House of Commons Hansard Debates for 14 Jun 1993

Mr. Battle : The language in which the Minister presents his case is interesting. He says that the amendment will improve the test. In other words, it will firm up the test and make it more difficult for people to get through. Thus, the Government are once again ensuring that fewer people than was suggested will be enfranchised. It is worth recalling that the original consultation document published by the Government contained no suggestion of any low rent test. Such a test has crept in via the Bill, and the Government are now accepting it, as it were, as law. The Minister's comment that he is improving or strengthening the test suggests to me that very many more people will be disfranchised.

Sir George Young : Before the hon. Gentleman gets too carried away, let me make the point that the amendments were put forward on behalf of leaseholders. Without them, certain properties would simply be ineligible for enfranchisement because they have no rateable value. The amendments will therefore benefit leaseholders.

Question put and agreed to.

Lords amendments Nos. 11 to 32 agreed to.

Clause 17

Right of reversioner to require evidence of tenant's right to participate

Lords amendment : No. 33, in page 23, line 39, leave out subsection (3) and insert--

("(3) Where--

(a) the nominee purchaser fails to comply with a requirement under subsection (1) in the case of any person within the period mentioned in subsection (2), and

(b) The initial notice would not have been given in accordance with section 11(2)(b) if--

(i) that person, and

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(ii) any other person in the case of whom a like failure by the nominee purchaser has occurred.

had been neither included among the persons who gave the notice nor included among the qualifying tenants of the flats referred to in that provision,

the initial notice shall be deemed to have been withdrawn at the end of that period.")

Mr. Baldry : I beg to move, That this House doth agree with the Lords in the said amendment.

The amendment is technical. It deals with the issue of deemed withdrawal of the initial notice where the nominee purchaser cannot deduce title to the property of any participating tenant. Without the amendment, failure to deduce the title of the lease of any participating tenant would cause the deemed withdrawal of the initial notice, which might prove rather harsh.

The amendment was proposed by the Law Society and the Leasehold Reform Co- ordinating Committee. It seems to make sense. It makes the procedures on enfranchisement fairer.

Question put and agreed to.

Lords amendments Nos. 34 to 88 agreed to.

Clause 62

Price payable by tenant on enfranchisement by virtue of section 59 or 60

Lords amendment proposed : No. 89, in page 65, line 17, leave out from ("shall") to end of line 18 and insert

("be determined in accordance with subsection (1A) above ; but in any such case--

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

(b) section 9A below has effect for determining whether any additional amount is payable by way of compensation under that section ;

and in a case where the provision (or one of the provisions) by virtue of which the right to acquire the freehold arises in section 1A(1) above, subsection (1A) above shall apply with the omission of the assumption set out in paragraph (b) of that subsection." ") Motion made and Question proposed, That this House doth agree with the Lords in the said amendment.- - [Mr. Baldry.]

Madam Deputy Speaker : With this it will be convenient to discuss Lords amendments Nos. 90 and 265.

5.30 pm

Mr. Pike : We want to break the run and have a debate on this group of amendments, which cover important issues.

The Leasehold Enfranchisement Association and the Consumers Association are concerned about the part of the Bill affected by the amendments, and we must force the Government to explain exactly why the amendments should be accepted. We do not think that amendments Nos. 89 and 265 are necessary, but the Government may be able to convince us differently about amendment No. 90.

We have discussed the extension of rights of leasehold house owners and flat owners. The Bill updates previous legislation, especially the Leasehold Reform Act 1967. The hon. Member for Cirencester and Tewkesbury (Mr. Clifton-Brown) made his position clear, but I am sure that

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the Government would not like to oppose leasehold enfranchisement. When the hon. Gentleman made his maiden speech, I said that I hope that he would be an improvement on his predecessor, who held strong views on some issues. I hope that the view that he has expressed in this debate is not typical, because we strongly disagree with it and the Government have a different view on the way to proceed with leasehold enfranchisement.

Mr. Clifton-Brown : I hope that the hon. Gentleman is not opposed to hon. Members having strong views. One can hold strong views and still support one's Government. I oppose the leasehold

enfranchisement in part I of the Bill, but I strongly support parts II and III.

Mr. Pike : I accept what the hon. Gentleman says. However, the Conservative party's election manifesto contained a clear commitment to extend leasehold enfranchisement. The hon. Gentleman disagrees with that, and I accept that he is entitled to do so. However, I hope that he made his electors aware of the fact that he did not agree with his party on that issue.

Amendment No. 89 seems to put more restrictions on house owners than the Bill intends. Perhaps the hon. Member for Cirencester and Tewkesbury thinks that that is an improvement, but we have considerable reservations. Under the Bill as drafted, benefits to house owners are limited and do not give them any right to lease extensions, which people enfranchised under the 1967 Act have, and which flat owners will have under the new legislation.

Since the Bill left the House, Ministers have made a series of concessions to its opponents, and they tend to penalise an already disadvantaged group of leaseholders. The leaseholders who are affected will have to pay for enfranchisement under the more costly of the two formulae in the 1967 Act. The Bill has been amended by the other place to make the formula even more disadvantageous for leasehold house owners.

First, there will be a 50 per cent. minimum share of marriage value. That does not apply in other parts of the Bill. Secondly, severance costs must be paid, and that does not apply to other people covered by the Bill. Thirdly, the assumption that the tenant has any right to remain in the building at the end of the lease is removed, thus further increasing the price that is payable.

The amendments would give leasehold house owners the worst of all worlds. They certainly gain fewer rights at higher cost than other groups. I share their view that they have been singled out as sacrificial victims to appease the landlord lobby in the other place. That is why it is right to debate these important issues. The points that I have been making were mainly those of the Consumers Association and I shall now deal with what the Leasehold Enfranchisement Association says about amendments Nos. 89 and 262 : "Amendment Number 89 if allowed to stand--would effectively deny enfranchisement rights to virtually all long-term house-leaseholders. We feel that the minority of house-leaseholders becoming eligible under this legislation have been used as a sacrifice for other parts of the Bill."

The Government have tried to hold firm against strong opposition. We all know what happened to the Duke of Westminster as a result of the legislation. The Government were under strong pressure and felt that they had to make a concession to get people to go along with the main drift of the Bill on enfranchisement of flats and not destroy it beyond recognition.

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As my hon. Friend the Member for Leeds, West (Mr. Battle) said, we debated at great length the low rent test and other measures that are unnecessarily restrictive and do not give the freedom to buy that people should enjoy. Some people think that the Bill goes too far, and in the other place there were moves to restrict it even further. It is our view and that of others, particularly those affected, that, to ensure that this part of the Bill was not completely destroyed, the Government made the concession on house owners. That was the wrong decision to take. I hope that the Minister will take seriously the concern that is expressed about Lords amendment No. 89. The first part of the amendment deals with the marriage value and the second with the removal from the valuation calculations of the assumption that the tenant has a right to occupancy at the end of the lease. Those are both important factors, and their removal will make the Bill worse than the one that left the House of Commons a few months ago.

The special valuation base defined in the Leasehold Reform Act, as amended in 1974, has been operating for 20 years as the established formula for assessment of the cost of enfranchisement for houses, and there is now a large body of case law. From the first, the Government have repeatedly stated that houses brought into eligibility for enfranchisement by the reform would be valued on the same basis as those previously made eligible. The Minister has assured us of that at several stages in Committee and on Report.

The 1974 formula is already heavily loaded against the leaseholder because of the unequal professional representation in early cases. The first case, the landmark Norfolk case, where the tenant represented himself against the landlord represented by Nigel Hague QC, now a judge and the author of the standard work on the subject, and the Grosvenor Estates' long-time solicitors Boodle Hatfield, resulted in a precedent award of 275 per cent. in the profit to the landlord. That was the old issue of profit and value and the old difficulty of assessing what the value should be as a result of the apportionment and the concept of marriage value, which we have debated so much in our consideration of the Bill.

The concept of marriage value has arisen out of the Leasehold Reform Act, but no set provision was made for it in the 1974 formula, and its apportionment has been a matter of negotiation, although 50 per cent. to each party has been the normal division. The new amendment will mean that the landlord must receive at least half the marriage value. That underlines the bottom point below which one cannot go. In that respect, there is a reduction in the rights of, and in the justice that should be done to, the person applying to buy the freehold of the property.

There is then the removal of the assumption of right for security of tenure --another important issue. The 1974 formula contains the assumption that the occupying leaseholder has a right to tenancy at the end of his lease. In some cases that will happen, but in others it will not, but a legal assumption of that sort follows frequently used legal practice. It is an extremely important principle in the way in which the value of the property is assumed and arrived at. Lords amendment No. 89 will remove the assumption of security of tenure at the end of the lease.

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Houses will be valued in an arbitrary way, according to whether, by chance, that right is there. We believe that to be an unfair change. The Leasehold Enfranchisement Association considers that market value as a basis for the assessing of cost of enfranchisement can be acceptable only when modified by recognition of the moral right of the occupying home owner. I hope that the Government are prepared to recognise that right, which should not be ignored. It is established by an important principle that has existed for a long time and is understood, but will be removed by the amendment.

5.45 pm

Never before in the history of leasehold enfranchisement have assessments of costs been worked out on the basis that the resident home owner has no right, moral or otherwise, to security of tenure at the end of his lease, and the resulting figures could prove impossible for most leaseholders, particularly long-term leaseholders whose lease terms are now short as a result of the years that they have been in the property.

Most larger houses were not given Rent Act protection in 1954, because they were not considered to be in short supply, but that was because many were still in various degrees of dilapidation or dereliction after the war, and conditions were still such that people had to have courage to take them on and restore them. The situation is different now, a number of years on, and that is an extremely important point.

As to the lease extension rights for house leaseholders, a 50-year extension of lease was an alternative option for qualifying leaseholders under previous legislation, but again, that right will be removed by the Bill. That was done quite openly from the beginning, as is shown by the Government's early proposals. It was hoped that an amendment would be tabled that might restore the right, and we certainly debated many of the issues. However, when taken with Lords amendment No. 89, not only will there be no improvement in the position of house-leaseholders, but their situation will be worsened.

I do not believe that that is what the Government intended to do, but as we, the Consumers Association and the Leasehold

Enfranchisement Association view it, that is the reality. If the Government do not change their mind, they will have to be prepared to be told that they got it wrong. The move would be discrimination against a minority group of house leaseholders who were not previously eligible for enfranchisement, who were discriminated against in 1967 and again in 1974 by being denied rights given to other similar leaseholders.

I have always said, in good faith, that the Government's intention was to get rid of leasehold as a form of tenure. They have said both that, and that it must be done on a basis of equity and fairness rather than through seizure, which is what some Tory Back Benchers have claimed. We accept that it must be done on a fair basis. I hope that the Minister will accept our view that, no doubt inadvertently, something done in the other House is taking us backwards. We do not want that. The Government should not be asking us to agree to Lords amendments Nos. 89 and 265.

I should like to press the Minister a bit further on injurious affection and the changes to that which will result from Lords amendment No. 90. As the amendments were moved formally, we have not heard exactly why amendment No. 90 is considered necessary. The Leasehold

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Enfranchisement Association is not fully convinced, although it might find the amendment acceptable if the Government stated clearly that they did not intend injurious affection to apply to urban houses.

We may, of course, be wrong in assuming that those speaking on behalf of rural interests are too inclined to talk engagingly of dower houses and long leaseholds. This, however, is almost entirely an urban problem ; dower houses are not an issue. It is understood that the Government do not intend injurious affection to have any practical application to urban houses, but the agents of a major London landlord are already reported to have spoken of "crippling loadings" in respect of the first household to attempt

enfranchisement.

People outside are worried about what may be done to prevent enfranchisement and extensions ; they are concerned about the interpretation of certain provisions. The Minister is in the legal profession, and will know--as we all do--that skilful lawyers spend a good deal of time trying to find loopholes in legislation. I am no supporter of the Government, but I will give them the benefit of the doubt : even they may not want the legislation to be interpreted as it will be interpreted by some devious, scheming lawyers who see an opportunity to make money by protecting dukes who do not want leaseholders to have the chance of enfranchisement or extensions. Unless the Minister can convince us that our fears are unjustified, we intend to press amendment No. 89 to a Division ; if it falls, amendment No. 265 will automatically fall with it. As for amendment No. 90, I wish to hear what the Minister has to say, and, if necessary, to seek the House's permission to speak later. We are not sure what the Government intend ; if we receive the assurances that we and the people seek about its interpretation, we may be prepared to let it pass. However, we are nearing the final debate on enfranchisement and extensions.

The Government are finding it difficult to convince some of their own Back Benchers of the equity of their proposals, and many Conservative Members support the Opposition's views. The Minister must do some convincing if we are not to press amendment No. 89 to a Division, because we believe that it would worsen the position of house owners.

Mr. Fishburn : The many leaseholders who live in London, and who live in houses rather than flats, feel cruelly let down by this aspect of the legislation. They do not feel let down by what was done on Second Reading, in Committee or on Third Reading ; they feel let down by amendments Nos. 89 and 90, which were added in another place, without warning, despite the months--indeed, years--of debate on leasehold reform.

That debate began in a number of inner-London constituencies, under the aegis of my predecessor, Brandon Rhys Williams. The aim was precisely to enfrachise leaseholders who owned houses rather than flats. In the intervening years--quite properly--legislation has been introduced to enfranchise flat owners : that will change the face of London dramatically for the better over the next 10 years or so. It will give the right to own their flats to people who are now trapped in a second-rate form of home- ownership, with dwindling leasehold rights.

But lo and behold! Because of these amendments, those who originally crusaded for leasehold enfranchisement will be left out in the cold. The Leasehold Reform Act 1967 allowed house owners--people who owned individual

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houses on leasehold--to enfranchise themselves, under a formula set out in the Act. As the Bill was going through the House, at the last minute a certain number of householders were artificially excluded in a deal between the Labour Government, as they then were, and the big London landlords, as they then were and still are. Anyone whose house had a rateable value of more than £1,500 a year was artificially excluded from the legislation.

Until these amendments were agreed in another place, it was the Government's intention, and the hope of tens of thousands of Londoners who live in leasehold houses, that enfranchisement would be possible on the terms that the 1967 Act would have allowed had it not been for that artificial exclusion. Many of those Londoners are my constituents.

London as a whole was right to look forward to such a possibility : as we have seen in the past, leaseholders who enfranchise themselves and become freeholders rapidly improve their houses, bringing about new investment and improving neighbourhood amenities and architectural features. Certainly, all the houses in my constituency of Kensington whose owners have enfranchised themselves in the past 10 or 15 years have added enormously to the quality of the area, by virtue of the fact that those who live in them also own them. Now, thousands will not be able to enfranchise themselves because the rateable value of their homes is more than £1,500. That will lead to continuing urban squalor--and, I fear, growing urban squalor in my part of the world.

Amendment No. 89 effectively disfranchises those thousands of people, for two reasons. First, there is now a provision on the face of the Bill that no leaseholder in a London house should be able to expect more than half the marriage value of the property if he wishes to enfranchise. That effectively means that the cost of enfranchisement will be vastly more than it would have been under the 1967 Act. We may be talking of not a fraction, but a quantum leap of two, three or four times the actual cost.

Such a provision has never been on the face of the Bill before. We know that it was put there to buy off a well-mounted public relations campaign in another place, not because it was the Government's original intention.

My fear, to which I should like the Minister to respond, is that the lawyers who will fix at tribunals the price of houses to be enfranchised will take the amendment merely as a starting point. Instead of the marriage value not exceeding 50 per cent., leaseholders who seek to enfranchise will have to pay more than 70, 80 or 85 per cent. of the marriage value when they buy the freehold from the residual freeholder, who has already received much of the property's worth when he sold the long lease in the first place. The second reason also stems from amendment No. 89. When the tribunal seeks to ascertain the worth of a house that a leaseholder wishes to enfranchise, it will assume that the house will be empty at the end of the lease, with no statutory tenancy and no moral right of residence. That provision, tacked on to amendment No. 89, overturns the rule of thumb, indeed the rule of law, that we have come to expect in housing in the previous generation. It does so not only as a last-minute thought but with extraordinary high-handedness.

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Taken together, these two reasons mean that thousands of Londoners with leasehold properties will not be able to take advantage of the Bill's provisions to buy their freeholds. That is a great shame, which will be keenly felt by many of my constituents. Anything that the Minister could say now to dispel the fear that tribunals will use the amendment to increase the cost to those seeking enfranchisement will be greatly welcomed.

Amendment No. 90 contains the legal jargon of injurious affection. That concept was agreed in this House rather than in another place, but it was intended to apply to country estates and, in that context, I regard it as a welcome and sensible move and exactly the type of amendment that legislation should receive as it passes through this House. It was a sharpening and an improvement, but, in the brief six weeks since the commitment was given, the lawyers have been at work. They say that they will use amendment No. 90 to ensure that the enfranchisement of houses on contiguous estates throughout London, and Kensington, will be stymied. They will claim injurious affection and state that something which was a sensible concession to country estates should apply in the heart of our capital city. Anything that the Minister can say to rebut not me but those lawyers will be greatly appreciated.

If amendments Nos. 89 and 90 are passed and if we receive none of the assurances that I seek, thousands of my constituents will feel greatly let down after a long campaign, and leaseholders of houses in central London will not be able to enfranchise.

Mr. Raynsford : The hon. Member for Kensington (Mr. Fishburn) is right to express alarm and concern about the implications of the amendments. As my hon. Friend the Member for Burnley (Mr. Pike) rightly said, they will damage the prospects of substantial numbers of leaseholders of houses who were among the few who did not benefit from the Leasehold Reform Act 1967 and who looked forward to enfranchisement on similar terms to those that applied to leaseholders under that Act.

As has been said, there was no hint in earlier debates in the House or in Committee that a proposal such as that embodied in these amendments would be incorporated in the Bill. Indeed, to my knowledge, the Government have given no justification for the introduction of these concepts, extending to the provisions of the 1967 Act the concepts of the marriage value and compensation, or injurious affection, which were devised by the Government for the rather different conditions applying to flats and which were the basis of this legislation. There is no common sense, logic or justification in applying the two concepts of marriage value and compensation, or injurious affection, to houses. The consequences of doing so will be dramatic and devastating to many leaseholders.

Let us consider the practical implications of amendment No. 90, which deals with compensation. It states that the freeholder may claim compensation for

"such amount as is reasonable"--

there is no limit ; it is a wholly open-ended phrase--

"to compensate him for that loss or damage."

Such loss or damage means

"any diminution in value of any interest"--

again, an open-ended phrase--

"of the landlord in other property"--

not only in the one property but any other property--

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"resulting from the acquisition of his interest in the house and premises".

The amendment goes very wide and will allow any landlord trying to frustrate the wishes of a leaseholder seeking to enfranchise to use the services of a skilful lawyer to put a major obstacle in the way of the leaseholder, as the hon. Member for Kensington said. However, that is not the end of it. The amendment also states that loss or damage shall mean

"any other loss or damage which results therefrom to the extent that it is referable to his ownership of any interest in other property."

They are extraordinarily wide concepts, which will allow leaseholders to be confronted by lawyers demanding substantial sums in compensation, relating to various claims which may or may not be justified.

I accept that there may be consequences for landlords who are used to managing a block of flats if some properties within that block are enfranchised. There could be knock-on consequences for the management of the block, but houses are self-contained dwellings, which is an entirely different matter. They should not be subject to the curious concept of compensation.

The amendment is very broad, and the broadest of all the elements, and that which I believe will be the most damaging, at least in London, is the provision relating to the loss of development value. The Bill incorporates not only the curious concept of payment for such amount as the landlord believes is owing to him as compensation because of enfranchisement but the explicit provision that loss shall include the loss of development value. It is defined as value "attributable to the possibilit a landlord, faced with a leaseholder seeking enfranchisement, saying that, if he could develop a particular property, he could replace it with a substantially more valuable one on the same site. The amendment contains no requirement that the landlord should have obtained planning consent for such development. It is sufficient for the landlord to claim merely that he might have had an opportunity to develop a property and thereby greatly enhance its value. The hypothetical loss of development value could then be charged to the leaseholder seeking enfranchisement, thus making it impossible for the leaseholder to exercise the right of enfranchisement.

Those serious implications go the the heart of the process of enfranchisement. Ministers must be only too well aware that the amendments would make it impossible for certain leaseholders in houses to exercise their rights. Leaseholders would be confronted not only with the obstancles that we already know exist in the Bill but with a powerful financial deterrent that their landlord can exercise against them.

It seems extraordinary, given Ministers' protestations about their wish to extend enfrachisement, that, under the amendments, they are deliberately seeking to place serious obstacles in the path of those seeking enfranchisement.

I do not know what justification Ministers will advance. We may be told that it is neat and tidy to apply the same concepts to houses as those that apply to flats. That is the only respectable argument that I can think of, because I have heard no other argument in favour of those provisions.

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In Committee, we argued time and again for consistency between the eligibility criteria for people seeking enfranchisement under the Bill and the eligibility criteria of the Landlord and Tenant Act 1987. Time and again, Ministers told us that the circumstances were different and that the 1987 Act did not apply in the same circumstances as the proposals in the Bill and, therefore, it was not appropriate to have absolute consistency in the rules. By their own arguments in Committee, they have destroyed any possible case for introducing the two amendments, which would have such a damaging impact on leaseholders in houses.

The case against amendments Nos. 89 and 265 is overwhelming and I should be surprised if Ministers could advance any convincing arguments in their favour. I hope that they will have the decency to recognise that a serious mistake has been made in the other place and that the amendments should be negatived to ensure that leaseholders in houses are not prevented from taking the opportunities for enfranchisement that Parliament is ostensibly seeking to grant.

Mr. Clifton-Brown : I am sorry to detain the House for a minute or two longer on amendments Nos. 89, 90 and 265. I had not intended to speak, but my hon. Friend the Member for Kensington (Mr. Fishburn) and the hon. Member for Greenwich (Mr. Raynsford) made some points that should not go unanswered.

Amendments Nos. 89 and 265 deal with marriage value--when the lessor and lessee's interests are put together and the value of the whole is greater than that of the two parts. Both hon. Members should recognise what is happening in the market. At the moment, if a lessee went to his landlord, the lessor, wishing to buy his interest out, the landlord, if he were so minded, would agree, and I, as a chartered surveyor, would have no difficulty in valuing the unexpired portion of the lease. They would then negotiate the marriage value and what portion of the property should go to the lessee and what portion should go to the lessor.

6.15 pm

In the present market, almost universally, 75 per cent. or more of the marriage value goes to the lessor. As we are introducing legislation to allow the lessee, in certain prescribed circumstances, to oblige the landlord, the lessor, to allow himself to be bought out, it seems quite reasonable that should there be a minimum of 50 per cent.--after all, that is some way below what happens in the market. Amendment No. 90 deals with injurious affection. The hon. Member for Burnley (Mr. Pike) did not have a clue what the words meant, let alone what he was speaking to, so let me try to explain. It is a universal principle of all compensation law that where somebody's property is acquired compulsorily, there should be full compensation for the injurious affection--the diminution in the landlord's remaining property. The hon. Member for Greenwich read out the provisions of the Leasehold Reform Act 1967, which do not differ from other statutory provisions on compensation. It is wholly consistent with all other property law.

Mr. Raynsford : Is the hon. Gentleman aware that there is no such concept in the 1967 Act, which has worked perfectly well and successfully for 25 years or more? An entirely alien concept is now being introduced.

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Mr. Clifton-Brown : The hon. Gentleman has played into my hands. I told the hon. Member for Burnley that, had I been here in 1967, I would have argued as hard as I could to ensure that that legislation was defeated. It was a totally unfair Act.

In those circumstances, consistent with all other property legislation where the landlord's property has been diminished, the Bill should make proper provision for injurious affection. That applies particularly to rural estates and where an estate village, in unique and rare cases, has been in the ownership of the same family since Domesday. This is part of our cultural heritage.

Mr. Jack Straw (Blackburn) : The hon. Gentleman says that this is part of our heritage. That may or may not be so, but is not his real concern that it is part of his wealth?

Mr. Clifton-Brown : If the hon. Gentleman is casting a personal aspersion on me, he should withdraw it. If he is casting an aspersion on landowners in general, perhaps he will make himself clear.

Mr. Straw : I was referring to both--the hon. Gentleman's landholding, the landholding of other owners and the way in which they have sought unjustifiably to influence the outcome of the Bill.

Mr. Clifton-Brown : If the hon. Member for Bolton

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