Commonhold and Leasehold

[back to previous text]

Mr. Cash: I am happy with the amendment as it stands. I have no doubt that it will stand the test of time, but we will have to see.

Amendment agreed to.

Amendment made: No. 84, in page 55, line 10, leave out from 'rent' to end of line 12.—[Ms Keeble.]

Clause 109, as amended, ordered to stand part of the Bill.

Clauses 110 to 112 ordered to stand part of the Bill.

Clause 113

Non-residential premises

Question proposed, That the clause stand part of the Bill.

Mr. Cash: Because of the formalities of moving amendments in these Committees in the Commons, as compared with the Lords, my amendment on the Order Paper, which seeks to leave out clause 113 altogether, can be taken as such but I cannot move it. My remedy is to move the debate on the question that the clause start part to a Division. I do not believe that the Minister is in any doubt as to my intention. The clause proposes to amend the restriction on the right to enfranchisement, contained in section 4(1) of the 1993 Act, from the current threshold of 10 per cent for non-residential premises to 25 per cent. It is apparent that this is an important matter. I know that it has already been discussed in the other place, but we

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should have a reply from the Minister in the light of my arguments.

I take exception to the clause for several reasons. There is much compelling evidence from the industry, those in property development, and others who know about these matters that developers and investors would be reluctant to develop mixed schemes if there was a likelihood, or risk, of enfranchisement of the premises as a result of the new threshold of 25 per cent. for non-residential use in place of the 10 per cent. threshold. Their views are based on experience, and we should take account of them.

When I did my legal practice before entering the House, I advised the oil companies on the Petroleum and Submarine Pipelines Bill. It became obvious, with the best will in the world, that although the Government had a view about how to regulate North sea oil, in practice those on the ground in the commercial field knew most about it. That Bill was amended extensively, as the Labour Government of the time recognised that the views expressed by commercial interests were driven not only by a desire to make an extra profit, but by an understanding of the practicalities. I apply a similar principle here. The provisions will not work if those to whom I referred are not prepared to invest because they believe that their investment lacks security or will be vitiated by uncertainty because of the likelihood of enfranchisement.

The bottom line is that all that would have a serious detrimental effect on the prospect of redevelopment or on the development of mixed property schemes, which in turn would adversely affect actual and potential urban regeneration schemes. Such buzz words occasionally emerge. I imagine that those who want urban regeneration schemes would want to avoid such a consequence, which we and, I am sure, the Labour party also want to avoid. There is no great Machiavellian plot behind all this. It is simply a question of whether there will be the right investment in urban regeneration schemes, among other things. Will the clause be an incentive or disincentive?

My experience of North sea oil regulation was similar in that there was also a question about the regime that was being set up. We can get the Bill quite wrong by taking a figure, in this case 10 per cent. rather 25 per cent, that could make a substantial difference. I will be interested to hear what the Minister has to say in the light of what was discussed in the other place. This is not just a legal issue, but a policy issue.

I am also concerned that the clause may have a retrospective effect in relation to mixed-use premises, which, where non-residential use is between 10 per cent. and 25 per cent., would face enfranchisement under the clause, even though they made their investment when no such risk existed. The clause could undermine existing investment in mixed-use premises. I do not know whether intensive discussions have taken place behind the scenes between the Department and the developers. I am not aware of that: perhaps the Minister would confirm that discussions have taken place.

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3.45 pm

People who are residential enfranchisers are not likely to want to become commercial property managers, and they are not usually candidates for that. If enfranchisement were allowed in cases where non-residential use exceeds 10 per cent., the effect could be harmful to business occupiers, and for the marketability of the property as a whole. To a significant extent, that could depend on the value of the business forming a major part of it. I would be interested to hear what the Minister has to say in the light of the deliberations in the other place.

Mr. John Taylor (Solihull): I speak not to any particular clause, but to chapter 2, which begins on page 58. I realise that party business managers may have intended to bring the proceedings swiftly to a conclusion today. I shall not take it as a discourtesy if the Adjournment is moved before I have finished. That would enable me to resume the Floor when the Committee meets next.

I say to the Minister, and to those who advise her, that a law is heading for the statute book that will affect all our constituents. Many people with long leases will aspire to participate in the ownership of the freehold: I am one of them. The real weakness of the 1967 legislation, which was the first visitation of enfranchisement known to English law, was that it did not give clear guidance to the affected citizens as to what price they could expect to pay for the freehold. Lacking guidance, our constituents were obliged to litigate in the Lands Tribunal, or at least those who could afford to did so. A pattern of decisions emerged that served as guidance or precedent to others. We have a classic opportunity, and if the Minister returns to it when the debate resumes, I would like her to reassure the Committee that we are helping our constituents and the residents of this country by not merely giving them a right but a clear indication—

Shona McIsaac (Cleethorpes): In north-east Lincolnshire, 21,000 residents occupy leasehold houses, which will be affected by the measures in the Bill. If the hon. Gentleman examines the amendment paper, he will see that I have tabled an amendment that would require freeholders to detail how they have derived the purchase price of the freehold. I fear that they often merely pluck a figure out of the sky, and our constituents are none the wiser. I hope that the hon. Gentleman will think about discussing that amendment at a future sitting.

Mr. Taylor: It may not surprise the Committee to know that the hon. Lady and I have compared notes. My present disposition is probably to support her with my voice and perhaps also my vote when the time comes. I am developing the theme that it is not adequate for the Committee, the House of Commons and Parliament to give our citizens the right to acquire something extremely important—for 99 per cent. of people, the most valuable single asset that they will ever own—only on a freehold basis. It is wonderful to do that, but it falls short without a pretty clear definition of the price mechanism. That is in the interests of the reversioner or landlord as well as the leaseholder. It is in the interests of all that the position be fair.

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I do not want the price or valuation mechanism to be out of kilter and favour the leaseholder or the reversioner; it should be fair to both. After all, the landlord is losing something that he truly owned, and I suggest that none of us is in favour of confiscation. There should be a proper valuation. A proper consideration, as we lawyers would say, should pass from one party to the other for the enfranchisement from leasehold to freehold.

I have probably developed the point sufficiently both now and when I have had the benefit of having the Floor previously. I merely ask the Committee to join me in begging the Minister to ensure that the legislation goes on to the statute book with as much clarity as possible on what the leaseholder should expect to pay the landlord, and what the landlord can expect to receive from the leasehold for that state of grace when the leaseholder becomes freeholder or part-freeholder. That is my plea. It is not technical, although it may be considered political. It would certainly take public policy in a good direction if the situation were as clear as possible to all concerned. The only gainers otherwise will be the professional people who handle the disputes before tribunals and in law courts.

I am therefore speaking against members of my own profession. I do not want them to have any work from disputes at all. They can do the conveyancing, but I do not want it to turn into litigation. I once worked for a firm where the conveyancing files turned into litigation files and I did not stay there long; I did not like the attitude. We do not want to create an arguing ground; we want to create a benefit that will work, with the good interests of both sides properly catered for. As I have said, my plea is not technical and scarcely political. In fact, I am talking plain common sense.

Ms Keeble: The clause amends the existing commercial limit that prevents leaseholders from buying their freehold if more than 10 per cent. of the property is for non-domestic purposes. That limit was set by a Conservative Government and was, I believe, retrospective. Clearly, there is an issue about resolving priorities, and some people might have liked us to go further.

I think that the hon. Member for Stone was being somewhat disingenuous when he referred to the impact on regeneration. He did, however, ask whether that has been discussed with the property industry, and I can assure him that it has. As one would expect, some people were unhappy with the proposals, but they will not have a substantial impact on the development of mixed-use schemes. In future, it will be open to developers to apply common law to such schemes. Some of the hon. Gentleman's assumptions about conflicts of interests and disputes do not apply in this case.

In our view, existing limits are too low and unfairly prevent too many leaseholders from enfranchising. If the commercial unit has a majority interest in a building, a 25 per cent. threshold will protect the landlord. If the leasehold has the majority interest, it is right that it should be able collectively to buy out the landlord. It has been argued that raising the

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enfranchisement threshold from 10 to 25 per cent. will discourage mixed-use developments. If that claim had a rational basis, it would be a legitimate cause for concern. However, on the basis of discussions and consultations in the Department, the problem has not materialised.

Leaseholders enfranchise in order to address either or both of the problems of diminishing leases and the landlord's monopoly over the management of the block. We have already debated the right to manage. Any enlightened developer planning a new scheme will want to give careful thought to ensuring that future occupants will be satisfied with their home.

For future developments we hope that many, if not all, new mixed-use schemes, as well as solely residential ones, will be carried out on a commonhold basis, which we debated extensively on Second Reading. That would ensure collective management from the outset, and avoid the problem of diminishing assets. It would also allow the developer to retain ownership and therefore management of the commercial unit if it wished. Raising the commercial threshold deals with problems encountered by leaseholders in existing mixed-use blocks. Commonhold provides a perfectly satisfactory solution for new developments, so I do not see why our measures would discourage new development. The concerns expressed are based on a misunderstanding of our position.

The hon. Member for Solihull asked about valuation. The clause does not deal specifically with it, but the theme applies to many issues, so I shall respond to it. The hon. Gentleman argued for a

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formula basis for valuation. Much work was done to produce a basis for determining price and valuation, but research concluded that it was not practicable to produce a fair formula. We have, however, tried to simplify the valuation process, which will be debated again later in the Bill. I am not sure whether the hon. Gentleman will be present then, but I shall ensure that he receives any detailed information on the subject.

Mr. Taylor: I am grateful to the Minister for the tone of her response, but I must tell her with a degree of irony that when she says that research failed in the end to find a formula, she should know that exactly the same was said in 1967.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 10, Noes 7.

Division No. 7]

Crausby, Mr. David Hepburn, Mr. Stephen Iddon, Dr. Brian Keeble, Ms Sally McIsaac, Shona
Marsden, Mr. Gordon Moffat, Laura Stringer, Mr. Graham Woolas, Mr. Phil Wright, David

Cash, Mr. William Doughty, Sue Lewis, Dr. Julian Sanders, Mr. Adrian
Selous, Andrew Taylor, Mr. John Wiggin, Mr. Bill

Question accordingly agreed to.

Clause 113 ordered to stand part of the Bill.

Further consideration adjourned.—[Mr. Stringer.]

Adjourned accordingly at Four o'clock till Tuesday 22 January at half-past Ten o'clock.

The following Members attended the Committee:
Eric Illsley, Mr. (Chairman)
Cash, Mr.
Crausby, Mr.
Doughty, Sue
Hepburn, Mr.
Iddon, Dr.
Keeble, Ms
Lewis, Dr. Julian
McIsaac, Shona
Marsden, Mr. Gordon
Moffat, Laura
Sanders, Mr.
Selous, Andrew
Stringer, Mr.
Taylor, Mr. John
Wiggin, Mr.
Woolas, Mr.
Wright, David

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