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Lord Hodgson of Astley Abbotts: There is much to commend my noble friend's amendment. Clearly, a speedy completion of transactions is important and nothing is more likely to concentrate the mind than interest clocking up. I would ask for one point of

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clarification: does this mean that income arising on the property during the period between valuation and completion will accrue to the purchasers? Equity would mean that it should be operated in that way, in which case it seems an extremely good amendment and I support it.

Lord Whitty: The reason we have fixed the valuation date for the collective enfranchisement of flats at the date of the initial notice is to provide a degree of certainty and consistency. There has been a long-standing approach to leasehold houses under the 1967 Act, which fixes the date from the valuation date. We would, therefore, need substantial arguments to shift from that long established position.

If we adopted the date of the counter-notice, as suggested by the noble Lord, we would normally expect the landlord to serve that pretty soon after the service of an initial notice. We would wish to encourage him to do so, otherwise a degree of delay is induced from that side. If the landlord issues a counter-notice rapidly, the difference in the price from one date to another is likely to be minimal. If the landlord delays serving a counter-notice, thereby gaining an advantage at a time of rapidly increasing property values in that area, it will in itself be a disincentive and a penalty on the leaseholder seeking enfranchisement.

We would not wish to encourage such behaviour. In a rapidly rising property market, landlords could be disadvantaged as a result of the price being determined at the basis of prevailing values on the date of the initial notice and with money received at a much later date. However, it cannot be fair to provide a right to payment in terms of interest on the purchase price between the date used to determine the price and the date of completion.

That is apparently not appropriate in other areas of property law and any disadvantage to the landlord would depend on a hypothetical movement in the property prices. If property prices are going down, there will be no disadvantage at all and having a prescribed mandatory interest payment would be quite illogical in those circumstances.

The solution to all of this would be to speed up the process of enfranchisement as quickly as possible. The measures in the Bill are intended to reduce procedural delay, to reduce disputes over the price payable and, where disagreement exists, to speed up the disputes resolution process. To some extent, the first of these amendments provides a temptation to drag the process out. It also departs from the provisions in the 1967 Act as regards the due date. I therefore hope that this amendment is not pursued.

Lord Kingsland: I thank the Minister for his response. I am not surprised to hear it; but equally he will not be surprised to hear that I shall press this matter at the Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 122 agreed to.

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6.45 p.m.

Lord Goodhart moved Amendment No. 223:

    After Clause 122, insert the following new clause--

(" . In Schedule 6 to the 1993 Act, omit--
(a) paragraph 2(1)(b);
(b) paragraph 4;
(c) paragraph 5A(2)(b);
(d) paragraph 5C;
(e) paragraphs 9 and 9A;
(f) paragraph 10(1)(b);
(g) paragraph 12;
(h) paragraphs 15 and 16; and
(i) paragraphs 19 and 20.").

The noble Lord said: In addition to Amendment No. 223, I wish to speak to Clause 123 stand part, Clause 124 stand part, Amendment No. 228, Clauses 131 and 132 stand part--132 is not in fact in the list, although it should be--and Amendment No. 231. The other amendments in this group are not moved by us. I do not know whether the noble Lord, Lord Kingsland, believes that as they deal with an entirely different aspect of marriage value they should be taken out and dealt with immediately following in a separate group.

Marriage value arises because the value of a lease and the value of a reversion, if sold separately, is usually less than the value of the same property if sold with vacant possession. Therefore, the merger of the lease and of the reversion produces a boost in value which is known as the marriage value. In the case of the purchase of a freehold by a sitting tenant, another element of marriage value is the fact that the occupying tenant may be willing to pay more than the market value for the reversion in order to avoid the loss of his or her home and the stress of a forced move.

In the case of the enfranchisement of a house, unless it falls into the higher rateable value, the freehold is valued on the assumption that the tenant is not in the market as a purchaser. That means that the valuation of the freehold is made only on the basis that it is being sold as an investment. The marriage value is therefore excluded from the price the tenant has to pay for enfranchisement. That is covered by the Leasehold Reform Act 1967, Section 9(1), as amended by the Housing Act 1969. In all other circumstances, however, the marriage value has to be taken into account.

The amendments in this group propose that the marriage value should be disregarded. The calculation of the higher rateable value houses, those with rateable value on 31st March 1990, when rating came to an end, in excess of £1,000 in London and £500 elsewhere, is set out in Section 9(1)(a) of the Leasehold Reform Act 1967, which was added by the Housing Act 1974. That valuation does not exclude the tenant as purchaser. We intend that the tenant should be so excluded by Amendment No. 231. This requires the assumed exclusion of the tenant as a potential buyer. The words

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used are identical to those which exclude the tenant in the valuation under Section 9(1) of the 1967 Act in the case of lower rateable value houses.

In the case of collective enfranchisement, married value is a more difficult computation. The marriage value arises not from a straightforward merger, because there is none, but from the assumption that those who enfranchise can grant themselves leases over the very long term to take effect on termination of their present leases at a nominal ground rent.

The rules for calculation are set out in Schedule 6 to the Leasehold Reform Act 1993. The basic valuation is based on the value of the freehold, subject to all existing leases, but paragraph 4 specifically requires the managed value to be taken into account. I shall not try to explain the basis of computation which, according to the principal textbook on the subject, is both complex and uncertain. Amendment No. 223 removes all reference to marriage value from the valuation process under Schedule 6. It is coupled with our objection to Clauses 123 and 124 of the Bill, that being purely consequential on the abolition of marriage value. If marriage value is to be retained, we would support both those clauses as reducing the amount of the marriage value, and simplifying its computation.

Finally, we come to marriage value in relation to the grant of extended leases. The payment by a tenant is calculated under Schedule 13 of the Leasehold Reform, Housing and Urban Development Act 1993. The basic price to be paid is the diminution of the value of the landlord's interest because of the grant of a new lease. That is fair enough as a method of calculation.

But then Schedule 13 adds the concept of marriage value. This is a wholly artificial concept in that context. There is no marriage at all. Indeed, the effect of the grant of the new lease, or the extended lease, is to delay the marriage for a considerable time.

Marriage value in this context is based on the assumption, to simplify matters, that the value of a tenant's interest may be increased by an amount greater than the reduction in the landlord's interest. That bonus--if one can call it that--has to be split between the landlord and the tenant.

Our Amendment No. 228 removes the marriage value from the computation under Schedule 13, and again Clauses 131 and 132 stand part are consequential.

The Deputy Chairman of Committees : The Committee stands adjourned for 10 minutes.

[The Sitting was suspended for a Division in the House from 6.47 to 6.56 p.m.]

The Deputy Chairman of Committees: The Committee is debating Amendment No. 223 after Clause 122.

Lord Goodhart: I shall not detain the Committee much longer. I had just explained how marriage value was calculated in various different contexts and the effect of the amendment which is to remove it. We

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believe that marriage value should go: it is complicated and unfair. We believe that the landlord is adequately compensated by being paid the market value of the property that he loses as a result of the enfranchisement, or the extended lease, without increasing what he receives by taking into account the position of the tenant as a prospective special purchaser. This is particularly so in relation to extended leases where the concept of marriage value is an artificial absurdity. Even with the modest simplification proposed by the Government, the computation of marriage value will add to the expense and time of working out the terms of enfranchisement, or the price of an extended lease.

I originally had some concern about the question whether the price of the extended lease should exclude marriage value only where the lessee was in occupation, because in that case the lessee is not a special tenant, or not to the same extent. However, we believe that the concept of marriage value in the context of an extended lease is completely unreal and that the Government's proposed two-year ownership requirement before an extended lease can be granted is adequate to deter speculators. I beg to move.

7 p.m.

Lord Hodgson of Astley Abbotts: My Amendment No. 234C in this group does not address the point just spoken to by the noble Lord, Lord Goodhart, but seeks to deal with leases on houses and flats, which, as I understand it, have differential treatment under the proposed legislation. As I understand it, in Clause 123 we have agreed the 50 per cent share of marriage value. However, if I read it correctly, the clause applies only to flats and gives leaseholders a guaranteed 50 per cent of the marriage value. However, that does not apply to houses. My amendment is designed to bring houses into the same position as under the 1967 Act, as amended by the 1993 Act, which is that the share of marriage value to the tenant shall not exceed one-half. In other words, it could be a maximum of one-half. My amendment is intended to make it one-half, and therefore brings house leaseholders into the same position of 50-50 share as flat leaseholders.

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