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Lord Jacobs: My Lords, I appreciate the comments of the noble Lord, Lord Williams of Elvel, but it is not fair to say that I was shut out. I did not know the rules and I did not observe them. That is a true admission. However, I have been given a second bite at the cherry.

I strongly support the amendment. Since the Government decided to exclude marriage value for leases with the remaining term of 80 years and upwards, the situation is clearly anomalous if some tenants have, say, only 79 years left. In those circumstances, the tenant will be obliged to pay 50 per cent of the marriage value rather than nothing.

On Second Reading, I proposed a complete taper from 80 years down to 10 years. However, on reconsideration of the matter, I think that the amendment moved by the noble Lord, Lord Williams of Elvel, would be fairer because it only takes it from 79 years down to 50 years, which I believe would be sufficient.

It may be a little surprising that the Government did not propose any taper, but then that is because their position on this matter has not been fully understood.

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They regard marriage value at 80 years and upwards as being de minimis and their proposal to abolish marriage value at that level is to save unnecessary administration and wasteful negotiating costs. I agree with that approach.

If, for example, one looks at the value of leases in Newport and Cardiff, the marriage value on 80-year leases is close to zero, and those years just below 80 will also have negligible marriage value. Therefore, a taper is not required. The problem arises in Greater London where marriage value can amount to tens of thousands of pounds, even at 80 years, so the penalty for being a year or two short on the lease becomes significant without a taper.

The Government can reasonably argue that they had no intention of reducing the cost of either enfranchisement or lease extension by this measure—or any other measure for that matter. They could claim that if marriage value after all has real value at 80 years, they had now better remove the clause abolishing marriage value over 80 years. I believe that that has a certain logic.

On the other hand, if the Government allow the clause to remain, in all equity there must be some kind of taper below 80 years. I urge the Government to think again. I believe that the amendment moved by the noble Lord, Lord Williams of Elvel, is very modest and just, and I strongly support it.

Lord Falconer of Thoroton: My Lords, the noble Lord, Lord Jacobs, puts his case clearly and with great vigour. We have started marriage value only at 80 years because we believe that above that level it is negligible. That means that normally when it kicks in at 80 years the amount of marriage value will be very small. It will become larger as the years go by, but because it is very small when it starts at 80 years a taper is built into the whole process anyway. That is why it seems unnecessary to introduce an artificial second taper as proposed by my noble friend Lord Williams of Elvel. There is already a taper because the marriage value will go up as the years go by, starting from a very small beginning at 80 years.

We are not attracted by the amendment tabled by my noble friend Lord Williams of Elvel because we believe that the circumstances themselves provide the taper. I invite my noble friend to withdraw his amendment.

Lord Williams of Elvel: My Lords, I am grateful to the noble Lord, Lord Jacobs, and the Minister. My noble and learned friend appears to believe in the market according to Marshallian economics. I am not sure that I believe in it. Nevertheless, I invite my noble and learned friend to study Marshall and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 21 to 22 not moved.]

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Clause 136 [Reduction of qualifying period as tenant etc]:

The Earl of Caithness moved Amendment No. 23:

    Page 66, line 11, at the end, insert—

"(1C) This Part of this Act shall not have effect to confer any right on the tenant of a house where—
(a) the house is for the time being let as two or more flats or units; and
(b) the tenancy is superior to those held by the other tenants,
unless, at the relevant time, the tenant has been occupying the house, or any part of it, as his only or main residence (whether or not he has been using it for other purposes)—
(i) for the last two years; or
(ii) for periods amounting to two years in the last 10 years."

The noble Earl said: My Lords, in moving Amendment No. 23 I should like to speak also to Amendment No. 26. We return to the same matter that we debated at Report stage, during which time I received support from all sides of the House on the point that I then sought to raise. To recap, by changing the residency rules the Government have given incredible new rights to head lessees who will be able to expropriate the properties of existing landlords and benefit from any marriage value in future transactions, should they happen. A good number of these head lessees are deliberately set up as overseas tax havens. They are perhaps people whom one would not want to see as landlords in many of our cities, but obviously these are the friends of new Labour.

It would be quite wrong for them to be given these privileges at the expense of existing landlords—the Church, the charities and the pension funds—who will lose a considerable amount of money. We calculate that in the major estates of London the Government's draconian proposals could take effect in over 500 properties. There are millions of pounds at stake. Therefore, by tabling these amendments I seek to help the Government shed the new image that they will gain for themselves. I beg to move.

Baroness Gardner of Parkes: My Lords, I have received a letter from the Leasehold Reform Professional Committee, which fully understands, as do I, the point raised by my noble friend. One does not want to see a commercial head lessee enfranchising over people with flats in a house who would otherwise be able themselves to enfranchise. Nevertheless, it is concerned about the amendments because it believes that the undertaking given by the Government at the previous stage of the Bill provided better news. It would prefer that these amendments are not accepted today.

Lord Jacobs: My Lords, I support the noble Baroness, Lady Gardner of Parkes. It has been suggested to me that we should invite the Government to look carefully at the amendment because it appears to go further than the general support expressed at Report stage. We all recognise that there is a problem with head leases and that perhaps the wrong people

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will enfranchise. It is my understanding that this amendment takes the matter much further. I invite the Government to look at it carefully.

Lord McIntosh of Haringey: My Lords, if the noble Earl, Lord Caithness, seeks to help the Government he is going about it in a strange way. To contrast these wicked head lessees who are friends of new Labour with landlords who are widows, orphans and the starving millions appears to be a little extreme. However, the noble Earl has a point. We said that in relation to his amendment at Report stage. He suggested ways in which we might address the concerns which he put forward last week.

We agree with the noble Earl that head lessees should not be able to make windfall gains by enfranchising in these circumstances. We now accept that the Bill could be interpreted in a way that allows that. We are presently considering changes to put the matter beyond doubt and shall introduce an amendment in another place to achieve that. We shall certainly consider the approaches suggested by the noble Earl, although we also bear in mind the comments of the noble Baroness, Lady Gardner, and the noble Lord, Lord Jacobs. I shall inform the noble Earl of our proposals in due course.

The Earl of Caithness: My Lords, I am extremely grateful for the noble Lord's response. I am particularly encouraged by his observation that not only do I have a point but there is a flaw in the Bill which needs to be rectified. Thank goodness we have had the time to highlight this matter. It has also given the Government time to table at this stage at least one third of the amendments to clarify earlier parts of the Bill.

We are still concerned that without a residency test there will be a new speculative element in the market which has not existed so far. That will arise on short leases and leasehold houses and it will affect prices where there are two competitors pursuing a property, one of whom is a speculator and the other is a potential owner occupier.

Having said that and registered the point yet again, I am extremely grateful for what the Government intend to do. I look forward to seeing the amendment to be tabled in another place. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 141 [Exclusion of shared ownership leases]:

[Amendment No. 24 not moved.]

Clause 142 [Tenant's share of marriage value]:

[Amendment No. 25 not moved.]

[Amendments Nos. 26 and 27 not moved.]

Lord Jacobs moved Amendment No. 28:

    Before Clause 147, insert the following new clause—

(1) No lease of a flat or house may be granted at a premium unless the term of this lease is not less than 300 years.

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(2) In this section "flat" has the same meaning as in Chapter 1 of this Part and "home" has the same meaning as in Part 1 of the Leasehold Reform Act 1967 (c. 88)."

The noble Lord said: My Lords, this amendment has been debated before only briefly and yet it could have significant implications for the leasehold system in this country. We all recognise that this Bill breaks important new ground; first, with the right to manage and, secondly, with commonhold. However, we now understand that there is virtually no prospect of the existing 2 million leaseholders achieving commonhold. What is not fully understood is that from the tenants' point of view if they are able to obtain enfranchisement and secure a 999-year lease then as much as 90 per cent of the benefits of commonhold could be achieved under such leases.

However, I fear that the Government have overlooked the fact that landlords—I refer particularly to those in Greater London—are intent on maintaining the leasehold system as far into the future as can be imagined. If a Greater London landlord has already existed for 150 years there appears to be no problem in continuing for another 150 years, and perhaps longer. I do not decry that possibility, but it goes some way to explain why leases are still being granted for terms of 125 years, 99 years, 75 years and—believe it or not—20 years.

The principle is always the same. The tenant will pay the virtual freehold value for leases in London of 75 years and upwards. But from that moment onwards for every year the lease diminishes the landlord's reversionary interest increases and the tenant's interest decreases. That is disguised somewhat by the fact that with property inflation the tenant's interest does not appear to diminish so much while of course the landlord's interest increases enormously.

The principle that the landlords wish to establish is that of a second bite of the cherry. That is to enable the tenant or his successors who believe they purchased their own home to purchase again in 75 or 99 years and then at a greater market value. That is a "nice little earner", as they say. This amendment is designed to extinguish the landlord's interest and enthusiasm for achieving successive bites of the cherry. Perhaps the amendment would be better if it were for 999 years, but I still believe that 300 years is sufficient. I am sure that the Government recognise that the landlord is not being deprived of any element of value when he grants a lease for 300 years.

What, therefore, can be the objection to this amendment? Primarily, it is a limitation of consumer choice. With the exception of 20-year leases to which I shall come, the consumer pays virtually the freehold price in Greater London for leases of 75 years and upwards. The price range is between 90 per cent and 98 per cent of the freehold value. Consumer choice would mean that tenants would prefer to have a 999-year lease or certainly under this amendment, a 300-year lease. By this amendment we are not restricting the tenant's choice, but the landlord's choice because it is the landlord who has an interest in granting the shortest possible lease commensurate with obtaining the maximum value.

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In the case of 20-year leases it is a different kettle of fish, for here landlords successfully sought to avoid the 1993 Act by declining to offer leases greater than 20 years before the Act came into being when 21 years was the expected cut-off point. These properties can no longer be enfranchised and I am sure that your Lordships will accept that landlords did not offer the consumer a choice of 20 years or of, say, 75 years, and insisted it was 20 years or nothing even though such tenants had reasonable expectation of being granted a normal length lease on renewal.

It is intended by this amendment that the landlord cannot grant a lease of 20 years for a capital sum. It would have to be a 300-year lease. However, it should be recognised that in Greater London one does pay a lesser sum for a 20-year lease, believe it or not, up to 60 per cent of the notional freehold value. So after 11 years, for example, a tenant who wants to sell his remaining lease of nine years would go to an estate agent who would tell him immediately that it is not saleable unless he can acquire a new 20-year lease. But by that time his nine-year lease is only worth about 30 per cent of the notional freehold value.

Just to make it absolutely clear, perhaps I may give your Lordships an example. If a flat has a notional freehold value of £300,000, these Greater London landlords would sell a 20-year lease for up to £180,000. At the end of 11 years the tenant would have to pay another £90,000 to buy a new 20-year lease, assuming that there is no inflation. If there is inflation of just three per cent per annum the tenant would have to pay £124,000 to convert his nine-year lease to a 20-year lease. So in the end the tenant will have paid out £300,000 over a period of just 11 years, which was the value of the virtual freehold property in the first place.

Therefore, are we to say that, in the interests of consumer choice, we should allow 20-year leases to be granted for a capital sum? I believe that we would be doing the tenants an immeasurable favour if we were to say that all leases for a capital sum should be for a minimum period of 300 years. Landlords would rapidly lose interest in the possibility of further bites of the cherry and the leasehold system would wither away, which after all, is surely what the Government want.

I challenge the Government to survey leasehold tenants once again and find out whether they would prefer to retain leases of 20, 75, 99 and 125 years or whether they would prefer to acquire at full market value a 300-year lease. Could the Government also survey the landlords? We could then agree whether consumer choice is wanted by the tenants or by the landlords.

I have dealt with the question of consumer choice. The remaining objections raised by the Government at Report stage are not significant and could be responded to fully in another place. However, a statement by the Minister, the noble Lord, McIntosh of Haringey, cannot be passed over. On l3th November, at col. 549 of the Official Report, he said,

    "Of course, we will monitor the development of commonhold after the Bill is enacted. We expect it to become the preferred form of tenure and that leasehold will gradually wither on the vine".

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He should have added that the Bill will do nothing for the 2 million leaseholders who will remain shackled in the present system. This amendment, therefore, is designed to rectify the situation. I urge your Lordships to support it. I beg to move.

7 p.m.

Lord Monson: My Lords, I believe that the amendment would prevent a willing buyer from acquiring a short lease from a willing seller. Why? There are plenty of reasons why a willing buyer might be willing. He might be a middle-aged person, single, divorced or widowed and with no children. Rather than pay rent for a period of 20-odd years he might prefer to shell out a capital sum. Why should not that be possible?

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