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Lord Goodhart: My Lords, the right of forfeiture is an archaic right. It is a draconian penalty for breach of what is, in effect, a contractual term. It requires a person against whom forfeiture is sought to seek relief from the courts. In those cases where, because relief is not sought or for any other reason, forfeiture takes effect, it can operate unfairly and can deprive the leaseholder whose interest is forfeited of an asset of considerable value that may well exceed substantially any amount that is due.

In those circumstances, I am glad that the Minister has accepted that there is wide pressure for the replacement of forfeiture altogether by a system that is less unfair and more suited to modern times. I regret that the Government did not introduce a proper replacement for the existing forfeiture system in this Bill. We welcome the amendments that have been made. They are moves in the right direction, but they do not go far enough.

The consideration of Commons amendments is not the right time to replace a forfeiture system by a new, modernised and fairer system. For that reason I have not sought to table any amendment to this group of government amendments. Nevertheless, I hope that the Government will persevere and will return as soon as possible with new legislation that will remove the remedy of forfeiture from the hands of landlords, thus preventing the abuse to which the power of forfeiture has, not infrequently, led, and that they will replace forfeiture with a more appropriate remedy.

As this is not the time or place to introduce a wholly new system, I do not oppose the amendment, but I hope that the Government will take notice and will proceed as rapidly as possible with new legislation.

Lord Jacobs: My Lords, I support my noble friend. I cannot recall there being a significant debate in the House on this subject. I recall that an amendment was tabled, but I am sure that it was not moved, to abolish forfeiture. Having read Commons Hansard thoroughly, I have seen that there was a vigorous debate in the other place on 24th January. The more one reads about it and the more one listens to the Minister today, the more one realises that we are quietly putting up with a serious injustice.

If, for example, cars were to be subject to government forfeiture in the event of non-payment of road tax, one would expect the Government to take one's car, to sell it and subsequently to recover the road tax and associated costs and return the rest of the money, which would clearly be your due. Unfortunately, as we know, that does not happen with properties. In regard to one's home, if granted by the court, not only can the landlord recoup the amount of money and associated expenses that he is due, but he can also retain the rest of the money from your home. That is obviously unfair.

The Government may have responded—they did not—by saying that in 1985 the Law Commission started to consider the matter but has not yet arrived at any

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definite conclusions. We could wait another year or two and the Law Commission may come up with some findings. Meanwhile, what do we do about this problem?

Earlier my noble friend raised a more complex issue about housing situated over railways. Clearly that is a technical issue to which it would be difficult to find any easy alleviation. The Government have made an attempt that, in some way, deals with it.

What can we do about this issue? I regret that we did not table an amendment, although I am not sure that it would have helped at this stage. There is one simple way in which we could alleviate the situation immediately: instead of having a footling—if one may use that word—sum as a level above which a landlord can seek forfeiture, one could have made the sum a significant one. Instead of £500, the amount could have been £5,000 or even £50,000. If that were the case, we know that for the time being at least the number of possible cases where forfeiture will be threatened—that is the important point—or sought from the courts, would be few and unlikely to trouble many people.

In this House we have failed—I accept full responsibility on my own behalf—to recognise the situation and to do something about it. It may not be possible to deal with the matter in this Bill, but I would like the Government to consider some temporary protection. I do not believe that raising the level above £500 is significant protection. I hope that the Government will consider a larger sum. If such a provision cannot be brought in at this stage, perhaps something can be done at a later date. Unfortunately I, and no doubt two million other leaseholders, recognise that there will be another commonhold and freehold Bill. It is to be hoped that that Bill will change the position on tenure, deal with forfeiture once and for all, and perhaps bring an end to the system of tenure of leasehold which, as has been said, is unsuited to the 20th century let alone the 21st century. I am sure the Government will recognise those words.

4.30 p.m.

Lord Falconer of Thoroton: My Lords, I fully recognise those words. I accept that forfeiture is a draconian penalty. Many feel that it is unfair. I take the noble Lord's point that when one forfeits the lease one does not get back the value of the lease after repayment of the outstanding debt. The issue needs to be considered. It was looked at very carefully before the Bill was proposed. It is more complex to remove the right than was thought. The choice was whether to delay the Bill to deal with those points or to bring it forward as drafted. The latter choice was made. I note the point about increasing the figure in order to make it meaningful. However, the choice was made: rather than seeking to get rid of forfeiture in an indirect way, the provision ensures that the power is not used to deal with small sums.

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I note what all noble Lords said. As the noble Lord, Lord Jacobs, said, it found an echo in another place when the matter was properly debated. I hope that in time a new Bill will deal with the problem head on.

Lord Jacobs: My Lords, before the noble and learned Lord sits down, perhaps I may say that if it is impossible to put an injustice right, totally and absolutely, one could at least go some way to alleviate the injustice. There is not a Member of your Lordships' House who does not believe that there is an injustice. Could not some more effective temporary remedy be given? It may be inadequate, but less justice is better than no justice.

Lord Falconer of Thoroton: My Lords, the amendments introduced in the Commons seek to do that. I realise that some may not believe that they are adequate but they are steps in the direction the noble Lord seeks.

On Question, Motion agreed to.

COMMONS AMENDMENTS

55Clause 151, page 75, line 30, leave out from beginning to second "an"
56Page 75, line 32, leave out "or not any amount is so" and insert "a service charge is"
57Page 75, line 38, at end insert—
"(1A) Subsection (1) applies whether or not any payment has been made."


58Page 76, line 13, leave out from "having" to end of line 14 and insert "Made any payment."
59Clause 152, page 77, line 38, at end insert—
"(9A) Nothing in this section applies to the payee if the circumstances are such as are specified in regulations made by the Secretary of State."

Lord Falconer of Thoroton: My Lords, with the leave of the House, I beg to move that the House do agree with the Commons in their Amendments Nos. 55 to 59 en bloc. I wish also to speak to Amendments Nos. 77 and 79 to 82.

Amendments Nos. 55 to 58 and 79 to 82 are being made as a consequence of a recent Court of Appeal decision, Daejan Properties Limited v London Leasehold Valuation Tribunal, in which the court ruled that leasehold valuation tribunals have the jurisdiction only to decide the reasonableness of disputed service charges that are still unpaid except under certain very limited circumstances.

We consider this decision to be most unfortunate both from the viewpoint of leaseholders and landlords. As leaseholders become aware of its effect they may be inclined to withhold service charges until they are certain that those charges are reasonable because it may otherwise prove very difficult for them to launch any challenge.

In the light of that development, we decided to amend the Bill to make it as clear as possible that the power of leasehold valuation tribunals to determine reasonableness and liability to pay service charges includes service charges that have already been paid. Amendments Nos. 55 to 58 are the result. Moreover,

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exactly the same considerations also apply to administration charges and, therefore, we need to make equivalent changes to Schedule 11 to the Bill. Amendments Nos. 79 to 82 would do so.

Amendment No. 59 would create a new power to exempt managers by regulation from the requirement to use separate accounts for separate groups of service charge payers. Clause 152 of the Bill introduces a new requirement for managers to use separate accounts. We have received representations from managers who claim that this would be unduly expensive. We remain sceptical about such claims. Managers who already operate separate accounts say that the additional costs of doing so are relatively small, and certain banks have already designed packages to minimise the inconvenience involved and to avoid the necessity of, for example, keeping separate cheque books for separate accounts.

None the less, we are anxious to ensure that the costs of operating separate accounts do not outweigh the benefits. These costs will, after all, inevitably be passed on to leaseholders in the form of higher service charges. We have decided, therefore, that it would be sensible to include a power in the Bill to exempt managers from the requirement to use separate bank accounts under certain circumstances. This would allow us to respond to any changes in the services provided by financial institutions, or in their charges, which might increase the costs of maintaining separate accounts to the point where it becomes unduly expensive.

Amendment No. 77 makes a change to the way in which the Bill is drafted. Schedule 11 currently contains a definition of a fixed administration charge. However, the only place where the term "fixed administration charge" is used in the Bill is in the definition of a "variable administration charge". Therefore, this amendment would replace these definitions with a new definition of a variable service charge, thus simplifying the provision.

Moved, That the House do agree with the Commons in their Amendments No. 55 to 59.—(Lord Falconer of Thoroton.)


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