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8.15 pm

To assist hon. Members in understanding the extent of the new safeguards that the existing provisions, and these new ones, would extend to leaseholders, officials have helpfully drawn up a flow chart of the steps that freeholders would need to follow before a leasehold property could be forfeit. These have been laid in the Library, and hon. Members may consult them at their leisure. They will see the extensive range of steps that a freeholder would have to follow. The flow chart illustrates this rather complex process, which is far removed from the simple procedure that it is sometimes thought to be. Almost all the safeguards in the flow chart arise from the Bill and the Government's amendments.

New clause 9 is intended to prevent the use of forfeiture for small amounts of money. Forfeiture proceedings would be prohibited unless the amount outstanding exceeded a prescribed sum or unless the amount, or any part of it, had been outstanding for more than a prescribed period. This is designed to deal with the problem of ground rent grazers, and of people losing their homes for the sake of small amounts of money, or being frightened by demands for the money and paying up.

In the Bill, the prescribed sum is set at £500. The level at which it would be introduced would be set by regulation, and we would consult on that, although our current thinking is that it should be set at about £350 in the first instance. That is the kind of sum that hon. Members have suggested in discussions. We would expect to set the prescribed period at about three years. That would make forfeiture unavailable for amounts of less than £350, unless they had been outstanding for more than three years.

Regulations made under the power would be subject to the affirmative procedure by virtue of amendment No. 58, so there would be an opportunity to examine the matter closely, and to debate it at some length. Administration charges and penalties for non-payment of an outstanding amount will not be taken into account in determining whether the prescribed sum has been exceeded. This would prevent landlords trying to evade the provision by adding further charges to push the total above the prescribed sum. I am sure that all hon. Members will see the logic of that.

New clause 10 deals with an abuse repeatedly mentioned by hon. Members in Committee. The proposal is intended to protect vulnerable leaseholders, such as those who suffer from a mental illness, who are unable to respond to the various warning notices required under existing legislation or other provisions of the Bill. We propose to require landlords to take reasonable additional or alternative steps when there is no response to demands or notices. We will consult on what steps would be appropriate, practicable and reasonable. This may include a duty to investigate the leaseholder's circumstances.

That power would not apply in relation to properties subject to a mortgage. That is because mortgagees are normally informed of forfeiture proceedings, and have a

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right to seek relief. They invariably do so to protect their security. It is the leaseholders who do not have mortgages—for example, the elderly whose mortgages have been paid off—who would be protected by this measure. A number of hon. Members, including my hon. Friends the Members for Cleethorpes (Shona McIsaac) and for Great Grimsby (Mr. Mitchell), identified older people in their constituencies who have been vulnerable to bullying and abuse by freeholders, and who are in particular need of protection. We would hope that that would be of help to some of them.

Regulations made under this power would also be subject to the affirmative procedure—amendment No. 58. There would be an opportunity closely to debate the provisions.

New clause 11 is intended to ensure that leaseholders are aware of their rights and obligations by providing a power to require certain information to be provided with service charge demands. It should help also to prevent forfeiture being used as a threat by unscrupulous landlords. The form and content of these notices would be prescribed. It would set out leaseholders' rights to challenge service charges that they consider to be unreasonable. The notices would have to set out also restrictions on forfeiture. In addition, they would point out the possible serious consequences of non-payment of service charges and the dangers of ignoring demands. They would suggest that leaseholders take advice. Amendment No. 50 provides a similar power in relation to demands for administration charges.

We believe that it will be important to improve awareness among leaseholders and landlords of their rights and obligations in this somewhat complex but important and sensitive area. It is therefore also our intention to produce a guide that will summarise in plain English, as hon. Members have repeatedly requested, all the relevant provisions concerning forfeiture proceedings.

Amendment No. 61 provides that new clauses 9 and 10 would be binding on the Crown. The other changes already apply to the Crown by virtue of clause 166.

I appreciate that I have taken quite a long time to set out the proposed measures. The new clauses and amendments have been carefully crafted by officials to meet some of the concerns that have been raised on both sides of the House on forfeiture. The additional measures, together with the existing provisions, should go a long way towards preventing the distressing cases that have been described, and which have been raised repeatedly by hon. Members. If hon. Members examine the flow chart of the steps that a freeholder would have to take, they will see clearly the safeguards that we have provided. They will see also that in practice forfeiture can be used only where leaseholders have wilfully and persistently defaulted on their obligations and have harmed other leaseholders or created the potential of harm. They should also ensure that landlords are not able to intimidate leaseholders with threats of the loss of their homes to secure payment of unreasonable charges.

The additional safeguards that we are providing show that the Government have listened carefully to the views of hon. Members, and have responded with a range of measures that will be of real benefit to the constituents whose interests and homes hon. Members rightly seek to

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protect, and for whom they have been vocal in making a case. They represent major improvements in the safeguards for leaseholders, and represent also some major improvements to the Bill. I urge Opposition Members to withdraw their amendments and to support the Government amendment.

Mr. Cash: We have heard an interesting justification for the Government's proposals as set out in their amendments and new clauses. I noticed that the Minister said that, reluctantly, it was not possible to deal with all the issues. However, it seems that the Government have been pushed into a situation of coming up with a half-way house. To some extent, we discussed the issue vaguely in Committee, but the Bill has been round the houses five times. I am surprised that the Minister is not able to come forward with something that deals with the problem more effectively.

The Government could have done better. Despite the Minister's remarks about new clause 19, it is my belief that that clause is better than the measure that the Government are proposing. The Minister mentioned that the Law Commission is at an advanced stage of coming up with comprehensive proposals.

A cause of great concern has been whether, for example, there would be any reasonable substitution for forfeiture where, for example, premises were being used for prostitution or for other illegal activities such as drug dealing. The issue is not whether we like forfeiture but whether it is appropriate in all the circumstances. It is our view that forfeiture is not appropriate in respect of non-payment of money or service charges.

The basic principle is that if a tenant breaches the terms of his or her lease, the landlord can forfeit the lease. The landlord can repossess the property and either sell it or rent it out to someone else. Where the tenant has a long lease at a low rent, the landlord ordinarily receives a considerable windfall. As I stated in The Daily Telegraph yesterday, the law is now more complicated than the simple equation of breach equals forfeiture. It is necessary to distinguish between two quite different regimes that apply. The first regime is where a tenant fails to honour some obligation to pay money. The second is where the tenant breaks some other non-pecuniary obligations under the lease.

With the second case, a landlord who wishes to forfeit must first serve what is colloquially called a 146 notice, under the Law of Property Act 1925. The notice must specify the breaches alleged and give the tenant a reasonable to time remedy the breaches insofar as they are remediable. Even if the tenant has not performed the remedies of the breaches within a reasonable time, he or she can still apply to the court for relief against forfeiture. My amendment is concerned only with non-payment of money and has no impact on the other forms of breaches. I shall explain why.

I turn to the first case, where the breach consists of non-payment of money. In this instance, equity has always treated the provision for forfeiture as being simply security for the payment of sums due. That means that if the tenant pays the moneys due, the court will grant relief from forfeiture so that the tenant does not lose the flat. A tenant can, within reason, even apply for relief from forfeiture after the landlord has repossessed the property.

In practice, it often happens that the tenant's mortgage company steps into the breach and pays off the arrears owing to the landlord. The reason is simple. If the

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landlord forfeits the lease, the mortgagee loses its security because the lease which is charged to the bank or building society ceases to exist. This is a highly effective way of obtaining payments of rent and service charges from tenants. It is right that there should be an effective way of obtaining payment of those moneys. In particular, in connection with service charges, every sum of money which one tenant escapes paying is money which other tenants will have to pay.

The issue is not whether there should be a strong means of enforcement of tenants' obligations. There should be. That may be a point of distinction between Opposition and Government. The issue is whether forfeiture is the right way to go about it. I mentioned that the amendment is not concerned with forfeiture for breach of non-pecuniary obligations. The reason is that there are circumstances in which it is right that a lease should be forfeited. Suppose the tenant uses his flat for drug dealing. In such a case, the landlord and other tenants must have a right to throw out the offending tenant.

In principle, the right to forfeit should exist in at least some cases; whether in all cases, as at present, might be doubted. It is likely that improvement can be made on the current law of forfeiture. We know that the Law Commission is considering that. The question is whether the Government have come forward with enough, despite the fact that they have been harried by us and by others, including Labour Back Benchers, into coming to a conclusion. They have been making a case—I think that it probably goes too far—for the abolition of forfeiture in all instances. The same applies to the Liberal Democrats. We are trying to strike a reasonable balance to ensure that there is a degree of proper remedy available for the non-payment of money and service charges.

We recognise that this is a complicated area. We will not go into the question of forfeiture other than for non-payment of money or service charges.

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