|Previous Section||Back to Table of Contents||Lords Hansard Home Page|
Lord Dubs: I beg leave to speak to this and also to the other amendments on the Marshalled List. It may be for the convenience of the Committee that we take all these amendments together, because they deal with closely related issues.
We are talking about the low-rent test, and, related to that, the argument about whether the period should be 50 years or 21 years. The purpose of my amendment is to exclude agricultural or rural tenancies from the provisions of the clause. I have therefore used the same words as are contained in the appropriate paragraph in Schedule 8.
My understanding is that the position is quite complicated. As regards a low-rent test there are in fact three separate tests depending on when the lease was first signed. For leases before April 1963 the calculation of the low-rent test is that the ground rent has to be less than two-thirds of the letting value estimated for that period. For the period April 1963 to April 1990, the
Those are arbitrary figures. There is a lot of scope for landlords to evade the figures by setting the rents in such a way that they can avoid the possibility of enfranchisement. Indeed, landlords have done that.
Also, in the case of leases going back before 1963 it is very difficult to define what should have been the letting value at the time; and there are many hard luck stories of leaseholders who have failed, and are failing, to secure enfranchisement simply because they are caught by these particular provisions.
In answer to the question, "Why is there a need for a low rent test at all?" the Government argued in 1993 that the absence of a low-rent test might undermine the rented market by allowing those paying a rack rent to enfranchise. There is no evidence that I or anyone else has been able to find of this as a likelihood, or any evidence that it has been happening.
The original 21-year limit was a perfectly adequate safeguard because it clearly differentiated leasehold properties from rented properties. Anybody who had under 21 years of a lease would therefore not be able to enfranchise. That is the present position. For reasons which are not totally clear the Government have increased this time period to 50 years. It was virtually admitted by the Secretary of State in the other place that it is an arbitrary figure. It is far too long. No evidence has been produced to suggest there was anything wrong with the 21-year period. Indeed the Lord Chancellor's Department, when it consulted on commonhold in 1990, took the view that there was no justification for a low-rent test in relation to commonholds. The argument applies equally to this amendment as it does to commonholds.
There are other difficulties with the low-rent test. It is inequitable between individual leaseholders. There may be leaseholders in the same block, of whom one would be allowed to enfranchise and one would not because of the way the formula works. The last domestic rate revaluation was in 1973. Rents have risen since then and the longer the period since 1973 when a long lease was granted, the less likely it is that the rent would have been fixed at less than two-thirds of a 1973 rateable value. In other words, the way in which the formula works is capricious; it is arbitrary, and it is very unfair.
When the Bill was debated in the other place there was considerable discussion about how this place would react to the contents of the Bill. I wonder whether I could read from a letter sent by a Conservative Member of Parliament to one of his constituents. This is a letter dated 15th May. I quote:
I am puzzled by that letter. I understand that there was some concern in the other place, prompted by the Government, that the Committee might be more resistant to these measures and to any improvements in them than even was the case in the other place. It is puzzling but I quote it just for the record.
There is another difficulty about the low-rent test and the period involved. Between 1963 and 1990 a surprisingly large number of leaseholders had a nil rateable value. This is because of extensive building works which took place at the time they acquired their leaseholds, especially in the late 1970s and the 1980s when nil-rated houses were being converted into flats which were often sold off the drawing board. So we have the anomalous position that because of that accident of history leaseholders would have no right to be enfranchised.
So, the low-rent test is essentially arbitrary and unfair. It affects not just people living in SW1 or in Kensington but people living in many parts of the country. Indeed, people in Kensington and SW1 may themselves be lacking in affluence. The case is that there is no need for a low-rent test at all. My proposition is that the low-rent test should not apply except in the case of agricultural or rural tenancies, and that the 21-year period is a sufficient qualification. The various amendments together would achieve that end.
Lord Strabolgi: I support everything that my noble friend Lord Dubs has said about the low-rent test. Thousands of genuine long leaseholders throughout the country will be disqualified from any right to enfranchisement by that test. That is because the low-rent level is so low--on average it is probably no more than 5 per cent. of the full letting value--that landlords granting long leases have for some considerable time been able to fix ground rents just above the limit, without significantly affecting the premium paid for the lease.
The low-rent test is therefore unnecessary and inequitable. The desired division between owned and rented property is preserved adequately by the restriction of enfranchisement to long leases. As the Committee will be aware, the low-rent restriction was removed entirely by Standing Committee in another place. It would have meant relief from impossible situations for very many leaseholders. When the Bill returned to another place on Report, the Government reversed that amendment which had been passed by Members of all parties in Standing Committe and imposed, for reasons of their own, their own amendment giving exemption from the low-rent test only to those with leases of over 50 years when granted and to those not living on country estates.
That is surely discriminatory legislation of a highly divisive nature and favours one long leaseholder over another in an unacceptable way. The test of a long lease has always, but always, been whether it was for over 21 years when granted. Anyone buying a lease of 21 years or more would always have expected that any legislation applying to long leasehold tenure would apply to him. What the Government have set up in that hastily thought through amendment is an entirely new and unjustifiable barrier of 50 years, which bears no relevance to the established criteria of lease lengths or even to the low-rent argument.
I remember the departmental housing booklets over the years. They are booklets that the department brings out. It does it very well. They are for the information of the public and those who are not specialists. Those departmental housing booklets, giving advice to tenants and leaseholders, issued by the Government, have always defined a long lease as 21 years. They made it clear that leases below that figure did not qualify for enfranchisement.
Lord Hamilton of Dalzell: I have one question that I should like to ask the noble Lord, Lord Dubs. I am advised that despite his intention not to remove the exemption from rural properties, his amendments would in fact do that. I wonder whether he will accept that his amendments are flawed in that respect.
The noble Lord, Lord Strabolgi, and others have wondered why the time period has increased to 51 years. I have never understood why it should be 21. Did it have something to do with the fact that it used to be the age of majority for adults before that was changed by Harold Wilson?
I used to speak in these debates as a trustee of Smiths Charity. It of course no longer has properties, so I no longer do that. Smiths started selling 60-year leases in response to demand from the tenants to be able to roll up their rents in a single payment in order to take advantage of the mortgage relief which the Government had offered them; 60 years is the point on the graph that reflects the way a leasehold diminishes. It was considerably to the advantage of tenants to do that.
I asked what the statistics were. One could in 1960 have bought a 60-year lease of a good Smith flat for £10,000. When we were discussing leasehold reform in 1993, the freehold of that flat was valued at about £500,000 to £550,000. The remaining 30 years of the lease was worth £350,000, but the rack rent on the property had by that time increased to what would have been £35,000 a year. Therefore there is no logic in the 21-year period.
Lord Boardman: I must first make it clear that I have no personal interest in this. I am not a leaseholder. I own my own home and I am a short-term tenant in my flat. I say that because when I spoke on previous occasions there was some suggestion that I had some interest in the matter, but I have not.
I oppose the amendments for one simple reason: they amount to government interfering in a contract freely made between tenants, lessees of premises, and the freeholder. I was amazed to hear the noble Baroness, Lady Hamwee, in the previous debate saying that we should not worry too much about contracts relating to property because of the short supply. She suggested--I am sure that when she reads Hansard she will be surprised to see what she said--that there are two types of contract: one which is normal and the other relating to property which, because of the shortages and one thing and another, can be ignored or one need not be bound by it. If I have misquoted the noble Baroness, I apologise. She will be interested to see what she said on the subject.
When a leaseholder enters a contract to take a lease--never mind for the purposes of this argument whether it is for 21 years or 50 years--the terms are agreed. The ground rent, the service charge basis, the term and anything else are agreed. Those are the terms of the contract which is entered into. It is suggested that Parliament should come into that and say, "We think you might have had a hard-luck story to tell. We believe that we should interfere and put it right". That cannot be right. It cannot be our duty to interfere in contracts freely and honourably made.
If someone was badly advised when he entered into a contract, that person has another remedy. He had better go for his adviser. Let me give an example of a highly honourable man who in 1970 took a flat with a 50-year lease at a rent of £200 a year. At that time and today he had no power or right to enfranchise. There was no such right in 1970 when he took the flat. There is no such right today. Because he is just outside the over-50-years limit in the Bill which would entitle him to enfranchise, and because his rent is just too high to qualify as a low rent, he is outside the exemption. He feels--I understand this and have great sympathy for him--that he has had a raw deal. He is a highly honourable man.
That man believes that Parliament should come into the picture and say, "All right, you have had bad luck. Your landlord told you at the time you took the place that sometime later if you wanted to buy the freehold you could do so". Now we are saying that we are not prepared to do that. That is bad luck, but it is not the responsibility of this place or of Parliament as a whole to say, "We will remake that contract for you". That is what the amendments tabled by the noble Lord, Lord Dubs, seek to do. They seek to remake a valid
I cannot support the amendments. I do not believe that it is our role to interfere with such contracts and to remake them in order to make them more favourable because we did not get it right first time. I oppose the amendments.
Back to Table of Contents
Lords Hansard Home Page