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Baroness Gardner of Parkes: I support these amendments but I do not believe that they go nearly far enough to protect people who, many years later and after many variations of the lease, find themselves in an invidious position. But, as my noble and learned friend the Lord Chancellor said, the only way that this will become law is by agreement. Therefore, this is a very good first step and I support the principle of the Bill. But I should like to see the amendments go further.

The Lord Chancellor: My noble friend has explained the basis of the agreement. As I said on Second Reading, the result of the consultation with the industry generally was that the agreement is supported. I agree with my noble friend Lady Gardner of Parkes that one wants to go forward in this matter as urgently as possible. The only way that that can be done is in accordance with the agreement.

On Question, amendment agreed to.

The Earl of Courtown moved Amendment No. 3:

Page 1, line 7, after ("13") insert ("and sections (Right of former tenant or guarantor to overriding lease) and (Overriding leases: supplementary provisions)").

The noble Earl said: Once again, this amendment paves the way for more. It paves the way for one minor amendment, Amendment No. 6, and for two substantial amendments, Amendments Nos. 59 and 60.

With the leave of the Committee, I feel that it would be helpful to speak to all four amendments together. Amendment No. 3 does the same as Amendment No. 2 but in respect of a different element of the property industry agreement. It makes it clear that the element concerning overriding leases is to apply to both new and other tenancies.

Amendment No. 6 is intended to ensure that the provisions for overriding leases do not cut across the agreed policy that privity of contract liability is to be abolished prospectively only. It makes it clear that the definition of a new tenancy is to be subject to the rule which is part of the overriding lease provisions that an overriding lease will not be a new tenancy if the tenancy under which the former tenant finds himself having to pay is not a new tenancy. Without the amendment, Clause 1 and the overriding lease provisions would be inconsistent.

The two substantial amendments are Amendments Nos. 59 and 60. They introduce two new clauses after Clause 13 and immediately after the new clause introduced by Amendment No. 58. The challenge which this part of the property industry agreement set out to meet

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was to find a way to give a former tenant or guarantor who has had to pay for the breach of a defaulting subsequent tenant a way of regaining control over the situation and, if necessary, the property. That will be achieved by making it possible for the former tenant or guarantor who has had to pay to have an overriding lease granted to him so that he can pursue remedies directly against the defaulting tenant, if he is still in occupation, or to take possession and make use of the property so that he can set off the return against his liability. That will go some way towards addressing the helplessness so often felt by former tenants when they find themselves liable in that way.

Amendment No. 59 introduces the first new clause, which sets out the former tenant's right to an overriding lease, the circumstances in which it arises, its terms and the mechanics of the granting of an overriding lease. Amendment No. 60 introduces the second new clause, which makes supplementary provision covering such matters as whether an overriding lease is a new or existing tenancy; what happens if the landlord is dilatory in granting it; and the effect of mortgages on the landlord's interest and land registration.

Subsection (1) of the new clause sets out the basic principle of entitlement to an overriding lease. Any person, whether former tenant or guarantor, who has paid in full an amount which he has been duly required to pay in accordance with the notice under the provisions of Clause 13 is to be able to call for an overriding lease to be granted to him.

Subsection (2) defines an overriding lease. The essence of the overriding lease is that it is a tenancy of the landlord's reversion which puts the former tenant in the position of the landlord in relation to the defaulting tenant and in the position of the defaulting tenant in relation to the landlord. The former tenant could be said to be slotted into the hierarchy of interests. The overriding lease is accordingly to replicate as far as possible the tenancy of the defaulting tenant, which the new clause calls the "relevant tenancy". It cannot replicate it exactly as to the length of term remaining since it is in reversion to it and must be notionally longer. Subsection (2) (a) requires the term to be fixed as equal to the length of the term remaining plus three days or the longest period less than that which will not entirely displace the landlord's interest.

Subsection (2) (b) provides for the overriding lease otherwise to contain the same covenants as the relevant tenancy, as they have effect immediately before the grant of the overriding lease. That will include all variations to the lease and all sums to be paid which are referable to them, so that the former tenant may well have a choice between not taking up an overriding lease and paying less by virtue of the new clause introduced by Amendment No. 58, and taking up the overriding lease and regarding the extra that he will have to pay as the price for regaining a measure of control. The landlord and former tenant may agree that it would not be appropriate to replicate certain terms, or the particular effect of certain terms, without some modification, and the possibility of agreed modification is preserved.

Subsections (3) and (4) make specific provision for the overriding lease not to reproduce certain terms, or the effect of certain terms, which the property industry bodies

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were agreed it would not be appropriate to reproduce or reproduce without modification. Subsection (3) provides for any covenants which were purely personal as between the defaulting tenant and the landlord not to be reproduced. Subsection (4) provides for any covenants which were time limited and which have become spent not to be reproduced, and for any matter in the relevant tenancy which operates by reference to the commencement of the tenancy to be reproduced in the overriding lease in such a way that it operates by reference not to the commencement of the overriding lease but to the commencement of the relevant tenancy.

Subsection (5) sets out the procedure for requesting an overriding lease. The former tenant or guarantor must make the request in writing to the landlord, specifying the payment which he has made and which qualifies him to make the request. He may do that by post. He is required to make the request within 12 months of making the payment, which will introduce an element of certainty for both the landlord and the defaulting tenant or any assignees.

Subsection (6) sets out the duties of claimant and landlord following the claim. The landlord must grant and deliver the overriding lease to the claimant within a reasonable time. The claimant must then acknowledge its covenants by delivering a counterpart to the landlord. Sanctions for failure of either party to fulfil the duty are set out in the second new clause. The claimant must also pay the landlord's reasonable costs in connection with the grant and the landlord will be able to sue for these if the claimant does not pay.

Subsection (7) makes it clear that no overriding lease can be granted when the relevant tenancy has come to an end. It and subsection (8) also deal with the position where more than one person has made a payment qualifying him to request an overriding lease. The rule is essentially "first come, first served", so that, where an overriding lease is already in force or another person has already put in a request, no further request can succeed.

Subsection (8) deals with the possibility of simultaneous requests, in which case a former tenant will take priority over a guarantor and an earlier covenantor will take priority over a later. Subsection (9) deals with the possibility that, because the former tenant who takes up the overriding lease takes over the landlord's position, he may be in a position to exercise remedies against others who might, in their turn, make payments which would qualify them to seek an overriding lease. In such a situation, the new clause shall apply between the overriding tenant and the new claimant just as it did between the overriding tenant and the landlord.

The second new clause contains supplementary provisions concerning the effect of the first new clause. Subsection (1), for which Amendment No. 6 paves the way, provides that an overriding lease is to be a new tenancy only if the relevant tenancy was a new tenancy. Because every overriding lease will be granted after the date on which the Act comes into force, this presents the possibility that the overriding lease might be transferred to someone who is unaware that it is not a new tenancy.

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Accordingly, subsection (2) makes it a requirement that the overriding lease should state that it is an overriding lease and whether or not it is a new tenancy.

Subsection (3) provides sanctions in the event of a failure by either party to perform the duties in subsection (6) of the first new clause. In the case of a landlord, he may be sued for breach of statutory duty if he is dilatory and, in the case of a tenant, he will not be able to exercise his rights under the overriding lease until he delivers the counterpart.

Subsection (4) covers the position where the landlord's interest has been mortgaged prior to the request for an overriding lease. In such a case, the general law would make the overriding lease subject to the mortgage on the landlord's interest which would bear hardly on the claimant. This subsection provides a special rule which mirrors the provisions of the Leasehold Reform, Housing and Urban Development Act 1993, providing for the overriding lease not to be subject to the mortgage and for the mortgagee to be treated as having consented to its creation.

Subsection (4) also provides for the case where the mortgagee is entitled to possession of the documents of title relating to the landlord's interest. In such a case, the landlord is under a duty to deliver the claimant's counterpart to the mortgagee within a month of executing the lease. If he fails to do so, the mortgagee may treat that failure as contractual as if there were a stipulation to that effect in the mortgage.

Subsection (5) ensures that the fact that the overriding lease is subject to the relevant tenancy is not a breach of any covenant against subletting. Without this provision, some overriding leases would be in a difficult position. This subsection also makes it clear that an overriding lease falls to be treated, for the purposes of Clauses 12, 13 and the new clause introduced by Amendment No. 58, just like any other tenancy.

Subsection (6) provides for the land registration aspects—again mirroring the approach of the 1993 Act. Although a tenancy will effectively confer on the tenant a form of option to take an overriding lease, no lease is thereby to become registrable under the Land Charges Act, nor is the right to an overriding lease following a request to be an overriding interest under the Land Registration Act 1925. Instead, where a request is made for an overriding lease, the request is to be treated for these purposes as if it were an estate contract and to be registrable or the subject of a notice or caution as such.

Finally, subsection (7) of the second new clause provides for expressions used in the second new clause to have the same meaning as when used in the first new clause and for "mortgage" to include "charge" for the avoidance of doubt. I beg to move.

On Question, amendment agreed to.

9.15 p.m.

The Earl of Courtown moved Amendment No. 4:

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