Commonhold and Leasehold Reform Bill [Lords]

Public Bill Committee, 22 January 2002.

Standing Committee D

Commonhold and Leasehold Reform Bill [Lords]

Clause 115 - Premises with resident landlord

Bill Cash (Conservative, Stone)

I beg to move amendment No. 61, in page 58, line 29, after 'units', insert:

'or following the conversion for 10 or more years before the date hereof''.'.

Clause 115 amends section 10 of the Leasehold Reform, Housing and Urban Development Act 1993, which exempts from the enfranchisement provisions premises that were converted into four or fewer flats, where the landlord or an adult family member occupies one of the flats as their only or principal home for at least 12 months. The clause provides that that exemption will apply only if the landlord has owned the freehold since before the conversion. Where the freehold of the premises is held on trust, the exemption will apply only where at least one of the relevant persons who occupies one of the flats as their only or principal home for at least 12 months had also been a beneficiary of the trust since before the conversion.

There seems to be a minor mistake on the amendment paper, although I have no idea how it happened or who is responsible. The amendment refers to line 29, but it is obvious from the meaning that it should refer to line 56 of the Bill. I hope, subject to your ruling, Mr. Illsley, that that will make no material difference.

The important point is that clause 115(2), which amends section 10, states:

''the same person has owned the freehold of the premises since before the conversion of the premises into two or more flats or other units'',

and the amendment would add the words,

''or following the conversion for 10 or more years before the date hereof''.

Sally Keeble (Labour, Northampton North)

In drafting the provision, the Government had to balance competing ideas from landlords—particularly resident landlords—and the strong views of leaseholders.

We have received many complaints about resident landlords who abuse their privileged position. During the consultation process, we received several representations to the effect that the exemption from

the right of enfranchisement should be abolished completely for resident landlords, which would have meant that they had no rights in that regard. Our view was that the exemption should be restricted to those who sub-divide their homes into flats and continue to live there. Many resident landlords acquire the freehold when they purchase their flat, or even afterwards, and we see no reason why they should be put in a privileged position. The amendment would retain that privilege for those with the good fortune to have held it for an extended period. We cannot accept that and I ask the hon. Gentleman to withdraw the amendment.

Bill Cash (Conservative, Stone)

In the circumstances I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 115 ordered to stand part of the Bill.

Clause 116 ordered to stand part of the Bill.

Clause 117 - Abolition of Residence Condition

Bill Cash (Conservative, Stone)

The clause lays out the requirements for the abolition of the requirement that at least half of the participating tenants should have occupied their flats for the 12 months prior to the claim to an enfranchisement being made, or for three years in the previous 10.

Collective enfranchisement is a right that should be given to home owners. It is a right to restrict the ability of absentee lessees to acquire the freehold. Without a residence condition, although all the flats in a block might be owned by foreign companies or for investment purposes, it would be possible to qualify to purchase the freehold. Section 5(5) and (6) of the Leasehold Reform, Housing and Urban Development Act 1993 would not prevent that. Those provisions would prevent a single speculator from obtaining the right to enfranchise by acquiring three or more flats. However, without a residence condition those provisions would not prevent a combination of two or more speculative investors from enfranchising against the wishes of the residents.

The provisions of the 1993 Act that I mentioned are not sufficient to prevent speculation. It is important to remember that the residence condition does not have to be satisfied by all the participating tenants, but only by half of them. If that is thought to be too restrictive, we think that it would be better to alter the residence condition than to abolish it. The requirements as to length of residence could be reduced to overcome any difficulties caused by flats changing hands or the problems of expatriate workers. If necessary, the requirement that the lessee occupy the flat as their only or principle home could be replaced by a straightforward requirement that the lessee should

occupy the flat as a residence. Such a requirement would be satisfied by lessees with two homes and would not be capable of exploitation by landlords.

Perhaps there is concern that landlords are resorting to company lets to deprive genuine residential occupiers of the right to enfranchise; that type of abuse could be made easier to prevent. The legislation already provides for the case of a lease owned by trustees, where the beneficiary under the trust resides in the flat. A similar provision could be introduced allowing the residence condition to be satisfied where the lessee is a company or corporation that owns the flat as nominee for the occupier. Accordingly, any legitimate concerns could be met by amending the residence condition. It would be wrong to abolish it.

Sally Keeble (Labour, Northampton North)

The hon. Gentleman has carefully outlined concerns about the abolition of the residence test. I shall make two general points before dealing with the details. We have built in safeguards, to prevent the abuse of the enfranchisement process. Also, the key principle when considering the eligibility of leaseholders to enfranchise should be the extent of their stake in the property rather than the length of residence, which is always difficult to determine.

We recognise that abolishing the residence test could open the door to investors, rather than to individual home owners. However, the test has proved to be the greatest barrier to groups of leaseholders who wish to enfranchise. Because enfranchisement of a block of flat is a collective right, the ability of leaseholders to acquire the freehold of their homes is dependent on their circumstances and on the ability of other leaseholders in the block to meet the necessary conditions. If a significant number of flats have been sublet or have recently changed hands—in some parts of the country, there is a large turnover of flats and many are sublet—the legitimate aspirations of leaseholders can be frustrated. Moreover—this applies equally to leasehold houses and to lease renewals—the residence test excludes deserving categories of leaseholders from their rights and is thus open to manipulation or abuse.

Shona McIsaac (Labour, Cleethorpes)

I shall introduce another aspect of that argument later, but as my hon. Friend has mentioned it, I shall signal my intention. I have a number of constituency cases—for example, elderly people who, because of failing health, may have to go into hospital or into care—whom we would assume had a legitimate right to enfranchise, but who are being told by landlords and landowners that they do not have that right because they no longer fit the residence test. The abolition of the test will assist some of my constituents. Enfranchisement will be vital to them when they have to face the costs of care.

Sally Keeble (Labour, Northampton North)

My hon. Friend makes an important point about how hard it can be to establish something as simple as residence. Another example would be a leaseholder buying a flat for his own occupation who had to rent out the house that he had been living in because he was unable to sell it. That often happens in

some parts of the country when the property market gets into difficulty, as it did some years ago. Other examples are a leaseholder whose main home is in the country but who has a pied-a-terre in town—we should all probably declare an interest in this subject—and leaseholders who work abroad but who have a flat for when they return home. None of them could properly be classed as speculators, although people might not regard them as residents.

Bill Wiggin (Conservative, Leominster)

The purpose of the amendment, which would remove the clause, is to ensure that people who already own the freehold, whether or not they are resident, are not penalised financially. Will the Minister tell us what safeguards are in place? The examples that I have heard suggest that people want to enfranchise for financial gain, which implies that it is not necessarily a great deal for one party or the other. With fairness at the front of our minds, I wonder whether the Minister would touch on that.

Sally Keeble (Labour, Northampton North)

I will deal with the safeguards. The residence test might seem to be an obvious safeguard, but it can be hard to establish residence. It is not the best safeguard on offer. I shall deal later with companies and some of the other factors involved.

The residence test also excludes companies from exercising their rights, as a company cannot be said to reside in a flat or a house. It may seem a reasonable exclusion, but some landlords have adopted a policy of permitting leases to be assigned to a company, with a view to evading the requirements of leasehold law. It would obviously then be impossible for the leaseholders to enfranchise. We consider that the key principle when considering eligibility for leaseholders' rights should be the extent of their stake in the property rather than length of residence. None the less, we are concerned to avoid opportunities for short-term speculative gain.

In the case of collective enfranchisement, we are retaining an existing provision that prevents a person, or a group of associated companies, holding leases on more than two flats in the block from participating in collective enfranchisement proceedings. That should provide a safeguard against investors using the new rights to acquire whole buildings from others.

In the case of the individual rights of lease renewal for flats and enfranchisement of houses, the Bill provides that the leaseholder must have held a long lease for at least two years before he or she can exercise that right—so, rather than having a residence test, there is a test of the length of time for which the lease has been held, which I think deals with the hon. Gentleman's point.

Bill Wiggin (Conservative, Leominster)

I am grateful to the Minister for her answer and would like to ask a further question. The Minister mentioned a landlord who will only lease properties to companies—purely for his own protection, so that they cannot be enfranchised. Does that not imply that if the situation alters, people who are happy to lease on the basis that they will not lose

their freeholds will henceforth rent, and therefore a large number of cheap—perhaps ''cheaper'' is a better word—properties that are on the market as leaseholds will be withdrawn and people will be forced to rent?

Sally Keeble (Labour, Northampton North)

The hon. Gentleman makes a fair point, but I find it hard to see how it would work. He suggests that a landlord would rent on a short-term basis a property on which a long lease had fallen due, rather than resell it. Some landlords might decide to do that, but I expect that the nature of the investment would be different and the landlord's decision as to whether to sell the property but retain a freehold interest or to let it and act as a letting agent would be made on a different basis. In the case of new developments, the developer would have to consider which option he preferred. As the law stands, he could still decide on leasehold. We expect that landlords will increasingly go for commonhold. It is hard to speculate. However, I do not believe that it was envisaged during the consultation that this provision would produce a switch from long leasehold to more conventional renting to shorter-term tenants.

The provisions that we have included would provide a sensible balance between the need to avoid opportunities for short-term speculative gain, which has been a problem with leasehold in some areas, and the need to put an end to the unfair exclusion of certain leaseholders from the right to buy their freehold and to a longer lease. On that basis, I urge the Committee to vote that this clause should stand part of the Bill.

Question put and agreed to.

Clause 117 ordered to stand part of the Bill.

Clauses 118 to 121 ordered to stand part of the Bill.

Schedule 8 agreed to.

Clause 122 ordered to stand part of the Bill.

Clause 123 - Valuation date

Bill Cash (Conservative, Stone)

I beg to move amendment No. 62, in page 63, line 3, leave out from 'payable),' to end of line 4 and add—

'in paragraph 1(1), for the definition of ''the valuation date'' substitute—

''the valuation date'' means the date of service of the reversioner's counter-notice.'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to take the following: Amendment No. 65, in Clause 131, page 64, line 30, leave out from 'lease),' to end of line 31 and insert—

'in paragraph 1, for the definition of ''the valuation date'' substitute—

''the valuation date'' means the date of service of the reversioner's counter-notice.'.

New clause 10—Price payable by nominee purchaser—

'In Paragraph 2(1) of Schedule 6 to the 1993 Act, at the end insert—

''(d) a sum equivalent to the interest accruing at the base rate applied by the London clearing banks at the time to a principal sum which is equivalent to the aggregate sum of the values derived from paragraphs (a) to (c) above during the period between the valuation date and the date of completion of the transaction.''.'

New clause 11—Premium payable by tenant—

'In paragraph 2 of Schedule 13 to the 1993 Act, at the end insert—

''(d) a sum equivalent to the interest accruing at the base rate applied by the London clearing banks at the time to a principal sum which is equivalent to the aggregate sum of the values derived from sub-paragraphs (a) to (c) above during the period between the valuation date and the date of the completion of the transaction.''.'

Bill Cash (Conservative, Stone)

The clause deals with the valuation for the purchase price. Amendment No. 62 is designed to fix the valuation date at that of the service of the landlord's counter-notice, which seems a much more appropriate point in the process than the date of the service of the claim notice, because it is the point at which the second party engages in the process. As I said before, enfranchisement is a form of compulsory purchase.

Shona McIsaac (Labour, Cleethorpes)

Does the hon. Gentleman agree that enfranchisement is not a form of compulsory purchase if the landlord is voluntarily disposing of the freeholds and the tenant is given first refusal, as they are with flats?

Bill Cash (Conservative, Stone)

That is a reasonable point. There are circumstances in which enfranchisement could be described as not compulsory. It generally could be described as such, but I agree that there are instances involving voluntary disposal where such a description would not apply.

However, under standard compulsory purchase orders, the valuation date is the day on which the purchase is concluded. Whether the market is rising or falling, that is the only date that is fair to both parties—I think that that is reasonable. If the market is rising, the clause as drafted would be unfair to the reversioner, especially if the enfranchisers yielded to the obvious temptation to delay to postpone the day on which they would be obliged to find the purchase price.

Amendment No. 65 deals in the same way with the valuation date for the premium payable by the tenant for the new lease.

New clause 10 is designed to incorporate into the purchase price interest at the current bank base rate on the valuation figure. The Bill has been framed on the assumption that reversioners are more likely to delay than leaseholders. Consequently, the protection for the reversioner against enfranchisers who seek to exploit the system is little more than minimal. If the valuation date is the date of the service of the counter-notice, it will be in the interest of the enfranchisers to delay, since the price that they pay will not increase however much the market goes up.

Under the proposals, no interest is payable no matter how long the delay between the valuation date and the date of completion of the purchase. The Opposition argue that interest should be payable to discourage delay by the enfranchisers after the

valuation date, whether that date is the date of service of the counter-notice, as we think it should be, or that of service of the claim notice, as the Government propose.

Moreover, it is always disadvantageous to a seller to be kept from his money and it is in principle wrong, whether the market is rising or falling, since he is thereby prevented from devising an alternative investment for the money that he is entitled to receive for his compulsorily purchased property.

That summarises our arguments and I would be interested to hear the Minister's response.

Sally Keeble (Labour, Northampton North)

Amendments Nos. 62 and 65 relate to the date that should be used to value the interest in a property to be acquired under the right to enfranchise or the right to a longer lease. Under existing law, the valuation date is the date on which the parties determine, by agreement or by reference to a leasehold valuation tribunal, the interest to be acquired by the purchaser. Although that sounds a reasonable formulation on the face of it and it has the advantage that the price is determined at the moment when the nature of the transaction has crystallised, there has been a good deal of controversy over exactly what it means in certain circumstances. That has generated the time-consuming and costly argument that our proposals are intended to avoid. We are therefore firmly of the view that the position should change.

The Bill provides that the valuation date should be the date of the initial notice of claim. Amendments Nos. 62 and 65 instead provide that it should be the date of the landlord's counter-notice. In ordinary market conditions, the choice between these two dates should be of little significance. It will become so only if property prices are either rising or falling rapidly. It also depends how long it takes for the landlord to serve the notice.

The proposals in the Bill received the support of no less than 93 per cent. of those who commented on this issue during our consultations on the draft Bill—an unusually high proportion. However, in this as in all other matters relating to the Bill, we have been guided by the balance of the substantive arguments rather than by mere head counting.

The first consideration is that the date of the initial notice has been used as the valuation date for the enfranchisement of houses ever since the Leasehold Reform Act 1967, apparently without occasioning any real difficulty or controversy. The second is that the procedure for flats often takes longer than it needs to—I have referred to that. Indeed, many landlords have chosen to spin the proceedings out as much as possible with a view to persuading leaseholders to give up the enterprise altogether.

Since the market is more often on the rise than falling, aligning the valuation date with the date of the counter-notice would tend to give the landlord a further reason to delay the service of the counter-notice so as to take advantage of market conditions. If on the other hand, the valuation date is fixed as the date of the initial notice, as the Bill provides, the

landlord will be encouraged to proceed with all speed and, as a consequence, any movement of the market in the intervening period is unlikely to be material. We have therefore concluded that the valuation date provided for in the Bill is the right one.

New clauses 10 and 11 relate to the payment of interest. I appreciate the concern that, in a rising property market, landlords could be disadvantaged if the price is determined on the basis of prevailing values on the date of the initial notice but they do not receive the money until a later date. However, I do not think that it would be fair to provide a right to a payment that would effectively amount to interest on the purchase price between the date used to determine the price and the date of completion. Under the Bill, any disadvantage to landlords would depend on the movement in property prices and if they were static or declining there would be no disadvantage at all.

The solution is to ensure that the enfranchisement or lease renewal process is as quick as possible. The measures in the Bill are intended to reduce the scope for procedural delays and disputes over the price payable and, where there is disagreement, to speed up the dispute resolution process.

I hope that the hon. Gentleman will understand that we have carefully considered which arrangements are best. Consultations have been held on the arrangements and support for them is widespread. They fit in with existing practice and the normally prevailing circumstances of the market. On that basis, I ask him to withdraw the amendment.

Bill Cash (Conservative, Stone)

I appreciate that the Minister is presenting her arguments as reasonably as she can, but I am afraid that I must disappoint her, as I intend to divide the Committee on the matter.

Question put, That the amendment be made:—

The Committee divided: Ayes 5, Noes 10.

Clause 127 - Replacement of residence test

Bill Cash (Conservative, Stone)

I beg to move amendment No. 63, in page 63, line 27, at end insert—

'( ) For subsection (2)(b), substitute—

''(b) the tenant or, if the lease by virtue of which the tenant is a qualifying tenant is vested in trustees, an individual having an interest in the trust, has occupied the flat as his only or principal residence for at least twelve months at any time, whether or not he has used it also for other purposes.''.'.

Eric Illsley (Labour, Barnsley Central)

With this we may discuss the following amendments: No. 64, in page 63, line 28, leave out '(2)(b)'.

No. 66, in clause 136, page 66, line 2, at end insert

'and has occupied it as his only or principal residence for at least twelve months at any time, whether or not he has used it also for other purposes'.

Bill Cash (Conservative, Stone)

The clause removes the previous requirement that tenants must satisfy a residence test to qualify for the right to acquire a new lease. It introduces a new requirement that they must have been qualifying tenants—that is, long leaseholders—for at least two years before they can exercise that right. That proposal is unreasonable, and the amendments deal with it.

Sally Keeble (Labour, Northampton North)

We have been through some of the arguments on the abolition of the residence test before, but I shall go through them again. We recognise the concern that abolishing the residence test could open the door to investors rather than individual homeowners. The residence test, however, excludes deserving categories of leaseholders from exercising their rights and is open to manipulation and abuse. We discussed some of those categories under a previous clause.

The key principle in considering a person's eligibility to leaseholder rights should be the extent of their stake in the property, not their length of residence. Although residence may seem simple, it can be hard to determine. My hon. Friend the Member for Cleethorpes (Shona McIsaac) mentioned some of the difficulties that older people in her constituency had experienced in that regard.

The Bill sets out to avoid opportunities for short-term speculative gain. We therefore provide that the leaseholder must have held a long lease for at least two years before they can exercise a right to a longer lease. That provides a sensible balance between the need to avoid opportunities for short-term speculative gain and the need to put an end to the unfair exclusion of certain leaseholders from the exercise of their rights. We have been through the arguments before, so I shall not labour them further, and I ask the hon. Gentleman to withdraw the amendment.

Bill Cash (Conservative, Stone)

The problem is that the residence conditions should be retained. As the Minister suggested, the objections to their removal are much the same as those that we discussed under clause 117. With regard to sections 5 and 6 of the 1993 Act, the so-called anti-speculation measures do not apply to the individual right to acquire a new lease. I refer the Minister to section 39(3)(a) of the 1993 Act in that respect. The proposed introduction of a two-year qualifying membership period will prevent only short-term speculative gains, whereas a residence condition would prevent all undesirable speculation.

Enfranchisement is a right that should be given to home owners and should not extend to absentee lessees or speculators. If the residence condition is thought likely to cause difficulties in its present form, it could be addressed as we described.

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 10.

Clause 128 - Qualifying leases

Sally Keeble (Labour, Northampton North)

I beg to move amendment No. 101, in page 63, line 31, leave out '1' and insert '2'.

I hope that the amendment will not delay the Committee, as it merely corrects a technical error, in the form of an incorrect reference to chapter 1 of the 1993 Act. The clause should refer to chapter 2.

Amendment agreed to.

Clause 128, as amended, ordered to stand part of the Bill.

Clauses 129 to 131 ordered to stand part of the Bill.

Clause 132 - Landlord's Share of Marriage Value

Bill Cash (Conservative, Stone)

This clause raises the contentious question of marriage value, and several representations have been made on the subject in the other place. I oppose the clause—at any rate until I have heard what the Minister has to say. I propose perhaps deferring the issue to Report, as it may require further consideration depending on the way in which the arguments are developed.

Our idea is that the clause should be left out, to leave paragraph 4(1) of schedule 13 to the 1993 Act as it is, so that the freeholder's share of marriage value would be such proportion of it

''as is determined by agreement between the landlord and the tenant or, in default of agreement, as is determined by a leasehold valuation tribunal''

or 50 per cent. of the marriage value—whichever is the greater.

That would not involve depriving the landlord of anything in excess of the 50 per cent. to which he might be entitled on a determination under present law. I appreciate that all the relevant matters are extremely contentious. They also arise under clauses 124 and 125, and we may table further amendments on Report. In the meantime I should like to hear what the Minister has to say.

Sally Keeble (Labour, Northampton North)

The hon. Gentleman is right that this is one of the great debating points on the arrangements for leasehold. The hon. Members for Torbay (Mr. Sanders) and for Guildford (Sue Doughty) have indicated that they may also oppose clauses 132 and 133, but I suspect that their motives are different from those of the hon. Member for Stone (Mr. Cash). If we asked members of the Committee, it is possible that they would all suggest a different formulation for what should happen to marriage values. Perhaps the hon. Members for Torbay and for Guildford want it to be abolished completely. I shall go through the arguments with some care, and will return at the end to the specific proposals made by the hon. Member for Stone, although they are not worded in an amendment.

Marriage value is the most controversial aspect of the current arrangements for both lease renewal and the enfranchisement of flats and houses. Leaseholder groups have long campaigned for marriage value to be excluded from the purchase price altogether—I know that some members of the Committee favour that approach. We have considered those representations very carefully. However, we have concluded that it would be wrong to agree to remove marriage value from the determination of the enfranchisement price.

One of the principles to which the Government have held throughout the Bill, and which is a point of dispute with some leaseholder groups, is that the freeholder's stake in the property has been recognised. That said, there are certainly defects in the current provisions that need to be corrected. It would be helpful if I took this opportunity to explain the Government's thinking at some length, not least because the hon. Member for Stone has indicated that he wants to return to the matter.

It is important to put marriage value into its historical context. The story begins with houses. Leaseholders of lower value houses were first given the right to buy their freeholds by the Leasehold Reform Act 1967. At that time, the leases of many Victorian houses were approaching their end. That was seen as a particular problem in South Wales, which faced significant economic difficulties at that time. That situation, coupled with a rather different view of property rights from the one that prevails today, led to an Act that gave leaseholders in houses of relatively modest rateable value the right to buy their freehold on

extremely favourable terms. Later legislation extended the right to leaseholders of higher value houses, but on a less advantageous valuation basis.

We do not propose to interfere at this late stage with the long-established rights of leaseholders of lower value houses, which have had an effect on the prices that many such leaseholders have paid for the leases on their homes since the 1967 Act came into force. However, we do not think that it would be right to extend those valuation arrangements to any other categories of leaseholder.

The right to enfranchise is a right of compulsory purchase, as is the right to a longer lease on a flat.

Shona McIsaac (Labour, Cleethorpes)

Does my hon. Friend agree—I posed this question to the hon. Member for Stone earlier—that if the landlord is voluntarily disposing of leases, that is not a compulsory purchase, and that we should make that distinction in this debate on marriage value, because marriage value does not apply when there is a voluntary disposal?

Sally Keeble (Labour, Northampton North)

We have consistently described the right to enfranchise as a right of compulsory purchase because of the restricted categories of people who can exercise it. I cannot see that there is much possibility of going beyond that scope. To exercise the right to enfranchise, leaseholders do not have to show that the freeholder is at fault in any way. Therefore, it is only fair that he should be paid the same amount as he would have received from selling the freehold or a longer lease to the leaseholder or leaseholders voluntarily. When leaseholders buy their freehold or renew their lease, they obtain a benefit that no other purchaser would. When leaseholders of flats enfranchise, they can grant themselves new 999-year leases without having to pay for them. Similarly, a leaseholder who buys the freehold of a house is no longer subject to a lease. The value of the extra benefit is the marriage value.

If existing leases still have, say, 80 or more years left to run, new longer leases will be worth little more than the existing ones, so any marriage value will be insignificant. That is reflected in our proposals. If the unexpired term were relatively short, say 50 years, the difference would be substantial. The same is true for leasehold houses.

In a sale between willing parties in which the unexpired term of the lease was not long, it would follow that the leaseholders would be prepared to pay additional money for that extra benefit. However, they certainly would not offer the whole amount of the marriage value. They would be well aware that they represented the freeholder's only chance of getting a higher price than he would from an ordinary purchaser. In practice, a sale would be agreed only if the parties agreed to split the difference, and if the parties were equally willing and eager the split would be 50:50. The freeholder would finish up with a rather higher price than he would have received from another purchaser, but—I must emphasise this—the leaseholders would still end up with an asset that was worth more than they paid for it.

People often ask how marriage value can be said to apply to the right to buy a longer lease.

Shona McIsaac (Labour, Cleethorpes)

I am intrigued by what my hon. Friend said about the leaseholder ending up with an asset that was worth more than it was when they originally purchased it. The evidence in my constituency of Cleethorpes and in neighbouring Grimsby is that there is no difference in the prices of leasehold and freehold property. Therefore, there is no financial advantage in someone buying a leasehold property. Would she care to comment on that?

Sally Keeble (Labour, Northampton North)

I believe that the properties of some of my hon. Friend's constituents are governed by different legislation, because they are old. The position is different. It is fair to say that if a leaseholder enfranchises, depending on the length of time left in the lease—we have also taken that into account in our provisions—he ends up with added value as a result of his purchase. That is reflected in the marriage value.

Adrian Sanders (Liberal Democrat, Torbay)

The Minister forgets a rather important point. The leaseholder bought the property when he became a leaseholder in the first place.

Sally Keeble (Labour, Northampton North)

This is one of the substantive points. Leasehold and freehold are different tenures. Some people do not like leasehold, and there is great evidence of real difficulties with it. We have heard some examples of those difficulties, and we will hear a lot more about them from hon. Members whose constituencies include a large number of leasehold properties. However, we must start from where we are, not from where we would like to be. The fact is that leasehold and freehold are different. When someone buys a leasehold, it is galling for him to have to accept that he is buying a long lease. That is different from buying freehold. Apart from introducing a new form of commonhold that gets around problems of leasehold—a new form that we believe is the tenure of the future—the purpose of the Bill is to deal with the injustices of leasehold and the difficulties of freehold.

We have to start by recognising what leasehold is. The hon. Member for Torbay has missed the point. When someone buys a long lease on a property, it is different from buying a freehold on it. When buying a longer lease, there is no joining or marriage of the two interests. The term does not have quite the same meaning in the lease renewal context—indeed, in that context, marriage value is something of a misnomer. The meaning of marriage value in lease renewal is quite different from its meaning under enfranchisement. As defined in the Act, in broad summary, it is the difference between the aggregate values of the landlord's interest and that of the tenant as they are before the new lease is granted and as they will be after it is granted.

The notion that in some way extra value is created by the transaction is common to both cases. In lease extension as in enfranchisement, any amount of marriage value will be extremely small if the unexpired term of the existing lease is still long. Similarly, as under the right to enfranchise, the split of marriage

value has been much argued about in individual cases; in most cases, the LVT has decided that it should be shared equally between the parties. For lease renewals and enfranchisement cases, our intentions are the same: that the leaseholder should be required to pay no more and no less for the compulsory acquisition of a new lease than he or she would pay in a similar transaction between the same, but this time equally willing, parties.

That is the principle behind marriage value, which the Government believe is sound. I shall now talk about our proposals to simplify the valuation basis, which will deal with some of the points that the hon. Member for Stone mentioned in his suggestions for valuation. He will see that our proposals are simpler and more workable.

The 1993 Act provisions, which were based on the principles that I have described, were defective in two ways. First, they provided that the freeholder's share could never be less than 50 per cent., but that it could be more. That was unfair—why should it be possible for the freeholder but not the leaseholder to argue for a larger share? It also led to argument, sometimes protracted and expensive, between the parties about what the shares should be. The hon. Gentleman wanted a period of discussion about the ultimate valuation as well. The 1993 Act encouraged the parties into further arguments about the amount of marriage value, even when it was obvious that there would be almost none. The Government want to retain the principle of the existing provisions, but to eliminate the scope for wasteful argument both about the amount of marriage value in cases where it will be negligible, and about how it should be shared between the parties.

In practice, all but a few—highly unusual—cases, LVT decisions have split marriage value equally between the parties, but that has not stopped landlords arguing for a greater share. The hon. Gentleman proposed that the LVT should make a decision: the record of the LVT is one of equal splits, so we think that marriage value should be split 50:50 in all cases. Clause 124 makes such provision for the purposes of collective enfranchisement, and clauses 132 and 142 make equivalent provision for lease renewals and enfranchisement of leasehold houses. Clause 125 provides that, when the unexpired terms of each of the leases held by participating members of a right-to-enfranchise company exceed 80 years, no marriage value is payable. Clauses 133 and 143 make equivalent provision for lease renewals and enfranchisement of houses.

We have heard different views on both the principle of the cut-off and the threshold at which it should be set. Our objective is to prevent costly arguments that are disproportionate to the sums at issue. The principle of a cut-off is consistent with that objective, and we are committed to it. Whatever cut-off is chosen, it seems likely that some will argue that it should be raised or lowered, and an element of compromise is needed. I believe that an argument was made in another place about a figure of 90 per cent.

We accept that LVTs have sometimes awarded an element of marriage value when leases have 90 or more years unexpired, however that would normally be a relatively small sum. We need to consider another factor. Professionals with long experience in the field made representations pointing out that before the 1993 Act came into force, flats with very long leases did not command a measurably higher price than those with unexpired leases of 80 years, indicating that at that time, leaseholders placed no additional value on the ability to obtain a new longer lease.

It was a key principle of the 1993 Act that valuations for collective enfranchisement and lease renewal should be made on the assumption that the Act did not exist. In practice, however, the Act's operation has distorted the market so that transactions have taken place that include an element of marriage value where the unexpired terms of the existing leases exceed 80 years. That effect has been amplified by the fact that some experienced and well resourced landlords, particularly on the great London estates, have in such transactions brought to bear the best professional advice that money can buy, often leaving the leaseholders somewhat outgunned. The Government's proposals would restore the original ''no 1993 Act'' context to the valuation process.

I have given the Committee the basic outline of the Government's position. I do not know whether the hon. Members for Stone, for Torbay or for Guildford want to take the matter further. The clause strikes a fair balance between the various rights and arguments surrounding marriage values. I hope that the Committee will agree to it standing part.

Bill Cash (Conservative, Stone)

No one could say that the Minister has not given us a full and comprehensive account of the Government's view. This matter has been extensively discussed in the other place; none the less, it requires further consideration. I do not propose to press the clause—or, by implication, the other clauses to which I have referred—to a Division. We can return to the matter on Report if necessary, by which time we will have weighed up the Minister's arguments.

Question put and agreed to.

Clause 132 ordered to stand part of the Bill.

Clause 133 ordered to stand part of the Bill.

Clause 134 - Amendments of 1967 Act

Shona McIsaac (Labour, Cleethorpes)

We have come to the part of the Bill in which I have a particular interest. Cleethorpes and neighbouring Grimsby are leasehold towns. I am pleased that the Government are amending the Leasehold Reform Act 1967, because many of the amendments will benefit residents in my constituency.

However, we must debate some aspects of chapter 4, particularly forfeiture insurance, purchase price and marriage values. The Committee should realise their importance.

Of approximately 2 million leasehold properties in Britain, about half are leasehold houses. We spent a lot of time discussing flats, but it is just as important to discuss the issues as they relate to leasehold houses, even though fewer amendments affect them. I said in a previous sitting that an estimated 21,000 house leaseholders live in Grimsby and Cleethorpes. I shall not call them tenants—I have never agreed with the use that term.

Those people believe that they are homeowners because they have a mortgage; they feel that they have purchased their homes. They call themselves homeowners in the census. However, when it comes to calculating care costs, elderly people who want to go into residential homes are certainly regarded as homeowners, not tenants. I find it shocking that we are only now beginning to tackle some of the serious issues that affect house leaseholders, and some of the injustices arising from the 1967 Act.

I am indebted to one of my constituents, Dr. Alan Dowling, a local historian who has brought to my attention the fact that the problems of house leaseholders in Grimsby and Cleethorpes were first raised in Parliament in the 1880s. That led in 1883 to the setting up of the Grimsby branch of the Leasehold Enfranchisement Association, to campaign for leasehold land to be made freehold. Nothing came of the campaign because it did not suit the major landowners, but here I am, 120 years after the issues were first raised in Parliament. I hope that our debates on chapter 4 will enable me to redress some of the wrongs that have been fought over for so long and that affect 21,000 houses in Grimsby and Cleethorpes.

We must not underestimate the problem. The average cost of enfranchisement in my constituency is £10,000; although that figure is plucked out of thin air, it means that just a few landowners are sitting on £21 million. In the big building period of the early 20th century there were seven major landowners in Grimsby and Cleethorpes, one of which, Sidney Sussex college of the university of Cambridge, owned 5,000 leaseholds in my constituency. It is only fair to say that the college disposed of those assets some time ago, but that example shows what we are dealing with.

These days, because of voluntary disposals by landowners such as Sidney Sussex college, many of the relevant freeholders are offshore companies. Tracking them down can be difficult, and some extraordinary abuses go on. When we debate the proposals to amend the 1967 act, I intend to detail some harrowing constituency cases. I shall put the case forcefully, because the interests of 21,000 homeowners are at stake.

John Taylor (Conservative, Solihull)

I support the hon. Member for Cleethorpes, who expressed her arguments well. Her constituency and mine probably share few characteristics, but I understand her views, and if I had the honour to be the Member of Parliament for Cleethorpes I would have tried to make

the same arguments as well as she has done. We have had evidence, mainly from places to the north of where I come from, of exploitation in connection with reversion. As the hon. Member for Burnley (Mr. Pike) and others made clear on Second Reading, reversion on very long leases—even 999-year leases—can be exploited if there are covenants for replacement of insurance and things of that nature.

Although there is not the same stress in my area as there is in the northern towns of England, we have been left with the residual consequences of the failures of the 1967 Act. As the Committee may know, I was a young lawyer at the time that Act was passed. In those days I did not have my own practice; I did what the partners in the firm told me to do, and they told me to do conveyancing. With the onset of the 1967 enfranchisements, people in my part of the world, predominantly with 99-year leases, sought to buy their freeholds. It became clear very quickly that whereas the right to acquire was as plain as a pikestaff, the value—or, more specifically, an appropriate price at which the leaseholder might buy the freehold—was, to say the least, a grey area. It became the ground for argument and litigation.

In those days, the only forum that could unlock the dispute for the leaseholder—whose right was clear, but whose price was not—was the Lands Tribunal. Although many people fought shy of the costs of contesting the matter in that forum, in my area, predictably, there were those who were not frightened by those costs: they fought, they got their valuation, and they acquired. Those trailblazers who were not deterred by the cost of going to the Lands Tribunal eventually served the purpose of clearing the way for others. They might have done that unwittingly—they acted in their own interests—but such was result of their actions.

After the Lands Tribunal had delivered a sufficient body of decisions, the state of the market was clear to leaseholder and to freehold reversioner alike. When there were enough decisions to give a guide, the disputation ceased. That it stopped was not because the Act—or, rather, the politicians who produced it—had been politically courageous enough to introduce a price mechanism. They had not. They ducked the issue and citizens had to dispute their way to a body of decisions that gave clear guidance.

That is the story of the 1967 Act, which is now rather a long way upstream. Now I—no longer a young lawyer, but the Member of Parliament for Solihull—am experiencing a nightmare revisited. Mr. Chairman, we are going to do it again. I am not being a party politician. I am appealing to worthy members of all parties when I say that I am old enough to know why the 1967 Act was deficient: it did not contain a price mechanism or a sufficiently defined formula to make things clear to our citizens who, when considering the most important asset they will own in their lives, rightly aspire to move up from leasehold to freehold. That is a very big deal for those people—it involves their home and their life savings.

We have a huge responsibility: we legislators are in a position to make the law. We can make it precise and clear, to the profound convenience of our constituents who live out there and to whom we are responsible—or we can leave it as a dog's breakfast and stand condemned as another generation of cowardly politicians who would not get to grips with the issue. We must grasp it now. My constituents are probably up for another fight in the Lands Tribunal. I venture to suggest that the constituents of the hon. Member for Cleethorpes are not.

Shona McIsaac (Labour, Cleethorpes)

The hon. Gentleman is quite right. Such is the nature of the property and the community in Grimsby and Cleethorpes that my constituents do not litigate—either they simply cave in, or they lose their homes.

John Taylor (Conservative, Solihull)

The hon. Lady makes the point elegantly and seriously on behalf of her constituents.

My message is fairly clear. The 1967 Act gave a right, clearly, but did nothing about valuation. The Bill runs the risk of doing exactly the same. I am old enough and ugly enough and have no parliamentary ambition other than to serve as a responsible legislator. I claim in aid my modest experience as a politician and my 22 years as a solicitor. That I am obviously much nearer the end of my career than the beginning that makes it even more important that I should say this. In such a situation, I run the risk of saying nothing about a flaw in the Bill that I know about. I have, however, averted that risk, because I do know and I am telling the Committee.

In the last sitting, the Minister told me that her officials had examined the possibility of finding a formulation that would provide guidance on price and value, but had found the problem too difficult. They found it too difficult in 1967 as well. I will not be fobbed off with that argument twice. I do not accept it. I appeal again to the Minister—tell your officials what to do. You are—I am sorry, I lost the correct pronoun, such is the extent of my concern. I address my remarks to you, Mr. Illsley—the hon. Lady is a Minister of the Crown and is in a position to instruct her officials. These might be her words: ''I am not satisfied that you cannot find a formula. You must find one. Go back and think again.''

There is time to find a formula. The Conservative party will not mock a raft of Government amendments tabled on Report. I make it my personal responsibility to ensure that my party will not mock a rewriting of the provisions. We will not say, ''You are doing this on the hoof by tabling a raft of amendments on Report.'' We will say, ''Thank you for reconsidering. The new Labour Government are bigger than we thought they were. We thought that you were just our political opponents but we can now see that you are something more than that. You have acquired some maturity in Government and you are able to think again.''

If the Government do that, they will rise above politics and into statecraft. I wonder whether new Labour is up to statecraft, even if it is very, very good at presentation. This might be a test. If the

Government rise above politics, I shall be on my feet on Report to congratulate them. However, I remain unsure. I am not content, and I look to the Minister. In 18 years I have disobeyed the Conservative Whip only three times, and that was only because I did not understand it on those occasions. However, I certainly understand this matter. If a price mechanism is not introduced on Report, although I have only one vote in the House, it will be used against the Bill on Third Reading.

Brian Iddon (Labour, Bolton South East)

I rise to put on the record my strong objections to the concept of leasehold, which is the cause of so many problems. I said on Second Reading that it should be banned, and I repeat that today.

In my constituency, leasehold has created immense difficulties. At the end of the 19th century and the beginning of the 20th century, houses were built on the cheap to feed cheap labour into the factories. The factory owners did not want to own the houses, so they got people to build them for them. They were built brick on end, with inner and outer skins touching, and with common attics that are regarded today as a clear fire hazard. Then, to get rid of them as cheaply as possible, they were sold without the back streets—and often without the front streets—made up. Today, my constituency has mile upon mile of unmade and unadopted back streets; the result of leasehold, they cause havoc.

Since 1954, there have been 16 pieces of legislation in which the complexities and the unfairness of leasehold could have been tackled. Here we are again with an ideal opportunity to do something about leasehold to make it fairer—although I would prefer to abolish it. I welcome the introduction of the concept of commonhold. We have been debating the complexities that leasehold has created, one of which is marriage value. I object to that concept, too, and would abolish it.

As well as being built cheaply and sold without the streets being made up, the houses in my constituency were sold cheaply with ground rents in the leases. In those days those rents were worth a lot of money—between £1.50 and £2.50. They are worthless today, which gives rise to ground rent grazing, which my hon. Friend the Member for Brent, North (Mr. Gardiner) has spoken about very ably in several debates in the House. That practice has caused the insurance problems that several Members have mentioned. The Compton Group and others are giving some of my constituents a hard time about insurance, and I am pleased to note that the Government have tabled an amendment on that issue, which we will debate later. There is also the question of forfeiture, on which I have tabled an amendment and which we will deal with in detail later.

Leaseholders have the right to buy their freehold, but many of my constituents have told me how difficult that is. A certain Mr. Patel recently told me of how he had been paying ground rent to an agent; the agent wanted £200 plus VAT just to provide him with the

price that we would have to pay to buy out the freehold. Mr. Patel asked the agent who the freeholder is, because he did not have a clue, but the agent would not tell him. I found out who the freeholder is, and both Mr. Patel and I have written to them, but we cannot get a price out of them; the agent has told me that they do not like to sell land in patchwork quilt fashion. Despite the fact that legislation enables people to buy freehold, some of my constituents have been obstructed at every turn and charged huge sums of money.

Finally, there is the question of fees. People go round my constituency looking to see who has had a conservatory or other extension stuck on their house. A letter arrives, saying, ''You have not approached us, as the freeholder, for planning permission.'' The recipients thought they had planning permission because they had got it from the local authority and the building controller had, where necessary, seen the work done, but the letter tells them that they do not have permission. The fees that freeholders charge for such permission—I am glad to say that the Bill deals with fees as well—are in the region of £500.

One young couple in my constituency were attempting to sell a house with a conservatory. When the potential purchaser carried out a search, it was found that the conservatory stood on land owned by three separate freeholders, all of whom wanted to cash in on giving retrospective planning permission before the transaction could legally take place. Leasehold causes many similar problems. Life should be simplified for householders. We will say much more about such matters in later debates.

Bill Wiggin (Conservative, Leominster)

I have listened with interest to the passion expressed this morning. I was concerned, because as a Committee member I am listening impartially to debates as the Bill progresses. I was alarmed when the hon. Member for Cleethorpes said that the provisions would cost £21 million. The figure is £210 million—

Shona McIsaac (Labour, Cleethorpes)

I forgot the zero.

Bill Wiggin (Conservative, Leominster)

What a terrible mistake. That emphasises the magnitude and seriousness of this element of the Bill. As my hon. Friend the Member for Solihull (Mr. Taylor) rightly said to me earlier, this is not a moment for frivolity. I hope that, as our proceedings continue, we shall not make mistakes or miss the obvious own goal—

Graham Stringer (Labour, Manchester, Blackley)

Score an own goal?

Bill Wiggin (Conservative, Leominster)

Yes—and if there is a crucial element missing from the Bill, I hope that we shall make up the deficit.

Sally Keeble (Labour, Northampton North)

The debate has shown how strong hon. Members' views are on leasehold. Some of those views may not have been expressed so clearly before, but my hon. Friend the Member for Cleethorpes has forcefully raised the issue of leaseholders in her area on the Floor of the House, as has my hon. Friend the Member for Great Grimsby (Mr. Mitchell), who is her

neighbour. No one doubts the depth of her concern about her constituents' position, especially about the circumstances affecting older people in leasehold houses, who form a distinctive section of the community.

We come late in the Bill to a discussion of houses. I emphasise for my hon. Friends' constituents, and for those of other hon. Members who have many leasehold houses in their constituencies, that the relative length of the clauses dealing with houses and flats is no reflection on the size of concerns about leasehold houses or the Government's commitment to ensuring that problems are dealt with. For the benefit of my hon. Friends, I have drawn up a short list of the provisions in the Bill that apply to flats and houses to show that we have considered their respective positions with equal seriousness.

The right to manage in chapter 1 applies to flats, but not to houses. If one occupies a house, it is generally assumed that one manages it oneself and that there is no need to involve a right-to-manage company. Chapter 2 does not apply to houses, but chapter 4 makes similar provisions, although they are not exactly the same. The clauses relating to the exercise of right and purchase price do not apply to houses; nor does chapter 3, which deals specifically with leases for tenants of flats. However, chapter 4 applies solely to houses and brings legislation for houses in line with that for flats in most respects. The provisions in chapter 5 also apply to houses but may in some instances be of limited value. The provisions relating to ground rent largely apply to leaseholders of houses, although they apply to flats as well. There is ample provision throughout the Bill to ensure that proper provisions are made on issues that are of concern to leaseholders of houses.

The hon. Member for Solihull again argued about the need for a price mechanism, which is a matter that we have dealt with previously. The hon. Gentleman feels that I need to become a statesperson rather than a politician on this matter, but I think that I would have to be a magician. It is hard to see how any formula for prices and valuation would capture and crystallise a volatile and contentious market. Whatever the Conservative Whip says, his party will probably have to recognise that it has strong feelings about price mechanisms. Historically, those have been substantially different from the views on this side.

Andrew Selous (Conservative, South West Bedfordshire)

The Minister spoke of a formula. However, we could also be talking about a mechanism; an independent means of valuation. I take the Minister's point that a formula might not always come up with the right price in a changing property market. However, would she ask her officials to consider a mechanism for independent valuation on an agreed basis that could give some certainty?

Sally Keeble (Labour, Northampton North)

I think that I used both words. I was talking about the formula, and I will show that there is a mechanism, which we have tried to simplify. The Opposition amendments have tended to favour the

freeholder. Some of the most strongly put views from Labour Members have concerned the problems experienced by leaseholders. We need a proper mechanism to resolve differences when it comes to deciding prices. I suspect that there would be more heated arguments about a formula than there would be about anything else. We have a mechanism—through the LVTs—and we believe that we have simplified it.

John Taylor (Conservative, Solihull)

I think that the Minister must give way.

Sally Keeble (Labour, Northampton North)

No, I am going to finish this point. The hon. Gentleman has twice mentioned the matter of valuation and has indicated that he intends to return to it on Report.

We have also included various methods of protection in the form of prescribed notices—I apologise if I have mentioned that before—and we intend to table an amendment on Report to limit the power of the Lands Tribunal as far as costs are concerned. That will deal with some of the difficulties that the hon. Gentleman has identified. I recognise the point—made repeatedly by hon. Member for Solihull and by my hon. Friend the Member for Cleethorpes, who has been vociferous about it—that although people can be given a right, they cannot always exercise it.

Elderly people who are in leasehold houses are particularly vulnerable to pressure. They tend not to rush to the law, and they often find it difficult to exercise their rights. They are not, therefore, always in the best position to protect their financial interests. There are some measures in the Bill to deal with that, and I give an absolute undertaking, which the hon. Member for Leominster (Mr. Wiggin) requested, to consider very carefully other proposals that come forward during the debate on the Bill. That is the point of scrutiny.

I believe that many of the constituents of my hon. Friend the Member for Bolton, South-East (Dr. Iddon) and those of my hon. Friend the Member for Cleethorpes experience similar problems. Those are a different matter from the arguments around leasehold in London and the south-east. I take the point about the purposes for which some of the properties were constructed, the state of some of them, the standard of the building and the standard of the houses at the front and the rear. Representations about that are frequently made to me by virtue of my other responsibilities—it is a vexed question.

The hon. Gentleman's aim is the abolition of leasehold, and that position is supported by a number of Committee Members and many interest groups outside this place. However, it is not covered in the Bill, because it is accepted that leasehold is an existing form of tenure. The purpose of the Bill is to improve the way in which it operates, not to bring the provisions to an end at a stroke. I hope that our debates on leasehold provisions will prove to be stronger than those on commonhold. We need to consider how the Bill will operate, and to make sure that it will do what the Government intend. We want to deal with some of the anomalies and abuses, and to

make sure that people in leasehold properties, be they flats or houses, are better able to exercise their rights. We want greater justice for leaseholders and freeholders.

John Taylor (Conservative, Solihull)

I dispute the Minister's historic stereotype. It is like something out of a pantomime—Labour were for tenants, and the Tories were for landlords. What nonsense! Even if it was once true, that time is past. Who enabled council house tenants to own their own homes? I suggest that we call it quits, and put the matter behind us. However, if she wants to use the old idiom—that I am the one who wants the price mechanism, and that the Tories are normally for free markets—

Sally Keeble (Labour, Northampton North)

May I correct the hon. Gentleman? I did not say that. I was not talking about people's attitudes. I said that most of the Opposition amendments have been protective of freeholders' rights. That was a specific point.

John Taylor (Conservative, Solihull)

The point that I want to make clear—does the Minister want it in the old idiom?—is that if I, as a Tory, am prepared to be interventionist about a price mechanism, even if it is arbitrary and even if it sometimes produces a slightly capricious result, why is not the Minister? Labour's deep loyalty is usually to those who are least able to deal with markets, who get buffeted and pushed around by them and find them difficult to control. It should be a good Labour instinct to protect people in difficult markets when the person on the other side is in a stronger position—and especially when there is no other shop to go to.

I appeal to the hon. Member for Cleethorpes. If the Bill has no price mechanism, there will not be many new freeholders in Cleethorpes; but there will be some very rich lawyers in Solihull.

Bill Cash (Conservative, Stone)

No one can say we have not had an interesting and stimulating exchange of views. A number of matters have been raised. We have already touched on marriage value, and I said that we shall return to that matter on Report. We have heard about the substantial problems faced by the hon. Member for Cleethorpes, and the strongly worded and deeply felt arguments put by my hon. Friend the Member for Solihull. Abolishing leasehold altogether may be a consequence of the move towards commonhold, but I am not entirely sure that a Bill that abolished leasehold would go down well on either side of the political divide, nor that it would be in the national interest. It is one thing to say that one does not like the way something works, but another to say that the remedy is execution.

Shona McIsaac (Labour, Cleethorpes)

I would not say execute. It is more like humanely put down.

Bill Cash (Conservative, Stone)

The Cash bolt was invented by one of my forebears, so I hope that the hon. Lady understands that we have made our contribution to humane disposal in the past.

We have to keep a sense of perspective. The subject of forfeiture was raised and I have a letter about it. No doubt we shall come back to it in due course. It is extremely wise of us to bear in mind the famous expression that appears, I think, in Maine's ''Ancient Law'' stating that justice is to be found in the interstices of procedure. That is a rather pompous way of putting it, but if we want a proper mechanism or formula, to lay down the criteria is a different matter from applying them in the procedures available in the appropriate tribunal, whether that is a court or the LVT. We shall come to some amendments that I have tabled on the mechanics of the LVT and the procedures that apply to it.

Issues were raised on Second Reading about the clear misuse of provisions contained in leases for the purposes of exploiting people. Such misuse must be wrong. It deserves careful consideration. That is not to say that it follows that a system of forfeiture can ultimately lead to a person losing their premises when it would be clear, by any standards, that he could not expect to remain there and continue to break every covenant in the place. There are thresholds and senses of perspective that we must bring into our proceedings.

I have been impressed by the quality of the arguments that I have heard today from both sides of the Committee, but we must weigh up each matter to reflect the proper balance of interests of the freeholder and leaseholder. I repudiate what the Minister said about our simply making arguments that favour the freeholder. That is not the case, and I seem to remember that the Government were reluctant to make any significant move on the question of unanimity. That remains an outstanding issue to which we will return on Report, and I think that we will return to matters under the clause as well.

John Taylor (Conservative, Solihull)

Even as my hon. Friend anticipates our return to certain matters, will he remember the old adage that it is not so important that the law be fair but that it be certain?

Bill Cash (Conservative, Stone)

Indeed, and I am sure that my hon. Friend is right, although the more certain that the law is in the minds of those who make propositions, the more possible it is that the judge will take a contrary view, so that the law becomes certain only when the judgment is given. Therefore it is essential for us to get the balance right, and not to throw the baby out with the bath water. We must arrive at some sensible balance that will enable the tribunal or court to come to the right decision, with the appropriate procedures.

There would be some certainty when a decision was made, but my hon. Friend will also remember that degrees of certainty can be shifted by superior courts. What is certain on day one when the court of first instance makes its decision suddenly becomes uncertain when it reaches the Court of Appeal. Thereafter, it might be subject to the House of Lords if necessary and, these days, to courts in foreign lands. That is the nearest that I will go to adjudicating on such matters in my present capacity.

Important provisions on human rights have come to our attention in our proceedings. The concept is extremely elastic, with much good in it and a great deal of uncertainty. However, I am beginning to stray into subjects dangerous for you, Mr. Illsley, and for me. We will consider the matters carefully. I propose that we do so on Report in the hope that the Minister will bear in mind that it was for the interests of the House, given the debate on Second Reading, that we have considered them in Committee, but that they should go back to the Floor of the House if necessary so that they can be discussed by the House as a whole.

Sally Keeble (Labour, Northampton North)

May I formally move that the clause stand part of the Bill? It is fairly technical.

Eric Illsley (Labour, Barnsley Central)

The Chairman moves that clauses stand part of the Bill, but he is pleased to get the Committee to do it.

Question put and agreed to.

Clause 134 ordered to stand part of the Bill.

Clause 135 - Abolition of residence test

Sally Keeble (Labour, Northampton North)

I beg to move amendment No. 102, in page 65, line 20, at end insert—

'(1ZB) Where a flat forming part of a house is let to a person who is a qualifying tenant of the flat for the purposes of Chapter 1 or 2 of Part 1 of the Leasehold Reform, Housing and Urban Development Act 1993 (c.28), a tenant of the house does not have any right under this Part of this Act unless, at the relevant time, he has been occupying the house, or any part of it, as his only or main residence (whether or not he has been using it for other purposes)—

(a) for the last two years; or

(b) for periods amounting to two years in the last ten years.''.'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to take Government amendments Nos. 103 to 106.

Sally Keeble (Labour, Northampton North)

The amendment is intended to address concerns raised in another place about the enfranchisement of head leases. For a head lease of a building that can be regarded as a house and parts of which have been sublet on long leases, changes to the Bill would enable a non-resident head lessee, with possibly only a nominal interest in the building, to enfranchise the whole building under the Leasehold Reform Act 1967. Such a head lessee would stand to make a windfall profit at the expense of the landlord if under-lessees subsequently collectively enfranchised or acquired new leases under the Leasehold Reform, Housing and Urban Development Act 1993. It was agreed in another place that we would table an appropriate amendment in this House.

The amendment closes a loophole that made it possible for people to realise windfall profits. It provides that, where part of a house is sublet to a person who is a qualifying tenant for the purposes of the 1993 Act, the house cannot be enfranchised under the 1967 Act unless the head lessee has occupied the house, or any part of it, for the previous two years or periods totalling two years in the past 10. That will

prevent any opportunity for non-resident head lessees to enfranchise and make windfall gains from subsequent enfranchisement or lease renewal under the 1993 Act. It will retain the existing right for head lessees to enfranchise in such circumstances.

Amendments Nos. 103 to 106 make consequential changes. I ask the Committee to endorse them.

Bill Cash (Conservative, Stone)

I heard what the Minister said. At this juncture, I am not disposed to dispute the argument. We will consider the matter, but so far as I am concerned we will allow the amendments to pass for the time being.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

Shona McIsaac (Labour, Cleethorpes)

I welcome the abolition of the residence test in clause 135. As I said in an earlier discussion, I have had not necessarily evidence of abuse, but instances of my constituents being disadvantaged. One of the most severe cases was that of an 84-year-old resident. Her health was failing and she was keen to enfranchise, because she knew that she might shortly die and she understood that it was important to secure the freehold for her family. However, after that elderly lady had had a number of strokes and had gone into long-term care, her family were told by the freeholder that she no longer met the residence test and could not enfranchise. Sadly, the lady died before enfranchisement could occur, so as the rules stand her family had no right to continue with the purchase of the freehold. Will the Minister confirm that the abolition of the residence test will prevent such abuse?

Sally Keeble (Labour, Northampton North)

I welcome my hon. Friend's support for the clause, which serves a dual purpose. It will close the loophole that barred people who would normally be entitled to enfranchise from doing so, and the loophole that allowed certain people to become head lessees and then to realise a windfall profit.

Question put and agreed to.

Clause 135, as amended, ordered to stand part of the Bill.

Clause 136 - Reduction of qualifying period as tenant etc

Bill Cash (Conservative, Stone)

I beg to move amendment No. 50, in page 66, line 11, at end insert—

'(1C) This Part of this Act shall not have effect to confer any right on the tenant of a house where—

(i) the house is for the time being let as two or more flats or units; and

(ii) the tenancy is superior to those held by the other tenants,

unless, at the relevant time, the tenant has been occupying the house, or any part of it, as his only or main residence (whether or not he has been using it for other purposes)—

(a) for the last two years; or

(b) for periods amounting to two years in the last 10 years.'.

The clause introduces a requirement for the leaseholder to have held the lease for at least two years before exercising the right to enfranchise or to extend the lease. It also cuts out lease owners from the rights of their tenancy unless they can pass a residence test. That would involve their occupying the house as their only or main residence for the past two years or periods amounting to at least two years in the past 10. The purpose of amending clause 136 is to prevent that part of the Act from having the effect of conferring any right on the tenant of a house when

''the house is for the time being let as two or more flats or units; and the tenancy is superior to those held by the other tenants, unless, at the relevant time, the tenant has been occupying the house, or any part of it, as his only or main residence (whether or not he has been using it for other purposes) for the last two years; or for periods amounting to two years in the last 10 years.'.''

That seems to be a perfectly reasonable proposal, given the requirements of clause 136, and I shall be grateful to hear what the Minister has to say about it.

Sally Keeble (Labour, Northampton North)

We have just agreed to amendment No. 102, which does virtually that. The hon. Gentleman said that he wanted to return to the issue on Report, having looked through all the provisions of the Government amendment. I would, therefore, ask him to withdraw this amendment and, if he wishes to return to the issue, to do so on Report, as he said he would.

The amendment would prevent the head lessee of a household from enfranchising if the house has been converted into flats that have been let to long leaseholders who qualify for the right to enfranchise collectively. It would achieve exactly the same as the amendment that we have just agreed to. The hon. Gentleman might like to consider the detail and come back on Report if he wants to do so.

Bill Cash (Conservative, Stone)

I am happy to do so. I thought that it was important at least to ask the question, but I agree with the Minister. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 136 ordered to stand part of the Bill.

Clause 137 - Exclusion of certain business tenancies

Clause 139 - Personal representatives

Shona McIsaac (Labour, Cleethorpes)

I beg to move amendment No. 89, in page 67, line 33, leave out 'one year' and insert 'five years'.

The amendment is about family rights and personal representatives. It has always been the case that the family cannot inherit the right to enfranchise on the death of the leaseholder. Often the children who grew up in the house regard it as the family home, much as their parents did. That fact has caused a great deal of anguish in my constituency, so I welcome the fact that personal representatives—that is, family members—will have the right to enfranchise on the death of a family member.

The amendment would increase the period from one year to five. I believe that one year is too short a time. Such families suffer grief and are often distraught when a relative passes away. It can often take time to find out whether or not the property is leasehold. Before choosing whether to enfranchise, probate or letters of administration may have to be granted. If the family wish to move into that home, they may first have to sell their own property, and that could be another leasehold property. One year is too short a time to deal with such complex matters.

I am still trying to deal with one such case. The family have been struggling for about six years, following the death of a family member, to sort out the leasehold and freehold issues relating to a particular house. I want to increase the period allowed for consideration of such issues, and I hope that the Government will look favourably on my amendment.

I want to share with the Committee some of the harrowing cases that have occurred since the 1967 Act, in which families have discovered the extent of their losses—

Bill Wiggin (Conservative, Leominster)

I am grateful to the hon. Lady for giving way before proceeding with her story. Does she foresee that, in an area with many elderly residents, her measure would allow a lot of leasehold properties to stand empty while people made a decision about whether or not to proceed with the purchase of the freehold? That would create empty areas that would very likely become run-down or vandalised. What is her view on that?

Shona McIsaac (Labour, Cleethorpes)

As leasehold law stands, many areas of Britain are already run-down and vandalised because of the nature of this form of housing tenure. When someone passes away and the family do not have a right to enfranchise, the house is already standing empty, and in a slow market will stand empty for some time. I do not envisage that the process would take up to five years, but the one-year period is far too short for people to deal with all the affairs relating to a close relative passing away. They will have to deal with all the legal issues surrounding that, particularly if the person died in difficult circumstances or in a

hospital, making reports necessary. The financing must be sorted out and people may have to get a loan to buy the freehold. The one-year period is too short.

The deficiencies of the 1967 Act were brought into sharp relief by the case that I am about to describe. An old gentleman who lived in a house in my own street in Cleethorpes passed away, and in his will left his house to his stepson. The stepson initially had no idea that the house was a leasehold property, and the old gentleman had always said, ''When I pass away, you can come out of your council-rented property and this house will be here for you.''

As the tenant had not enfranchised, the price finally quoted to the stepson was £30,000 to purchase the freehold. He did not have a right in law. When we tracked down the landowners, they said, ''We give in, we'll sell it to you.'' The family could not afford to raise the £30,000 to buy a property that they had assumed was the family home anyway. The house was sold on the open market, on another 99-year lease—

Bill Wiggin (Conservative, Leominster)

How much did it sell for?

Shona McIsaac (Labour, Cleethorpes)

The price was £25,000—I believe that there was some argument with the vendors. As a conscientious Member of Parliament, I knocked on the door of the new residents to tell them to buy the freehold pretty damn quick. The landlord was not terribly happy about that, but I did not want to see another family go through the trauma that the first family went through.

The old gentleman passed away in January. When I was trying to assist the family, we knew that the lease was due to run out in April. The landowners did not even reply with their figure of £30,000 until 15 March. All of us would probably find it difficult to raise £30,000 in a fortnight, and in a part of the country such as Cleethorpe incomes are very low and there is much poverty.

There are many other such cases where someone has passed away and the family home has been lost. That has happened on so many occasions in my constituency that I welcome the provisions on the rights of personal representatives. However, I do not want the one-year period to mean that normal people find out that although we have given them the right, they will not be able to exercise it because the period allowed is too short. I hope that the Minister gives the amendment serious consideration.

I shall not detain the Committee further with other cases. I felt that the one from my street was among the most serious. I shall continue to speak out about leasehold issues, because every time I am at home and I see that house, it reminds me of what that family had to go through because of the deficiencies of the 1967 Act.

Sally Keeble (Labour, Northampton North)

My hon. Friends' amendment would extend to five years the period in which personal representatives can exercise the right to enfranchise or extend the lease of a house. My hon. Friend made a persuasive case for an extension and again illustrated

how the law can apply unfairly to people in her area. She has made that case strongly and consistently for some time.

The main purpose of clause 139 is to remedy the position in which some personal representatives find themselves when they take over responsibility for a leasehold house that has a short remaining lease and find themselves unable to sell the remaining lease—or at least get a reasonable price for it. Some landlords have taken unfair advantage of personal representatives who find themselves in that situation, as my hon. Friend demonstrated very well. We recognise that it can take some time for personal representatives to deal with the affairs of a deceased person, especially if the person was a close relative, and we want to ensure that a reasonable period of time is allowed within which they can make a claim for the freehold or an extended lease.

Although we accept that determining such time periods invariably involves a degree of arbitrary consideration, in this case we have to bear in mind that the Bill already proposes that a lease on a house need only be held for two years to qualify for enfranchisement or lease extension. We are not therefore convinced that increasing the period beyond two years would serve any useful purpose. However, I am grateful to my hon. Friends for raising the issue and am happy to consider extending the period from one to two years by tabling a Government amendment on Report. At the same time, and in the interests of consistency, I will consider amending clause 129(2), which is the equivalent clause specifying the time period within which personal representatives need to make a claim for renewing a lease of a flat.

Those changes have been proposed in light of my hon. Friend's arguments and the strong case that she has made for some time. I hope that my hon. Friends are reassured and ask them to withdraw the amendment.

Shona McIsaac (Labour, Cleethorpes)

I am grateful to the Minister for her comments. In the Bill on leasehold reform that I introduced under the ten-minute rule a few years ago, one of my main demands was for the recognition of the rights of personal representatives and family, so I am pleased that that provision is in the Bill.

The one-year period disappointed me. However, given the Opposition's suggestion that five years might lead to properties being left empty and that the Minister has assured me that she will introduce a Government amendment on Report to increase the period to two years, which would make things easier for families in difficult circumstances—

Andrew Selous (Conservative, South West Bedfordshire)

I refer to the hon. Lady's remarks about the freeholder being slow to provide the information. Does she think that the requirements to ensure that freeholders provide information to leaseholders, so that they can decide whether to exercise the option, are adequate?

Shona McIsaac (Labour, Cleethorpes)

My comment related to changing the valuation date to the date of the freeholder's counter-notice. When the freeholder is delaying deliberately, the date should remain that when the

leaseholder chooses to enfranchise. That was my point. Increasing the period by one year would help with difficult situations, when leaseholders need to be tracked down. In the worst case of which I have heard, the leaseholder has not been tracked down for more than 10 years. It would not be right to change the Bill to deal with such exceptional cases, however.

I am happy to accept my hon. Friend the Minister's assurances that she will introduce an amendment on Report to make things easier for families in difficult circumstances.

Bill Cash (Conservative, Stone)

We are making some progress. I agree with the hon. Member for Cleethorpes and I also agree with my hon. Friend the Member for Leominster about making the period too long. Will the Minister consider the possible bar in the mechanics of the provision of information by the freeholder?

All hon. Members have an interest in ensuring that these proposals work. We continue to run into technical obstacles but, as we proceed, we think of ways to make the Bill more workable. That is in the interests of leaseholders and freeholders. I have no doubt that huge numbers of leaseholders will benefit from provisions of this sort in the interim period, irrespective of whether those who would like the system to be abolished altogether achieve their objective.

Adrian Sanders (Liberal Democrat, Torbay)

The Minister has proposed a happy compromise, which we shall support on Report, but I wonder why it had not been thought through beforehand. If one can enfranchise after two years' residence, why make the period one year in the case of inheritance? The solution seems obvious now, but that is due to the nature of Standing Committees. I congratulate the hon. Member for Cleethorpes on prompting the Government in that direction and graciously accept what the Minister proposed. We shall support the amendment on Report.

Shona McIsaac (Labour, Cleethorpes)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 139 ordered to stand part of the Bill.

Clause 140 ordered to stand part of the Bill.

Clause 141 - Exclusion of shared ownership leases

Bill Cash (Conservative, Stone)

The clause raises the question of whether marriage value could have been left out of the Bill. We may be able to settle that in the context of our previous discussions. Assuming that we have the opportunity, we may return to the matter on Report.

We have maintained a brisk pace in the Committee. We have had regard to the importance of dealing with some matters, but have proceeded on the basis that we would have a proper discussion on Report. No doubt, Mr. Illsley, you and others have marked out the areas of concern, and I am sure that the Minister takes the point. I am simply glancing at the Whip but I feel that, as we have made the most of available opportunities, it would be invidious if the matters that we wanted to discuss on Report were programmed out of existence. It would be in the interests of all parties and the House as a whole to ensure that that does not happen. We want to make the system work as well as possible and we are dealing with the matters responsibly. I hope that we will have an opportunity to make our points and that these matters will not be crammed into an hour and a half on Report.

Sally Keeble (Labour, Northampton North)

The clause deals with the exclusion of shared ownership leases. The two following clauses deal with marriage value. However, I take the hon. Gentleman's point that he wants to return to the matter.

Clause 141 ordered to stand part of the Bill.

Clauses 142 and 143 ordered to stand part of the Bill.

Clause 144 - Purchase price for enfranchisement during lease extension

Shona McIsaac (Labour, Cleethorpes)

I beg to move amendment No. 90, in page 69, line 22, at end insert—

'(1A) In section 9 of the 1967 Act, after subsection (2) insert—

''(2A) The landlord shall provide the tenant with notice in writing of the basis on which the price payable for the house and premises has been calculated.''.'.

The amendment stands in my name and that of my hon. Friend the Member for Bolton, South-East. As the hon. Member for Solihull said, the purchase price of the lease on enfranchisement is a serious issue. The amendment would oblige freeholders to show the enfranchising leaseholder how they decided on the purchase price.

The hon. Member for Solihull referred to formulas. Under existing guidelines, the freeholder may tell residents of properties in Cleethorpes and Grimsby that are worth £20,000 to £25,000 on the open market, that the freehold is for sale for £10,000. That seems to be the average.

John Taylor (Conservative, Solihull)

In the sort of case to which she has referred, what would be a typical annual ground rent?

Shona McIsaac (Labour, Cleethorpes)

It is £2 a year. With a £2 a year ground rent and a long lease, such a purchase price is clearly an abuse, which is made possible by the complexities of the rules and guidelines.

The Leasehold Advisory Service document, ''Houses: qualification and evaluation for enfranchisement'', states:

''the valuation process required by the law is complicated so it is often difficult to form a clear view at the beginning of the amount.''

It goes on to say:

''because the basic right has been extended over the years by various amendments made to the 1967 Act, rules for calculating the price are somewhat complicated.''

That is an understatement if ever there was one. The rules are far more than complicated. One needs a degree in maths or statistics to work through them.

A document from the Department of the Environment, Transport and the Regions, as was, entitled, ''Leasehold Houses; your right to buy the freehold of your house or extend your lease'', uses the word ''formula'' not in relation to the purchase price but to the section of the Act under which people qualify to enfranchise. It is important to get it right. It is

''R = P x I over 1 -(1 + I) x -T''.

John Taylor (Conservative, Solihull)

What is ''I''?

Shona McIsaac (Labour, Cleethorpes)

''I'' is, in this instance, 0.06 which, I understand, comes from various tables. There are rules to guide one if one wants to work it through—P is the purchase price paid when the lease was granted, T is the number of years granted by the lease and, if R is less than £25,000 one can enfranchise, but it is very complicated. Some freeholders abuse the system and charge what they like, because it is so complex and the guidelines on purchase price are so difficult to understand. I do not even believe that all solicitors follow how it works. Residents certainly do not understand.

If, on enfranchising, certain information had to be provided—for example, whether original or special valuation basis was used in the calculations—some of the abuses would be avoided. The majority of the low-value, terraced properties in north-east Lincolnshire should be purchased on original valuation basis; the residents should be paying the cheapest price. Some of the figures that I have been sharing demonstrate that they are not getting those at all; they are being charged way above what the rules suggest.

John Taylor (Conservative, Solihull)

In an endeavour to be helpful, I suggest that if the freehold reversion is an asset producing an income of £2 and the prevailing interest rate happens to be 4 per cent., then the capitalised value £50.

Shona McIsaac (Labour, Cleethorpes)

Absolutely. That demonstrates the nature of the abuse, but perhaps I am being unfair in calling it that. Residents in my area and in many other constituencies—

Brian Iddon (Labour, Bolton South East)

Does my hon. Friend find it strange that in her part of the world, the lease period is 99 years, yet in mine it is 999 years? Should there not be legislation to make a uniform lease period across the country? Otherwise, in this respect, my hon. Friend's constituency will be very unfairly treated compared with mine.

Shona McIsaac (Labour, Cleethorpes)

I would like some consistency throughout the country. When leasehold houses were first built, the period was up to the landowner to decide. It would be difficult to bring all leases into one pot and agree on a common period. In my hon. Friend's constituency, with 999-year leases, we find the

ground rent grazers and the insurance abuses. I get a little of that, but not as much. With 99-year leases, people know that they will have windfall gains within the next few years.

I want a provision in the Bill that will oblige freeholders to tell enfranchising leaseholders exactly how they arrive at their prices—including giving details of the ground rent and the rateable value and working through the mathematics. As soon as the freeholders have to do that, my constituents will stop being quoted figures of £10,000, £15,000 and £20,000 when they should be offered the very lowest prices. Such a requirement would give a good solicitor who understands the rules a chance to challenge the figures, because he could see what he was dealing with.

On purchase price, there is no difference in my area between leasehold and freehold property. There is no advantage to residents. I shall go through some of the prices that are being quoted. The hon. Member for Solihull, with his mathematical genius, may be able to help me. A small terraced house in a street called Park View has three years left on the lease. The residents have been told in writing that it is £10,000 plus fees. I should also like the Bill to provide that, as part of the process of giving the leaseholder information, there should be some explanation of that figure. At the moment fees are just added to the purchase price and some of them are extraordinarily high.

John Taylor (Conservative, Solihull)

Will the hon. Lady concede that, whereas there is no width of market in the reversion—there is only one reversion—there are always alternative sources of professional advice.

Shona McIsaac (Labour, Cleethorpes)

I agree, but I am talking not about the leaseholder's solicitor but about the fact that when one is enfranchising one has to pay one's own fees and those of the freeholder. That is not fair or just. The hon. Gentleman mentioned council house tenants earlier. They did not have to pay the council's fees, so far as I know, in a compulsory purchase situation, so I do not see why the leaseholders should have to pay the fees of the landowner.

The ground rent of the property to which I was referring was £2.

Bill Wiggin (Conservative, Leominster)

I am sympathetic to what the hon. Lady is trying to achieve in her amendment. However, her emphasis has wandered somewhat. In the case of the three years left to run, had those leaseholders decided not to continue the lease for a further period and waited until it expired, they would admittedly be in a vulnerable position, whether or not they were forced to repurchase their house, but they would not be liable for fees. One is buying something that one did not have before and therefore paying a fee for it. I do not necessarily accept that that is an equitable way to do business, but it is something that is done and understood. Before we go too far down the road of claiming social injustice, that is something that people know about, and they have an option to avoid it by waiting until the lease expires.

Shona McIsaac (Labour, Cleethorpes)

I totally disagree with the hon. Gentleman.

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.

Standing Committee D

Clause 144 - Purchase price for enfranchisement - during lease extension

Shona McIsaac (Labour, Cleethorpes)

I welcome you to the Chair, Mr. Hurst, and to the afternoon sitting of the Committee. Just before lunch, I was disagreeing with the hon. Member for Leominster (Mr. Wiggin). However, I have forgotten the point of his intervention, which concerned various aspects of the purchase price. He may wish to refresh my memory. If not, I shall continue with my speech and say why we should oblige the leaseholder to let the enfranchising leaseholder know how the purchase price was derived.

There are vast disparities in the purchase price of freeholds for houses in Grimsby and Cleethorpes, yet most of those houses have the same open-market value, pay the same ground rent of about £2 a year and have the same rateable value. Many of them are in the same streets, were built at the same time and have 99-year leases. The price for enfranchisement for my constituents ranges from about £2,000 to more than £10,000. Clearly, something is not working. Detailing the purchase price will give more clarity for those who wish to enfranchise.

People are happy to pay a fair price for their freehold, but they object to being overcharged for something that they believe they already own. Without evidence, the freeholder cannot say, ''Hang on a minute, that is not right.'' The amendment tries to deal with that problem. I suggest that landlords and landowners should be obliged to detail the basis on which they had calculated the purchase price. For example, they should say whether it was done on an original valuation basis or a special valuation basis, and give an estimate of marriage value. As any surveyor and valuer will agree, it is easy to tinker with estimates of marriage values and some enfranchising tenants pay 100 per cent. and not 50 per cent. I disagree with marriage value on principle because freeholders receive their money on day one, but I shall come to that later. I also believe that freeholders should detail their fees.

In any other purchase situation, one would pay one's own fees, but not the other person's, but with enfranchisement, one has to pay both sets of fees. The leaseholder should not have to pay the freeholder's fees. I realise that people charge different fees, but the

vast disparity in the fees charged shows that some landowners are trying to make a fast buck. In those circumstances, the leaseholder should be able to challenge the fees on the ground of reasonableness.

The amendment to the Leasehold Reform Act 1967 that would oblige the freeholder to detail the prices ought also to say what the modern ground rent would be and how it has been derived, should the leaseholder choose not to proceed with enfranchisement.

In my introduction to the amendment, I quoted the booklet published by the Leasehold Advisory Service. It suggested that it was complicated to derive a purchase price. Because it is complicated, there is merit in simplifying the purchase price and setting down some sort of formula, as the hon. Member for Solihull (Mr. Taylor) has touched on today. That could be achieved using my amendment, as it would allow details of how purchase price was to be worked out through some sort of formula. That formula could be subject to debate and differences of opinion, but no one could disagree with the clear principle behind it. Government literature on leasehold houses already sets out a formula on how to decide whether to enfranchise. We could use that as a basis.

The document from LEASE gives examples of how the purchase price can be worked out. Intriguingly, one is of a house of a much higher value than those in my constituency, yet the purchase price for the freehold is given as about £2,000. That shows how things are going wrong. The information is useful, and we could also take it as the basis of setting out purchase price.

It is not unusual for people in their 70s and 80s to say at my advice sessions that they cannot enfranchise or afford the modern ground rent. If we are to oblige freeholders to give evidence as to how they derive sometimes outrageous figures that mean that people simply cannot afford to enfranchise, perhaps because they are elderly or on income support, the Government's literature should be much clearer. The literature provided to me by the Department is about as clear as mud. I do not feel that it helps; it adds to the confusion.

The Government can work with the amendment. I hope that my hon. Friend the Minister will accept it and reconsider the requests to set a formula. That would be difficult, but not impossible. In principle, we all agree that people have the right to know how the prices have been worked out, which would simplify matters. I urge her to accept my amendment and give details as to how the purchase price will be worked out. I hope that by doing so, we will avoid residents being overcharged when they buy something that they believe they already own.

John Taylor (Conservative, Solihull)

I intervene in the debate only briefly, in general support of the hon. Member for Cleethorpes (Shona McIsaac). Nineteenth-century liberalism—[Hon. Members: ''Hear, hear!''] If there are any 19th-century liberals on the Committee, those are pretty old bones by now. Nineteenth-century liberalism, which is much admired by modern conservatism, solved many problems by leaving everything to the market. It allowed the market to

decide. A purity in the market achieves a balance between supply and demand and fixes the price without anyone needing to intervene in a dirigiste way.

In support of the hon. Lady, I shall say that I would normally leave everything to the market but, in this case, there is no market. Only one person owns the freehold and only one person owns the leasehold of any given property. If the leaseholder thinks that the freeholder's suggested price for enfranchisement is too high, he cannot, as he classically would, shop elsewhere and buy his freehold from someone who asks a more reasonable price. That is what one would do if one were buying a carpet. If shop A was too expensive, one might try shop B and see if it were more reasonable. There is no shopping around on the subject and in my experience the freeholder is generally in the slightly stronger bargaining position because he can choose to do nothing. Of the two parties, the only one suited by inertia is probably the freeholder.

That is my modest contribution on the amendment. As the Committee will know, I am disposed to be somewhat interventionist on the subject because there is no market, which means that one cannot leave everything to the market.

Sally Keeble (Labour, Northampton North)

I also welcome you back to the Committee, Mr. Hurst.

The amendment deals with the provision of information to the leaseholder, which has been raised repeatedly. Although some hon. Members have spoken about a formula, the amendment would not provide for one. It refers to providing

''the tenant with notice in writing of the basis on which the price payable for the house and premises has been calculated''.

It does not say what the calculation should be, which is what I would understand a formula to do. It is about a matter of information. My hon. Friend the Member for Cleethorpes argued well that some people in her constituency were not in a position to exercise their rights or challenge the freeholder because they were elderly, not in a strong financial position or not the sort of people who normally took to the courts.

The amendment would provide that a landlord should include, in his counter-notice, a written explanation of the basis on which the price had been calculated. The 1967 Act already contains powers to prescribe the contents of a landlord's counter-notice. We consider that we could achieve my hon. Friend's objectives without the need to amend the Bill, so we feel that the provision should not be included. I give her complete assurance that we would deal with the issue in secondary legislation when we considered a range of issues about prescribed notices and the provision of information.

There is a range of issues to consider such as those relevant to the amendment, including provision for detailed information to ensure that people have rights and are in the best possible positions to exercise them. On that basis and with those assurances that the

matter will be properly dealt with in secondary legislation, I ask my hon. Friend to withdraw the amendment.

Shona McIsaac (Labour, Cleethorpes)

I thank my hon. Friend for her explanation. Through the amendment, I am seeking information about the structure of the 1967 Act. Accepting the amendment would give her a means to set down formulas. She said in previous sittings that it would be difficult to set down a formula, but that should not deter us. I believe that the amendment would give us that opportunity. If secondary legislation is to be introduced, will it achieve what I seek, which is to give people information? When will that secondary legislation be made? If it is not expected for another three years, it will mean too long a wait. However, if it is to be done by secondary legislation, it would give us more time than is possible with the Bill, which is the subject of a programme motion. When will the secondary legislation be introduced?

Sally Keeble (Labour, Northampton North)

I would expect a statutory instrument to be introduced about six months after the Bill's enactment. I would expect it to be subject to the negative resolution procedure, but there will still have to be extensive consultation. My hon. Friend has already been assured that we shall deal with the price payable and so on, and there are good provisions to allow us to debate such a resolution. It would be done within six months; we are not talking about three years.

Shona McIsaac (Labour, Cleethorpes)

I thank my hon. Friend for that assurance. A statutory instrument introduced within six months that is preceded by consultation is something that I can live with. During the consultation period, I shall continue vigorously to pursue the setting of a formula. Such legislation would allow for that and I am sure that the other organisations that have campaigned for a fair formula will also take part in the consultation. I am sure, too, that the hon. Member for Solihull will take part.

I shall hold my hon. Friend to her assurance and I shall be pursuing the matter vigorously until the statutory instrument is passed. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Shona McIsaac (Labour, Cleethorpes)

The clause is about the purchase price for enfranchisement during lease extension. Being able to enfranchise during lease extension is a welcome change. As I said earlier, I have a number of problems in my constituency with 99-year leases running out, because most of the houses in question were built in the early 20th century. People cannot afford to enfranchise, which, considering some of the figures that I have cited, is not surprising. Let us hope that the Minister's planned statutory instrument will put a stop to such high prices. Many people are forced to take out lease extensions. That means that they are, strictly speaking, tenants, with no further rights to

enfranchise. I have always considered that a gross injustice, so I certainly welcome the provisions on enfranchisement during lease extension.

My understanding of clause 144 is that the purchase price for enfranchisement during lease extension will be determined on the special valuation basis, which means that higher prices will be charged. I would appreciate it if the Minister would comment on that. If someone had been able to enfranchise on the original valuation basis, and that was their expectation when they purchased the interest and started paying their ground rent, they should be allowed to continue to enjoy the right to purchase their freehold on that basis.

On the 50-year extension, my argument is that if the original term of a lease was 99 or 100 years and that lease is coming up for renewal, the lessee should be able to extend it by the same period as the original term—by 99 or 100 years if that was its original length. I do not understand where the 50-year period comes from. If the freeholder takes possession of the property, as has been happening in my constituency, the house is resold with a new 99-year lease. I would like the Minister to comment on that.

Sally Keeble (Labour, Northampton North)

My hon. Friend is right about the special valuation basis. In terms of the original valuation basis, the Government take the view that in a compulsory purchase situation, the landlord is entitled to the fair market price for their interest in the property as a whole, including the land and the building standing on it. There has been some discussion about whether the transaction could always be described as a compulsory purchase, but it is the Government's view that it could and we have applied that principle consistently.

Under the 1967 Act the basis is more favourable to the leaseholder, which reflects the circumstances that that Act was originally intended to address. I spoke about that earlier; it applied particularly to people with leasehold houses in south Wales. Whenever the right to enfranchise has been extended, it has been on the special valuation basis. This latest change follows that precedent. Although we no longer believe the original valuation basis to be appropriate, we do not wish to interfere with the existing rights of leaseholders who qualify to enfranchise on that basis.

My hon. Friend also mentioned the 50-year lease extension. We do not consider that it would be right to give a leaseholder a discount on the price paid for the freehold to reflect the fact that the lease has been extended by 50 years. Leaseholders do not pay any premium for such a lease extension. It would be akin to giving a refund on goods that have not been purchased. However, leaseholders will receive a discount to reflect the value of any improvements that they have made at their own expense.

I hope that I have provided my hon. Friend with the explanation that she sought. The clause advances the interests of those with leasehold houses, whose cause she has continually championed, and I welcome her support for it.

Shona McIsaac (Labour, Cleethorpes)

I hope that the Minister will clarify what she said about acknowledging the fact that the leaseholder has invested a lot of money in maintaining

the property—as she says, any improvements are at the leaseholders' cost. In leasehold houses, all the improvements are at the leaseholders' expense. Houses built between, say, 1900 and 1905 have had to be rewired and the plumbing has had to be done. In many cases, they have had to be re-roofed and damp proof courses have had to be put in. That has all been done at the expense of the leaseholder—

Alan Hurst (Labour, Braintree)

Order. This is far too long for an intervention.

Shona McIsaac (Labour, Cleethorpes)

Will my hon. Friend detail how leaseholders would be compensated for those outlays?

Sally Keeble (Labour, Northampton North)

Is my hon. Friend talking about the original valuation or the 50-year lease extension?

Shona McIsaac (Labour, Cleethorpes)

The 50-year lease extension.

Sally Keeble (Labour, Northampton North)

The point is not so much about compensating leaseholders. It would not be right to give a leaseholder a discount on the price paid for the freehold to reflect the fact that the lease has been extended by 50 years. He will have received a substantial benefit. It is recognised that leaseholders undertake improvements to the property; that is one of the characteristics of freehold as a tenure. It is one of the reasons why people who are leaseholders regard themselves as owners, rather than as tenants. It goes with the nature of the tenure.

Bill Cash (Conservative, Stone)

There is a tendency for the debate to gravitate towards an assumption that, notwithstanding the fact that a leaseholder performs his covenants, somehow or other he is equivalent to the freeholder. This is where we should get a few things straight—the leaseholder does not have the full responsibilities that the freeholder has. It is ''Alice in Wonderland'' to imagine that that is the case. The Minister has gone along with it, and we have all been sympathetic towards the idea that the leaseholder has to be given safeguards and things of that kind. I am certainly not going down the route of saying that the leaseholder is equivalent to the freeholder in every respect; it is not true. It is not a matter of personal, or even party political opinion, or philosophy; it is a matter of law. It is inappropriate and I shall not accept a stream of misconceptions being generated in the Committee. It is nothing to do with which side one is on; we have not really discussed it until recently, through the hon. Member for Cleethorpes. She has had a sympathetic response from Conservative Members, but she should not get carried away with the idea that the leaseholder is the equivalent of the freeholder; it is not the case. The freeholder has responsibilities and costs. It is not all one way.

Shona McIsaac (Labour, Cleethorpes)

I have collated evidence from my constituency and elsewhere. It shows that the freeholders of the houses do nothing and rarely, if ever, get in touch with the leaseholders after the lease is signed. I have a letter here from one of the large landowners. It states—

Alan Hurst (Labour, Braintree)

Order. I am sorry to interrupt the hon. Lady, but she will have a chance to make a further speech.

Bill Cash (Conservative, Stone)

We know what the hon. Member for Cleethorpes was going to say. In a debate of this kind,

it is important to keep a sense of perspective and not to allow party political enthusiasms to get in the way.

Shona McIsaac (Labour, Cleethorpes)

It is nothing to do with that.

Bill Cash (Conservative, Stone)

We a discussing a matter of law, not simply a matter of opinion. There may be some bad landlords and freeholders and the hon. Lady may have evidence from her constituency to show that that is the case, but it does not necessarily follow that one can extrapolate from the Cleethorpes experience the position in the rest of the country. Cleethorpes seems to have a special problem. We cannot take it any further than that, because we have to take her word for it. She represents Cleethorpes and has special information about it.

Shona McIsaac (Labour, Cleethorpes)

Does the hon. Gentleman accept that hon. Members representing the parts of the country in which there are large numbers of leasehold properties find a great many problems? That does not happen in my constituency alone; in some 40 constituencies in this country, more than 30 per cent. of the properties are leasehold houses. Would he agree with one of the big landowners in my area, that the landlord has an association with the tenant only at the very beginning of the lease? Landlords often do absolutely nothing beyond that point and that situation is prevalent in much of the country.

Bill Cash (Conservative, Stone)

I am glad that the hon. Lady said that the situation was prevalent in much of the country, because that sums up my argument. I do not want to pursue the matter, but I do not want the debate to turn on the assumption that leaseholders are angels and freeholders are wicked; that is simply not the case. I am not speaking for freeholders and I accept some of the criticisms that have been made of them, but we must remember that freeholders provide the building in the first place.

We have accepted the Bill and been co-operative, so I do not want to get into an unnecessarily contentious debate with the hon. Lady, because that is not how I feel. However, we need to import some balance into the argument. I do not blame her for having made a special point for her constituency, because we all do it. What she has said will go down well in her local newspapers and with her constituents, although I am not saying that she said it simply for that reason. There may be good reasons in Cleethorpes for her to adopt her view, but we should keep some perspective.

Sally Keeble (Labour, Northampton North)

I do not want to add much to the debate. The clause balances several conflicting priorities. We have heard repeatedly throughout our proceedings that we must recognise the rights of both the freeholder and leaseholder and deal with what happened in the past, under the 1967 Act, which provided special terms for a particular group of people. We have extended the current rights of leaseholders so that they can buy during the extension, and have further undertaken that we shall consider closely the provision of information.

Therefore, I would argue that we have made good provision within the clause.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 10, Noes 7.

Clause 147 - Extending meaning of service charge

Bill Cash (Conservative, Stone)

This clause is important in various respects. It extends the meaning of service charge and management. Schedule 9 is related to it and makes several changes to the provisions relating to the management of, and service charges in respect of, leasehold properties. The changes apply to the provisions on improvements.

I have seen an interesting e-mail, which arrived today and was addressed to my hon. Friend the Member for Leominster, drawing our attention to this clause. It comes from a member of the commonhold and leasehold reform working party, who said that the working party had

''informed government officers that it thought that this clause should not be in this Bill. Government has indicated that the main reason for this clause to be in this Bill is to enable PFI and other long term framework agreements and that this clause is crucial to the governments wider agenda.''—

I do not know what the Government's agenda is. No doubt it is to win the next election—that does not mean to say that they will be successful. The e-mail continues:

''The London borough of Camden has been piloting both PFI and Partnering with pretty unpromising results. While there is evidence supported by a couple of cases at the Leasehold Valuation Tribunal that management and monitoring of the contracts were a shambles and that, although costs escalated, performance was poor, with the authority finding that it had no appropriate measures to deal with poor performance. (Although it could withhold money, it still had to make other arrangements to deal with the defective work, plus pay compensation to residents for failure.) It was also the case that key council officers were dispensed with, leaving no officer qualified to properly monitor the contracts.

As part of the government's wider agenda, this clause will have implications for public sector workers, as well as workers in the construction industry and associated professionals, but these have been excluded from consultation.''

The author of the e-mail says that he thinks that the clause should be removed from the Bill, or at least deferred so that it can receive the wider consultation and scrutiny that it requires. That surprises me.

I think that the hon. Member for Brent, North (Mr. Gardiner) is a member of the commonhold and leasehold reform working party—he might be its chairman. Is that right? Nobody seems to know. In any event, he has taken a very active part in the consideration of the Bill because he is chairman of an all-party committee.

As this letter emanated from the London borough of Camden—a part of the world that is not notoriously conservative—Labour Members could have put that argument. I wonder whether they have received representations along those lines and what merit they attribute to the points made. It will be interesting to know whether it is correct that a reason—possibly the main reason—for the clause was to enable PFI and other longer-term framework agreements to be implemented. We have been asked to raise the matter and it is clear that the Government will not do that. I therefore look to the Minister to reply and shall be grateful to hear what she has to say.

Sally Keeble (Labour, Northampton North)

I am grateful to the hon. Gentleman for having raised the issue. I have met, if not the author of the letter he quoted, then someone from the group that raised the concerns about Camden. I have not had a copy of the letter, but I suspect that the concern is much more about clause 148 than clause 147. However, if you will allow me to do so, Mr. Hurst, I shall deal with those concerns under clause 147 so that we do not have to go through the matter again.

Clause 147 is small. It refers to schedule 9 and concerns leaseholders of local authorities and registered social landlords. It would help those people—

Bill Cash (Conservative, Stone)

The letter mentions clause 147. However, in the other place, an amendment was moved on Report by Lord Richard, and replied to by Lord Falconer, in response to Baroness Gardner of Parkes. It related to estate management schemes. It seems that there was some suggestion by the Government that, although they could not find room to resolve the matter in the Bill, they were thinking of trying do so later.

Sally Keeble (Labour, Northampton North)

The clause would help the local authorities and registered social landlords, who are often required to contribute to the cost of improvement to their buildings or estates under the terms of their leases. It would ensure that their landlord consulted them before such works were carried out and that they would be able to challenge unreasonably high bills for such work. In addition, some social landlords are being required to provide loans to cover the cost of improvements, where such costs are payable through service charges. The concerns raised with regard to clause 147 are more applicable to 148, because that clause has some implications for long-term contracts, which are relevant to PFI arrangements, among other things.

I will respond to the hon. Gentleman on long-term contracts and then explain some of the other measures that we are taking to advance the situation. I hope that I will be able to reassure him. There will be a new requirement for landlords to consult leaseholders before entering into any contract for the provision of works or services that is due to run for more than 12 months. There is a growing tendency for landlords to enter into long-term contracts for property maintenance. Such contracts can achieve significant cost savings through economies of scale, but there is clearly scope for abuse. We want to ensure that leaseholders are made aware of plans to enter into long-term arrangements and are given the opportunity to comment.

Detailed consultation requirements will be specified in regulations. That will provide flexibility to deal effectively with the variety of procurement practices that are developing in the public and private sectors. I take it that the hon. Gentleman's specific area of concern is public sector procurement arrangements. He is right that several issues are being examined with respect to that.

We are setting up a public sector leaseholders working party to deal with the concerns raised. When I met the group that the hon. Gentleman spoke about, I gave a specific undertaking that the working party would hold its first meeting in February and the group seemed very much reassured by that. We hope that the working party will consider some of the issues in detail before coming up with regulations. That should deal with the hon. Gentleman's concerns. If any other issues arise out of the letter, I will respond to them in detail once I have had a chance to examine it. However, I think that the main concerns have been dealt with, whether they apply to clauses 147 or 148.

Question put and agreed to.

Clause 147 ordered to stand part of the Bill.

Schedule 9 - Meaning of service charge and management

Bill Wiggin (Conservative, Leominster)

Schedule 9 consists mainly of amendments to existing legislation that insert the phrase ''or improvements'' after existing references to ''repairs''. Who will decide what is an improvement and whether it is positive or damaging to the value of the property as a whole?

Sally Keeble (Labour, Northampton North)

I do not have a precise definition of an improvement. I will write to the hon. Gentleman about that to ensure that I do not give a misleading answer here.

Question put and agreed to.

Schedule 9 agreed to.

Clause 148 ordered to stand part of the Bill.

Clause 149 - Statements of account

Sue Doughty (Liberal Democrat, Guildford)

I beg to move amendment No. 92, in page 72, line 18, after 'period', insert—

'on commencement of the tenancy or on notification by the tenant of his intention to terminate the tenancy.'.

Alan Hurst (Labour, Braintree)

With this it will be convenient to take the following amendments: No. 93, in page 72, line 18, after 'period', insert—

'and on notification by the tenant of his intention to terminate or assign the lease'.

No. 91, in page 73, line 36, at end insert—

'21A Penalty for non-compliance

If, on an application made by the tenant to a leasehold valuation tribunal, the tribunal determines that the landlord has failed to comply with the provisions of section 21(1) above, it may award compensation to the tenant in a sum not exceeding three times the service charge for the year in which the non-compliance occurred.'.

Sue Doughty (Liberal Democrat, Guildford)

In moving the amendments, we are trying to draw attention to the problem that arises when a leasehold property is either bought or sold, by ensuring that the clause provides for regular information about service charges in a specific accounting period and a written statement of accounts. When a property is bought or sold, people are effectively under the cosh, trying to make transactions in a timely manner. At that stage, solicitors request statements about standing moneys payable.

Some members of the Committee were present when I raised the subject on the Floor of the House. For those who were not, I will set out some of the problems that are faced when property changes hands. We all know that time is money when people buy and sell. If there is delay, the buyer or seller tends to incur a knock-on cost. He may be waiting to move into a property and so is renting. He may have to travel long distances or be waiting to raise money through the sale. Eventually, there comes a point when it can be easier to accept something than to deal with it.

Unscrupulous landlords have a chance to set charges that bump up the costs to an outgoing owner or possibly to charge for non-events to an incomer. I had that brought to my attention by a solicitor in Guildford who had dealt with several such properties and seen the same events occur repeatedly. For example, a constituent of mine asked for a terminal statement when he wanted to sell his property. He believed that he was owed about £250. After much pressing, he received a statement from the management company claiming that he owed £704.

There are reasons why solicitors tend to advise buyers to go along with the charges. When a flat or house is sold, solicitors have to serve notice on the landlord or managing agents that the property is to be sold and mortgaged and there must be a receipted copy of the notice. If that receipt is refused, the property cannot be sold on, as there must be a clean sheet. Unscrupulous landlords can delay the final statement until the last minute, in the hope or expectation that people will not query the bill, especially if they have had to go through several

rounds of correspondence merely to get hold of it in the first place. Such landlords hope that no questions will be asked. That is when solicitors weigh up what is in their clients' interests and often advise them to pay up rather than incur further delays.

When a firm of managing agents manages several leasehold properties, the leases of the flats contain a requirement that when a flat is sold the incoming owner should enter into a covenant with the landlord to observe the terms of the lease. However, leases do not state that the covenant has to be in any specific form, or that any costs have to paid to the landlord in relation to it. The managing agents stipulate that they have to approve the deed of covenant and they charge £100 plus value added tax for the privilege of doing nothing. Unless the covenant fee is paid to them, they refuse to register notices of transfer and mortgage. By that means, they regularly pick up £100 plus VAT every time one of the properties changes hands.

Amendments Nos. 92 and 93 belong with the other provisions that suggest that we need correct statements. I assume that the tribunal could consider the situation if the statements were incorrect and that the tenant could take the matter to a tribunal.

We also had substantial concerns about penalties on managing agents, which was the reason for the third amendment. No legislation will be effective without penalties and those should be enforceable. The firm of managing agents that delayed and added unjustified charges in the first case that I mentioned was expelled from the Association of Residential Managing Agents, but there is nothing to prevent it from remaining in business and continuing those practices.

Such exploitation by landlords or managing agents is unjustifiable, opportunistic and near criminal, and we should not rely on regulation to deal with it. Rather, the leasehold valuation tribunal should award tenants compensation at a fair level to provide a disincentive to repeat offenders, who will not want regularly to face a tribunal over the same offence.

In view of the debate in the other place, does the Minister have in mind another form of effective sanction against landlords or managing agents who undertake the activities that I described?

I have relied on the advice of the solicitor who brought the issue to my attention and who believes that such activities are widespread and wrong and go unpunished. That cannot be allowed to continue, which is why we tabled the amendments.

Sally Keeble (Labour, Northampton North)

The existing provisions for enforcing accounting requirements are recognised to be weak and the Bill tightens them up and makes them easier to enforce. The new powers to challenge unreasonable administration charges, for example, are designed to deal with landlords who make excessive charges as a condition for consenting to the assignment of the lease—one of the issues that the hon. Member for Guildford (Sue Doughty) raised.

The clause requires landlords to send leaseholders annual accounting statements that deal with certain matters and gives us the power to prescribe the form

and content of those statements through secondary legislation. As we discussed, a considerable amount of regulation will have to deal with the exact wording of several of those prescribed notices.

If landlords fail to provide statements on time, or those statements do not wholly or substantially meet our requirements, leaseholders will have the right to withhold service charges. That powerful sanction will give landlords a powerful incentive to comply with the law, but those who do not do so will soon discover that their source of income has dried up thanks to the new right to withhold.

Amendment No. 91 is intended to provide an additional enforcement mechanism. It provides that a leasehold valuation tribunal may order a landlord to pay a leaseholder up to three times the annual service charge as compensation for any failure to comply with the new requirements. That is excessive and unnecessary and the potential for such large awards could dissuade leaseholders from exercising the new right to manage or even from enfranchising given that such awards could, in turn, be made against them. The right to withhold is designed to make the requirement to produce accounting statements self-enforcing, so the potentially draconian penalty in the amendment is superfluous.

Amendments Nos. 92 and 93 would require landlords to provide accounting statements on commencement or termination of a tenancy or where a lease was assigned to another person. Accounting statements can take some time and effort to produce, which is why the Bill gives landlords six months to produce them. It would not be sensible to ask a landlord to produce a new accounting statement for each change in the ownership of a lease. In large blocks with a rapid turnover, it could easily become an excessive burden.

I have tried to demonstrate to the hon. Lady that we take seriously the reasonableness of service charges and the sanctions that will be open to leaseholders. Whenever leases change hands, there will have to be an agreement about the service charges, but it will be done in the usual way. The amendment would require a complete accounting statement. I hope that my assurance that reasonableness and other such issues will be taken into account, and that proper safeguards for leaseholders will be put in place, will allow the hon. Lady to withdraw the amendment.

Sue Doughty (Liberal Democrat, Guildford)

I thank the Minister for her explanation. I still have some concerns about people being able to get accurate information in a timely manner when a property is bought or sold. Many people need to know where they stand financially at such times. Knowing where they will be six months down the line will not help them sort out their finances when exchanging property. Can the Minister help?

Sally Keeble (Labour, Northampton North)

The Bill provides six months for producing accounting statements, but the amendment would cause delays. The Bill would allow for a test of reasonableness and it would give leaseholders proper sanctions. It would also allow the normal provisions to apply when deciding the amount

owing when a lease changes hands. Leaseholders would be in a stronger position under the Bill than under the amendment, which would cause a delay.

Sue Doughty (Liberal Democrat, Guildford)

I am still having difficulty determining the sanctions that would face someone who used that opportunity to raise charges. What sort of deterrents will be in place? At the moment, it can be a nightmare to find out what the charges will be. People in that situation settle on a realistic charge, work out the balance and then tend to walk away. They take the hit, which is not right. I still do not fully understand how someone who has been overcharged could easily get restitution. Further clarification would help.

Sally Keeble (Labour, Northampton North)

The reasonableness of service charges can be challenged and there is also the new power of withholding. Leaseholders who have to pay charges before selling their lease will be able to challenge the reasonableness of those charges. That would be after the event, but they would be able to challenge them. The amendment would require an accounting statement to be provided on the termination or commencement of the tenancy.

Elsewhere, the Bill provides six months for the accounting statement to be produced, because it is a complex statement. We should remember that some of the relevant blocks are quite large and that producing a statement of accounts, not just of amounts owed, every time a lease is sold would become a substantial burden. Also, the Bill provides for a period of six months, so there would be a delay.

We have, therefore, provided remedies. Leaseholders who had to pay service charges before selling their lease could pursue a challenge. It would be after the event, but it is the best way to achieve a reasonably smooth procedure and to avoid the delays that would be caused by production of a complete statement of accounts. I understand that some of the issues raised in this context involve large amounts of detail, but on balance our proposals will provide new remedies to enable leaseholders to challenge service charges. We have devised new sanctions against freeholders who do not produce statements of account. We feel that they will work more effectively than those suggested by the hon. Lady, which are substantial and could produce delays.

Question put, That the amendment be made:—

The Committee divided: Ayes 2, Noes 11.

Clause 151 - Liability to pay service charges: jurisdiction

Sally Keeble (Labour, Northampton North)

I beg to move amendment No. 107, in page 75, line 32, leave out 'or not any amount is so' and insert—

'a service charge is'.

Alan Hurst (Labour, Braintree)

With this we may take Government amendments Nos. 108 to 112.

Sally Keeble (Labour, Northampton North)

The amendments are the consequence of a recent Court of Appeal decision and to explain why we consider them necessary I shall set out some background.

Under current law, leasehold valuation tribunals can rule on whether service charges are reasonable. Clause 151 would widen their jurisdiction to allow them to examine the wider issue of liability. That would include reasonableness, because a leaseholder is not liable to pay a service charge unless it is reasonable. However, the clause goes wider and a leaseholder may not, for example, be liable to pay a service charge that is not covered by the terms of their lease or where the landlord did not properly consult on the long-term contract under which charge was incurred.

The clause would also allow the LVT to rule on such matters. However, a problem that has arisen in relation to the Landlord and Tenant Act 1985 might also be relevant to the Bill. In a recent Court of Appeal case, Daejan Properties v. London Leasehold Valuation Tribunal, the court ruled that, except under very limited circumstances, LVTs had jurisdiction only to decide the reasonableness of disputed service charges that were still unpaid.

That decision was most unfortunate from the viewpoint of both leaseholders and landlords. As leaseholders become aware of its effect, they may be inclined to withhold service charges until they are certain that they are reasonable; otherwise, it may prove difficult for them to launch a challenge. That, in turn, will create problems for managers of leasehold property, who may find it increasingly difficult to obtain payments in advance and may be reluctant to commence work without them.

A central factor in the view reached by the Court of Appeal was the meaning of the phrase ''alleged to be payable''. It felt that a payment that had already been made could not be said to be alleged to be payable, because it was no longer payable at all. The same phrase appears in clause 151, on service charges, and in schedule 11, on administration charges.

The London LVT is seeking leave to appeal against the decision in the Daejan case. To avoid doubt, however, we decided that it would be sensible to remove the contentious phrase from the new provisions. The amendments do that, as well as making consequential changes.

I should make it clear that our intention in clause 151 and schedule 11 is for LVTs to be able to rule on service charges and administration charges that have already been paid—an important point in the context of our previous discussion. More specifically,

where a service charge or administration charge has been paid, the LVT should be able to rule on the person who should have paid the charge, the person to whom it should have been paid, the amount that should have been paid, the date by which it should have been paid and the manner in which it should have been paid.

Bill Cash (Conservative, Stone)

The Minister tells us that the issue is subject to a current court case and that the Government will remove the words that are causing unnecessary contention. In the light of that, will she tell us when the matter will be resolved?

Sally Keeble (Labour, Northampton North)

I cannot give a date now, but I shall write to the hon. Gentleman if that would be helpful.

Bill Cash (Conservative, Stone)

It would be interesting to know the outcome of the case, even though the decision to remove the words has been taken in principle and as a matter of policy. That said, I am happy to go along with the idea that we shall review the matter later, even though we must always reserve judgment on Government amendments, particularly when they are tabled late in the day. I should like to know about the case if the Minister can provide the details.

Sally Keeble (Labour, Northampton North)

I assume that the hon. Gentleman wants to decide whether to table amendments on Report. Perhaps I can provide you, Mr. Hurst, with as many details as I can about the case before Report stage and then copy the letter to members of the Committee. That should perhaps happen as close as possible to Report stage. Presumably, the hon. Member for Stone (Mr. Cash) would rather have a decision than an early explanation that then had to be updated. If the Committee is happy with that, I propose that we proceed in that way.

John Taylor (Conservative, Solihull)

On a point of order, Mr. Hurst. While we are discussing the correct way to deal with such a matter, which is a letter to you with copies to the rest of us, I remind the Minister that I still await a letter or copy of a letter to you from the Parliamentary Secretary, Lord Chancellor's Department, concerning the rights of the deserted spouse. I say that in a non-hostile way, knowing how busy she is and that she has all sorts of things to bear in mind.

Alan Hurst (Labour, Braintree)

That is not a point of order, although it skirted dangerously close to being one on occasion. I am sure that the Minister has heard what has been said.

Amendment agreed to.

Amendments made: No. 108, in page 75, line 32, leave out 'or not any amount is so' and insert—

'a service charge is'.

No. 109, in page 76, line 13, leave out from 'having' to end of line 14 and insert—

'made any payment.'.—[Ms Keeble.]

Clause 151, as amended, ordered to stand part of the Bill.

Clauses 152 and 153 ordered to stand part of the Bill.

Schedule 10 agreed to.

Clause 154 ordered to stand part of the Bill.

Schedule 11 - Administration charges

Clause 159 - Requirement to notify long leaseholders

Sue Doughty (Liberal Democrat, Guildford)

I beg to move amendment No. 98, in page 81, line 23, leave out 'must be in a prescribed form' and insert—

'must contain such information as may be prescribed'.

This is a small amendment. Its purpose is to ensure that prescribed information is contained in the notice, but that the notice does not fail on a technicality. It would make a minor improvement to the wording. No one wants someone to fail on a technicality, as it would lead to increased costs and satellite litigation.

Sally Keeble (Labour, Northampton North)

I will briefly tackle the concerns voiced by the hon. Member for Guildford. If I understood her correctly, she would like the notice to contain such information as may be prescribed but has not said what is to be prescribed. We have provided for that already in subsection (2), which states that the notice

''shall contain any such further information as may be prescribed''.

I invite her to withdraw the amendment, as similar wording is already in the Bill.

Sue Doughty (Liberal Democrat, Guildford)

Happily, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 159 ordered to stand part of the Bill.

Further consideration adjourned.—[Mr. Stringer.]

Adjourned accordingly at nine minutes to Six o'clock till Thursday 24 January at half-past Nine o'clock.