§ Order for Second Reading read.3.47 pm
§ The Parliamentary Secretary, Lord Chancellor's Department(Mr. Michael Wills)
I beg to move, That the Bill be now read a Second time.
In introducing this Bill, the Government have one aim—to address the problems faced by far too many residential long leaseholders. I know that hon. Members from all parties are sympathetic to this intention and that many have received representations from disgruntled constituents who have wrestled with the difficulties of the leasehold system.
At this point, I declare a potential interest, in that my wife and I own a long leasehold on commercial property in London.
The Bill is divided into two parts. Part 1 introduces commonhold, a robust and effective alternative to long leasehold. Because of a long-standing division of labour between Departments, this part of the Bill, which is about land law, is the responsibility of my noble Friend the Lord Chancellor, and I shall deal with it during its passage through this House.
Part 2 of the Bill will help relieve the plight of those who hold long residential leases by reforming the existing leasehold system. The law relating to leaseholds is the responsibility of my right hon. Friend the Secretary of State for Transport, Local Government and the Regions. The Under-Secretary of State for Transport, Local Government and the Regions, my hon. Friend the Member for Northampton, North (Ms Keeble), will deal with that and will wind up the Second Reading debate this evening.
The problems of long leasehold provide the impetus for the Bill. They are the wrong that the provisions of this Bill are intended to put right.
The underlying necessity for the Bill stems from a historical quirk of freehold land. Over time, the common law developed a rule that the burden of a positive covenant—that is, a promise to do something or to take on some obligation—does not run with land. That is not the case with a restrictive covenant, which is a promise to refrain from doing something. With a positive covenant, the burden does not pass from the seller to the buyer of freehold land, and successive owners of freehold land cannot enforce positive covenants when that land is sold. It is possible to enforce positive covenants only while the original covenantors retain the land.
It is therefore highly inadvisable to build freehold flats, as each flat depends on those around it for support and shelter. Similarly, the stability of the building depends on the maintenance of the flats and the common parts. A duty to support a flat above one's own would be a positive obligation, as would a duty to contribute money to repair and maintain the common parts. The recognition and enforcement of this duty would need to be realised through positive covenants, with all the consequent and serious drawbacks that I have described.
§ Mr Oliver Heald (North-East Hertfordshire)
Does the Minister agree that the duty to insure is particularly 423 important and that it would not be possible to enforce that on a freehold owner of a flat, whereas it would be with a leasehold owner?
§ Mr. Wills
I will come on to the problems of leasehold, but the problems of positive covenants are not associated with freeholds, as I shall describe shortly.
A flying freehold is a freehold above another property, so called because it relies on positive covenants of support from the owner of the property below. At some point in the future, when the original owners move, the covenants will no longer be enforceable. As a result, mortgage lenders are reluctant to lend on the security of such properties and it is extremely difficult to sell them.
Leasehold presents no such problems. A lease is a form of contract, and contract terms pass from successive sellers to buyers. This means that, in practice, when a developer sets up a scheme with ownership of interdependent properties and maintenance of common parts, it is based on leasehold ownership. Leasehold properties change hands subject to positive and restrictive covenants in the lease and the problem with freehold covenants is circumvented. However, in its place arise the drawbacks of long leasehold.
A long lease is a wasting asset. This is because a lease is granted for a defined duration, a specific term of years. However long the period, at the end of the lease the property reverts to the freeholder. Even before reversion, the gradual reduction of years left to run is significant for the long leaseholder. As the years remaining in the lease diminish, so the value of the leaseholder's interest decreases. From the moment the lease is granted, it wastes away. The problem is indiscernible at the commencement of a long lease but becomes acute as the date of reversion looms.
In many circumstances, the lease may be renewed but the landlord may charge leaseholders a great deal of money or refuse the extension. Leaseholders are understandably distressed by this, as a long leasehold costs nearly as much a freehold, yet must ultimately be returned to the freeholder who can sell another lease at the going rate. It can be difficult for a leaseholder to accept that the amount paid for a long lease does not leave one the outright owner of the property.
Leaseholders invariably pay a service charge to their landlord. That is an amount of money levied by the landlord and used legitimately to maintain, repair and run the development. Leaseholders complain that they do not participate in determining the amount, and rightly protest when the service charge they pay is used in a manner they consider inappropriate. For example, the leaseholders pay a service charge for regular works but the landlord may execute the works himself or herself to a questionable standard or install features that are not required or desired by the leaseholders.
Our approach to tackling these long-standing problems has been based on keeping provisions as simple and flexible as possible to provide quick and practical solutions and avoid over-elaborate proposals that could have unintended consequences.
Let me turn to the first part of our solution —commonhold. Commonhold land is freehold land with certain special statutory attributes for which the Bill will 424 make provision. Commonhold provides for the individual ownership of the freeholds of interdependent properties and the corporate management of associated common parts by the freehold owners. Every commonhold comprises units and common parts. Each property within a commonhold is a unit, and a "unit-holder" is the owner of a freehold unit.
As a freeholder, the unit-holder will not suffer any diminution of the unit's value. The asset will not waste. At no point will a unit-holder relinquish the unit to a higher authority. The unit belongs entirely to the unit-holder. No one has a greater interest in a unit than the registered unit-holder; no landlord will interfere with the unit-holder's enjoyment of the unit.
§ Mr. Nigel Waterson (Eastbourne)
The Minister rightly describes all the benefits of commonhold versus leasehold tenure. However, how does he expect commonhold to take hold in this country if he still maintains that existing developments should require 100 per cent. consent of all interests and that in new developments it should not be mandatory to have commonhold from day one?
§ Mr. Wills
If the hon. Gentleman will bear with me, I shall come to that point. That is a familiar argument, and it was rehearsed extensively in another place. I will come to that point; I want to spend a little time addressing those concerns, but in their proper place, so I hope that the hon. Gentleman will bear with me for just a few moments. [Interruption.] If the hon. Gentleman would listen to me, he might learn a little more about our proposals for commonhold. It is important to understand exactly what the new form of commonhold will entail.
§ Mr. Wills
I will give way in a moment, but I shall explain a little more about the concept of commonhold, then interventions may have a little more purpose.
Each unit-holder, and only the unit-holders, will be members of the commonhold association, which will govern the community and manage the common parts. The commonhold association will be a private company limited by guarantee. In another place, the Government were questioned about choosing that vehicle as the basis for commonhold, rather than another Companies Act company, a limited liability partnership or a tailor-made corporation.
The Government believe that, rather than creating a new corporate body for the commonhold association, it is preferable in the interests of simplicity and familiarity to build on existing provisions. We believe that a company limited by guarantee will offer the most appropriate route. Legal professionals are adept at working with the existing corporate structure, so advice will be available for potential unit-holders and commonhold developers from the start. Many leaseholders have already elected to enfranchise in that way. Using the existing corporate structure throughout the Bill will standardise the commonhold and leasehold reform procedure.
I now come to the commonhold community statement. Each unit-holder member will sign up to rules and regulations similar to covenants. Those rules will appear in 425 the commonhold community statement and the memorandum and articles of association, and each unit-holder will be bound by those documents. The commonhold scheme will provide for the enforcement of rights and duties between unit-holders and the commonhold association. Where internal disputes arise, we intend that the commonhold association and unit-holders should undertake a three-step process, including alternative dispute resolution, to resolve any conflict.
Assuming that the informal processes fail, the first formal process will be an internal complaints procedure. Secondly, under clause 41, we will prescribe the use of the commonhold ombudsman. The commonhold ombudsman will be modelled on the independent housing ombudsman, who has a wide range of dispute resolution procedures at his disposal, including arbitration, mediation and adjudication. The last recourse available will be to the courts. The commonhold rules, coupled with the dispute resolution procedures, will ensure that positive and negative obligations can be imposed on unit-holders and that they can be enforced by the commonhold association.
§ Ms Ann Coffey (Stockport)
As the Minister will be aware, leasehold valuation tribunals are a very formal forum, and both parties are usually accompanied by very expensive lawyers. Has he considered strengthening the more informal independent arbitration procedures as a way of resolving disputes between landlords and leaseholders? He will know that landlords are not now obliged to go to independent arbitration even if the leaseholders would like to do so. I should be grateful if the Minister would consider some of my constituency correspondence, between the Tatton Court residents association and Peveril, which shows the current problem with using leasehold tribunals to try to solve such disputes, and makes a good case for strengthening independent arbitration.
§ Mr. Wills
I am grateful to my hon. Friend for that intervention, and if she would like to give us that constituency correspondence, my hon. Friend the Under-Secretary, who has responsibility for leasehold reform, and I will certainly consider it. Of course, we would always encourage people to try to resolve disputes before they go to a tribunal. We are carefully considering the working of the leasehold valuation tribunals, and I shall say something about that later in my speech. We are trying to encourage greater use of pre-trial hearings in that procedure, and I hope that that will address many of my hon. Friend's concerns.
§ Mr. Boswell
I make no particular claim to expertise in these matters, except perhaps to say that, like many hon. Members, I am a long-leaseholder. I am grateful to the Minister for explaining in a reasonable way what he seeks to do. Given the exchanges that have already taken place, is he not a little concerned that the programme motion requires the Bill's Committee stage to be completed by the end of January? Although I have no particular wish to be associated directly with that process, given all the angles and extreme legal complexity of the issues, is it really common sense to rush on with that process and try to get it completed in three weeks? Would it not be much better to take a considered look, so as to make absolutely sure that the wrinkles that remain in a matter as complex as this are properly ironed out?
§ Mr. Wills
I am grateful to the hon. Gentleman for making his point in such a reasonable way. He is right that this is a complex matter and that is why the provisions in the Bill are simple, practical and designed to be flexible. That is why we have also made provision for the use of regulations to deal with what will inevitably be a complex and fast-evolving property market. However, even with the good will of the House and all the time that he wants to scrutinise the Bill in Committee, there is no way that the Committee could possibly iron out all the potential wrinkles in such a complicated subject.
We believe that the Bill will provide quick, practical remedies for long-standing problems and that we have allocated enough time for its consideration. Many of the arguments were extensively rehearsed in another place and I have yet to hear arguments that have not already been extensively considered. I am sure that we shall return to them in Committee and I am confident that, with good will on both sides, we shall have time to give the Bill the proper scrutiny that it deserves.
§ Mr. William Cash (Stone)
Does the Minister recall that the Deregulation and Regulatory Reform Committee considered regulations relating to commonhold? Even though they involved Henry VIII provisions that restrict the opportunity to examine them properly but can allow for the amendment of an Act of Parliament—which would be a major step—there was much discussion and the Government accepted the Committee's recommendations. The Committee declared itself to be satisfied with the Government's response which was that they would introduce draft regulations so that the House would have an opportunity to see exactly what was going on. Unfortunately, my latest information, as of about an hour ago, is that no such draft regulations have been introduced. If I am wrong, I am open to correction but that is the information that I have just received from the Library.
§ Mr. Wills
I hesitate to say this, but my information is slightly different from the hon. Gentleman's. If he can bear with me, I shall try to resolve the question of whose information is more accurate and provide him with a more definitive answer. At 4.3 pm, I cannot say precisely where we are on that point, but I shall try to find out. I assure him that it is our intention to introduce such regulations. We have always been open and laid the alternatives before the House, and we shall continue to do that. I can reassure him on the general point, but will have to return later to the point of detail.
§ Mr. Andrew Robathan (Blaby)
The Minister has been generous with his time and, in response to my hon. Friend the Member for Daventry (Mr. Boswell), he said that the Bill's whole purpose was to make the issue simple. I am certainly no expert on leasehold and commonhold, which is why I have come to listen to the Minister's speech. The explanatory notes run to 75 pages. I have seen many Bills, but never 75 pages of explanatory notes, so how can he argue that the subject is simple? Surely, we need longer in Committee to discuss the Bill intelligently. A swift timetable motion will mean that it will be driven through with many clauses not being discussed.
§ Mr. Wills
I think that I have already answered that question. I note the hon. Gentleman's view, but I do not 427 think that he has quite understood my point about the need to produce quick, practical solutions to long-standing problems. Even with all the time in the world in the House, we will not be able to iron out all the wrinkles that might occur. I am sure that he has carefully read the 75 pages of explanatory notes and I am deeply flattered that he has taken the trouble to come here to listen to me in the expectation that I can add something to them. I am grateful for his confidence in me on that point at least.
The so-called 100 per cent. rule for commonhold, to which the hon. Member for Eastbourne (Mr. Waterson) referred, has concerned many people. We received a number of representations on it, it was exhaustively debated in another place, and I shall explain the reasons for adopting our approach. For those hon. Members who are not familiar with the rule, the Bill allows for the conversion from leasehold to commonhold to accommodate those leaseholders who want to move beyond enfranchised leasehold to commonhold.
The Bill requires that 100 per cent. of those with a substantial interest in the land that is to be registered as commonhold land are to be required to consent to conversion. That includes the freeholder, whose interests would probably have to be bought out, anyone holding a lease that is granted for 21 years or more, and others such as those holding certain charges over the land. The written consents of persons falling into those categories must be lodged with the Land Registry before land can be registered as commonhold land and the conversion process gets under way. Leaseholders who are not required to consent—that is, those who do not have a substantial interest in the land—will be compensated if they suffer loss as a result of conversion.
We have been criticised for that. We recognise that obtaining the necessary consents is a high hurdle for leaseholders, but we do not believe that it is impossibly high. We acknowledge that take-up for commonhold will probably be greatest in new-build developments and we anticipate that commonhold will become standard for new-build developments that consist of interdependent units and common parts. However, we expect a unit that is owned freehold to become more desirable and trade at a premium compared with equivalent leasehold properties. That should improve the chances of achieving 100 per cent. consent as hesitant leaseholders see the practical benefits of commonhold.
We have never said that it would be impossible to devise a system that requires fewer consents than 100 per cent. However, we believe that the difficulties that would ensue, both during the conversion process and when attempting to manage a hybrid commonhold, would far outweigh the perceived advantages. Inevitably, that will give rise to a set of complex and technical arguments, and I have no doubt that we will consider those in Committee. However, I ask the House to consider what might happen if the 100 per cent. rule were not in place. Without it, there would be two different classes of occupants and two different streams of management under two statutory regimes; two different sets of money to collect and two different sets of accounts to produce; and an infinite variety of different tailor-made schemes to draft and administer.
428 In short, anything less than a 100 per cent. rule for commonhold will involve schemes that are more bureaucratic, costly and complex than necessary. In addition, they will ultimately be unnecessary because there is an alternative if fewer than 100 per cent. of leaseholders want to change their method of tenure. Part 2 sets out a new improved scheme for collective enfranchisement. The enfranchisement scheme is tailor-made for that purpose. To push for commonhold with fewer than the necessary consents would be to reinvent collective enfranchisement needlessly.
§ Mr. Mark Field (Cities of London and Westminster)
My hon. Friend the Member for Eastbourne (Mr. Waterson) made a clear point on the 100 per cent. rule. One thing strikes me as odd. What is to stop an unscrupulous freeholder in a large block of flats providing a lease to a relative to ensure that he gets around the provision, and therefore preventing all other dissatisfied leaseholders from taking the commonhold route?
§ Mr. Wills
I have endeavoured to explain the basis on which we are approaching the problem. Two routes are available to leaseholders who want to change their method of tenure. We expect the commonhold route to be taken primarily in respect of new-build developments, although it is possible that groups of leaseholders and existing leaseholders will also want to do that. Although that option is open to them, there are other routes that give them many advantages. Part 2 covers schemes for collective enfranchisement. They clearly offer huge advantages over the current situation and will deal with many of the problems of leasehold.
§ Mr. Waterson
I shall try to restrain myself from now on.
I do not necessarily accept what the Minister says about existing blocks, and those are perhaps detailed matters for consideration in Committee, but none of the objections that he listed can possibly apply to brand-new developments, so what is the objection to making commonhold mandatory for new developments if the Government intend that in the medium or long term commonhold should supplant leasehold?
§ Mr. Wills
I am glad that we have moved from the 100 per cent. rule to another area of concern. I understand the arguments, and obviously we believe that commonhold offers enormous attractions, but it would be wrong of us to prescribe it at this stage. The property market is complex and fluid, and we think that the scheme should have time to bed in. We want to see how the market responds to commonhold, so the answer to the hon. Gentleman's question is, in short, "Let the market decide." We believe that it will make the appropriate decision and recognise the full advantages of commonhold.
§ Mr. Cash
I am grateful both for that assurance and, I hope, an answer to the question that I am about to ask. 429 I am sorry to disappoint the Minister, but we have not quite got off the 100 per cent. rule because, in the proceedings on 5 July, the Lord Chancellor made an extremely interesting point about it. He said:However, if a well-judged amendment were put forward, for which there was substantial cross-party support, the Government would listen to the debate and consider it very carefully.He made it clear thatthere is undeniable merit in not allowing one person out of stepto obstruct the entire scheme, and said that the sensitivities involvedmay be an overriding consideration the other way. But the Government will listen."—[Official Report, House of Lords, 5 July 2001; Vol. 626, c. 887.]I say to the Minister, and I am sure that he will understand my meaning, that although he is, understandably, putting forward the best case, we will have to probe this question in Committee because it is important and the Lord Chancellor has made it clear that he understands how important it is.
§ Mr. Wills
I am delighted to repeat the Lord Chancellor's assurance: of course we will listen, and we will consider any well-judged amendment. I am afraid that we have not yet seen such an amendment, but if one is forthcoming, we will of course consider it carefully. I have no doubt that we will return to the subject in Committee at some length.
In the perhaps vain hope that we have now dealt, temporarily, with the 100 per cent. rule, I will move on to other features of the new system. Another standard feature of any commonhold development will be the common parts, which are any part not designated a unit. As commonholds could encompass a wide spectrum of developments, the common parts are defined negatively to ensure the flexibility necessary for commonhold to be an option in a range of circumstances. Members will realise that commonhold has greater potential than simply for replacing long leasehold in blocks of flats. The possibilities for it to be a vehicle for development are vast, and we have tried to reflect that in the Bill by not limiting them unnecessarily. The commonhold association will be responsible for the repair, maintenance and insurance of those common parts.
We will look to standardise commonhold documents in the commonhold community statement, which will regulate the rights and duties of the commonhold association and the unit-holders. One standard feature will be the regulation of leasing within commonholds. We intend to prescribe that any lease that a unit-holder grants in his or her unit cannot be sold for a premium or be for a duration longer than seven years, although it will be renewable. That, as hon. Members will recognise, is to prevent long leasehold creeping in through the back door. I have already alluded to the fact that the Bill does not, as hon. Members may have noticed, contain precise details about the management and day-to-day running of a commonhold, as that information will be contained in the commonhold community statement and regulations.
We are aware of the scarcity of parliamentary time for amending primary legislation. Commonhold will be a completely new facet to our land law, and we recognise that despite all the hard work and extensive consultation on the Bill, when commonhold comes on line, some provisions will inevitably be found to be capable of 430 improvement. We want to be able to react rapidly in such circumstances and secondary legislation affords us the opportunity to do so. We have made progress in drafting the commonhold community statement and the memorandum and articles, and we shall place them in the Library before Committee.
Within the parameters provided by the Bill and associated regulations, every commonhold association will be permitted to add extra rules and regulations to their commonhold community statement specific to any unique need of the individual commonhold community: for example, to allow for the running of a communal swimming pool or sports hall. The character of each commonhold will be shaped by the decisions of the unit-holders through the commonhold association. Commonhold will afford control of the management of a development so that whether the development is a block of flats, an estate or even a complete town, commonhold will give control to the community.
§ Mr. Charles Hendry (Wealden)
The Minister will be aware that under the Rentcharges Act 1977, estates were exempted from the right of redemption from a rentcharge because it was deemed that there was no alternative means of running the common interests. Commonhold appears to offer such an alternative. Does he agree that it would be proper to allow estates exempted under the 1977 Act to transfer to commonhold, or at least to provide that those within a rentcharge are liable to the same degree of public accountability?
§ Mr. Wills
Rentcharges are not an issue that can be dealt with under the Bill, which deals with commonhold and leasehold reform, but we acknowledge the importance of the issue and will consider it.
A commonhold community statement must make provision about the commonhold assessment. Unit-holders will be required to pay commonhold assessments to fund expenditure on the management of the commonhold and on maintenance, repair and insurance of the common parts. They will be involved in approving the sum to be levied from them. The directors of the commonhold association will be responsible for calculating a budget and the details of the assessment required to meet the budget for the next year's running costs, and for setting an assessment for any reserve fund.
§ Mr. Adrian Sanders (Torbay)
Will guidelines be published on the conduct of meetings, covering matters such as secret ballots, availability of papers and due notice of when meetings are to take place?
§ Glenda Jackson (Hampstead and Highgate)
The Government believe that commonhold will, in the first instance, be reserved to new build—to new blocks of flats. I am perplexed about how the tenants—the commonholders—are to have a voice in devising the articles of association. Are they to be imposed? A block of flats is not sold in its entirety in one fell swoop, so when are the people involved to meet to express their 431 point of view to, I presume, the developer of the block of flats? Is there to be an imposition? Are not wide variations in the charges likely? There must be a way to ensure that what is currently iniquitous between leaseholders and freeholders is not passed on by developers in what the Government hope will be, in the main, commonhold property.
§ Mr. Wills
I should stress that although we envisage that the primary take-up of commonhold in the short term will be in new-build development, that will not necessarily be exclusively the case. We believe that existing leaseholders will occasionally convert to commonhold.
Commonhold community statements and memorandums and articles of association will be in a standard form—we shall lay the latest draft before the House—so everyone will sign up to a standard, common form of arrangement. That is the essential simplicity of the system. We believe that fairness and straightforwardness are two of the main advantages of the commonhold form of tenure. I hope that my hon. Friend is reassured.
I was running through the budget obligations, which will be important to commonholders. The directors of the commonhold association will be responsible for calculating a budget, the details of the assessment required to meet the budget for the next year's running costs and setting an assessment for any reserve fund. The unit-holder members will then be able to vote on the proposals; the Bill and secondary legislation will allow unit-holders acting corporately absolute control over decisions relating to their commonhold assessment.
At every stage in the development of part 1, we have striven to consult and involve people whom commonhold will affect. We undertook an extensive consultation with leaseholders, leaseholder organisations, property developers and other interested parties, and that is continuing. We met interested parties through the commonhold working group and, more recently, have had meetings with individual groups to discuss their concerns and suggestions. Although we regard commonhold as the long-term solution to the problems of the leasehold system, we need to protect existing leaseholders who, for whatever reason, cannot convert to commonhold. Part 2 therefore introduces a wide range of measures that are intended to resolve the problems of a wasting asset and poor management.
I shall now summarise the main provisions of part 2. The right to manage is intended to provide an effective long-term solution to management problems that will be easy to exercise. Leaseholders of flats will be able to take over the management of their building without having to prove shortcomings by the landlord or pay compensation. Leaseholders generally have a much larger stake in the building than the landlord and we consider it only right that they should be able to take responsibility for managing their investment. The new right will give leaseholders the chance to make a better job of managing the property. Its very existence should help to concentrate landlords' minds on giving their leaseholders better value for money. The eligibility conditions are designed to be as simple as possible to minimise the scope for legal challenges. They mirror the proposed new rules for collective enfranchisement, which I shall come to shortly.
432 To ensure clear allocation of responsibility, democratic management and effective dispute resolution, the right will be exercised by a company limited by guarantee with a prescribed constitution suited to the task of residential property management. It will be a right-to-manage company. All leaseholders will have the right to be members which, I stress, is a no-fault right. Although leaseholders will exercise it because of the landlord's shortcomings, they are not required to prove those shortcomings. We must therefore incorporate suitable safeguards for the landlord's legitimate interests. We have tried to strike a fair and workable balance. In other areas of the Bill, we are making it easier to use existing rights if the leaseholders wish to remove all responsibility from the landlord.
We therefore propose to simplify the eligibility rules for collective enfranchisement in respect of blocks of flats, which have proved to be an unnecessary barrier to leaseholders' legitimate expectations. The changes will enable many more leaseholders to qualify. The Bill will abolish the residence test and remove the requirement that at least two thirds of the leaseholders in a block must participate. The existing requirement that the participating leaseholders hold leases on at least half the flats in the building will be retained because we do not consider it right to allow a minority of interests to take over.
The Bill will raise the proportion of the building that can be occupied for non-residential purposes from 10 to 25 per cent, and remove the low rent test in the few circumstances where it still applies. It will also restrict the existing exemption for converted houses with resident landlords to houses that they owned at the time of conversion. We propose to require the use of a company limited by guarantee with a prescribed constitution to buy the freehold and manage the building along similar lines to those proposed for the right to manage and commonhold; it will be a right-to-enfranchise company.
§ Mr. John Taylor (Solihull)
Will the company limited by guarantee that undertakes management be the same company that will own the freehold? Is that the Minister's intention?
§ Mr. Wills
No. There is no reason why it should not be, but the two are not linked; they are alternative routes for leaseholders to get control over their flats. One is a more limited measure in which a company limited by guarantee manages the building. The other involves setting up a right-to-enfranchise company, also limited by guarantee, which owns the building on behalf of all the leaseholders who have a stake in it through the company.
§ Mr. Taylor
Does the Minister agree that it would not be unusual for long leaseholders who want to manage then to want to own the freehold as well? If they have an existing vehicle for the first purpose—a company limited by guarantee—can they not conveniently use it for the second?
§ Mr. Geoffrey Clifton-Brown (Cotswold)
My hon. Friend the Member for Solihull (Mr. Taylor) made 433 another point. Many people are concerned that the Bill alters the way in which our great leasehold estates are managed in relation to the former estate management scheme in the Leasehold Reform Housing and Urban Development Act 1993. The right-to-manage company will have to incorporate the provisions on how the leaseholds are managed, but how will the company be negotiated in the first place, what rights will there be in the absence of agreement and how will appeals be managed? Furthermore, what rights will there be to alter the right-to-management agreement once it has been made?
§ Mr. Wills
This is a very important point. We are aware of the concerns about estate management schemes and have received a number of representations about them. However, we cannot simply abolish them. They are often needed to ensure the maintenance of common facilities on an estate. I understand that the issue that the hon. Gentleman raises affects a significant number of people. We will continue to consider carefully the representations that we have received. I am afraid that I cannot give any commitment at this stage, but we may return to the matter in Committee and I should be happy to discuss it further.
Let me return to the right-to-enfranchise company. The point is that it will ensure democratic management and an effective mechanism for resolving disputes. It will help leaseholders to progress from the right to manage to enfranchisement if they wish to do so. The hon. Member for Solihull (Mr. Taylor) is no longer in his place, but I was about to reassure him that the provisions also enable leaseholders to transfer to commonhold if they wish to do so. All long leaseholders will have a new right to become members of the right-to-enfranchise company. That is an improvement on the current position. At present, leaseholders can be and are unfairly excluded from an enfranchisement once the required majority has been achieved.
§ Mr. Clifton-Brown
The Minister said that all commonholders would have the right to enfranchise. Why will commonholders who hold leases under the Crown not be given similar rights?
§ Mr. Wills
The hon. Gentleman may have misunderstood me. I was talking about leaseholders rather than commonholders. If he would like to return to the point later, perhaps in Committee, I should be happy to try to clarify the matter. I fear that he may be labouring under a misapprehension.
I turn now to the valuation rules. We share the concern that has been expressed by many leaseholders about the cost of enfranchisement, but we must also recognise that landlords have legitimate interests, and we consider that they are entitled to a fair market price for those interests, including a share of any marriage value. However, we know that disputes about the price can ensure that leaseholders incur costs that may amount to as much as the price itself. We intend to make it easier and quicker to determine a price that is fair to both sides and that will reduce the scope for well-resourced landlords to drag out the process to their advantage.
The Bill provides that where marriage value exists, it will be divided equally between the parties. When the unexpired term of a lease is long, marriage value is likely 434 to be minimal. The Bill therefore provides that no marriage value will be payable when all the leases in a block have more than 80 years to run. According to the survey of English housing, about three quarters of leaseholders have leases with more than 80 years to run. The Bill also provides that the valuation date will be the date of the initial notice. That follows the approach for leasehold houses. It provides more certainty and removes any incentive for landlords to delay proceedings in a rising property market.
Finally, the Bill introduces a requirement to obtain permission to appeal against any decision of the leasehold valuation tribunal. Some landlords routinely appeal to the Lands Tribunal to persuade leaseholders to settle at a higher price. The Bill would amend the right of individual leaseholders of flats to buy a new, longer lease. Many of the changes reflect those proposed for collective enfranchisement. For example, any marriage value would be shared equally between the parties and no marriage value would be payable where the unexpired term of the lease exceeded 80 years.
The Bill would remove the existing three-year residence requirement to help leaseholders who occupy their flats as a second home or sub-let. To prevent the possibility of short-term windfall gains by speculators, however, leaseholders must hold a long lease for a period of two years before being able to exercise the right. There are special provisions to help the personal representatives of deceased leaseholders.
The Bill amends the rules for enfranchising leasehold houses under the Leasehold Reform Act 1967 along similar lines to those for flats. It grants new rights to leaseholders of houses who have extended their leases under the 1967 Act. They will be able to buy the freehold after the extended lease has commenced and they will be entitled to remain, under an assured tenancy, when that lease expires. The Bill also amends the procedures for acquiring the freehold of a leasehold house where the landlord cannot be found, to bring them in line with those applying to flats.
The Bill will extend and improve leaseholders' existing remedies against unreasonable charges and other abuses. It amends the definition of a service charge under the Landlord and Tenant Act 1985 to cover improvements, where those are payable under the terms of the lease. That change will help leaseholders of social landlords in particular.
The Bill gives leaseholders new protection against unreasonable administration charges, including charges for granting approvals and providing information—for example, for prospective purchasers—and penalties for late payment of rent or service charges. There is widespread concern about such abuses and the Bill will tackle that.
The Bill will improve security and accountability for service charge moneys, which will normally have to be held in a separate designated trust account for each property. Accounting requirements will be revised to provide greater transparency and there will be a new, specific right for leaseholders to withhold service charge payments if key requirements are not met.
The Bill extends the existing requirements under the 1985 Act to consult leaseholders on proposed works. There will be a new requirement for the landlord to consult leaseholders before entering into any contract for 435 the provision of works or services lasting for more than 12 months. For specific works, consultation will be required when the costs payable by any leaseholder exceed a prescribed sum.
The Bill will make it easier to remedy defective leases. The grounds for seeking a variation under the Landlord and Tenant Act 1987 will be extended and clarified and jurisdiction transferred from the courts to the leasehold valuation tribunals. The Bill provides that ground rent will be payable only when the landlord has sent a notice to a leaseholder in a prescribed form. Provided that payment is made within 30 days of the notice, the landlord will be prevented from making any additional charges or starting any proceedings.
The Bill will also introduce new restrictions on the commencement of forfeiture proceedings for breaches of covenants or conditions under a lease. Landlords can use the threat of forfeiture, sometimes based on spurious or non-existent grounds, to persuade leaseholders to pay unreasonable sums of money. Landlords will be prohibited from commencing forfeiture proceedings for any breach of a covenant or condition in a lease, unless a leasehold valuation tribunal or court determines that a breach has occurred.
The Bill will make a number of changes to the jurisdiction and procedures of the leasehold valuation tribunals. The changes are intended to improve the effectiveness of the tribunals and to speed up the resolution of disputes. Together with the administrative changes, they will implement the recommendations of the financial management and policy review that were published last year. Taken together, those changes will greatly enhance the rights of leaseholders. They will redress the current unfair balance that exists between landlords and leaseholders, but at the same time they will respect the legitimate rights of landlords. Together with the proposals for commonhold, they will implement the Government's commitments and put us on course for a fairer system of land tenure that is far more appropriate for the times in which we live.
Consultation has shown a broad consensus in support of the Government's proposals. Due to the conflicting interests, there are inevitably differences of opinion on particular aspects. Some leaseholders have complained that the proposals do not go far enough. We have tried to strike a fair balance. I believe that we have done so. Our proposals are aimed at resolving the main difficulties that face most leaseholders in England and Wales and I believe that they will do so. The Government believe that this is a good Bill and I hope that right hon. and hon. Members on both sides of the House will agree.
§ Mr. William Cash (Stone)
I rise to welcome the Bill, which brings together a process that has lasted for more than 30 years. In the House of Lords, the Bill had innumerable readings, including two First Readings, two Second Readings, a lengthy exercise in the Moses Room and discussions during its unfinished Report stage. It subsequently had its other Readings during its second round. With the number of noble and learned Lords in the other place, therefore, nobody can say that the Bill has not been given the most careful consideration. It does not 436 follow, however, that all the matters relating to it have been resolved, and there will no doubt be issues into which we shall have to dig deeper in Committee.
We are in favour of the Bill as a whole, subject to what I have just said. I should declare an interest, not only as a solicitor, but as one who lives in a block of flats that are on long leaseholds. I am not at present contemplating informing myself of the provisions for commonhold, but—who knows?—it might be suggested by tenants in the other flats.
As the Minister said, flats in blocks are at present invariably sold on long leases. This leads to two problems. First, such flats are a wasting asset. As the leases grow shorter, it becomes increasingly difficult to mortgage the flats, which is a serious consideration for the people living in them—particularly with mortgage rates as they are now, and with people being anxious to get in on the act if they possibly can. Secondly, the flat-owner is in a continuing relationship with the landlord, who has a duty to maintain the building and needs to raise money from the lessees to carry out that function. An adversarial relationship is, therefore, implicit in the arrangements from the beginning.
The commonhold provisions of the Bill are intended to address the problem of a leasehold flat being a wasting asset, by giving flat-owners full tenure of their flats. The leasehold reform provisions are intended to deal with the second problem by allowing lessees in blocks of flats to take over the management of the flats. Those provisions are also intended to alleviate the problem of shortening leases by easing the provisions for lessees purchasing the freehold and obtaining lease extensions.
The reason that so many flats in blocks are sold on long leases is a technical one. A block of flats obviously needs repairing from time to time, and the only way for that to be done in practice is for all the flat-owners to club together to pay a reasonable service charge. Sometimes the service charge is not reasonable, but that is a separate question that we shall no doubt consider in Committee. A flat is dependent for support on the flats beneath it, and dependent for protection from the elements on the flats above it. Thus are flat-owners bound together in a relationship of mutual interdependence.
Unfortunately, one of the long-established principles of English common law—which, of course, I support on all conceivable occasions—is that positive covenants do not run with the land. In practice, that means that if a block is sold off with each flat a freehold, the flat-owners can agree among themselves to contribute a fair amount to the service charge and to support each other's flats. If a flat-owner sells his flat, however, that obligation is not automatically passed on, for the reason that I have given. In other words, a later purchaser will have no obligation to his fellow flat-owners to pay the service charge or even to support the flats above him. That is the defect in law to which the Minister alluded—perhaps not in quite such detail—and it is important to get it in front of the House, because it is a practical problem of the first importance and it must be dealt with.
The defects of the system were first shown, surprisingly, at Lincoln's Inn. At the end of the 17th century, the benchers who ran Lincoln's Inn decided to go in for a bit of property development. The result is the attractive buildings on three sides of New square. Unfortunately, the benchers, no doubt being somewhat 437 Grasping—[Interruption.] Say no more. The benchers decided to sell off the flats in the new buildings in New square as freeholds, and the result was as I have described. After a few years, none of the freeholders had any liability for any repairs and the buildings were kept in repair only because they were still part owned by the Inn and rented out. It is, of course, ironic that the home of English conveyancers produced that completely foreseeable disaster.
Eventually, the matter could be sorted out only by the Inn itself obtaining a private Act of Parliament, which happened in the 19th century. I must make the point that if elite lawyers—those responsible for the great developments of the law on conveyancing, equity, trusts and the rest of it—can get into such a tangle, that is a salutary lesson to us all.
§ Mr. Barry Gardiner (Brent, North)
Does the hon. Gentleman agree that the problem could be resolved in this country under English law if positive covenants were allowed to run with land, as they do in other jurisdictions where there are commonhold and strata title associations? Part of the problem with the Bill is that, having incorporated English company law as the basis for commonhold, one runs into such difficulties, which will be overcome, one hopes, only when the Law Commission produces its report on flying freehold.
§ Mr. Cash
The hon. Gentleman makes an interesting point. If so much of the Bill depends on the problem arising over positive covenants and given the fact that the Law Commission could have made proposals to deal with it, that difficulty might have been resolved, but that is a hypothesis and we face the reality before us. We are considering the Bill and no doubt we shall have an opportunity to discuss his point in Committee, but if he tables an amendment that the Bill should not proceed unless the Government make a proposal on changing the law on positive covenants, I suspect that he will receive a simple answer: that is outside the scope of the legislation. He makes an interesting hypothetical point, but I shall leave it at that.
Having made my point with respect to the lawyers in Lincoln's Inn, I must make the general point that we are no longer dealing with the elite. Following the development of enfranchisement, property rights and the relationship between voting and democracy as well as the passing of the Leasehold Reform Act 1967 and subsequent events, it is fair to say there are many more property owners, many of whom have the benefit of property ownership as a result of the right-to-buy proposals conferred by the Conservative Government under Baroness Thatcher, than in the mid-19th century.
Having said that, many of those voters have reverted to new Labour or, indeed, the Liberal Democrats. I hasten to add that I say that without enthusiasm. They may find that that was a mistake, but, none the less, it has happened, so there is a general point to make with respect to the Bill: all parties accept that it is in the national interest and that it will benefit people from all walks of life. There are many more flat owners these days, and all political parties are supported by such people.
In other countries, the problem of freehold flats has been met by legislation introducing a condominium system, sometimes known as a strata title. That gives flat 438 owners the management of their blocks and gives each flat owner the equivalent of a freehold of their flat. As long ago as 1987—I say this with pride—the Conservative Government produced a report from an interdepartmental working party proposing a form of commonhold. That was positively received and the late Lord Hailsham, the Lord Chancellor, asked the Law Commission to produce a report and a draft Bill. The Law Commission reported back in late 1990. After further consultation, the Lord Chancellor announced that commonhold legislation would be introduced as soon as parliamentary time could be found for it.
Progress was then halted by the 1992 general election. Immediately after the election, the Conservative party devoted the available parliamentary time to the cause of leasehold reform, but by 1996 a draft Bill and consultation paper on commonhold had been prepared. The Bill was proposed in the Queen's Speech in October 1996, but never progressed owing to the general election of May 1997. The rest is history.
Originally, the Labour response to the idea of commonhold was apathetic. In October 1997 the right hon. Member for Ashfield (Mr. Hoon), then Parliamentary Secretary to the Lord Chancellor's Department, told the British Property FederationThe pressure of other business … means that there is no likelihood of legislation being introduced on this topic in the near future.That disappointed those of us who were hoping that the new form of tenure would be introduced.
In the event, it was only in December 2000 that the Government introduced a commonhold Bill in the other place. Unfortunately that Bill failed after the calling of a general election in May last year, despite having been given a Third Reading in the other place. The Government are to be commended on nevertheless reintroducing the Bill after the election. It is a pleasure to see them fulfilling long-standing Conservative commitments.
Less commendable, I regret to say, is the Government's response to suggested improvements in the Bill. In the case of a largely technical Bill such as this, it might be hoped that an element of bipartisanship would exist. I have referred to the national interest, and to cross-currents in the population and different demographic considerations. I must also reiterate what a number of my hon. Friends have said about the programme motion.
This Bill deserves examination of a kind that would be possible within a reasonably limited amount of time, but not the limited amount that the Government are providing. It needs proper consideration, but it is clear that the Government do not intend to provide time for such consideration. I have no doubt that we will oppose the programme motion.
Sadly, in the other place the sponsoring Ministers considered it a matter almost of personal honour to refuse to accept any amendments tabled by the eminent lawyers, on both the Opposition and the Cross Benches, who opposed their proposals. A very obstinate attitude has been taken to important amendments. I shall return to the unanimity rule in a moment, as it illustrates the fact that, although the Government indicated that they were prepared to listen, absolutely nothing came of it.
439 The Minister has no direct responsibility for that, but he has influence. I look to him in the hope that, if we table amendments, he will be as good as his word and not only consider them carefully, but go beyond consultation to acceptance.
§ Mr. Robathan
Is not the main point the fact that, if the motion is passed, various amendments and new clauses that I am sure will be proposed in Committee will not even be reached? The Minister has not addressed that. He says that the position is simple, but amendments tabled in good faith and not on a partisan basis will not be reached, however important they may be.
§ Mr. Cash
That returns me to a point I made earlier: this Bill should be bipartisan. If assurances given by the Lord Chancellor in the other place are not followed by proper and adequate consideration because not enough time has been provided, inadequacies and deficiencies in the Bill will result in protests not only from those who happen to be members of the Conservative party, but from those with an interest in commonhold and leasehold matters who would like the Bill to be improved to respond to important questions in respect of which amendments will be tabled but, apparently, not considered. Those protests will fall heavily on the Government, and I ask them to reconsider the programme motion.
§ Mr. Andrew Love (Edmonton)
In past Parliaments, there were three separate attempts by the then Government, now the Opposition, to reform leasehold, all of which failed. Was there any attempt during consideration of any of those three Bills to adopt a bipartisan approach?
§ Mr. Cash
It speaks for itself that there has been a natural progression from the dates that I gave earlier. We have tried to arrive at the position that I think we are on the threshold of achieving: a Bill that will go through with all-party endorsement. However, for reasons to do with the programming motion, it will be the responsibility and liability of the Government if proper consideration is not given to important amendments that are in the interests of persons throughout the United Kingdom.
§ Andrew Selous (South-West Bedfordshire)
My hon. Friend has already referred to the complexity of the legislation. Does he agree that careful thought needs to be given to how the measures are explained to members of the general public? As a new Member of Parliament, I am looking for a second home in London. I have been struck by how the information—not the advice—that I have sought from different estate agents has ranged from non-existent to entirely contradictory. There are 75 pages of explanatory notes to the Bill. Does my hon. Friend agree that thought needs to be given to ensuring that information on the Bill can be put over simply to members of the public?
§ Mr. Cash
It may be necessary to make such information available to Members of Parliament as well. My hon. Friend has almost selected himself for the Committee stage, as a result of which he will discover even more. The Minister and I get on quite well for a fair 440 amount of the time, although not all the time. In our contests over the past few months, he and I have established an understanding about transparency of information. He has been forthcoming. It would be helpful—perhaps the Government already have it in mind—to produce a layman's version of what the Bill involves: to put it in simple language so that the public at large will be able to understand it after it has gone through. It is very important. It affects so many people.
§ Mr. Cash
I am delighted, if that is a factual point, to concur with it. After all, as I keep on saying, we are adopting a constructive position with respect to the Bill. If it so happens that at that point in time good points were made by the then Opposition, so be it. If the consequence is that we end up with a better Bill, that is the object of the exercise. In matters of this kind, where there is no substantial philosophical or principled distinction between the parties, we should do nothing other than seek to arrive at the best possible solution for all our constituents.
However, as I have said, there have been inadequate responses by the Government to suggested improvements to the Bill. Although it has been examined at length twice in Committee in the other place and gone through Report and Third Reading twice, the Government have doggedly refused to make improvements to it. I find that difficult to accept and I hope that the Government will bear it in mind.
Let me turn to two particular matters where obstinacy seems to have ruled. Obviously, commonhold is a new form of tenure. It is unfamiliar to lawyers who deal in conveyancing let alone to the general public. The point about managing agents is also important. The extent to which the Government have not dealt with these matters is covered in the Library research paper published on 14 December which refers to the regulation of managing agents. Nothing in the Bill deals with that problem, yet on Report and on Third Reading Lord Williams of Elvel moved an amendment to provide for the establishment of a professional regulatory body for property managers, or a licensing scheme or other arrangements deemed appropriate by regulation after consultation. Lord Falconer set out the Government's position in a nutshell, saying:Obviously I am not in a position to say when that would be—in respect of producing some form of legislation to deal with those issues.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."—[Official Report, House of Lords, 19 November 2001; Vol.628, c.942.]In response to my hon. Friend the Member for South-West Bedfordshire (Andrew Selous) who raised the matter, managing agents, surveyors and others who do a 441 good job, sometimes in difficult circumstances, may have some difficulty in dealing with the complications of the Bill and it is certainly in mind that there will be legislation and indeed some attempt to improve the information available not only to Members of Parliament and the public at large, but to those who deal with these matters on a daily basis. I am sure the Minister agrees that if the matter is not dealt with properly there will be real problems.
§ Mr. John Taylor
Before my hon. Friend concludes, let me draw his attention to a point that has not so far been covered. The Bill could win itself plaudits in the leasehold enfranchisement area if it had a patent, transparent price calculation mechanism for the acquisition of a freehold. The Leasehold Reform Act 1967 failed in that respect. Could not this Bill be commended for getting it right?
§ Mr. Cash
I am sure that the matter deserves further consideration and that we shall examine it in Committee. Any improvements that produce an accurate value of an interest will obviously be relevant.
We shall need clear rules to calculate and establish ownership of the different units. Valuation tribunals may offer one route to achieve that, but I suspect that there will be many disputes. No doubt we shall return to the issue in Committee if hon. Members table amendments on arbitration ombudsmen and so on.
I was drawing attention to the Government's failure to improve the Bill. If, as Conservative Members hope, commonhold is successful, it is important that it develops a degree of momentum so that it becomes the preferred form of tenure for blocks of flats. If only a few commonholds are established, lawyers will not gain the necessary practical familiarity with the new concept and the momentum for adopting commonhold as the standard method of flatholding will be lost. That is a serious point. At present it is quite common for developers to sell flats on long leases and give the lessees shares in the management company so that the lessees manage the block. Indeed, developers will often grant the freehold to the lessees. The selling of flats on 999-year leases is not dissimilar to the commonhold idea.
Opposition Members believe that it is vital that commonhold should add to what exists. It seems that the Government have not yet fully come to grips with the need to make commonhold attractive. That is a key point.
First, the Government have sought deliberately to restrict the availability of commonhold. If a block of flats is to be converted from leasehold to commonhold, the unanimity of all those with an interest in the building is required. All the flat owners must agree. The freeholder must agree. All the mortgagees must agree. Anyone who has registered a caution on the Land Registry must agree. Even people with a right of way or some easement over the property must agree.
In practice, therefore, in all but the smallest blocks, there is no realistic scope for converting from leasehold to commonhold. I trust that the Minister is giving that serious matter a great deal of thought.
442 Earlier, I mentioned the remarks made by the Lord Chancellor on 5 July. For the purposes of the record, I shall repeat what he said:Let me stress that the Government are taking careful note of all the arguments put against the rule which requires the consent of 100 per cent of the prospective unit holders for conversion from leasehold to commonhold. We doubt that allowing long leaseholders to continue physically within, but legally at least semi-detached from, the commonhold arrangement would be a sensible way through. The only alternative, which would bring a non-consenting minority within the new arrangements, might be characterised as expropriation.However, if a well-judged amendment were put forward, for which there was substantial cross-party support, the Government would listen to the debate and consider it very carefully.I sense from the mood of the House that that substantial cross-party support exists, but the inference that the Government have not listened carefully can be made from the fact that no movement has taken place.
§ Mr. Cash
I am glad to hear the Minister say, from a sedentary position, that that does not follow at all, as that is a good indication that we will have an opportunity to consider—and agree—the amendment in Committee.
The Lord Chancellor continued:That said, the position which the Government have hitherto maintained, and to which they still adhere unless persuaded to the contrary, is that, although there is undeniable merit in not allowing one person out of step with the proposed new regime to obstruct the entire commonhold arrangement agreed upon by the others, the sensitivities inherent in expropriating that one person may be an overriding consideration the other way. But the Government will listen."—[Official Report, House of Lords, 5 July 2001; Vol. 626, c. 887.]That is a sensible and constructive approach. We now know, and the Minister has agreed, that the Government will listen to the arguments that are advanced in this House. However, the unanimity of flat owners is not the only requirement. For all the reasons that I have given already, the process will affect mortgagees, those who put on cautions, and those with easements and rights of way.
Cautions can be put on for all sorts of reasons. The other day, the Minister and I spent several happy hours dealing with the Land Registration Bill. Perhaps we should have discussed this one at the same time. Easements are also prone to complication. One person prepared to be difficult in this respect can create so many practical difficulties that there must be some way of relieving the obstruction that can be caused.
Although the precedents and analogies may not be precise, I recall drafting legislation and looking at matters relating to frontages. For example, the law covering changing or extending the frontage arrangements applicable to the alley running behind stables that had been converted into new residences provided that only a certain percentage of the people involved had to agree. When that percentage was secured, the other people had to go along with the decision. If the Minister were to do a bit of digging in that area—
§ Mr. Cash
Plenty of people might say no—perhaps not for good reasons. Many personal considerations might come to bear. I do not want to generalise, but things can get personal in a block of flats. Many objections could be vexatious and frivolous, although there might be other substantial issues. As I have already pointed out, somebody with no more than a minimal interest could veto a range of matters. We need to look at that carefully in Committee, and I am extremely glad that the Minister is showing such a constructive interest.
§ Mr. Don Foster
The hon. Gentleman looks for examples where 100 per cent. agreement is not required. May I draw his attention to the most relevant example—large-scale voluntary transfers whereby council house tenants can choose a different social landlord? In those cases, 100 per cent. agreement is definitely not required.
§ Mr. Cash
That is most helpful. As we proceed, other examples will no doubt be offered. The unanimity test has been exaggerated by the Government. I am not sure about their reasons as we have not been given a full explanation, but we shall doubtless have a chance to consider the matter in Committee.
As I have a number of things to say, I shall turn from the problem of unanimity to the extension of the commonhold. We should like the commonhold system to apply to all residential flats after the Bill becomes law. Allowing conversion from leasehold to commonhold would require a careful scheme. The freeholder could not have his interest expropriated, so provision would need to be made for those who did not want to convert. None the less, the Government should be able to propose a workable scheme for the conversion of existing properties. I hope that they will respond favourably to any amendments on that subject that we might table in Committee. Indeed, perhaps they will have the good sense to introduce amendments to deal with the matter themselves.
Secondly, the Government also want to restrict the ability of unit-holders—flat owners—to rent out their flats. Clause 17 gives the Lord Chancellor Henry VIII powers to make regulations to stop flat owners being granted residential leases for flats. In an intervention, I referred to the problem of regulations. I am glad to know that they will be published in draft in future.
In the other place, the Government suggested that they propose to limit renting to leases for no more than five years at a rack-rent without taking a fine. We agree that, in the abstract, it would be nice to have a commonhold association if all the members lived in the block, and stopping unit-holders renting out their property on other than short leases would contribute to that. The issue cannot, however, be viewed merely in the abstract. As a result of the Conservative reforms that culminated in the Local Government and Housing Act 1989, there is now a thriving private rental market. Equally, there is a thriving market for flats—not to occupy but to rent out.
444 Someone buying to rent will have a choice: a block sold as commonhold or as leasehold. If restrictions are placed on investors renting out commonhold flats, they will inevitably buy leasehold flats. That is an important consideration. We have to deal with the practicalities of the marketplace.
Thirdly, the Government have not given commonhold associations sufficiently strong powers to enforce the terms of the commonhold community statement. With leasehold property, the landlord has a right of forfeiture if the lessee breaches the lease. At first blush, that sounds extremely harsh, but in fact forfeiture is very much a last resort.
If a tenant is simply behind with the rent, all he has to do to obtain relief from forfeiture is to pay off the arrears. If he is in arrears with the service charge, the landlord must obtain a statement from the leasehold valuation tribunal that the service charge is reasonable. If the tenant has broken some other term of the lease, the landlord must serve a special notice under section 146 of the Law of Property Act 1925 requiring the tenant to remedy the breach, and even then the tenant can apply for relief of forfeiture. So there are plenty of safeguards, and very few long leases are forfeited. That is a fact. However, this weapon of last resort means that lessees and their mortgagees can be forced to pay.
With commonhold, the Government take the view that moneys owed by way of service charge should simply be enforced as normal debts. In other words, the commonhold association would have to take the defaulting unit-holder to court to obtain a judgment and then enforce that judgment. The Government envisage that a judgment will be enforced in the ordinary way. The standard method will be to put a charging order on the unit-holder's unit and then sell it if the unit-holder continues to be recalcitrant. However, the Government are ignoring the fact that a defaulting unit-holder will probably already have a mortgage on his flat and may well have a second or even a third mortgage. This means of enforcement will therefore work only if there is equity in the flat. With leaseholds, the landlord will usually be paid by the first mortgagee, who does not want to forfeit its interest in the flat. With commonhold flats, that will not apply. That is another practical point. I ask the Minister to consider these matters carefully, because if we are to make the system work it must not be snarled up by practical problems on which there should be no party political difference.
The absence of adequate enforcement provisions will, in our view, lead to disaster sooner or later. If a block requires extensive works and the tenants are already heavily mortgaged, it will take only a small number of defaulters to make the block unmanageable.
Fourthly, so-called ungrounded developments will not be permitted. That means that it is not possible to have a mixed development in which there are shops on the ground floor and a common residential area above. Surely it would be sensible for the Bill to provide maximum flexibility to encourage commonhold development. If developers have no choice but to make the whole of a mixed development commonhold, they may be reluctant to adopt commonhold due to the perceived reduced investment value of the commercial elements.
Let me turn to flying commonholds—flats over shops. The Bill does not allow flying commonholds where residential properties exist on the upper floors of a 445 property only, such as flats over shops. That is in line with the law on leasehold. Currently, no more than 10 per cent. of the whole block must be commercial if residential leaseholders want to purchase their freeholds. We support the raising of this hurdle, and as much as 25 per cent. has been suggested. That will encourage people to live above commercial property. Mixed-use schemes such as "Living Over the Shop" should be promoted, as that will assist urban regeneration and the provision of affordable housing in our towns and cities. I think that the Minister may recognise some of that language.
§ Mr. Cash
It certainly is, because the point has just been made.
Fifthly, the Bill prohibits commonhold associations from charging the common parts of blocks. That may prevent commonhold associations from borrowing to finance emergency works or works of improvement. In jurisdictions elsewhere in the world, it is common for the equivalent of commonhold associations to borrow against future service charge income, and in our view it would be desirable for something similar to be made permissible under the Bill. Thus we welcome that form of tenure, but we believe that the Bill can be improved.
We also broadly support the provisions on leasehold reform. Again, however, there are problems with matters that the Government have simply not thought through. The most glaring example is that they propose that lessees should be entitled to establish a right-to-manage company. We support the right-to-manage proposals, although some of the detail needs to be considered more closely, and we shall do so in Committee. However, it is proposed that council premises, where the landlord is a local authority, should be excluded from the right to manage. Some 12 per cent. of right-to-buy sales have involved leasehold flats. Public sector tenants should not be excluded simply because of Labour's anti-right-to-buy dogma.
When the appropriate procedure has been followed, the right-to-manage company will take over the block's management from the landlord. So far so good, but there obviously has to be some means to hand over the management from landlord to the right-to-manage company. In any block, many people, ranging from the caretaker to a building company retained to carry out works, are likely to have a contractual relationship with the landlord. Some means of regulating the handover must be required—another practical consideration.
Astonishingly, the Bill as originally drafted made no provision for handover: it merely provided that, one month after the relevant notices had been served, the management should be taken over by the right-to-manage company. Despite the central issue of handover being discussed twice in Committee in the other place, it was on the Bill's Third Reading in November last year that the Government were obliged, by the arguments of Lord Kingsland, to recognise that there was a problem, and they finally decided to hold a consultation exercise. I hope that we shall not experience such resistance in this House. However, it is said:Joy shall be in heaven over one sinner that repenteth, more than over ninety and nine just persons, which need no repentance.The difficulty, as the Government were repeatedly told, is that there are only three possibilities. First, the contracts could be transferred automatically to the right-to-manage 446 company by a statutory novation. Secondly, the contracts could be terminated automatically. The last possibility would be to allow a sufficiently long handover period to allow contracts to come to a natural end, as would ordinarily be the case with building repair works.
The problem with statutory novation is that the right-to-manage companies will be extremely weak financially. The Government intend that they should be companies limited by guarantee, with lessees being liable for the grand sum of £1 each in the event of the company going into liquidation. That is obviously extremely unsatisfactory from the point of view of anyone who entered into a contract in good faith with a financially solid landlord.
The alternative—an automatic termination—is equally unsatisfactory, for the right-to-manage company could be held to ransom by a builder halfway through the works. That is another practical point. The only workable proposal may be to allow a longish handover, but I have listened with interest to the results of the Government's consultation exercise, and we shall examine their proposals with care.
Chapter 2 deals with collective enfranchisement by the lessees of flats. We welcome the principle of those proposals. In the other place, we suggested various technical improvements. Again, those suggestions fell on stony ground, but we may return to some of them on Report.
In conclusion, we are concerned that the Government are once more showing their contempt for Parliament by providing for so much of the Bill's contents to be made by regulation, but I am glad to hear that the proposed regulations will be made available to us fairly soon. We believe that it is time to consolidate the various measures that relate to the ownership of leasehold land into a much clearer, single Act. It is time that we consolidated all that law in a way that is comprehensible and transparent for the benefit of our constituents. The Opposition support the Bill, but we will make constructive proposals in Committee.
§ Mr. Kevin Barron (Rother Valley)
I completely agree with the final comment of the hon. Member for Stone (Mr. Cash). The law on leasehold is confusing on occasion even to lawyers. It should be consolidated. Although we cannot do that in this Bill, time should be provided for both Houses to consider the whole issue of leasehold and to ensure that people are made aware of their rights.
I disagree with the hon. Gentleman that the Government have not moved in another place. I have read the proceedings that have taken place in another place since the general election and, on more than one occasion, Opposition Members have thanked the Government for moving on particular issues. They may have been obscure points of law which the hon. Gentleman is more likely to understand than I am, but the Government have responded to the arguments made. It is wrong to suggest that they have not moved at all.
I welcome many of the changes in part 2 that try to clarify the position of leaseholders. Like our constituents, many of us have been confused over the years and are sometimes angered by what happens.
447 I declare an historical interest. Eight months after my wife and I married in 1969, we had scraped together £150 for a deposit on a home. We went to an estate agent in our village who told us that that the property that we wanted to buy was leasehold. I had worked in industry and I did not know what the term meant, so we put down the deposit and moved into the house. When I asked what leasehold involved, I was told that it meant £6 a year ground rent and, although I was not earning a lot of money at that time, that was not going to stop me buying the house.
We bought the property in 1970 and I subsequently found out that the lease was to run for 800 years. I paid the initial £6 a year—the sum went up to £8—to a landowner who used to live locally but who now lived in the Isle of Man where he presumably avoided certain levels of tax. I sent my cheque off every year and thought that that was the end of the matter.
However, a few years later, we wanted to improve the property. By then we had three children and I had also bought a motor car, so I wanted to put a garage on to what I believed was our property. I applied to the local planning authority, an architect drew up the plans and they were approved. A neighbour told me that I should write to Mr. Parkin to tell him what I was doing because he would want money off me, but I said I did not know why I should do that because I had already obtained planning permission and gone through what I thought was the law. So the garage and kitchen extension were built. Although I now suspect that I should have been, I was not in correspondence with the landowner at that time because I thought that it did not matter. I believed that, to all intents and purposes, I had kept within the planning law, so we carried on with the work.
However, when we came to sell the house in 1985, there was a big dispute about retrospective permission for the building of the garage and the kitchen extension. Months later, I received a letter from my solicitor saying that he had spoken to the landowner who was adamant that he wanted £100 to give retrospective consent for the building of the garage and kitchen extension. My solicitor also wrote:As previously mentioned to you he is entitled to charge the costs of a Surveyor inspecting the extension confirming that it corresponds with the plan and reporting accordingly.We would estimate that this would be in the region of £50.That angered me a little. The planning authority inspects the work that is carried out, yet the landowner had what I thought was the right to extort money from me. He had me on the end of a hook, because I had moved into another home and wanted to sell my property, for which I had a buyer.
In the end, we sent a letter to the solicitors and the prospective buyer saying that we would ensure that they would have no costs to incur because of our dispute with the landowner. That was in 1985, and I have heard nothing since. The £100 charge and the cost of the surveyor seem to have disappeared.
§ Mr. Barron
448 I then moved into a freehold property. However, the last flat that I bought in London is in contrast to the leasehold property. It is in Abbey Court on Macleod street SE17 and, when it was built in 1986, a small management committee was put together comprising the tenants who moved in. Within about six months, the tenants offered to buy the freehold off the developer. It was the first time that he had built a block of flats and the freehold was duly bought. The flats are now run by Suthwalk management company. It is a limited company of the type described by the Minister which should be created under the Bill. There are 21 shares in the company and there are 21 flats. Each flat owner is a shareholder. The company secretary is Mrs. Shelagh Farren, who does a great job looking after all 21 of us, including four Members of the House and a leading tabloid journalist who is an eminent Lobby correspondent. Those interests are undeclared in the Library, so I might get into trouble for mentioning them.
We run a committee within the company which deals with problems. The Minister mentioned matters in which the management committee could get involved. It deals with problems such as people making noise next door, and calls people together to get things sorted out. We have no problems with parking next to the flats. The garden is looked after and the stairwells are tended and decorated. We pay a monthly service charge and an annual ground rent, but sometimes neither is requested, depending on the balance of the account. If we do not have to expend the money, we do not call it in. Most people would accept that to be a civilised way in which to organise one's life. People want to have somewhere for them and their families to live and to be able to go out to work. The way in which we manage our flats is a civilised way to achieve that.
Commonhold should be supported in the Bill. However, although the measure introduces commonhold tenure, it will, I fear, remain only a theoretical possibility for current flat owners. As we heard, existing leaseholders will have to obtain 100 per cent. agreement of all those with an interest in their blocks, including that of existing landlords, to achieve a transfer to commonhold. Moreover, fewer new developments will take place on a commonhold basis because no developer in his right mind would sacrifice the rich pickings of the leasehold system, even with the changes in part 2. I am not convinced that we are right in this regard.
On Second Reading in the other place, the Earl of Caithness said:I did not like the provision that required 100 per cent. agreement to move from leasehold to commonhold. It seemed to defeat the object of moving to commonhold in the first place and I felt that it could not progress all that far.I agree with him. In the same debate, Lord Goodhart, who speaks for the Liberal Democrats, said:there are a number of problems, some of them serious. As the Bill now stands, the main problem is the requirement for 100 per cent. consent from all interested parties—freeholders, leaseholders, chargees—before the conversion of existing properties to commonhold is possible. This will make it very difficult to convert existing leasehold blocks to commonhold. It might be possible in some small buildings containing, say, no more than three or four flats, but hardly any larger blocks would be likely to convert."— [Official Report, House of Lords, 5 July 2001; Vol. 626, c. 890–894.]I agree with that analysis. To take another situation, if someone with a vested interest in getting money from a lease owns a flat in the building concerned, should there be a right of veto? We must consider these issues seriously.
449 In winding up the debate in the other place, the Lord Chancellor said:When the Bill was last considered, there were some who suggested that we should forbid any further leasehold development and require existing leasehold developments to be converted to commonhold. But we shall continue to maintain the position that stopping leasehold in its tracks is not the most prudent way to proceed. Instead, we shall continue to attempt to win the hearts and minds of potential developers, investors and buyers to ensure that commonhold is established as the preferred alternative for those building interdependent properties."—[Official Report, House of Lords, 5 July 2001; Vol. 626, c. 889.]I suspect that most people who have had problems with landowners will think that statement a bit naive and in need of further explanation.
I described a problem that I had when I was a leaseholder many years ago. There are not many leasehold problems in my constituency, but many hon. Members have many constituents who are trapped in leasehold situations, so I must tell the Minister that I am a little disappointed by the Government's reticence in introducing commonhold, particularly as it is the most successful form of flat ownership outside England and Wales, whereas leasehold has consistently been shown to provide the worst form of flat ownership and management. The key to commonhold is that it removes third-party landlords and gives full control of a block of flats to the flat owners. That is the arrangement that we have at Abbey Court in SE17, and the House should be introducing it more widely so that existing owners of flats, as well as new owners, can benefit from it.
Both the Lord Chancellor and my hon. Friend the Parliamentary Secretary have said that we should leave it to the market. We can do that if we genuinely believe that people are not prepared to give up the money that they can make from leasehold. However, the House could take other action. I suggest that the Government consider providing more powers in the Bill to introduce commonhold, at least for new build, if the market does not do so. If people want to continue to build leasehold flats and use them as a form of profit generation, as they have done in the past, the Secretary of State should have the power to take action. We should not have to wait five, 10 or 15 years for a parliamentary slot to introduce further legislation. It would be reasonable for us to consider the introduction of such powers during the proceedings on the Bill.
To some extent, I accept what the Minister says about the extension of enfranchisement for current flat owners in part 2. However, the issue of valuation is very important, although it is a little embarrassing for Labour Members. On 19 November, Lord Jacobs spoke on Third Reading in the other place. I believe that Lord Jacobs was recently appointed by the Commission for Public Appointments, and I am not sure whether he has a political affiliation. He said: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."—[Official Report, House of Lords, 19 November 2001; Vol. 628, c. 921.]450 The Bill will still require leaseholders to pay more than open market value when acquiring their freeholds, even though the freeholder would have paid no more than its open market value when acquiring the freehold and contributes nothing towards the repair and maintenance of the property. I believe that that is true in most cases, although the Minister may want to correct me if I am wrong. That situation arises because leaseholders will have to pay 50 per cent. of the so-called marriage value in addition to the open market value of the freehold.
This issue is extremely embarrassing to Labour Members of Parliament—look at what we said in opposition, not so many years ago. In 1995, the then shadow Secretary of State for the Environment, my right hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson), and the shadow housing Minister, my right hon. Friend the Member for Greenwich and Woolwich (Mr. Raynsford), declared in their proposal—I think it was a policy paper—on leasehold reform, entitled "An End to Feudalism":Since the 1967 Act, which provided a simple and fair basis for valuation, the process has become progressively more convoluted … we believe that it is right to go back to the fundamentally sound logic behind the 1967 Act, which did not include 'marriage value' in the valuation process.The paper continues:The concepts of 'marriage value' and 'injurious affection' are the two elements most likely to cause problems for leaseholders seeking to enfranchise … the easiest solution would be to scrap the two concepts entirely. They were not included in the 1967 Leasehold Reform Act and they certainly should not apply to leaseholders in houses.Many believe that they should not apply to leaseholders in flats either.
I hope that the issues will be addressed seriously. It is many years since we have been able to get our hands on this area of law and make major changes, and many years will pass before another opportunity arises. I hope that the Government will take the Bill seriously in the few weeks available for consideration, and that the Opposition take seriously their own arguments that there is not much time—although there was more time in another place, because the general election interrupted the Bill's passage through that House. We must focus on the real issues and ensure that we have opportunities to vote on them.
There are many good things in the Bill, especially part 2, which deals with leasehold valuation tribunals. I accept that relevant criteria, scope and access are being considered, but it is important to note that access is all about who can afford it. Even if we broaden the tribunals, many people will not be able to afford access to them unless we do something else to ensure fair access. For many years, people hiding behind money and lawyers have prevented others from getting justice, and it would be fundamentally wrong if we missed an opportunity to ensure fair access. I am not talking about means-testing. We must establish a system that enables people who believe that they are being treated wrongly by the property owner to get justice.
My speech has been quite critical even though I accept the majority of the Bill. We must face the hard reality of what has been out there for many years. We must tackle the injustice that many have suffered because of leasehold reform. If we are to introduce a system that resembles the one governing my London dwelling in Abbey Court— 451 I hope that we are, especially for flat owners—we should do it now, get it out of the way and move on to making more progress and more improvements to people's lives.
§ Mr. Adrian Sanders (Torbay)
I declare an interest as a freeholder receiving ground rent.
John Stuart Mill described the leasehold landlord asa sinecurist quartered on the land",and Gladstone spoke of ground rents as "great unearned increments". When introducing his unsuccessful leasehold enfranchisement Bill in 1884, Lord Randolph Churchill askedWhere was freedom of contract, where the whole of the property in an area was owned by one man?It was in response to such informed 19th century distaste for what has been described as "urban farming" that in 1883 the first Leasehold Enfranchisement Association was formed. More than 100 years on, with more than 16 Acts passed to try to remedy the situation, the Government, who have a big majority and a long history of opposition to leasehold, are asking the House to support a Bill that will give continued life to that feudal form of tenure. Regrettable as that is, the Bill at least seeks to improve the situation, although for many leaseholders the abolition of leasehold was the very least that they expected from the Government.
The Bill is not the measure that many leaseholders were expecting. Some, such as those represented by the Leasehold Enfranchisement Association, would prefer the Bill to be defeated. It is certainly not a Bill that a Liberal Democrat Government would propose to the House because it does not go nearly far enough. Many improvements are necessary, and some of them were mentioned by the hon. Members for Stone (Mr. Cash), speaking for the Conservative Opposition, and for Rother Valley (Mr. Barron). Liberal Democrat Members strongly favour the introduction of commonhold and a further stage of leasehold reform.
We welcome the principle of commonhold. Freehold ownership of flats is impracticable and long leaseholds also present serious problems, especially the difficulty of obtaining mortgage finance when the outstanding term of a lease falls below 30 or 40 years. Various forms of collective ownership have been developed in other parts of the world, the most relevant of which perhaps are those in the USA and Australia. They have undoubtedly worked there and there is no reason whatever why they could not work here. We therefore warmly welcome the introduction of commonhold.
The hon. Member for Rother Valley referred to Lord Goodhart, who mentioned a number of problems with the Bill in the other place, notably the 100 per cent. consent of all interested parties provision. Those interested parties are not just the leaseholders, but the freeholders and the chargees. If any one of them is opposed to changing the management of the property, they have the right of veto; that is not right. If that provision remains in the Bill, the great majority of commonhold is likely to be on new build. It is perfectly possible to devise a workable scheme in which a small minority of leaseholders, perhaps no more than 20 per cent, refuse to give consent. That would 452 involve the commonhold association acquiring the freehold and simply leaving the leases of non-consenting parties outside the commonhold scheme until they expire.
There are no formal structures for voting in the Bill. Is that to be part of the commonhold association's rules and regulations? Rules are needed on quorums, the conduct of meetings and the method of voting, but we have yet to see any of those details in print. There is no power in the Bill to divide commonholds to encourage diversity of use and investment, which was referred to by the hon. Member for Stone. The contribution that that could make to economic regeneration schemes and the creation of housing should not be underestimated. The Government talk about joined-up thinking, so surely they acknowledge the need for more diverse housing provision for economic regeneration, which we hear about from many branches of government. The Bill could preclude good things in that direction if it remains unamended.
Another serious problem with commonhold is the recovery of arrears of service charges and other liabilities due to the commonhold association from unit-holders. At present, with leaseholders, the threat of forfeiture is usually enough to secure payment. However, if forfeiture is not available—in the case of unit-holders, it is not—that is not possible. It is true that a charging order can be obtained for arrears, but that involves an application to the court, which is likely to take some time. Of course, existing charges on the property take precedence over a charging order. That could mean serious cash-flow problems for commonhold associations, even if they eventually get their money back. Prompt payment is vital but will not occur without effective mechanisms for securing it. We would like arrears of service charges to be treated as priority debt, so that if mortgagees sell commonhold units, they must pay off the arrears before reimbursing themselves.
The question of the best corporate structure for commonhold associations has been mentioned. The Government propose a company limited by guarantee. Some critics have objected that the structure is too formal and complicated. We accept that there must undoubtedly be a corporate structure for commonhold associations, but believe that the structure and administration of limited liability partnerships under the Limited Liability Partnerships Act 2000 is likely to be a good deal simpler. For commonhold associations with no more than 10 members, a limited liability partnership could well be more appropriate than a company limited by guarantee.
Limited liability partnerships are a novel form of incorporation. It may be premature to provide them as an alternative at present, but the Government should at least include powers in the Bill to enable the introduction of a limited liability partnership at a later date if it appears likely to benefit small commonhold associations. That point applies also to the right-to-manage and right-to-enfranchise companies as well as to the commonhold associations.
On leasehold reform, we support the principle of extending the right to manage to enable tenants to form a right-to-manage company without having to prove mismanagement by the landlord. The matter has been a bone of contention for many years. When a property is well managed, lessees are probably unlikely to want to take over the management themselves, but the need to prove 453 mismanagement has deterred lessees from claiming the right to manage where management has been unsatisfactory or incompetent rather than grossly oppressive.
The Bill gives landlords an automatic right to be members of a right-to-manage company. Such companies should represent tenants and be able to deal at arm's length with the landlord. We accept that when the landlord is also the occupier of a flat it may be reasonable that he should be a member of the right-to-manage company, but allowing non-resident landlords the right to be members of the company gives them an unjustified advantage.
We also believe that the Government have not dealt properly with the position of management contracts subsisting at the time when management is taken over by a right-to-manage company. There was a confused debate on the matter in Committee in the other place. It appears that the Government assume that existing management contracts will be terminated on the taking over of management by a right-to-manage company, although that is a matter of general law rather than the consequence of any provision in the Bill. That may be technically correct, but if so, it seems to us to be undesirable. Management contracts may be held with a cleaning company for the cleaning of the common parts of the building or with a gardener for looking after the garden. The basic principle should be that such contracts should continue with the substitution of the right-to-manage company for the landlord. That rule should be adopted in the Bill, subject to the right of the right-to-manage company to terminate contracts in cases in which, for example, the landlord has given a contract to a friend or relative who is providing services at an excessive cost.
We welcome the provision that extends the right of collective enfranchisement. It extends the right to join in such enfranchisement to a number of leaseholders who did not have it previously, but there is one defect of fundamental importance. The Bill does not require the automatic transfer of membership of a right-to-enfranchise company on the assignment of a lease. That seems to us to be essential if the purpose of the right-to-enfranchise company—to give leaseholders the right to participate in ownership—is to be achieved. We see a right-to-enfranchise company as an embryo commonhold association. If the leaseholder can sell his or her lease, but retain an interest in an RTE company, we will simply recreate the problem that the legislation was designed to remedy. In other words, we will create a new set of absentee landlords.
The only issue that raises a conflict of principle between the Liberal Democrats and the Government is the inclusion of marriage value in the computation of the price to be paid to the landlord on enfranchisement and on the extension of a lease.
The basic price to be paid is what the freeholder loses—that means the market value of the reversion being required by the leaseholder or an RTE company, or the reduction in the market value of the reversion as a result of the grant of an extended lease.
We have no quibble with that principle. We are not pressing for the extension of the artificially reduced value that was originally provided for in the Leasehold Reform Act 1967. That provision could well be contrary to the Human Rights Act 1998, although the case of the Duke of Westminster indicated that at the time it was thought not to be. However, the market value paid to the 454 freeholder is increased on the basis that the leaseholder is a special purchaser and will be willing to pay more than someone buying the freehold as an investor. That concept is fundamentally unfair. Leaseholders are in a weak bargaining position in that notional market. Unless they buy the freehold, or obtain an extended lease, they will face inconvenience, disturbance and the distress of having to move home. It is wrong in principle that the freeholder should be allowed to take advantage of that weakness in the bargaining position of the leaseholder.
Marriage value should be eliminated from the equation. The leaseholder should have to pay what the investor would pay for the property and no more. We will fight throughout the proceedings on the Bill for the abolition of the marriage value.
The Bill as it stands is a step forward, but it is an enormous disappointment and could be a great deal better.
§ Mr. Peter Pike (Burnley)
I welcome the opportunity to speak in this debate. I broadly support the Bill, but I hope that some improvements will be made and some amendments agreed.
I congratulate the Government on being bold enough to introduce the commonhold proposals. They have been discussed for many years. The previous Conservative Government considered commonhold, but never did anything about it. At least a Labour Government are now introducing the proposals and going ahead.
I want the Government to do two things, which have already been touched on in the debate. The 100 per cent. rule is a worrying factor, because the agreement requires unanimity on the part of the people who live in a property as well as the owner or of the leaseholders and the freeholder, and because other interested parties are also involved. We need to consider more closely the definition of interested parties. Clearly, we need to consider those aspects as the Bill progresses in Committee and on Report. The provision would make it easy for someone to put a veto on an agreement and stop progress being made, which might not be in the best interests of the majority.
As the Bill is drafted, the majority of commonhold properties will initially be new build. Again, the Government could be a little bolder. They could make it clear that if a property is not to be freehold, commonhold should be the preferred option for the developers, unless there are good reasons why that should not be the case.
I hope that the Government will consider those two matters. Virtually every hon. Member who has spoken, apart from the Minister, has expressed concern about them.
On the leasehold provisions, as I told the hon. Member for Stone (Mr. Cash), the Bill will go a long way towards introducing some of the measures that we tried to include through amendments to the Leasehold Reform Housing and Urban Development Bill in 1993. At that time, we were well briefed by the Leasehold Enfranchisement Association, which also has concerns about this Bill. Many of the provisions that we tried to introduce in 1993 are involved today.
I want the Government to accept that leaseholds in the south and London are very different from those in Burnley and other parts of the country. The problems in my part of the country are different from those in London. 455 My only dealings with a London leasehold property were while my daughter was out of the country last year, when I had to sell her flat. I had to buy an extension of the lease before I could sell it as the building society would not give the purchaser a mortgage without an extension. It seemed crazy to have to pay several thousand pounds to extend the lease to complete the sale. The property in which I live in London is not leasehold.
In my constituency, the leaseholds are not short and the property is not as valuable. Nearly all the leases are for 999 years, with minimal ground rents and, in many cases, minimal conditions attached. In the past few years, I have studied many leasehold documents. Although the handwriting is good, many of the leases drawn up in 1887 are difficult to deal with, as they are extremely lengthy. It is hard to follow the exact conditions laid down and to decide whether the provisions that the present freeholder claims are contained in the documents are there. They are not always there. I have had to tell several people who have implied that a lease contains conditions relating to insurance, for example, that the document in question gives them no right to do what they are trying to do. One has to spend a lot of time studying each document, as they are not all exactly alike.
I have bought the freehold of the property in which I live in Burnley. For many years, I advised people not to bother to buy the freehold. I said, "Why bother to buy, when you are only paying £1, or £5 a year and you have 800-odd years to go?" Also, the conditions were minimal. Why did I decide to buy my freehold? I was fortunate enough to be able to do so and I saw the problems of my constituents. I did not want to suffer a similar hassle or problem and I could afford to buy, so I paid £250 plus the legal costs and bought it out. I was paying only £4 a year. Even then, the landlord was overcharging. The lease stated that it should be £3.87, but I never argued about the extra 13p; I always coughed up the £4 when he asked for it.
§ Mr. John Taylor
The hon. Gentleman has effectively pointed out that leasehold traditions in different parts of the country are very different. He talks about 800-year leases in Burnley. In contrast, in the west midlands, residential leases are almost always 99 years. There is a different sort of pressure on the leaseholder as the 99 years contracts to 60, 50 or 40 years and the lease becomes difficult to dispose of.
§ Mr. Pike
The hon. Gentleman has a valid point. The majority of hon. Members who speak today will be talking about that sort of problem. A number of Members who represent London will highlight the problems with 90-odd year leases when they are reduced to 60 or 30 years. As the number of years reduces, the value that my hon. Friend the Minister mentioned is reduced and it becomes increasingly difficult to sell the lease. The person who is looking for a mortgage is not prepared to take such a lease on.
I am trying to highlight the problem that my constituents face. What is their particular difficulty? The ground rents are not significant. The problem is that people are now being told, "You must insure with us and buy this particular insurance." The people who have now bought the freeholds are in most cases no longer local— 456 they are either from London or, in some cases, Wales. They can make more money from the commission that they get on the insurance than they can from the ground rent.
My hon. Friend the Member for Rother Valley (Mr. Barron) mentioned that people make alterations to a property without having obtained permission to do so, and that a charge might then be made for retrospective approval. In some cases that could be £250, and I have heard of cases in which £600 or so has been charged. That nearly always comes to light when the person concerned wants to sell the property and has found someone who is willing to buy. Nine times out of 10, they pay, whether their solicitors advise them that it is a reasonable figure or not. They pay because, in Burnley, if people want to sell a house, they sell it as soon as they have somebody willing to buy. There are 4,000 houses standing empty there.
The other week, during a by-election, I canvassed someone who told me, "I bought my house five years ago for £24,000. When you knocked on my door in May it was worth £16,000; last week, when I asked the solicitors what it was worth, they told me it was worth £6,000." People just cannot sell their houses, so if they find someone who is willing to buy, and they are told by the freeholder to pay £250 or £600, they cough up, fair or not, to get the sale. They know that far too much time will be taken up arguing about fairness and unreasonableness if they do not. That is the difficulty that we have to deal with.
Although I accept that part 2 addresses the problems that exist in the south, and that other aspects of the Bill are important to many people in London, Brighton and other areas where such problems exist, there are other issues that we must deal with as the Bill progresses through the House.
I have had a lot of dealings with various local solicitors, and with the Burnley and Pendle Law Society. I would like to quote from a briefing that the society sent me the other day. It emphasises the points that I have already made, but it is interesting to hear what its members, as legal professionals, have to say. The briefing states:The problems arise out of leases that were created in the 1880s and 1890s in particular and of a long leasehold nature of 999 years plus and with what are now nominal ground rents. I acknowledge that the ground rents when created could be compared to a week's wage whereas nowadays the same rent would not even buy a pint of beer.That is a significant point, and very true. The briefing continues:The covenants contained in the leases are the biggest problem with which we have to contend. Most leases created over a hundred years ago contain very few covenants and the few that did exist were rarely enforced, e.g. insurance, approval of change of external appearance by additions. However, these covenants have now proved to be a major problem in that the ground rents held by local landlords have now been sold to commercial companies that read through the leases with a fine tooth comb to see what can be gleaned in the form of fees—the ground rents are a minor issue. Where any lease contains any provision about approval of insurance, it leads straight to the property owner having to insure the property through the freeholder or alternatively paying an administration fee for releasing the provision—these fees can be quite expensive. A similar situation applies where a house owner wishes to erect e.g. a kitchen extension—if the lease makes provision for approval being required then the freeholder will charge a fee for the approval.In many cases, those fees are neither reasonable nor fair, and that is why we need to make changes. My hon. Friend the Member for Brent, North (Mr. Gardiner), who 457 is going to speak in this debate, has called such freeholders "ground-rent grazers", and that is exactly what they are. They look through leases and try to make extra money from them in different ways. That is what they are doing in many cases in Burnley. Thousands of my constituents are affected in that way, and as the Law Society has pointed out, there are similar cases in Wales, Newcastle and other parts of the country. It is time that we did something about it. We must tackle the major issues to which the Minister referred, but we must also ensure that the people of Burnley, and their like, do not have to endure the problems caused by the present provisions on leaseholds.
§ 6.5 pm
§ Mr. John Taylor (Solihull)
I intend to make only a brief contribution to this debate, because other hon. Members have been gracious enough to allow me to intervene on them, which has given me the opportunity to register a point or two.
I should declare an interest at the outset. I am the owner of a residential long lease on an apartment in my constituency. I am therefore interested in such issues as management companies and, ultimately, I hope, the acquisition of our freehold. I should also declare that I am a solicitor, but I have not practised since 1988—I went straight 13 years ago.
As a very young, recently qualified lawyer, I was involved in some of the early applications of the Leasehold Reform Act 1967, which provided the first opportunity for people with residential leases—at that time only of houses—to acquire their freeholds. Indeed, I bought the freehold of the first house that I ever owned. However, one of the weaknesses of the 1967 Act was that the political process— which I blame collectively, rather than in a partisan way— fought shy of defining a price mechanism. There was no reliable formulation in the Act to enable either the holder of a long lease or the holder of the freehold reversion to work out exactly what sum of money could be expected to change hands for the enfranchisement. There was not even a near miss.
Therefore, cases all of a sudden had to go, at some expense, to the Lands Tribunal. It was some time before the tribunal's decisions began to form a reliable pattern of precedent so that people could say, "Right, we've got the picture now. They have made so many hundreds of decisions and it is clear what the applicator figure should be." Initially, and perhaps rather innocently, thoughts on the valuation of the reversion turned on a simple question: what capital sum would have to be prudently invested to produce the same annual return as the ground rent? That produced some very favourable acquisitions of freeholds and, as an early enfranchiser myself, I took advantage of that thinking when it prevailed.
However, with the passage of time, a different view began to be taken, using nuptial idiom— if I may say that— and the concept of the marriage value. The proposition was that the value of the whole might be greater than the sum of the values of the parts, in the hands, at any rate, of the leaseholder as purchaser. I am not supporting that proposition; I am saying that that is the way in which the thinking began to develop.
I am reminded of the rule in estate duty law that the gift may not be the same at both ends. The gift may be more valuable to the recipient than it is to the donor. 458 My law lecturers, all those long years ago, used to give an example. If I owned 49 per cent. of the shares in a company, and someone who owned 2 per cent. of the shares gave me that 2 per cent., I should, as the new owner of 51 per cent. of the shares, have received something of infinitely greater value than it had enjoyed in the hands of the person who gave it to me.
There are subtleties in those valuations and I do not want them to be worked out expensively by our constituents. The Bill has been criticised, but I am here only to promote and advance one point: all our constituents, whether they live in Burnley, London or Solihull, will be grateful to the House for its careful scrutiny if the Bill finally goes to the statute book with a perfectly clear mechanism telling people what to expect to pay if they act in concert as long residential leaseholders seeking the freehold.
My hon. Friend the Member for Stone (Mr. Cash) said in his comprehensive and elegant remarks that the relationship between landlord and tenant is inherently adversarial. Maybe it is, but, as far as we can, we should keep that to a minimum. I do not want the price for the freehold to become a ground for argument, bitterness and, ultimately, expensive litigation. The House has it in its power to keep that potential to an absolute minimum, bearing in mind that another matter will probably be considered at the same time.
There have been discussions, not least those involving my hon. Friend the Member for Stone, about the various mechanisms for transfer of management functions, but if the long leaseholders are at war with the landlord over the price of the freehold, even when the management functions are being transferred, that will be as unpromising a recipe for fruitful negotiation that could possibly be devised.
The final form of the Bill may go one way or the other, enhancing the potentially adversarial nature of the relationship between landlord and tenant or minimising it, providing good formulation and every prospect of satisfactory negotiation between the parties.
§ Mr. Pike
As a solicitor, the hon. Gentleman will recognise that some people thought that they were buying out the freehold under the 1960s legislation, although all they bought out was the need to pay ground rent. Is it not important that we ensure that people know exactly what they are getting, and not only on that point?
§ Mr. Taylor
The hon. Gentleman obviously has extensive experience of those matters. As we agreed, he made the good point, which I acknowledged, that leasehold practice varies a great deal in different parts of the country. I am sure that the detail of what he describes from his experience is correct, but I shall answer in general terms.
The clearer and more transparent the situation, the better, not merely in respect of what one gets for one's money. There should be a reliable formula that provides a fairly accurate estimate of the money likely to be needed to acquire that defined asset, which is my only reason for striking a slightly discordant note: good scrutiny and a good final product, which the Bill is intended to be, are not helped by limiting scrutiny by timetable.
There is so much complexity here, but I detect a lot of good will and a lot of heads nodded on this side of the House when contributions were made from the other side, 459 and vice versa. Members want to get the Bill right, but the timetable is not helpful. It is a reality— there is nothing I can do about it— but we must make the issues as clear to our constituents as possible. We are not in the business of giving them law lectures, nor do we expect them to become amateur lawyers overnight. As the hon. Member for Rother Valley (Mr. Barron) said, he earned his living doing something completely different, so he could not be expected to understand all these matters any more than I could be expected to do the job he did at that time.
I wish the Bill well and hope that it reaches our constituents in the clearest possible form as the law governing their affairs.
§ Mr. David Crausby (Bolton, North-East)
Thank you, Madam Deputy Speaker, for the opportunity to say a few words in support of an exceptionally important Bill. Nothing is more important than a measure that will deliver improved rights in the interests of everyday people. The desire to own one's home lies at the core of our natural instinct for independence and security, and it is both highly rewarding and emotive, but fulfilment of that desire cannot be complete without the principled right to buy the land on which that home stands— at a fair price, of course.
I therefore warmly welcome the proposals for those who want to acquire control over their freeholds and commonholds, thereby improving their prospects for independence and individuality, but I shall concentrate my remarks on those who choose, for whatever reason, not to buy and to continue with a leasehold. I believe in the right to purchase a freehold, but I also defend those who do not want to go to what may be considerable expense.
I have constituents in Bolton who are contracted to pay very small amounts in ground rent— sometimes little over a pound a year— and, like my hon. Friend the Member for Burnley (Mr. Pike), I must say that, financially, it is difficult to justify buying a freehold in such circumstances. Those people should not be pressured and their choice not to buy should not allow unprincipled landlords to mistreat them, thereby coercing them to buy.
One such example of abuse by freeholders is a landlord insisting on the lessee purchasing household insurance from a specific company. I fully understand and accept that landlords have a legitimate interest in ensuring that their properties are properly insured, but, let us face it, the truth is that the motive for insisting on a specific company is almost exclusively related to securing commission from unscrupulous insurance companies. Such people do not buy up ground rents to collect a couple of pounds a year.
My constituent, Mr. Raby from Harwood, wrote to tell me that, along with many of his neighbours, he had paid ground rent of £4.50 a year since moving into his terraced property n 1966. In recent years, his landlord, who lived close by, died. Mr. Raby tried in vain to find out how and whom he should pay. In 1998, he received a letter informing him that the freehold had been disposed of to a London company, which sent him a bill for just over £20. He promptly paid the new freeholder what he owned. Shortly after, he was offered his freehold for £500. He declined the offer. A year later, he was offered it for £350. Again he declined. Quite reasonably, he felt that he could not justify paying £500 or even £350 compared with annual ground rent of £4.50.
460 In the middle of 2000, Mr. Raby received a letter from a company called Terra Firma saying that his insurance did not meet its requirements. It claimed that his insurance was inadequate, despite the fact that it knew nothing of the terms of that insurance. It nevertheless felt able to demand that he insure in future with a company called Owners Combined Ltd. He initially put up a struggle, but the firm continued to harass him until he surrendered. As he put it in a letter to me,They had me over a barrel".He tells me that he has now separated his buildings insurance from his contents insurance, and that he now has to pay an extra £60 a year— not much for a big insurance company, but an awful lot for my constituent.
In my constituency, a company called Compton Insurance Services recently bought up freeholds in the area and now insists that residents use AXA Insurance. The company's main motive in buying up freeholds clearly relates to the insurance business that that will generate. It writes intimidating letters to my constituents, insisting that they fill in application forms for the new insurance.
Mr. Warburton of Astley Bridge wrote in a letter to meI was born at this address over eighty years ago and my parents and myself have paid the ground rent of £2 a year on this lease. I am insured with Age Concern and people especially at my age should not be subject to this aggro.Members may ask what kind of insurance company would put a man of Mr. Warburton's age under such pressure. AXA is a large and, on the face of it, respectable insurance company. It is big enough to sponsor the FA Cup, for example. I wrote to AXA complaining about the way in which Compton was, in my view, intimidating and virtually blackmailing people into using its insurance.
§ Mr. Crausby
Absolutely. Thousands of people are so intimidated that they feel there is nothing else they can do.
When I requested a meeting with AXA to urge it to refuse such business, I naively assumed that it was unaware of the tactics employed by Compton— that it did not know what was being done on its behalf. AXA, however, refused to meet me, telling me that the matter was nothing to do with it and suggesting that I meet representatives of Compton instead.
Mr. Andy Homer, AXA's chief executive, told my local newspaper, the Bolton Evening News, that he could not comment because the dispute was between Compton and its tenants. In other words, "It's not me, guv". I can only assume from AXA's behaviour, and from its lack of concern, that it is just as bad as Compton—interested only in profits from the insurance business. It is clear that it desperately wants to pour money into the pockets of multi-millionaire footballers, and is prepared to fund that by forcing pensioners in my constituency to buy its insurance.
I spoke on the telephone to an elderly lady who had lived in the same property, with her husband, for more than 40 years. Throughout their married life, they had paid their insurance through the Co-op to an insurance 461 collector who called at the door. The couple had received a series of aggressive letters from Compton. When the lady raised the matter with her insurance agent, the man from the Co-op, he advised her to give in and take out insurance with AXA.
That lady cannot believe that in this day and age, in Great Britain, it can be legal for her and her husband to be harassed and intimidated in such a way. To be honest, neither can I. It is fundamental to our freedom in this country that we should not be intimidated— that we should not be forced by those who are stronger or wealthier than us to do what they bid, especially when they act for no better reason than to make themselves even stronger and wealthier. It is the responsibility of democratic Government to ensure that the public are protected. The British public should be bullied by no one: they should not be bullied at school, they should not be bullied at work, and they certainly should not be bullied in their own homes.
This sorry tale of intimidation by large, wealthy organisations or householders who have worked all their lives to buy their homes is bad enough, but when we consider that the freeholder is armed with the draconian measure of forfeiture and is prepared to use it—prepared, certainly, to threaten to use it—we can imagine the pressure that elderly residents will experience. It is no wonder that so many cave in.
Forfeiture is just one example of the way in which the existing law is tilted in favour of landlords. Its use, or should I say misuse, to force leaseholders to take out insurance by people threatening the loss of their homes convinces me that it is a power that should be abolished.
When the Bill's predecessor was discussed in the other place last March, Lady Hanham tabled an amendment to void provisions in a lease requiring a tenant to insure with a company nominated by the landlord. It was a simple amendment, intended to address a simple injustice. Why should anyone be forced to buy insurance from a company with which he or she does not want to deal? Lord Whitty expressed some understanding of the concerns behind the amendment, and said that he felt some sympathy with it. He promised that the Government would look at it in the longer term, outside the scope of the Bill.
The problem is that, on a daily basis, poor people are being taken advantage of. To put it simply, they are being ripped off. If we do not stop these anti-competitive practices now, they will clearly increase to a point at which all insurance companies will feel compelled to become involved in what is a very seedy business.
I strongly agree that the Bill takes householders' entitlements in the right direction. I hope very much, however, that in Committee we will take the opportunity to strengthen its proposals further in the interests of the people. We have a responsibility to prevent companies from being able to stipulate in lease agreements the firms through which buildings insurance should be organised. If we do not do that, the Government will be forced to return to the matter as they have so many times before.
§ Mr. Oliver Heald (North-East Hertfordshire)
I welcome the Bill. I agree with the hon. Member for Bolton, North-East (Mr. Crausby) that the actions of some freeholders and managing agents are unacceptable: indeed, I think that much of the pressure for the Bill has 462 come from those who see commonhold as a way of escaping from certain managing agents and certain freeholders. I shall say more about that later.
Of the Bill, I say "Better late than never". In 1996, when the Conservative Government presented a draft commonhold Bill for discussion, the Minister for Local Government, the right hon. Member for Greenwich and Woolwich (Mr. Raynsford)— the then Opposition spokesman— expressed criticisms. He said, nearly six years ago, thatLabour in Government will have no hesitation in introducing a comprehensive leasehold reform package including commonhold legislation".He went on to say how unacceptable it was to wait four and a half years, as the Tory Government had, to introduce the measure and to allow it to be properly debated within the term of a Parliament. Therefore, it was with certain wry amusement that I noted that, following Labour's election, almost exactly the same period elapsed before the Bill came before this place.
I support the introduction of commonhold. Although I accept what the hon. Member for Bolton, North-East said —it is wrong for a landlord to insist on a long-lease tenant taking out insurance with a company that may not offer the best terms—it is important to realise that tenants have been trapped in leasehold for so long because the only way of ensuring that properties were insured was to have a system under which the positive obligations of ownership could pass from one owner to another. It was necessary for each unit to have positive legal obligations towards its neighbours and for those to continue generation after generation, owner after owner. It would not have been possible to insist on insurance for all properties, which is vital, if the leasehold system had not been in place. It was not open to freehold properties to continue with those positive legal obligations.
That is why 1 million flats and 1 million homes are leasehold today. A majority of lessees would prefer to be freeholders or commonholders; the commonhold proposals will allow them to meet that aspiration. It is good that we are in a position to let so many people reach something that they have wanted for so long.
There will be fewer opportunities for unscrupulous freeholders and managing agents to take advantage of lessees. We have heard personal examples from the hon. Member for Rother Valley (Mr. Barron), who was asked to pay a premium for putting up a garage and extension at his property. He had the ability to fight his corner and ended up not paying the money. However, many people would not have had the courage and fortitude to achieve that.
The combination of the commonhold and right-to-manage proposals in the Bill will mean that there are fewer opportunities for the sort of misbehaviour that we have heard about and for other forms of misbehaviour by freeholders and their agents. The campaign for the abolition of residential leaseholds sent a list to us all, which criticises some of the behaviour by landlords.
It is important to include the caveat that many freeholders and agents do an excellent and efficient job and behave entirely properly. One would not want to criticise them, but it is wrong that some landlords should steal money from maintenance funds that in law should be held on trust; falsify tenders for works to premises, which they are carrying out at a secret profit; make 463 leaseholders pay the landlord's legal costs even if the landlord is in the wrong; bully and intimidate; charge for services or work that has not been carried out; fail to carry out essential works until the costs become astronomical; fail to disclose money missing from maintenance funds in the annual accounts summary— apparently, according to the Institute of Chartered Accountants, it is legal to omit the fact that money is missing from the fund— create phoney management companies to levy unnecessarily high charges; and hold lessees to ransom when they sell their properties by imposing huge administration fees for answering queries.
Some of those actions would be illegal under current law, but not all. If we move to a system where more long-term tenants are able to have commonhold and own the freehold in effect, or have the right to manage their properties, there will be less abuse of the system.
I share the concerns of the hon. Member for Burnley (Mr. Pike) about the conversion rules. It will be possible to convert from leasehold to commonhold only if certain criteria are met. Among the details in the Bill is the 100 per cent. rule—the freeholder and each unit-holder would be able to object, as would cautioners and others with minor interests in the land.
What worries me is that a cautioner could hold one unit-holder to ransom and everyone else would be denied the opportunity to become a commonholder. One can imagine circumstances where a caution has been entered on land in respect of a debt that is owed to one creditor. That creditor may have no hope of ever getting the money out of the unit-holder in normal circumstances. When the commonhold suggestion comes up, he may say, "I am not prepared to agree to the registration unless the caution is vacated and I get my money." For all we know, the unit-holder may not be able to pay. One hundred or 400 long-lease tenants in a block of flats could all be deprived of the opportunity of commonhold, which would avoid some of the difficulties that I have mentioned and which may be a long-held aspiration for many of them, just because of a dispute over a debt that cannot be resolved in relation to one unit-holder. The Committee will need to look at that. It is not right that all those people could be denied the opportunity of commonhold because of that sort of dispute.
There may be an argument about a right of way. We all know that that happens. In my surgery, I get cases about disputed rights of way from time to time. Someone may own a right of way that is used by residents in a block of flats. Do we want that person to be able to stop 400 or 100 people becoming commonholders? Probably not. The Committee will have to look closely at whether the 100 per cent. rule is right, or at least at the categories of persons who can object. If it is to be every minor cautioner or every owner of a right of way, that is far too restrictive. There is cross-party consensus that commonhold should proceed. That could scupper it.
As my hon. Friend the Member for Stone (Mr. Cash) said, there are already systems with long leases— 999 years, for example— where the freeholders have in effect contracted out the management of the premises to the tenants, or where the tenants are freeholders in a company and are able to manage the premises themselves. In those circumstances, there needs to be some attraction for commonhold to become the rule. If minor property 464 holders of the sort that I have described are able to scupper the conversion, that will defeat many attempts. That needs to be examined.
My hon. Friend was on to a strong point when he said that it was wrong for the Government to be able to exclude local authority premises from the right to manage. The Government need to justify that. One of the complaints that one hears and is reported nationally from time to time is that local authorities are not always the best landlords of premises. One would want to know why local authorities should be exempted from the right-to-manage proposals. Surely if tenants are not happy with their current arrangements they should be able to obtain the right to manage the property themselves.
§ Mr. Clifton-Brown
Does my hon. Friend agree that it is a curious anomaly in the Bill that local authorities are exempted from the right to manage, but housing associations are not?
§ Mr. Heald
Yes. The Government say that they are in favour of transferring the entire stock of local authorities to housing associations. If they are prepared to trust housing associations in that way, why should there be one rule for housing associations and another for local authorities? Why should there be a lower standard for local authorities? Surely if we want to lever up the quality of public services, we should encourage local authorities to reach the same standards as housing associations and private landlords. They should be able to do that, particularly given all the examples that we have heard from hon. Members on both sides of the House of poor-quality private sector landlords.
Surely the Government are not saying that local authorities cannot attain the standard of the private sector when it comes to property management. That touches on another point that my hon. Friend the Member for Stone made about the regulation of managing agents and those who look after property. In her reply to the debate, will the Minister tell us what proposals the Government have for the regulation of managing agents?
It is good that commonhold will enable more people to own the freehold of their properties. It is good that people will have the right to manage their properties, but the third leg of the tripod is to sort out the regulation of managing agents and to ensure that there is proper guidance and regulation.
What should be done about the bad unit-holder who does not pay his rent or insure his property and does not behave in a neighbourly way? One can criticise the abuse of the right of forfeiture, as the hon. Member for Bolton, North-East did, but it is very important on grounds of safety as much as anything else that bad unit-holders should be made to maintain and insure their premises and to be as neighbourly as possible.
In a block of flats people's lives can be put at risk by a bad unit-holder who does not fulfil his or her obligations. So it is not such a bad thing to have the ability to take draconian measures when an important covenant is breached. Although it should not be abused, in some cases the right of forfeiture is useful in concentrating the mind of the bad unit-holder or tenant and ensuring that properties are insured and maintained in the interests of everybody in the block. That option will not be available in the case of commonhold, at least as it is currently 465 proposed, but I hope that the Committee will consider seriously what leverage there will be to deal with bad unit-holders.
I suspect that many unit-holders will not consider a charging order to be much of a threat or as significant a penalty as forfeiture. It should also be noted that one has to go through quite an expensive rigmarole in order to obtain a charging order. If a creditor or a commonhold association feels unable to become involved in a great deal of expense and inconvenience there may be a temptation to let certain issues slide. That would be bad for public health and public policy. I hope that the way in which the bad unit-holder is dealt with will be considered fully in Committee.
§ Mr. Clifton-Brown
I am grateful to my hon. Friend for giving way again. He has touched on a very important point. Under a commonhold system, the rogue owners could effectively prejudice the interests of the majority. Therefore it is crucial that the commonhold association has powers to deal with rogue owners.
§ Mr. Heald
I agree. The hon. Member for Torbay (Mr. Sanders) suggested that the commonhold association could be a priority creditor when the property was sold. I do not think that that goes far enough, but it shows that the issue has struck a chord with hon. Members from all parties—I notice the odd nod from Labour Members—and I hope that some way will be found to protect the innocent unit-holder who does everything right from the bad unit-holder who does not. That is one reason why responsible freeholders are keen to insist on the insurance obligation. If one tenant is not insured, it can often prejudice the insurance of everybody else in a block of flats. These are not minor issues; they are important considerations and I hope that the Committee will address them.
My hon. Friend the Member for Solihull (Mr. Taylor) spoke about the need to have a clear price mechanism for enfranchisement. He said how important it was to have adequate time to deal with these issues in Committee and I echo that point. A million flats are in leasehold occupation; they could be home to 3 million people or more. An additional 1 million houses are in leasehold occupation. If we can solve some of these problems by developing a clear price mechanism for valuing a freehold or dealing with bad unit-holders, we will help millions of people. So to be less than generous with our time and say that we are only prepared to spend a week or 10 days on it is denying quite an important duty to millions of people.
I hope that sufficient time will be provided for these issues to be dealt with properly, particularly as, as far as I can see, there is no real party political argument about the principle of the legislation. Our draft Bill was criticised for being far too late; the Government's Bill has been criticised for being five years too late, but we all agree on the principle, so it should be possible to sort out these technical issues, as 2 million households are looking to us to do just that.
§ Glenda Jackson (Hampstead and Highgate)
With all due respect, I think that the hon. Member for North-East Hertfordshire (Mr. Heald) fell into a trap into which many speakers have fallen this evening in attempting to get to 466 grips with the Bill—that of being infinitely too detailed in attempting to protect someone who, by virtue of a lease, is outside our thinking in relation to home owners. I accept absolutely that people who live in flats are in a different situation from home owners who live in a row of terraced houses where everyone owns their properties. However, the damage that can be inflicted on a row of terraced houses by one rogue property owner can be just as great and just as disturbing as that caused by one rogue tenant or commonholder in a block of flats. I do not believe that the House would be prepared to pass legislation that was so detailed in that respect that it set out precise ways of preventing the appearance of a rogue householder. We would look to the existing tenets of the law to protect other people.
The Bill gives the House another opportunity to solve a problem with which Parliament has been struggling ever since I entered the House in 1992. I was much encouraged to hear that the Conservative party has changed what I perceived to be its attitude to leasehold enfranchisement. Conservative Members now regard that as an issue of national interest that demands a bipartisan approach to the Bill. It is a shame that that was not the attitude of the Conservative Government in 1993 when they introduced their Bill on leasehold enfranchisement. If that Government had accepted some of the amendments tabled by the then Opposition, there would be no need for us to debate the matter this evening. The rumour in 1993 was that the then Conservative Government had been forced to emasculate their initial proposals on leasehold enfranchisement, not by lack of bipartisan support for the Bill but by fear of the major London ducal estates.
I represent a London constituency, and I found that two of the most interesting of this evening's contributions were made by my hon. Friends the hon. Members for Bolton, North-East (Mr. Crausby) and for Burnley (Mr. Pike). They mentioned freeholds being offered for sale for £350, whereas in London it is par for the course for freeholds to be offered for £350,000. Such statements come as something of a shock.
When it comes to enfranchising leaseholders and implementing the other provisions of the Bill, we must take national differences into consideration. My hon. Friend the Member for Bolton, North-East crystallised the argument when he said that the aim of the House must be to balance up the gross inequity that exists between those who own freeholds and those who have leases.
My constituents have given me examples of the difficulties that they face as leaseholders. I remember the evidence presented to the House in 1993 on this matter, and I do not think that I exaggerate when I say that the majority of the freeholders with whom my constituents have had to deal would not still have properties standing on the land that they own were it not for the fact that the leaseholders who live in those properties had maintained them, year in and year out.
The leases involved may place various demands on the freeholders, but those demands have never been met. In contrast, my leaseholders have maintained the fabric of the buildings in which they live. They have engaged in major repairs when necessary, and in many instances have been responsible for the decoration, internal and external, of the properties.
My hon. Friend the Minister said that, for all their investment and commitment, leaseholders have seen their right to live quietly, calmly and securely in a home that 467 they have created diminish every year. That is the problem that the House is attempting to solve with this Bill. We need to make the balance rather more equal, especially in London. The present imbalance persists, despite the improvements that have been made with regard to leasehold enfranchisement.
My hon. Friend the Member for Bolton, North-East said that the basic principle involved was one of human rights. We must ensure that, in the 21st century, no one in our society can be imposed on by the essentially uncaring but more powerful part of the leasehold equation. The Bill should be approached in that spirit.
However, I must tell my ministerial colleagues that my constituents are extremely disappointed with the Bill's requirements regarding commonhold. I share their disappointment, especially over the requirement that 100 per cent. of leaseholders in a property must agree before that property can move to commonhold.
I do not understand the Government's thinking on that matter. For example, the Bill has been changed to reduce the requirements that must be met before leasehold enfranchisement can be entered into. The Bill does not require 100 per cent. of leaseholders to agree before they can join together to buy the freehold to a property, so why does it do so over the introduction of commonhold?
The Minister said that, if commonhold were dependent on something other than 100 per cent. agreement, the result would be that the block involved would have two strands of management. Yet that arrangement exists already in those local authority properties where not all tenants exercised their right to buy. Indeed, local authorities are obliged to buy back leases in order to maintain properties.
I was amused to hear the hon. Member for North-East Hertfordshire mention the exclusion that precludes local authority tenants from exercising the right to manage. I presume that that provision exists because such tenants already have the option to create their own management structures. Moreover, the Government are encouraging local authorities to offer tenants the option of setting up their own management structures or of giving management responsibility for their property to another housing association. In either case, the clear understanding is that the majority of tenants must be in agreement.
Given that that option is open to local authority tenants, why cannot it be open to potential commonholders? If a majority of tenants involved can make such decisions about local authority housing, it seems entirely feasible to say that a majority of leaseholders can do so in relation to commonhold.
The Government believe that commonhold can make the sort of changes desired by hon. Members of all parties. However, I do not believe that they are right to rely on the initial steps being taken in relation to new build. That will not secure the results that all hon. Members want within the period of time that would be acceptable to my constituents.
We are not talking rocket science. I think that Britain may be the only country in the world that does not have some form of commonhold. Commonhold works best when it has tradition behind it, and when people have 468 known each other and the blocks in which they live for a considerable time. To pin our hopes on new build for the first steps towards commonhold seems to me to be to neglect the fact that none of those supports will be in place.
In an intervention that the Minister kindly allowed earlier, I asked about commonhold associations, and I am still somewhat perplexed. The Government expect that such associations will redress the imbalance between freeholders and leaseholders. What will be the contribution of individual commonholders to the management of the block in which they live, given that they will not all meet for a considerable time? I made the point earlier that all flats are not sold at exactly the same time and that all tenants do not automatically move in on the same date. Moreover, I expect that the amounts of money that developers determine must be paid each year to maintain properties will vary widely.
People moving into a block of flats for the first time might read that the flats would be in a commonhold system and that there would be regulations to ensure the basis of the commonhold association, but if it were me, I should still feel that I was buying a pig in a poke because I would have had no say in the constitution of the future management system for the block.
I hope that the Government will return to the issue of commonhold—certainly on the requirement for 100 per cent. agreement. They should certainly return to the issue if they hope that commonhold will be driven by new build—although very, very few developers in London will be willing to give up what they still regard as a sizeable investment: freehold. I hope that the Government will reconsider those points.
I also want to raise with the Government issues relating to marriage value. I know that it is extremely difficult to reach agreement on that topic, but my constituents constantly raise it with me. I notice that there is no requirement for marriage value on leases that run longer than 80 years. However, I point out to my hon. Friends that some of my constituents who would dearly love to extend their present leases so that the need for marriage value is removed at present find that the freeholders vastly inflate the amount of money asked for the extension of the leases.
Some of those constituents certainly feel that they are yet again being excluded from a measure that they believed would transform their situation. In essence, they feel that they are maintaining someone else's property and that when push comes to shove they will always be in the vulnerable position of having maintained that property— of having sunk not merely their life savings but their lives into it. They will always be vulnerable if the freeholder can see ways of squeezing yet more money out of the leaseholders. Heaven knows, many freeholders are immensely imaginative in doing that.
Several hon. Members have spoken about insurance. I certainly recall the discussions of that topic when the Leasehold Reform, Housing and Urban Development Act 1993 was in Committee. An outrageous force majeure is being wreaked on tenants—especially the elderly, as was pointed out— whereby they must obtain their insurance from a particular company.
I am sorry to repeat myself. It is par for the course not only for the management companies of blocks in London to charge sizeable amounts for insurance under their 469 agreements, but in the case of an accident for leaseholders to discover that the premiums have never been paid and that they are completely uninsured.
I am sure that we could all produce for the benefit of the House horror stories of the realities of life for leaseholders. I am telling the stories that my constituents have told me about London, where, as we know, there are huge complexities owing to the shortage of affordable properties. I pointed out to the hon. Member for Stone (Mr. Cash) that it came as a shock to hear such phrases emanating from the mouths of Conservative Members, but if they are moving in that direction it is to be welcomed. There are huge pressures in London; there is a desperate shortage of land.
I end where I began. The reason why we are considering the Bill is the same one that has applied in all our discussions of the matter— certainly since I became a Member: to redress an unfair balance between people who own a freehold and those who buy a leasehold. In many cases, if the leaseholders did not give their commitment to the property, the freeholder would merely have an empty piece of land.
Many aspects of the Bill are to be welcomed. However, opportunities have been missed and I trust that some of the Bill's inequities will be tackled in Committee. I was impressed to hear my hon. Friend the Parliamentary Secretary, Lord Chancellor's Department say that the Government are prepared to listen. No doubt these arguments will be made again and I hope that the Government will accept amendments on some points.
§ 7.4 pm
§ Mr. Elfyn Llwyd (Meirionnydd Nant Conwy)
I declare an interest. I am the owner of a long lease in London, and from time to time I have advised, as a lawyer, on property matters.
It is high time that we reformed the system of covenants running with land—the whole feudal system with which we are dealing today. There is unanimity on that throughout the Chamber. I do not want to get involved in discussion of how much time was taken by one side or the other; now, we are proceeding in the right direction.
Leaseholders have typically been in a weak position in enforcing covenants against their landlords. Landlords have always had the whip hand in that regard. Earlier, the Parliamentary Secretary mentioned the dreaded flying freeholds and flying commonholds. I once languished in a law lecture hearing about a flying freehold, with the confident expectation that I should never be confronted by one. After only three months of legal practice I came across one, and although that was 20 years ago I have never forgotten it.
The land commonhold system in England and Wales really needs improvement. There are no colleagues representing Scottish constituencies in the Chamber— understandably, because their system is better than ours.
The Bill is most welcome, although obviously there are still matters that must be addressed. Members on both sides of the House have referred to various problems. I listened intently to the powerful speech made by the hon. Member for Rother Valley (Mr. Barron), who spoke strongly from a personal point of view about certain problems. I suspect that he might not be serving on the Standing Committee— although I may be wrong.
470 In 1985, I acted for a small carpet retailer who was buying small warehouse premises in Llandudno in north Wales. He wanted to open a small retail outlet in the town in a leasehold property that had been a commercial warehouse for heaven knows how long. We had to apply to the landlord for permission to put in a small shop window and for retail premises to be situated in the building. Even at that time, the landlord asked for £7,000—for nothing. However, because of time constraints we had to negotiate for a sum approaching that figure. There were obviously problems.
There are huge problems in the city of Cardiff, not only with commercial but with residential leaseholds, so I welcome the moves to reform leaseholding in general. I certainly also welcome the commonhold principle, but I echo the comments of the hon. Member for Hampstead and Highgate (Glenda Jackson) and others about the unanimity rule. If a possible commonholder was in arrears with his or her mortgage payments it seems ridiculous that that might be enough to make the mortgagee decide that there was no compliance or agreement, so the whole scheme would fall flat.
§ Mr. Cash
Given the hon. Gentleman's genuine enthusiasm for the principle of the Bill and also the fact that there is an element of national interest, does he agree that it would be an interesting test—in the light of the parliamentary reforms to the whipping system proposed by the Leader of the House—to propose that there should be proper representation on the Standing Committee and that it should include Members, such as the hon. Members for Rother Valley (Mr. Barron) and for Burnley (Mr. Pike), who expressed concerns similar to those that he is raising? That would ensure proper representation on the Committee.
§ Mr. Llwyd
I hear what the hon. Gentleman says. I should be pleased to see the hon. Members for Burnley (Mr. Pike), for Rother Valley and for Hampstead and Highgate in the Standing Committee; I am sure that its proceedings would be much enhanced. My endorsement may be the kiss of death, of course, in which case those hon. Members can be confident that they will not serve on any Committee in the foreseeable future.
§ Mr. Llwyd
That must be right.
Applying for a charging order against an errant commonholder is a difficult and expensive legal procedure. In any event, the charging order fails if the debt is small in comparison with the value of the leasehold interest. Charging orders are a total waste of time. However, I welcome the extended rights for leaseholders in the Bill. I also welcome unreservedly the relaxed conditions for leaseholders of houses to extend their lease or to enfranchise; the new right for individual leaseholders not to be excluded from collective enfranchisement; and the new right for leaseholders of flats collectively to take over the management of the block. All those proposals are to the good.
471 There are some good things about the Bill, which has been a long time coming, and which I am sure will be improved in Committee. I think that the commonhold system will be of considerable use and assistance to many tens of thousands of our constituents.
I have some queries on commonhold, which the Minister will undoubtedly address at some point, although perhaps not this evening. I wish to know about the status of unregistered interests where consent to register is sought; the rights of mortgagees where the mortgagors vote to sell off common parts; whether leases should automatically terminate if the commonhold terminates; and the ability of a commonhold association to recover service charge arrears, particularly if a unit changes hands. That was mentioned earlier with regard to the charging order, nisi and absolute.
The extended work load of the leasehold valuation tribunals is a good thing, and I am sure that the people involved will be trained appropriately. That is not meant to be patronising, but this is a fairly new area of law. It is a good idea for more applications to go to the LVTs rather than the courts. I should like the LVT procedure to be as informal as possible, although I know that that might be difficult to achieve bearing in mind the need for valuers.
The Law Society contends that the LVTs should be able to deal with all residential leasehold issues and should act as a one-stop shop. At present, issues are divided between tribunals and the county courts. For example, the majority of applications concerning whether costs incurred in relation to services, repairs and maintenance works are reasonable are dealt with by LVTs, while judgments on arrears are made by county courts. Such duality is probably not in tenants' interests.
I agree that the law needs to be consolidated. The hon. Member for Rother Valley and others have mentioned numerous pieces of legislation. It is a very complex situation and will remain so even after the Bill, amended or not, reaches the statute book. There are more than a dozen statues involved. They include the Landlord and Tenant Acts 1954, 1985 and 1987, the Rent Act 1977, the Leasehold Reform, Housing and Urban Development Act 1993 and the Housing Acts 1988 and 1996, to name but a few. Clearly, there is a crying need for consolidation.
I cannot understand why we are not considering a form of mandatory introduction of commonhold with new build. The Minister said that the markets will be the determining factor. In other words, the benefits likely to accrue in a commonhold situation will in some way persuade developers and commonholders to adopt this particular model. I remind the House that the Land Registration Act 1925 introduced the registration of freehold and leasehold titles. Until the late 1980s, only a tiny proportion of rural properties had ever had registered title until it became compulsory. The benefits of registered title were obvious, not just to lawyers. It led to the simplification of conveyancing, but did not commend itself to people in general. This might be a comparable situation. Perhaps the Government should think again about a mandatory introduction of the commonhold with regard to new build.
The unanimity rule has been dealt with eloquently by many speakers in the debate, so I shall not dwell on it. It is a very real issue. One errant commonholder with 472 mortgage arrears will apparently scupper the whole system for everyone in the proposed scheme. That must be addressed. The Minister said in his opening remarks that the Government were listening. With respect, had they listened to what was said in the other place, changes would already have been proposed. Even at this stage, and even with the restricted timetable that is a matter of some criticism, bearing in mind the ground-breaking nature of this important Bill, I hope that the Government will think again about this issue in Committee.
On dispute resolution, clause 34(3)(b) provides that the directors of a commonhold associationshall have regard to the desirability of usingconciliation procedures. Some of us would like to see that provision strengthened.
The Minister said that there would be draft regulations on delegated powers, which I welcome. I hope that those will be made available before the Bill goes into Committee. On the framework of delegated powers in general, the Bill was considered by the Select Committee on Delegated Powers and Regulatory Reform in its fifth report. The Committee concluded that the regulations should be available as soon as the Bill was before the House.
I echo everything that has been said about insurance arrangements and about freeholders determining which insurance company should be used. In addition, there should be better regulation of managing agents.
I echo what was said by the hon. Member for Solihull (Mr. Taylor). There is an obvious tendency for ground landlords to seek inflated valuations, knowing that the leaseholders are usually anxious to complete a purchase. It is known as the Delaforce effect. I do not see much change in the Bill. The freehold valuation is usually based on the percentage site value approach, which is often arbitrarily determined.
I would like a change in the statutory fee for issuing a demand to purchase. It is routine for the leaseholder to pay the legal and surveying fees for both parties. How are those fees determined? I have been involved in situations in which ridiculous fees have been asked. I would like a mechanism in the Bill to put a stop to that without having endless correspondence about it.
My comments are sincere and are meant to be constructive. This is a good Bill, but it needs improving, and I hope that that will happen in the coming weeks.
§ Mr. Piara S. Khabra (Ealing, Southall)
It is easy, at present, to get swept away by the constantly changing events overseas and their implications for this country's interests at home and abroad, yet it is essential that we do not neglect day-to-day legislation, which, although possibly not so dramatic, has the power to affect the lives of many people in this country. The Bill will address some of the issues faced by many people.
I am not an expert in the intricacies of housing legislation, and many hon. Members have a great deal more knowledge and expertise in this matter, but the Bill will affect leaseholders in constituencies across the country, especially in London and the south-east, which contain more than half the United Kingdom's leaseholders. I am therefore glad that the Government 473 have reintroduced the Bill at the earliest opportunity. I participated in previous debates on such matters, and I am happy to do so again today.
Although leasehold suits some, it has many drawbacks for long-term residential occupiers in England and Wales. Many people, including some in my constituency, experience serious difficulties with their landlords, who neglect their obligations under the lease, either wilfully or because they are absent. The Bill will go some way to redress the balance of power between landlord and tenant, and, arguably, it will better reflect the relative investment values in the property.
I welcome the changes being introduced to create the new commonhold tenure for blocks of flats and other multi-unit properties, as well as further reform of residential leaseholds, particularly in respect of making it easier for people to purchase the freehold of their properties.
The introduction of commonhold should provide a better system for the future management and ownership of blocks of flats and other interdependent buildings with shared services and common parts, and it is designed with the admirable intention of giving people in commonhold the opportunity to own the freehold of their homes. Commonhold is a new concept for the United Kingdom, and thus may take some time to be accepted, but it should prove a popular option for new developments.
The Bill will provide an option to convert from leasehold to commonhold, but it is likely that many leaseholders will find that their concerns are sufficiently addressed by the proposed leasehold reforms. For leaseholders, one of the most welcome aspects of the Bill is that proposed under the chapter entitled "Right to Manage".
The Leasehold Advisory Service has said that it receives a large number of inquiries that relate to complaints about service charge abuses and overcharging, mismanagement and the neglect of properties by landlords. I sometimes receive complaints from my constituents on such matters. The Bill will provide tenants with further powers to address those problems. So long as certain reasonable conditions are met, such as the building, or part of the building, being self-contained and containing at least two flats, tenants will be given the power to manage the property without the need to buy the freehold. They also need not prove fault on the part of the landlord, as would be the case if they were applying for a management order under the Landlord and Tenant Act 1987.
I also approve of the improvements in the rights of those who inherit a leasehold house from a deceased leaseholder, provided that the tenant had certain rights immediately before his death and that they do not serve the notice any later than six months after the grant of probate or letters of administration.
I should like to ask the Minister to consider a point that appears to have been missed: what happens when a long lease— one over 21 years— expires? Robert On-Ewing, a leasehold reform specialist, has pointed out that when a long lease expires, the leaseholder has the right to remain as an assumed periodic tenant under the Local Government and Housing Act 1989. However, leaseholders have the right only if they qualify as tenants, but people do not qualify as tenants if they pay more than £25,000 per annum. That may sound like a great deal, but 474 it is not really that much in some areas, especially central London. Thirteen years after the relevant Act was passed, I wonder whether that ceiling should be removed, or at least raised.
Overall, I am positive about these reforms. I agree with Ray Walker, a housing and planning specialist who has worked closely with the Co-operative Bank and written a pamphlet for the Mutuo think tank on the issue. He argues that if the regulations are to work, leaseholders will need extra support, including better guidance on how to form and run effective management companies, and details of accredited solicitors and other experts who can help prevent abuses in the system. However, I believe that we are taking important steps, that this important Bill will take us forward and that leaseholders and freeholders will get a good deal from the reforms.
Finally, I am impressed by what seems to have been an outstanding level of co-operation and consultation with the public and professional bodies to find resolutions to the issues that have been raised. I support the Bill.
§ Mr. Robert Syms (Poole)
I intend to make a brief contribution, but first, like many hon. Members, I declare an interest as the director of a family property and building company and the owner of a flat with a long lease in Poole and another in London. Several other hon. Members are in similar situations.
I congratulate the Minister on the manner in which he opened the debate and took many interventions— rather more than I might have done in his position in discussing a technical and complex subject. The Bill has been a long time coming. It is easy to make political statements about wanting reform, but rather more difficult to determine the details and come up with the goods. The delay has produced one benefit in that widespread consultation has taken place. I welcome that because improvements have been made, but as an Opposition Member, I regret the fact that there is a programme motion, under which proceedings in Committee must be concluded by the end of the month.
We can all agree on the principles behind much of the Bill, but the devil is in the detail. I fear that if the Bill is rushed and some clauses are not fully debated in Committee, there will be more work for the lawyers, of whom I have seen many in the Chamber today. It is important to get the Bill right, even if that takes a little longer, and I hope that the Government will take that into account.
There are rather more hon. Members present than during some debates, because, as we have heard, there are 2 million residential leaseholders in the United Kingdom. Almost all of us have heard in our surgeries about examples of bad practice with freeholders or managing agents. All of us have had to wring our hands and give advice about the state of the law, which has not always adequately protected our constituents. However, we are dealing with two sides of a bargain— there are freeholders. Although we have discussed many bad landlords, there are also many very good landlords. Indeed, many pension funds, which are owned by the people, own freeholds and develop property in the United Kingdom. We must get the balance right. We must not draft the law so that it discourages legitimate pension funds that invest in property companies from producing the physical capital that the country needs to be a competitive and first-rate economy.
475 As I have said, there are many bad landlords involved in the misuse of maintenance funds, dodgy tendering systems for building work, failure to carry out work and hitting people with large repair bills that they find difficult to meet. We have all heard of such examples, so I broadly welcome the Bill and any proposals that will make it easier for leaseholders to become enfranchised and to take over the freehold of their flats.
When that has happened in my constituency under the existing legislation, which was introduced by the previous Government, people are on the whole happy. They have managed to buy freeholds, have usually granted themselves a longer lease, set up a company to own the freehold and then found managing agents to run it. That system works very well, but it is a long, tortuous process and it takes someone to drive it through. It usually happens when one of the leaseholders gets the bit between his teeth and pursues the matter for the several years that it sometimes takes to reach the end of the process. Any changes to legislation that will make it easier for leaseholders to get on with the process and to take proper control over their lives must be welcomed, but difficulties will still arise.
We all welcome the principle of commonhold, but I wonder whether the concept will take off. The Bill's 100 per cent. rule for existing blocks sets a very high hurdle. We have heard about lower hurdles, such as for the transfer of local authority stock, so I wonder whether we should not reduce the figure from 100 per cent. Commonhold will not take off if we rely purely on new building projects. People are conservative about property matters and commonhold will take off only if people see many examples of it happening very quickly. To make commonhold a success, existing flats must transfer to the new system.
As the hon. Member for Hampstead and Highgate (Glenda Jackson) pointed out, there are real problems with new developments. The properties in blocks of 10, 20 or 30 flats sell one at a time and, to a large extent, any new scheme may well be set by the developers and that fact may concern the purchasers. The first person to buy a flat in a block that will be commonhold may not be sure quite what they will get. Indeed, some commonhold blocks may not even be physically finished before the units start to be sold. The time at which a building project is completed is not always entirely clear. There will, therefore, certainly be problems with commonhold.
Under the leasehold system, if tenants do not pay legitimate service charges, a procedure can be used so that the threat of forfeiting a flat can force them to pay up. As far as I can see from the commonhold system, if members of a commonhold block do not pay the charge, they will not have to pay a price for not doing so. That issue must be examined. If it is not, the system will not work very well.
Broadly speaking, I support the Bill, but the devil is in the detail. Much of the real work will have to be done in Committee and I regret the fact that the Committee stage will last for only three weeks. Unless the members of the Committee work extraordinarily long hours, I do not see how all the details in the Bill can be considered. There will be snags and, given the scale of the Bill and the 476 timetable for its consideration, we may have to return to this issue again before the end of this Parliament. That would be a terrible pity and a waste of time.
§ Mr. Barry Gardiner (Brent, North)
Hon. Members come into the House because we believe that some things are right and that some things are wrong. We come into the House because we want justice for those that the law has been unable to protect. We come to make law and also to change law; we come to improve it and thereby to improve the lives of the people whom we represent. It is for that reason that I wish to speak in this debate.
Since 1884, when the first Leaseholders (Facilities of Fee Simple) Bill was introduced and defeated, hon. Members have sought justice for leaseholders in this country. In the 118 years that have elapsed since then, they have introduced 31 different Bills dealing with leasehold reform. All but two of those 31 Bills have been defeated and, of those two, only one managed to achieve fundamental reform that gave— and then only to a very limited group of leaseholders— the full benefit of home ownership. Such has been the power of property and the landed classes in this country, and such is the injustice that so many people outside Parliament have hoped for years that a Bill might overcome.
For the past five years people in the media, such as Mira Bar Hillel, Sarah Pennels and Karen Wolfson, have campaigned for the Bill. Peter Haler and Tony Essien from LEASE—the Leasehold Advisory Service—have also campaigned for the Bill and all of them would want me to pay tribute today to the years of their lives that Stella Evans, Charlotte Martin, Neil Mulcock, Joan South, Shula Rich, Owen Humphries, Nigel Wilkins, Joyce Glasser, Terence Michael, John Patterson and Muriel Guest-Smith have devoted to trying to achieve justice for leaseholders through legislative change.
Not all those individuals agree with each other— let alone with the Government— and I will freely and honestly say, with some of them overhearing me, that on many occasions most of them have succeeded in being a complete pain. They have certainly refused to let successive politicians off the hook. However, for those of us working in Parliament on the issue of leasehold, they have kept us focused on the problem. Whatever merit there may be in the Bill is due to them. I have the greatest admiration for them all and believe that they deserve the gratitude of the whole House. The faults in the Bill must rest, I fear, with us politicians.
There is both merit and fault in the Bill. It is of course in the nature of Parliament that we are quick to point out the fault and happy to take the merit for granted. However, we should recognise that the Government have sought in the Bill to achieve three important changes. First, commonhold is a form of tenure that is used all over the world. It enables a flat owner to enjoy the full and inalienable benefits of ownership rather than having the mere right to inhabit a property for a designated period of time. Until now, this form of tenure has not existed in England and Wales. The Bill will introduce it, and that is good.
Secondly, the no-fault right to manage that the Bill will give establishes the principle that the leaseholder—the person who lives in the property and who pays the bills— has the right to determine what work needs to be done and how their money is to be spent. That, too, is good.
477 Thirdly, the process of enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 has been too complicated and too expensive. It has left many leaseholders no better off because of onerous qualification and residency requirements. The Bill will reduce that burden and simplify the process. That, too, is good.
My hon. Friend the Minister will rightly expect that my remarks will focus on an examination of the Bill's defects. He will know too that I wish to suggest ways in which these may be remedied in Committee. I hope that he will take comfort from the fact that I and others acknowledge the progress that has been achieved and welcome the central benefits that I have just outlined.
At the time that the House was breaking up for the Christmas recess, an application for forfeiture was heard in the county court. The freeholder who made the application was the London borough of Camden and it related to unpaid service charge and ground rent in the sum of £1,266.38. The flat involved is one of three in a converted house and its market value is £350,000. On 13 December, the application for forfeiture was heard and, on 21 December, forfeiture was implemented. Neither the local authority nor the judge in this case appears to have made any inquiries as to the circumstances of the leaseholder or her whereabouts. Forfeiture was granted in a straightforward way and the London borough of Camden has recovered more than its £1,266.38. It has made a profit on top of the debt it was owed—a profit that amounts to £348,733.62. So let no one in the Chamber say that forfeiture is a reasonable penalty to be available in the hands of landlords.
To its credit, the Camden New Journal noticed the case and made further inquiries. Unlike the council or the court, it bothered to check the land registry and discovered that the flat had no mortgage outstanding on it which suggested that, at the very least, the owner would have been easily able to secure funds against her equity in the property and pay the amount due. From talking to neighbours, it also discovered that the owner had not been seen for two years and was thought to have had a breakdown. If that is correct and the woman is in psychiatric care, she faces the prospect on her return to health of finding that she has no home to return to and has suffered the most enormous financial loss. That is what forfeiture means in practice. It is the power that a freeholder has to repossess a person's home in relation to what may be an insignificant debt. It is unjust and this Bill should abolish it. It does not.
Of course debts must be paid, and the all-party group for leasehold reform and commonhold, which I chair, took evidence from building societies and other financial institutions on how such debts might be handled. They were of the view that such debts could be handled perfectly adequately through the small claims court in the first instance. Ultimately, it should be possible to force a sale of a property in order to pay a debt, but the balance of the funds after settlement of the debt should revert to the leaseholder.
The Minister will argue that the Bill makes it more difficult for a landlord to implement forfeiture. Clauses 160 to 162 do indeed insist, for example, on a determination of the breach before a landlord can serve a section 146 notice for forfeiture under the Law of Property Act 1925. However, such arguments are fundamentally flawed in two respects. First, they fail to 478 understand that many unscrupulous landlords use the threat of forfeiture as a means of polite extortion. I call such landlords, as my hon. Friend the Member for Burnley (Mr. Pike) remarked, the ground-rent grazers. Grazing animals require vast areas to feed on and they make up in bulk what they lack in quality. Siemarc, Castle New Tower Holdings, the Compton Group, Helpfavour, Shenstone's and Estate Management Ltd. are all ground-rent grazers which have bought up tens of thousands of freehold interests, usually at auction and very cheaply in the north of England.
The freehold interests are sold for a few pounds each. Unlike London and the south-east, most of the properties are leasehold houses rather than flats. The ground-rent grazers have little interest in the ground rents themselves. They are usually a nominal sum of only a few pounds per annum. Unlike a service charge, however, a ground rent is due whether demanded or not, and on a house the right of forfeiture can be pursued by the landlord for arrears of ground rent. For the sake of a £4 ground rent that is a day overdue and has not been demanded or invoiced, the ground-rent grazer can start recovery proceedings. On top of the £4 ground rent, recovery costs are then invoiced. That is what those companies want.
I will not forget the case of Mr. Mitchell of Rugeley in Staffordshire who told me that he had paid his ground rent of £20 promptly when reminded, but that his freeholder, Castle New Tower Holdings, had demanded £698.78 for its time and trouble in sending him an overdue notice in which it pointed out that his home was under threat of forfeiture. For many elderly people in such a situation it is the threat that they might lose their home that frightens them into paying such extortionate charges. It is simply no use for the Minister to insist that the Bill will require notification of ground rent or that forfeiture will be made more difficult, because as long as forfeiture exists unscrupulous landlords will use it to extort money from elderly and vulnerable people.
The second reason why such arguments are flawed is perhaps even simpler to understand. It is against natural justice that a creditor should be allowed to recoup vastly more than the amount that they are owed by selling another person's home from under them. It is particularly intolerable when there are perfectly effective alternative means for enforcing the debt without such disproportionate suffering and loss. I urge the Minister to assure the House that this matter will be given the closest scrutiny in Committee, with a view to ending such clear exploitation. Forfeiture should be abolished.
On commonhold, I have welcomed the principle behind it and commented that we lag behind the rest of the world in introducing it. I can now add that we have gone about it in a peculiarly British way. Commonhold is not the completely new and separate form of title that it is in other countries and that campaigners hoped it would be here. It is defined in clause 1 asa freehold estate in commonhold land".That is to say that it is the ownership of a unit or flat in perpetuity with community ownership of the structure of the building, land and common parts through a commonhold community association.
Commonhold unit-owners are, therefore, freeholders. The fact that the commonhold community association must form itself as a limited company under company law has made the Bill unnecessarily complicated. Good 479 examples of simpler systems are available off the peg from Australia and the United States. I regret that we in this country did not have the humility to learn from them.
I wish to focus on two aspects of the introduction of commonhold which can more easily be remedied and on which I hope there may be more chance of changing the Minister's mind. They are the unanimity requirement for conversion to commonhold and the failure to insist that commonhold becomes the default tenure for all new-build blocks of flats or conversions of houses. Before the 1997 election, the Labour Party published a policy document entitled "An End to Feudalism". Some say that it has become quite scarce these days in Government circles, but I am pleased to quote from it. It says:Labour will introduce legislation creating the commonhold tenure. Our proposal is that this should apply where new tenancies are created and where existing leaseholders wish to transfer from their current status. In such cases the support of a majority of the leaseholders will be required to effect the transfer.Why that eminently sound position has been changed is a matter for conjecture. I simply say this: the decision in the Bill to allow transfers from leasehold to commonhold only when there is 100 per cent. agreement of the leaseholders is the death knell of commonhold. That is an impossible hurdle to overcome.
In any large block of flats, such as those that make up most of the great estates in London, there are, at any given time, people who are trying to sell their property and who will have no interest in converting to commonhold. There will be elderly people who consider it not worth the investment for the relatively short period of the rest of their lives or who are too ill to get involved in such an undertaking. There are also absentee leaseholders who are sub-letting the premises as an investment and have no interest in participating in a commonhold association. By their insistence on unanimity, the Government have at once held out commonhold as the panacea for the ills of leasehold tenure and simultaneously made it unattainable for all existing leaseholders. It is a quite staggering achievement to neuter one's own Bill before it ever gets on the statute book, but that is quite simply what clause 3 ensures.
Ministers have sought to justify that provision in another place by expressing their concern about possible legal challenge to any interference with an individual's property title against their will. I simply point out that such provision already exists in our law. Under section 36 of the Landlord and Tenant Act 1987 there exists the provision for the county court to make an order amending all leases in a building on the basis of the majority support of the leaseholders. There is no reason why similar constraint could not apply in this case.
Conversion to commonhold should be available on the same terms as the majority consent for leasehold enfranchisement. The spectre of challenge under human rights legislation is one that a Labour Government have seen off in the past. Indeed, the Minister will recall that when the Duke of Westminster challenged the Leasehold Reform Act 1967 in the European Court of Human Rights, it ruled:Eliminating social injustices is an example of the functions of a democratic legislature. More especially, modern societies consider housing of the population to be a prime social need, the regulation 480 of which cannot entirely be left to the play of market forces … even where such legislation interferes with existing, contractual relations between parties".That is paragraph 47 of James v. United Kingdom on leasehold enfranchisement.
Put in common parlance, a Government with, shall we say, less timidity faced down the legal challenge and gave the noble Lord a good whipping. I urge my hon. Friend the Minister not to wreck the centrepiece of his Bill because some duke shakes a legal opinion at him.
This is a fundamental flaw, which the Government must seek to redress in Committee.
Even more timid is the refusal to end leasehold tenure for all new build or conversions to flats. The Government state that the new commonhold legislation needs time to bed down before the option of leasehold is cut off. They ignore the fact that commonhold already works perfectly well in every other legal jurisdiction in the world without the safety net of leasehold. The Government even refuse to introduce a sunset clause for leasehold.
Ministers have stated that developers will prefer to build for commonhold as a premium will attach to it, and leasehold will therefore wither on the commercial vine. That is what Christine Hamilton, and Jeremy Bentham before her, would have called "nonsense on stilts". Any examination of the leasehold market will reveal that there is absolutely no difference in the purchase price paid for a property on a 99-year lease and that paid for a property on a 99-year lease with a share of the freehold. The market just does not recognise any premium, albeit for what is clearly a superior title.
The thought that developers will be tempted to forgo all the financial benefits from lease extension and enfranchisement on a leasehold block in favour of a non-existent premium is ministerial self-delusion on a grand scale. The Bill both precludes existing leaseholders from converting to commonhold and ensures that there will be precious few opportunities for would-be purchasers to take up commonhold tenure in new developments or conversions.
If Ministers are adamant that they will not dispense with leasehold for all new build, I would still offer them one way in which they might honourably cling on to their drug of choice. They should consider including in the Bill a provision that any new build or conversions sold on a leasehold basis are sold only as leasehold with a share of the freehold. There can be no objection to that as it is an existing and proven tenure, but it would deny the landlord the additional opportunity for financial gain from the leasehold system through ground rent, eventual lease extensions and, ultimately, enfranchisements. By taking away that opportunity for exploitation of the tenant, the Government would at least create the chance that some commonhold developments will get built. I urge the Minister to indicate in the wind-up whether the Government are prepared to consider such a compromise, to give commonhold some chance of establishing itself.
I have one final consideration about commonhold. I ask the Minister to liaise with his colleague, the Minister for Housing and Planning, to make provision that the type of property tenure can be admitted as a relevant and material consideration for planning authorities. If the Government are serious about wishing to advance commonhold over leasehold, it would be prudent to allow planning 481 authorities to discriminate in its favour. I trust that the matter may be considered in the context of the current planning White Paper.
Turning to the provisions on leasehold, I welcome enthusiastically the principle of the no-fault right to manage that the Bill introduces. Over 60 per cent. of all correspondence received by the all-party group in the past four years related specifically to problems and complaints about management. The fundamental reason why reform is necessary is that leasehold confers on the freeholder exceptional and unwarranted privileges and powers. Those powers fundamentally distort the relationship of investment and control in a property. Power should be related to the equity stake that one has in a property; under leasehold tenure it is not.
Imagine that I purchase a new car for £12,000 or £15,000 under a leasehold scheme, only to find that the garage recalls it after a month to fit it with a new set of tyres. "Don't worry, they're not needed," I say, "I've only done a 1,000 miles." "That may be so," says the garage, "but we've decided that we want to fit them and we're going to charge you £600 for the privilege." "But it's my car," I protest. "No," says the garage, "you merely own the right to drive around in it for 99 years." We would not consider that a sensible way to own a car. Nor is it a sensible way to own a home.
The value of the freeholder's interest on a property with a 999-year lease is no more than a couple of hundred pounds. By contrast, the leaseholder may have paid hundreds of thousands of pounds for his lease. Yet it is the freeholder who has the effective power in the relationship and who decides how the property is to be run and managed on a daily basis. I repeat: the proper relationship of power and investment has been distorted. It should be that the greater the equity, the greater the control; in fact, it is the reverse. The freeholder decides when a new roof is to be put on or when the heating system is to be overhauled. It is the freeholder qua manager who puts out the tender and chooses the contractor. Yet it is the leaseholder who foots the bill and pays a service charge commission, typically 15 per cent., for the privilege of not being in control of his own home.
Existing legislation gives unscrupulous managers enormous opportunities to exploit the vulnerable. Managers derive their income from commissions received on a building's capital works. It is therefore in the manager's interest to increase the capital cost of work done to maximise their income. The all-party group heard horrifying accounts of corrupt managing agents from a number of witnesses including the police: managers who had failed to maintain properties in accordance with the lease; managers who over-specified contracts and used arm's-length contracting companies to undercut genuine quotations, which they then carried out to cowboy standards, charging exorbitant costs for second-rate work; managers who absconded with leaseholders' funds, and managers who set up their own in-house insurance brokers so as to receive two lots of commission, charging one-off retail-price premiums for property insurance concluded on a wholesale basis.
Adam Smith may not be the most frequently quoted economist on the Labour Benches, but never was a truer word written than when he set down in "The Wealth of Nations":Landlords, like all other men, love to reap where they never sowed.482 The no-fault right to manage justly gives leaseholders the power to take over the management of their own property without having to go to the considerable expense and trouble of proving fault against the landlord at a leasehold valuation tribunal. That is very much a remedy for abuse rather than the preventive medicine that is represented by enfranchisement, but it is an effective remedy, and I commend it. Or it would be effective if the Bill did not reintroduce the villain by the back door.
The Bill gives the freeholder the right to be represented on the board of the right-to-manage company. Worse, it insists that the no-fault right to manage can be exercised only by a limited company— something that will deter many leaseholders from availing themselves of their right in the first place. The freeholder has recourse under the Bill to refer any dispute to a tribunal, and many tenants organisations have made it clear that they consider that large estates will be able to use the threat of legal action once more to impose their will on the right-to-manage company. Leaseholders do experience intimidation by landlords. That is a fact. Giving the landlord the right to sit on the board will inevitably curtail the very freedom of leaseholders to manage their own affairs that the Bill has so properly sought to bestow on them. I urge the Minister to consider what safeguards can be introduced when the Bill goes into Committee.
Before moving from the subject of the right to manage, I must welcome schedule 9. Public sector leaseholders who, under the right to buy, purchased flats situated in council blocks have fared badly. In the 1980s, councils were encouraged to sell off defective housing at the same time as honey-trap legislation encouraged council tenants to avail themselves of the right to buy. They were given council-guaranteed mortgages when commercial lenders would not lend without a full structural survey. Subsequently, right-to-buy leaseholders found themselves paying service charges for what is often an extremely poor standard of service to them as council leaseholders.
Those works designated as improvements have not been challengeable under section 19 of the Landlord and Tenant Act 1985; consequently, council landlords have been inclined to designate works as improvements rather than repairs. Council leaseholders are deeply unhappy that the Bill does not enable them to seek the same redress as their private sector counterparts through exercise of a similar right to manage, but they will welcome clause 147 and schedule 9 with their provisions to ameliorate their position.
I turn now to enfranchisement and the question of valuation. The Bill simplifies certain of the previous regulations governing residency and qualification. That is a good thing and I welcome it. The only way to ensure that all forms of exploitation related to leasehold tenure are finally done away with is to give leaseholders the opportunity to own their own homes absolutely by enabling them to acquire a share of the freehold interest in their property through enfranchisement.
Cost has always been the major obstacle to enfranchisement, and the major element in that cost– at least since 1974—has been what is known as marriage value. Under the Leasehold Reform Act 1967, passed under a Labour Government, marriage value was not deemed to be part of the valuation of the freehold interest. The leaseholder was obliged to pay only the capitalised value of the ground rent plus the reversion of the site value. Subsequently, the 1969 Lands Tribunal ruled in 483 Custins v. Hearts of Oak Benefit Society that marriage value be calculated as part of the valuation. Immediately, the Labour Government introduced further legislation to overturn that perverse decision. The then Secretary of State for Wales made the Government's position clear when introducing the new provision, stating:It is really a corrective Clause which will be welcomed by one million householders in the country, for it removes the misunderstanding which has existed ever since the Custins decision by the Lands Tribunal".— [Official Report, 22 May 1969; Vol. 784, c. 738.]It has been said that the issue of marriage value is more complicated than the Schleswig-Holstein question, which only three people understood: one was dead, one was mad and the third had forgotten. I have not forgotten marriage value, and I am evidently not dead; I leave it to the House to form its own conclusions about my state of mind. On one thing I am clear: marriage value lies at the heart of the reason why leasehold is an unjust form of tenure.
I do not seek to embarrass Ministers by quoting their own words back at them—at least I do not seek only to embarrass them; it is just that they stated matters so much more clearly and better when we were in opposition. In the policy document "An End to Feudalism" prepared by my right hon. Friends the Members for Greenwich and Woolwich (Mr. Raynsford) and for Holborn and St. Pancras (Mr. Dobson), the case was stated succinctly, as follows:one of the most complex elements is the provision for 'marriage value', the added value of owning the property and the land together. This has played an increasingly significant role in valuations in recent years. To streamline and simplify the valuation processes, we believe that it is right to go back to the fundamentally sound logic behind the 1967 Act, which did not include 'marriage value' in the valuation process. Its subsequent appearance has tilted the balance significantly in favour of the landowner and there is a strong case for it to be deleted.
The fact that the Bill accepts the principle of marriage value is seen by leaseholders as a betrayal of all that they believed the Government would do to redress the fundamental and enduring exploitation that they have suffered. It saddens me that that should be so. I know from many hours spent in comradely debate with successive Ministers that it is not an issue on which the Government are likely to concede during the Bill's passage, but one of the functions of this House is to be a debating chamber in which arguments are presented for public consideration irrespective of the likelihood of their gaining ministerial favour.
Under the leasehold system, a freeholder can sell a property for its full market value—there is no difference between the price of a 99-year lease and the share of the freehold interest—yet after a period of time that property reverts to the freeholder who can sell it again for its full market value. That happens despite the fact that throughout the period of the lease the freeholder has made no contribution to the maintenance and upkeep of the property. In its simplest form, the argument against marriage value is that the freeholder has already received the full market value for his freehold interest. The calculation of marriage value is worked out by reference to the depreciation in the leaseholder's asset. It is that discrepancy between the full market value of an unencumbered 99-year lease and a depreciated lease that represents the marriage value. The leaseholder is therefore 484 asked to pay a second time through marriage value the loss that he has already sustained from the depreciation of his asset.
The overwhelming number of representations received by the Government during their consultation on that issue urged them to scrap marriage value. They should have done so. They are not simply morally wrong to permit it; they are, ironically, technically wrong also. The Government have stated thatMost compulsory purchase regimes are based on full open market valuation, and the government does not see a persuasive case on public interest grounds for departing from that principle in this instance.The Government's error is revealed by an examination of the Royal Institution of Chartered Surveyors statement of what constitutes the open market value of a property. It defines that value as follows:An opinion of the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the date of valuation, assuming:The leaseholder is clearly
- a. a willing seller;
- b. that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of the price and terms and for the completion of the sale;
- c. that the state of the market, level of values and other circumstance were, on any earlier assumed date of exchange of contract, the same as on the date of valuation;
- d. that no account is taken of any additional bid by a prospective purchaser with a special interest; and
- e. that both parties to the transaction had acted knowledgeably, prudently and without compulsion."a prospective purchaser with a special interest".As George Thomas intimated back in 1969 in this very Chamber, it is difficult to have more of a special interest in a property than that it has been one's home for the past 20 or so years. Equally, to suggest that an elderly leaseholder whose lease is about to expire and who cannot afford a rack-rent is acting without compulsion is to ignore the tragic reality that faces many individuals today.
The RICS practice statement makes it absolutely clear that a leaseholder in a collective enfranchisement must be regarded as a special purchaser— that is, someone to whom the property has a particular attraction that it does not possess for the market in general. According to that statement:The special purchaser is, in almost every case, the owner of either:The practice statement goes on:
- i. an interest in land which has or could have a particular relationship with the property concerned, e.g. the owner of an interest in a nearby or adjacent property; or
- ii. another interest in the property being valued, e.g. a superior landlord or an under-tenant".A superior landlord or a sitting tenant may be a special purchaser because the merging of the two interests might liberate 'marriage value' which would justify a higher price than any other purchaser could afford to pay".If, as they say they do, the Government believe that the basis for valuation of the property in collective enfranchisement cases should be that of full open market value, the RICS code of practice makes it clear that they should reject the inclusion of marriage value, which arises out of the special purchaser status of the parties involved. 485 I am confident that the Government will not reject it, but I am now content that they persist not in ignorance, but in wilful wrong.
I earnestly hope that all my criticisms of the Bill are ill-founded. I honestly hope that the Bill will achieve its stated aims. The first of those aims is to encourage the growth of a new property tenure of commonhold for new-build flats and conversions to flats. If more than 60 per cent. of new-build flats in the next five years are commonhold, and leasehold withers as Ministers predict, I will be delighted to eat my words.
The second aim is to enable existing leaseholders to transfer through to commonhold community associations and gain the benefits of an inalienable title to their home. If even 10 per cent. of right-to-enfranchise companies succeed in effecting that transfer, I shall rejoice at my own folly for ever doubting Ministers and their civil servants.
The Bill's third aim is to enable existing leaseholders to throw off the yoke of landlords' managing agents and avail themselves of the no-fault right to manage. If only 10 per cent. of current residents associations successfully establish themselves as right-to-manage companies, I will be astounded by the Bill's success.
The fourth aim is to enable existing leaseholders to enfranchise more easily. In that respect, my threshold drops lower still, to a mere 5 per cent. increase in the number of leasehold blocks that are able to enfranchise. I would be prepared to acknowledge that as a real success for the Bill. The House and the Minister will recognise that I have set exceedingly small benchmarks by which to measure its success. They are a measure of my pessimism and do not in any way reflect the enormous good will that I wish him on the success of the Bill, for which I have campaigned assiduously over the past four years.
I trust that the Under-Secretary will say in her winding-up speech whether her expectations are any higher than mine and whether she accepts that the targets that I have set are fair. The virtue of setting them is that we can assess properly the extent to which the Bill fulfils its purpose. I am confident that in perhaps six or seven years' time we can begin afresh the enterprise of making radical and comprehensive reform to the laws governing property tenure in this country. After all, what is six or seven years between comrades? Leaseholders have been waiting since 1884.
§ Mr. Jonathan Djanogly (Huntingdon)
I fear that the Government will get an easier ride from me than they have from their own Members in the debate. However, the hon. Member for Brent, North (Mr. Gardiner) gave an impassioned and elegant speech.
I wish to make the obvious point that people enter into leases of their own volition. No one forces someone to take a lease, and although the hon. Member for Brent, North made several interesting points, that is essentially the position and has always been so. If, in a more global sense, there is something good about the Bill, it is that we are at least looking forward, and I accept that the hon. Gentleman recognised that. Rights and obligations on property in this country are well established. Over the years, they have supported wealth creation and have been vital to the growth of our businesses and therefore our economy. To a greater or lesser extent, they have ensured 486 effective stewardship of our land. It is important that any tinkering with those rights is undertaken with great caution.
The legal system on leasehold is unique to this country and has both merits and problems. Over the years, it has made the property market fluid and adaptable; in its time it was revolutionary. However, I appreciate that times change, and as they do, we need to change our thinking on property laws. We have a right and obligation continually to review the position. On the practicalities, more and more single people are looking for housing; families are smaller; and there is a shortage of homes, which at the moment is getting worse. That problem is particularly concentrated in our cities, but is now spreading to our towns. Especially in cities but to a lesser extent in towns, houses have been split into houses in multiple occupation. In London in the past 20 years, a great many such houses have been characterised by high quality, especially in the private sector. In such private sector accommodation, dealing with common parts has become much more important in recent years. That lifestyle tends to suit people living an urban life, especially young working people.
The concept of house conversions into HMOs is relatively new, and our legislation needs to cater for it. About 11 years ago, a situation that I witnessed at first hand persuaded me that changes to the law were necessary. I was a councillor in an inner-city borough, where were three streets, although not in my ward, with mansion blocks, each of which was owned by separate company. As it turned out, those companies were owned in common by one owner. The problem is well documented and ended up in court. I am pleased that the family who owned all the companies were successfully prosecuted; they were making management charges on all the flats and putting them into the companies. They then shuffled the money around the companies and, of course, it eventually disappeared into their own pockets, creating misery for their tenants and enormous problems for the streets' environment, which deteriorated dramatically leading to all sorts of associated social problems.
That made me realise that change was needed. I do not support all the views of the campaign for the abolition of residential leaseholds, but it has given examples of problems that persist, such as holding lessees to ransom when they come to sell their properties by imposing large administration fees; creating management companies to order unnecessary levies and management charges; failing to disclose money missing from maintenance funds and annual accounts; and failing to carry out essential work until the cost of repairs became astronomical. I have witnessed examples of all those problems, which happen in real life.
The Conservative Government's reforms were of course important in tackling such problems. Many of the problems that now arise are as a result of violations of the existing law, which is not being enforced, rather than the law not being there in the first place. Much has already been done for tenant protection and enfranchisement. Although I was not in the House at the time, I followed the debates; there was great concern about the implications for freeholders, which I would have shared. The law was changed, and it is fair to say that, overall, it is working fairly and the valuation provisions have worked well enough. Many rights were given to leaseholders, including the right to information about the 487 landlord; the right to seek recognition for tenants' associations; the right to information about service charges; the right to challenge unreasonable demands; the right to be consulted about major works; the right to information about insurance for the property; the right to a management audit; and, where the landlord has failed in their duty to manage the property, the right to seek the appointment of a manager and, ultimately, the compulsory acquisition of the landlord's interest in the building in certain circumstances.
It can hardly be said that we have not moved significantly on leaseholders' rights. The reforms were necessary to give tenants the right to an increased say in their own lives, to check management costs and to run the common parts of their buildings. However, that was necessary not because of the leasehold system per se. Indeed, for every one rotten landlord, I am sure that there are 1,000 conscientious and honest landlords who take care of their properties, look after their tenants and appreciate their obligations as much as their entitlements. We are now looking at new legislation to deal with the same sort of considerations; we are taking the ball game forward. When legislation such as this last came before the House, some people would have said—I am sure they did—that it should have gone further. I disagree with that view. In terms of leasehold reform, the incremental nature of the change is important: people must retain confidence in the system, which is long-established and must be changed slowly.
With regard to the need to deal with existing problems, it is fair to say that some of the legislation that was introduced 10 years ago has subsequently been shown not to be as complete as it could have been, even though it was heading in the right direction. I have personal experience with regard to the Landlord and Tenant Act 1987 and the right of refusal that it contains. The Act ensures that in most circumstances, a landlord who wishes to dispose of property containing flats must give qualifying tenants the opportunity to buy it and tell them the price and other principal terms on which he is prepared to sell it. In practice, however, the Act has relatively few teeth and contains nothing that forces such notice to be given, so it does not enforce the ability of tenants to stop a sale occurring over their heads. That is an important example of how the current situation needs to be improved. The process continues, and the Government are now promoting commonhold—a new form of tenure that enables people who live in flats to own their homes individually and own the whole property collectively. The Government put it in the following terms:Commonhold will provide a better system for the future ownership and management of blocks of flats … Conversion from leasehold to commonhold will only be possible where all of the leaseholders agree to participate and buy out any other interests involved.
As we have heard throughout the debate, the Opposition do not have any conceptual problem with the thinking behind the Bill. As many hon. Members have said, the devil will be in the detail. I hope that in a Committee stage that will inevitably be complicated, the Government will listen and work to the greatest possible degree on a bipartisan basis. Many hon. Members have expressed concerns about the programme motion and the timetabling of the Committee stage. I share those 488 concerns. My current experience of serving on a Standing Committee to which a programme motion has been attached has not been especially edifying: the Committee considering the Adoption and Children Bill has failed to cover some 25 per cent. of the clauses that have come before us. The Bill was introduced on a pretty much bipartisan basis and contains relatively little politics, and is also very technical. Consideration in Committee of the Bill that is before us will also be technical. I think that the Adoption and Children Bill has been given two or three months, whereas three weeks will be a very tight timetable for considering the complicated clauses in this Bill. Perhaps a reconsideration of that schedule is in order.
The provisions on conversion mean that it will be possible to convert from leasehold to commonhold, but only if certain criteria are met. Details will be set out in regulations that we have not seen. I believe that the Minister said that those details would be made available to the Committee. I hope that that is the case, as it is important for the Committee to review them. We must return to the question of consent for conversion of 100 per cent. of the existing leaseholders. The concept is basically sound and should be put in place. In some years' time, it must be subject to a review of the sort that we are now giving to leaseholder questions that came before the House not so many years ago. I accept that that is a developing process.
Commonhold is a new idea and I hope that it will be applied to new properties. My hon. Friend the Member for Cities of London and Westminster (Mr. Field) made a valid point in that regard when he asked what would happen if a landlord's family had moved into his property, thereby enabling him to stop the 100 per cent. ownership. Whether or not the 100 per cent. figure is considered in Committee, the question of frustration must carefully be addressed. Another question arose with regard to the use of positive covenants—a matter which it was suggested was not within the scope of the Bill. I think that this would be good opportunity to address the law on positive covenants and to enable them to run with the land. I do not see why that matter should not be dealt with in the Bill, especially as it will be an essential component in the new concept of commonhold ownership.
We also need to keep it in mind that ownership is not the be all and end all in terms of commonhold. I should like to give a few examples to illustrate that point. In relation to nuisance neighbours, more than 70 per cent. of people who own the freehold of their blocks of flats are apparently finding that ownership is not the answer to all their problems. According to a survey conducted by a certain firm of specialist insurers, those people are still having to deal with neighbours who fail to fulfil their obligations as leaseholders and the problem is getting worse. The survey, which was completed by people who act as voluntary directors and officers of their residents' management companies, showed that only 40 per cent. of those surveyed felt that their neighbours were aware of their responsibilities as leaseholders, compared with 49 per cent. in 1998, when the previous survey had been conducted. More than half the respondents said that dealing with unsociable neighbours was a bugbear and the most difficult aspect of management. A full 70 per cent. said that they had experienced major problems. Collection of service charges, the sub-letting of flats by leaseholders to unsuitable tenants and the hogging of car parking spaces stand out as the most common areas of conflict.
489 In addition, there is a problem for managers who are facing litigation. Individuals acting as directors and officers of residents' management companies are increasingly likely to find themselves falling foul of the law, which recognises no difference between them and directors of big commercial companies. Increasingly, they are having to take out liability insurance to cover them against that possibility. It would be helpful if the Bill could deal with that problem, which will get worse as a result of the proposed legislation.
Finally, I must mention the problem of investors being put off investing as a result of the legislation. Investment is at the heart of urban renaissance, which is supposed to be about having mixed-use buildings. To achieve that, one must find investors who are prepared to invest in the commercial part of such buildings, which is usually the ground floor and, perhaps, the floor above. Such investors like to have some control over their investment and to be able to redevelop where necessary.
While it has been relatively easy for investors to keep control of a building, it has still been hard to find backers for that type of venture. The Government will find that life will be even harder for investors as a result of two measures that the Bill will introduce. First, it will increase the threshold of commercial space in a building for which leaseholders can buy the freehold from 10 per cent. to 25 per cent. Secondly, the Government appear to be proposing to do away with the low-rent test. Often the rents of city-centre buildings are too high for the buildings to be caught by the legislation. Those two provisions will result in virtually all mixed-use buildings being caught under it. The proposal to remove the low-rent test remains in the published Bill.
I have listed some issues with which the Government should deal in the Bill. The final question is one that many hon. Members have raised. Once the Bill has been enacted, will the Government have legislation that will make commonhold attractive? If it is not attractive, we will not be moving forward with this legislation.
§ Mr. David Lepper (Brighton, Pavilion)
I pay tribute to the excellent and eloquent speech of my hon. Friend the Member for Brent, North (Mr. Gardiner). I endorse many of his positive comments on the Bill, as well as his criticisms.
The city of Brighton and Hove has about 25,000 leasehold tenancies, some in purpose-built blocks and some in Regency and Victorian conversions. The symbol of all that has been wrong with leasehold legislation is Embassy court on the border of my constituency and Hove. It is a grade 1 listed building and one of the few surviving examples of the work of the 1930s architect Welles Coates. I remember it from the late 1960s with its gleaming white exterior and plush interior. It was home to Keith Waterhouse and other celebrities of the time. Now, the constant refrain that I hear from visitors is, "When is that eyesore going to be demolished?" It has a history of 30 years of shameful neglect by a succession of incompetent and unscrupulous managing agents and freeholders.
The leaseholders faced a legal maze that made the case of Jarndyce and Jarndyce look open and shut. Embassy court became Bleak House over that 30 years, despite the pride and best efforts of many leaseholders, often of 490 advanced years. A number of those leaseholders have enfranchised, but the costs of refurbishment—in particular, late in life as many of them are—are prohibitive after the years of neglect.
The no-fault right to manage that the Government have introduced in the Bill would have been a real help to my constituents in Embassy court, but it was not available. It will be now, but it is too late for them. The majority of the people who come to my surgery or write to me about leasehold are concerned about management. They do not necessarily want to enfranchise and they might or might not be interested in commonhold. Management is the issue.
Although I welcome the proposals for a no-fault right to manage, two issues must be considered. One, which has already been touched on, is the landlord's right to be a member of the right-to-manage company not only in his own right but in respect of the leases that he has.
The fact that the Bill does not contain a provision to allow for the regulation and registration of managing agents is a major omission. In Brighton and Hove we have, I believe, the only pilot scheme for the registration of managing agents in the country. It is a voluntary scheme. Our partners are the council, the leaseholders association, the Association of Residential Managing Agents and the Leasehold Advisory Service. About 17 or 18 local managing agents have signed up to the scheme's basic charter of minimum standards. However, the council officer, Kathryn Greig, who has done sterling work on behalf of leaseholders within the council, tells me that because the scheme is voluntary it is somewhat toothless. Some agents have been excellent and have responded to complaints within days. Others have chosen to leave the scheme rather than be asked to answer for their behaviour. One ignores correspondence that it does not like.
All that points to the need for a statutory scheme. I welcome the fact that the noble Lord Falconer said in the other place on 19 November that the Government would consult on the need for a statutory scheme. However, there is no need to consult. The new right to manage will be weaker without legislation to back it up. Lord Falconer's answer also made it clear that if there was legislation after that consultation it would be at the earliest opportunity. Now, I have only been here for five years, but I know what a moveable feast "the earliest opportunity" can become when it is mentioned in this Chamber or in the other place.
I pay tribute to Shula Rich of the Brighton, Hove and district leaseholders association, and to Kathryn Greig and her colleagues on Brighton and Hove city council, for the work that they have done to support leaseholders. What is happening in Brighton and Hove—despite some criticisms—is probably a model for other parts of the country.
Under the current proposals in the Bill, the chances of commonhold thriving face many obstacles, and I believe that there is a need for a sunset clause. We should let commonhold bed down, but give a clear signal that after, say, five or 10 years, all new developments must be commonhold or, as my hon. Friend the Member for Brent, North suggested, give planning authorities the power, based on their understanding of their own areas, to make commonhold a requirement. We allow them to specify the proportion of affordable housing in planning schemes, and we expect them to fulfil a presumption in favour of 491 brownfield sites over greenfield sites. Why should we not give them this additional power, to be used in the light of local circumstances? I know that the chair of the planning applications committee of Brighton and Hove city council has suggested that, and would welcome its introduction.
I welcome the proposals to make enfranchisement easier. However, many hon. Members have pointed out that in circumstances in which people wish to convert, the requirement for 100 per cent. agreement is unreasonable. We do not require it for enfranchisement; why should we do so for conversion to commonhold? The requirement offers a loophole to unscrupulous landlords to take leases—even one lease—to scupper a conversion. Let us make the qualifying proportions for conversion the same as for enfranchisement. That would call the bluff of the property companies who have been buying up leases in blocks. It would also test the resolve of those who claim that they wish to convert to commonhold, because it would present them with some problems. We should, however, let the leaseholders make that decision, rather than have the Government set parameters that form an obstruction to conversion.
Shula Rich has drawn to my attention an important issue about forfeiture that has been mentioned often in this debate. Both LEASE and Ministers say that the incidence of people losing their homes through forfeiture is very small. However, the Brighton, Hove and district leaseholders association tells me that it has helped thousands of leaseholders over the past five years, and that the majority of the cases that it has dealt with have, at some stage, involved the threat of forfeiture—even cases involving some of the most reputable solicitors in Sussex. I shall name one: DMH. In a letter sent to a leaseholder on behalf of one of its clients, it states:You have received a demand for payment of Ground Rent and Service Charge from the freeholder's agent in the sum of £1,105.32 … we are now instructed to instigate proceedings against you.This action will involve the preparation and service of a notice under Section 146 of the Law of Property Act 1925 … We point out that you are responsible for the costs … You should be aware that such action could result in the forfeiture of your lease and the loss of your home.That was all for the sake of £1,105.32.
As has been pointed out, there are other means of debt recovery—such means must exist; that is only fair—that are much fairer than the threat of forfeiture. It is the threat that is insidious, particularly when accompanied by certain other refined practices. For example, leaseholders might return home to find the door of their flat superglued up. Alternatively, the landlord may move in belligerent neighbours next door to threaten them and make their life hell. The phone calls that I receive do not always suggest that people will really lose their homes, but the elderly in particular are frightened by such threats, so I endorse what my hon. Friend the Member for Brent, North said about the end of forfeiture.
Other hon. Members rightly talked at length about the injustice of marriage value, so I shall concentrate on a problem for leaseholders to which I was first alerted 20 years ago—the threat of forfeiture. I welcome the proposed recourse to a leasehold valuation tribunal. That is a safeguard, but it does not remove the threat posed by 492 the armoury of the unscrupulous landlord or managing agent and there are already remedies through debt recovery.
Although I welcome much of the Bill, especially the right to manage on a no-fault basis and the introduction of commonhold, I am less sanguine than my hon. Friend the Member for Brent, North about its chances of success. However, those who call for it to be withdrawn—scuppered completely—are politically inept and do nothing to help the majority of leaseholders. We have probably the only opportunity in this Parliament to legislate. We say that we are taking our time because we want to get the legislation right, yet in many ways we have made a pig's ear of it. We have a legislative slot, however, so I ask Ministers to go the extra mile and put an end to feudalism.
§ Sue Doughty (Guildford)
Affordable housing is a major problem for many of our constituents, particularly in the south-east, and as a result there are many leasehold properties, especially in my constituency where, despite what the public appear to think, a lot of people live in small leasehold properties. It is often said that beggars cannot be choosers and there is a shortage of property in the area, so I disagree with the hon. Member for Huntingdon (Mr. Djanogly), because people do not always choose to live in a leasehold property. It may be the only one that they can afford and if they have to live in a leasehold property to stay in the area, that is what they do.
We have our share of poor landlords and managing companies that take unfair advantage of people for whom leasehold properties are the only option, so, on the whole, we welcome the proposed reforms and hope that the issues, which are long outstanding, can be resolved. However, time in Committee is short, especially given the many concerns and the technical nature of some measures, and work remains to be done to protect leaseholders from exploitation by unscrupulous landlords and management companies.
The hon. Member for Huntingdon said that there are 1,000 conscientious landlords to perhaps one bad one, implying that the rotten apple in the barrel causes the problems, yet time after time hon. Members have told us about large companies with responsibility for tens, hundreds or thousands of properties that use the nature of the leasehold to extort money from people for whom there are few remedies. I do not suggest that every large company is unscrupulous; I am sure that that is not the case.
We have talked about forfeiture, but less about what happens when people sell their properties, although the insights of the hon. Members for Rother Valley (Mr. Barron), for Bolton, North-East (Mr. Crausby), for Burnley (Mr. Pike) and for North-East Hertfordshire (Mr. Heald) were helpful.
The Bill provides for appeals, through tribunals, for more information about how management charges have arisen. That is not so easy when a leaseholder wants to sell and move. As I am sure the Minister will appreciate, when a property such as a flat is on the market, a huge amount of pressure is put on both buyer and seller to push through the legal procedures. After all, those who sell properties do so for a reason: they may want a better 493 property, to move because of a new job, have embarked on a new relationship or need to downsize. In any event, for those who are selling, time is of the essence, and the same applies to buyers.
This is a time at which people are under extreme pressure, and will often accept what they would not accept if they had time to consider. They need to resolve the business to mutual satisfaction, and sometimes they will pay money just to escape from a situation. That is well known and exploited by management companies and landlords.
I have a letter about a property owned by one of my constituents, Mr. Kiley, and his partner Ms Ivory. It is from Mr. Kiley's solicitor, and what it contains is typical of what happens when a solicitor tries to resolve matters. Part of what is involved is trying to find out how much a leaseholder owes, so that contracts can be exchanged and the move can get under way. We have all been there: we know the pressure people are under. Delays cost money, often for those who can least afford it.
The letter, which was sent to the management company DGA plc, related to 20b Martyr road, Guildford. It contained the following passage:Over the last two or three weeks in particular you have continually assured me that the long awaited fax was to be sent imminently. You finally confirmed to me on Friday morning, 2nd November, that Mr Kiley was in credit with your company to the extent of approximately £250; faxed confirmation would 'definitely' be with me during Friday; at 2.30 pm on Friday I was to have faxed confirmation within 10 to 15 minutes.The letter was written on the following Monday.
The letter continued:Notwithstanding all of the above, I enclose copy of the faxed statement received from your company … later on Friday afternoon showing two sets of 'yearly service charge in advance' and (notwithstanding no expenditure)"—by the management company, that is—two 'end of year balancing charge' figures and an alleged net balance due by Mr Kiley of £704.28.Mr. Kiley had been in credit to the tune of £250 in the morning, but by the end of the day he owed £704.28.
That is not untypical. When a flat is to be sold, the solicitors acting for the buyer—especially when the buyer has a mortgage—must serve notice on the landlord or the management company that the flat has been sold, and mortgaged. They must obtain a receipted copy of such a notice. In the ordinary course of events, a landlord or managing agent can legitimately refuse to receipt such a notice if there are arrears of rent or service charges. It is a heaven-sent opportunity.
Because solicitors acting for a lender have a duty to the lender to obtain the receipted notice, they almost invariably insist that the seller of the flat must discharge the service-charge arrears—whether or not there are any—before they can advise their client to purchase. It is at that stage that an unscrupulous landlord can recover unjustifiable sums from flat owners. Although the Bill provides for the provision of full information about management charges, and for the resolution of disputes, it is when a sale is in the offing that there is not enough time to bring about such a resolution. Time is of the essence. The Bill does not deal with that problem; nor does it suggest any penalties for landlords who use such opportunities to recover unjustifiable sums.
494 I am advised that some landlords regularly use the device when a property is being sold, and vendors have no option but to pay. If there are no penalties to deal with what, if it did not take place in this way, would be seen by some as a criminal activity, people will continue to engage in that activity. I urge that in Committee amendments be tabled to exact real penalties on landlords. I suspect that landlords and agents are acting in that way in respect of thousands of properties. These are not small fish and they need to be dealt with. It is extortion; there is no other word for it.
In another case, it is possible for dubious charges to be levied regularly on the purchaser. At one group of properties in Guildford managed by a separate company of managing agents, the leases of the flats contain a requirement that when the flat is sold the incoming owner should enter into a covenant with the landlord to observe the terms of the lease. The leases do not state that the covenant has to be in a specific form or that any costs have to be paid to the landlord in relation to it.
Nevertheless, the management company stipulates that it does not have to approve the deed of covenant and that an administrative charge of approximately £100 plus VAT has to be paid to it. It always collects. It says in linked correspondence that unless the covenant fee is paid to it, it will refuse to register notices of transfer and mortgage. By that means it does very nicely. Every time a flat changes hands, it receives £100. It is not a large sum of money, and we have heard of much worse incidents, but it is a constant cause of aggravation and it is wrong.
The Bill fails to provide remedies to avoid those sharp practices. It fails to provide penalties to deal with those landlords and that is a regular swindle. Such action by a landlord needs to be circumscribed. It is criminal. I hope that the Minister will look at what should be done. The right to manage would remove the problem for some people but it will not be universally available. We cannot say that that will provide the remedy. Can we look at that matter in Committee to rectify that injustice?
§ Gareth Thomas (Clwyd, West)
I shall confine my remarks since a number of hon. Members who have a real interest in the subject, which affects many of our constituents, wish to be called to speak.
The House has grappled with the fundamental issue of how to deal with the imbalance of power between landlords and leaseholders for many years, and I suspect that we will have to revisit the subject. I also suspect that although it would be eminently sensible to codify this area of law, in view of its complexity and the difficulties in acquiring parliamentary time, it will not be possible to codify it. However, it is a far from esoteric subject. As we have heard, no fewer than 2 million households live in homes under leasehold tenure.
The Bill is welcome and it will go some way towards redressing the imbalance to which I have referred. That imbalance arises from the practical difficulty ingrained in our land law, which does not allow positive covenants to run with land. That difficulty has created the imbalance to which so many hon. Members have referred.
I congratulate my hon. Friend the Member for Brent, North (Mr. Gardiner) on an impassioned and cogent speech. I will not go as far as him. I believe that the Government are right to proceed in a more cautious and 495 pragmatic manner than some would like. Clearly, the Government must balance various interests and tread carefully.
I believe that the Bill takes a sensible approach to enabling a greater take-up of commonhold tenure. Having said that—and the Minister will appreciate that I support the Bill—my hon. Friends the Members for Brent, North, for Brighton, Pavilion (Mr. Lepper) and for Hampstead and Highgate (Glenda Jackson) made a strong argument for the Government to look again at the question of unanimity before conversion from leasehold tenure to commonhold tenure can occur. That is a fundamental problem and I welcome the fact that in another place the Lord Chancellor has professed to be open-minded about accepting a well-judged and carefully worded amendment.
I anticipate that the Government will be concerned about the implications of the Human Rights Act 1998, but surely it is possible to look again at the issue. If commonhold is to be a successful and popular form of tenure that redresses the imbalance that we have heard so much about, unanimity is an obstacle that must be done away with.
Part 2 of the Bill dealing with leasehold reform contains a number of extremely welcome measures. The right to manage will become an absolute right that is not based on the need to establish fault on the part of the landlord. That will substantially improve the position of many people I represent. Although it is a problem that affects London and other big cities, it is an increasing concern for retirement leaseholders, of whom there are some 100,000 living in purpose-built retirement blocks, subject to age restrictions. Some of these elderly people are subject to abuse and exploitation which is why the Government are entirely right to facilitate the right to manage and collective enfranchisement.
I congratulate the Government on tightening up the regime of service charges. The Bill provides protection against unreasonable administration charges and strengthens the requirement for greater consultation and improved accounting with regard to service charges which are an important issue for elderly people. However, I have some misgivings about certain details. I find it rather odd that the Bill will require a representative of the landlord to have voting rights in the right-to-manage company. I agree with the comment made in the other place that that will send confusing signals and may hamper the operation of right-to-manage companies.
I am also concerned that, at least at the moment, the Government are not prepared to introduce legislation to regulate managers. That is particularly relevant to retirement leaseholders on the north Wales coast who may not be sufficiently active or, frankly, may not want to be involved in the hassle of running a company. In those circumstances it is reasonable for them to want to appoint a manager. They need assurances that the right-to-manage company will operate in a robust way and that any professional managers who are appointed operate in a professional and honest manner. So there is a need for regulation in that regard.
I expect that amendments will be tabled in Committee to deal with some of the issues to which I have referred. I welcome the Bill but, like most Bills, it is capable of improvement.
§ 9 pm
§ Mr. Bill Wiggin (Leominster)
Thank you for calling me to speak, Madam Deputy Speaker, and I wish you a happy new year.
I should start by declaring my interests. My wife and I own a leasehold flat in Ifield road. It is currently for sale, and would make an excellent starting point for anyone hoping to begin in commonhold. Also, my home in Fulham, which I bought as a freehold property, has a large advertising hoarding on one wall that was leased by the previous owner to a billboard company. About 89 years remain on that lease which, relatively speaking, depletes the value of the house.
My concern with the Bill stems from the good intentions with which the Government have set out to right perceived wrongs in earlier legislation. The hon. Member for Burnley (Mr. Pike), for whom I have the highest regard, revealed the depth of passion and sense of injustice that people feel about the constrictions of a leasehold tenancy.
The debate has focused on many examples of constituents being horrified by the variety of costs that have emerged when they have lifted the lid on the legal details of the deals that they have cut with regard to their homes. The devil is in the detail, as the hon. Member for Rother Valley (Mr. Barron) illustrated with his own sad tales about what happened when he sallied forth into the world of property development.
Therefore, when we set out to hammer out some of the problems involved in creating a better law, we must be careful that we are not overegging the pudding and making the current situation worse. That is possible with this Bill, which is 134 pages long. The helpful little handbook that comes with it comprises a further 75 pages. If the devil truly is in the detail, as hon. Members of all parties seem to agree is the case, we may find that a whole tribe of devils is lurking in the detail of this Bill.
All hon. Members have a horror of legislation that is hard to read and to explain. I draw the Minister's attention again to the 100 per cent. conversion criteria. The provision has the potential to inflict much misery, and will cause leaseholders to argue whether conversion is sensible or worthwhile, given the way in which property prices change. The need to understand the complexity of leasehold law will shift as a result. Although it is entirely laudable and worthy to support an increase in home ownership, it is possible that property prices will be affected and will benefit one party at the expense of the other.
The Bill is a knife that cuts both ways. It belies the Government's soft tones, and leads me to believe that it will become just another method of wealth redistribution. That is in the finest traditions of old Labour, as Labour Members have described. I therefore have the gravest doubts about the Bill's ability to succeed, especially in view of its size. The principles of home ownership set out in the Bill and the destruction of so many unfair practices that it promises are a good start, but they are typical of the good intentions with which we know that the road to hell is paved.
The concept of commonhold flats may well be the holy grail for housing in London. I hope that it is, but what a shame that the Bill is to be rushed through with a programme motion. What a shame that no provision was made for homes over shops. Such homes are often the 497 first to be left empty when areas start to decline. That offers a challenge to legislators. If an area begins to decline, home owners are left with negative equity, irrespective of whether they are freeholders or leaseholders.
The Bill misses the chance to incentivise in the case of homes over shops. It misses the chance to consolidate current leasehold law. It misses the chance to pave the minefield of legislation that lessees currently have to consider and which simply increases their costs.
What a shame about the bulging Bill. What a shame that it was not more concise. What a shame that there is so much leasehold law that it was necessary to introduce such a plump measure.
What a shame about the programme motion. After listening to the heartfelt and sensible suggestions made on both sides of the House, what a shame that there is a programme motion to push through a Bill that is supported by so many good intentions. However, once again, good intentions are no substitute for informed debate.
§ 9.6 pm
§ David Wright (Telford)
I do not want to detain the House for too long. I shall focus my comments on the broad details of the Bill, while also drawing out specific points that need to be considered in detail. When my hon. Friend the Under-Secretary of State for Transport, Local Government and the Regions winds up the debate, I hope that she can give us some reassurance on the detailed issues. I shall return to them in a few moments.
In general, the strength of the Bill is that it provides new ownership solutions that can be comprehensively applied. We should acknowledge that for most people their home is a statement of their personal identity and, importantly, it is a tool that ensures that they have a stake in the future of their community. The Bill enables people to take a more effective stake in the environment around their homes and, through the ensuing legal structures, will—I hope—provoke the creation of more proactive communities.
One of the key issues raised with me as I travelled about Telford knocking on doors during the general election was the condition and continuing maintenance of communal areas in many blocks of accommodation. Such buildings were not owned exclusively by one landlord. They were not exclusively non-local authority or privately owned. There was a general malaise in the condition of property in the town—as there is throughout the country. The Bill provides us with a platform and an opportunity to start to make comprehensive investment in a partnership between landlords and local communities.
I hope that we shall see a greater commitment from residents to improving the general condition of their environment. That point has been drawn out in the debate so far.
My hon. Friend the Member for Brent, North (Mr. Gardiner) focused on the key question at the centre of the debate and the main priority to be considered in Committee: why should people be beholden to absentee private landlords who are often unwilling to invest in their asset at the expense of lessees? That is the main problem with the current structure and it should be addressed in the Bill. Too often, we hear horror stories about communities 498 where people genuinely want their living space to be changed and improved, but the landlord lives many miles away and does not care.
A couple of years ago I visited Budapest in the post-communist era, where there was a terrible system. Local authorities and indeed the state seemed to have no capacity to deal with the problems encountered by people living in large blocks. I do not suggest that the situation in this country is similar, but that system threw into stark relief the problems of people suffering from underinvestment in large accommodation blocks.
In relation to commonhold, part 1 gives a new solution that aims to provide people with a greater stake in their homes, along with a positive approach to the management of common areas. It is important to note that commonhold does not reduce the scale of disrepair in properties. It does not deal with disrepair; it is not a short cut for lower maintenance bills.
In the United Kingdom, we already spend far too little on general day-to-day maintenance of accommodation. The Bill will in general make people feel that they have an opportunity to invest and a stake in their property. However, it will not mean that their repair bills are reduced or that general disrepair will be resolved. I am fearful that many people will try to take the opportunity of employing the commonhold solution as a means of reducing their repair bills. That could pose a serious problem in the long term when it comes to housing investment.
The Bill is a challenge to housing, legal and development sector professionals to ensure that fair practices are employed in the initial disposal and continuing management of property. Importantly, I hope that it will also begin to impact on the design and planning of housing development projects. It will be important for developers and their architects to engage with their project managers and legal teams at the stage when buildings are conceived and designed, not as an afterthought. A more comprehensive approach to the concept of sustainable development in every sense needs to be provoked when the Bill is implemented.
It is important to think through the implications of scheme designs, with greater care taken in relation to areas intended for collective use and enjoyment. We are trying to encourager higher density urban living in our large towns and cities, with a focus on quality design. The use of commonhold in such new developments will be important and should help us, through a genuine feeling of ownership, to avoid some of the problems of the past. I agree with my hon. Friend the Member for Rother Valley (Mr. Barron) that we should at least look at getting commonhold principles adopted for all new developments. That would be key in encouraging developers to move forward.
On the need to secure 100 per cent. consent for conversion to commonhold, some have argued that it will be virtually impossible to secure that scale of involvement. Clearly, that will depend on the number of units involved. However, I accept the Minister's point that we could end up with a twin-track problem in terms of people managing blocks. That needs to be considered in Committee.
I believe that commonhold will probably start to be deployed in new developments. However, I hope that we can return to this point. There seems to have been a 499 consensus in the Chamber today about the need to consider the 100 per cent. barrier and think about mechanisms to provoke commonhold as a new form of tenure.
In conclusion, I wish to comment on the procedures to ensure that the costs of proposed works to blocks are laid out clearly and logically to leaseholders. The current exclusion of improvement costs from the service charge definition is confusing for leaseholders. The change proposed in the Bill which, as I understand it, will mean that such costs must be disclosed and people will have a right to challenge their reasonableness, will have a bigger impact than has been recognised during this debate. Once again, tenants and landlords must work in partnership to define what investment is needed in the fabric of buildings to ensure their longevity.
I welcome the Bill. I hope that it progresses rapidly through the House and that it is implemented as soon as possible.
§ Mr. Henry Bellingham (North-West Norfolk)
I am not a housing expert, and I represent a rural constituency where problems with leasehold are rare, as is demand for leasehold reform or commonhold. However, I have followed this issue in the past. I start by declaring an interest: I am a director and shareholder in a property company that owns mainly commercial but some residential property. However, none of it is let on a long lease.
Right hon. and hon. Members on both sides of the House have said how complicated, technical and detailed much of the Bill is. Why, then, is there a programme motion? There is so much agreement between the parties; everyone is agreed that we need to get on with considering the Bill and that it is vital to get the technical detail right. I should have thought that this was the last Bill to be timetabled. I shall certainly vote against the programme motion this evening because it is a disgrace to curtail debate on this important Bill.
Obviously, there have been several Bills on leasehold reform in the past, and I well remember the Leasehold Reform, Housing and Urban Development Act 1993, which was passed during the last Parliament of which I was a Member. At the time, I had serious reservations about the way in which the Act disrupted contracts that had been freely entered into. I was sympathetic to the argument that several large London estates were able to provide absolutely first-class planning and management policies that were beneficial to the wider environment and positive in terms of planning generally.
I entirely accept that, although the best landlords in London and other cities were excellent, the worst were quite appalling. That point has been made by several hon. Members, especially by Labour Members. In particular, in a very detailed and expert speech, the hon. Member for Brent, North (Mr. Gardiner) outlined many of his concerns about some of the antics and behaviour of the worst landlords in this country. However, the world has obviously moved on, and the large landlords in London have certainly adjusted their strategy to accommodate the current legislative framework.
I welcome the fact that the Government are moving forward cautiously on the leasehold reform front. Without doing anything too dramatic, they are building on the 500 previous Government's reforms. I also welcome the fact that leasehold will not be abolished. Like the Lord Chancellor, I very much hope that leasehold will wither on the vine and that the vast majority of new developments will indeed use commonhold.
I welcome the commonhold provisions. To allow those who occupy property the right to own it absolutely and to manage the common parts through a common association must make sense. That reform is long overdue, and it obviously draws on patterns of land ownership in the United States, New Zealand and Australia. Perhaps one of the advantages of the lengthy delays in introducing the Bill is that we have been able to draw on the best of breed elsewhere.
I also welcome, with one reservation, the right to manage. It makes sense for tenants to be given the right to manage their buildings. They will not have to prove any shortcoming on the part of the landlord, and they will be given a chance perhaps to do a better job of managing their block or building. That is why the Opposition support the right-to-manage proposals, although some of the detail needs to be considered very closely.
I am sorry that the right-to-manage provisions exclude council premises, where the landlord is the local authority. Some 12 per cent. of right-to-buy sales have involved leasehold flats, and it is a great pity that public sector tenants should be excluded from the right-to-manage provisions. We need a new framework so that people can get on and manage the premises in which they live. That will always be a difficult job.
A great deal of research has shown that, very often, when people collectively buy the freehold of their flats and manage the building, many problems set in, a lot of disillusionment arises and many disputes take place. As one Lord said, we cannot legislate for people to love their neighbours, but we can legislate to make it easier for them to get on and co-operate. I very much hope that those provisions and especially the regulations and the manual of guidance will allow that to happen.
My final point is technical and relates to mixed developments. There is obviously a tendency for planning consent to be granted for new developments on condition that they include social housing. Great emphasis has rightly been placed on including affordable housing, housing association homes and council housing in housing developments. Planners often rightly insist on mixed tenure, which helps key workers in some cases. How much more preferable that is to the old-fashioned segregation of council housing from owner-occupied housing, which all too often led to the growth of large council estates, concrete jungles and the resulting social polarisation.
Mixed tenure presents a big challenge for the commonhold and right-to-manage legislation. Traditional tenants—they are not long leaseholders or commonholders—may live in blocks of flats or dense developments that are made up predominantly of owner-occupied housing and they will also have views on how the block or housing development should be managed. Those tenants will have priorities and ideas, but their views cannot be taken on board under the Bill as it currently stands. I hope that the Minister will consider that point and accept the crucial need to develop sustainable forms of governance. If we can develop them, commonhold and the right to manage will play an important part in the urban renewal in which the Government believe.
501 I believe strongly in urban regeneration and I do not want any more greenfield sites to be developed than is strictly necessary. I want much more development to take place on brownfield inner-city sites such as the Nar-Ouse regeneration area scheme—the NORA scheme—in my constituency and the Anglia Canners scheme in King's Lynn. However, we need a framework for regeneration and, if the Bill goes some way to creating it, it might do a good job and more development might take place on brownfield sites.
§ Shona McIsaac (Cleethorpes)
Given the time available, I shall concentrate on one aspect of the Bill that has not been explored in the debate—its proposals on leasehold houses. There has been much discussion about commonhold and flats, but half the leasehold properties in this country are houses that are completely different from the flats on the market in London. Such houses are often in industrial areas where property values are very low.
Very few clauses in the Bill will change the legislation for houses, but I hope that we shall be able to consider those changes in more detail in Committee. However, I am pleased that the period for the residence test is being reduced from three to two years.
When a leaseholder passed away, the right of the family to purchase the freehold did not exist, so I welcome the changes that the Bill will make to allow families to enfranchise. In many cases in my constituency, families lost the home in which they grew up when the parent who was the leaseholder passed away.
The extension of the lease by 50 years is probably one of the most pertinent issues in the Grimsby and Cleethorpes area, where thousands of leasehold houses were built in the early 20th century. Given the nature of the area, many elderly people cannot afford to buy the freehold of their property. I have said to Ministers on previous occasions that many of the prices quoted are incorrect, but many people simply say, "I can't afford that." They therefore extend the lease not realising that they are like tenants and the house goes out of the family when the leaseholder passes away. I welcome the fact that people will be able to enfranchise when they extend the lease for 50 years.
I understand from my inquiries that the cost of enfranchising will be assessed on the special valuation basis and will include marriage value for lease extensions for houses. In effect, that may mean that the landlord will win yet again, so I would like that issue to be considered in detail. The original valuation basis could be used, but it might also be possible to have a lease extension of 99 years because that would take marriage value out of the equation.
I want briefly to mention the costs that are quoted in my area when people apply to buy the freehold of their houses. Such people have often paid their mortgages and everything else that the properties have required over the years. Leasehold houses are different from leasehold flats in that there is no obligation on the freeholder to do anything to such properties.
An average three-bedroom terrace house in north Cleethorpes can be bought for £20,000 to £25,000. I know that that is very different from the situation in the south-east. People in my area are being quoted prices for 502 conversion that are almost the value of the property. I came across one case in which the leaseholders were quoted £20,000 to buy the freehold of a property worth £30,000.
I have been told that special valuation basis and marriage value should not apply to small Victorian terraced properties in my constituency. However, they are being quoted by freeholders time and again. The complexity of the mathematics, which other hon. Members touched on, in working out the prices means that leaseholders do not realise that they are being taken to the cleaners. As going to a leasehold valuation tribunal is daunting and expensive, no one in my area has been to one to establish a price. Unscrupulous landowners and landlords keep fleecing people. They simply open the cash tills, and that has to end.
We have to remember that leaseholders are home owners. That is how they perceive themselves. I hate using the word "tenant" for people who have paid a mortgage, funded all the home improvements and paid every bill over the years. In the recent census, such people put themselves down as home owners, not tenants. In any other legal form that they fill in, they are home owners. They have paid for everything and it is simply wrong that the law will still make them pay a bounty to remain living in their own homes. The freeholder has already benefited. I am afraid to say that the Bill will allow freeholders of leasehold houses to continue to benefit when all the money has been paid by the home owner, not the person who owns the freehold. That has to change. We have to stop people being fleeced. They have a right to live in a home for which they have paid.
§ Dr. Brian Iddon (Bolton, South-East)
First, I want to take issue with the hon. Member for Huntingdon (Mr. Djanogly), who popped into the Chamber, made a brief speech and then left. Unfortunately, he is not present now. He said that leasehold is a choice. I want him to consider the situation in my constituency, where it is difficult to find a freehold house to purchase. Large landowners such as Bridgewater Estates have rented, not sold, huge tracts of land. In most north-west towns such as Bolton and Bury, the choice is leasehold, leasehold, leasehold.
Secondly, Estate Management Ltd., which my hon. Friend the Member for Brent, North (Mr. Gardiner) mentioned only briefly, has sent out thousands of letters in my constituency demanding ground rents of £1.50 and £2.50, but charging anything between £45 and £110 administration fees for doing so. I have even caught it sending them to the odd constituent who has no legal connection to it. Is it a statutory duty for the people who graze ground rents to write to every householder whose freeholds they are purchasing? If it is not, it ought to be and, if it is, leaseholders should know about it.
I turn now to the Compton Group, to which my hon. Friend the Member for Bolton, North-East (Mr. Crausby) has already referred. As hon. Members have heard, that company has written letters to hundreds of people throughout Bolton, demanding that leaseholders take out insurance policies with AXA Insurance. That subject has been well covered, but I took the trouble to look at one of these ancient deeds. As my hon. Friend the Member for Burnley (Mr. Pike) said earlier, many of them are 503 difficult to read, where indeed they exist at all, because they are handwritten. One set of deeds concerning which AXA, through the Compton Group, is demanding money says that buildings insurance should bein some insurance office to be reasonably approved by the company to the full value thereof.I do not know a great deal about the law, but to me that means that one can use whichever insurance company one likes. People who have been insured with the same company for 25 or 40 years are being forced to choose another insurer. I ask the Minister to stop that practice.
Finally, I am against leasehold. Its time is up, and we should ban it.
§ Mr. Geoffrey Clifton-Brown (Cotswold)
This has been a long, complex debate. We have heard 15 speakers, and I pay tribute to them all, but I am sure that you will understand, Mr. Speaker, if I am unable to deal with every speech in detail.
Before I go any further, I should declare my interests. I own one long leasehold flat in London. I have various freehold properties, to which I do not think the Bill will apply, and I am one of only four members of the Royal Institution of Chartered Surveyors in the House, who will undoubtedly have some work as a result of the Bill.
The Parliamentary Secretary, Lord Chancellor's Department gave the Bill a balanced, worthwhile introduction and, by contrast, it was interesting to hear some Labour Members talking about that old dinosaur the wicked landlord. Anybody who thought, like me, that old Labour was dead would have reassessed that view this evening.
There were some excellent speeches from hon. Members on the Opposition Benches, and I pay particular tribute to my hon. Friend the Member for Solihull (Mr. Taylor). He is a lawyer and I am a valuer, and I have full sympathy with his comments about the difficulties concerning valuations under the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993, which were complemented by the right to manage introduced in the Housing Act 1996. That point was emphasised by the hon. Member for Cleethorpes (Shona McIsaac), who is not in her seat at the moment, although she opposed the idea of the marriage value, whereas my hon. Friend the Member for Solihull commended the Bill for introducing some simplicity to the marriage value provisions. I agree that for too long the marriage value has been a stumbling block to leasehold enfranchisement and the creation of commonholds.
We must not forget that 1 million flats and 1 million leasehold houses may be subject to the Bill's provisions, so some 4 million people may be affected by it. It is therefore an important Bill. It is also a complex one, with 174 clauses and 14 schedules. On the whole, as my hon. Friend the Member for Stone (Mr. Cash) said in his 504 excellent, comprehensive speech, the Opposition welcome it, although there are a number of shortcomings that I should like to address in the very short time available.
§ Roger Casale
I welcome the hon. Gentleman's support for the Bill and his understanding of the practical need for reform, but does he not understand that there are important democratic principles underlying the Bill, which will empower leaseholders and help to renew our communities and entrench the important principles of openness, transparency and accountability in a more modern society?
§ Mr. Clifton-Brown
I agree entirely. In welcoming the introduction of the Bill, my hon. Friend the Member for Stone made it clear that the system of leasehold was designed in another age and that things had moved on. We welcome the concept of commonhold and consider it especially appropriate for new developments. However, the Bill must address the important issue of developments that have not yet been built and so cannot be subject to its provisions. Perhaps the Minister will comment on that in relation to the increasing tendency to buy residential properties from plan, before they are built. It would be a pity if the Bill could not be made to apply to buildings that have not yet been built. I welcome the intervention from the hon. Member for Wimbledon (Roger Casale). Over time, the Opposition expect leasehold to die out—although I expect that to take some time.
My hon. Friend the Member for Stone made some important points that were echoed by other speakers. I was especially impressed by the speech of the hon. Member for Rother Valley (Mr. Barron), who movingly described his experiences of trying to purchase a leasehold flat. We all hope that the Bill will make it easier for those who want to enfranchise their leasehold property to do so. Like many speakers, I suspect that the no-fault right to manage introduced under part 2 will prove to be a more popular course of action. Perhaps people will start with right to manage and then decide to enfranchise. We welcome that.
The hon. Member for Torbay (Mr. Sanders), who I suspect is a professional accountant, criticised the right-to-manage provisions. He asked about how individual companies would be organised, the provisions of the Companies Acts, the treatment of defaulters, and mechanisms to deal with people involved in management companies who default. The latter is an important subject and was mentioned by several speakers. The hon. Gentleman mentioned the possibility of using existing provisions for debt collection through the county courts, which might be a good mechanism, although others are possible. I have no doubt that the matter will be debated in Committee.
The hon. Member for Burnley (Mr. Pike) made an impassioned speech about rogue landlords and excessive insurance premiums. My hon. Friend the Member for North-East Hertfordshire (Mr. Heald) also mentioned rogue landlords, and several other speakers referred to forfeiture. Forfeiture is an extreme provision of the 505 current Landlord and Tenant Acts and is used sparingly. I accept that it is a blunt weapon, and I am sure that the Committee will discuss other ways of dealing with defaulting members of commonhold associations. As I said in an intervention, a defaulting member of a commonhold association places an additional burden on all the other members, so there must be a swift and sharp method of dealing with defaulters.
The hon. Member for Bolton, North-East (Mr. Crausby) also mentioned insurance and forfeiture. I want a provision to be inserted into the Bill that allows lessees to insure with an insurance company approved by the landlord, thus giving them control over insurance, and enabling the landlord to ensure that the property has been insured properly merely by inspecting the insurance policy. That strikes me as providing good protection for existing lessees. In no-fault right-to-management companies, the commonhold community statement will lay down the powers of insurance.
In my own block of flats, residents used the provisions of the Housing Act 1996 to take over the management in part because all the long leaseholders were vexed by issues of insurance and cost of management. Now, we are able to obtain far cheaper insurance; in addition, rebates that did not come back to us before are now coming back to the long leaseholders. No doubt, with the increasing use of the no-fault right-to-manage companies, people will get a better deal on the management of their property. I agree with the hon. Member for Telford (David Wright) that people might think that the Bill is an excuse to reduce property management costs. That may well happen; but the job of the commonhold association and any management consultants appointed to help them will be to point out realistic management charges.
My hon. Friend the Member for Huntingdon (Mr. Djanogly) rightly pointed out, in contrast to some of the old Labour dinosaurs who are not private rental landlords, the importance of getting institutional investment into the residential sector. Unless we get such investment, we will not meet the Government's target of an affordable and decent home for all by 2020, or anything like it. Labour Members need to consider that very carefully indeed when they knock the role of private landlords.
My hon. Friend the Member for Leominster (Mr. Wiggin) emphasised the length of the Bill and the difficulty of converting, in the Government's wording, the 100 per cent. requirement to commonhold. Many Members spoke about that, especially my hon. Friend the Member for North-East Hertfordshire. Somebody with a relatively minor financial interest in a leasehold property—my hon. Friend mentioned cautioners; I mention people with a lien or mortgage on a property or someone with a minor interest—could block the whole commonhold application on a block of properties. Many Members mentioned that; I hope that in Committee the Parliamentary Secretary will consider it very carefully indeed. As the Royal Institution of Chartered Surveyors made clear, that is effectively a wrecking provision because in virtually every case it will be impossible to get 100 per cent. agreement. Both the Parliamentary Secretary and the Under-Secretary, the hon. Member for Northampton, North (Ms Keeble) will have heard the widespread concern of Government Back Benchers and Opposition Members about the provisions of the Bill as drafted.
506 It is curious that there is a 100 per cent. threshold for the requirement for commonhold agreement, yet there is only an 80 per cent. threshold when a commonhold community statement is to be terminated. Those two different thresholds make an interesting contrast in the Bill. A threshold nearer the termination provisions for CCS may be more correct, but no doubt we shall have some interesting debates, and probably votes, on the matter in Committee, on Third Reading and on Report. I hope that the Parliamentary Secretary can be flexible, as that seems to be a major lacuna in the Bill.
We need to return to a number of more minor matters in Committee. My hon. Friend the Member for North-West Norfolk (Mr. Bellingham), who has great knowledge of the whole subject, made an excellent and rapid speech towards the end of our debate. Like me, he was involved in introducing the Leasehold Reform, Housing and Urban Development Act 1993. Sadly, he was not involved in introducing the Housing Act 1996, but we are delighted that he is back in the House today; long may he remain here. He, too, commented on the welcome introduction of commonhold and said that hopefully over a period it would become the more likely form of tenure for all non-freehold residential properties in this country.
There are one or two things that I should like to mention in summing up. It is particularly unfortunate that a Bill of this size and complexity, which has received a general welcome throughout the House, should be subject to the timetable set out in the Order Paper. For a Bill of 174 clauses to have a Committee timetable of just two weeks is inadequate; it does no service either to our constituents or to democracy. The Government should be ashamed of themselves, and I hope that on future occasions they will think about whether it is necessary to have a timetable of that sort. I have now been involved in two Bills on which there was no timetabling whatever, the last of which was the Homelessness Bill. The Under-Secretary, who is to make the winding-up speech tonight, led the Committee that considered that Bill. It was conducted perfectly satisfactorily, just as the Bill that is before us could be conducted satisfactorily. A number of weaknesses on which all-party agreement has been evident could easily have been sorted out in Committee.
This has been a comprehensive debate and this is a welcome Bill. Many people in this country will welcome what we are doing tonight. They will not welcome it, however, if the Bill that is put on to the statute book is wrong, inadequate, has shortcomings and imposes increased costs for leaseholders and commonholders because it has flaws. I hope that, in future, when we consider such Bills, we will not have a timetable such as that which is on the Order Paper today.
§ The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions(Ms Sally Keeble)
I am grateful to the many hon. Members who contributed to this detailed and interesting debate. Like many other hon. Members, I must first declare an interest, as my husband and I own a leasehold house in London.
We have heard a good deal about the difficulties of long leasehold tenure and the imperfections of the remedies that are available under the law as it stands. The debate has been well informed and technical. I accept that 507 the Bill is a complicated and technical measure, but its underlying objective is very simple: to give people more security in their own homes. It will achieve that in two ways. First, it introduces a new form of tenure—commonhold—which will eliminate the problems inherent in the leasehold system. Secondly, it will bring the leasehold system into the 21st century by giving more rights and choices to leaseholders, so that they can enjoy the same degree of security and control over their homes as other home owners.
I shall turn shortly to some of the specific points that have been made. I am sorry that there will not be time to deal with them all or indeed to deal with them as fully as I would have liked. However, I am sure that we will return to many of them in Committee. I shall also be happy to deal with some issues in correspondence if hon. Members wish me to. Underneath criticisms of the detail of the Bill, I believe that there is general sympathy in all parts of the House for what we are seeking to achieve. Indeed, the principles have been welcomed on both sides of the House.
First, there has been great support for the principle of leasehold reform, although I recognise that many would argue that we should have gone further. Secondly, there seems to be general agreement that it is high time to introduce a new tenure that is purpose-built to the requirements of multi-unit development, taking into account the experience of the many other countries that have already introduced their own particular variations on the commonhold theme.
Let me deal with some of the issues that were raised. The hon. Member for Stone (Mr. Cash) recognised the benefits that the Bill will bring to people from all walks of society, as he put it. He is absolutely right about that. In particular, the Bill will protect some of the most vulnerable householders. Similar points were made by many of my hon. Friends. The hon. Gentleman also spoke about the rocky path that it has been necessary to take to get the legislation even to this point. Given the history that he set out, I urge the House to get a move on and to accept that the issues have been repeatedly aired and discussed. The programme motion is wholly appropriate. I should point out that it provides not two, but three weeks.
The hon. Gentleman raised many technical issues that will also be discussed in Committee, including the requirement for 100 per cent. support for conversion. The Parliamentary Secretary, Lord Chancellor's Department, my hon. Friend the Member for North Swindon (Mr. Wills), repeated the commitment given by the Lord Chancellor to listen and consider any well-judged amendment on the 100 per cent. rule. As he said, however, any such amendment must tackle the problems that he mentioned, including that of running two systems in one development.
The hon. Member for Stone also raised issues about remedies for non-payment. Such issues were mentioned by other hon. Members, including the hon. Members for Torbay (Mr. Sanders) and for North-East Hertfordshire (Mr. Heald). The hon. Member for Stone argued that the remedies available under commonhold in respect of service charges, for example, are not adequate. Like several other hon. Members, he argued in favour of some variety of charge over the commonhold unit. That would be a complicating and limiting factor. It would also run 508 the risk of bringing in forfeiture by the back door—something that many hon. Members on both sides of the House have opposed.
My hon. Friend the Member for Rother Valley (Mr. Barron) set out some of the practical problems of leasehold owners and opposed the 100 per cent. rule for conversion to commonhold, as did my hon. Friends the Members for Hampstead and Highgate (Glenda Jackson), for Brent, North (Mr. Gardiner) and for Clwyd, West (Gareth Thomas). I am sure that that issue will be revisited at a later stage.
My hon. Friend the Member for Rother Valley also mentioned valuation and marriage values, as did many hon. Members on both sides of the House. The Government have carefully considered the forceful representations of leaseholders on marriage value. However, we remain of the view that in a compulsory purchase situation, landlords should receive compensation for the loss of their interest similar to what they would have received in a sale between willing parties. The Bill reflects that principle and, in our view, strikes a correct balance between the competing interests of landlords and leaseholders.
We have taken action to remove scope for unnecessary and costly arguments over the determination of marriage value. At present, landlords are guaranteed a minimum 50 per cent. share, but they can and do argue for more. The Bill will provide that that is shared equally in all cases. It also provides that no marriage value will be payable when the unexpired term of the lease exceeds 80 years. It has been argued that the cut-off point is too high. People will always argue about where the point should be applied and those who fall just outside it will feel aggrieved. Some people have argued that it should be 90 or 100 years. We have chosen 80 as a point above which some experienced valuers have told us that any marriage value is likely to be marginal.
The hon. Member for Torbay committed the Liberal Democrat party to support for the introduction of commonhold and reform of leasehold, which we certainly welcome. He asked about voting methods. The details of the commonhold association will be in the regulations. As my hon. Friend the Parliamentary Secretary said, they will be put in the Library before the commencement of the Standing Committee.
The hon. Member for Torbay also mentioned limited liability partnership and asked why we were opting for a commonhold association that would be a company limited by guarantee. As such a company, a commonhold association will be firmly rooted in company law, with adjustments to take account of the objects of the association. Both limited liability partnership companies and commonhold associations have the same origins—they are in the same family tree, but occupy different branches. If a limited liability structure were used, it would steer the provision back towards aspects of the Companies Act 1985 that are vital to commonhold. That is not the only problem that we perceive if commonhold associations are set up as limited liability partnerships. There are many others and I am sure that that matter will be raised in Committee.
§ Ms Keeble
No. The hon. Gentleman made a point in his speech, which I will deal with later.
My hon. Friend the Member for Bolton, North-East (Mr. Crausby) also dealt with insurance and spelled out clearly the nature of some of the scams. We are well aware of concerns about anti-competitive practice. He is one hon. Member who has been vociferous in pressing that point. I can assure him and other hon. Members that we will carefully consider the strong representations that have been made on the issue to find out what more we can do to help leaseholders, although it is not possible to give a definite commitment on that this evening.
§ Ms Keeble
I made it clear that time is limited. I will deal with as many of the arguments as possible, including those of the hon. Gentleman.
My hon. Friend the Member for Bolton, North-East also mentioned forfeiture, as did my hon. Friend the Member for Brent, North, who has been a leading opponent of what he terms the "ground rent grazers" for a number of years. I appreciate that many leaseholders consider forfeiture a draconian measure, but the law on this issue is complex and we have not been able to provide for more comprehensive reform in this Bill. The Law Commission is continuing to work on broader reforms in this area.
The hon. Member for Solihull (Mr. Taylor) raised the possibility of a formula for the cost of enfranchisement. We commissioned research to find out whether there was a fair way of dealing with some of the key factors involved but, sadly, it did not prove fruitful. The hon. Member for North-East Hertfordshire welcomed the Bill and made the point that the right to manage should apply to local authority leaseholders. A broad range of options is already open to all local authority tenants, and we do not believe that it would be right to overlap those with a further right that could be exercised only by local authority leaseholders. That would lead to competition, and probably conflict, between different groups of tenants and between the existing broader rights and the narrow one proposed by him. Such competition or conflict would not be to anyone's advantage.
My hon. Friend the Member for Hampstead and Highgate gave welcome support to the Bill. She also raised issues about meetings, and those will be dealt with in the regulations. She said that she still felt that she would be buying a pig in a poke. In fact, she would be buying the individual ownership of the freehold of her unit, and the corporate management of the commonhold part.
The hon. Members for Meirionnydd Nant Conwy (Mr. Llwyd), for Poole (Mr. Syms), for Leominster (Mr. Wiggin) and for North-West Norfolk (Mr. Bellingham) all welcomed the Bill, but with reservations. The hon. Members for Poole, for Leominster and for North-West Norfolk also said that we were rushing 510 the Bill, although the evidence from the speeches all around the House is that the changes are long overdue and that people want to see them on the statute book.
My hon. Friend the Member for Ealing, Southall (Mr. Khabra) raised issues about security of tenure for high-rental properties, but we cannot deal with them within in the scope of the Bill. My hon. Friend the Member for Brent, North made an impassioned speech that has been recognised on both sides of the House as important. He dealt in particular with a requirement for developers to offer management responsibility or a share of the freehold from the outset. Many already do so.
The hon. Member for Huntingdon (Mr. Djanogly) raised a number of technical issues based on his constituents' experiences, including that of positive covenants. That is another issue that the Law Commission is reviewing. My hon. Friend the Member for Brighton, Pavilion (Mr. Lepper) has been consistent in arguing the case of his constituents on a number of issues, and mentioned the need for sunset clauses. We would be prepared to consider that in more detail in Committee if a workable amendment were tabled.
The hon. Member for Guildford (Sue Doughty) made a welcome contribution, as did my hon. Friends the Members for Clwyd, West, for Telford (David Wright) and for Cleethorpes (Shona McIsaac). My hon. Friend the Member for Cleethorpes raised a number of important issues about leasehold houses, and I can assure her that the provision of clear public information, especially to protect very vulnerable leaseholders, is very much one of our priorities.
The Bill is the careful culmination of years of effort and consultation. It will build on the best of the overseas experience of producing commonhold, and make some important amendments to the law on leasehold. Those include introducing the right to manage, opening up the right to collective enfranchisement, improving the right to a new lease, strengthening the protection for leaseholders, introducing more effective arrangements for consulting leaseholders and many other measures that will benefit millions of people up and down the country. Those changes will bring our system of land tenure into the 21st century and ensure that all home owners of houses or flats have the same security. I commend the proposals to the House.
§ Question put and agreed to
§ Bill accordingly read a Second time