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Ms Keeble: I will be brief because I understand that a number of other hon. Members want to speak on this issue. I shall begin by speaking to Government amendment No. 43, which also relates to marriage value.
The Bill generally provides for marriage value to be disregarded in cases where the unexpired term of a lease exceeds 80 years. Our policy aim is to prevent potentially expensive debate over sums of money which would, in any event, be very small. However, in the case of collective enfranchisement, the Bill provides that marriage value should be disregarded only if the unexpired terms of all leases of flats held by participating members of the right-to-enfranchise company exceed 80 years.
On reflection, we do not consider that that approach meets our policy objectives. It has the potential for abuse. If a landlord owned just one flat in a block directly, there would be nothing to prevent him from granting a new, relatively short lease for that flat to an associated company which could then exercise its right to participate in a collective enfranchisement bid.
Mr. Mark Field: That argument was made earlier in relation to unanimity and 100 per cent. consent. It is now being used to justify the provisions on marriage value.
Ms Keeble: The argument refers to the amendment to which I am speaking; it is not about marriage value.
The position that I have just described would enable marriage value to be claimed on the whole block, even though all the other leases may exceed the 80-year threshold. We decided, therefore, to provide that marriage value should be disregarded on any individual lease with more than 80 years left until its expiry. This is consistent with the approach taken for the individual rights of lease renewal and house enfranchisement, and would be a better way to meet our policy objectives.
More generally, marriage value is clearly one of the most controversial aspects of the Bill. It has been widely discussed and, as I mentioned in Committee, is a major issue for leasehold reform campaign groups. These groups have long campaigned for marriage value to be excluded from the purchase price altogether, and we have considered their representations carefully. However, we concluded that it would be wrong to remove marriage value from the determination of the price. Although some may not like it, we must recognise the property rights of both the freeholder and the leaseholder. That said, there are defects in the provisions that need to be corrected.
The right to enfranchise is a right of compulsory purchase, as is the right to a longer lease on a flat. To exercise it, leaseholders do not have to demonstrate that the freeholder is at fault in any way. It is only fair, therefore, that the landlord should be paid the same price that he would have received from voluntarily selling the freehold—or a longer lease—to the leaseholder or leaseholders.
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When leaseholders buy their freehold or renew their lease, they obtain a benefit that no other purchaser would receive. When leaseholders of flats enfranchise, they can gain new 999-year leases without having to pay a penny for them. Similarly, a leaseholder who buys the freehold of a house is no longer subject at all to a lease. The value of that extra benefit is the marriage value. If existing leases still have, say, 80 or more years to run, new longer leases will be worth little more than existing ones, so any marriage value will be insignificant. If the unexpired term is relatively short, however—say 50 years—the difference will be substantial.
It follows that in a sale between willing parties where the unexpired term of the leases was not very long, the leaseholders would be prepared to pay additional money for the extra benefit but would certainly not offer the whole amount of the marriage value. They would be well aware that they represented the freeholder's only chance of obtaining a higher price than he would gain from an ordinary purchaser.
In practice, a sale would be agreed only if the parties agreed to split the difference: if the parties were equally willing and eager, the split would be 50:50. The freeholder would finish up with a higher price than he would have received from another purchaser, but I emphasise that the leaseholders would still finish up with an asset that was worth more than they had paid for it.
People often ask how marriage value can be said to apply to the right to buy a longer lease. After all, there is no joining, or marriage, of the two interests. The answer is that the term does not have quite that meaning in the lease renewal context. Indeed, marriage value is something of a misnomer. Lease renewal marriage value is quite different in concept from the same term in enfranchisement. As defined in the Act, in broad summary, it is the difference between the aggregate values of the landlord's and tenant's interests as they are before the new lease is granted and as they will be after it is granted.
The notion that, in one way or another, extra value is created by the transaction is common to both cases. For lease extension, as for enfranchisement, any amount of marriage value will be extremely small if the unexpired
term of the existing lease is still long. As with the right to enfranchise, the split of marriage value has been much argued about in individual cases, but in most cases the LVT has decided that it should be shared equally between the parties.Our intentions are the same for both lease renewals and enfranchisement cases. The leaseholder should be required to pay no more and no less for the compulsory acquisition of a new lease than he or she would pay in a similar transaction between the same parties if they were equally willing. That is the principle behind marriage value, and the Government believe it to be sound. That is why we cannot support new clause 1, but have offered an amendment that will improve on the current position.
Mr. Mark Field: I broadly support new clause 1 and have received constituency representations to that effect. The Government's main argument in justifying retention of marriage value seems to be that abolition would be confiscatory. Almost all popular legislation since 1967—and perhaps even before then—is confiscatory in the sense that it compulsorily intervenes in what would otherwise be a free market for what the Parliament of the day considers to be the broader social interest.
It has been argued that the open market value of the freehold interest is greater to the leaseholder than to anyone else and that the cost to the leaseholder should reflect that. Hon. Members on both sides have expressed concern about the logic of that argument.
The view has also been taken that the leaseholder would gain an unjust windfall at the freeholder's expense. That concern could be overcome by a covenanting provision similar to that introduced under the right-to-buy legislation of the 1980s so that there should be further compensation if someone who bought a lease made a sale within a specified period.
We must ensure that, as far as we can, we expedite the succession of leasehold tenure. We must clarify and simplify those procedures. I hope that is the long-term aim of the Bill. However, the retention of the half share of marriage value remains a controversial and uncertain element in the cost equation. That will continue to be a significant barrier to the proposed progress of enfranchisement.
The abolition—or at least the watering down—of marriage value would thus contribute substantially to the achievement of the aims of the measure. It would be widely welcomed not only by the groups which have been campaigning on the subject but by a great number of lawyers and other professionals who have to deal with the practicalities.
Shona McIsaac: I have to announce an interest on behalf of people living in the 21,000 leasehold houses in my constituency and in the neighbouring town of Grimsby.
Those people should not be affected by marriage value—the landlord's bounty. However, as I explained to my hon. Friend the Under–Secretary during Committee, because of the complexity of the rules and guidelines on marriage value people are ripped off on many occasions. People are charged far more than they legally should be
because marriage value is used to get even more money from enfranchising leaseholders to whom it should not apply.I point out to Liberal Democrat Members—as I did in Committee—that marriage value will not be scrapped at this stage. I have concerns about it. In Committee, I went through the mathematics of a hypothetical case to show that the landlord realises that value on day one. As the property can revert to him after 99—or 999—years the landlord obtains even more than the market value.
During Committee, my hon. Friend the Minister gave me some assurances that marriage value would apply as little as possible. One of the measures that I asked her to consider was creating a level playing field for flats and houses. Marriage value does not apply to flats where the freeholder voluntarily sells on the leases. The tenants have the right of first refusal and marriage value does not come into play.
That right does not exist for people who live in freehold houses—about half the leasehold houses in the country. About 1 million houses are affected. Landlords can dispose of those freeholds without informing any of the residents. That has happened in whole streets in my constituency. If we were to give the right of first refusal to people living in such houses marriage value would not apply.
My hon. Friend assured me that she would consider that proposal. She also assured me that, due to the complexity of the law and the lack of understanding of the mathematics involved, she would devise a formula—probably through a statutory instrument—to which freeholders would have to adhere and which would show what people were paying for.
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