My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Commonhold and Leasehold Reform Bill, have consented to place their prerogatives and interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.
Bill read a third time.
Clause 3 [ Consent]:
moved Amendment No. 1:
Page 2, line 23, leave out "an" and insert "the freehold"
The noble Baroness said: My Lords, it may be convenient if I speak also to Amendments Nos. 2 and 3.
While developing the policy underlying the Bill, one of the important matters that we considered was the extent of the interest that a leaseholder should have in a property before their consent to conversion should be required. It was decided that a lease granted for 21 or more years was substantial enough. That period was not chosen at random—as your Lordships will be aware, it is at present the period that renders a lease subject to registration at Land Registry. Of course, the period still to run might well be less than 21 years at the time of the application to convert. Indeed, the leaseholder might have bought only the last 10 years of a 21-year lease. It seemed a reasonable limit to us. We expressed that limit simply enough by saying in Clause 3(1)(a) that consent should be required from registered proprietors
"of an estate in the whole or part of the land".
That has the virtue of catching freeholders and leaseholders of registered leases without having to go into what would have been unnecessary definition. However, as many of your Lordships will know,
Chapter 1 of Part 2 of the Land Registration Bill provides that leases should be registered if they are for seven or more years.
The first amendment in this group amends Clause 3(1)(a) which now refers exclusively to freeholders. The second amendment introduces a new paragraph which refers specifically to proprietors of leases purchased for a period of 21 or more years, thus leaving our policy as we had at first intended. Finally, the third amendment in the group inserts a new Clause 10 to clarify two points which were the subject of helpful comment from members of the commonhold working group. Clause 10 makes provision for dealing with liability for extinguished leases.
New Clause 10(2) puts it beyond doubt that, where there is more than one leaseholder who is required to consent under Clause 3 and does so, it is only the consenting leaseholder most proximate to the extinguished leaseholder to whom the extinguished leaseholder can look as being liable for any loss.
The way Clause 10 is drafted at present leaves some doubt as to who would be responsible for compensating a leaseholder whose lease was extinguished if there were no superior leaseholder but a consenting freeholder. The new Clause 10 makes it clear, in Clause 10(4), that the holder of the extinguished lease would look to the freeholder as the person liable for loss. I beg to move.
My Lords, we have no objection to these amendments, but I take the opportunity briefly to raise a concern which has been communicated to me by a member of the Bar who was, I believe, a member of the leasehold working party; namely, that under the Bill the rights of some people can be extinguished as a result of consents that are given by others and then compensation is payable. But the problem is that the Bill gives no security to ensure that compensation will in fact be paid as the person who is due to pay it may be insolvent; for instance, where the person who is supposed to pay the compensation is a company in receivership and the receiver is the person who gives the consent. In that case the receiver gives the consent as agent for the company and the benefits from the conversion accrue to the debenture holder who appointed the receiver, but the liability for payment of the compensation is an unsecured liability of the company in receivership. That could, among other things, give rise to problems under the Human Rights Act because the Act is presumably not satisfied by a paper right to compensation but requires an effective right.I am not suggesting that there is anything that can be done now, but I hope that the Minister will ask her officials to look into the matter before it goes to the other place as the rule surely ought to be that if rights are to be extinguished, before they are extinguished compensation should either actually be paid or should be secured.
My Lords, I am certainly happy to do that. Any consenting leaseholder might, of course, consent without the funds to compensate. The position of the extinguished leaseholder will be that of an unsecured creditor in each case. However, it ought not to be the case that a professional such as a liquidator or receiver should exercise the right to consent when there is a chance that he will be unable to fulfil his obligations to pay. However, we believe that this issue will need looking at. I am happy to consider it further and, if appropriate, for it to be dealt with in another place.
On Question, amendment agreed to.
moved Amendment No. 2:
Page 2. line 23, at end insert—
- "( ) is the registered proprietor of a leasehold estate in the whole or part of the land granted for a term of more than 21 years,"
The noble Baroness said: My Lords, I have already spoken to Amendment No. 2. I beg to move.
On Question, amendment agreed to.
Clause 10 [ Extinguished lease: liability]:
moved Amendment No. 3:
Leave out Clause 10 and insert the following new Clause—
"EXTINGUISHED LEASE: LIABILITY
(1) This section applies where—
(a) a lease is extinguished by virtue of section 7(3)(d) or 9(3)(f). and (b) the consent of the holder of that lease was not among the consents required by section 3 in respect of the application under section 2 for the land to become commonhold land.
(2) If the holder of a lease superior to the extinguished lease gave consent under section 3, he shall be liable for loss suffered by the holder of the extinguished lease.
(3) If the holders of a number of leases would be liable under subsection (2), liability shall attach only to the person whose lease was most proximate to the extinguished lease.
(4) If no person is liable under subsection (2). the person who gave consent under section 3 as the holder of the freehold estate out of which the extinguished lease was granted shall be liable for loss suffered by the holder of the extinguished lease."
On Question, amendment agreed to.
Clause 36 [ Enforcement and compensation]:
moved Amendment No. 4:
Page 17, line 20, leave out "in regulations or in a commonhold community statement"
The noble Baroness said: My Lords, in speaking to Amendment No. 4, I shall speak also to Amendment No. 5. These amendments to Clause 36 are minor in nature and are simply intended to ensure consistency of terms across the Bill.
The first removes the reference to compensation made by virtue of this section,
"in regulations or in a commonhold community statement"
in Clause 36(3) as it is redundant to specify where the provision will be contained because the entirety of the clause concerns the content of regulations on enforcement of commonhold duties and compensation.
The second modifies subsection (3)(a) of Clause 36 so as to permit rather than require the inclusion of a provision conferring jurisdiction on a court in provisions which determine the amount of compensation to be paid. I beg to move.
On Question, amendment agreed to.
moved Amendment No. 5:
Page 17. line 22. leave out "including" and insert "which may include"
On Question, amendment agreed to.
Clause 37 [ Commonhold assessment]:
moved Amendment No. 6:
Page 17, line 31, after "required" insert "to be raised from unit-holders"
The noble Baroness said: My Lords, in speaking to Amendment No. 6, I shall speak also to Amendments Nos. 7 and 8. Amendments Nos. 6 and 7 amend Clause 37 which concerns the commonhold assessment. At present Clause 37 requires the directors to make an annual estimate of the entirety of the income required to meet the expenses of the commonhold association. This is then split between the units according to the unit percentages specified in the commonhold community statement.
However, there is arguably a missing step in the calculation. The amendments will add the stipulation that the directors must make an annual estimate of the amount which is actually to be raised from payments made by the unit-holders. We believe that this is necessary because there may be cases in which a commonhold association is able to meet some of its annual expense from other sources (for example, where a commonhold association has an income stream from rented commonhold units) so that the initial estimate is only part of the story, and it is a percentage of the amount to be raised from unit-holders that has to be allocated to each unit.
Without this amendment there will arguably be no leeway to take into consideration any other sources of income which could be used to meet the initial overall estimate because subsection (2) of Clause 37 provides that the percentages of the estimate made under subsection 37(1)(a) and (b) and allocated among the units must amount in aggregate to 100 per cent of the estimate. The amendment removes any room for argument.
I turn now to Amendment No. 8. Noble Lords should know that this minor drafting amendment was inspired by an amendment the noble Lord, Lord Kingsland, tabled in Committee but did not move. The amendment removes the reference to Clause 38(2)(c) from subsection 38(3) and replaces it with reference to 38(2)(b). This will clarify that the link is between the requirement for the directors to specify the percentage of the reserve levy to be allocated to each unit and subsection 38(3) which makes further provision concerning these percentages. I beg to move.
On Question, amendment agreed to.
moved Amendment No. 7:
Page 17, line 34, after "required" insert "to be raised from unit-holders"
On Question, amendment agreed to.
Clause 38 [ Reserve fund]:
moved Amendment No. 8:
Page 18, line 23, leave out "(2)(c)" and insert "(2)(b)"
On Question, amendment agreed to.
Clause 54 [ Termination by court]:
moved Amendment No. 9:
Page 26, line 9, leave out from "liquidator" to end of line 10 and insert "following the making of a winding-up order by the court in respect of a commonhold association".
The noble Baroness said: My Lords, it will be for the convenience of the House if, while speaking to Amendment No. 9, I speak also to Amendment No. 10.
This is another amendment whose only purpose is to make clearer the Government's intentions. Clause 54 deals with the termination of a commonhold association by the court in circumstances in which either the association has been registered in error, in which case the court would be exercising powers under Clause 6(6)(c), or where the court finds that the commonhold community statement and/or the memorandum and articles of association do not comply with the relevant provisions of Part 1 of the Act or associated regulations, in which case it would be acting under Clause 39(3)(d).
In these circumstances, Clause 54(2) gives the court the same powers as it has when making a winding-up order. For the sake of clarity, Amendment No. 9 expresses the powers of the liquidator in these circumstances in the same terms, with the advantage that the powers and duties are set out in Clauses 49 to 53.
Amendment No. 10 simply makes it clear that the powers given to the court in Clause 54(4) are exercisable only in relation to the relevant circumstances set out in Clauses 6 and 39. I beg to move.
On Question, amendment agreed to.
moved Amendment No. 10:
Page 26, line 11, after "court" insert "by virtue of section 6(6)(c) or 39(3)(d)".
On Question, amendment agreed to.
Clause 70 [ Premises to which Chapter applies]:
moved Amendment No. 11:
Page 33, line 51, at end insert—
"( ) But this Chapter does not apply to any part of a building which is not occupied, nor intended to be occupied, for residential use.".
The noble Lord said: My Lords, we believe that the Government have misjudged the adverse impact that the increase from 10 to 25 per cent non-residential use will have on the future of mixed-use developments, which are a crucial component of the Government's approach to land development for the foreseeable future. We have heard no satisfactory argument from the Government to the contrary. Allowing residential leaseholders to enfranchise where the non-domestic component of the block is so high will act as a deterrent to mixed use. Equally, it gives the RTE company a commercial management responsibility which it is wholly unsuited to perform, exposing the commercial tenants to inexperienced management. I beg to move.
My Lords, Amendments Nos. 11 and 32 relate, once again, to the application of the right to manage to mixed-use properties. Amendment No. 11 seeks to apply the right only to the residential part of such properties. As we understand it, Amendment No. 32 deletes our 25 per cent mixed-use threshold as a consequential amendment. The noble Lord is nodding helpfully.The noble Lord and the House will be fully aware why we have taken the approach set out in the Bill and also why we do not consider that his Amendment No. 11 will work. I refer to what I said in Committee, as set out in Hansard of 16th October (cols. 538 to 540) and on Report, as set out in Hansard of 13th November (cols. 483 to 485). Perfectly sensibly, the noble Lord has not elaborated fully on his arguments. I do not intend to do so because they are set out in the columns to which I have referred. However, the noble Lord has made one point. He has brought forward his amendment explicitly, he says, because he is concerned that the application of the right to manage to mixed-use premises will inhibit mixed-use development. He also expressed similar concerns about our changes to the rules for mixed-use enfranchisement. As I said in Committee, we do not agree that there is a problem here. I hope that the noble Lord will have received and read my letter of today's date which explains our reasons for holding that view. As that letter explains, we are well aware of the concerns expressed on this issue by some parts of the property industry. It is possible that the people who raised the matter with the noble Lord, Lord Kingsland, are the same people who lobbied the department on this subject. We have taken those concerns seriously and have looked into them closely. Having done so, our firm belief is that they are unfounded. As has been explained many times, the right to manage is intended to allow leaseholders to gain management control of properties in which they hold a majority stake in the property but where the landlord holds a monopoly over the management. Therefore, where the developer has set up proper communal management arrangements from the outset, there should, in our view, be no particular need for the right to manage to be exercised. We are aware that enlightened developers already take this approach. Leaseholders are often given the right—with that right written into the leases—to manage their block, or the residential parts if it is a mixed block, through a resident management company. I acknowledge that Amendment No. 11 put forward by the noble Lord, Lord Kingsland, is intended to provide for the right to manage to be granted on something along those lines. I have already referred to our views on why imposing a top-down approach will not work. However, it is much easier for the developer of a block to put in place at the outset appropriate arrangements tailored to the precise circumstances of the building, ensuring a sensible relationship between the management responsibilities for the residential part and for the block as a whole. If that is done properly, the leaseholders will already be able to manage their own homes and there will be no real incentive for the leaseholders to exercise the right to manage. Developers are also able to take a similar approach where they wish to protect themselves against the prospect of enfranchisement. Furthermore, the Bill will provide the opportunity for commonhold development. That important point is commonly missed by those who have raised concerns about mixed-use development. Commonhold will necessarily involve both outright ownership of individual units and a share in the common management from the outset. The rights to manage and to enfranchise will not be needed and, therefore, will not apply. Consequently, a developer of a commonhold will have full certainty from the outset about what will happen to his investment and will not face the prospect of losing the management or ownership of the commercial units. I should add that the operation of commonhold or comparable systems in other countries does not seem to have inhibited mixed-use developments in those countries. Furthermore, we know that some developers with experience in such countries have expressed an interest in commonhold development once it becomes possible in England and Wales. In the light of those considerations, we believe that the concerns expressed in relation to the mixed-use issue are misplaced. Developers who make sensible use of the options which will be open to them have nothing to fear from our changes and, therefore, have no rational reason not to continue to bring forward mixed development. Of course, we acknowledge that there is a need to help developers to understand fully the options which will be open to them. We are already seeking to do so, and I invite the noble Lord to draw what I have said today to the attention of those who have made representations to him on the mixed-use issue. If they have any questions or wish to discuss the options in more detail, they are welcome to contact either my officials or those at the Lord Chancellor's Department. I can assure the noble Lord that the position reached by the Bill is the result of careful consideration of the issues—in particular, of the issue which he isolated today as the reason for his amendment. We believe that our approach is the right way forward. On that basis, I invite the noble Lord to withdraw his amendment.
My Lords, I thank the noble and learned Lord very much for his very full reply. It is not the first occasion on which I have raised this issue but, mercifully for your Lordships' House, it will be the last.I hope that the noble and learned Lord does not consider that there is anything improper in an outside interest approaching a Member of the Opposition Front Bench and suggesting that a particular course of action might be in the national interest. There have been a wide range of interests that have suggested that the Government's approach to increasing the nonresidential test will be counter-productive. The noble and learned Lord said that my amendment would not work. However, as I believe he acknowledged generously later on in his remarks, the real reason for opposing the amendment is because the noble and learned Lord does not accept the principle that lies behind it; namely, that the clause set out in the Bill as it stands will have a damaging effect on mixed-use development in the future. That is something with which the noble and learned Lord does not agree. Therefore, a real confrontation of principle arises here. This is my last opportunity; I should like to test the opinion of the House.
On Question, Whether the said amendment (No. 11) shall be agreed to?
Their Lordships divided: Contents, 86; Not-Contents, 170.
Division No. 2
|Anelay of St Johns, B.||Colwyn, L.|
|Attlee, E.||Cope of Berkeley, L. [Teller]|
|Blatch, B.||Cox, B.|
|Boardman, L.||Craig of Radley, L.|
|Bowness, L.||Crickhowell, L.|
|Brooke of Sutton Mandeville, L.||Cumberlege, B.|
|Brougham and Vaux, L.||Dean of Harptree, L.|
|Burnham, L.||Dixon-Smith, L.|
|Buscombe, B.||Eccles of Moulton, B.|
|Caithness, E.||Eden of Winton, L.|
|Campbell of Alloway, L.||Elton, L.|
|Carnegy of Lour, B.||Fookes, B.|
|Cavendish of Furness, L.||Fowler, L.|
|Chadlington, L.||Fraser of Carmyllie, L.|
|Clark of Kempston, L.||Geddes,L.|
|Coe, L.||Gilmour of Craigmillar, L.|
|Goschen, V.||Mowbray and Stourton, L.|
|Gray of Contin, L.||Moynihan, L.|
|Hanham, B.||Noakes, B.|
|Hanningfield, L.||Northesk, E.|
|Hayhoe, L.||O'Cathain, B.|
|Henley, L.||Oppenheim-Barnes, B.|
|Higgins,L.||Park of Monmouth, B.|
|Hodgson of Astley Abbotts, L.||Parkinson, L.|
|Hooper, B.||Pearson of Rannoch, L.|
|Howe, E.||Peel, E.|
|Howell of Guildford, L.||Perry of Southwark, B.|
|Hunt of Wirral, L.||Pilkington of Oxenford, L.|
|Hurd of Westwell, L.||Platt of Writtle, B.|
|Jenkin of Roding, L.||Plumb, L.|
|Jopling, L.||Rees, L.|
|Kingsland, L.||Renton, L.|
|Knight of Collingtree, B.||Roberts of Conwy, L.|
|Lamont of Lerwick, L.||Rotherwick, L.|
|Liverpool, E.||Saltoun of Abernethy, Ly.|
|Lyell, L.||Seccombe, B. [Teller]|
|McColl of Dulwich, L.||Sharpies, B.|
|Marlesford, L.||Shaw of Northstead, L.|
|Mayhew of Twysden, L.||Skelmersdale, L.|
|Miller of Hendon, B.||Stewartby, L.|
|Monro of Langholm, L.||Trefgarne, L.|
|Monson, L.||Trumpington, B.|
|Montrose, D.||Windlesham, L.|
|Acton, L.||Elder, L.|
|Addington, L.||Evans of Parkside, L.|
|Ahmed, L.||Evaas of Temple Guiting, L.|
|Amos, B.||Falconer of Thoroton, L.|
|Andrews, B.||Falkland, V.|
|Ashley of Stoke, L.||Farrington of Ribbleton, B.|
|Ashton of Upholland, B.||Faulkner of Worcester, L.|
|Bach, L.||Filkin, L.|
|Barker, B.||Fyfe of Fairfield, L.|
|Barnett, L.||Gale, B.|
|Bassam of Brighton, L.||Geraint, L.|
|Berkeley, L.||Gibson of Market Rasen, B.|
|Bernstein of Craigweil, L.||Gladwin of Clee, L.|
|Billingham, B.||Golding, B.|
|Blackstone, B.||Goodhart, L.|
|Borrie, L.||Gould of Potternewton, B.|
|Bradshaw, L.||Grabiner, L.|
|Bragg, L.||Graham of Edmonton, L.|
|Brennan, L.||Greaves, L.|
|Brightman, L.||Grenfell, L.|
|Brooke of Alverthorpe, L.||Grocott, L.|
|Brookman, L.||Hamwee, B.|
|Brooks of Tremorfa, L.||Hardy of Wath, L.|
|Burlison, L.||Harris of Haringey, L.|
|Campbell-Savours, L.||Harris of Richmond, B.|
|Carter, L.[Teller]||Harrison, L.|
|Clark of Windermere, L.||Hayman, B.|
|Clarke of Hampstead, L.||Hilton of Eggardon, B.|
|Clement- Jones, L.||Hogg of Cumbernauld, L.|
|Cohen of Pimlico, B.||Hollis of Heigham, B.|
|Corbett of Castle Vale, L.||Hooson, L.|
|Crawley, B.||Howarth of Breckland, B.|
|Currie of Marylebone, L.||Howells of St. Davids, B.|
|Dahrendorf, L.||Howie of Troon, L.|
|David, B.||Hoyle, L.|
|Davies of Coity, L.||Hughes of Woodside, L.|
|Davies of Oldham, L.||Hunt of Kings Heath, L.|
|Dean of Thornton-le-Fylde, B.||Irvine of Lairg, L. (Lord|
|Dholakia, L.||Jacobs, L.|
|Dixon, L.||Janner of Braunstone, L.|
|Donoughue, L.||Jay of Paddington, B.|
|Dormand of Easington, L.||Jones, L.|
|Dubs, L.||King of West Bromwich, L.|
|Eatwell, L.||Layard, L.|
|Lea of Crondall, L.||Rendell of Babergh, B.|
|Lester of Herne Hill, L.||Rennard, L.|
|Levy, L.||Richard, L.|
|Linklater of Butterstone, B.||Rodgers of Quarry Bank, L.|
|Lipsey, L.||Rooker, L.|
|Livsey of Talgarth, L.||Roper, L.|
|Lockwood, B.||Russell, E.|
|Lofthouse of Pontefract, L.||Sainsbury of Turville, L.|
|Macdonald of Tradeston, L.||Sawyer, L.|
|McIntosh of Haringey, L.||Scotland of Asthal, B.|
|[Teller]||Sharp of Guildford, B.|
|McIntosh of Hudnall, B.||Sheldon, L.|
|MacKenzie of Culkein, L.||Sheppard of Liverpool, L.|
|Mackenzie of Framwellgate, L.||Shutt of Greetland, L.|
|Mackie of Benshie, L.||Simon, V.|
|Maclennan of Rogart, L.||Smith of Clifton, L.|
|McNally, L.||Smith of Leigh, L.|
|Maddock, B.||Strange, B.|
|Mar and Kellie, E.||Symons of Vernham Dean, B.|
|Masham of Ilton, B.||Taylor of Blackburn, L.|
|Mason of Barnsley, L.||Temple-Morris, L.|
|Thomas of Gresford, L.|
|Massey of Darwen, B.||Thomas of Walliswood, B|
|Merlyn-Rees, L.||Thomson of Monifieth, L.|
|Methuen, L.||Thornton, B.|
|Milner of Leeds, L.||Tomlinson, L.|
|Mitchell, L.||Tope, L.|
|Morgan, L.||Turnberg, L.|
|Morris of Aberavon, L.||Turner of Camden, B.|
|Northover, B.||Uddin, B.|
|Oakeshott of Seagrove Bay, L.||Walker of Doncaster, L.|
|Parekh, L.||Walmsley, B.|
|Patel of Blackburn, L.||Warner, L.|
|Pendry, L.||Warwick of Undercliffe, B|
|Phillips of Sudbury, L.||Watson of Richmond, L|
|Pitkeathley, B.||Weatherill, L.|
|Plant of Highfield, L.||Whitaker, B.|
|Prys-Davies, L.||Whitty, L.|
|Radios, L.||Williams of Elvel, L.|
|Ramsay of Cartvale, B.||Williams of Mostyn, L. (Lord|
Resolved in the negative, and amendment disagreed to accordingly.
Clause 78 [ Contents of claim notice]:
moved Amendment No. 12:
Page 38, line 37, at end insert—
"( ) It must include an offer of cover to provide for the RTM company directors' and officers' liability insurance, fidelity guarantee and professional indemnity insurance."
The noble Lord said: The amendment would require the RTM company to obtain the three forms of insurance that are specified. Directors' and officers' liability insurance would protect those leaseholders who are involved in the management of the company; fidelity guarantee would protect leaseholders' funds that are held by third parties in service charge or reserve accounts; and professional indemnity insurance would protect companies against failure in the day-to-day management of a block.
The main beneficiaries of the amendment would be the leaseholders, because it would be their interests that were insured. Contrary to what I suspect the Government will say, the amendment is not intended to put obstacles in the way of the right to manage; it merely involves what one would expect from competent managing agents. I beg to move.
My Lords, Amendment No. 12 seeks to require the RTM company to include an offer for liability insurance in its claim notice. It is my recollection that the noble Lord, Lord Kingsland, tabled a similar amendment both in Committee and at Report stage, but did not move it on either occasion. Having reflected on the matter, we came to the conclusion that the noble Lord had been so persuaded by the powerful arguments advanced by the Government when the Bill was in Grand Committee in the previous Parliament, so we are somewhat surprised that the noble Lord has returned to the issue again.On the previous occasion, the noble Lord, Lord Hodgson of Astley Abbotts, and my noble friend Lord Williams of Elvel made a number of very sensible comments indicating the inadvisability of putting such a requirement on the face of the Bill. As we are entirely in agreement with them, I hope that they will not mind if I reiterate them here. First, this amendment effectively makes the provision of liability insurance a qualifying requirement for the right to manage through the back door. Therefore, it undercuts the simple philosophy behind the right to manage; namely, that leaseholders should have the right to a say in the management of their own block by virtue of their investment in the property. The noble Lord, Lord Kingsland, has suggested on a number of occasions that there is a need to build all manner of safeguards into the legislation to protect the interests of the landlord. As we have said before, we fully accept that the landlord will continue to have a legitimate interest in the block under the right to manage. The Bill has been drafted on that premise. That is why the landlord has both the right to be a member of the RTM company, and the rights granted to him to address management failures. We cannot, however, accept that the landlord's minority interests entitle him to a disproportionate protection such as this one. The landlord already has a disproportionate control over the management of the block. The right to manage addresses that by giving leaseholders the right to manage their own homes. A requirement to prove to the landlord—we note in passing, not the leaseholders with their majority stake—that the company has been given an offer of liability insurance is inappropriate in that context. Secondly, this requirement is largely worthless, as it says nothing about the level of insurance to be offered. The RTM company could therefore come forward with a laughable and negligible insurance offer and still comply with this requirement. I hope that the noble Lord, Lord Kingsland, will not press us to include a redundant provision in this important Bill. Finally, and perhaps most importantly, we would expect RTM companies to take out such insurance as a matter of course. We certainly intend to encourage them to do so in guidance, but we do not intend to require them to do so. No other property owner is required by law to take out liability insurance just because they want to manage and maintain their home. In our view, a requirement which would do that just for RTM companies is therefore unfair, unfounded and unjustified. I hope that the noble Lord will be prepared to withdraw his amendment.
My Lords, I thank the noble Lord for his answer which was disappointingly predictable. If the noble Lord finds the amendment inadequate, why does he not propose an alternative. It is not intended to protect the landlord; it is intended to protect the leaseholders in their function as managers of the property. Despite the fact that I regard the amendment as being of great importance and although the previous vote was lost by a fairly narrow margin, on this occasion I shall not press the amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
moved Amendment No. 13:
After Clause 123, insert the following new clause—
"ABOLITION OF MARRIAGE VALUE
In Schedule 6 to the 1993 Act, omit—
(a) paragraph 2(1)(b); (b) paragraph 4; (c) paragraph 5A(2)(b); (d) paragraph 5C; (e) paragraphs 9 and 9A; (f) paragraph 10(1)(b); (g) paragraph 12; (h) paragraphs 15 and 16; and (i) paragraphs 19 and 20."
The noble Lord said: My Lords, I speak not only to Amendment No. 13, but to all the other amendments in this group, except Amendment No. 20. This amendment raises the issue of marriage value. I believe that this is the fifteenth time that I have moved the amendment. At least, it seems like the fifteenth time to me and I dare say to other Members of your Lordships' House who have sat through the whole of the proceedings on this Bill and its predecessor. In my view, the Government have not played fair by sending in an entirely fresh team to conduct their business on the replay. I apologise to the noble Lord, Lord McIntosh of Haringey, who has had the ordeal of sitting through the first round and the replay.
Amendments Nos. 13, 14 and 15 deal with marriage value and the case of collective enfranchisement; Amendments Nos. 17, 18 and 19 deal with marriage value in the case of the grant of an extended lease of a flat; and Amendments Nos. 22, 24 and 25 deal with marriage value in the case of the enfranchisement of a leasehold house above the value limit for enfranchisement under the Leasehold Reform Act 1967, where marriage value was not payable.
What is marriage value? The simplest case is the last, that of enfranchisement of a leasehold house by the lessee. Enfranchisement in that case means the sale of the freehold reversion to the lessee. Frequently, the lessee will be willing to pay more for the house, for a freehold reversion, than an outside purchaser. There are a number of reasons for that. One is that as leases become shorter, they become harder to sell because of the difficulty, and in some cases impossibility, of obtaining a mortgage. Therefore, acquiring a freehold or an extended lease creates a saleable asset in the hands of the lessee whereas the previous asset was not saleable. Of course, for the resident lessee there is the inconvenience of having to move out of the property. As I said on an earlier occasion, moving house is said to be the most nerve-racking event in most people's lives apart from bereavement or the loss of a job.
The result is that the lessee is technically known as a special purchaser. The freeholder may have a reversion that he or she could sell to an investor for, let us say, £20,000. By buying the reversion, the lessee will increase the value of his or her interest in the property by £25,000. That extra £5,000 is the marriage value. In ordinary market conditions it is true that the lessee and the freeholder will probably agree a price somewhere between the two, say £22,500, and the Government propose to divide the marriage value strictly on the basis of half to the lessee and half to the freeholder. However, we believe that the lessee should not be treated as a special purchaser and should not have to pay any share of the marriage value at all.
The leasehold system itself weakens the bargaining position of the lessee; for example, by making short leases unsaleable. It is said by the Government that the sale should be on a "willing buyer/willing seller" basis, but marriage value arises because the seller is assumed to be willing, but the buyer is not only willing but eager to purchase. We believe that that creates something that is not a level playing field. We believe that the freeholder should properly and reasonably be entitled to the same price for the reversion that he or she would receive if he or she sold it on the market to a third party.
We do not believe that that would be, as sometimes is suggested, a breach of the Human Rights Act. In the case of the Duke of Westminster, the European Court of Human Rights accepted as valid the method of valuation under the Leasehold Reform Act 1967 that was far more damaging to freeholders than anything that we suggest.
My Lords, I thank the noble Lord, Lord Goodhart, for giving way. Was that a unanimous decision of the European court, or was it—as I believe—a rather narrow majority decision?
My Lords, I think that it was a majority decision. But a decision is a decision. This position is miles away from the Duke of Westminster's case. That was a strong case. I was surprised that the European court decided it in the way that it did. This is a completely different situation. The Government in their election manifesto in 1997 proposed that they would provide for enfranchisement and would abolish marriage value.The abolition of marriage value would be of significant benefit to tens of thousands of people. They, on any footing, would have to find a substantial sum to purchase the freehold or an extended lease. By abolishing marriage value, which is only a relatively small proportion of the total purchase price, it would be easier for lessees to purchase the freehold or an extended lease. I beg to move.
My Lords, I speak to Amendment No. 20, which is grouped with the amendments of the noble Lord, Lord Goodhart. It concerns the tapering of marriage values. I was impressed by the noble Lord's argument. However, I cannot entirely follow it. I suggest an intermediate process whereby if between 50 and 80 years there is an increase in the marriage value then that should be properly calculated. It should not be simply left. as my noble friend said on Report, "to the market" or whatever, to establish. For that reason, I half support the noble Lord, Lord Goodhart, but, nevertheless, air Amendment No. 20.
My Lords, your Lordships have heard before that I thoroughly oppose what the noble Lord, Lord Goodhart, suggests. His course would be totally detrimental. This is a well-established accepted principle and methodology of valuation and property transactions. I shall not bore the House by repeating all the arguments that I have used before, except to say that I remain of the opinion that I oppose the amendment.
My Lords, like the noble Earl. I have spoken once before on the subject of marriage value. Whatever argument one deploys on the subject, the fact is that if a landlord sells his reversionary interest to a third party, he does not receive any share of marriage value. He gets instead exactly what his reversionary interest is worth. The Government have not disagreed with that proposition but claim that this is a compulsory purchase transaction. Therefore, the landlord shall receive extra compensation in the form of a share of marriage value.The Government's views have changed since the 1967 Act. The Government still recognise that the leasehold system is
Those words were used in a November 1998 consultation paper. Today no country has a leasehold system except Britain. So why should the Government not want to help the remaining 2 million leasehold tenants by excluding marriage value? For a change, let us look at the matter from the point of view of the landlord. The leasehold system is designed to give the landlord a second, sometimes a third and even a fourth bite of the cherry. It is a system whereby a tenant can effectively buy his own home. Then he or his successors can buy it again and sometimes again and again. The great sympathy that the Government express not to do anything to disadvantage the landlord is to imply that we are dealing with two equal sides of an equation. The reason for all this legislation to phase down, if not to terminate, the leasehold system, is that hopefully the Government recognise—certainly the previous government did—that the leasehold system is onerous and that the weaker party' namely, the tenant, needs some help to get out of the system. Clearly the abolition of marriage value is the help that is needed. It was good enough for the 1967 Act, which the Labour Government brought in, so why cannot it be applied to higher value flats and houses? It is true that leaseholders will gain from enfranchisement or lease extension. As the Government have indicated before, in the former case they can grant themselves a 999-year lease. But we are talking about people's homes. Why should they not have virtual outright ownership? I fear that the weakness of the Government's argument is the belief that landlords and tenants are two sides of the same coin, when the truth is that the landlord's interest increases in value, excluding inflation, on a daily basis, while the tenant's value—I remind your Lordships that this is his home—decreases in value on a daily basis. Lastly, I deal with an argument that was used in early stages of the Bill; namely, that if a landlord is in serious breach of the lease the tenant may acquire the freehold without marriage value. That is certainly a fair proposition. But the Government argue that we cannot allow other tenants to buy their freeholds without marriage value as it would reduce the penalty on the bad landlords. If I may say so, two wrongs do not make a right. This is a very weak argument. If one wants to have a penalty on bad landlords they could receive a reduced proportion of the tenant's acquisition price. But to argue that you have to keep the penalty for landlords without fault to create this distinction is, in my opinion, absurd. I urge the Government to think again about the issue. I urge all of your Lordships to support the amendment."totally unsuited to the society of the 20th century, let alone the 21st century".
My Lords, before the noble Lord sits down, I did not follow him at all in what he said. How can the tenant's interest decrease when the value of leases have been going up for many years? That is an increase and not a decrease.
My Lords, I believe that I said that excluding inflation. Inflation disguises the true situation. I shall be referring to that with regard to another amendment. If there was no inflation, the tenant would be very clear that its value goes down every year—every day indeed.
My Lords, I find this amendment, the amendment tabled by the noble Lord, Lord Williams of Elvel, and the statements made by the Minister on the previous occasion all slightly conflicting. I was quite impressed by the remarks of the noble and learned Lord, Lord Falconer, that tapering would automatically happen and therefore the marriage value would not apply. I find the text of Amendment No. 20, tabled by the noble Lord, Lord Williams of Elvel, rather too definitive in setting matters out. Therefore, I do not strongly support his amendment this time, whereas last time I strongly supported its principle.Is the marriage value simply that there is an element of compulsion that the landlord is being forced to sell? Is a marriage value given to compensate him because, as was explained a moment ago, if he puts his property on the market to sell the reversion he will not get any marriage value? Is the marriage value simply because he is being obliged to sell? I commented at the previous stage of the Bill in relation to another amendment that charities act like any other landlord. I have had an irate letter from someone involved in the charities issue. It says that that was impugning the character of charities. That was not the case at all. As a chairman of a charity myself, I know that we are under an obligation to the Charity Commission to get maximum return for whatever we handle, whether it be property or anything else. So I think that he certainly misunderstood my view on charities. Getting back to the point about the charities, it means that any charity wanting to sell a property, if there is a marriage value in the Act, cannot possibly exercise any discretion to reduce the price or agree to a reduction in price. It has the same official duty as a trustee. Whereas a private landlord could have a discretion, it means that an executor, a trustee or a charitable trustee would not. Therefore marriage value will be quite significant in cases where there is no right to relinquish part of it. When the Minister replies, will he tell me whether it is the element of compulsion that means that people are entitled to marriage value? It may be accepted practice, as my noble friend Lord Caithness has said, but that does not make it desirable. I should like an explanation of why the Government believe that provision to be necessary.
My Lords, may I crave the indulgence of the House? I wanted to speak to Amendment No. 20—
My Lords, it is Third Reading and noble Lords can speak only once.
My Lords, it may be the 15th time that the noble Lord, Lord Goodhart, has addressed the issue of marriage value, but every time I have heard him do so, it sounded as fresh as on the previous occasion.I know that the issue of marriage value is of great concern to the noble Lord, and to other noble Lords. He has explained his position at some length during earlier debates on the Bill. I fear that we will have to agree to disagree on the issue. It remains our view that the Bill strikes the correct balance between the competing interests of landlords and leaseholders. We are not willing to make any further concessions. To answer the specific point made by the noble Baroness, Lady Gardner of Parkes, we cannot support an alternative valuation method that would result in a compulsory and substantial transfer of resources from one private individual to another. It is both the element of compulsion and the fact that substantial assets are involved that lead us to adopt our position. As I said last week, we must recognise that marriage value exists when the freeholder sells to the leaseholders. We propose to divide that gain equally between the parties. That means that leaseholders obtain added value, in the form of the ability to grant themselves new leases, which exceeds the price that they paid for it. My noble friend Lord Williams of Elvel raised the question of tapering. We discussed that at some length last week. I know that my noble friend has strong views on the matter, but, as I said last week, the fact remains that the current valuation basis provides its own taper. The price payable for enfranchisement increases progressively as leases shorten.
My Lords, I thank my noble and learned friend for giving way. The noble Lord, Lord Jacobs, wanted to speak to Amendment No. 20. I shall therefore move that amendment in its place, so that the noble Lord can do so.
My Lords. I thank my noble friend for that sign of what is to come.The price payable for enfranchisement increases progressively as leases shorten. We have taken the view that marriage value is likely to be de minimis where leases have more than 80 years to run and, to avoid arguments over insignificant sums, we are providing that no marriage value will be payable in such circumstances. As leases drop below 80 years, marriage value will progressively increase but will be split equally between the parties. We do not accept that there is a case for a further arbitrary apportionment of the marriage value which would effectively reduce the price payable by leaseholders. The noble Lord, Lord Jacobs, raised the Leasehold Reform Act 1967. The 1967 Act reflected the different political and economic circumstances of the day and allowed enfranchisement on a basis that was extremely favourable to leaseholders. We no longer consider that equitable but do not seek to withdraw the right to enfranchise on that basis from those who currently enjoy it. The noble Lords, Lord Jacobs and Lord Goodhart, referred to the promise made by my party when in opposition. We did not promise to abolish marriage value in An End to Feudalism. We sought views on two options: abolition and sharing marriage value equally between the parties. We have decided on the latter. I turn to the final point raised, which was that the landlord will have received the equivalent price for the sale of a freehold when he first granted the lease. That may or may not be the case, but he would have granted the lease on the assumption that he would be entitled to either the freehold reversion at the end of the lease or a fair price for the sale of his interest—including marriage value. by contrast, the current leaseholder may have purchased the lease when the unexpired term was relatively short, at a price that reflected that. Abolition of marriage value would result in a substantial windfall gain at the expense of the landlord, which is difficult to justify. I invite the noble Lord to withdraw his amendment.
My Lords, we are approaching the close of our debate on marriage value. My noble friends and I feel strongly on the matter. We have not had an opportunity to divide the House on it before, because we did not reach it on Report of the previous Bill, and reached it only late in the evening on Report of this Bill. I should like to test the opinion of the House.
On Question, Whether the said amendment (No. 13) shall be agreed to?
Their Lordships divided: Contents, 45 Not-Contents, 182.
Division No. 3
|Addington, L.||McNally, L.|
|Barker, B.||Maddock, B.|
|Bradshaw, L.||Mar and Kellie, E.|
|Carlile of Berriew, L.||Methuen, L.|
|Clement-Jones, L.||Monro of Langholm, L.|
|Dholakia, L.||Newby, L.|
|Falkland, V.||Northover, B.|
|Fearn, L.||Oakeshott of Seagrove Bay, L.|
|Geraint, L.||Phillips of Sudbury, L.|
|Goodhart, L.[Teller]||Razzall, L.|
|Greaves, L.||Redesdale, L.|
|Hamwee, B.[Teller]||Rennard, L.|
|Harris of Richmond, B.||Rodgers of Quarry Bank. L|
|Hooson, L.||Russell, E.|
|Howarth of Breckland, B.||Sharp of Guildford, B.|
|Jacobs, L.||Shutt of Greetland, L.|
|Lester of Herne Hill, L.||Smith of Clifton, L.|
|Linklater of Butterstone, B.||Thomas of Walliswood, B|
|Livsey of Talgarth, L.||Tope, L.|
|Ludford, B.||Walmsley, B.|
|Mackie of Benshie, L.||Watson of Richmond, L.|
|Maclennan of Rogart, L.||Williams of Crosby, B.|
|Acton, L.||Barnett, L.|
|Ahmed, L.||Bassam of Brighton, L.|
|Alton of Liverpool, L.||Berkeley, L.|
|Amos, B.||Bernstein of Craigweil, L.|
|Andrews, B.||Billingham, B.|
|Anelay of St Johns, B.||Blackstone, B.|
|Ashton of Upholland, B.||Blatch, B.|
|Astor of Hever, L.||Boardman, L.|
|Attlee, E.||Borrie, L.|
|Bach, L.||Bowness, L.|
|Brabazon of Tara, L.||Hunt of Wirral, L.|
|Bragg, L.||Irvine of Lairg, L. (Lord|
|Brightman, L.||Janner of Braunstone, L.|
|Brooke of Alverthorpe, L.||Jay of Paddington, B.|
|Brooke of Sutton Mandeville, L.||Jones, L.|
|Brookman, L.||Jopling, L.|
|Brougham and Vaux, L.||Kennedy of The Shaws, B.|
|Burlison, L.||King of West Bromwich, L.|
|Burnham, L.||Kingsland, L.|
|Caithness, E.||Knight of Collingtree, B.|
|Campbell of Alloway, L.||Lamont of Lerwick, L.|
|Campbell of Croy, L.||Layard, L.|
|Campbell-Savours, L.||Lea of Crondall, L.|
|Carnegy of Lour, B.||Levy, L.|
|Carter, L.[Teller]||Lipsey, L.|
|Chadlington, L.||Liverpool, E.|
|Chandos, V.||Lockwood, B.|
|Clark of Kempston, L.||Lofthouse of Pontefract, L.|
|Clark of Windermere, L.||Luke, L.|
|Clarke of Hampstead, L.||Lyell, L.|
|Coe, L.||McColl of Dulwich, L.|
|Colwyn, L.||Mcintosh of Haringey, L.|
|Cope of Berkeley, L.||[Teller]|
|Corbett of Castle Vale, L.||MacKenzie of Culkein, L.|
|Crawley, B.||Mackenzie of Framwellgate, L.|
|David, B.||Masham of Ilton, B.|
|Davies of Coity, L.||Massey of Darwen, B.|
|Davies of Oldham, L.||Mayhew of Twysden, L.|
|Dean of Harptree, L.||Merlyn-Rees, L.|
|Dean of Thornton-le-Fylde, B.||Milner of Leeds, L.|
|Desai, L.||Mitchell, L.|
|Dixon, L.||Monson, L.|
|Dixon-Smith, L.||Montrose, D.|
|Dormand of Easington, L.||Morgan, L.|
|Dubs, L.||Morris of Aberavon, L.|
|Eccles of Moulton, B.||Mowbray and Stourton, L.|
|Eden of Winton, L.||Moynihan, L.|
|Elder, L.||Noakes, B.|
|Evans of Parkside, L.||Northesk, E.|
|Evans of Temple Guiting, L.||Oppenheim-Barnes, B.|
|Falconer of Thoroton, L.||Palmer, L.|
|Farrington of Ribbleton, B.||Parekh, L.|
|Faulkner of Worcester, L.||Park of Monmouth, B.|
|Filkin, L.||Parkinson, L.|
|Fookes, B.||Patel of Blackburn, L.|
|Fraser of Carmyllie, L.||Pearson of Rannoch, L.|
|Fyfe of Fairfield, L.||Peel, E.|
|Gale, B.||Pendry, L.|
|Geddes, L.||Pilkington of Oxenford, L.|
|Gibson of Market Rasen, B.||Pitkeathley, B.|
|Gladwin of Clee, L.||Plant of Highfield, L.|
|Golding, B.||Radice, L.|
|Gould of Potteraewton, B.||Ramsay of Cartvale, B.|
|Grabiner, L.||Randall of St. Budeaux, L.|
|Grenfell, L.||Rea, L.|
|Grocott, L.||Rendell of Babergh, B.|
|Hanham, B.||Renton, L.|
|Hanningfield, L.||Renwick of Clifton, L.|
|Hardy of Wath, L.||Richard, L.|
|Harris of Haringey, L.||Rooker, L.|
|Harrison, L.||Rotherwick, L.|
|Haskel, L.||Sainsbury of Turville, L.|
|Hayman, B.||Sawyer, L.|
|Henley, L.||Scotland of Asthal, B.|
|Hilton of Eggardon, B.||Seccombe, B.|
|Hodgson of Astley Abbotts, L.||Shaw of Northstead, L.|
|Hogg of Cumbernauld, L.||Sheldon, L.|
|Hooper, B.||Sheppard of Liverpool, L.|
|Howe, E.||Simon, V.|
|Howell of Guildford, L.||Skelmersdale, L.|
|Howells of St. Davids, B.||Smith of Leigh, L.|
|Howie of Troon, L.||Stone of Blackheath, L.|
|Hoyle, L.||Symons of Vernham Dean, B.|
|Hughes of Woodside, L.||Taylor of Blackburn, L.|
|Hunt of Kings Heath, L.||Temple-Morris, L.|
|Thornton, B.||Weatherill, L.|
|Tomlinson, L.||Whitaker, B.|
|Turner of Camden, B.||Whitty, L.|
|Uddin, B.||Williams of Mostyn, L.(Lord|
|Walker of Doncaster, L.|
|Warwick of Undercliffe, B.||Windlesham, L.|
Resolved in the negative, and amendment disagreed to accordingly.
Clause 124 [ Freeholder's share of marriage value]:
[ Amendment No. 14 not moved.]
Clause 125 [ Disregard of marriage value in case of very long leases]:
[ Amendment No. 15 not moved.]
moved Amendment No. 16:
After Clause 125, insert the following new clause—
This Chapter binds the Crown."
The noble Lord said: My Lords, I apologise to the House for raising the issue for the first time at the Bill's second Third Reading stage. I notified the Government that I intended to do so and most kindly and generously they said that they would respond in a manner which did not criticise me for the way in which I have drawn their attention to the matter. The issue arises over Crown exemption from the Leasehold Reform Act 1967, the Leasehold Reform, Housing and Urban Development Act 1993 and the Commonhold and Leasehold Reform Bill.
The Crown is not bound by the legislation but has given a voluntary undertaking to enfranchise properties held on long residential leases unless one of two conditions apply: first, where a property stands on inalienable land, which is defined in the Windsor Estate Act 1961; and, secondly, where property or land has a long historic or particular association with the Crown; for example, the garrison at St Mary's on the Isles of Scilly.
It has been suggested that these exemptions conflict with the Human Rights Act on the ground that they violate the right to property under Protocol 1, Article 1, of the European Convention on Human Rights, and the prohibition of discrimination, articulated in Article 14. To that extent, therefore, the Bill fails to comply with the Government's undertaking. I shall be most interested to hear the Government's reaction to those suggestions. I beg to move.
My Lords, before the Minister replies, can the noble Lord, Lord Kingsland, explain whether the provision applies only to this leasehold enfranchisement legislation or to all such legislation? I should have been able to work that out but I have been unable to do so. Although I have a degree of sympathy with the notion, perhaps this is not the moment at which to suggest that an undertaking from the Crown is questioned as implicitly as is the case in the amendment. If the provision applies only to this legislation, it would be inappropriate to introduce it for only a part of the leasehold enfranchisement regime.
My Lords, on a point of clarification, perhaps I may say that it is not the undertaking from the Crown that is criticised; it is the discriminating way in which the undertaking has effect. In the case of some Crown properties, the Crown will honour that undertaking, but in the case of other Crown properties, because of their special status, the Crown will not enfranchise.
My Lords, these amendments, as the noble Lord, Lord Kingsland, has said, seek to apply the rights of collective enfranchisement and lease renewal for flats, and the rights of enfranchisement and lease extension for houses to properties held by the Crown.To pick up the point made by the noble Baroness, Lady Hamwee, these amendments apply our amendments without applying the legislation that they amend. However, I understand from what the noble Lord, Lord Kingsland, said, that they are merely a means of probing how the undertaking given by the Crown operates. I am grateful to the noble Lord for giving us the opportunity to deal with these points. As the noble Lord, Lord Kingsland, will know, the enfranchisement and lease extension provisions of the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993 are not directly binding on the Crown. That does not, however, mean that Crown leaseholders do not hold the relevant rights. As the noble Lord knows, the Crown has undertaken to Parliament to comply with the legislation voluntarily. That means that in practice, and subject to certain specified conditions, any leaseholder who would be entitled to enfranchise or extend a lease under either the 1967 or the 1993 Act, if the legislation were directly binding on the Crown, will instead be able to do so under the undertaking. That is all set down in the Crown's undertaking, which was formally announced to Parliament by the then housing Minister, Sir George Young, on 2nd November 1992 at col. 19 of Hansard. We have been in discussion with the Crown about the undertaking. We wish to ensure that the undertaking continues to give Crown leaseholders the same rights as they would have if the legislation applied directly. As such, we have asked the Crown to confirm that the undertaking will apply to the provisions of the 1967 and 1993 Acts, as amended by the important changes in Chapters 2, 3 and 4 of this Bill. I am happy to say that the Crown has given us that confirmation. The noble Lord referred to concerns that the present arrangements for Crown enfranchisement are not compliant with human rights legislation and with the ECHR. I know that general accusations have been made to that effect by Crown leaseholders who are dissatisfied with the way in which the undertaking applies to them. However, I am not aware that any specific grounds have yet been put forward to suggest why the existing arrangements might not be compliant. The noble Lord will be aware that it is difficult to mount a detailed defence when the precise allegation is not known. We are satisfied that the existing arrangements do not give rise to any problems of ECHR compliance. The question of whether or not the relevant Acts directly bind the Crown is something of a red herring. As I have explained, Crown leaseholders have the same rights as other leaseholders. They are simply delivered by a different means. That may be slightly unorthodox but it gets us to exactly the same place. It is of course true that the Crown undertaking is subject to a number of exceptions. However, that is no different from the approach set down in the legislation. For example, there are exemptions for designated rural areas and charitable housing trusts. Again, the approach is entirely consistent on both sides. I should add that we are content that the exemptions set down in the undertaking are justified. If we were to apply the legislation directly, that would be done on the same basis as is already set down in the undertaking. The outcome would therefore be no different from that achieved under the present arrangements. It is correct that Clause 106 makes the right to manage binding on the Crown and that Clause 163 does the same for numerous other statutory provisions. That, again, is simply a question of delivery. It ensures that those rights, including a number of existing ones that formerly did not apply are open to Crown leaseholders, as well as other leaseholders. As I said, the undertaking already delivers enfranchisement and new lease rights to Crown leaseholders. As that is already the case, we see no particular need to make statutory provisions to the same effect. I can appreciate that those who fall outside the undertaking would be unhappy about that. I should say that there are more than two exemptions from the undertaking. The noble Lord referred to two, but he will accept that there are others. It would be inappropriate for me to go into individual cases. However, as I have said, we are satisfied that all aspects of the undertaking are appropriate. If we were to apply those rights directly to the Crown, we would do so in the same terms as already apply under the undertaking. As such, Crown leaseholders are in the same position under the present arrangements as they would be if we were to apply the Act directly because we would do so subject to the same exceptions. As I said, it is simply a question of delivery. As far as I am aware, the Crown fully undertakes its undertaking. In those circumstances, I respectfully ask the noble Lord to withdraw his amendment.
My Lords, I am grateful to the noble and learned Lord for giving such a full reply to my question. It was certainly not my intention to attack the undertaking. I entirely understand why the Crown is taking that approach, which is perfectly satisfactory and consistent with the convention.My criticism is rather about the discriminatory way in which the undertaking is applied. The noble and learned Lord rightly said that there are other areas in the Bill that make exceptions to rights to enfranchise, but those areas are explicit and are stipulated in the Bill. The definition of what does and does not fall within the terms of the Windsor Estate Act and the concept of historical inalienability are much less clear. That is why the human rights point has been raised. It would not be appropriate to put the matter to a vote. I thank the noble and learned Lord for his response and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[ Amendment No. 17 not moved.]
Clause 132 [ Landlord's share of marriage value]:
[ Amendment No. 18 not moved.]
Clause 133 [ Disregard of marriage value in case of very long leases]:
[ Amendment No. 19 not moved.]
moved Amendment No. 20:
After Clause 133, insert the following new clause—
"TAPERING OF MARRIAGE VALUES
For leases where there is an unexpired term of more than 50 but less than 80 years, for each year in reverse chronological order following the eightieth, the amount of marriage value shall be increased by one-thirtieth pro rata, until the fiftieth year at which point the marriage value shall revert to full value."
The noble Lord said: My Lords, I am moving the amendment simply because I do not think that we had a very serious debate on the previous grouping. I should like to hear what the noble Lord, Lord Jacobs, has to say as I think that he has been shut out on this matter.
My Lords, I appreciate the comments of the noble Lord, Lord Williams of Elvel, but it is not fair to say that I was shut out. I did not know the rules and I did not observe them. That is a true admission. However, I have been given a second bite at the cherry.I strongly support the amendment. Since the Government decided to exclude marriage value for leases with the remaining term of 80 years and upwards, the situation is clearly anomalous if some tenants have, say, only 79 years left. In those circumstances, the tenant will be obliged to pay 50 per cent of the marriage value rather than nothing. On Second Reading, I proposed a complete taper from 80 years down to 10 years. However, on reconsideration of the matter, I think that the amendment moved by the noble Lord, Lord Williams of Elvel, would be fairer because it only takes it from 79 years down to 50 years, which I believe would be sufficient. It may be a little surprising that the Government did not propose any taper, but then that is because their position on this matter has not been fully understood. They regard marriage value at 80 years and upwards as being de minimis and their proposal to abolish marriage value at that level is to save unnecessary administration and wasteful negotiating costs. I agree with that approach. If, for example, one looks at the value of leases in Newport and Cardiff, the marriage value on 80-year leases is close to zero, and those years just below 80 will also have negligible marriage value. Therefore, a taper is not required. The problem arises in Greater London where marriage value can amount to tens of thousands of pounds, even at 80 years, so the penalty for being a year or two short on the lease becomes significant without a taper. The Government can reasonably argue that they had no intention of reducing the cost of either enfranchisement or lease extension by this measure—or any other measure for that matter. They could claim that if marriage value after all has real value at 80 years, they had now better remove the clause abolishing marriage value over 80 years. I believe that that has a certain logic. On the other hand, if the Government allow the clause to remain, in all equity there must be some kind of taper below 80 years. I urge the Government to think again. I believe that the amendment moved by the noble Lord, Lord Williams of Elvel, is very modest and just, and I strongly support it.
My Lords, the noble Lord, Lord Jacobs, puts his case clearly and with great vigour. We have started marriage value only at 80 years because we believe that above that level it is negligible. That means that normally when it kicks in at 80 years the amount of marriage value will be very small. It will become larger as the years go by, but because it is very small when it starts at 80 years a taper is built into the whole process anyway. That is why it seems unnecessary to introduce an artificial second taper as proposed by my noble friend Lord Williams of Elvel. There is already a taper because the marriage value will go up as the years go by, starting from a very small beginning at 80 years.We are not attracted by the amendment tabled by my noble friend Lord Williams of Elvel because we believe that the circumstances themselves provide the taper. I invite my noble friend to withdraw his amendment.
My Lords, I am grateful to the noble Lord, Lord Jacobs, and the Minister. My noble and learned friend appears to believe in the market according to Marshallian economics. I am not sure that I believe in it. Nevertheless, I invite my noble and learned friend to study Marshall and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[ Amendments Nos. 21 to 22 not moved.]
Clause 136 [ Reduction of qualifying period as tenant etc]:
moved Amendment No. 23:
Page 66, line 11, at the end, insert—
"(1C) This Part of this Act shall not have effect to confer any right on the tenant of a house where—
(a) the house is for the time being let as two or more flats or units; and (b) the tenancy is superior to those held by the other tenants,unless, at the relevant time, the tenant has been occupying the house, or any part of it, as his only or main residence (whether or not he has been using it for other purposes)— (i) for the last two years; or (ii) for periods amounting to two years in the last 10 years."
The noble Earl said: My Lords, in moving Amendment No. 23 I should like to speak also to Amendment No. 26. We return to the same matter that we debated at Report stage, during which time I received support from all sides of the House on the point that I then sought to raise. To recap, by changing the residency rules the Government have given incredible new rights to head lessees who will be able to expropriate the properties of existing landlords and benefit from any marriage value in future transactions, should they happen. A good number of these head lessees are deliberately set up as overseas tax havens. They are perhaps people whom one would not want to see as landlords in many of our cities, but obviously these are the friends of new Labour.
It would be quite wrong for them to be given these privileges at the expense of existing landlords—the Church, the charities and the pension funds—who will lose a considerable amount of money. We calculate that in the major estates of London the Government's draconian proposals could take effect in over 500 properties. There are millions of pounds at stake. Therefore, by tabling these amendments I seek to help the Government shed the new image that they will gain for themselves. I beg to move.
My Lords, I have received a letter from the Leasehold Reform Professional Committee, which fully understands, as do I, the point raised by my noble friend. One does not want to see a commercial head lessee enfranchising over people with flats in a house who would otherwise be able themselves to enfranchise. Nevertheless, it is concerned about the amendments because it believes that the undertaking given by the Government at the previous stage of the Bill provided better news. It would prefer that these amendments are not accepted today.
My Lords, I support the noble Baroness, Lady Gardner of Parkes. It has been suggested to me that we should invite the Government to look carefully at the amendment because it appears to go further than the general support expressed at Report stage. We all recognise that there is a problem with head leases and that perhaps the wrong people will enfranchise. It is my understanding that this amendment takes the matter much further. I invite the Government to look at it carefully.
My Lords, if the noble Earl, Lord Caithness, seeks to help the Government he is going about it in a strange way. To contrast these wicked head lessees who are friends of new Labour with landlords who are widows, orphans and the starving millions appears to be a little extreme. However, the noble Earl has a point. We said that in relation to his amendment at Report stage. He suggested ways in which we might address the concerns which he put forward last week.We agree with the noble Earl that head lessees should not be able to make windfall gains by enfranchising in these circumstances. We now accept that the Bill could be interpreted in a way that allows that. We are presently considering changes to put the matter beyond doubt and shall introduce an amendment in another place to achieve that. We shall certainly consider the approaches suggested by the noble Earl, although we also bear in mind the comments of the noble Baroness, Lady Gardner. and the noble Lord, Lord Jacobs. I shall inform the noble Earl of our proposals in due course.
My Lords, I am extremely grateful for the noble Lord's response. I am particularly encouraged by his observation that not only do I have a point but there is a flaw in the Bill which needs to be rectified. Thank goodness we have had the time to highlight this matter. It has also given the Government time to table at this stage at least one third of the amendments to clarify earlier parts of the Bill.We are still concerned that without a residency test there will be a new speculative element in the market which has not existed so far. That will arise on short leases and leasehold houses and it will affect prices where there are two competitors pursuing a property, one of whom is a speculator and the other is a potential owner occupier. Having said that and registered the point yet again, I am extremely grateful for what the Government intend to do. I look forward to seeing the amendment to be tabled in another place. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 141 [ Exclusion of shared ownership leases]:
[ Amendment No. 24 not moved.]
Clause 142 [ Tenant's share of marriage value]:
[ Amendment No. 25 not moved.]
[ Amendments Nos. 26 and 27 not moved.]
moved Amendment No. 28:
Before Clause 147. insert the following new clause—
"MINIMUM TERM FOR LEASES AT A PREMIUM
(1) No lease of a flat or house may be granted at a premium unless the term of this lease is not less than 300 years.
(2) In this section "flat" has the same meaning as in Chapter 1 of this Part and "home" has the same meaning as in Part 1 of the Leasehold Reform Act 1967 (c. 88)."
The noble Lord said: My Lords, this amendment has been debated before only briefly and yet it could have significant implications for the leasehold system in this country. We all recognise that this Bill breaks important new ground; first, with the right to manage and, secondly, with commonhold. However, we now understand that there is virtually no prospect of the existing 2 million leaseholders achieving commonhold. What is not fully understood is that from the tenants' point of view if they are able to obtain enfranchisement and secure a 999-year lease then as much as 90 per cent of the benefits of commonhold could be achieved under such leases.
However, I fear that the Government have overlooked the fact that landlords—I refer particularly to those in Greater London—are intent on maintaining the leasehold system as far into the future as can be imagined. If a Greater London landlord has already existed for 150 years there appears to be no problem in continuing for another 150 years, and perhaps longer. I do not decry that possibility, but it goes some way to explain why leases are still being granted for terms of 125 years, 99 years, 75 years and believe it or not—20 years.
The principle is always the same. The tenant will pay the virtual freehold value for leases in London of 75 years and upwards. But from that moment onwards for every year the lease diminishes the landlord's reversionary interest increases and the tenant's interest decreases. That is disguised somewhat by the fact that with property inflation the tenant's interest does not appear to diminish so much while of course the landlord's interest increases enormously.
The principle that the landlords wish to establish is that of a second bite of the cherry. That is to enable the tenant or his successors who believe they purchased their own home to purchase again in 75 or 99 years and then at a greater market value. That is a "nice little earner", as they say. This amendment is designed to extinguish the landlord's interest and enthusiasm for achieving successive bites of the cherry. Perhaps the amendment would be better if it were for 999 years, but I still believe that 300 years is sufficient. I am sure that the Government recognise that the landlord is not being deprived of any element of value when he grants a lease for 300 years.
What, therefore, can be the objection to this amendment? Primarily, it is a limitation of consumer choice. With the exception of 20-year leases to which I shall come, the consumer pays virtually the freehold price in Greater London for leases of 75 years and upwards. The price range is between 90 per cent and 98 per cent of the freehold value. Consumer choice would mean that tenants would prefer to have a 999-year lease or certainly under this amendment, a 300-year lease. By this amendment we are not restricting the tenant's choice, but the landlord's choice because it is the landlord who has an interest in granting the shortest possible lease commensurate with obtaining the maximum value.
In the case of 20-year leases it is a different kettle of fish, for here landlords successfully sought to avoid the 1993 Act by declining to offer leases greater than 20 years before the Act came into being when 21 years was the expected cut-off point. These properties can no longer be enfranchised and I am sure that your Lordships will accept that landlords did not offer the consumer a choice of 20 years or of, say, 75 years, and insisted it was 20 years or nothing even though such tenants had reasonable expectation of being granted a normal length lease on renewal.
It is intended by this amendment that the landlord cannot grant a lease of 20 years for a capital sum. It would have to be a 300-year lease. However, it should be recognised that in Greater London one does pay a lesser sum for a 20-year lease, believe it or not, up to 60 per cent of the notional freehold value. So after 11 years, for example, a tenant who wants to sell his remaining lease of nine years would go to an estate agent who would tell him immediately that it is not saleable unless he can acquire a new 20-year lease. But by that time his nine-year lease is only worth about 30 per cent of the notional freehold value.
Just to make it absolutely clear, perhaps I may give your Lordships an example. If a flat has a notional freehold value of £300,000, these Greater London landlords would sell a 20-year lease for up to £180,000. At the end of 11 years the tenant would have to pay another £90,000 to buy a new 20-year lease, assuming that there is no inflation. If there is inflation of just three per cent per annum the tenant would have to pay £124,000 to convert his nine-year lease to a 20-year lease. So in the end the tenant will have paid out £300,000 over a period of just 11 years, which was the value of the virtual freehold property in the first place.
Therefore, are we to say that, in the interests of consumer choice, we should allow 20-year leases to be granted for a capital sum? I believe that we would be doing the tenants an immeasurable favour if we were to say that all leases for a capital sum should be for a minimum period of 300 years. Landlords would rapidly lose interest in the possibility of further bites of the cherry and the leasehold system would wither away, which after all, is surely what the Government want.
I challenge the Government to survey leasehold tenants once again and find out whether they would prefer to retain leases of 20, 75, 99 and 125 years or whether they would prefer to acquire at full market value a 300-year lease. Could the Government also survey the landlords? We could then agree whether consumer choice is wanted by the tenants or by the landlords.
I have dealt with the question of consumer choice. The remaining objections raised by the Government at Report stage are not significant and could be responded to fully in another place. However, a statement by the Minister, the noble Lord, McIntosh of Haringey, cannot be passed over. On 13th November, at col. 549 of the Official Report, he said,
"Of course, we will monitor the development of commonhold after the Bill is enacted. We expect it to become the preferred form of tenure and that leasehold will gradually wither on the vine".
He should have added that the Bill will do nothing for the 2 million leaseholders who will remain shackled in the present system. This amendment, therefore, is designed to rectify the situation. I urge your Lordships to support it. I beg to move.
My Lords, I believe that the amendment would prevent a willing buyer from acquiring a short lease from a willing seller. Why? There are plenty of reasons why a willing buyer might be willing. He might be a middle-aged person, single, divorced or widowed and with no children. Rather than pay rent for a period of 20-odd years he might prefer to shell out a capital sum. Why should not that be possible?
My Lords, I hope that the noble Lord, Lord Jacobs, had a happier evening on his birthday last week than we are having this evening.In his absence, and as he knows, we discussed this issue at some length, but I believe that I should set out the Government's case again as he has so helpfully set out his own. The amendment reflects the view that we should remove the attractiveness of the leasehold system to landlords and developers in order to promote the use of commonhold. We are confident, as the noble Lord, Lord Jacobs, recognised in the quotation he read from the speech I made last week, that commonhold will be attractive to developers and will be widely adopted. Many current developments already offer 999-year leases and a share in a leaseholders' management company. However, until commonhold has been tried and tested we consider that it would be premature to restrict the use of leasehold. Any restriction on the granting of leases would limit the choice of the purchaser, as the noble Lord, Lord Monson, said, because it is a transaction between a willing seller and a willing buyer. It is very difficult to see how we should intervene unless there is some distortion of the market which I do not find here. If a person wishes to save on rent or to fix housing costs over a period by paying a capital sum for a short lease, we believe that he should be permitted to do so. The amendment, as drafted—I know that this is an extreme case—would prevent the granting of a six months' tenancy for a single payment. Furthermore, there may be circumstances where a developer or landlord has only a leasehold interest and cannot grant leases beyond the term of his own interest. A very long minimum period such as 300 years or 999 years would mean that the landlord could rent out units only on periodic tenancies and could prevent redevelopment from taking place. We know that some local authorities have properties on land which they hold on a leasehold basis. If a lease of that sort runs out after 150 years, should we be saying that because they cannot offer a lease of 300 years they should be prevented from selling those leases to tenants under the right-to-buy scheme? I very much doubt if tenants in such a situation would support a move of that kind. As I have said before and his been quoted back at me, we will be monitoring the development of commonhold after the Bill comes into force. We expect that it will be the preferred form of tenure and that leasehold will gradually wither on the vine. But we would be prepared to consider possible restrictions on its use in the longer term if there was a clear need to do so and if the benefit to be gained outweighed the disadvantages. I cannot say that t hat is the case now. I know that the noble Lord, Lord Jacobs, has also argued the case in particular about 20-year leases. The market for these leases is very specialised involving a limited number of high value properties in a limited area. It is not typical of the market generally. People who may pay very substantial sums of money for a short lease should be aware of the nature of the interest that they are buying. Many purchasers are businesses which view these leases as a medium-term business asset. It has been suggested that landlords who offer such leases are exploiting a local monopoly. However, there is no such thing as a local monopoly in housing; no one has to live in a particular high-value area. People who can afford to pay £500,000 for a 20-year lease on a flat in Eaton Square should be able to find somewhere else to live if they wish to ensure longer-term security for their money. If I may say so, I do not consider this to be a particularly liberal amendment.
My Lords, I thank the Minister for that response. I did not deal with minor issues such as six-month leases because I thought that they could be dealt with elsewhere. Perhaps I may respond to two points. First, the 20-year leases came into existence only when certain Greater London landlords knew that new legislation was due to be enacted. They gauged the cut-off point and then offered 20-year leases with no option to tenants who expected significantly longer leases. To say that that represented choice for the consumer is, I believe, mistaken.Secondly, as regards those holding leases which do not extend for longer than 150 years, that fact is that if under the current legislation the landlord has only a limited period left to run on the lease, under the new legislation he will still be obliged to go back to the freeholder to negotiate an extension. That is not an insuperable objection. I wish to mention a point which I do not believe has been fully taken on board—although perhaps I did not expect that it would be—and if it is wrong I should like to be proved wrong. The Government should conduct surveys among landlords and tenants to find out exactly what all the parties want. I have said that tenants want very long leases, as long as 999 years, and that they would be prepared to pay for those long leases. The Government claim that what tenants really want is many different lengths of lease: 20 years, 75 years, 125 years and so forth I do not think that that is correct. If the Government were able to take up my challenge, they would be better able to deal with me on another occasion. Once again, I thank the Minister and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 166 [ Appeals]:
moved Amendment No. 29:
Page 86, line 16, at end insert—
"( ) In any proceedings in the Lands Tribunal on appeal from a leasehold valuation tribunal, the fees payable and costs awarded shall not exceed such fees and costs as may be specified for a leasehold valuation tribunal under paragraphs 9 and 10 of Schedule 12 to this Act."
The noble Baroness said: My Lords, this amendment would add a further subsection to Clause 166 on page 86 as the Bill is presently drafted. However, to deal with the matter in detail, one must turn to pages 125 and 126. Schedule 12 covers the relevant points.
I am keen to introduce this protection. The noble and learned Lord knows that I have introduced the matter on several previous occasions. I am concerned that excessive costs and fees are used to put pressure on people. They are told that if they take their case to the leasehold valuation tribunal, win or lose, the case will progress to the Lands Tribunal. If the people concerned thought that they were able to afford the leasehold valuation tribunal, they certainly will not be able to afford anything after that. That serves as a serious deterrent.
I am pleased to see the noble Lord, Lord Richard, in his place. I believe that he took up the issue when the legislation was earlier debated in the Moses Room. The lack of a ceiling on fees and costs is used as a form of moral blackmail. It is unfair and frightening for those who find themselves in this position. It is impossible to quantify the numbers who have been prevented from pursuing their case to the Lands Tribunal.
At the previous stage, the noble Lord, Lord Goodhart, mentioned examples where people had won their cases but then found themselves in a most unfortunate position. If the Government wish to demonstrate that they are keen for people to enfranchise their property, as well as to deal with the various problems that may arise under the leasehold valuation tribunal, then it is important that such a sword hanging over people's heads in the form of unlimited costs and fees when the case goes to the Lands Tribunal should be removed.
I have read carefully the differences between fees and costs and I appreciate the details. I was also interested to learn that the procedures as set out in the schedule already allow for a reduction or waiver of fees if someone is in a difficult position financially. However, there is a difference between helping those in desperate financial straits and helping a person who has been careful with their money and who does not wish to enter into such a procedure with no idea of what the costs and fees will be. Provisions have been put into the schedule which would allow the Government to set the limits. Fees are covered in
paragraph 9(3). The £500 set out under heading (a) refers to the limit of £500 for which we argued and won in 1993. Heading (b) states that,
"such other amounts as may be specified in procedure regulations".
Costs are similarly covered in paragraph 10(3)(a) and (b). It is possible for the limits to be changed.
I understand that the legal system cannot be run so that all the expenses are borne centrally. People must be willing to bear a proportion of their own expenses in life. However, it would be unfortunate if people were unable to enfranchise their property simply because they could not arrange for matters to be dealt with by the tribunal. I beg to move.
My Lords, I rise to express my support for the amendment moved by the noble Baroness, Lady Gardner of Parkes. I did so on Report and I am happy to do again, although I recognise some force in the argument put forward by the Government; namely, that this is a matter to be dealt with as part of any new legislation on tribunals. In principle, however, I believe that the noble Baroness is absolutely right.
My Lords, as the noble Baroness has clearly explained, the effect of this amendment would be to limit the fees payable to the Lands Tribunal and to limit its ability to award costs. As on the previous occasion, I appreciate that the risk of a substantial costs award can deter leaseholders from resisting appeals to the Lands Tribunal or even making use of the leasehold valuation tribunals in the first place, and that unscrupulous landlords have exploited this on a number of occasions.As the noble Baroness will know, we have introduced a requirement in Clause 166 that, in all cases, appeals can be made to the Lands Tribunal against a decision reached by the LVT only with the permission either of the LVT concerned or the Lands Tribunal. That is intended to prevent frivolous or intimidatory appeals by landlords. However, I am sure that the noble Baroness would respond by saying, quite fairly, that that would not deal completely with the situation that she has identified. As I explained last week, Sir Andrew Leggatt recently concluded a wide-ranging review of the tribunal system as a whole. The Government are still consulting on the outcome of that review. It will provide an opportunity to consider all aspects of Lands Tribunal procedures, including its costs regime. I suggested on Report that the noble Baroness might agree that this issue would be better dealt with in that context when her arguments, which have considerable force, can be put. However, I appreciate the strength of feeling in support of making early changes through the provisions of the Bill before the House rather than awaiting the conclusions of the broader work in the Leggatt review. In that light, we are prepared to take the matter away and consider carefully whether we should put forward an appropriate amendment in another place. In the light of that reassurance, I hope that the noble Baroness will feel able to withdraw her amendment.
My Lords, I am most grateful to the Minister for that reply. Perhaps I may press him further on it. The significance of including limits on costs and fees in this Bill would make a difference to how the Government's attitude as regards the wish of many people to have more rights over their property is perceived. To await the report of Sir Andrew Leggatt and then to deal with it as a complete matter would be a different issue. I should like to think that the Minister will press, I presume, the Lord Chancellor's Department, to bring forward an amendment in the Commons which would assist people in a positive manner, rather than waiting for further legislation.Other ways could be found to deal with this problem, such as reaching firm decisions on how the costs and fees would be calculated. Provisions in the Bill before us allow for the fees to be fixed. I wish to see the creation of a known fee. I do not intend that the procedure should cost absolutely nothing; people should be obliged to pay a known fee, even if the amount were to vary as time went by. I press the Minister to respond on that point.
My Lords, it is clear from what I have said that I am not in a position to give any assurance as to what may happen. However, I am prepared to say that we will take the matter away, consider it very carefully, discuss it, and address the issue of whether we should bring forward an appropriate amendment in another place—which, as the noble Baroness knows, is a movement from our position at Report stage. I hope that with those assurances she will feel able to withdraw her amendment.
My Lords, I thank the Minister for that reply. If the noble and learned Lord feels that I can help in any way in the drafting of the amendment, I hope that he will discuss it with me. I find him an honourable person and I know that he would not say that if he did not mean to do it. He will certainly have me on his back if it does not happen. I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
moved Amendment No. 30:
Before Clause 168, insert the following new clause—
"REGULATION OF MANAGING AGENTS
(1) After such consultation as he considers appropriate, the Secretary of State may by regulations provide for a scheme to regulate managers of property under this Part.
(2) A scheme under subsection (1) may take the form of
(a) a professional regulatory body, (b) a licensing regime, or (c) such other arrangements as the Secretary of State deems appropriate.
(3) Regulations under subsection (1) may include procedures for extending eligibility for membership of any scheme to other managers of property."
The noble Lord said: My Lords, the amendment relates to one of the unresolved issues in the Bill; that is, the regulation of managing agents. The matter was debated both in Committee and on Report but we have come to a stalemate. On Report, my noble and learned friend said that my amendment went down a channel he did not wish to follow. I have therefore redrafted the amendment to allow the Secretary of State. after consultation, to do more or less whatever he wants.
Your Lordships recognise that we have to get something into the legislation which will allow the regulation of managing agents. It is not enough to say that that may come in future legislation and so on; it has to come now. My noble and learned friend said on Report that we can introduce legislation from time to time, but my argument is that the amendment is necessary for this Bill at this time in order to get the legislation on to the statute book. That would save any government—it is not a party political matter—from having to produce new primary legislation for the regulation of managing agents.
I cannot see what is wrong with my amendment. Noble Lords will have read the text of the amendment—I do not need to go through it— which, in effect, states that, after consultation, the Secretary of State may do this, that and thus, whatever he wishes. It is time for the House to say that we need to get this last unresolved issue on to the statute book when the Bill leaves the House. I beg to move.
My Lords, there has been a printing error in the Marshalled List. I shall therefore call the amendment as follows. Before Clause 168, insert the following new clause as printed on the Marshalled List, together with the words,
"(4) A statutory instrument containing regulations under subsection (1) shall not be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament".
My Lords, I strongly support the noble Lord, Lord Williams of Elvel, in this matter, on which I have spoken on a previous occasion. The amendment is totally in line with the professional approach that the Government and many others in the housing world are striving to take towards managing properties across all sectors of housing. It is very important.As the noble Lord pointed out, this is an unresolved issue. If the Government want the Bill to work and people to have better conditions and better management, this is a vital part of it. I hope that the Government will respond to the noble Lord in the way in which they responded to the previous amendment and make sure that something is done about this issue when the Bill arrives in another place.
My Lords, I, too, support the amendment. I hope that the noble Lord. Lord Williams of Elvel, will take it all the way.However, I do not think the amendment goes far enough. The Minister and I have discussed this matter. I believe that all agents should be regulated, whether they be managing agents, letting agents or estate agents who are buying and selling property. In this century, we should certainly have much greater regulation. As has so often been pointed out, one is dealing with people's homes, which is probably the major investment of their lifetime. As a surveyor, I am sad to admit that there are far too many cowboy surveyors. In the property transaction industry, one needs absolutely no qualifications to set up as a managing agent, letting agent or residential agent. That is totally improper in this day and age. The problem could be solved if the Government were to implement Section 21 or 22—from memory, I believe that it is Section 21—of the Estate Agents Act 1979. If the provisions of that Act were implemented, it could solve the problem raised by the noble Lord, Lord Williams, and ease my concerns.
My Lords, I support the amendment. I am particularly pleased with subsection (3). I am very much in favour of the proper regulation of estate agents. As I have said before, in Australia everyone has to be qualified for whatever they do in estate management or sales. Subsection (3) states:
That will enable people who have been making their living through managing property—or accountants, or solicitors or someone who is qualified in a different way—to be approved and registered."Regulations under subsection (1) may include procedures for extending eligibility for membership of any scheme to other managers of property".
My Lords, whether or not the text of the amendment of the noble Lord, Lord Williams, will achieve his objective, we strongly support the objective. I hope that in his reply the noble and learned Lord will give your Lordships' House a clear indication of the Government's intention to act in response to that objective at some early time in the future.
My Lords, my noble friend Lord Williams of Elvel wishes to ensure that managing agents of leasehold property meet certain standards. As I have said before, we support this objective. I see, too, that the noble Lord has taken on board our earlier comments with regard to not prejudging the best way to go about this. He has made a real attempt to leave the way open for any kind of scheme that we might devise. He has, in effect, trusted the Government with very broad and sweeping powers. I wonder whether he would be quite so trusting if the Government were an administration of a different stripe.
My Lords, with the greatest respect to my noble and learned friend—I hesitate to intervene—this is not a party political matter.
My Lords, I appreciate that my noble friend is not making it a party political matter.Moving smartly away from party politics, there are some difficulties in my noble friend's proposition. There would be no point in setting up a regulatory scheme that lacked sufficient powers for enforcement. For example, under a licensing scheme we would need an effective way to stop rogues from operating without a licence. Otherwise, they could simply carry on as they have always done with complete disregard to the law. If we did decide to go down the regulatory route, we might want powers to allow leaseholders to withhold service charges under certain circumstances; we would certainly need a power to impose fines; and we might even want to explore the possibility of harsher penalties for the real hard cases. That is not something that we could leave to secondary legislation; it would have to be provided for on the face of the Bill. We would also need to consider certain practical issues. For example, we should need a power on the face of the Bill to fund any new body and to prescribe its constitution. Moreover, my noble friend will recall that we are still considering whether any scheme should be confined to agents, given that problems may be caused by the landlord instead, or indeed by any other person responsible for the management. On the face of it, the amendment appears to allow us the flexibility to decide on that point at a later stage, as we should wish. However, it would not enable us to make arrangements for the replacement of, for example, a landlord. Therefore, if a landlord were banned from managing leasehold properties, there would be a sort of interregnum when no one would have the responsibility—or the power—to manage the property at all. That would hardly be satisfactory and we ought to make provision on the face of the Bill to resolve any such difficulty. This is further complicated by the fact that we can think of two different ways in which we could deal with that problem. It may be that when we consult on this issue consultees will come forward with a third, better option. Doubtless, there would be other matters that we should need to address on the face of the Bill which have not even occurred to us yet. Creating a power to implement a scheme of unknown scope, nature and detail is an astonishingly ambitious goal. Again, I thank my noble friend for his trust in us. However, we truly do not think that we could make adequate provision on the face of this Bill to cover all eventualities, or indeed even to come close to doing so. We believe that the right course is to proceed with consultation, as we promised we would, on how to deal with this issue. If the consultation leads to the conclusion that we should legislate, then we should bring forward legislation in the first available legislative vehicle that would allow us to do so. We should use our best endeavours to seek to achieve that as soon as the legislative timetable allowed. Obviously, I am not in a position to say when that would be. We should hope that it would be in the next Session, but plainly that would depend on a whole range of unpredictable issues on which I am not in a position to comment. In the light of those remarks, I hope that my noble friend will agree to withdraw his amendment.
My Lords, before the noble and learned Lord sits down, will he confirm that his consultation will be about the regulation of all agents? Or will it be limited, sadly, to managing agents?
My Lords, it would be limited to managing agents.
My Lords, I am grateful to my noble and learned friend for his response. I cannot say that it comes as either a great surprise or a great pleasure. I believe—and I hope that this matter will be taken up in another place—that there should be a provision on the face of the Bill to allow the Government to introduce, by regulation, a proper system of regulating managing agents. I very much hope that my noble and learned friend's department will reconsider the matter. I hope that when the Bill comes before another place the Government will produce a coherent and sensible provision to meet the concerns that have been expressed in this House. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 2 [ Land which may not be commonhold land]:
moved Amendment No. 31:
Page 89, line 5, leave out paragraph 1.
The noble Lord said: My Lords, in the course of the Report stage of the Bill, the noble Lord, Lord McIntosh of Haringey, undertook—generously, but perhaps rather rashly—to come back to the House at Third Reading to let your Lordships know the timetable for the Law Commission's work on land obligations. In fact, I have received a reply not from the noble Lord, but from the noble Baroness, Lady Scotland, in the course of which she states:
"The Commission's work on land obligations is to some extent contingent on the outcome of Part 1 of the Commonhold and Leasehold Reform Bill. With that and other priorities in mind, they do not expect to go out to consultation before 2003".
I recall that the noble and learned Lord, Lord Wilberforce, expressed his extremely creative views on positive obligations in relation to freehold land as long ago as 1965–36 years ago. I suppose that the distance between now and 2003 is somewhat shorter than that. However, the noble Baroness has told us only that the Law Commission will be going out to consultation at that time. What matters to this House is when we shall see a Bill that will at last put into the law of the land all the work that the noble and learned Lord did so long ago. That is why we have tabled this amendment on flying commonholds.
The Bill as it stands forbids flying commonhold. The amendment seeks to remove that prohibition, so that if someone is possessed of the jurisprudential or engineering ingenuity to resolve the problems, that person is not prevented from using this new tenure. It is a permissive amendment—a new approach to the problem—and I hope that the noble Baroness will find herself in a sufficiently generous mood to concede this very contentious point. I beg to move.
My Lords, as the noble Lord rightly said, my noble friend Lord McIntosh of Haringey said that he would come back to this issue, and I have pleasure in doing so now.The scheme of land obligation will, if accepted, replace positive and restrictive covenants and the disadvantages attaching to the present position. As the noble Lord knows, in its Eighth Programme of Law Reform, a copy of which is in the Library, the Law Commission stated that it is working on a project that will consider both easements and analogous private law rights, particularly profits à prendre, together with a further consideration of land obligations. We know that that will be an extensive and detailed investigation, and one that is long overdue. The Law Commission makes the point that the work on the land obligations—as the noble Lord, Lord Kingsland, rightly says—is to some extent contingent on the outcome of Part 1 of this Bill. With that and other priorities in mind, it does not expect to go out to consultation before 2003. But your Lordships will have noted that the Law Commission has been dealing expeditiously with these issues and we want more than anything to have this matter dealt with in a comprehensive and holistic way. I ask the noble Lord to take courage—we waited for some 75 years for the Land Registration Act, but it is now with us. The Law Commission has been energetic in that regard. Therefore, I hope that in the circumstances the noble Lord will feel able to withdraw his amendment. Your Lordships should know that, throughout our debates on the Bill, those of us who have borne the heat of the day—not all of us have worked on the Bill through its previous stage and this one—have now debated nearly 1,000 amendments, if we include the proceedings prior to the general election. Much as we have enjoyed our often lively debates, I am sure that all noble Lords will be as relieved as my noble and learned friend Lord Falconer and I that we have at last reached the final amendment at this stage of the Bill's progress. It would be an appropriate and "fitting sweet" birthday present for my noble and learned friend, whose birthday it is today, if we could close our deliberations on a harmonious note. Your Lordships will know that we still have problems with positive covenants and we continue to say that a piecemeal approach is neither safe nor satisfactory. I hope that the noble Lord, Lord Kingsland, will feel able to give my noble and learned friend Lord Falconer a fit and proper birthday present.
My Lords, the noble Baroness will not be surprised to hear that I am disappointed with her reply. I can see no harm in a permissive amendment that would permit the lawyers to test the courts on these issues. The common law has proved a very creative instrument in this country over the centuries. Why should it not do so in respect of this matter? Who knows? The judges may relieve the legislature of the heavy burden of yet another Commonhold and Leasehold Reform Act, with another seven or eight occasions upon which the issue of flying commonholds was debated. However, I will respect the fact that it is the birthday of the noble and learned Lord today, and therefore beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 6 [ Premises excluded from right to manage]:
[ Amendment No. 32 not moved.]
An amendment (privilege) made.
My Lords, I beg to move that the Bill do now pass.Moved, That the Bill do now pass.—(Baroness Scotland of Asthal.)
My Lords, perhaps I may take this opportunity to applaud the draftsman for including in this Bill an index of defined expressions. This is a most helpful device which saves the reader much time.Your Lordships will find in Clause 68 an index of all the expressions which are specially defined in Part 1 of the Bill. Column 1 lists all the defined expressions in Part 1. Column 2 lists the sections in which the definitions are to be found. In addition to saving the reader much time in tracing a definition section, an index also avoids the risk that the reader may overlook the fact that a word in common use has a special meaning. There is a similar index in Clause 111 which covers Chapter 1, Part 2 of the Bill. Let me briefly illustrate the value of such an index. Clause 91, for example, relates to information which has to be given to an intending managing company. There is a requirement in Clause 91 relating to information recorded in a document. The question at once arises, does the word "document" have its dictionary meaning or a special meaning, including perhaps a tape-recording or a floppy disk? If it has a special meaning, where is that meaning to be found? Both questions are answered immediately by the index in Clause 111. Column 1 of Clause 111 includes the word "document", so that the reader knows immediately that the word has a special meaning. Column 2 tells the reader where that special meaning is to be found. This helpful device was, I am told, first tried out in the Social Security Act 1975 and the Reservoirs Act 1975. It has occasionally been repeated. I would like to see the inclusion of an index of defined expressions the rule, rather than the exception, in the case of all long and complicated Bills. The example set by this admirable draftsman should, in my respectful opinion, be followed in the future.
My Lords, the noble and learned Lord, Lord Brightman, has congratulated the Government on Clauses 68 and 111, but I am sure that your Lordships would wish to congratulate the noble and learned Lord, Lord Brightman, on the contribution he has made in making Clauses 68 and 111 possible.For the past five years the noble and learned Lord, Lord Brightman, has been a persistent critic of the Government's normal refusal to provide such definition sections. It is a great tribute to his persistence that the Government now, in this difficult and complex Bill, have produced the answer that he wanted. The noble and learned Lord, Lord Brightman, is one of the greatest legal draftsmen of modern times, and the fact that he has paid the Government the compliment he has is indeed a very great compliment. I would like to congratulate the Government on getting their Bill. It is the second time that they have got their Bill, because they got it just before the general election. Your Lordships very nearly lost it for the second time, had it not been for the unscrambling of an arrangement which we all thought would take place a week before the general election. I would urge the Government to produce, at the earliest possible moment, a consolidation of leasehold legislation. It is now desperately needed. Although consolidating legislation is politically unglamorous, from the point of view of the citizen it would be of huge benefit. May I therefore ask the noble and learned Lord and his team to urge those who decide legislative timetables to give this matter their most serious consideration? I hope that the Government will also monitor closely the progress of the commonhold legislation. The noble Lord, Lord Goodhart, and his colleagues on the Liberal Front Bench and my colleagues on my Front Bench are sad that the Government were not able to find a way of enabling blocks of flats to be converted to commonhold by less than the unanimous decision of the leaseholders. I hope that the Government will be right about the attractions of commonhold, but I suspect that more will have to be done if this imaginative and worthwhile new form of land tenure is to become the habit rather than the exception. In conclusion, I should like to thank those many members of the Chancery Bar, not necessarily of my political persuasion, who have lent their time and skills to assist the Opposition in its loyal work.
My Lords, I would like to echo the noble Lord, Lord Kingsland, in a number of respects, the first of which is the very well-deserved tribute which he paid to the noble and learned Lord, Lord Brightman, for the work that he has done on this and other matters.Secondly, I should like to add to the noble Lord's appeal for consolidation legislation. The legislation dealing with enfranchisement, extended leases and so on, is in an absolutely hideous mess at the moment. It is virtually impossible for anybody to find their way through it, and I believe that it is important to try to get this in a comprehensible form. That clearly requires consolidation legislation. I would also like to join the noble Lord, Lord Kingsland, in his tribute to the members of the Chancery Bar, who have been very helpful in many respects and have achieved a number of amendments to this Bill, and indeed also to the Law Society for its comments on the Bill. Finally, I would like to say that most of us—I am sure the noble Lord, Lord Kingsland, and my noble friends Lady Hamwee, Lady Maddock, Lord Jacobs and I—will be more than glad to see the back of this Bill. We have spent an enormous amount of time on it: a great deal more than any of us expected when we started on our deliberations. Although it is not fundamentally controversial, it has thrown up a perhaps surprisingly large number of issues of no little importance. As it is, the Bill is not perfect, in our view, but I believe that it will move English property law forward in the right direction. I wish it well in the other place and, apart from what I expect will be a brief revisit when we come to the consideration of the Commons amendments, I think that we are all glad to see the back of this Bill.
My Lords, just in case anyone believes that this is just a lawyers' Bill, we have been helped by a wide range of practitioners outside the House.
My Lords, I thank all those who have participated so energetically—I emphasise that word—in the perfection of the Bill. It has been a united effort. We are very conscious of the great compliment paid to us by the noble and learned Lord, Lord Brightman. We are sensible of it and we hope that this will be emulated, to his satisfaction, by many others who follow us. I do not exclude anyone. Everyone in the House today has toiled hard to make the Bill the perfect instrument that it should be.
On Question, Bill passed. and sent to the Commons.