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Standing Committee D
Tuesday 22 January 2002
[Mr. Alan Hurst in the Chair]
Reform Bill [Lords]
Purchase price for enfranchisement
during lease extension
Amendment moved [this day]: No. 90, in page 69, line 22, at end insert—
Shona McIsaac (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
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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.
Mr. John Taylor (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
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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.
The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Ms Sally Keeble): 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
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matter will be properly dealt with in secondary legislation, I ask my hon. Friend to withdraw the amendment.
Shona McIsaac: 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?
Ms Keeble: 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.