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it is granted in respect of outstanding historic buildings or landscapes, so that the estate does not have to be broken up in order to meet the tax liability. The exemption or designation is usually conditional on undertakings being given to maintain, repair and preserve the estate, and on public access being granted.When there are disposals from an estate that has been or is being granted conditional exemption, the Inland Revenue will quite properly want to review whether designation remains appropriate. Enfranchisement is as much a disposal as any other sale. It will be necessary to pay any inheritance tax due on the proportion of the estate which is being sold, but that is only right, as the former freeholder will have the cash to meet the tax liability.
I turn to a point on which I may be able to help my hon. Friends. Each case will need to be examined on its merits, but I see no reason why, in general, the sale of the freehold through enfranchisement should necessarily lead to designation being removed from the rest of the estate. After all, enfranchisement can take place only where the property has already been demised by way of a long lease. My hon. Friend was concerned that disposal of one part of an estate might automatically lead to designation being removed from all of it. Of course, one would need to discuss it with the Inland Revenue, but there is no particular reason why the entire benefit of designation should be lost if any proportion of the estate were enfranchised. The sale of a freehold will not result in the break-up of an estate in the same way as the sale of the contents of a house can separate paintings of sculpture, for example, from their context. The buildings will still be there, in the same relationship to each other, whoever owns the freehold.
Conditional exemption from inheritance tax does not prevent the freeholder from selling long leases for a premium as long as the terms of those leases are in keeping with the conditional exemption. If they are, there should be no reason why the leaseholder should not enfranchise. It would not be right for the freeholder to benefit from such sales and also benefit, at the leaseholders expense from his inability to enfranchise.
Where designation depends on standards of maintenance, or on access rights, it should be possible for the former freeholder to ensure that these obligations remain on the former leaseholder through an estate management scheme. I shall say more about that later. Amendments Nos. 116 to 119 would provide a much wider exemption covering areas which my right hon. Friend the Secretary of State for National Heritage would be required to designate as heritage areas. Designation would apply if an area is within a conservation area and is of outstanding architectural or historical interest. The suggestion is that these areas can be effectively managed and will retain their architectural and historical merit only if the existing leasehold arrangements are left unchanged. That cuts right across our desire to keep exemption from leasehold enfranchisement to an absolute minimum and keeping them on the face of the Bill. It could drive a coach and horses through the Bill, giving the Secretary of State, for National Heritage the power to exempt any properties he sees fit.
I wish to make two preliminary points. First, it is possible to have areas of fine architecture or historical interest without the leasehold system. One has only to look at Paris or Edinburgh to see evidence of that. There are
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other means by which standards can be maintained. Listed building control and the designation of conservation areas spring to mind. If those need strengthening, that would be a separate issue. Secondly, times can change. I suspect that some of the opposition to enfranchisement when it was debated in 1967 was on the basis that the break -up of the London estates would prevent redevelopment, rather than that it would harm the heritage. I do not want to dwell too long on this point, other than to observe that the Leasehold Enfranchisement Association has circulated to hon. Members press cuttings concerning the demolition of a number of London squares by one of the great estates earlier this century.However, the key issue is whether it is necessary that estates should continue in single ownership if they are to be managed effectively and leaseholders be denied the right to enfranchise. I do not accept that, as a general proposition, landlords are necessarily better at management or more likely to care for and preserve a historic building than the leaseholder who lives in it. There are many cases, as my hon. Friend the Member for Kensington said, in which leaseholders have restored and cherished historic buildings on an estate, often with their own resources and perhaps to a higher standard than the freeholder would have done.
Indeed, it has been argued that the leasehold system acts against the proper care and maintenance of property. If a leaseholder of a house knows that he has only a short-term and diminishing interest, he clearly has less incentive to plan for the long-term care of the property.
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I believe that our proposals on estate management schemes are the answer to the problems mentioned by my hon. Friends. Our proposals will allow the freeholder to continue to exercise influence over the use, maintenance and redevelopment of property, even though the leaseholder has enfranchised. Provided that they meet the conditions set out in clauses 62 and 63, there is no reason why freeholders should not apply for such schemes to cover their estates. Estate management schemes are intended to allow the landlord to retain powers of management over houses or flats which become enfranchised. The terms of an estate management scheme can deal with the redevelopment, use or appearance of the property. They can empower the landlord to carry out work to maintain or repair properties. They can impose obligations in respect of property used in common.
More than 100 estate management scheme applications were approved after the 1967 Act was passed. I believe that they have been effective in areas such as Dulwich and Hampstead in preserving the quality of the area. For example, there is a scheme in operation in Belgravia, where several houses have enfranchised under the existing Act but are generally indistinguishable from other houses in the street which have remained under the control of the original landlord.
Leasehold valuation tribunals will have to approve estate management schemes and consider the reasonableness of what is proposed. In considering applications, they will have regard to the past development and present character of an area and to architectural and historical
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considerations, as well as to the circumstances generally. Such schemes are likely to enhance historic areas and cathedral closes, which were mentioned so movingly by my hon. Friend the Member for Monmouth. We are also considering suggestions to amend our proposals, and we are in consultation with local authority associations with a view to giving local authorities the power to promote estate management schemes.It would not be right to frame exemption from enfranchisement in terms of the application of tax law. Leaseholders' rights should not depend on the taxation circumstances of the freeholder. Nor is it necessary that those who live on the great estates need be denied the chance to own their freehold. The Government's view is that leaseholders are fully capable of caring for the buildings in which they live and that the system of estate management schemes provides adequate safeguards where in the general interest there must be coherent management of an area as a whole.
Sir Jerry Wiggin : I realise that my hon. Friend is coming to a conclusion, but nothing has been said about the attitude of English Heritage to the Bill and the effects that it might have on heritage areas. Rumour has it that English Heritage has a strong view that the Bill will be damaging for the heritage but was firmly told by the Department that it was one of the Department's agencies and should behave itself. Perhaps my hon. Friend could clarify the position.
Sir George Young : When my hon. Friend the Member for Surrey, East moved his new clause, he said that he had been in contact with English Heritage, so it is legitimate to assume that he articulated some of the points that English Heritage had made to him. The Government's view is the one that I have just set out. We do not believe that the only way to safeguard our national heritage is to grant the exemptions. We believe that there are other ways of achieving the goal that we all share.
Mr. Pike : The Minister said that there would be some consultation with local authorities about management schemes. There is no reason why English Heritage could not also be involved in that discussion. Will the Minister assure us that it will be involved? We support the concept of estate management schemes and the widest possible discussion on them.
Sir George Young : I do not believe that English Heritage is pressing for those powers at this stage. The local authority might be involved if, for the sake of argument--this would be an
exception--neither the existing freeholder nor the new freeholder wanted to promote an estate management scheme. It might then be sensible for the local authority to be able to do so. That would be a case of last resort. The estate management scheme costs the freeholder nothing because the costs are recouped through the leaseholders.
If the freeholder had a continuing commitment to the country's heritage, it would be odd if he failed to promote an estate management scheme, especially if he did not have to fund it. We are considering the possibility of a safety net. We are talking to local authorities about whether they would welcome such a power if, in unusual circumstances, no one else was interested in promoting a scheme. I hope that the House will not feel it necessary to press the new clause to a Division.
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Mr. Ainsworth : I was clearly mistaken earlier when I saw furrowed brows on the Government's Front Bench and took them to betoken gloom. They clearly betokened pensiveness. I am grateful to my hon. Friend the Minister for his thoughtful response to the new clause and amendments. In view of the words that he has just spoken and the undertakings that he has given, in the hope that he will continue to liaise with both the Department of National Heritage--it is good to see my hon. Friend the Under-Secretary of State for National Heritage in his place listening to the debate--and with the Treasury--it was good to see my right hon. Friend the Chancellor of the Exchequer listening to the debate, too--and so that I may see what further progress can be made in safeguarding heritage buildings in the context of the provisions of the Bill, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
.--(1) In section 1(1)(a) of the Leasehold Reform Act 1967 the words "at a low rent" shall be omitted.
(2) Section 4 of the Leasehold Reform Act 1967 shall cease to have effect.'.-- [Mr. Pike.]
Brought up, and read the First time.
Mr. Pike : I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker (Mr. Geoffrey Lofthouse) : I understand that it will be convenient to discuss also the following amendments : No. 22, in clause 5, page 5, line 40, leave out at a low rent'. No. 120, in clause 7, page 8, line 16, leave out from exceed' to end of line 29 and insert £250'.
No. 100, in page 8, line 16, leave out from
namely--' to end of line 29 and insert--
(a) £250, or
(b) one-third of the market rent on the relevant date.'. No. 23, in page 8, line 17, leave out two thirds of' and insert one and a half'.
No. 24, in page 8, line 26, leave out two thirds of' and insert one and a half times'.
No. 121, leave out lines 34 to 36.
No. 122, leave out lines 6 to 15.
No. 114, in clause 59, page 63, line 25, leave out from beginning to end of line 47 on page 64.
No. 123, page 63, line 36, leave out from beginning to end of line 37 on page 64.
No. 124, in clause 60, page 63, line 45, leave out from beginning to end of line 37 on page 64 and insert--
Alternative rent limits for purposes of section 1A(2) 4AS.--(1) For the purposes of section 1A(2) above a tenancy of any property falls within this subsection if at any time during the tenancy either :
(a) No rent is payable under it ; or
(b) The rent so payable does not exceed the maximum limit. (2) The maximum limit is :
(a) Two thirds of the annual letting value of the property (on the same terms) on the date of the commencement of the tenancy ; or (
(b) If greater than (a), two thirds of the fixed amount (if any) of the rental applicable to the property.
(3) The fixed amount applicable to any property is :
(a) The rateable value of the property on the relevant day where either--
(i) The tenancy was entered into on or after 1st April 1963 but before 1st April 1990 ; or
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(ii) The property has a rateable value on 31st March 1990 and the tenancy was entered into on or after 1st April 1990 but in pursuance of a contract made before that date.(b) In any other case £5,000 if the property is in Greater London and £1,000 if elsewhere.
(4) Where the property comprised in the tenancy includes property other than the house and premises :
(a) The rent payable under the tenancy shall be deemed to be that part of the rent which is fairly attributable to the house and premises ;
(b) The rateable value shall be taken to be that part of that value which is fairly attributable to the house and premises ; and (
(c) The letting value of the property at any time shall be taken to be the letting value of the house and premises at that time. (5) It shall be presumed that the rent payable under a tenancy does not exceed the maximum unless the contrary is proved.".'.
No. 125, in page 64, line 20, leave out from beginning to end of line 22.
Mr. Pike : The new clause and amendments all deal with the low rent test. We hope to get a more positive response from the Government tonight on the matter. Opposition Members are disappointed that the Government have not tabled an amendment to take some action on the problem. We are not alone in that view. Several of the amendments in the group were tabled by Conservative Members. Unless we get a positive response from the Minister and an assurance that the Government will take action, we shall press new clause 18 to a Division. I make that clear in case there are any doubts or misunderstandings, so that people know where they are. I am aware that other amendments in the group may be moved formally at the appropriate stage and pressed to a Division. We intend to test the feeling of the House on the lead new clause 18.
In Committee, the Under-Secretary of State said :
"but we are perfectly prepared to reconsider where that low rent test should bite."--[ Offical Report, Standing Committee B, 17 November 1992 ; c. 104.]
That was on 17 November. We are now three months on. It would be an understatement to say that we were disappointed that the Government had not tabled an amendment to change the position.
It comes down to the type of principle we have been trying to debate. We believe that people should be able to get the enfranchisement provided for in the Bill and that there should not be provisions in the Bill that prevent that. Some hon. Members have tried to take us further back the other way and to preclude more people from being able to exercise enfranchisement. We have seen the Government fighting fairly hard, but being squeezed, to try to hold the position as near as possible and to make the minimum concessions.
If the Government are serious about what they said, that one of the fundamental objectives of the Bill is to ensure that as many people as possible should have the right to enfranchise, they must recognise that this low rent test puts an obstacle in the way of many people who wish to enfranchise. That would be totally wrong and inconsistent with what the Government say that they are trying to do. So we hope that the Government can rethink this and try to respond positively. In the debate on new clause 15, the Minister repeatedly said that it was not his wish to see people precluded from owning their own properties. He was extolling the virtues of that and of being able to acquire the freehold. Those are very much the views that we are advocating in this debate.
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We move the new clause very much in that spirit, because we want to see people able to exercise their right to enfranchise and not be excluded by a test that will exclude more people than it ought to. This is a matter of great concern, particularly in the London area. It will be of great concern to many people, who will see their opportunity to acquire freehold barred by a Bill which, when it was foreshadowed in the Queen's Speech, made them think that at long last the Government were to take action. They thought they were going to have the right to acquire a freehold, and now they see that the Bill, at its last stage in this House before going to the other place, still has a bar to stop many people exercising a right to acquire freehold. That would be an unfortunate situation.In the Lord Chancellor's consultative paper on commonhold, published in November 1990, in paragraph 4 : 11 there is a reference to the low rent test :
"It is so unlikely that there is a significant number of cases of residential long leases at a full rent suitable for conversion to commonhold, that the complication of a low rent qualification cannot be justified bearing in mind, especially, that special provision would have to be made to deal with cases where some leases were at a low rent and others were not".
Now there seems to have been a shift in the Government view. I do not want to get involved in the commonhold issue, because, Mr. Deputy Speaker, you would immediately rule me out of order. We all wait for the day when the Government can introduce that legislation. Members on both sides of the House have actively campaigned for the commonhold principle to be established. We regret that it is not possible to do it this year and hope that it can be done next year. 8.45 pm
In the first part of this Bill, we have a low rent test, which will remain unless we carry this new clause or one of these amendments and will bar many people from exercising the very principle that the first part of the Bill claims to set out to achieve for occupiers of these properties.
I want to refer to one or two examples of people who know how serious it is. I know that many hon. Members who were on the Committee have had letters on the subject, but it is relevant to refer to some in the context of this debate, because they highlight how crucial is the low rent test and how easy it has often been to ensure that the levels of ground rent have been fixed at a figure that would bar people from being able to exercise their right to acquire freehold.
A Mr. Dyson wrote :
"This anomaly is the low rent' provision which states that to qualify for enfranchisement leaseholders must have rents which are less than ateable value on grant of lease or if lease issued after April 1990, rent must be less than £1,000 in London or £250 elsewhere. This rule currently applies to houses (1967 Leasehold Reform Act)".
It then says just how this would bar him in the present situuation from acquiring the property. The ground rent at the start of the lease was £230 per annum and rateable value at the start of the lease was £338. Two thirds of £338 is £226, so for the sake of £4 that individual is barred from exercising his right of enfranchisement. That is the present situation with that house and it will apply if we do not do something to abolish the low rent test or amend it to
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ensure that such people are not barred. If the ground rent of £230 had been just £4 lower, he would have qualified, and that must be nonsense.Another letter, from a T. J. O. Hickey, refers to the two-thirds rule and says that it means that in order to qualify for enfranchisement or extension of a long lease over 21 years there must be a ground rent of less than two thirds of rateable value at the time that lease was granted. He says that the premium charged by the landlord for the lease in 1984 in this case was very close to the market value of the freehold. The rent was fixed at £280 a year in order to be above two thirds of the then rateable value, in this case by £5.
That individual believes that that was clearly done under the legislation of that time to make sure that it was just above the crucial figure. The market rent, the rack rent, would have been much greater, and plainly this tenure was closer to ownership than to renting. I think that the Minister would say that the intention of this sort of legislation is to ensure that such people are not barred. I do not believe that it is the Government's intention to bar that individual from acquiring the freehold and being able to enfranchise. I do not believe that that is what the Government want, but they fail to recognise the genuine difficulty. Even at this late stage, if they recognised that and did something, they could solve this problem.
I received another letter, after we debated the matter in Committee. It was expressing disappointment that the Committee had not been able to see a positive end to the low rent test and that the Government had not been prepared to accept any of the amendments or options that were debated in the Committee.
The letter stated :
"As you can imagine, I am deeply concerned that legislation supposedly designed to assist leaseholders might paradoxically destroy the value of their homes, in most cases their principal asset."
I am sure that the Minister would not suggest for a moment that the low rent test was intended to prevent enfranchisement, or to devalue properties. If the Bill is not changed, however, such side issues will be bound to arise.
Members of the Standing Committee received many useful briefings from the Leasehold Enfranchisement Association, which deals with many of the people affected by the current problems, and which hopes that most if not all will be able to enfranchise when the Bill is enacted. It hopes for a leasehold extension for those who cannot do so. The association is extremely concerned about the low rent test. In a briefing note sent to us in November, it said :
"Finally, we would like to draw attention to paragraph 6 of the enclosed note which indicates that the Price Waterhouse/Caws and Morris Report"--
a report that we debated, and which was referred to several times in Committee--
"demonstrates that in 1989 Central London properties would have frequently failed to clear the proposed low rent' barrier even if their ground rents had been fixed at no more than 5 to 10 per cent. of the potential rack rent of the property concerned. Such ground rents would have had relatively little effect on the premium paid, but would, under the Government's present proposals, nevertheless render the property unenfranchiseable. If the retention of some form of low rent' test is, for whatever reason, deemed necessary, it must, therefore, we suggest, be formulated in a way which leads to the barriers being placed at far higher levels which genuinely approach the attainable rack rent for each property concerned."
I know that hon. Members on both sides of the House want to speak in this important debate. Let me make it
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clear, however, that Opposition Members solidly believe that the low rent test needs to be either changed or abolished. A number of Conservative Members also believe that the Government are wrong in this instance, and I know that they, like me, hope that the Minister will say that the Government are prepared to table an amendment in the other place at an appropriate stage, even if nothing can be done now.If the Minister cannot give that undertaking, we shall have to try to force a vote with the intention of defeating the Government. If we do that, the Government will have to recognise the overwhelming concern expressed by hon. Members. That concern is not unique to the House of Commons ; it is felt by the very people whom, according to the Government, the Bill is designed to help. If the Government want those people to be enfranchised, they must think again, even at this late stage. Unless they change the low rent test, many people will be barred, and the finger of blame will be pointed where it should be pointed--at the Department of the Environment, and at Ministers who must accept responsibility for not being persuaded by an overwhelming case. Our case is that the test is wrong, and that it needs to be changed as quickly as possible.
Sir John Wheeler : I am very pleased to follow the hon. Member for Burnley (Mr. Pike), who spoke in a non-partisan way about an issue that concerns hon. Members on both sides of the House. I agreed strongly with almost everything he said until his closing words. I know that my right hon. and hon. Friends at the Department of the Environment have received a great deal of correspondence from Conservative Members--including me--over many years. They have treated that correspondence, and the arguments contained in it, with great courtesy, and I am very grateful to them. Whatever the House decides tonight will not reflect in any way on my hon. Friend the Minister, or on his officials, who have had to deal with the matter for so long.
I strongly support reform of the low rent test. I have never been convinced of the need for any such test. It is very telling that, when the matter was examined in detail in Committee--as the hon. Member for Burnley pointed out --a good many Conservative Members were so unimpressed by the justifications advanced for the clause that my hon. Friend the Minister was forced to reconsider. It is disappointing to discover now that my right hon. and hon. Friends have been unable to accept an amendment that reflects the widely held and genuine concerns of my constituents and many others.
I remain unimpressed by any of the arguments--such as they are--that have been used to defend the low rent test. Recently, my right hon. and learned Friend the Secretary of State wrote to me, drawing attention to the importance of the private rented sector. He did not want that sector to be damaged by acceptance of the amendments. I see a great difference between encouraging the private rented sector and what the amendments seek to achieve ; I see no conflict.
We are told that a low rent test is needed to verify that a leaseholder has purchased a genuine long lease--that is, one of over 21 years for which a premium has been paid. The purpose of the test is to distinguish such leases from those of over 21 years for which no premium has been paid, and for which a market rent is charged. No one--not
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even my hon. Friend the Minister--has been able to find an example of the latter category. The low rent test is there to address circumstances that simply do not exist.Even the Lord Chancellor recognised that in his much-quoted circular on commonhold, which was mentioned earlier. Later in this Parliament, a substantial commonhold Bill will be presented ; the issue will return to the House if we do not address it now. We are told that the low rent test remains because it existed in earlier legislation. But surely, the main function of new legislation is to improve the old statutes. We are not good legislators if we carry forward into the new obvious mistakes from the old. We are also told that people knew about the low rent test when the agreement was made to purchase a lease. Therein lies the greatest reason for looking again at the low rent test. Many individuals buying long leases had no idea of the wider significance of the ground rent level. That is made clear time and again in the correspondence that most of us have received. People feel cheated. Consider, for those buying a long lease in my constituency--in, say, St. John's Wood--the difference between a ground rent of £1,000 and £1,010. It may seem only £10, but to the freeholder, with his expensive lawyers well versed in property law, the difference is not just in £10. It is the difference between enfranchisement and
disfranchisement. They know that and they use the low rent test to get around the spirit of any leasehold-reforming legislation. Such legislation has been around since 1967, so the inevitable march of reform has been going on a long time.
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Not only is the individual leaseholder disfranchised, but, by manipulating the low rent test for new leaseholders, freeholders can disfranchise others in the block who meet all the stated criteria. Under the Bill, at least two thirds of a block must be
enfranchiseable. So in a block of, say, four or five flats--typical in my constituency ; such blocks make up the bulk of leasehold units--a freeholder need only ensure that one flat fails the low rent test effectively to disfranchise all the rest. Do we intend that to be the effect of this legislation? That loophole should be closed once for all ; otherwise, it will be a constant cause of discontent and will return to haunt us.
If the Government insist on having a low rent test, it must be realistic and less open to abuse. The current low rent tests relate to a series of values all of which are out of date. How can we justify a test which depends on a comparison with rating valuations from the 1960s and 1970s, especially as we have abandoned the rating system?
Many of the amendments attempt to address that issue. I am not given to voting against the Government, but there comes a time when the duty to one's constituents' on an issue of this kind overrides the commitmente of support to the Government, whom I sincerely and honourably support. If the House divides on the issue tonight, I shall vote for my constituents' interests and in favour of the new clause.
Ms. Glenda Jackson : It is again a pleasure to follow the right hon. Member for Westminster, North (Sir J. Wheeler) and to endorse wholeheartedly everything he said. I particularly support his plea that we view the clause without party political bias.
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It is clear from correspondence that hon. Members in all parts of the House have received directly and from the invaluable briefing documents of the Leasehold Reform Co-ordinating Committee and its contingent six organisations that the part of the Bill with which we are dealing strikes at the very basis of the measure and, in a sense, at the authority of the House.I say that because the legislation is designed to move forward the whole process of leasehold reform, yet, time and again, constituents and groups have written to us saying that they believe--they are correct in their belief--that their freeholder has deliberately set their ground rent at a level which debars them from enfranchisement. In every case, the leaseholder has spent much money on the fabric of the property, carrying out essential repairs. We are not talking about a new coat of paint. I have received letters from constituents--admittedly, the initial price of the property may have been low--telling how they have replaced a roof, done work on the foundations of the property and replaced windows, long before dealing with paper and paint on the walls. They have believed, and I agree with them, that they owned their property. The low rent provision denies them that right in the eyes of the law. Tonight the House has an opportunity to free them from this injustice.
I have referred to the invaluable briefings that we have received from the Leasehold Reform Co-ordinating Committee. Its view is that "the low rent test is particularly iniquitous what is clear, however, is that if the low rent test remains at the levels proposed, a number of house and flat-owners who are in every sense the owners of their homes will be unfairly and arbitrarily excluded from the legislation."
I have letters from householders who confirm that statement. One asks us to stress the need for the low rent provision to be set at a more realistic figure for London than the current £1,000 a year. The couple in question
"purchased a 62 year lease on these premises from the Grosvenor estate, in an area where freeholds are rare. We paid a substantial capital premium to the freeholder as we have responsibility for the repair, maintenance, insurance and all other long-term occupiers' responsibilities : but we are denied the long-term capital growth The property was neglected by the freeholder, and we have spent £70, 000 on capital works".
Referring to a new clause that we discussed earlier, the couple say :
"Maintaining the fabric of an estate is easy if it is always at someone else's expense."
The whole heritage of the part of London and the estate in which the couple lived depended on who lived there--I cannot say the householders, because that is what we are arguing about tonight--being committed to their homes. Indeed, the couple state :
"The proposed bill is not stealing properties from the great estates."
Another letter runs as follows :
"The low rent clause means we do not currently have the right to enfranchise the lease was of course structured this way to exclude us from enfranchisement rights."
The writer of the letter
"is amused when I hear the argument that freeholders are the guardians of the heritage".
The couple in question received only one cursory visit from their estate representative in eight years.
There are more letters in the same vein. I know that hon. Members on both sides are anxious to speak in this
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