Commonhold and Leasehold Reform Bill [Lords]

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Mr. Wiggin: 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

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a large number of cheap—perhaps ''cheaper'' is a better word—properties that are on the market as leaseholds will be withdrawn and people will be forced to rent?

Ms Keeble: 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

Mr. Cash: 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.'.

The Chairman: 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—

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    ''(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.''.'

Mr. Cash: 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: 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?

Mr. Cash: 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

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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.

Ms Keeble: 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

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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.

 
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