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Lord Cochrane of Cults: My Lords, I am entirely persuaded by my noble friend Lord Caldecote's argument and agree that his amendment deserves support on all sides of the House. I hope my noble friends on the Front Bench will observe that possibly my noble friend's amendment is wiser than their proposals.

8.30 p.m.

Baroness Hamwee: My Lords, I too support the amendment. I supported amendments to a similar effect at the last stage and I am happy to stand my ground, despite having been duffed up orally on the basis that I was suggesting that contracts were things easily to be put aside. That was not what I said and it is not what

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I am saying now. But I do believe that enfranchisement and a fair scheme which does not leave certain leaseholders without rights is the correct way to go forward. Like the noble Lord, Lord Strabolgi, I am concerned about any scheme which allows landlords to find devices to avoid it. It is always difficult to exclude avoidance devices but this test seems to have been something of an open invitation.

I was initially concerned about the exclusion of the test in rural areas but I think that the noble Viscount's amendment is ingenious in hedging the matter with such conditions that it is only in very closely defined circumstances that the test would not apply.

Like the noble Lord, Lord Strabolgi, I too have had a number of items of correspondence from people who have expressed their disappointment that, despite a manifesto pledge from the Conservatives, the issue is still unresolved.

Lord Selsdon: My Lords, I had not intended to intervene on this amendment and I am slightly surprised by the agreement that exists across the whole House. But your Lordships' House is known for finding issues, however small, where there is an element of unfairness, and one can usually win an argument in your Lordships' House when one says, "This is unfair to the minority", however small that minority may be.

In my noble friend's intervention he indicated that there is a sense that there is unfairness to one group and perhaps fairness to another. The noble Lord, Lord Strabolgi, raised the issue of value or equity participation and rent. At Second Reading I took the liberty of pointing out that we have moved into a new world where inflation is no longer a worry. Historically, people bought fixed assets on borrowed money because in an inflationary environment they saw a capital gain. Hence property investors, whether they were the great, responsible estates or small speculators, would seek to own a leasehold or a freehold because of the capital gain. Arguments about a rent of £600 or a small amount are irrelevant. I know that people put them forward in order to defend their position, but we all know that the differential between rentals and capital values today no longer applies in the same way as it did a few years ago.

I do not think that the amendment is drafted in a way which would prevent further confusion, but it is an area that perhaps the Government ought to consider more closely because if in your Lordships' House we detect an element of unfairness to a minority it is worth looking at.

Lord Lucas: My Lords, I knew it would not last. Here I am, back on my own again, not a friend in the House in front of me or behind me. Still--there we are--that is the way it goes. But when my noble friends look at all the changes we have made and are making in this area of leasehold enfranchisement, and particularly in the area of the low rent test and associated parts of the legislation, I think they will agree that we have gone a long way to dealing with problems which have existed in the past, although we cannot go as far as they wish. My noble friend Lord Caldecote, and indeed the noble Lord, Lord Strabolgi, said that we

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should not legislate on the basis of a few exceptions produced by the British Property Federation. I entirely agree.

I also feel that we should not, when we come to the point, legislate on the basis of a few villages in Gloucestershire which happen to be left outside another more general provision. Our basis for liking the existence of the low rent test is that we feel there is a genuine overlap in lease lengths between leases let at market rents and those let at a premium on ground rents. If we abolish the low rent test for all long leases we should be introducing we feel an unnecessary rigidity into the market, making it impossible for anyone to offer more than 21 years' security of tenure at a market rent without risk of being deprived of the freehold.

We like the idea of two cut-off dates: below 21 years, and above a certain figure--presently 50 years but we will be discussing that later on and, I hope, coming to a view on what that figure should be. As I said at Committee stage, that is something which the Government have been considering. But between the two we feel that there should be the option. Either it should be possible to let on a lease at a premium or it should be possible to have a full market rent. A 25-year lease is not uncommon, and we do not see why that should be forced to be enfranchisable, even if it was intended to make it at full market rent, or why, alternatively, full market rents should be restricted to below 21 years. We prefer to leave the structure of the market with this flexibility. That is why we do not want to move on the existence of the low rent test.

Amendment No. 151 also deals with the rural exemption. It may help the House if I refer to the government scheme which is set out in Schedule 9. The tenancy will be excluded under the rural exemption if the house is in a designated rural area, the freehold is occupied together with non-adjoining residential land--and a later amendment will deal with that to tighten up possible abuses there--and the tenancy was granted on or before the day on which Clause 104 of this Bill comes into force. So it is a provision which is looking back, dealing with the way things used to be arranged and ensuring that this Bill does not upset them. I shall come in due course to the way in which things will operate in the countryside in future.

We want to preserve the integrity of rural estates where houses have been let on long leases so that the expectation that they will be restored to the freeholder for future generations is not frustrated.

My noble friend Lord Caldecote has built on the rural exemption set out in Schedule 9 by adding further restrictions to narrow the class of case which would qualify. These are that the annual rent is less than one-half of the letting value for comparable properties or that it is occupied by a member of the freeholder's, or former freeholder's family, or has been leased on terms related to such future occupancy, or that it is occupied by an employee or former employee of that freeholder. My noble friend has introduced a separate additional test in Amendment No. 155A which would remove leases exceeding 75 years in length from the rural exemption, so making them enfranchisable even if they fulfil all

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the other conditions for the rural exemption. It has been argued that alienation effectively for two generations should permit enfranchisement. We do not believe that it would be wise to permit the break-up of rural estates, even in these circumstances because of the disruption it would cause to the balance of rural life and the complexity which it would add to enfranchisement rights.

My noble friend has criticised the present version of the rural exemption for being too wide, but we feel that he has introduced something far too narrow. What I believe we should be looking at is the relationship between the house and the estate of which it is part, not the relationship between the leaseholder and the freeholder. The principle is not who occupies the house, but that it has been let on a long lease at a rent which exceeds the threshold for the low rent test. That would exclude from enfranchisement properties let at higher rents for estate management purposes. The rural exemption is framed to formulate that distinction.

As to the future, landlords in rural areas will be able to grant leases at rents above the threshold for the low rent test, up to the very long lease limit, whatever that may be. As I have said, we shall discuss that later. Secondly, and on a longer view, some tenancies terminable on a death or a marriage are not enfranchisable. The main excluded tenancies of this type are described in Section 3 of the 1967 Act and in Section 7 of the 1993 Act.

This is a somewhat recondite corner of property law and I do not propose to go into it in detail. However, the effect is that certain types of life tenancy do not fall within either Act and nothing in Schedule 9 changes that broad position. It would therefore be possible for a landlord to offer an employee or a relative a house for their life or for some known life and that would not be enfranchisable under the Act. We believe that that offers the rural communities sufficient flexibility to plan the use and occupation of properties associated with an estate in the future and we do not therefore need to continue the rural exemptions for the future, although we do need to look at them in terms of protecting what has happened in the past. For those reasons, I am afraid that I cannot give my noble friend any comfort on any of his amendments. Nonetheless I hope that he will feel able to withdraw them.

Lord Selsdon: My Lords, before my noble friend sits down, I should not like him to feel that he is friendless. I did not say that I was opposed to the low rent test. I simply think that it is a bit unfair that there has to be a transition. It is important to create an element of stability in the market whether the period is to be 21 years or 50 years. Let us ensure that all sides of the House accept that that is reasonable.

I should like to draw attention to one simple anomaly. The 1993 Act was not perfect. Following that Act, a number of freeholders decided in good will to grant longer leases (of over 50 years) to a number of people. Their fear now is that having

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granted those longer leases, the properties immediately become enfranchisable in terms of freeholds. Such elements create a certain instability. Perhaps the noble Lord, Lord Dubs, will be prepared to say that he thinks that 21 years or 50 years are acceptable so that at least we know where we stand, because people who tinker with the years cause lots of problems.

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