, had leaseholders had the right of enfranchisement at market prices, discounted to recognise their leasehold entitlement, it would have been a wholly different matter.

There was a second flaw in that 1967 legislation--cynics said there was a connivance between the socialist Government of the day and some of London's larger landlords and that they were both in the market of soaking the rich. For some inexplicable reason, houses that had a rateable value of above £1,500 were excluded from the enfranchisement right. Hundreds of home owners in my constituency, and I am sure in the constituency of my hon. Friend the Member for Fulham (Mr. Carrington), found that they were barred from owning their own home by this exclusion clause.

Twenty years later, with the abolition of rates, that clause seems an historical holdover and a nonsense. All holders of long leases should have the right to enfranchise themselves at market values. I am pleased that there is growing public pressure for that to happen. The building societies believe that they could do so under commonhold legislation. I hope so. If not, perhaps my hon. Friend the Under-Secretary will consider this question in the review of the Landlord and Tenant Act 1987.

Mr. Matthew Carrington (Fulham) : I agree with my hon. Friend that enfranchisement should be at market value. However, does he not agree that a market value requires there to be a willing buyer and a willing seller, and some mechanism for determining the market value by an independent third party? Does he further agree that any legislation would have to embody some mechanism whereby justice can be seen to be done to both parties to the transaction?

Mr. Fishburn : My hon. Friend is right, and he knows much more about the subject than I do. If one had the right of enfranchisement and spurned- -as it must be spurned--a fixed price formula, because that creates inequities, a fair valuation would have to be fixed by a third party. Hon. Members who are members of the Royal Institution of Chartered Surveyors know that such a

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valuation can be obtained for a fee. It is a skilled art, but it is quite possible for a third party--or perhaps two third parties--to arrive at a specific and agreed price.

That aspect of leasehold reform was one on which my predecessor, Brandon Rhys Williams, used to fulminate. In February 1987, he introduced a ten- minute Bill that aimed at enfranchising home owners who were artificially cut off by the limit of £1,500 of rateable value from acquiring their freeholds. He concluded that debate with words that we should remember today :

"I should like to say to those who fear that the passing of my Bill will mean the end of long leasehold as a form of tenure, that I do not regard that as a matter of very deep regret. The time has come to stop playing Normans and Saxons with regard to home ownership. Everyone should be entitled to own the home in which they live and I am not content that there should be large numbers of people living in Kensington--and other parts of inner London--who are second-rate citizens in that respect."--[ Official Report, February 1987 ; Vol. 109, c. 814.]

How right he was.

The final area in which leasehold law fails to meet the proper standards of equity and transparency that we rightly expect is in the churning over of freeholds, and those monstrous things, the head leases of mansion blocks and of houses alike, with no reference to the people who own by far the largest financial stake in the properties concerned--the leaseholders. In London and the provinces, regular auctions are held at which the auctioneer holds up a bundle of papers, often a handful thick, and says, "I have here an assortment of properties and under leases. What am I bid for them?" In that way, blocks of flats and whole streets are churned and churned.

The head lease on my own flat in the heart of London was sold in such a package no fewer than four times in six years. Neither the freeholders, Grosvenor Estates, nor we tenants were able to do anything. The last sale was to a bankrupt, who cost the tenants and the estate more by far in damaged property and negligence than the sum that he paid for the marginal residual head lease.

In another case, a bundle of floating freeholds sold for £100 was found to contain the underlying freehold of one of London's largest and best known squares, Eccleston square. It was of no value in itself, and none of the square's tenants knew of its existence--until they discovered that planning permission was being sought for an underground car park in the square. I am sure we will hear from other speakers that, in the same way, whole streets of northern towns in particular have been purchased by an individual whose only intention was to work in that area of the law between freeholder and leaseholder where profit can be gained by intimidation and ill practice.

In my own constituency, many underlying residual freeholds and head leases on Kensington mansion blocks are owned not by residents of this country but by companies with addresses in far-flung but normally rather convenient islands. With every year that passes, the number of complaints grows in bitterness and frustration. The piece of paper that is the residual freehold or head lease has in such cases become detached from the residents of the property. Except in cases such as Grosvenor Estates, in almost every instance, that piece of paper has been separated by a tenfold transaction from the original granter of the lease. In that broken continuum lies all the present misery of the law--a law which prior to commonhold, prevents individual flats from carrying their

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own freehold. It is a law which gives the freeholder--that distant and often expatriate animal--disproportionate rights.

How fine it would be if all the owners of residual freeholds were landlords in the proper sense of that word, but why should they be? They have picked up for only a few sous the wadge of legal documents that are the underlying freeholds of properties they might never have visited. They are far more numerous than the big London estates. They will have churned over half their portfolio by the time that the future Duke of Westminster is out of nappies. The Department of the Environment must find a way of reuniting those errant freeholds with the people who need and value them--the resident leaseholders. I am sure that we will hear this morning that leasehold law is in tatters, complaints are mounting and various Ministries --particularly the Department of the Environment and the Lord Chancellor's Office--are responding to that unsatisfactory state of affairs by introducing commonhold and reviewing the Landlord and Tenant Act 1987. Property law is momentous in the way that we make our society tick, for it is embedded in our political institutions. Brandon Rhys Williams, with his great sweep of history, went back 900 years and said that we should stop playing Normans and Saxons. We know that the last century had as its political leitmotif the marching together of property law and political law. The great Reform Acts of the 19th century were underpinned by reforms in property law and only in that way were great advances in our democracy made.

In the first part of this century, huge council estates became in effect socialist feudal empires, which did no good either for their residents or the country. That situation now has been reversed, in a way that right hon. and hon. Members in all parts of the House acknowledge as useful and practicable.

This morning, we are considering 3 million people who have been overlooked- -3 million leaseholders who have not been part of the march of reform over the years--indeed who, in the past generation, have become far less happy. They are subject to the last sector of the property market that we must reform and unlock, so that we can truly say that Britain has a property- owning democracy.

10.18 am

Mr. Terry Lewis (Worsley) : Thank you for calling me so early, Mr. Deputy Speaker--you must know that my car is pointing north with the engine running.

I congratulate the hon. Member for Kensington (Mr. Fishburn) on his good fortune in winning the raffle and on choosing a subject in which I have shown some interest in the past six or seven years, as hon. Members will know. I wish to mention an entirely different leasehold problem from that aired by the hon. Gentleman--long leases of 999 years with a ground rent of £10 or perhaps as high as £35 a year--long leases which may be meaningless in terms of tenure.

The problem is fairly localised. It certainly exists to a large extent in the north-west of England and also--so I am told--around Bristol, in south Wales, in Sheffield and, to a smaller extent, in the north-east. During the great building boom of the 1960s, when private housing estates mushroomed on green field sites on the periphery of major conurbations--I am thinking of Greater Manchester in particular--leasehold tenure became widespread. Not to

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put too fine a point on it, it was a way for builders not so much to keep a residual interest, as to get something "for nowt", as we say in my area. They created 999-year leases, with an annual ground rent of £15 in my case, which is representative.

The cash rolled in every year and could be collected fairly simply, so the builders were not too bothered, but with the ravages of inflation, resulting in a drop in the value of the ground rent, the leases became somewhat burdensome to the original builder. When it began to cost too much to collect the minuscule amount of money every year, the builder sold on the leaseholds, sometimes offloading them at auction.

As often happens in these cases, sharp lawyers--the type who probably sail close to the legal wind--realised that money was available, might be easy to key into, and set up a new breed of property company. I shall name some of the companies that have been most active in our area and caused most problems later. The prime motive was to buy large blocks of leases, make a quick return on investment and sell them off.

The system works in this way--once they had looked at the lease and realised that one or two clauses gave a disproportionate advantage to the lease owner, these people were able to milk the leaseholder. The block of leases might comprise an estate of 100 or 200 houses, with ground rents of £15. As soon as the block of leaseholds was bought, the new owners sent around a man with a clipboard--a surveyor--to look around the properties and make notes.

The first that the leaseholder know about it--I use the term "leaseholder" in the loosest sense ; perhaps I should say "home owner"--was when a letter dropped through the door saying that their lease had been bought. Such letters--variously threatening in tone--reminded people that one of the clauses in the lease meant that they had to ask permission of the owner of the lease if they wished to make changes to the property. Another clause said that, if they did not pay the rent on time, they could be evicted or the bailiffs could be sent in. Threats of that nature were part of the classic scam.

One of the worst property companies of that type, which has operated in my constituency as well as others, is Belfort Estates Ltd. I see the hon. Member for Warrington, South (Mr. Butler) in the House ; I think that he has been involved in the same problem. Belfort Estates is operating forcefully at present. It bought ground rents from a builder and sent a surveyor round to check on improvements. Then the company sent out letters demanding money and also exploited another clause in the lease by telling home owners that they must have an insurance with a company of its choice and that if they did not do so, they would have to pay a waiver of £10 or £15.

Without going into too much detail of the letters that Belfort Estates sent out, I shall paraphrase some of them. As part of the scam on the insurance clause, Belfort Estates reminds leaseholders of their responsibilities under the obscure lease and asks for a £10 waiver fee. Very often, the insurance company knows nothing about it.

When Belfort Estates was carrying out this nonsense a year ago, it quoted Guardian Royal Exchange Assurance as the nominated insurer. I wrote to the chairman of Guardian Royal Exchange, who quickly wrote back to tell

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me that the company knew nothing about it and that it was not the sort of thing that it would want to be involved in, because it was sailing close to the wind. He said that he hoped that he would be able to do something about it, and to his credit he did. He investigated and found that a sub-agent who worked on a commission basis-- as insurance agents often do--had been brought into the affair by the estate management company. As a result, a reputable insurer was given something of a bad reputation in my area, but that has been cured. I understand that Royal Insurance and several other companies have been similarly affected.

I have in my hand a restrospective consent application form which is sent out with the threatening letter and is another interesting activity that these companies get up to--this is where the man with the clipboard and pencil comes in. The form lists a number of alterations that the proud owner-occupier might wish to make to his or her property. One of the clauses in the lease provides that the owner-occupier must seek permission from the leaseholder before alterations are made.

I am talking about 999-year leases, with a minimaal ground rent of £10 or £15. Therefore, the lease owner has a minimal interest in the property. The real equity, the building, can have a value of up to £125,000 in my area. The leases grant a disproportionate amount of power, were set up for a wholly different purpose 30 years ago and have become utterly outmoded and out of date.

The interesting aspect of the retrospective application form is that it drops through the letterbox with the threatening letter, and the owner- occupier is reminded that he might not have asked for permission for a variety of improvements. The letter lists charges for retrospective consent for various improvements : £95 for a detached garage ; £95 for a porch ; £125 for a conservatory ; £150 for a single-storey extension ; £175 for a two-storey extension ; £175 for a loft conversion. At the bottom, it mentions other minor works, such as replacement windows and chimneys, for which £85 is charged.

If that is not an outrageous scam, I do not know what is. Such a scam, together with the threat that the owner-occupier may not be able to sell his property unless he has paid those fees to the new lease owner, will mean that the lease owner will use that clause in the lease to stop a further sale of the house. One can imagine the pain and anguish that that causes to respectable owner-occupiers. I have already mentioned Belfort Estates, but that company is not the only one currently operating in my area. Others include Salt Properties of London Ltd., which is related to a company called Munny Ltd.--that is not my regional accent--London and Auckland of Northampton, Fountaine Freeholds of Jersey and the Channel Islands, a local firm called Valerie Hawksworth Ltd. of Farnworth, the Estates Management Company of London and Hillson, (Properties) Ltd. of Peterborough. All those companies operate in and around the north-west and, in a variety of ways, they threaten people with the loophole in leases.

Mr. Summerson : Can the hon. Gentleman inform us whether it is possible for leaseholders to acquire the leasehold under the Leasehold Reform Act 1967? If so, and if they acquire their freeholds, how much do they pay? It may be better financially for people to acquire the freehold rather than to pay out sums of money for the improvements that they have made.

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Mr. Lewis : I am glad that the hon. Gentleman has raised that issue. The 1967 Act allows enfranchisement and suggests a sum 10 times the annual value, so an annual value of £15 would mean a fee of £150 to be enfranchised. The problem is that the companies that I have mentioned have got around that suggestion to secure extra money from owner-occupiers by adding on management fees. We accept that legal charges would be disbursed by the owner-occupier, but management fees, handling charges and all the additional charges for any improvements that may have been made can be added.

The original lease owners were benign, in that they could not have cared less what the owner-occupier did to the property. That was covered by the planning laws, by planning applications to the local authority and by building regulations. The benign nature of the original lease owners makes it that much more probable that many people will have made alterations to their properties.

When the owner-occupier applies for enfranchisement, the characters I have mentioned demand a £150 fee. Legal charges, handling charges and management costs of another £400 or £500 may be added. A serious owner-occupier who has developed his property--I have many such records on my files--may face charges of £2,000 or more. Not every owner-occupier who is struggling with a mortgage can afford that. The worst feature of the loophole is that a recent owner of a house can be held responsible--and some are being held responsible--for developments made to the property by the previous owners under the benign lease. I hope that that has comprehensively answered the intervention of the hon. Member for Walthamstow (Mr. Summerson).

Mr. David Martin (Portsmouth, South) : Has a typical case of the type that the hon. Gentleman has told us about been tested in the courts? If so, has it been confirmed that such payments must be paid under the law?

Mr. Lewis : To my knowledge, two cases have been tested in the courts, but there were conflicting results.

Part of the problem has been the way in which the property estate management companies have operated. Two of them have been fined £2, 000 in south London for the way in which they have harrassed owner- occupiers. The specific question of the lease is rather ambiguous. The leases themselves are fairly firm and, as I understand it, a court case that was also in the London area had an ambiguous result. Therefore, the issue has not been tested as satisfactorily as the hon. Member for Portsmouth, South (Mr. Martin) and I would wish. I believe that my solution to the problem is supported by the hon. Member for Kensington. We must consider leasehold reform. In its way, the 1967 Act dealt with many serious problems at that time and was amended in 1979 to deal with the problems of that time, and to some extent it succeeded. However, the Act must be reviewed. We must embrace the notion that a lease should not be transferred to a third party without the knowledge of the owner-occupier, and certainly not without his being given the opportunity to be the first purchaser of such a lease. It is outrageous that someone can attend an auction with a block of leases representing 100 or so owner-occupiers and flog it to someone else, who in turn will try to milk as much money as possible from the leaseholders through retrospective permissions, and then attend another auction with the residuary leases and flog them to someone else.

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Most of the firms that I have mentioned are interrelated in some way. Nearly all are £2 nominal companies, which should be enough to encourage the House to act. No further such leases should be established. There is no moral justification for a 999-year lease in the housing market, because it is nonsense. We should establish a new formula to calculate the sale value of an existing lease to an occupier of a long-lease residential property. That is reasonable. If the House believes that 10 times the annual value is a reasonable sum, it should ensure that the on costs in such a transaction are controlled. There should be a reasonable cost, not the unreasonable cost about which I have been speaking.

In the interim, I should like to see the leaseholder relieved of the obligation to seek permission from the ground landlord to carry out improvements. My first suggestion would cure the problem completely, but I am not naive enough to suppose that it will happen merely because of today's debate. There must be interim protection for the people whom I have mentioned.

It is not much to ask that the balance of advantage be transferred from the minuscule interests of the property companies. I hope that I have demonstrated this morning that they are not well motivated in the provision of housing. They exist to make as much money as they can, as quickly as they can and sailing as close to the legal wind as they can. I hope that the Minister will take on board my suggestions about that aspect of the leasehold problem. I am grateful for the opportunity to make my point this morning.

10.40 am

Mr. Chris Butler (Warrington, South) : I am most grateful, Mr. Deputy Speaker, that you have called me so early in the debate. Like the hon. Member for Worsley (Mr. Lewis), I hope to get to the north-west by battling my way up the M1. I assure you, Mr. Deputy Speaker, and hon. Members that I intend no disrespect to the House by leaving early. I recognise the importance of today's debate. Most of the debate about leasehold tends to concentrate on flats, although there are 1 million leasehold houses in England alone. For those who reside in leasehold houses, there can be just as much trouble from the landlord as there is in flats.

I do not wish to be cynical, least of all in this place, but I wonder whether all the brouhaha connected with flats--we hear most about flats--is related to the fact that the flat problem is concentrated in London. The hon. Member for Worsley said that the pattern of tenure of leasehold houses is patchy. It is indeed. Many hon. Members may not have confronted the problems. Some 50 per cent. of leasehold houses are in the north-west.

Why are there still leasehold houses? The vestigial reason given by my hon. Friend the Member for Kensington (Mr. Fishburn) was that positive covenants cannot run with a freehold. There may be some cases--I suspect, very few-- in which it is necessary for positive covenants to run with the house. I suspect that the real reason why leasehold houses are still being built for sale is simply greed--an attempt by the owners to squeeze every last penny out of the transaction.

The Building Societies Association says :

"The leasehold system is incompatible with home ownership."

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