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Lord Swinfen: I believe that the old saying, caveat emptor--buyer beware--applies when people purchase property from a local authority. I assume that purchasers will have raised a mortgage on the property, probably from a building society, and I believe that building societies now have a duty to look at the structure of a property which with a flat would include the structure of the block, not just of the flat itself. There is also a duty on the vendor--in this case the local authority--to answer any questions on the structure of the property that are asked by the purchaser or the purchaser's agents. Any purchaser would be wise to have a structural survey of the property undertaken which would discover risks such as those mentioned by the noble Lord.

I understand the noble Lord's point--he does not want purchasers of long leasehold interests suddenly to find themselves with an unexpectedly high maintenance cost very shortly after buying their interest--but what puts them in a different position from that of any other purchaser of any other property?

Lord Lucas: The new clause proposed by the noble Lord seeks to address a problem which concerns us all--that is, people who bought flats from a local authority and whose service charges are now higher than they anticipated or who now have less money coming in than they anticipated and have difficulty in coping. In some cases they cannot sell their property. These problems are not limited to council leaseholders; nor do they affect most council leaseholders. Recent academic

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research carried out for the DoE suggests that the great majority of council leaseholders see their flat as good value for money.

For the minority who face difficulties, we have proposed our own measures in Clauses 191 and 192 which, subject to the views of Parliament, should go a long way to alleviate their problems and which should make the noble Lord's proposal less necessary. Our clauses give powers for the Secretary of State to issue directions allowing councils and other social landlords to reduce their leaseholders' charges for repairs and improvements and to require them to do so where they will be receiving specific additional funding for a scheme. We went out to consultation on these proposals on 14th June and I have sent copies of our paper to the noble Lord, Lord Williams, and the noble Baroness, Lady Hamwee--or rather, the ever-efficient Anne Hemming has sent them to them. Given our shared concerns, I shall approach the proposal from the noble Lord, Lord Dubs, in a spirit of co-operation. I am sure that he will do the same with ours.

I fully share the noble Lord's desire to give effective protection to leaseholders. However, I do not think that these proposals would be effective, or add anything to the information which is already available to tenants purchasing their flats.

First, the requirement as drafted is open to such general interpretation as to be almost meaningless. An authority might provide very general information that would provide little indication of likely future costs and say that it was not practicable to provide further detail, say, because of uncertainties over future availability of funds. There is no indication in the clause as to what would happen if the landlord failed to give information or gave only very general information.

Secondly, this clause would add little or nothing to the information already available to prospective purchasers. Our research found that 98 per cent. of those buying council flats used qualified conveyancers. It is standard practice for them to ask landlords about service charges, proposed works and other liabilities under the lease. The case history adduced by the noble Lord, Lord Dubs--which I find very surprising--ought to be the kind of matter to come forward at that time. If not, it would give the purchaser an unqualified cause of action against the vendor. Moreover, our 1995 leasehold good practice guide to local authorities advised them to provide more presale information on future liabilities. It is in their interests to do so. They do not want their leaseholders to incur debts to the council that they cannot pay off. That was very much the point raised by my noble friend Lord Swinfen.

For these reasons, I cannot commend the new clause to the Committee and hope that the noble Lord, Lord Dubs, will feel able to withdraw it.

Lord Dubs: I thank the Minister for his response. My understanding is that a number of leaseholders who have bought properties from Wandsworth council have been, and continue to be, dismayed and disconcerted by charges for repairs, refurbishment and service charges. However, Amendment No. 270A does not deal directly with service charges but with other costs. It may be that

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Wandsworth council is unique, in that as a local authority it has not done as well by its leaseholders as other local authorities. But the welter of complaints continues, and many leaseholders in that area are fed up with the position in which they find themselves. However, if, as the noble Lord has said, Wandsworth is uniquely bad and other local authorities are better, all one can do is accept what he has said.

It seems to me that there is no dispute about the principle underlying Amendment No. 270A. The noble Lord, Lord Swinfen, says that on the basis of caveat emptor the purchaser should be able to find out anyway. That is right. However, there have been occasions when that has not proved possible. All the amendment seeks to do is place an obligation on local authorities to behave properly. I am sure that many do, but not all of them do. There is no dispute as to the desirability of the practice described in the amendment. The dispute appears to arise in relation to the scope of the amendment and whether the other safeguards which apply when people buy properties make an amendment of this kind unnecessary. On the basis of comments by many people to whom I have spoken, there is a need for extra safeguards. If the Minister is not to be persuaded this evening, I have no option but to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Dubs moved Amendment No.270B:

Before Clause 191, insert the following new clause--

Use of capital receipts to repurchase unmortgageable flats

(".--(1) Where this section applies a local authority may repurchase a relevant lease from a qualifying tenant at a price not exceeding the value of the lease determined in accordance with subsection (3) below.
(2) This section applies where the relevant lease was granted by the authority not less than three years before the date of the repurchase, and either--
(a) within the period of 12 months immediately preceding the date of the assignment or surrender not less than three lending institutions have indicated in writing that they would not be prepared to offer to any person an advance--
(i) secured by a mortgage of the relevant lease for a term of 25 years, and
(ii) of an amount equal to 75 per cent. of the value of the relevant lease determined in accordance with subsection (3) below at a date not more than three months before the date on which the indication is given,
on grounds relating to the personal or financial status of that person, or the condition of the flat, or
(b) the local authority is satisfied that no leading institution would be prepared to offer an advance which meets the conditions specified in paragraph (a).
(3) For the purposes of this section, the value of the relevant lease shall be determined by an approved surveyor on the basis that it is the price which the relevant lease would realise at the date of valuation if sold on the open market by a willing vendor on the following assumptions--
(a) that the vendor was selling with vacant possession;
(b) that the purchaser was purchasing the relevant lease for the purpose of owner-occupation; and
(c) that where any criteria applied by lending institutions for the purpose of assessing mortgage applications relate to the number of storeys in the building or the number of

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dwellings in the building which are occupied by owners, those criteria are not applicable to the flat demised by the relevant lease or any other flat in the same building.
(4) Credit cover for a credit arrangement entered into in connection with a repurchase to which this section applies may be provided from a capital receipt irrespective of any duty under section 59 (reserved part of capital receipts) of the Local Government and Housing Act 1989 to set aside part of that receipt as provision to meet credit liabilities.
(5) in this section--
"approved surveyor" means a fellow of the Royal Institution of Chartered Surveyors or of the Incorporated Society of Valuers and Auctioneers who is reasonably believed by the qualifying tenant to have ability in, and experience of, the valuation of dwellings, of the particular kind, and the particular area in question;
"flat" has the same meaning as in section 183 of the Housing Act 1985;
"lending institution" means an institution which is an approved lending institution for the purposes of section 156 of the Housing Act 1985:
"qualifying tenant" means the person to whom the relevant lease was granted or a person who has succeeded to the lessee's interest by virtue of a disposal of a description falling within paragraph (a), (b) or (c) of subsection (1) of section 160 of the Housing Act 1985;
"relevant lease" means a lease of a flat granted by the authority pursuant to Part V of the Housing Act 1985, or with a consent given by the Secretary of State to local authorities generally under section 32 or 43 of that Act.").

The noble Lord said: I beg to move Amendment No.270B. This amendment deals with a different point. I suppose that the words "negative equity" reflect the dilemma faced by many house purchasers up and down the country. This may apply also to those who have purchased long leaseholds from local authorities.

I give a recent example of a particular difficulty described to me by a Wandsworth councillor. There is a council block in which a minority of the tenants have bought their own flats and have thereby become long leaseholders. The remainder of the tenants continue, as before, as council tenants.

Repairs, refurbishment or redecoration need to be carried out to the block. If all the residents had been council tenants, the council could have proceeded with the work, but under the new arrangements there is an obligation on the council to get a contribution towards the cost of repair and refurbishment from the leaseholders. Because the leaseholders are finding it difficult to raise the money, the council has not been able to collect the appropriate sum from the leaseholders, and, therefore, none of the work is taking place. In other words, there is, effectively, a veto from the minority of leaseholders, and that has prevented the council tenants, who in good faith are paying their rents and ought to have the benefit of repairs and refurbishments, from having this work carried out. So an impasse has been reached.

I do not believe that that difficulty is unique to this one block of flats. It is a wider difficulty. I have spent some time trying to think of a way round it. It is not easy. Certainly Amendment No. 270B represents a possible way forward because it would enable a local authority to re-purchase unmortgageable flats so that, for example, the situation which I described could be remedied. A leaseholder who could not contribute to essential refurbishment or other costs and

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who had a flat that could not be sold because of negative equity, would, under this amendment, be able to ask the local authority to re-purchase the flat on certain conditions, which are clearly specified here. Therefore, the leaseholder would be freed from a burden which he could face, and the council tenants, in the example that I gave, would then be able to have their flats, or the common parts, repaired and refurbished.

I do not put this amendment forward just because of the one example that I described. It has a wide applicability to council tenants who buy their flats and then find themselves in difficulties. The amendment puts forward a number of options as to a way forward, based upon the local authority being allowed to re-purchase, under certain circumstances, unmortgageable flats.

I appreciate that it is a complicated amendment. If there were a simpler way forward I would have put it down, but the problem is a real one. The amendment attempts to find a way out, at least for council tenants who find themselves in difficulties which are normally not of their own making. I beg to move.

10.45 p.m.

Lord Lucas: The proposed new clause seeks to address the same problem, to our mind, as Amendment No. 270A. I gladly repeat that we share the noble Lord's concern for the problems that some council leaseholders face, which we intend to alleviate.

The new clause, in Amendment No. 270B, is based largely on the exchange sale scheme which we introduced last year. That scheme is designed to help leaseholders who bought under the right to buy, who have an urgent need to move and cannot sell their flat because of mortgageability difficulties. It provides a financial concession to local authorities to encourage them to buy back the leaseholder's flat and to sell the leaseholder a more suitable property at a discount. It has only been in operation since July of last year.

The new clause would give a financial concession to local authorities to buy back a flat, but not to sell the occupant an alternative property. Local authorities already have power to buy back if they consider that a priority, given other demands on their resources. We do not consider that there is a case for giving them a financial concession.

As I have just said, we have introduced our own proposals for reducing leaseholders' service charges. These should also make it less likely for people to need to sell their flat. When we can see what impact those proposals have--and when the exchange sale scheme has been in operation for longer--we can consider whether any other steps are needed, including the proposal advanced by the noble Lord. At this stage, however, I cannot commend the new clause, and hope that the noble Lord, Lord Dubs, feels able to withdraw it.

As I said, we see the changes we are introducing in Clauses 191 and l92 as the way we wish to go forward at the moment in enabling councils to reduce

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charges to leaseholders to alleviate the type of problem the noble Lord illustrated. For the moment we do not believe that we should go down the route he advocates in the amendment.

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