Commonhold and Leasehold Reform Bill [Lords]

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Ms Keeble: We have consistently described the right to enfranchise as a right of compulsory purchase because of the restricted categories of people who can exercise it. I cannot see that there is much possibility of going beyond that scope. To exercise the right to enfranchise, leaseholders do not have to show that the freeholder is at fault in any way. Therefore, it is only fair that he should be paid the same amount as he would have received from selling the freehold or a longer lease to the leaseholder or leaseholders voluntarily. When leaseholders buy their freehold or renew their lease, they obtain a benefit that no other purchaser would. When leaseholders of flats enfranchise, they can grant themselves new 999-year leases without having to pay for them. Similarly, a leaseholder who buys the freehold of a house is no longer subject to a lease. The value of the extra benefit is the marriage value.

If existing leases still have, say, 80 or more years left to run, new longer leases will be worth little more than the existing ones, so any marriage value will be insignificant. That is reflected in our proposals. If the unexpired term were relatively short, say 50 years, the difference would be substantial. The same is true for leasehold houses.

In a sale between willing parties in which the unexpired term of the lease was not long, it would follow that the leaseholders would be prepared to pay additional money for that extra benefit. However, they certainly would not offer the whole amount of the marriage value. They would be well aware that they represented the freeholder's only chance of getting a higher price than he would from an ordinary purchaser. In practice, a sale would be agreed only if the parties agreed to split the difference, and if the parties were equally willing and eager the split would be 50:50. The freeholder would finish up with a rather higher price than he would have received from another purchaser, but—I must emphasise this—the leaseholders would still end up with an asset that was worth more than they paid for it.

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People often ask how marriage value can be said to apply to the right to buy a longer lease.

Shona McIsaac: I am intrigued by what my hon. Friend said about the leaseholder ending up with an asset that was worth more than it was when they originally purchased it. The evidence in my constituency of Cleethorpes and in neighbouring Grimsby is that there is no difference in the prices of leasehold and freehold property. Therefore, there is no financial advantage in someone buying a leasehold property. Would she care to comment on that?

Ms Keeble: I believe that the properties of some of my hon. Friend's constituents are governed by different legislation, because they are old. The position is different. It is fair to say that if a leaseholder enfranchises, depending on the length of time left in the lease—we have also taken that into account in our provisions—he ends up with added value as a result of his purchase. That is reflected in the marriage value.

Mr. Adrian Sanders (Torbay): The Minister forgets a rather important point. The leaseholder bought the property when he became a leaseholder in the first place.

Ms Keeble: This is one of the substantive points. Leasehold and freehold are different tenures. Some people do not like leasehold, and there is great evidence of real difficulties with it. We have heard some examples of those difficulties, and we will hear a lot more about them from hon. Members whose constituencies include a large number of leasehold properties. However, we must start from where we are, not from where we would like to be. The fact is that leasehold and freehold are different. When someone buys a leasehold, it is galling for him to have to accept that he is buying a long lease. That is different from buying freehold. Apart from introducing a new form of commonhold that gets around problems of leasehold—a new form that we believe is the tenure of the future—the purpose of the Bill is to deal with the injustices of leasehold and the difficulties of freehold.

We have to start by recognising what leasehold is. The hon. Member for Torbay has missed the point. When someone buys a long lease on a property, it is different from buying a freehold on it. When buying a longer lease, there is no joining or marriage of the two interests. The term does not have quite the same meaning in the lease renewal context—indeed, in that context, marriage value is something of a misnomer. The meaning of marriage value in lease renewal is quite different from its meaning under enfranchisement. As defined in the Act, in broad summary, it is the difference between the aggregate values of the landlord's interest and that of the tenant as they are before the new lease is granted and as they will be after it is granted.

The notion that in some way extra value is created by the transaction is common to both cases. In lease extension as in enfranchisement, any amount of marriage value will be extremely small if the unexpired term of the existing lease is still long. Similarly, as under the right to enfranchise, the split of marriage

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value has been much argued about in individual cases; in most cases, the LVT has decided that it should be shared equally between the parties. For lease renewals and enfranchisement cases, our intentions are the same: that 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, but this time equally willing, parties.

That is the principle behind marriage value, which the Government believe is sound. I shall now talk about our proposals to simplify the valuation basis, which will deal with some of the points that the hon. Member for Stone mentioned in his suggestions for valuation. He will see that our proposals are simpler and more workable.

The 1993 Act provisions, which were based on the principles that I have described, were defective in two ways. First, they provided that the freeholder's share could never be less than 50 per cent., but that it could be more. That was unfair—why should it be possible for the freeholder but not the leaseholder to argue for a larger share? It also led to argument, sometimes protracted and expensive, between the parties about what the shares should be. The hon. Gentleman wanted a period of discussion about the ultimate valuation as well. The 1993 Act encouraged the parties into further arguments about the amount of marriage value, even when it was obvious that there would be almost none. The Government want to retain the principle of the existing provisions, but to eliminate the scope for wasteful argument both about the amount of marriage value in cases where it will be negligible, and about how it should be shared between the parties.

In practice, all but a few—highly unusual—cases, LVT decisions have split marriage value equally between the parties, but that has not stopped landlords arguing for a greater share. The hon. Gentleman proposed that the LVT should make a decision: the record of the LVT is one of equal splits, so we think that marriage value should be split 50:50 in all cases. Clause 124 makes such provision for the purposes of collective enfranchisement, and clauses 132 and 142 make equivalent provision for lease renewals and enfranchisement of leasehold houses. Clause 125 provides that, when the unexpired terms of each of the leases held by participating members of a right-to-enfranchise company exceed 80 years, no marriage value is payable. Clauses 133 and 143 make equivalent provision for lease renewals and enfranchisement of houses.

We have heard different views on both the principle of the cut-off and the threshold at which it should be set. Our objective is to prevent costly arguments that are disproportionate to the sums at issue. The principle of a cut-off is consistent with that objective, and we are committed to it. Whatever cut-off is chosen, it seems likely that some will argue that it should be raised or lowered, and an element of compromise is needed. I believe that an argument was made in another place about a figure of 90 per cent.

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We accept that LVTs have sometimes awarded an element of marriage value when leases have 90 or more years unexpired, however that would normally be a relatively small sum. We need to consider another factor. Professionals with long experience in the field made representations pointing out that before the 1993 Act came into force, flats with very long leases did not command a measurably higher price than those with unexpired leases of 80 years, indicating that at that time, leaseholders placed no additional value on the ability to obtain a new longer lease.

11.30 am

It was a key principle of the 1993 Act that valuations for collective enfranchisement and lease renewal should be made on the assumption that the Act did not exist. In practice, however, the Act's operation has distorted the market so that transactions have taken place that include an element of marriage value where the unexpired terms of the existing leases exceed 80 years. That effect has been amplified by the fact that some experienced and well resourced landlords, particularly on the great London estates, have in such transactions brought to bear the best professional advice that money can buy, often leaving the leaseholders somewhat outgunned. The Government's proposals would restore the original ''no 1993 Act'' context to the valuation process.

I have given the Committee the basic outline of the Government's position. I do not know whether the hon. Members for Stone, for Torbay or for Guildford want to take the matter further. The clause strikes a fair balance between the various rights and arguments surrounding marriage values. I hope that the Committee will agree to it standing part.

Mr. Cash: No one could say that the Minister has not given us a full and comprehensive account of the Government's view. This matter has been extensively discussed in the other place; none the less, it requires further consideration. I do not propose to press the clause—or, by implication, the other clauses to which I have referred—to a Division. We can return to the matter on Report if necessary, by which time we will have weighed up the Minister's arguments.

Question put and agreed to.

Clause 132 ordered to stand part of the Bill.

Clause 133 ordered to stand part of the Bill.

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