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8.30 pm
The position is quite different in the case of non-payment. Here all the parties are interested in is money. The main objection to the current law is that it allows landlords to make large windfall gains, as it is insufficiently flexible. As the Minister said and as I pointed out in The Daily Telegraph, there may also be threats and the accumulation of expensive correspondence. The situation may be exploited, and people may be put at a disadvantage and at risk.
If a tenant falls into arrears with rent and service charge, the landlord can repossess the property. When the tenant is living in the property that requires a court order, but the court has no discretion in regard to whether to order possession, it can only delay eviction by a short time. Arrears equal eviction. We do not agree with that.
The consequences of forfeiture are eye-opening. We want to preserve a proper balance in the interests of the many millions of people who could well be affected. We know that more than 3 million people hold long leases at what is probably a low rent—a considerable number of people who vote for all parties.
Under forfeiture, the landlord recovers vacant possession of the property. He can then sell a new long lease on the flat at full market value. It makes no odds that the tenant may owe only a few thousand pounds,
or even less; the landlord repossesses, and can then sell the flat for possibly hundreds of thousands of pounds. To add insult to injury, the landlord does not even need to give the tenant credit for the service charges for which the landlord was able to forfeit. Not only does the landlord collect the full capital value of the flat; he can carry on enforcing the arrears.We think that that goes much too far. Yes, there must be an efficient way of enforcing ground rents and service charges, but there is no need to give landlords such massive windfall gains. We do not think that abolishing those gains would pose any human rights problem.
The Government's amendment does not deal with our complaints. It merely tampers with forfeiture in a way that we believe will lead to the worst of all possible worlds. It sounds well and good to say that forfeiture shall not be permitted for sums under £500. It might be said that obviously it should not be permitted for trivial sums. The amendment, however, removes any cost-effective remedy for the recovery of small sums due from tenants to landlords. The only remedy a landlord will have is to go to the small claims court to enforce his claim against the tenant. He will then have the bother of enforcement through the county court bailiffs, which is notoriously ineffective. Charging order proceedings would be wholly disproportionate, and the landlord will have no claim against the mortgagee.
This is what will happen in practice. Tenants will realise that they are effectively bullet-proof up to the sum of £500. Landlords will not bother to collect such sums. Mortgagees will feel under no obligation to pay such small arrears, because it will not affect their security. Once again, honourable tenants who pay their service charges in full will be subsidising dishonourable tenants who bilk their obligations. The Government's proposals may strike some as rational and tenant-friendly, but any more detailed consideration shows them to be gravely defective.
So what is the way forward? Our amendment picks up the equitable rule that landlords are entitled only to security for moneys owed to them. It substitutes a charge over the lease for non-payment of money for the right to forfeit. That would have two advantages. First, the landlord recovers only what is owed to him, receiving no windfall at the tenant's expense, and secondly the court has well established powers to allow debtors to pay off secured moneys without losing their homes.
New clause 19(1) limits the proposal to long leases at a low rent. This is where the problem lies. Where leases are short or granted for a market rent, it is only right that a landlord should be able to repossess for non-payment of rent. By contrast, it should make no difference whether the lease is residential, business or agricultural. If the lease has a capital value, forfeiture should give way to a system that recognises that capital value.
Subsection (2) defines what is meant by forfeiture. Subsection (3) abolishes forfeiture for non-payment of money. The new clause gives the landlord a charge over the lease, which extends to anyone owed money under the lease. That is designed to deal with the common situation in which service charges, for instance, are payable to a management company rather than a freeholder.
Subsection (5) is central to the workability of the proposal. At present, as I have explained, the tenant's mortgagee has an incentive to pay the arrears in order to avoid forfeiture. That will continue under these proposals.
Shona McIsaac: I think the hon. Gentleman's proposal is flawed. He keeps referring to mortgagees. Many people who are threatened with forfeiture have paid off their mortgages. They may be threatened with forfeiture because payment of a £5 annual ground rent is late. The hon. Gentleman has not addressed that issue of threat, which I think would be addressed by a de minimis level of £500.
Mr. Cash: In the circumstances, we shall simply have to disagree. I want to get on so that others can speak.
Up to now, underlessees have had either to pay up or to lose their leases. That will continue. Subsection (5) ties in with subsection (11), which provides for mortgagees and underlessees to come in and pay off the arrears. In turn, those subsidiary interest-holders will take over the landlord's charge from the landlord.
I have spoken at some length because this issue is important to the lives of many people throughout the country. Let me finally say that forfeiture for arrears of rent and service charge is a remedy whose time has passed. It is savage and unnecessary. The Government's proposals do not improve the workings of forfeiture; they worsen them. We propose something better.
Dr. Brian Iddon (Bolton, South-East): New clause 3 would abolish the forfeiture of leases. Amendments Nos. 26, 27 and 28 are identical to amendments I tabled in Committee, but agreed to withdraw in order to give the Government more time to consider them before Report. When I went to the Public Bill Office to re-table them, I found that the hon. Member for Torbay (Mr. Sanders) had pipped me at the post. New clauses 6 and 8, which relate to compensation, would fall if the Government accepted new clause 3 and amendments Nos. 26, 27 and 28.
I am surprised that this was not a big issue in the other place. It was hardly discussed, if indeed it was discussed at all. It has, however, been a big issue here, both in Committee and on Report. I am disappointed that, at 8.38 pm, we still have a huge batch of amendments and new clauses before us. I must criticise the hon. Member for Stone (Mr. Cash) for delaying the proceedings, just as he did on Monday. This should have been the major debate of the day, as it relates to an issue that is extremely important to people out there. I am pleased that the Minister and the Government have been listening. I thank the Minister for tabling the amendments, which will make it far more difficult to proceed along the route of forfeiture. Nevertheless, the threat of forfeiture is still there. I would have liked it abolished completely.
I hear what the hon. Member for Stone and the Minister say about the reasons other than financial reasons for having forfeiture on the statute book, but if someone is running a house of disrepute or a person in a block of flats is selling drugs, what has happened to the police? There are other ways of dealing with those problems—they may be dealt with through the courts and the judicial process. That is not an excuse for maintaining forfeiture.
We have had a lot of lobbying on the issue, which has been around a long time. The Minister mentioned the Law Commission. It has been examining the subject for more than 17 years. It knew that the Bill was coming to this place. Almost as soon as the Government got in, there was talk about the Bill. There was plenty of discussion on the draft Bill. Indeed, in December 2000, the Government published the results of the consultation on the draft Bill. Paragraph 12 of that document states:
- "We accept the need for effective sanctions against defaulters but we do not believe it is right that a landlord can gain a windfall profit by obtaining absolute possession at the expense of the leaseholder. Instead we propose that where the landlord obtains possession the leaseholder should be compensated for the loss of his interest after deducting moneys owed to the landlord."
I will not push my new clauses in relation to forfeiture because I think that we will come back to that issue. Indeed, the Minister has promised to come back to it. I ask her how long it will be before the Law Commission comes up with the lengthy proceedings that it has debated for more than 17 years. Can she assure us that we will get a Bill very soon on that subject? It is a crucial matter.
I am prepared to let that ride until the relevant Bill is introduced, but I am not prepared to accept that forfeiture should remain on the statute book and that a person can lose such vast sums of money as the sum that I have just mentioned. I am afraid that I am minded to press the case for compensation, because that is natural justice.
I cannot believe that this is as complicated as the Minister said it was. It seems such a simple issue. If a person has gained a large sum of money, highway men should not rob them of it. If the judicial system cannot get its act together within a few weeks or even a few months and sort that one out, people should be compensated.
I am aware of the time. I had a lot more to say but I shall finish on the following point. I am grateful to the Government for introducing the Bill, which has made huge strides. It is a good Bill and on the whole I am very supportive of it; but it could have been a Rolls-Royce Bill if many of the issues that have been around for a long time had been addressed properly. Abolition of forfeiture is one of them but, more important, compensation when that happens is critical.
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