Wednesday, 21st June 1995.

The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.

Prayers—Read by
the Lord Bishop of Portsmouth.

Whether they consider that the safeguards against the abuse of the monopoly or near monopoly of the privatised public utilities are adequate.

2.46 p.m.

Whether they will withdraw the charge of VAT on work done on the maintenance and repair of listed buildings, including churches.

2.56 p.m.

What measures they will take to ensure that farmers observe the amended Personal Protective Equipment (EC Directive) Regulations 1992 (S.I. 1992/3139) when they come into force on 1st July 1995.

3.1 p.m.

Why they decided not to call in the planning application for further mineral extraction at Swinden Quarry in the Yorkshire Dales National Park.

3.7 p.m.

The noble Lord said: My Lords, I hope that as a result of the debate we shall have some indication of measures that may be taken to deal with the present situation. There is no doubt that all the figures produced on any aspect of housing show a deteriorating situation.

The first part of my Motion calls attention to the housing needs of the nation. The second part deals with the building industry. Noble Lords will know that over the years I have from time to time asked questions as to why in the past few years we have had half a million building operatives on the dole, building firms across the spectrum working below capacity, and huge sums of money which belong to local authorities locked up and subject to restrictions which prevent those authorities from building at the rate they would like. I do not know what the Government are waiting for.

It is not as if a bolt from the blue has suddenly caused a housing crisis—and it is a crisis. It is the result of deliberate government policy, introduced under the present President of the Board of Trade, the Right Honourable Michael Heseltine, when he took office as Secretary of State in 1979. The first thing he did was to set about removing government subsidy for council house building. The Government compounded that by making the insane decision—and I still think it is insane—to stop local authorities building housing for rent. Historically, since the early 1920s they were the biggest provider of low rent housing. I do not say that they were perfect, but they were far and away the best landlords in the country.

It is about time that the Government ceased their vendetta against local authorities and their council houses and started giving authorities the facilities and finance to enable them to eat into the problem regarding the appalling current housing situation.

Over the years the Conservative Party has claimed to he the party of the owner-occupier. Literally every owner occupier in the country has been hit by what has occurred in the house purchase industry. An enormous number of people are now trapped in negative equity. From an item on the news this lunch time, I understand that the problem of negative equity is not reducing; it is increasing. Approximately 1,000 houses a week are still being repossessed. Those of us who are fortunate enough to own our own homes have a diminishing asset because of the Government's policy. It was rather naughty of the Prime Minister to suggest in a speech a few weeks ago that the problem of negative equity was people's own fault for daring to buy their houses.

Ministers always fall back on the success of the sale of council houses. That policy was a success based on enormous cuts in prices through the goodwill that the Government were able to engender and trade on. However, I have figures which indicate that in some areas of London some people received as much as a £50,000 cut in the price of their council house so they could purchase it. Yet in the same area young couples purchasing a similar type of house were being dispossessed because they owed a far smaller sum than the figure to which I referred. That does not seem to me to be equal treatment of people of the same nation.

I understand the situation now is that, if one deducts council houses from the number of houses being purchased, for the first time for many years in this country the figure is on the downturn.

What has happened over the years regarding provision of council housing or housing for rent? A number of reports have been instigated by prominent people in this country. They were not from political parties. We can go back to the Duke of Edinburgh and his commission. A group of people with expertise across the board on housing—it was in no way politically motivated—put forward proposals to assist housing in this country. Did the Government take action? There were some comments about parts of the reports with which they did not agree, but no action was taken.

We then had the report of the commission of the former Archbishop of Canterbury, the noble Lord, Lord Runcie, Faith in the City. It was a superb report for anyone to read in depth. It pointed the way forward. Once again the report was not politically inspired. But nothing happened; it just gathered dust.

The reports were supported by reports from other people—not from a political background—who took the same view. Those reports indicated, sadly, that deterioration in the housing stock of the owner-occupier section of the country is reaching alarming proportions. Between £8 million and £10 million will be required to bring those houses up to standard for the public sector. But nothing has happened and those houses just deteriorate.

I referred to costs that were first commenced by Mr. Heseltine. Figures have proved conclusively that had the Government continued with housing finance and allowed the councils to continue to build we would have gained between half a million and a million more houses available for rent in this country. There is no point in saying that an accident happened. That accident was a result of deliberate government policy. I have said this before in this Chamber, and I say it again: it was the Government's fault and no one else's.

It is about time that the Government turned away from some of their political ideology now that the number of homeless people, and those in bed and breakfast accommodation, is increasing. If the money spent on providing bed and breakfast facilities were spent on building houses it would create a considerable number of houses for occupation. That is the current situation.

I have gone through most of the major points with regard to housing problems as we see them today. I now turn to the building industry. The Government, rightly, set up a committee under a former Member of another place, Sir Michael Latham, to consider the question of reorganising the building industry. He produced a very fine document which, I believe, in the main was accepted by the overwhelming majority of people involved in the building industry—certainly the builders themselves. There were some areas of disagreement, but, basically, it was accepted that a package was available which should be in the legislation to benefit the building industry.

What has happened? Yet again, we are going sideways, not forward. It seems strange to me that a major piece of legislation dealing with the building industry has now been handed to a Parliamentary Under-Secretary in the Department of the Environment. I make no criticism of that junior Minister, but that does not give a high profile to a building industry which is in serious trouble. In the circulars and correspondence from building organisations and suppliers to the building and civil engineering industry there are no projections regarding an expanding workload in this country. Having said that, there are some outstanding successes in the export field—building abroad—which I commend.

I attended a working lunch a few weeks ago to discuss the Latham Report. We were disappointed to hear the Minister state that there can be no action in the current parliamentary Session. From the way he spoke, it appears that there will be none in the next Session because the matter has now gone back for further consultation.

The Government ought to take this strong point on board—it has been raised in your Lordships' House by noble Lords on all sides of the Chamber—regarding the reluctance of some of the large building companies to pay their bills on time to the smaller builders and suppliers. Because of cash flow problems that reluctance often results in the smaller builders going to the wall. I should like to see the Government giving attention to that factor because it is a very real worry to people.

The debate gives us the opportunity to discuss the present housing situation in this country. Members of your Lordships' House will know that over the years I have led several debates in your Lordships' Chamber on housing. I have always found that the Government take not a bit of notice if they do not agree with what someone says, irrespective of party, even if the logic of the argument is pointed out. If the Government had listened a little more instead of hiding behind their political dogma on housing, many of the problems that we now face would not exist. In my opinion, enormous sums of money will be necessary to put right the errors that have accrued over the years.

We are going backwards in the housing of our people. When I was a chairman of housing in Manchester we were almost out of the tunnel. We were building houses so fast that keys were going out by the hundred each week. It was the same in all areas. Then suddenly someone in the Conservative Party thought, "We can't have local authorities doing this", and it was stopped. It is the first government ever to have stopped such building. As regards previous Conservative Governments, one has only to remember Harold Macmillan when he was in charge of the housing programme. He produced 300,000 council houses a year. I wonder what he would have thought if he had seen the shambles which the present Government are observing today. About 2,000 council houses will be built this year. A few weeks ago, when I questioned the Minister, I said that we were always told that, under the Housing Corporation, the HATs were the Government's answer once they had stopped councils building houses. We were promised that housing associations would have a yearly target of 60,000 houses. What is the Government's answer? That we will be lucky if there are 30,000 this year because of the enormous cuts created knowingly and intentionally by the Government in the allocation of cash to the Housing Corporation for general distribution. Those are the actions of a Government who are supposedly interested in dealing with a situation in which housing is greatly deteriorating.

I mentioned homelessness and other speakers will refer to the details; I have had to give a broad sweep. In conclusion, I believe that your Lordships' House should send out a message in regard to a situation which will not improve. I hope that for once the Government will listen to and not ignore that message. I beg to move for Papers.

3.25 p.m.

3.31 p.m.

3.39 p.m.

3.45 p.m.

3.54 p.m.

4.3 p.m.

4.11 p.m.

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4.29 p.m.

4.38 p.m.

4.46 p.m.

4.52 p.m.

5 p.m.

5.8 p.m.

5.16 p.m.

5.27 p.m.

5.37 p.m.

5.59 p.m.

Motion for Papers, by leave, withdrawn.

Brought from the Commons; read a first time, and to be printed.

6.3 p.m.

The noble Baroness said: My Lords, I believe that this is one of the most important debates that we have had this Session in your Lordships' House and I am very glad to have the opportunity this evening of opening it. The terms of the debate refer to the casualisation of the labour market—but in fact the debate is much wider than one simply concerned with employment, as I hope to show in the course of my remarks. I am sure that that will be followed up by some of my noble friends who are due to speak later.

Everyone now seems to accept that the days of a job for life are over. Indeed, it seems almost indecent for anyone to expect such a thing. The Government, of course, refer to this as labour flexibility. They have been instrumental, both by exhortation and through legislation, in encouraging greater flexibility, which they appear to think is good for both employers and workforces. It is felt that greater flexibility gives the workers more "choice" and it seems that the Government have women particularly in mind, since women make up a large proportion of the workforce which is in part-time employment.

Last July, the official journal of the Department of Employment, the Employment Gazette, published an interesting survey on flexible employment. Its key

findings were that some 9.7 million people—38 per cent. of all UK workers—are working part-time, in temporary employment, are self-employed, or on government training schemes. That is an increase of 1.25 million since 1986. The proportion of men who are part of the flexible workforce has risen from 18 per cent. in 1981 to 27 per cent., whereas among women it has remained relatively stable.

There are, as the Employment Gazette has pointed out, a number of definitions of "flexibility". There is wages or earnings flexibility, which generally speaking involves systems like performance-related pay rather than fixed wage rates. This, with government encouragement, has been introduced practically everywhere, even in sectors where once it was unknown—in public sector enterprises, the NHS and among skilled and professional people. If anyone claims, as the Government may do, that these systems have led to greater efficiency, I must say that from my point of view I do not think that that has always been the case.

Then there is labour mobility, which describes the movement of workers to different jobs, occupations or areas according to changing economic conditions. That has been going on for a very long time, but there are plenty of reasons nowadays which render such movements simply not practicable for large numbers of workers; including, of course, the housing situation which your Lordships have just been discussing.

Then there is functional flexibility, relating to the absence of job demarcations. That used to be talked about a lot years ago and was supposed to be the main reason for the UK's poor economic performance. Well, that has long since disappeared, without the benign effects on economic performance predicted. But mostly, what we are thinking about when we talk about flexibility is what I have described in the title of the debate as "casualisation of the labour market".

Those of us who joined the workforce in the years immediately after the last war were perhaps extremely fortunate. In the main, the fear of unemployment had gone. That was something that had happened in the 1930s—to our fathers and grandfathers. We had jobs. If we lost one job, it was not too difficult to find another one. If we went into public service or one of the service industries, such as insurance or banking, as I did when I left school, we could confidently expect to stay there, if we wanted to, until retirement, when we could in many instances have earned a pension related to our final salary. I am, of course, talking fairly specifically about white-collar employment. Manual work, even skilled manual work, always tended to be less secure, although there was a fairly strong feeling among working class people, at least as far as sons were concerned, that the thing to do was to get the boy an apprenticeship in some skilled trade and that would lead to a reasonable degree of security for the future.

I need hardly say that these expectations no longer exist, either for white-collar, middle-class people or for people who would perhaps have described themselves as skilled working class. The work scene has changed very dramatically and some of the change has been positively due to government encouragement. Until 1979 or thereabouts, even Conservative Administrations accepted that the maintenance of a high level of employment—and high standards in that employment—was a basic government priority. Since 1979, however, there have been a whole series of government initiatives which have had the deliberate effect of loosening up the labour market.

There have been numbers of employment measures designed to undermine the strength of the trade union movement and therefore to rob working people of whatever collective strength they had to oppose measures being put in train which they perceived to be to their disadvantage. In addition, of course, we have had the revolution in information technology, which in an unregulated market has invariably been disadvantageous to a large section of the workforce unable to cope with it.

The Government, however, have boasted to overseas investors that if they come to Britain they will not have to recognise unions, employment protection standards are low or practically non-existent, wages are low and there is plenty of available labour because of unemployment. So, in many ways, what we see now is the result of deliberate policies.

But, as with such ideologically motivated policies, side-effects have happened which I do not think anyone, including the Government, anticipated. The result of what I believe is now known as "down-sizing" by companies—what a previous Prime Minister has described as becoming leaner and fitter—has been that a sense of gross insecurity has now begun to affect not only working-class people, who to some extent have been used to it, but white-collar employees and middle managers as well. Moreover, those who are left in work are themselves beset with anxieties and are often having to work much harder than they should in order to make up for the fact that staff numbers are being reduced.

My own union recently undertook a survey of members working in both private and public sector jobs. Forty-four per cent. of respondents working in financial services, for example, reported that they felt less secure in their jobs than they did a year ago. The survey also showed that stress is now a major problem for those in work, with 60 per cent. of the sample saying that they suffer stress as a result of not enough time to do the work they are given, poor relationships, general lack of security and so on. That survey was conducted among people working in substantial firms where there is union recognition. It is our belief that the situation is a great deal worse where the work is non-unionised and the people concerned have far less security. According to some recently published research, 44 per cent. of British workers arrive home feeling exhausted.

The new post-industrial culture, if effectively managed, could have given people more time off to use for themselves. Instead, we are seeing a great divide between those in jobs who are working themselves into the ground in order to keep them, and those without any jobs at all who are becoming increasingly subjected to pressure from the Government to comply with further requirements in order to qualify for the new jobseeker's allowance which will be less, of course, than unemployment benefit and may carry with it the obligation to take on any sort of job irrespective of rate of pay or qualifications.

In addition, there has been a large development of part-time employment and also of what I believe is known as "zero" employment where individuals commit themselves to be called in at need by a particular company and are paid when needed and not otherwise called for. I remember several years ago in this House we debated the demise of the dock labour scheme. We were unable to prevent its demise, but I well remember the debates we then had when noble Lords with experience of those times explained why the scheme had originally been introduced. I particularly remember the contribution at that time of my noble friend Lord Callaghan.

Before the last war large numbers of men would assemble at the dock gates. The boss would come out and say, "I'll have you, and you, and you, and the rest of you can go". Those not chosen had to go back miserably to their families to say there would be no money that day. It was to prevent that kind of casualisation that the dock labour scheme was first introduced. What we are now seeing is the casualisation of a large segment of the UK labour force.

Moreover, pay and conditions tend to be very poor. The wages councils have disappeared. They did at least set a minimum standard in some services and industries. According to a recent TUC survey, the lowest 10 per cent. of part-time workers, mostly women, earned only £2.49 per hour; the median was £3.98 per hour. The Government believe that many workers choose to work part-time, but often that is all the work that there is available, particularly for women. There has been a growth in the practice of hiring staff, even quite skilled, professionally qualified staff, on short-term contracts with, of course, the lack of employment rights consequent on such arrangements. In many respects, that is a rather short-sighted policy on the part of the employers who do it, since why should there be any loyalty to the company if the employer on his part does not show any commitment to the staff who have been hired?

As I said earlier, these developments had a down side, which I do not believe the Government anticipated. If people have no sense of security they will not take on long-term commitments. The former Prime Minister was anxious that we should all become property owners. Everyone, including council house tenants, should be able to buy their own home. Noble Lords have been debating that earlier this afternoon. But as we know, such decisions have often been disastrously unforunate for some people. Trapped in what is euphemistically called "negative equity", their houses will fetch less on the market than the amount they borrowed to pay for them, and they need to sell because they no longer have jobs which will enable them to meet repayment obligations. The idea that the next generation would inherit their parent's home and thus be better off than their parents has also ceased to have much validity.

Local authorities are expected to shoulder the burden of caring for the elderly and disabled in their areas, but in many instances lack the resources to do so, so the homes of elderly people are increasingly having to be sold in order to meet the costs of residential care. Everyone knows that housing policy is in a mess and at the root of it lies basic insecurity of employment.

I was talking recently to a former colleague in the insurance industry. He told me that life insurance sales are at an all-time low. The reason is not only the scare about personal pensions and what that has meant generally in the insurance market. The main reason has been identified as the refusal of people to make long-term commitments. That is because many of them do not know whether they will be in employment in 12 months' time and will not take on a commitment to pay insurance premiums which they feel they may not be able to afford in the future.

Law and order is a major issue for all political parties. I certainly would not seek to maintain that the cause of it is deprivation alone—of course, the whole matter is much more complicated than that—but the fact that young people, particularly young males, now have such a low expectation of employment and, indeed, doubts about their role in society as a whole, must play some part in the growth of violence among this particular group.

What I am saying is that the general insecurity that clearly exists is undoubtedly the reason for the lack of the "feel-good" factor which Government spokespersons are clearly concerned about and which, in my view, is likely to lose the Government the next election. It is really no use saying that unemployment is going down; that the claimant figure is lower than it has been for some time. Yes, of course, I have seen the figures.

I have to say to the Government that they have a credibility problem. No one believes them any more. It is impossible to open a newspaper without seeing that one or other major institution is about to cut thousands of jobs; whether it is banking, milk marketing or even the Post Office—despite, incidentally, the latter's record profits.

People know that redundancies have been taking place where they work; or their children cannot get jobs and their neighbours are out of work, and so on. Everyone also knows that the claimant count underrates the numbers of those actually without work since the method of calculation has been changed so many times, and will undoubtedly be changed again as a result of the Jobseekers Bill recently debated in this House.

The Government will undoubtedly say that the solution is simply more of the policies we have already had; fewer protections for workers; opposition to the social chapter and to EU directives like, for example, the hours of work directive, which would surely help to create a little more employment throughout Europe.

Frankly, I do not believe the Government's case. We have had these policies now for over 15 years and the results have not been good. There has to be a determined effort by the Government to bring in policies designed to ensure investment in jobs and in the UK economy. I am sure that a number of my noble friends who are to follow me in the debate will elaborate on that point.

I do not deny that there is an international dimension, but our future, and the future of our workforce, should not depend on driving our conditions down to third world level. Steps must be taken to restore a sense of security to the large mass of UK workers who at present do not have it. They lack it directly because of some of the policies initiated by the Government and in particular by policies associated with the name of the previous Prime Minister.

I believe that a Labour Government would indeed have the commitment and zeal to embark on such policies and would use their best efforts to ensure that our European partners joined with us in a concerted attempt to reduce the levels of unemployment throughout Europe and restore a sense of stability and security so much lacking at the present time. I beg to move for Papers.

6.19 p.m.

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6.55 p.m.

7.3 p.m.

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8.14 p.m.

Motion for Papers, by leave, withdrawn.

8.33 p.m.

Moved, That the House do now resolve itself into Committee.—( The Earl of Courtown.)

On Question, Motion agreed to.

House in Committee accordingly.

[The DEPUTY CHAIRMAN OF COMMITTEES (Baroness Nicol) in the Chair.]

Clause 1 [ Tenancies to which the Act applies]:

Page 1, line 6, after ("Sections") insert ("( Transmission of benefit and burden of covenants), ( Transmission of rights of re-entry),").

The noble and learned Lord said: In moving Amendment No. 1, I should like to speak also to Amendments Nos. 10, 13 and 88. Apart from apologising for the fact that I kept your Lordships waiting a little time, perhaps I may begin by asking your forbearance in the face of the large number of amendments which stand in my name, and also to put on record my gratitude, which I am sure your Lordships will share, to the Law Commission and parliamentary counsel for their full and unstinting assistance in the preparation of these amendments. The amendments standing in my name are aimed at ensuring that the Bill gives full and proper effect to the Law Commission's scheme which, notwithstanding the amendments which my noble friend Lord Courtown is to move, forms the backbone of the reforms. The Law Commission's recommendations which the Government accepted for new leases are very full and detailed, and the amendments themselves have also had to be very full and detailed.

Amendment No. 1 has the effect of paving the way for Amendments Nos. 10, 13 and 88, and with your Lordships' leave I should like to speak to those later amendments now. I believe that it would also assist your Lordships if I were at this point to give an outline of the scheme of which these amendments form part. The essence of the scheme recommended by the Law Commission is that all covenants and obligations between lessor and lessee should be enforceable between the landlord and tenant for the time being, with no distinction being drawn between covenants which "touch and concern" the land and other covenants. When the landlord's or tenant's interest is assigned, the assignee should become bound from the assignment by the whole package of rights and obligations as it bound his predecessor (and so including any variations), but should not take on any rights or liabilities in respect of any breach of covenant occurring prior to the assignment.

Concomitantly, the assignor should cease to have any rights and obligations as from the assignment, but should not lose any accrued rights in respect of a breach by the other party prior to the assignment, and should likewise remain liable for any breach on his own part occurring prior to the assignment. This is subject to slightly different provision for landlords, requiring them to go through a notice procedure which gives the tenant the right to object to their ceasing to be bound if that would be unreasonable in the circumstances. This difference was recommended by the Law Commission because, unlike landlords, tenants have no way of vetting the landlord's assignee and preventing the assignment, and the assignee's ability to perform the landlord's obligations might in some cases be very important.

In the case of assignments of part of the landlord's or tenant's interest, the assignee should become bound by the package of rights and obligations only to the extent that it relates to the part assigned, and should not take on any rights or liabilities in respect of any breach of covenant occurring prior to the assignment. The assignor should similarly cease to have prospective rights and obligations in respect of the part assigned, but should retain any accrued rights to the extent that it related to that part, and should also remain liable for any pre-assignment breach of his own in relation to that part. The assignee should remain bound by the package of rights and obligations to the extent that they relate to the part retained by him. Where there are covenants which do not clearly operate separately in respect of separate parts of the interest there is to be special provision for apportionment of the rights and obligations.

The group of amendments to which I am now speaking is necessary in order to avoid potential problems arising from the interface of the new regime with the existing law governing the transmission of the benefit and burden of covenants and their enforcement under privity of estate, which the existing text of the Bill does not do effectively. The existing law is contained in a mixture of statutory provisions and common law rules which are not always consistent, clear or certain. The approach of the amendments is to provide a complete and self-contained framework for new tenancies giving full effect to the principles of the Law Commission's recommendations and simply to disapply the existing law for new tenancies, rather than to attempt the extremely difficult task of amending the existing law consequentially.

Amendment No. 1 is needed as a consequence of Amendment Nos. 10 and 13 because Clause 1 sets out which provisions of the Bill are to apply only to new tenancies and which are to apply to both new and existing tenancies.

Amendment No. 10 inserts a new clause after Clause 2 of the Bill. This is at the heart of the scheme recommended by the Law Commission to ensure that the changes to the rules on privity of contract can be properly integrated into the law on covenants. The amendment is intended to restate and clarify, for new tenancies, the present rules for the transmission of the benefit and burden of leasehold covenants (some of which date back to the 14th century) with a simple statutory code, the basic principle of which is that the benefit and burden of all landlord and tenant covenants of a new tenancy are annexed to the whole and each and every part of the lease and reversion as appropriate, irrespective of whether they "touch and concern" the land.

At the risk of over-extending my speech at this stage, I believe that it might be helpful for me, in the light of the amendments tabled by my noble friend Lord Jenkin of Roding, to give a simple example of how the provisions which my noble friend would amend will work in practice. The provisions in question are purely aimed at assignments of part. In such a case, the basic rule is that the assignee will be bound by all the covenants which bound his assignor, except to the extent that the covenant falls to be compiled with in relation to the part not assigned. Sometimes a covenant may fall to be complied with in relation to one part of the property that has been let, but not in relation to another. For example, there may be a lease of both a house and an adjacent field. Under the lease the tenant covenants to repair the house. If the tenant assigns the lease in so far as it relates to the field, the burden of the repairing covenant will not pass to the assignee because it falls to be complied with in relation to

"demised premises not comprised in the assignment"

in the words of subsection (2) (a) (ii); that is to say, premises which are part of the demise to which the part assigned belongs but which are not themselves being assigned in this particular transaction.

The new clause includes provision presently contained in Clause 7 of the Bill and your Lordships will note that, as a consequence of this, I shall in due course be opposing the Question that Clause 7 stand part of the Bill. The clause also embodies those parts of Sections 78 and 79 of the Law of Property Act 1925 as are to be preserved for tenancies. Together with the clause to be introduced under the next amendment, it replaces Sections 141 and 142 of the 1925 Act, which will not apply to new leases. Amendment No. 88 accordingly carries through the approach by providing for those statutory provisions not to apply to new leases.

Amendment No. 13 introduces a second new clause after Clause 2, corresponding to subsection (1) of the first new clause. This will ensure that, in the same way as the benefit and burden of covenants in new tenancies are to pass on the assignment in whole or part of a lease or reversion, the benefit of any right of re-entry which may be reversed by the landlord will pass on an assignment of the whole or any part of the reversion. I beg to move Amendment No. 1.

8.45 p.m.

On Question, amendment agreed to.

Page 1, line 7, after ("13") insert ("and section ( Restriction of liability of former tenant where tenancy subsequently varied)").

The noble Earl said: With the leave of the Committee I shall speak also to Amendments Nos. 4 and 58. I should like to thank those whose hard work has enabled us to reach this stage and to express the hope that the spirit of compromise which has propelled the Bill as far as this Committee will take it to the statute book. It falls to me to bring forward the amendments to give effect to the property industry agreement, representing a most important compromise which has won support on all sides. I hope that the Committee will forgive me if I take some time to outline the elements of the agreement.

The first element comprises the amendment to Section 19 of the Landlord and Tenant Act 1927 to enable landlords and tenants to agree in advance the terms under which future assignments can be made. That is aimed at ensuring that landlords will be able to preserve covenant strength which underpins an investment folio and will apply only to new commercial leases.

The other three elements of the agreement are aimed at extending further protection to former tenants. They will apply to both new and existing tenancies of all types. The first element will reduce the nine-month period in Clause 13 to six months to give former tenants earlier notice of potential liabilities. The next will stop a former tenant's liability being increased by certain types of changes to the lease. The final component will allow a former tenant who is made to pay for another's default to call for an overriding lease so that he may have some measure of control over his position.

Amendment No. 2 is a simple amendment which makes it clear that the further element of the agreement which I have just outlined dealing with liability in respect of subsequent variations of the lease is to apply both to new and other tenancies; that is to say, existing tenancies. The amendment, in effect, paves the way for one minor amendment and one substantial amendment.

The minor amendment is Amendment No. 4, the purpose of which is to ensure that the verb in subsection (2) agrees with its subject, because more than one provision will apply to both new and other tenancies where at present only one provision so applies.

The substantial amendment is Amendment No. 58. The amendment introduces a new clause immediately after Clause 13. That provides that where a former tenant is under a liability in the same circumstances as described in Clause 13, and the terms of the lease have been varied after he has signed the lease and after commencement of the Act, the former tenant shall not be liable to pay any sum to the extent that is referable to the variation, provided that the variation is one which the landlord had the absolute right to refuse to make when it was made.

The clause covers also the position where a variation of the lease has taken away what was an absolute right to refuse a subsequent variation. In such a case, even though the landlord did not have the absolute right to refuse the subsequent variation, the former tenant shall not be liable to pay any sum referable to it. The landlord's right to refuse to make the variation must be absolute, not only under the lease but also as a matter of law generally so that certain tenant's improvements which the landlord is, by virtue of the Landlord and Tenant Act 1927, unable to refuse to allow, cannot be said to be variations coming within the clause even if the lease absolutely prohibited them. The clause will accordingly cover such matters as variations to the nature of the premises, user, extra space for an increased rent and so on but not the increase of rent on a rent review except to the extent that the increase refers to a variation of the kind covered by the clause.

Taking the new clause subsection by subsection, subsection (1) sets out the circumstances in which a former tenant may find himself liable under a lease which he has assigned. In the case of a new tenancy, that will be because he has entered into an authorised guarantee agreement under Clause 12 or because the assignment was in breach of covenant or by operation of law and therefore, in accordance with the Law Commission's recommendations, he was not released by it.

In the case of an existing tenancy, it will be by reason of privity of contract. Subsection (2) sets out the principle that the former tenant is not to be liable to pay any amount referable to a relevant variation—a term which is defined later. Subsection (3) extends that principle so that any guarantor of a former tenant shall not be so liable either. That subsection also makes it clear that that falls to be considered only when the variation has not already resulted in the guarantor's discharge because of the technical rules relating to guarantees generally.

Subsection (4) defines the relevant variation, which is either that the landlord had an absolute right to refuse or did not have an absolute right to refuse only because that right was removed by an earlier variation made after the former tenant assigned.

Subsection (5) ensures that the landlord's right to refuse must be absolute by reference to the general law as well as to the lease. Subsection (6) makes it clear that the new clause covers only variations made after the Act comes into force, which is an integral part of the industry agreement. Subsection (7) makes it clear that the clause covers informal or implied variations as well as those made by deed. I beg to move.

On Question, amendment agreed to.

Page 1, line 7, after ("13") insert ("and sections ( Right of former tenant or guarantor to overriding lease) and ( Overriding leases: supplementary provisions)").

The noble Earl said: Once again, this amendment paves the way for more. It paves the way for one minor amendment, Amendment No. 6, and for two substantial amendments, Amendments Nos. 59 and 60.

With the leave of the Committee, I feel that it would be helpful to speak to all four amendments together. Amendment No. 3 does the same as Amendment No. 2 but in respect of a different element of the property industry agreement. It makes it clear that the element concerning overriding leases is to apply to both new and other tenancies.

Amendment No. 6 is intended to ensure that the provisions for overriding leases do not cut across the agreed policy that privity of contract liability is to be abolished prospectively only. It makes it clear that the definition of a new tenancy is to be subject to the rule which is part of the overriding lease provisions that an overriding lease will not be a new tenancy if the tenancy under which the former tenant finds himself having to pay is not a new tenancy. Without the amendment, Clause 1 and the overriding lease provisions would be inconsistent.

The two substantial amendments are Amendments Nos. 59 and 60. They introduce two new clauses after Clause 13 and immediately after the new clause introduced by Amendment No. 58. The challenge which this part of the property industry agreement set out to meet was to find a way to give a former tenant or guarantor who has had to pay for the breach of a defaulting subsequent tenant a way of regaining control over the situation and, if necessary, the property. That will be achieved by making it possible for the former tenant or guarantor who has had to pay to have an overriding lease granted to him so that he can pursue remedies directly against the defaulting tenant, if he is still in occupation, or to take possession and make use of the property so that he can set off the return against his liability. That will go some way towards addressing the helplessness so often felt by former tenants when they find themselves liable in that way.

Amendment No. 59 introduces the first new clause, which sets out the former tenant's right to an overriding lease, the circumstances in which it arises, its terms and the mechanics of the granting of an overriding lease. Amendment No. 60 introduces the second new clause, which makes supplementary provision covering such matters as whether an overriding lease is a new or existing tenancy; what happens if the landlord is dilatory in granting it; and the effect of mortgages on the landlord's interest and land registration.

Subsection (1) of the new clause sets out the basic principle of entitlement to an overriding lease. Any person, whether former tenant or guarantor, who has paid in full an amount which he has been duly required to pay in accordance with the notice under the provisions of Clause 13 is to be able to call for an overriding lease to be granted to him.

Subsection (2) defines an overriding lease. The essence of the overriding lease is that it is a tenancy of the landlord's reversion which puts the former tenant in the position of the landlord in relation to the defaulting tenant and in the position of the defaulting tenant in relation to the landlord. The former tenant could be said to be slotted into the hierarchy of interests. The overriding lease is accordingly to replicate as far as possible the tenancy of the defaulting tenant, which the new clause calls the "relevant tenancy". It cannot replicate it exactly as to the length of term remaining since it is in reversion to it and must be notionally longer. Subsection (2) (a) requires the term to be fixed as equal to the length of the term remaining plus three days or the longest period less than that which will not entirely displace the landlord's interest.

Subsection (2) (b) provides for the overriding lease otherwise to contain the same covenants as the relevant tenancy, as they have effect immediately before the grant of the overriding lease. That will include all variations to the lease and all sums to be paid which are referable to them, so that the former tenant may well have a choice between not taking up an overriding lease and paying less by virtue of the new clause introduced by Amendment No. 58, and taking up the overriding lease and regarding the extra that he will have to pay as the price for regaining a measure of control. The landlord and former tenant may agree that it would not be appropriate to replicate certain terms, or the particular effect of certain terms, without some modification, and the possibility of agreed modification is preserved.

Subsections (3) and (4) make specific provision for the overriding lease not to reproduce certain terms, or the effect of certain terms, which the property industry bodies were agreed it would not be appropriate to reproduce or reproduce without modification. Subsection (3) provides for any covenants which were purely personal as between the defaulting tenant and the landlord not to be reproduced. Subsection (4) provides for any covenants which were time limited and which have become spent not to be reproduced, and for any matter in the relevant tenancy which operates by reference to the commencement of the tenancy to be reproduced in the overriding lease in such a way that it operates by reference not to the commencement of the overriding lease but to the commencement of the relevant tenancy.

Subsection (5) sets out the procedure for requesting an overriding lease. The former tenant or guarantor must make the request in writing to the landlord, specifying the payment which he has made and which qualifies him to make the request. He may do that by post. He is required to make the request within 12 months of making the payment, which will introduce an element of certainty for both the landlord and the defaulting tenant or any assignees.

Subsection (6) sets out the duties of claimant and landlord following the claim. The landlord must grant and deliver the overriding lease to the claimant within a reasonable time. The claimant must then acknowledge its covenants by delivering a counterpart to the landlord. Sanctions for failure of either party to fulfil the duty are set out in the second new clause. The claimant must also pay the landlord's reasonable costs in connection with the grant and the landlord will be able to sue for these if the claimant does not pay.

Subsection (7) makes it clear that no overriding lease can be granted when the relevant tenancy has come to an end. It and subsection (8) also deal with the position where more than one person has made a payment qualifying him to request an overriding lease. The rule is essentially "first come, first served", so that, where an overriding lease is already in force or another person has already put in a request, no further request can succeed.

Subsection (8) deals with the possibility of simultaneous requests, in which case a former tenant will take priority over a guarantor and an earlier covenantor will take priority over a later. Subsection (9) deals with the possibility that, because the former tenant who takes up the overriding lease takes over the landlord's position, he may be in a position to exercise remedies against others who might, in their turn, make payments which would qualify them to seek an overriding lease. In such a situation, the new clause shall apply between the overriding tenant and the new claimant just as it did between the overriding tenant and the landlord.

The second new clause contains supplementary provisions concerning the effect of the first new clause. Subsection (1), for which Amendment No. 6 paves the way, provides that an overriding lease is to be a new tenancy only if the relevant tenancy was a new tenancy. Because every overriding lease will be granted after the date on which the Act comes into force, this presents the possibility that the overriding lease might be transferred to someone who is unaware that it is not a new tenancy.

Accordingly, subsection (2) makes it a requirement that the overriding lease should state that it is an overriding lease and whether or not it is a new tenancy.

Subsection (3) provides sanctions in the event of a failure by either party to perform the duties in subsection (6) of the first new clause. In the case of a landlord, he may be sued for breach of statutory duty if he is dilatory and, in the case of a tenant, he will not be able to exercise his rights under the overriding lease until he delivers the counterpart.

Subsection (4) covers the position where the landlord's interest has been mortgaged prior to the request for an overriding lease. In such a case, the general law would make the overriding lease subject to the mortgage on the landlord's interest which would bear hardly on the claimant. This subsection provides a special rule which mirrors the provisions of the Leasehold Reform, Housing and Urban Development Act 1993, providing for the overriding lease not to be subject to the mortgage and for the mortgagee to he treated as having consented to its creation.

Subsection (4) also provides for the case where the mortgagee is entitled to possession of the documents of title relating to the landlord's interest. In such a case, the landlord is under a duty to deliver the claimant's counterpart to the mortgagee within a month of executing the lease. If he fails to do so, the mortgagee may treat that failure as contractual as if there were a stipulation to that effect in the mortgage.

Subsection (5) ensures that the fact that the overriding lease is subject to the relevant tenancy is not a breach of any covenant against subletting. Without this provision, some overriding leases would be in a difficult position. This subsection also makes it clear that an overriding lease falls to be treated, for the purposes of Clauses 12, 13 and the new clause introduced by Amendment No. 58, just like any other tenancy.

Subsection (6) provides for the land registration aspects—again mirroring the approach of the 1993 Act. Although a tenancy will effectively confer on the tenant a form of option to take an overriding lease, no lease is thereby to become registrable under the Land Charges Act, nor is the right to an overriding lease following a request to be an overriding interest under the Land Registration Act 1925. Instead, where a request is made for an overriding lease, the request is to be treated for these purposes as if it were an estate contract and to be registrable or the subject of a notice or caution as such.

Finally, subsection (7) of the second new clause provides for expressions used in the second new clause to have the same meaning as when used in the first new clause and for "mortgage" to include "charge" for the avoidance of doubt. I beg to move.

On Question, amendment agreed to.

9.15 p.m.

Page 1, line 7, leave out ("applies") and insert ("apply").

The noble Earl said: I have already spoken to this amendment in relation to Amendment No. 2. I beg to move.

On Question, amendment agreed to.

Page 1, line 8, leave out from ("in to end of line 12 and insert ("it is granted on or after the date on which this Act comes into force otherwise than in pursuance of—

The noble and learned Lord said: As well as providing which provisions of the Bill are to apply to new tenancies and which to both new and other tenancies, Clause 1 of the Bill defines a new tenancy. Amendments Nos. 5 and 7 revise and refine the definition of a new tenancy presently in the Bill and, with the Committee's leave, I believe that it would be helpful for me to speak to both amendments together since they are very closely linked.

Amendment No. 5 makes it clear that a new tenancy is one granted on or after the date on which the Act comes into force, unless it was granted in pursuance of an agreement entered into before that date or a court order made before that date. Amendment No. 7 deletes the present subsection (4) of Clause 1 and replaces it with three new subsections which put beyond doubt detailed matters relating to the concept of a new tenancy which the existing draft either does not cover or does not cover satisfactorily. I beg to move.

On Question, amendment agreed to.

Page 1, line 12, at end insert:

("() Subsection (3) has effect subject to section (Overriding leases: supplementary provisions) (1) in the case of overriding leases granted under section (Right of former tenant or guarantor to overriding lease).").

On Question, amendment agreed to.

Page I, line 13, leave out subsection (4) and insert:

("(4) Without prejudice to the generality of subsection (3), that subsection applies to the grant of a tenancy where by virtue of any variation of a tenancy there is a deemed surrender and regrant as it applies to any other grant of a tenancy.

(5) Where a tenancy granted on or after the date on which this Act comes into force is so granted in pursuance of an option granted before that date, the tenancy shall be regarded for the purposes of subsection (3) as granted in pursuance of an agreement entered into before that date (and accordingly is not a new tenancy), whether or not the option was exercised before that date.

(6) In subsection (5) "option" includes right of first refusal.").

The noble and learned Lord said: I have already spoken to this with Amendment No. 5. I beg to move.

On Question, amendment agreed to.

Clause 1, as amended, agreed to.

Clause 2 [ Covenants to which the Act applies]:

Page 2, line 2, after ("disposals);") insert:

("() paragraph 1 of Schedule 6A to that Act (covenants requiring redemption of landlord's share);").

The noble and learned Lord said: Amendments Nos. 8 and 9 are very closely linked and, with the Committee's leave, I feel that it would be helpful for me to speak to both amendments together. Clause 2 ensures that the Act will apply to all covenants of a tenancy, whether they are implied or express and whether they "touch and concern" the land or not. It also, as recommended by the Law Commission, excepts from the Act certain covenants entered into by tenants of local authorities who exercise their right to buy to prevent them making unjustified profits on early sale so that they will continue to be bound by those covenants notwithstanding the new regime. Amendments Nos. 8 and 9 make the necessary provision for excepting from the Act a further such covenant which was not picked up in the first draft of the Bill. I beg to move.

On Question, amendment agreed to.

Page 2, line 4, leave out ("similar purposes") and insert ("repayment of discount on early disposals").

The noble and learned Lord said: I have already spoken to this. I beg to move.

On Question, amendment agreed to.

Clause 2, as amended, agreed to.

After Clause 2, insert the following new clause:

(" Transmission of covenants

Transmission of benefit and burden of covenants

.—(1) The benefit and burden of all landlord and tenant covenants of a tenancy—

(2) Where the assignment is by the tenant under the tenancy, then as from the assignment the assignee—

(3) Where the assignment is by the landlord under the tenancy, then as from the assignment the assignee—

(4) In determining for the purposes of subsection (2) or (3) whether any covenant bound the assignor immediately before the assignment, any waiver or release of the covenant which (in whatever terms) is expressed to be personal to the assignor shall be disregarded.

(5) Any landlord or tenant covenant of a tenancy which is restrictive of the user of land shall, as well as being capable of enforcement against an assignee, be capable of being enforced against any other person who is the owner or occupier of any demised premises to which the covenant relates, even though there is no express provision in the tenancy to that effect.

(6) Nothing in this section shall operate—

(7) To the extent that there remains in force any rule of law by virtue of which the burden of a covenant whose subject matter is not in existence at the time when it is made does not run with the land affected unless the covenantor covenants on behalf of himself and his assigns, that rule of law is hereby abolished in relation to tenancies.").

The noble and learned Lord said: I have already spoken to this amendment with Amendment No. 1. I beg to move.

[ Amendments Nos. 11 and 12, as amendments to Amendment No. 10, not moved.]

On Question, Amendment No. 10 agreed to.

After Clause 2, insert the following new clause:

Transmission of rights of re-entry

(". The benefit of a landlord's right of re-entry under a tenancy—

The noble and learned Lord said: I spoke to this amendment with Amendment No. 1. I beg to move.

On Question, amendment agreed to.

Clauses 3 to 5 agreed to.

Clause 6 [ Procedure for seeking release from a covenant under s. 4 or 5]:

Page 3, line 29, leave out ("before") and insert ("either before or within the period of four weeks beginning with the date or').

The noble and learned Lord said: In moving Amendment No. 14 I shall speak also to Amendments Nos. 15 to 23 and 25 to 28.

This clause makes provision for the notice procedure for the purposes of Clauses 4 and 5. At present it provides for the landlord to serve a notice on the tenant before the assignment, and for the tenant to have four weeks from the serving of the notice to object to the landlord's being released, and for the landlord to be released, as from the date of the assignment, if there is no objection within four weeks or if there is an objection but the court declares it to be reasonable for the landlord to be released.

Amendments Nos. 14 to 17 give effect to two changes which are consistent with the Law Commission's policy and are accepted by the Law Commission and which go hand-in-hand with a number of amendments to Clauses 8 and 9 which make provision for apportionment of liability under certain covenants between assignor and assignee to become binding on the other party to the lease if a similar notice procedure is gone through. These amendments are so closely interlinked with two other groups of amendments that, with the leave of the Committee, I consider that it would be appropriate if I to speak to all of them together. Amendments Nos. 25 to 28 to Clause 9 simply carry through, mutatis mutandis, the approach of the amendments to Clause 6, and Amendments Nos. 18 to 23 to Clause 8 pave the way for the amendments to Clause 9.

Amendment No. 14 removes the requirement that the notice be served before the assignment and allows it to be served before or up to four weeks after it. This is because there are cases where confidentiality is very important to the landlord when he assigns, so he cannot afford to make his negotiations public by serving notices before the assignment. Since the tenant has no control over the assignment and will be interested only in whether the landlord should or should not be released, it will not disadvantage the tenant if notice is not served until after the assignment. Specific provision is also made for the tenant to indicate that he has no objection, and also for him to withdraw an objection rather than have the matter go to court. Amendments Nos. 13 and 15 and Amendments Nos. 18 to 23 follow from those two changes. Clause 9 makes provision for a similar notice procedure to cover cases of assignment of part, where the assignor and assignee reach an agreement as to apportionment and wish to make the agreement binding on the other party; and Amendments Nos. 25 to 28 make the same provision for the procedure in Clause 9 as Amendments Nos. 14 to 17 make for that in Clause 6. I beg to move.

On Question, amendment agreed to.

Page 3, line 31, after ("assignment") insert ("or (as the case may be) the fact that the assignment has taken place").

Page 3, line 35, leave out ("either").

Page 3, line 42, at end insert (", or

(c) the tenant serves on the landlord or former landlord a notice in writing consenting to the release and, if he has previously served a notice objecting to it, stating that that notice is withdrawn.").

The noble and learned Lord said: I spoke to these amendments with Amendment No. 14. I beg to move.

On Question, amendments agreed to.

Clause 6, as amended, agreed to.

Clause 7 [ Covenants binding assignee of tenancy or reversion]:

On Question, Whether Clause 7 shall stand part of the Bill?

Clause 7 negatived.

Clause 8 [ Apportionment of liability under covenants binding both assignor and assignee of tenancy or reversion]:

Page 4, line 34, leave out ("proposes to assign") and insert ("assigns").

Page 4, line 36, leave out ("proposed assignee would") and insert ("assignee are to").

Page 4, line 39, leave out ("proposed assignee agree that on") and insert ("assignee agree that as from").

Page 4, line 43, leave out ("proposes to assign") and insert ("assigns").

Page 4, line 45, leave out ("proposed assignee would") and insert ("assignee are to").

Page 5, line 1, leave out ("proposed assignee agree that on") and insert ("assignee agree that as from").

The noble and learned Lord said: I spoke to Amendments Nos. 18 to 23 with Amendment No. 14. I beg to move the amendments en bloc.

On Question, amendments agreed to.

Page 5, line 9, at end insert:

("() In any such case the parties to the agreement may also apply for the apportionment to become binding on any person (other than the appropriate person) who is for the time being entitled to enforce the covenant in question; and section 9 shall apply in relation to such an application as it applies in relation to an application made with respect to the appropriate person.").

The noble and learned Lord said: In moving Amendment No. 24, I speak also to Amendment No. 30.

Amendment No. 24 inserts an extra subsection into Clause 8, which provides for an assignee and assignor in the case of an assignment of part to seek to make an apportionment agreed between them binding on the other party to the tenancy. The new subsection makes provision to cover the possibility that there may be another party to the tenancy, other than the landlord and tenant, who is entitled to enforce the covenant in question; generally speaking, a management company. Management companies may be parties to leases in leasehold developments such as business parks, or office developments. The management company covenants with the tenants to perform various functions usually falling to the landlord, such as cleaning, maintenance, and so on. The Bill does not presently make any provision for management companies, but it is necessary to cover them since the use of management companies to undertake functions normally falling to the landlord is not uncommon. Fuller provision for the way in which management companies are to fit into the scheme is made by Amendment No. 30, and with the Committee's leave I shall speak to Amendments Nos. 24 and 30 together.

Amendment No. 24 simply ensures that the apportionment provisions will apply in such circumstances so as to enable the agreement to become binding against the management company.

It is necessary to ensure that the burden and benefit of a covenant with a management company will pass to an assignee tenant or landlord and that the assignor tenant or landlord will not retain the benefit of it so as to be able to sue the management company. It is also necessary to ensure that the assignor will be released from the burden of the covenant. The new clause introduced by Amendment No. 30 achieves this by defining a third party in terms which encompass management companies but exclude surety covenants, and by providing for covenants given by or to such a third party to be treated as landlord covenants or tenant covenants as appropriate for the purposes of transmission and release and apportionment.

I beg to move Amendment No. 24.

On Question, amendment agreed to.

Clause 8, as amended, agreed to.

Clause 9 [ Procedure for making apportionment bind other party to lease]:

Page 5, line 24, leave out ("before") and insert ("either before or within the period of four weeks beginning with the date of").

Page 5, line 26, after ("assignment") insert ("or (as the case may be) the fact that the assignment has taken place").

Page 5, line 32, leave out ("either").

Page 5, line 39, at end insert (", or

(c) he serves on the parties to the agreement a notice in writing consenting to the apportionment becoming binding on him and, if he has previously served a notice objecting thereto, stating that that notice is withdrawn.").

The noble and learned Lord said: I have spoken to Amendment Nos. 25 to 28 inclusive with Amendment No. 14. With the leave of the Committee, I beg to move the amendments en bloc.

On Question, amendments agreed to.

Clause 9, as amended, agreed to.

After Clause 9, insert the following new clause:

(" Excluded assignments

Assignments in breach of covenant or by operation of law

.—(1) This section provides for the operation of sections 3 to 6 and 8 and 9 in relation to assignments in breach of a covenant of a tenancy or assignments by operation of law ("excluded assignments").

(2) In the case of an excluded assignment subsection (2) or (3) of section 3—

(3) In the case of an excluded assignment subsection (2) or (3) of section 4 or 5—

(4) Where subsection (2) or (3) of section 4 or 5 does so apply—

(5) In the case of an excluded assignment section 8—

(6) Where section 8 does so apply—

(7) If any such subsequent assignment as is mentioned in subsection (2), (3) or (5) above comprises only part of the premises assigned by tenant or (as the case may be) only part of the premises the reversion in which was assigned by the landlord on the excluded assignment

The noble and learned Lord said: In moving Amendment No. 29, I speak also to Amendments Nos. 40, 63 and 75.

Amendment No. 29 introduces a new clause to make effective provision for cases where an assignment is not lawful or voluntary, but takes place in breach of a covenant against assignment or by operation of law (such as passing to personal representatives on death of the landlord or tenant). Consequential on the new clause, Amendment No. 40 rectifies wording in Clause 13, Amendment No. 63 ensures the completeness of Clause 15, and Amendment No. 75 to Clause 19 is to make necessary changes to the definitions in that clause. Once again, with the Committee's leave, I feel that it would be helpful to speak to this group of amendments together.

In accordance with the Law Commission's recommendations, assignments of the type I have just mentioned are not to have effect to release the person parting with the interest from his rights and obligations under the lease, although they will, as is the case at present, be fully effective to pass the estate and accordingly to bind the assignee. This will be achieved by the new clause introduced by Amendment No. 29 and, as I have said, Amendment No. 75 to Clause 19 is to carry through its effect into the list of definitions in that clause.

Amendment No. 40 changes the wording of Clause 13(1) to reflect the fact that it is possible for a former tenant under a new lease as well as under an existing one to remain liable other than under an authorised guarantee agreement, because there has been an excluded assignment, and the existing draft of the Bill missed this point. The new subsection to Clause 15, introduced by Amendment No. 63, makes it clear that, consistent with the approach of Clause 15, any such assignment will not .affect any liability of the assignor for breach occurring before the assignment, or any accrued rights of the assignor relating to a breach of the other party occurring before assignment. I beg to move Amendment No. 29.

On Question, amendment agreed to.

After Clause 9, insert the following new clause:

(" Third party covenants

Covenants with management companies etc

.—(1) This section applies where—

(2) To the extent that any covenant of the tenancy confers any rights against the third party with respect to the relevant function, then for the purposes of the transmission of the benefit of the covenant in accordance with this Act it shall be treated as if it were—

(3) To the extent that any covenant of the tenancy confers any rights exercisable by the third party with respect to the relevant function, then for the purposes mentioned in subsection (4), it shall be treated as if it were—

(4) The purposes mentioned in subsection (3) are—

(5) In relation to the release of the landlord from any covenant which is to be treated as a landlord covenant by virtue of subsection (3), section 6 shall apply as if any reference to the tenant were a reference to the third party.").

The noble and learned Lord said: I spoke to this amendment with Amendment No. 24. I beg to move.

On Question, amendment agreed to.

Clauses 10 and 11 agreed to.

9.30 p.m.

After Clause 11, insert the following new clause:

(" Enforcement of covenants

Enforcement of covenants

.—(1) Where any tenant covenant of a tenancy, or any right of re-entry contained in a tenancy, is enforceable by the reversioner in respect of any premises demised by the tenancy, it shall also be so enforceable by—

(2) Where any landlord covenant of a tenancy is enforceable against the reversioner in respect of any premises demised by the tenancy, it shall also be so enforceable against any person falling within subsection (1) (a) or (b).

(3) Where any landlord covenant of a tenancy is enforceable by the tenant in respect of any premises demised by the tenancy, it shall also be so enforceable by any mortgagee in possession of those premises under a mortgage granted by the tenant.

(4) Where any tenant covenant of a tenancy, or any right of re-entry contained in a tenancy, is enforceable against the tenant in respect of any premises demised by the tenancy, it shall also be so enforceable against any such mortgagee.

(5) Nothing in this section shall operate—

(6) In this section—

"mortgagee" and "mortgage" include "chargee" and "charge" respectively;

"the reversioner", in relation to a tenancy, means the holder for the time being of the interest of the landlord under the tenancy.").

The noble and learned Lord said: This amendment inserts a new clause which, although of a technical nature, comprises another important element of the Law Commission's scheme which I outlined earlier. The amendment complements the two clauses which were introduced by Amendments Nos. 10 and 13 pursuant to which the benefit and burden of all covenants is to be annexed to and run with the lease or reversion when assigned in whole or in part, and the benefit of a landlord's right of re-entry is similarly to be annexed to the whole and every part of the reversion, by affording concomitant rights to those with derivative interests. I beg to move.

On Question, amendment agreed to.

Clause 12 [ Tenant guaranteeing performance of covenant by assignee]:

Page 6, line 25, after first ("a") insert ("tenant").

The noble and learned Lord said: With Amendment No. 33, I wish to speak to Amendments Nos. 34, 35, 36, 32 (which will be taken in that place), 37 and 38. Clause 12 covers the Law Commission's recommendation that when a tenant under a new tenancy is released on assignment in accordance with Clause 3, it should nevertheless be possible for the landlord, as a condition of licence to assign, to ask him to guarantee performance of the tenant covenants of the tenancy by his immediate assignee, but no more. The possibility of such a guarantee being asked for by the landlord will only arise if the lease gives the landlord any control over assignment either by banning assignment altogether (in which case the landlord will be free to demand such a guarantee as the price for waiving the ban) or by providing for assignment only with the landlord's consent. Subsections (1) to (3) of the clause cover the propositions just stated, and the remainder of the clause makes provision for the limitations on what the landlord can seek to include in the guarantee, which is termed an "authorised guarantee agreement".

Amendments Nos. 32 to 37 make very important changes to the clause to ensure both that the guarantee is actually effective when the landlord most needs it and that it cannot be used as a device for retaining the effect of privity of contract liability once the assignee has himself assigned. As these amendments form one element in the overall scheme, perhaps the Committee will permit me to speak to them together. In addition, Amendment No. 33 does the same thing for Clause 12 as Amendment No. 38 does for Clause 13.

Amendment No. 33 inserts the word "tenant" in subsection (1) of Clause 12 to make it absolutely clear that it is only tenant covenants the performance of which may be guaranteed, and Amendment No. 38 does the same in subsection (1) of Clause 13.

Amendment No. 34 is consequential upon Amendments Nos. 35 and 32 which make it clear that the guarantee will not be effective unless it complies with the new clearer provision setting the time limits and regulating the terms of an authorised guarantee agreement.

Amendment No. 36 simply introduces words into subsection (3) of Clause 12 making it clear that no question of an authorised guarantee agreement arises unless the lease contains some form of covenant against assignment.

Amendment No. 37 completes the revision of Clause 12 by introducing two new subsections to cover the position of excluded assignments and the position where a tenant who entered into an authorised guarantee agreement becomes tenant again. In a case where a tenant who made an excluded assignment is released on the next assignment then, if the tenant making the next assignment enters into an authorised guarantee agreement, the landlord is to be able to require the tenant who made the excluded assignment also to enter into an authorised guarantee agreement on terms corresponding to those of the assigning tenant's agreement so that they guarantee the next tenant jointly. In the case where a tenant who entered into an authorised guarantee agreement either takes back the assigned lease on a disclaimer following his assignee's insolvency or enters into a new lease under the authorised guarantee agreement it will be possible to enter into another authorised guarantee agreement. It is considered entirely appropriate for a tenant whose previous assignee was weak to have to guarantee his new assignee since it may have been only the prospect of the authorised guarantee agreement which persuaded the landlord to consent to the assignment. I beg to move Amendment No. 33.

On Question, amendment agreed to.

Page 6, leave out from ("it") in line 45 to end of line 5 on page 7 and insert ("purports—

(4A) Subject to subsection (4), an authorised guarantee agreement may—

On Question, amendment agreed to.

Page 6, line 32, leave out ("(but not its performance by any later tenant)").

Page 6, line 34, at end insert ("; and

(c) its provisions conform with subsections (4) and (4A).").

Page 6, line 36, at beginning insert ("by virtue of a covenant against assignment (whether absolute or qualified)").

Page 7, line 5, at end insert:

("(4B) Where a person ("the former tenant") is to any extent released from a covenant of a tenancy by virtue of section (Assignments in breach of covenant or by operation of law) (2) as from an assignment and the assignor under the assignment enters into an authorised guarantee agreement with the landlord with respect to the performance of that covenant by the assignee under the assignment

(a) the landlord may require the former tenant to enter into an agreement under which he guarantees, on terms corresponding to those of that authorised guarantee agreement, the performance of that covenant by the assignee under the assignment; and

(b) if its provisions conform with subsections (4) and (4A), any such agreement shall be an authorised guarantee agreement for the purposes of this section; and

(c) in the application of this section in relation to any such agreement—

(i) subsections (2) (b) and (c) and (3) shall be omitted, and

(ii) any reference to the tenant or to the assignee shall be read as a reference to the former tenant or to the assignee under the assignment.

(4C) For the purposes of subsection (1) it is immaterial that—

and in any such case subsections (2) to (4A) shall apply accordingly.").

The noble and learned Lord said: I have spoken to Amendments Nos. 34 to 36 and Amendment No. 37. With the leave of the Committee, I should like to move these en bloc. I beg to move.

On Question, amendments agreed to.

Clause 12, as amended, agreed to.

Clause 13 [ Restriction on liability of former tenant for rent or service charge]:

Page 7, line 14, after first ("a") insert ("tenant").

The noble and learned Lord said: I spoke to this amendment with Amendment No. 33. I beg to move.

On Question, amendment agreed to.

Page 7, line 14, leave out ("to pay rent or a service charge") and insert ("under which any fixed charge is payable").

The noble and learned Lord said: In moving this amendment I should like to speak to Amendments Nos. 41, 43 to 46, 50, 52, 54, 55 and 57.

Clause 13 applies to both new and existing leases. It makes provision aimed at ensuring that former tenants who are still under liability in relation to a lease (either because of privity of contract liability, or an excluded assignment, or an authorised guarantee agreement) should be given notice within a fixed period of any arrears which become due and which they may find themselves having to pay. They will thus be able to make provision against the liability, rather than being presented with a bill which might cover a very long period. As drafted, the Bill fixes the period at nine months, but the Committee will have noted that one of the package of amendments in the name of my noble friend Lord Courtown will change that to six months.

The essence of the provision is that the landlord should serve notice of sums which arise under the lease as fixed or liquidated sums—it being too difficult and onerous to attempt to do this for such matters as dilapidations which are of their nature difficult to quantify as they arise. The existing wording of the clause limits this to rent and service charges; but there are other such liquidated sums whose amount will be fixed as they fall due; for example, specified payments for each fixed period the tenant is in breach of a particular covenant. It is appropriate that the tenant should have notice of such sums as those as well as of rent and service charges, and the approach of the amendments, of which Amendment No. 39 is the first, is to provide that the landlord must give notice of sums payable as "fixed charges". Amendment No. 39 paves the way .for no fewer than 10 further amendments carrying through the approach, and with the Committee's leave, it may be helpful to speak to those amendments now. Amendments Nos. 41, 44, 45, 50, 52, 54, 55 and 57 carry through that approach.

Amendment No. 54 provides the new definition of "fixed charge", namely rent, service charges corresponding to the well-settled definition in the Landlord and Tenant Act 1985, and sums payable as liquidated amounts in the event of breach of a covenant. Amendment No. 57 accordingly deletes the existing definitions of "rent and service charge"; and the other amendments remove the words "rent and service charge" and substitute "fixed charge" as appropriate.

Amendment No. 46 deals with interest on a fixed charge of which the former tenant is given notice under Clause 13. It is considered appropriate that the former tenant should be given some warning of the fact that interest is accruing on the sum due, so that he can take that into account in making provision to meet his potential liability. It would be onerous for the landlord to expect him to calculate the interest accrued and keep updating it for the former tenant's benefit, and so this amendment does not require the landlord to calculate interest but only to warn the former tenant in the notice of the fact that interest is accruing, and the terms on which it is accruing. If he does not include that simple warning, he will not be able to recover the interest should he sue the former tenant in due course. I submit that that is a satisfactory way of dealing with that aspect of the matter. I beg to move.

On Question, amendment agreed to.

9.45 p.m.

Page 7, line 16, leave out ("other").

Page 7, line 19, leave out ("rent or service") and insert ("fixed").

The noble and learned Lord said: I spoke to Amendments Nos. 40 and 41 with Amendments Nos. 29 and 39 respectively. I beg to move.

On Question, amendments agreed to.

Page 7, line 21, leave out ("nine") and insert ("six")

The noble Earl said: This very short and simple amendment will give effect to an element of the property industry agreement on the basis of which the Bill has succeeded in progressing to this advanced stage. As has been explained by my noble and learned friend the Lord Chancellor, Clause 13 gives protection to former tenants by requiring a landlord who wishes to pursue a former tenant for arrears run up by a subsequent tenant to serve notice of the arrears on the former tenant within a specified period of their becoming due. This amendment increases that protection by reducing the period from nine months to six months, which is still a sufficient period for the landlord to ascertain whether payment might be made by the defaulting tenant, trace the former tenant or his last known address if necessary, and serve a notice if appropriate. I beg to move.

On Question, amendment agreed to.

Page 7, line 21, leave out ("rent or service")

Page 7, line 24, leave out ("rent or service").

Page 7, line 25, leave out ("rent or service").

Page 7, line 27, at end insert ("and (where payable) interest calculated on such basis as is so specified").

The noble and learned Lord said: I spoke to Amendments Nos. 43, 44, 45 and 46 with Amendment No. 39. With your Lordships' leave, I shall move them en bloc.

On Question, amendments agreed to.

Page 7, line 27, at end insert:

("(2A) Where a person ("the guarantor") has agreed to guarantee the performance by the former tenant of such a covenant as is mentioned in subsection (1), the guarantor shall not be liable under the agreement to pay any amount in respect of any fixed charge payable under the covenant unless, within the period of six months beginning with the date when the charge becomes due, the landlord serves on the guarantor a notice informing him—

(a) that the charge is now due; and

(b) that in respect of the charge the landlord intends to recover from the guarantor such amount as is specified in the notice and (where payable) interest calculated on such basis as is so specified.").

The noble and learned Lord said: It is a necessary part of the rule for which Clause 13 makes provision that its protection should be extended not only to former tenants, but also to their guarantors, and I understand that this was also accepted as part of the agreement reached between the property industry organisations to which the amendments moved by my noble friend Lord Courtown give effect. The guarantor of a former tenant is just as exposed and likely to suffer from a sudden and unexpected demand for payment covering a very long period of arrears as the former tenant, and it would also be unfair if guarantors were to be open to being sued for payments which the landlord could not recover from the tenant, not because the tenant could not meet the payment but because the landlord simply found it easier to sue the guarantor because no notice was required.

Amendment No. 47 deals with this by inserting a new subsection (2A) into Clause 13, which makes the same provision for guarantors as subsection (2) makes for former tenants. There are three further amendments which are consequential or build on this change. Amendments Nos. 49 and 51 simply ensure that references in subsection (3) to subsection (2) are amended so that they refer also to the new subsection (2A).

Amendment No. 48 expressly applies to guarantors as well as former tenants. It makes provision for the possibility that the landlord may in good faith have served on a former tenant under Clause 13 a notice specifying a particular sum, but that, for example, a rent review which was outstanding at the time he served the notice determines the rent to be higher on a backdated basis but this does not occur until more than six months after the rent payment became due.

It would not be fair for a landlord in such a position, who had not made a mistake through carelessness in specifying the sum, to be unable to recover the difference between the sum in the notice and the higher sum which the determination entitled him to. Therefore, this amendment introduces a new subsection, which enables the landlord to preserve his right to recover the difference by serving a supplementary notice within three months of the final determination. It would equally not be fair on the tenant, who might have made provision on the basis of the lower sum, to be suddenly and unexpectedly presented with a revised notice for the difference; and so the new subsection also provides that the landlord will only be able to recover the difference in the circumstances which I have outlined if he gives warning in the original notice that the liability is subject to the possibility of upward determination. I beg to move.

On Question, amendment agreed to.

Page 7, line 27, at end insert:

("(2B) Where the landlord has duly served a notice under subsection (2) or (2A), the amount (exclusive of interest) which the former tenant or (as the case may be) the guarantor is liable to pay in respect of the fixed charge in question shall not exceed the amount specified in the notice unless—

(a) his liability in respect of the charge is subsequently determined to be for a greater amount,

(b) the notice informed him of the possibility that that liability would be so determined, and

(c) within the period of three months beginning with the date of the determination, the landlord serves on him a further notice informing him that the landlord intends to recover that greater amount from him (plus interest, where payable).").

Page 7, line 28, after ("(2)") insert ("or (2A)").

Page 7, line 28, leave out ("rent or service") and insert ("fixed").

Page 7, line 30, leave out ("that subsection does not apply") and insert ("neither of those subsections applies").

Page 7, line 31, leave out ("rent or service").

The noble and learned Lord said: I spoke to Amendments Nos. 48 and 49 with Amendment No. 47. I spoke to Amendment No. 50 with Amendment No. 39 and to Amendment No. 51 with Amendment No. 47. I spoke to Amendment No. 52 with Amendment No. 39. I beg to move.

On Question, amendments agreed to.

Page 7, leave out lines 35 and 36.

The noble and learned Lord said: Because of other changes to the Bill which include references to authorised guarantee agreements and new tenancies, it will be necessary for "authorised guarantee agreement" and "new tenancy" which are presently only defined for the purposes of Clause 13, to be defined for the whole Bill. Amendments Nos. 53 and 56 make the necessary provision together with Amendments Nos. 76 and 80. Amendment No. 53 removes the definition of "authorised guarantee agreement" in subsection (4) and Amendment No. 76 reproduces it as a general definition for the whole Bill in Clause 19. Amendments Nos. 56 and 80 do the same for the definition of "new tenancy". I beg to move.

On Question, amendment agreed to.

Page 7, line 36, at end insert:

(""fixed charge", in relation to tenancy, means—

(a) rent,

(b) any service charge as defined by section 18 of the Landlord and Tenant Act 1985 (the words "of a dwelling" being disregarded for this purpose), and

(c) any amount payable under a tenant covenant of the tenancy providing for the payment of a liquidated sum in the event of a failure to comply with any such covenant;").

Page 7, line 37, leave out ("service") and insert ("fixed").

Page 7, leave out lines 39 and 40.

Page 7, leave out lines 41 to 44.

The noble and learned Lord said: I spoke to Amendments Nos. 54 and 55 with Amendment No. 39; to Amendment No. 56 with Amendment No. 53; and to Amendment No. 57 with Amendment No. 39. I beg to move.

On Question, amendments agreed to.

Clause 13, as amended, agreed to.

After Clause 13, insert the following new clause:

Restriction of liability of former tenant where tenancy subsequently
varied

(".—(1) This section applies where a person ("the former tenant") is as a result of an assignment no longer a tenant under a tenancy but—

(2) The former tenant shall not be liable under the agreement or (as the case may be) the covenant to pay any amount in respect of the covenant to the extent that the amount is referable to any relevant variation of the tenant covenants of the tenancy effected after the assignment.

(3) Where a person ("the guarantor") has agreed to guarantee the performance by the former tenant of a tenant covenant of the tenancy, the guarantor (where his liability to do so is not wholly discharged by any such variation of the tenant covenants of the tenancy) shall not be liable under the agreement to pay any amount in respect of the covenant to the extent that the amount is referable to any such variation.

(4) For the purposes of this section a variation of the tenant covenants of a tenancy is a "relevant variation" if either—

(5) In determining whether the landlord has or would have had such a right at any particular time regard shall be had to all the circumstances (including the effect of any provision made by or under any enactment).

(6) Nothing in this section applies to any variation of the tenant covenants of a tenancy effected before the date on which this Act comes into force.

(7) In this section "variation" means a variation whether effected by deed or otherwise.").

The noble Earl said: I spoke to this amendment with Amendment No. 2. I beg to move.

On Question, amendment agreed to.

After Clause 13, insert the following new clause:

(" Overriding leases

Right of former tenant or guarantor to overriding lease

.—(1) Where in respect of any tenancy ("the relevant tenancy") any person ("the claimant") makes full payment of an amount which he has been duly required to pay in accordance with section 13, together with any interest payable, he shall be entitled (subject to and in accordance with this section) to have the landlord under that tenancy grant him an overriding lease of the premises demised by the tenancy.

(2) For the purposes of this section "overriding lease" means a tenancy of the reversion expectant on the relevant tenancy which—

(3) An overriding lease shall not be required to reproduce any covenant of the relevant tenancy to the extent that the covenant is (in whatever terms) expressed to be a personal covenant between the landlord and the tenant under that tenancy.

(4) If any right, liability or other matter arising under a covenant of the relevant tenancy falls to be determined or otherwise operates (whether expressly or otherwise) by reference to the commencement of that tenancy—

(5) A claim to exercise the right to an overriding lease under this section is made by the claimant making a request for such a lease to the landlord; and any such request—

(6) Where the claimant duly makes such a request—

(7) The landlord shall not be under any obligation to grant an overriding lease of the demised premises under this section at a time when the relevant tenancy has been determined; and a claimant shall not be entitled to the grant of such a lease if at the time when he makes his request—

(8) Where two or more requests are duly made on the same day, then for the purposes of subsection (7) —

(9) The preceding provisions of this section shall apply where the landlord is the tenant under an overriding lease granted under this section as they apply where no such lease has been granted; and accordingly there may be two or more such leases interposed between the first such lease and the relevant tenancy.").?

The noble Earl said: I spoke to this amendment with Amendment No. 3. I beg to move.

On Question, amendment agreed to.

After Clause 13, insert the following new clause:

Overriding leases: supplementary provisions

(".—(1) For the purposes of section 1 an overriding lease shall be a new tenancy only if the relevant tenancy is a new tenancy.

(2) Every overriding lease shall state—

and any such statement shall comply with such requirements as may be prescribed by rules made in pursuance of section 144 of the Land Registration Act 1925 (power to make general rules).

(3) A claim that the landlord has failed to comply with subsection (6) (a) of section ( Right of former tenant or guarantor to overriding lease) may be made the subject of civil proceedings in like manner as any other claim in tort for breach of statutory duty; and if the claimant under that section fails to comply with subsection (6) (b) (i) of that section he shall not be entitled to exercise any of the rights otherwise exercisable by him under the overriding lease.

(4) An overriding lease—

and if any such person is by virtue of such a mortgage entitled to possession of the documents of title relating to the landlord's interest—

(5) It is hereby declared—

(6) No tenancy shall be registrable under the Land Charges Act 1972 or be taken to be an estate contract within the meaning of that Act by reason of any right or obligation that may arise under section ( Right of former tenant or guarantor to overriding lease), and any right arising from a request made under that section shall not be an overriding interest within the meaning of the Land Registration Act 1925; but any such request shall be registrable under the Land Charges Act 1972, or may be the subject of a notice or caution under the Land Registration Act 1925, as if it were an estate contract.

(7) In this section—

The noble Earl said: I spoke to this amendment with Amendment No. 3. I beg to move.

On Question, amendment agreed to.

Clause 14 agreed to.

After Clause 14, insert the following new clause:

(" Landlord's consent to assignments

Imposition of conditions regulating giving of landlord's consent to
assignments

. After subsection (1) of section 19 of the Landlord and Tenant Act 1927 (provisions as to covenants not to assign etc. without licence or consent) there shall be inserted—

"(1A) Where the landlord and the tenant under a qualifying lease have entered into an agreement specifying for the purposes of this subsection—

then the landlord—

and section 1 of the Landlord and Tenant Act 1988 (qualified duty to consent to assignment etc.) shall have effect subject to the provisions of this subsection.

(1B) Subsection (IA) of this section applies to such an agreement as is mentioned in that subsection—

(1C) Subsection (1A) shall not, however, apply to any such agreement to the extent that any circumstances or conditions specified in it are framed by reference to any matter falling to be determined by the landlord or by any other person for the purposes of the agreement, unless under the terms of the agreement

and in the latter case the agreement provides for the determination made by any such independent person on the review to be conclusive as to the matter in question.

(1D) In its application to a qualifying lease, subsection (1) (b) of this section shall not have effect in relation to any assignment of the lease.

(1E) In subsections (1A) and (1D) of this section—

The noble Earl said: This amendment is the most important one which it falls to me to move. It represents the backbone of the compromise which has enabled this Bill to be supported on all sides. As I said at Second Reading, it is the essence of compromise that the results will not please everybody, but I believe that this compromise is proper and realistic and will ensure that the principal aim of privity reform is secured early in order to benefit those in need of relief while ensuring that landlords and investors know that they have the security they need.

The considerable challenge has been to do as much as necessary to give to landlords the security required to underpin investment and development while aiming not to stray any further from the spirit of Section 19 of the Landlord and Tenant Act 1927 than is needed to secure that objective.

This amendment introduces a new clause which amends Section 19 of the Landlord and Tenant Act 1927 to increase the possibility of the landlord's control over assignment compared to qualified covenants against assignment under the existing law, but short of allowing sole discretion to the landlord for which absolute covenants against assignment will still be possible for those landlords who require complete control and who are prepared to take the consequences in terms of lower rental values on rent review.

The changes are intended directly to balance the removal of privity of contract liability and they are to apply to new tenancies only. They are also specifically excluded from applying to residential tenancies and will also not apply to agricultural tenancies, which have always come under a different regime for assignment. 'They will also affect assignment only, leaving the law relating to covenants against underletting, for example, untouched.

Section 19(1) of the 1927 Act provides for any covenant against assignment, underletting or charging without the landlord's consent, to be deemed, notwithstanding any provisions in the lease to the contrary, to be a covenant which requires the landlord not to withhold his consent unreasonably. That lay at the heart of the opposition to the earlier Bill in another place, for reasons which I shall now summarise.

Many applications of leases in the commercial field, and much investment in tenanted property and funding of new development, presently depend on the security which privity of contract provides, because a strong original tenant covenant will ensure performance of the lease covenants and a return for the whole term of the lease no matter how many times it may change hands. In the absence of privity of contract, landlords and investors will seek to ensure that covenant strength is similarly maintained throughout new leases notwithstanding assignment. The natural way to do that is to ensure that assignment is only permitted where the assignee is of sufficient status to give the same level of assurance of performance of covenant and return as the original tenant.

The historic approach of the courts in deciding when a refusal of consent is unreasonable means that there is no confidence at all that such control over assignment would be possible for new leases, even given that the courts might be expected to adjust their approach to take account of the fact that landlords' investments in new leases will no longer be backed by the privity of contract of the original tenant. Authorised guarantee agreements are a help, but do not address the problem sufficiently because, on the next assignment, the original tenant will drop out of the picture and the covenant strength underpinning the investment may become seriously diluted.

Without change to Section 19 of the 1927 Act, therefore, in the attempt to preserve covenant strength, landlords will seek, where they are able, to impose absolute covenants against assignment and thereby keep complete control over assignment. Where they cannot do that, investment will be harder to attract and the property market will therefore suffer a blow to confidence of the sort which was in the Government's contemplation when they concluded that the Law Commission's recommend-dations could not be implemented for existing leases.

The solution finally agreed and accepted was that it should be possible for the parties to a lease containing a qualified or fully qualified covenant against assignment to agree between them the criteria which should govern the question of whether or not the landlord would consent to any assignment, and that those criteria should not be susceptible of being overturned by a court on the ground that they, or the landlord's refusal based on the tenant's failure to fulfil them, were unreasonable.

Much effort has been expended to ensure that the change does only what is necessary to enable the parties to preset the criteria for assignment without fear of their being void for unreasonableness while otherwise retaining the effect of Section 19(1) of the 1988 Act as far as possible. It is not intended that the parties should simply be able to oust Section 19(1) altogether so as to place the decision whether or not to consent to assignment in the landlord's undefined discretion which is to all intents and purposes a disguised absolute covenant against assignment, but one which might be easier to impose than a naked absolute covenant.

The amendment works by inserting five new subsections after subsection (1) of Section 19 of the 1927 Act. New Subsection (1A) is the main operative provision. It specifically empowers the landlord and tenant to enter into an agreement to cover assignment. In such an agreement, the landlord and tenant are to be able to specify the terms or conditions on which the landlord will grant or withhold consent. Where they do so, the landlord is not to be taken to be refusing consent unreasonably if he does so on the 'ground that the conditions have not been met—which he will have to show to be the case if the matter is disputed, as he has to show at present that he is not withholding consent unreasonably. Furthermore, if he gives consent subject to any such pre-agreed condition, he is not to be taken as giving consent subject to an unreasonable condition.

To the extent that the conditions are not exhaustive, however, Section 19 and the provisions under the Landlord and Tenant Act 1988 which build on it will continue to have effect as they do at present. Thus, if the tenant meets all the specified conditions but the landlord is still minded to withhold consent, he will have to show that his final refusal notwithstanding the fulfilment of all the pre-agreed conditions is not unreasonable. He will also have to fulfil the duty under the 1988 Act, for example, to consent or to give reasons for withholding consent within a reasonable time. This will enable the landlord to set out the specific requirements in respect of matters such as the assignee's business and financial status which will ensure that the assignee is a sufficiently secure prospect for the landlord's investment to be safeguarded.

The new subsection (1B) provides that the agreement may be in the lease or in any other instrument and could be at the time of the lease or at any other time. It will most often be the case that the agreement is part and parcel of the lease but there will be cases where it is appropriate for such an agreement to be entered into at another time to reflect changing conditions, provided that it is before the tenant actually applies to the landlord for consent to assign.

The new subsection (1C) is aimed at those cases in which the landlord will wish to reserve some final discretion or judgment as to the suitability of the assignee notwithstanding that a series of specific conditions are fulfilled. Simply to allow the landlord to agree with the tenant a condition reserving the final determination to the landlord, or indeed to another person who might be the landlord's associate, would produce the effect of an absolute covenant against assignment in a disguised form.

The new subsection (1C) permits conditions which inherently or expressly depend on the landlord's or any other person's determination, and therefore his discretion, judgment or opinion, rather than being objectively proved. It does so, however, only if the terms of the agreement require the power to determine the matter to be exercised reasonably or provide for the determination to be referred to an independent person if the tenant is not satisfied with the initial determination by the landlord or other person. This will, for example, allow for matters which of their nature require an opinion or judgment to be formed to be capable of conclusive resolution by an independent expert, thus balancing the need in some cases for an element of judgment or discretion against the need for certainty.

The new subsection (1D) concerns the assignment of new building leases. The present position under Section 19(1) (b) of the 1927 Act is that any covenant against the assignment of a building lease without the landlord's consent cannot stop the tenant from assigning without consent more than seven years before the end of the term. With the removal of privity of contract liability for new leases, this complete lack of control over assignment cannot be justified for building leases, and so the new subsection ensures that, as regards assignment, new building leases are to be no different from new commercial leases generally.

The new subsection (1E) makes it clear that the changes do not apply to residential leases. It also covers the fact that a covenant against parting with possession may be broken in a number of ways, of which assignment is one; and it ensures that, in the case of such a covenant, assignment, but not the other ways of parting with possession, is covered by the new provisions.

I am conscious that I have spoken at great length, but I believe this to be justified by the importance of this amendment. I beg to move.