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Standing Committee D
Tuesday 22 January 2002
[Mr. Eric Illsley in the Chair]
Clause 114 ordered to stand part of the Bill.
Premises with resident landlord
Mr. William Cash (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''.
The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Ms Sally Keeble): In drafting the provision, the Government had to balance competing ideas from landlordsparticularly resident landlordsand 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
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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.
Mr. Cash: 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.
Abolition of Residence Condition
Question proposed, That the clause stand part of the Bill.
Mr. Cash: 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
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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.
Ms Keeble: 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 handsin some parts of the country, there is a large turnover of flats and many are subletthe legitimate aspirations of leaseholders can be frustrated. Moreoverthis applies equally to leasehold houses and to lease renewalsthe residence test excludes deserving categories of leaseholders from their rights and is thus open to manipulation or abuse.
Shona McIsaac (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 casesfor example, elderly people who, because of failing health, may have to go into hospital or into carewhom 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.
Ms Keeble: 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
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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 townwe should all probably declare an interest in this subjectand 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.
Mr. Bill Wiggin (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.
Ms Keeble: 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 rightso, 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.