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Viscount Caldecote: My Lords, on the basis of what I said earlier, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Dubs moved Amendment No. 156:


Page 161, line 46, leave out ("50") and insert ("35").

The noble Lord said: My Lords, I beg to move Amendment No. 156 and speak also to Amendments Nos. 157 and 158. The noble Lord, Lord Selsdon, asked me what was the correct period of time. The purpose of these amendments is to make progress in answering that question. For the sake of consistency, I still prefer Amendment No. 151 in the name of the noble Viscount, Lord Caldecote. In principle, I believe that that is a better approach. However, in Amendment No. 156 I seek a compromise.

When this matter was discussed in Committee I was curious about where the 50 years had come from. The noble Lord, Lord Lucas, said:


I understand the point about depreciation. Perhaps I should put the arguments on the other side. First, there is a commitment by the Conservative Party to take firm steps to enfranchise leaseholders. Secondly, there is a move from 21 years to 50 years in this Bill. Fifty years is a long time. Many leaseholders who hope to have the opportunity to enfranchise now find themselves unable to do so because they have been in their homes for a

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number of years, and the period remaining is less than 50 years. If one chooses a period as long as 50 years it will be possible to circumvent the intentions of enfranchisement simply by having leases of a certain length.

Where does the period of 35 years come from? I am bound to say that it is the mid-point between 21 and 50. I cannot give any rational justification for it. I believe that the proposal is none the worse for that. There must be some basis for doing it. Logic suggests that 50 years is far too long a period. The Minister was reluctant that it should be reduced to 21 years. I put down the amendment in the hope that it will tempt the Minister to be conciliatory and agree that the proposal is acceptable. I admit that there is no particular reason for choosing 35 years other than that it is the mid-point between two different figures. However, it has the merit that it will do justice to a good many leaseholders who will be able to enfranchise but who would otherwise not be permitted to do so. I beg to move.

Lord Strabolgi: My Lords, I support the amendment. As I said in Committee, I was concerned and shocked when the Government suddenly increased the period from 21 to 50 years. It means that all leaseholders with fewer than 50 years cannot enfranchise. If landlords take advantage of the low rent test it makes the position virtually impossible. However, the Government have refused to budge. As my noble friend has said, this is a compromise, and it is one that I hope the Government will accept. Although it is a halfway house, I believe that it will go some way to solve the problem.

Baroness Gardner of Parkes: My Lords, I apologise that I was delayed in returning to the Chamber. I arrived just in time to hear the noble Lord, Lord Dubs, moving the amendment. This is a matter in which I have taken an interest throughout and I should like to speak to it. I am rather concerned about reducing the period from 50 years. I am a great supporter of enfranchisement, and it is a pity if we do not have it. However, I believe that the period of 35 years is neither here nor there. I would rather that 21 years or 50 years was treated as the figure. Having gone into the matter fairly thoroughly, I am convinced that if one does not take a period considerably in excess of 21 years--that is why I come back to the 50 years--people will not be prepared to invest in property. It means that they will have no firm possibility of buying or holding property as an investment.

Enfranchisement has been a disappointment for a number of people who have believed that they will get something for nothing. To enfranchise one's lease, whatever its length, appears to be a costly exercise. The shorter the term the more costly it is. People have been very disappointed by that. I believe that major developers who would be prepared to invest in the construction of flats would hardly be interested in doing it if everything was to be enfranchised under them. The position might be different if the property was built as commonhold and sold freehold from the start. That is the Australian system, which I very much favour.

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A sinking fund is established for a new building. I do not believe that 35 is a satisfactory compromise, and I am not in favour of the amendment.

9 p.m.

Lord Selsdon: My Lords, it is important that we should all agree on the year. In many parts of the world leases are granted for 49 years. The only reason why the term should be 50 years that I can think of is:


    "Now of my three score years and ten Twenty will not come again. Take from seventy years a score, That leaves me only fifty more, And fifty years is little room To see the cherry hung with bloom".

I do not believe that it matters, because people do not stay in houses for 50 years. They stay only for short periods. In order to produce stability in the property market we must give assurances to leaseholders, potential tenants, potential investors and banks which might lend that whatever is agreed as a result of the Bill will remain for a determinable period.

I do not see the point of 35 years. I do not believe in compromises. I believe that 50 years is reasonable because, as your Lordships will know, it is the period over which a bank will lend money. We should agree the period, whether it is 50 years or 21 years. If noble Lords opposite would agree not to alter whatever period is decided, we should introduce a certain amount of stability. I regard the period of years as being critical to the total market.

Lord Carnock: My Lords, I support the amendment. Under the Bill the particularly long lease is defined as a lease whose original term is for more than 50 years. In the human experience, a term of 21 years may be taken as approximating to the period of the minority and a term of 35 years as approximating to the period of generation. Therefore, I see human reasons for attributing significance to the periods of 21 and 35 years.

However, a term of 50 years has no significance in the context of the human experience. It is a term used in the context of capital gains tax, where leases of more than 50 years are assumed to have a value equivalent to a freehold. Even in that context, the depreciation in the value of the leasehold interest as the term is eroded by time from 50 years to 35 years is relatively small.

As the term reduces from 35 years, the value of the leasehold interest diminishes with ever-increasing rapidity until ultimately it reaches a value approaching zero. Moreover, 35 years is already recognised in our stamp duty laws as a significant boundary demarcation. Stamp duty on the grant of leases for terms of more than 35 years is very considerably higher than for shorter terms. For those reasons I support the amendment.

Baroness Hamwee: My Lords, I too support the amendment, although with the reluctance expressed by the noble Lord, Lord Dubs. I too should prefer to see a period of 21 years, which I have always regarded as accepted in the property world as meaning something. We have heard some interesting commentaries on

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35 years as a generation and on 50 years in a rather more extravagant explanation than the prosaic accountants' and auditors' explanation given at the last stage from the Government Front Bench. If we are unable to address the low rent test in the way that leaseholders have been asking, to fail to address the long lease part of the test seems to me to be something of a double whammy.

Lord Lucas: My Lords, we touched briefly on the problem when discussing the amendments tabled by my noble friend Lord Caldecote. As I said in Committee, the figure of 50 is not one to which we have any permanent attachment. I shall resist the suggestion of the noble Lord, Lord Strabolgi, that we have been moving it from 21. The figure of 21 has remained where it was fixed for some time. It is the boundary between something which, presumably, is always rented property and the zone above in which a leasehold can exist.

The question of the point at which the leasehold should exist used to be infinite but has been brought down by another place to 50. We are discussing whether we should move that further. Certainly it has never been in the Government's contemplation that it should be reduced to 21. As I said when replying to my noble friend's amendment, we are decided that there should be a period between 21 years and a higher limit where it is possible for it to be either an enfranchisable lease or a rented property. We do not feel comfortable with the idea that the property market should be restricted to giving 21 years' security. We wish it to be able to give a longer period.

The question of where that upper boundary should be clearly excites some differences of opinion. The noble Lord, Lord Strabolgi, and the noble Baroness, Lady Hamwee, would like 21 years. My noble friend Lady Gardner would like 50 years. I believe that if we move away from 50 years the concerns of my noble friend about investment are unlikely to be devastating in practice. The institutions which are building residential property in connection with commercial property--flats above shops, which will commonly be the case in inner cities and other situations--are protected from enfranchisement under the Bill--and properly so, because they have a great interest in the continuing good management of the property as a whole. Those who are building purely residential properties will generally be wishing to obtain the maximum money immediately. They will at least be selling long leases and the residual freehold will be of little interest to them. The fact that they will have to dispose of the freehold to those leaseholders who wish to buy it, should not, if they are selling leasehold properties, be of much weight in their overall investment decisions.

Therefore, we are prepared to consider moving away from 50 years and there are some good reasons why we should do so. A number of leases let about 50 years should, in all conscience, be enfranchisable. As noble Lords have pointed out, at 50 years a leasehold is considered equivalent to freehold in valuation for capital gains tax purposes and for general accounting principles. That would argue that at 50 years the value is with the occupier and not with the freeholder.

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Therefore it should be enfranchisable. We do not want to find ourselves in a position where people are constructing devices to avoid enfranchisement by putting together leaseholds of 50 years and finding that there is a real market for them. At 50 years, you could argue that you could get a 25-year mortgage and still have 25 years left at the end of it; so we are convinced of the need to drop the figure.

The noble Lord, Lord Dubs, has proposed 35 years. My noble friend Lord Carnock has pointed out that that is an existing threshold for stamp duty, which perhaps gives us some excuse for liking 35 years. It is also the point at which, as I understand it, the value becomes one-third with the freeholder and two-thirds with the leaseholder. Perhaps there is an attraction in 35 from that point of view. However, as the noble Lord points out, this is not really something which is an exact science. It is a matter of choosing something and, as my noble friend Lord Selsdon said, sticking by it so that people can be confident of what the pattern will be for some while in the future. Since the noble Lord, Lord Dubs, and his party like 35 and since 35 appeals to us, we propose to accept these amendments.


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