Leasehold and Freehold Reform Bill

Lord Howard of Rising Excerpts

2nd reading
Wednesday 27th March 2024 Lords Chamber

[Lord Howard of Rising (Con)]

My Lords, I want to speak about the abolition of marriage value for leases under 80 years. This will create financial and legal problems, as my noble friend Lord Moylan has alluded to.

Apart from the shocking moral issues of arbitrarily transferring wealth from one holder to another, with no compensation—from a freeholder to a leaseholder in this case—there is a danger of tampering with property values, when so much of the nation’s economic activity is based on the security of property assets.

I find it difficult to believe that His Majesty’s Government have properly considered the implications of going down this path. If assets can, on the whim of a politician, have their value dramatically changed, we will ultimately end up with a breakdown of the financial system. Noble Lords might consider someone who has put some, or possibly all, of their life savings into an investment suddenly having nothing. There will certainly be examples of this if the proposed confiscation takes place, as well as a diminution of pension fund benefits from pension funds which have invested in freehold ground rents.

There is a strong risk of litigation under the Human Rights Act, as has been mentioned. This could lead to an ECHR challenge against the Government for the unjust removal of property rights, which could result in a significant bill for the taxpayer.

There are 5.2 million leasehold properties, but only 400,000 are under 80 years. Of those, almost two-fifths are owned by professional landlords and rented out. In these cases, the transfer will be from one investor to another. The remaining three-fifths of leases are owner-occupied properties. These transfers will mean a loss for His Majesty’s Treasury, because freeholders will suffer a tax-deductible loss, but the profit to resident leaseholders will be tax free as it is their principal private residence. This would amount to a loss in today’s value of at least £1 billion to the Exchequer.

Four-fifths of the total value of all transfers will be in London and the south-east, with a reputed 60% of higher-value properties held by foreign owners in central London. This means that the Bill will lead to a significant transfer of wealth out of the United Kingdom.

By grandfathering leases under 80 years, where marriage value is already imputed into their enfranchisement or lease extension value, freeholders would not suffer from an estimated loss of more than £7 billion. If the Government give up the idea of abolishing marriage value for leases under 80 years, a substantial legal threat will be removed and a loss of significant sums to His Majesty’s Treasury will be avoided. More importantly, the long-term threat of erosion of stability in the financial system will have also been avoided. I will put down an appropriate amendment in Committee.

Leasehold and Freehold Reform Bill

Lord Howard of Rising Excerpts

Committee stage
Wednesday 24th April 2024 Lords Chamber

Moved by

[Lord Howard of Rising]

26: Schedule 4, page 160, line 27, at end insert “, but see sub-paragraph (3A).”

[Lord Howard of Rising (Con)]

I speak to Amendments 26 and 27 in my name, focusing on the measures in this Bill relating to marriage value which, as it stands, would allow leaseholders with leases of 80 years or fewer to acquire freeholder rights without paying a fair share of the marriage value to the existing freeholder.

Marriage value, in relation to leasehold enfranchisement, is set out in the Leasehold Reform, Housing and Urban Development Act 1993, and defined as the financial benefit that results from merging the freeholders’ and leaseholders’ interests in a residential property. Under the 1993 Act, and reaffirmed in the Commonhold and Leasehold Reform Act 2002, 50% of the marriage value is payable by the leaseholder to the freeholder when the unexpired term of an existing lease is under 80 years.

Handing over the full benefit of marriage value to leaseholders without due compensation will have wide-ranging effects, but the most damaging and significant is the threat to property rights. Our economy is built on property rights. If the ownership of property is no longer secure, because it can be taken away without compensation, where does that leave us? If the Bill goes through unamended, it will set a dangerous precedent for Governments to transfer wealth arbitrarily. What we are looking at today could be the thin end of the wedge. I am not suggesting that government actions would escalate immediately, but any power given to government will be used to its full extent sooner or later, however benign the original intention. Do not forget that income tax started out as a temporary measure at 2.5p in the pound, and has reached as high as 100%

On top of the principled concerns that I have set out, there are a number of practical ones. The assets set to be transferred as a result of these measures have a value of £7.1 billion, and it is likely that some of that value is being used as security for loans. Do His Majesty’s Government know how much of the affected property is tied up in this way, and do they know how the banking regulatory authority feels about, what would become, unsecured loans, or the possible consequent impact on banks’ capital requirements?

The Government’s impact assessment states there are 4.8 million leasehold properties in England, of which only 385,400 have leases under 80 years. Of those 385,400 leases, the bulk of the value is located in London and the south-east. Despite the Government’s noble ambition to support aspirational home owners, I understand that in London, 60% of leaseholders benefiting from this change in policy would be private investors, of which 10% to 25% are based overseas. At the same time, many of the freeholders whose assets would be removed are charities or pension funds which have invested to cover their long-term liabilities.

There is also a significant impact on the Exchequer. Under the status quo, any financial gain made by freeholders when leases are sold is taxable. If all the financial gain is given to the leaseholder, a good proportion of the tax that would have been due will be sheltered by the exemption of disposal of a principal private residence. The loss to the Exchequer under this consequence alone has been calculated at £l billion.

Finally, there is the problem with human rights legislation. One of the founding principles of the European Convention on Human Rights is the protection of property. The lack of compensation for freeholders under the processes set out in the Bill challenges the expectation that parties should be fairly compensated for losses resulting from expropriation or state control of use. Whatever government lawyers say, there is bound to be a difference of opinion. In fact, the Government’s own legal advice described it as “finely balanced”. Do your Lordships imagine for a moment that this arbitrary transfer of property without proper compensation being paid will not be fought through the courts to the highest level? It will cost the Government a small fortune and freeze the market in leasehold properties, as present leaseholders will be reluctant to sell while there is a chance of greater value in the future.

My amendments are simple. They preserve the existing arrangements only for leases with an unexpired term under 80 years, leaving the 95% of leaseholders who have leases of more than 80 years to benefit from the Government’s proposals, even when their term drops below 80 years. This is a fair balance. I hope my noble friend the Minister will consider my amendments carefully and from a point of principle. I would welcome further discussions to fine-tune the details so that we can ensure that this policy works for everyone. I beg to move.

[Baroness Deech (CB)]

My Lords, I am pleased to lend my support to the noble Lord, Lord Howard, and have put my name to these amendments. I have three short points to make. One is that phasing out in this area must be right. The second is that we should treat retrospective legislation very suspiciously. Thirdly, it cannot be right to deprive people of their property without compensation.

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[Baroness Scott of Bybrook (Con)]

I do not think that I will comment on that from the Dispatch Box, but the noble Baroness is absolutely right: we will make sure that it is phased in and that everybody understands it. Let us hope we do not lose too many solicitors in that journey.

Amendment 29, tabled by my noble friend Lord Moylan, would address the removal of marriage value far beyond that of a specific carve-out for charities, for example, which we are going to address specifically in the next group. The amendment would transfer the requirement to pay marriage value to freeholders in all enfranchisement claims on to the public purse. That would be unfair to hard-working taxpayers.

For the reasons I have outlined, I hope that my noble friends Lord Howard of Rising and Lord Moylan will withdraw or not press their amendments. Of course, I am always happy to meet noble Lords to discuss this further before Report.

[Lord Howard of Rising (Con)]

I thank the Minister for her comments. On human rights, I neither supported nor did not support them; I commented that human rights will prove a fortune for lawyers, as they argue for years and years over whether assets have been expropriated fairly or unfairly. The Minister referred to complexity; that really will bring complexity to what is at present a relatively simple situation.

When everybody is talking about this and how unfair it is on leaseholders, we should also remember that all a leasehold is is a discount on the freehold value. Somebody has paid less for that asset than they would have done had it been a freehold. If you take that logic to its full extension, why not go to the motor car industry, for example, and say that everybody who has bought their car on hire purchase should be able to have it without having to pay any more? They bought it under certain terms, as the leaseholder did—

[Baroness Fox of Buckley (Non-Afl)]

I suggest that one of the problems is that those who buy cars under hire purchase do not think that they are buying the car to own it. One clarification that has emerged only recently is that most people did not know when they bought a home, advertised as being sold to them, that the lease was a hire-purchase arrangement. I hope that is one of the things being clarified by this law.

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[Lord Howard of Rising (Con)]

Sorry, but when you buy a car under hire purchase, you buy it that way: that is why it is called purchase. You are just deferring your payment over a period. That is what happened when I was in the motor industry.

I thank all those who have supported my amendment. I hope that, as the Minister said, we can return to discuss this further. In the meantime, I withdraw my amendment.

Amendment 26 withdrawn.

Leasehold and Freehold Reform Bill

Lord Howard of Rising Excerpts

Report stage & 3rd reading
Friday 24th May 2024 Lords Chamber

[Lord Moylan (Con)]

My Lords, before I go further, I declare that I am a long leaseholder in a property which is my home and that I have no other property interests, apart from as a will trustee of one flat in London in which I have no beneficial interest, simply a nominal interest on behalf of the beneficiary of the will during his lifetime.

I shall respond in particular to Amendments 55 and 58 among the government amendments, because they address a point that I have raised. I am slightly surprised that my noble friend on the Front Bench did not seek to draw my attention to this fact. It is a point that I raised in Committee and on which I have a related amendment later in the list, which we will no doubt come to—but if I address it now, I can be briefer when we come to that group later on.

The matter relates in particular to the question that I raised in Committee about the ability of landlords to recover legal costs from the service charge and, in particular, how this would work for right-to-manage companies. I should have declared that in the block where I live we have a right-to-manage company, and I am a member and a director of that company. How would this ban relate to right-to-manage companies that have no other source of income apart from the service charge? Before these amendments were brought forward, the Bill would have made it virtually impossible for a right-to-manage company to bring legal action against, for example, a defaulter or someone who failed to pay, because they would have no assurance in advance that they would be able to recover their legal costs. The directors would be exposed to having to pay the legal costs out of their own pockets—quite apart from the fact that most lawyers like a little bit of money upfront anyway in order to commence proceedings, so that would need to be funded from the private pockets of the directors of the company. My amendment later also raises this question in relation to other types of non-profit landlord or building managers who have no financial interest in the building other than in their role as manager.

The Government’s response—and here I am making the speech I was expecting my noble friend to make in relation to these two amendments—appears to be that the Secretary of State will make regulations subject to the affirmative procedure to provide for circumstances where the new proposed regime on litigation costs and administration charges will not apply or is suspended.

This appears to be something of a concession in the direction of the point I raised in Committee and have on the amendment paper later. But the drafting and Explanatory Notes provide no guidance on when such regulations will be made or what the intention is behind such exemptions. It is worth saying here that the amendments provide that the circumstances on which the exceptions may be based include not only the litigation costs but the relevant proceedings and the landlord of a specified description. As I say, this could be beneficial for freeholders in the circumstances I described, but it depends very much on the content of the regulations.

I would like to ask my noble friend some questions. We are in the very strange position that I am asking him to give a commitment when, subject to the will of the electorate, he may not be a member of the Government and the Government on behalf of whom he speaks may not be in power. I say nothing to anticipate what the result may be, but of course the electorate may choose a Government of a different party. I will none the less ask him these questions and, in some ways, I would be very grateful if the noble Lord, Lord Kennedy of Southwark, might find it possible to give his own answer to these questions.

The first question is: what types of litigation costs, proceedings or landlords do the Government intend to be excepted from the general rule? I am sorry, normally I am better prepared, but of course very few of us are well prepared for dealing with this Bill because it has been added so late to the agenda. I suspect my noble friend on the Front Bench is in that category as well, from the turn of the head I noticed on his part just now.

Could these exceptions also extend to certain categories of leaseholders, for example investor leaseholders who might benefit from the general rule? Crucially, within what timeframe will such regulations be made? There is of course no commitment to timeframes in the amendments that have been made. The difficulty is that directors of right-to-manage companies and others are being left in a sort of limbo between the passing of this Bill and the coming into effect of the regulations.

One must also bear in mind that directors of right-to-manage companies and similar landlords may be the subject of legal action. Their ability to recover their own legal costs in defending such actions is also a question that needs to be resolved—and clearly resolved. If people such as me are going to continue as directors of right-to-manage companies, they will potentially find themselves exposed to that sort of risk.

So, as far as these two amendments go, I welcome their general direction. I find it deeply unsatisfactory that we are having to rely on the promise of a Secretary of State who may not be in office in six weeks. I would prefer my own approach, later on the Marshalled List, of putting these provisions on the face of the Bill. I seek a very clear response from my noble friend so that the many people in this country who have pursued right-to-manage, which is a policy the Government support and wish to extend—and I wholly support them in that—are not left adrift by ill thought out drafting in this Bill.

[Lord Howard of Rising (Con)]

My Lords, Amendment 1 states that a lease is a retirement housing lease where residents have a minimum age of 55 years. I declare an interest as a chairman of the Hospital of the Holy and Undivided Trinity at Castle Rising. Is it possible to retrospectively introduce that condition if it does not already exist? In the case of the charity I referred to, the trust deed was originally set out in the 17th century and there was less concern then about things such as there are in this piece of legislation. Perhaps the Minister could tell me whether, or what, action could be taken to make sure that this particular building does not fall foul of the legislation.

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Moved by

[Lord Howard of Rising]

9: After Clause 28, insert the following new Clause—
“Residence condition where a claim is made in reliance on section 28 of this Act(1) Section 13 of the LRHUDA 1993 is amended as follows—(a) in subsection (2)(a)(ii), omit “and”;(b) in subsection (2)(b), at end insert “and—(c) in a claim to which the High Non-Residential Floor Area Condition applies, not less than one half of the qualifying tenants by whom the notice is given must satisfy the Residence Condition.”;(c) after subsection (11), insert—“(11A) In this section—(a) the “High Non-Residential Floor Area Condition” applies if— (i) the specified premises are not excluded from the right to enfranchise by section 4(1), and(ii) the internal floor area percentage assessed in accordance with section 4(1)(b) is more than 25 per cent, and(b) the Residence Condition applies if the qualifying tenant or, where there are joint tenants who comprise the qualifying tenant, one of those joint tenants, occupies their flat as their only or principal home at the relevant date.””Member's explanatory statement
This amendment ensures that, in a case where a building has more than 25% of commercial floor space, the right of collective enfranchisement will not apply unless at least 50% of the participating tenants are occupying home owners.

[Lord Howard of Rising (Con)]

My Lords, Amendment 9 in my name would ensure that, when a building has more than 25% of commercial floorspace, the right of collective enfranchisement will not apply unless at least 50% of the participating tenants are occupying home owners. At present, for leaseholders of flats to be able to compulsorily acquire the freehold interest in a building, the amount of commercial floor area must not exceed 25%. Increasing the threshold to 50% in conjunction with compulsory lease-backs and below-market compensation will have a number of unintended consequences. This change will lead to the increased fragmentation of high streets and city centres, eroding the ability of property owners—including charities and, importantly, local authorities providing essential public services—to actively manage places.

The loss of contiguous ownership will erode the incentive that property companies have to invest beyond the buildings themselves for the needs of communities, to create attractive neighbourhoods and support broad demographics. It will also discourage investment and lead to less residential in new buildings as landlords take defensive steps to limit the impact. More broadly, it must be recognised that mixed-use buildings pose a greater management challenge than purely residential ones. Freeholders ultimately need to be active and responsive property managers, not only managing issues such as fire and building safety but responding to requests for alterations and improvements and any redevelopment of the commercial elements of the building, its common parts and residential elements. For mixed-use buildings to operate effectively, property owners must balance the continued commercial attractiveness of the offices or retail within the building with the residential occupiers’ quiet enjoyment of their homes and the attractiveness of the wider neighbourhood.

From the perspective of a freeholder looking to actively manage the commercial units within enfranchised mixed-use buildings, the key issue that arises is that the enfranchised leaseholders are held in a corporate structure, such as an offshore entity, company or trust. As many leaseholders have encountered in seeking to hold freeholders to account for building remedial works, it can be incredibly challenging to identify the ultimate decision-maker and secure consent to even modest alterations. As part of the reform, the Bill should mitigate this by introducing an additional requirement that to be a qualifying leaseholder they should be required to satisfy a residential test.

As we know, a high proportion of leasehold properties are owned by investors, including from overseas. Where leaseholders who live in their properties are likely to have regard for their surrounding neighbourhood and what happens in their building—as we have seen from other matters relevant to building management—this is not always true of investors. It is not just a case of ensuring the effective management of individual buildings but of protecting high streets of significant economic importance from being fragmented, particularly in London’s central activity zone, where we know that a high proportion of residential properties are held by investors.

The amendment would seek to pre-empt these challenges by requiring a resident test to ensure that leaseholders seeking to acquire a freehold live in the building as their main residence. It would give some assurance that they will be contactable and responsive, avoiding the negative impacts of zombie freeholders. I beg to move.

[Lord Gascoigne (Con)]

I thank my noble friend Lord Howard of Rising for Amendment 9 on enfranchisement claims in mixed-use buildings. Establishing residency and occupation is, as I understand, difficult. It can change quickly over time and can easily be manipulated. That could lead to the validity of claims being challenged successfully, years after they have been acquired. A residency test would remove the existing rights of some leaseholders and complicate the system overall, counter to the Bill’s aims, and lead to an uptick in disputes and litigation. Attempting to restrict one leaseholder in another building may well disfranchise the others. Therefore, I am afraid that we oppose the introduction of new residency tests. With the greatest respect, I kindly ask my noble friend to withdraw his amendment.

[Lord Howard of Rising (Con)]

I am not sure that what the Minister said would not apply even if my amendment did not pass. Does he have a comment on that?

[Lord Gascoigne (Con)]

With respect to my noble friend, I thought I addressed the points. Introducing this measure would introduce a huge number of complications to the Bill.

[Lord Howard of Rising (Con)]

Yes, but complications exist now, and therefore it is unnecessary to go as far as the new Bill does. That having being said, I beg leave to withdraw the amendment.

Amendment 9 withdrawn.

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Moved by

[Lord Howard of Rising]

13: Schedule 4, page 160, line 6, after “Schedule” insert “but only to the extent that the property comprised in that freehold or lease is comprised in a current lease which is held under a homeowner lease at the valuation date”
Member's explanatory statement
This amendment defines a homeowner lease, to distinguish between homeowners and investors, and restricts certain benefits of the Bill to leaseholders who reside in the property as their principal home.

[Lord Howard of Rising (Con)]

My Lords, I will speak to the group of amendments in my name, Amendments 13, 15, 19, 23, 24, 25, 40, 46, 47 and 48. These amendments seek to define a home owner’s lease, which would distinguish between a home owner and investors, and therefore restrict certain benefits of the Bill to leaseholders who reside in the property as their principal residence.

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[Lord Gascoigne (Con)]

I would certainly be happy to defend this Bill and what it does. I therefore ask my noble friend to withdraw his amendment.

[Lord Howard of Rising (Con)]

I thank all those who were kind enough to support this amendment. The Minister talked about adequate examination. I have great respect for the Minister and especially for his integrity: when he borrowed my house, I got the key back. It took some months, but it came and it is a very special key, because they stopped making them 50 years ago. I had to have them specially made, so I thought, “Oh, no, I have to go through that expense again, because I could not possibly stick a poor young politician with the cost of a key like that”. Suddenly, like magic, it flopped through the door one day.

But what credence can we give to the legal advice the Minister has had, which he referred to earlier, when the Government’s own advisers have said that the legality of this is a very fine argument? The truth of the matter is, as has already been mentioned today, that one of the main planks of the Human Rights Act is the right of property. The Government are gaily switching around bits of property at a Minister’s whim. I cannot believe that that can have been passed as solid by so many august legal entities unless they themselves had an axe to grind. Of course, there is also, as has been mentioned, the retrospective angle of the legislation.

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Moved by

[Lord Howard of Rising]

16: Schedule 4, page 162, line 41, at end insert—
“Hope value and/or marriage value payable
13A The standard valuation method is not compulsory for the property comprised in a current lease in circumstances where Assumption 2 in paragraph 17 does not apply.”Member’s explanatory statement
This amendment would not require the standard valuation method to be used in circumstances where hope value and/or marriage value is payable.

[Lord Howard of Rising (Con)]

My Lords, Amendments 16 to 18 in my name seek to ensure that the approach taken towards marriage value by this legislation does not undermine long-standing and entirely legitimate property rights, specifically ensuring that a standard valuation is not compulsory where hope value and/or marriage value is payable.

First, I contend that the Government’s suggestion that they are abolishing marriage value is a misnomer. The so-called abolition is rather a transfer of wealth, and the Government’s proposals are simply a retrospective expropriation of assets: an interference with long-established property rights. Handing over the full benefit of marriage value to leaseholders without compensation will have wide-ranging effects, but the most damaging and significant is the threat to property rights if the ownership of property is no longer secure, because it can be taken away without compensation. Where does that leave us? On all occasions, when the Government have been asked about the principle of marriage value in the past, they have consistently acknowledged and accepted that it forms part of a landlord’s legitimate property interest—that is, until now.

Research commissioned by leading consultants shows that this interference with long-established property rights will benefit only a tiny proportion of properties in England, and will disproportionately benefit property investors in London rather than leaseholders who live in their homes—genuine home owners, as I have referred to before. The Government’s impact assessment states that there 4.8 million leasehold properties in England, of which only 385,400 have leases under 80 years. Of these 385,400, the large majority, and therefore the bulk of the value that might be transferred, are located in London and the south-east. Despite the Government’s noble ambition to support aspirational home owners, I understand that in London, 60% of leaseholders benefiting from this policy change would be private investors, of which as many as a quarter are based overseas.

Finally, as we have already covered briefly, there is the problem with human rights legislation. As I said earlier, the Government have consistently acknowledged and accepted that marriage value forms part of a landlord’s legitimate property interest. One of the founding principles of the European Convention on Human Rights is the protection of property. I know I have mentioned this before but it needs mentioning again, because we will end up with years of legislation to nobody’s benefit and at huge cost.

The lack of compensation for freeholders under the process as set out in the Bill challenges the expectation that parties should be fully compensated for losses resulting in expropriation or state control of use. Regardless of the results in the courts, it is clear that it will cost the Government a small fortune and freeze the leasehold property market, and that present leaseholders will be reluctant to sell when there is the chance of a greater value in the future—given the state of the current property market, that is really not an additional unintended consequence.

My amendments here, and those that I will speak to later in this debate, seek to address these problems and introduce sensible solutions. I beg to move.

[Lord Jackson of Peterborough (Con)]

My Lords, briefly, I support my noble friend Lord Howard of Rising’s amendment. It is important to put on record some of the concerns about the marriage value and grandfathering issues that the Bill has thrown up, and the problem of significant ramifications and externalities, and unintended consequences, that may fall as a result of this Bill becoming an Act later today. It is important to also put on record, as the noble Lord, Lord Hacking, said, that it is an unsatisfactory position that such a complex and potentially difficult and litigious Bill should be debated in the final stages of the last day before Prorogation.

I should say at the outset that I am very grateful to David Elvin KC of Landmark Chambers for the legal work that he has done on this Bill. Freeholders, many of them individuals who rely on income from ground rents and marriage values, should not be penalised. Government figures show that, of the 5.2 million leaseholders in the UK, only 400,000 will benefit. This issue is one of fairness and equity. Four-fifths of those leaseholders are in London and the south-east, and two-thirds are not owner-occupiers. Just 240,000 owner-occupier leaseholders stand to gain.

The Residential Freehold Association describes the reforms as

“a totally unjustified interference in the legitimate property rights of freeholders”.

It claims that the Government may need to pay out £31 billion in compensation for erasing the value of these investments. Mick Platt, director of the RFA, said, very pertinently:

“Given the UK’s proud history of protecting legitimate property rights and respecting contract law, it would ordinarily be unthinkable for investors to have to rely on the courts to protect their interests, but this is inevitable if Mr Gove pushes these proposals through”.


Marriage value currently forms part of the property value and is shared equally between freeholders and leaseholders where leases are under 80 years. The original social justification for enfranchisement allowed the recovery of market value and an equitable share of marriage value. This reform takes that away and, subject to any transitional provisions, removes a whole element of the value from the freeholder without compensation, so that any assessments of, or reliance on, existing market values will be frustrated. As has been said by my noble friend, it will be, in many cases, a retrospective deprivation of value in that it applies to existing interest.

I want to specifically address the point made by my friend the noble Baroness, Lady Fox of Buckley—with whom I very rarely disagree because she is eminently sensible on pretty much everything she opines on in this House—about lawyers casting their eyes on this legislation. In Lindheim v Norway, before the European Court of Human Rights, the state sought to manipulate market value in mandatory lease extensions by fixing the rent at historic, rather than current, value, and the Strasbourg court held that this violated Article 1 of the first protocol of the European Convention on Human Rights. You do not often get me citing the European Convention on Human Rights, but I will make an exception today because this is an important issue.

Although the social measures pursued a legitimate aim in the public interest, none the less the measure did not strike a fair balance, given the burden placed on property owners. The proposed abolition of marriage value in this Bill represents a significant departure from established property practices. The unilateral transfer of value from freeholders to leaseholders without compensation raises legal, ethical and practical concerns.

As I finish, I make the point that the Government should look benevolently on Amendments 20 and 21 on grandfathering, because they provide an interesting way forward. It would adjust the balance in applying assumptions which remove marriage value only to those leases with more than 80 years remaining at the time of commencement of the relevant provisions.

The Minister has done an excellent job defending a very sticky wicket against some quite awkward googlies. I know that we all have had very little time to prepare for this, but this needs to be put on the record because this legislation has the potential to give rise to very serious division, litigation and difficulties, and unintended impacts in the property market, which will mean fewer people have the benefit of owning their own homes or having leases. With that, I conclude my remarks.

[Lord Gascoigne (Con)]

I thank my noble friends Lord Howard of Rising and Lord Moylan for these amendments. They lay some of the groundwork for the grandfathering amendments to marriage value, which will be discussed later—in group 7, I think—and we will debate the substantial matters then.

One thing I would like to say now, so that I am not accused of ignoring it, is that the Leasehold and Freehold Reform Bill is considered by the Government to be A1P1 ECHR-compliant as introduced to both Houses. Indeed, the valuation scheme itself and constituent parts are A1P1-compliant. We will come back to that in a couple of groups.

It is worth pointing out that Amendment 16 would not only grandfather marriage value but remove such leaseholders left owing marriage value from the standard valuation method altogether. The consequences of this would be that they would not only be left owing marriage value but would not benefit from any valuation reforms, including to the treatment of ground rent rates and so on. Moreover, since there would be no specific provisions for valuing their properties outside of the standard valuation period, leaseholders and freeholders would be left to negotiate all aspects of the valuation. This would result in much greater costs, delays and litigation. I therefore kindly ask my noble friends not to press their amendments.

[Lord Howard of Rising (Con)]

I thank the Minister. We touched on this before. The Minister said that this is compliant with the European Convention on Human Rights, but the advice given to the Government was that it was a very marginal case.

I also point out to the Minister that, if you had some ground rents coming in and you had them removed by force, you would simply fight as long as you wanted, because you would continue to get them while you were fighting in the court. I envisage that the legal complications would last for several years. There are huge sums of money involved, with £7.1 billion of assets being transferred, and people will try to protect that.

If I was the Minister, I would go back and ask my legal advisers to check what was happening. Having said that, I beg leave to withdraw the amendment.

Amendment 16 withdrawn.

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[Lord Murray of Blidworth (Con)]

My Lords, I apologise for not previously intervening on this Bill. I have no leasehold interests but, given that I will support the right reverend Prelate’s amendment, I should declare that, until very recently, my son sung in the excellent cathedral choir at Southwell Minster.

It is very difficult for the Government to argue against the point raised by the right reverend Prelate. It cannot be right that a Conservative Government should impact on the revenue of charities in this way. The seven charities he listed, in particular the John Lyon’s Charity, are fundamentally reliant on the income derived from these sources. Insufficient scrutiny has been given to the efforts made to protect that income. Similarly, the vital funds paid to the Church Commissioners from their income from these types of sources need to be protected.

All this appears to be symptomatic of the lack of scrutiny consequent on the driving of this measure through wash-up. I share the concern expressed in earlier groups by my noble friends Lord Robathan, Lord Howard, Lord Jackson and Lord Moylan and the noble Lord, Lord Hacking. I also share the concern that legislating in haste will result in our experiencing difficulties in the Strasbourg jurisdiction. While my noble friend the Minister reassured us on the last group that the Minister had seen fit to certify that, in his view, these measures are compliant with Article 1 of the first protocol of the European convention, as my noble friend Lord Jackson identified, there is a wealth of case law in Strasbourg identifying the protection of property rights, particularly in relation to charities.

I find myself strongly in agreement with the right reverend Prelate, which is a very happy and unusual situation. I commend his amendment to the Front Bench. I conclude by praising my noble friend the Minister, who has picked up this unfortunate googly at the last minute. The right reverend Prelate’s amendments are worthy of considerable consideration.

[Lord Howard of Rising (Con)]

My Lords, I listened with great interest to the right reverend Prelate. Worthy though charities are, it should not just be charities which benefit from this. Although I would like to see them exempted, the same should happen to everybody. Under the law, all should be equal. I find it difficult sometimes to support the Church as a charity if it can bung away £100 million. Then it wanted to bung away £1 billion—it is quite difficult to keep up with the Church’s generous donations. It is hard enough supporting my wife in her endeavours with the village fête to raise £2,000 and I sometimes wonder why we do it when the Church can give away as much as it does.

The Church does fantastic work and I would like to see it getting a larger income but I think this should apply not just to specific charities but to everyone who has made an investment and is expecting something in the long term. Pension funds invest in this form of investment because they have obligations that stretch 20, 30, 40 or 50 years ahead. How do you pay for that in the days of inflation? If you buy a freehold which you expect to fall in, you are covering your future liability. If that can be suddenly taken away, maybe we should include pension funds as a special category. I come back to the thing that it should be the same for everybody. I do not know how the Government intend to work it out for pension funds. If the total sum, as I said before, is £7 billion, that is a big hole in pension funds even if they own only a percentage of that.

I look forward to hearing what the Minister says about charities and, in particular, the Church’s exemption.

[Lord Gascoigne (Con)]

I thank the right reverend Prelate the Bishop of Southwell and Nottingham for these amendments and for his very kind comments about the Minister, which I will ensure she is aware of.

The Government fully appreciate the essential work done by the charity sector and I completely understand the sector’s concerns about the deferment rate. I also understand the importance of prescribing the rates for both leaseholders and freeholders, and recognise the right reverend Prelate’s concerns. We have committed to prescribing the rates at market value and the Secretary of State will carefully take into consideration and review all the information and views shared ahead of setting the rates. We have welcomed and appreciate the contributions the Church Commissioners and charities have provided and will welcome continued engagement before the rates are set.

As I have said, we recognise the positive contributions many charities make to our society, yet attempting to create carve-outs for specific groups of landlords, including charities, would complicate a system we aim to simplify. With that and with respect, I ask the right reverend Prelate to withdraw his amendment.

--- Later in debate ---

Moved by

[Lord Howard of Rising]

21: Schedule 4, page 164, line 15, at end insert “, but see sub-paragraph (3A).
(3A) Assumption 2 is not to be made where—(a) the claimant held the lease on the day on which this Act was passed, and(b) on that day the lease was of less than 80 years’ duration.Accordingly, marriage or hope value is payable in the case of a lease of less than 80 years’ duration held by the claimant at the date of the passage of this Act.”

[Lord Howard of Rising (Con)]

My Lords, Amendments 21 and 22 in my name seek to provide a means to ensure an orderly phasing out of marriage value. As we know, the Government’s impact assessment confirms that these proposals will result in a significant transfer of wealth to private landlords—not the people who actually live in leasehold properties, but the ones who own them. This is, in fact, a straightforward case of retrospective transfer of wealth with no compensation, and a significant deviation from current accepted property law.

We heard in Committee and this afternoon the main arguments against the Government’s proposals, wrapped up in the European Convention on Human Rights, Article 1 of Protocol 1, which says that all persons have the right to own property and to make use of their possessions and that no one shall be deprived of their property until public necessity so demands. If so, the state must guarantee fair compensation. This does not seem to be the case in the Bill.

Our own UK Human Rights Act says:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.”


This law stands a very strong chance of being attacked under human rights, because it is not offering fair compensation to the freeholders, and it is retrospective. I therefore very much hope that the Minister will see the dangers. We mentioned them earlier, so there has been plenty of time to think about them and the unfairness of this. I hope he will accept this proposal. This straightforward amendment proposes to tweak the legislation by grandfathering the current situation for those leases that have fewer than 80 years to run.

Governments have consistently acknowledged and accepted that marriage value forms part of landlords’ legitimate property interests. One of the founding principles of the European convention is that protection. What worries me is that, if the Government feel free to simply transfer assets in that way, where does that leave the banking system and the general economy? If there is no security of property assets, how does the banking system propose to work? What will it do with security? What will happen next? Will somebody say, “Somebody’s mortgage is 30 years’ long, which is frightfully unfair; it should be 25 years” and therefore knock five years off it? Does the person who lent the money just take the hit? What will the next reallocation or expropriation of assets be? If you have the economy working as it is today, you simply cannot chip away at a cornerstone without having a long-term effect.

I referred when I spoke at Second Reading to income tax being introduced at 2.5p in the pound and reaching 100%. The same will happen with property if left alone. If this goes through, we will have created a precedent that is extremely unhelpful. I am not saying that it would happen immediately, but the fact is that Governments always take advantages where they can to get their own way. One of the chief objections to this legislation is that erosion of the sanctity of the property asset. It is something that the Government should think most seriously about.

With the grandfathering those existing leases of less than 80 years, with marriage values already imputed under the 1993 legislation into their enfranchisement or lease extension value, they will not suffer from the destruction of the £7.1 billion of financial value, nor provide an unexpected enrichment for investors and overseas companies—and you will retain investor confidence in this country, because if you start to erode value where you feel like it, you will find that people no longer wish to invest in this country. So I ask the noble Lord to consider my amendment very seriously.

[Lord Gascoigne (Con)]

My Lords, I thank my noble friends Lord Howard of Rising and Lord Moylan for their amendments. These amendments would leave some leaseholders with wasting assets from which there is no escape. We have been unequivocally clear that the Government’s stated objective is to make it cheaper and easier for leaseholders to extend their lease or acquire their freehold. We do not believe that the leaseholder should have to pay marriage value. I know my noble friends have concerns that the removal of the requirement to pay marriage value, as I have heard previously, is expropriation. But the Government believe marriage value is a windfall that leaseholders should not have to continue to pay because of their need to enfranchise. The new valuation scheme without marriage value will provide sufficient compensation to freeholders and it is, as I have said before, the Government’s view that it is A1P1-compliant. I therefore kindly ask noble Lords not to press their amendments.

[Lord Howard of Rising (Con)]

Well, I would say to the Minister that people who have leases of under 80 years bought them. They purchased them and they got a discount on what they were buying because of the shorter period. Now you are suddenly saying, “Actually, they paid a perfectly fair price at the time, because it was cheaper than a longer lease or a freehold, but actually that is not good enough, so let them have a bit more.” So they are very lucky, but it is very unfair on those, such as the Church and pension funds, which invested for the longer term and have sold leases to people who wanted to buy leases. It was not compulsory; nobody from the Government went along and said, “Hang on, old boy, you’ve got to buy this lease whether you like it or not”. They bought them voluntarily and, as I have already said, most of these leases are in central London, where it was very much a voluntary act. If you had bought a 10-year lease in one of the more fashionable areas, it would have cost you many millions of pounds and you would have bought it knowing you could use it for 10 years. To suddenly find you can increase it to 80 years, making profits of tens of millions of pounds, seems to me absolutely absurd. It is a case of Robin Hood in reverse—robbing the poor, namely the pension fund holders and the charities, in order to give to the rich. I would be very interested to hear the Minister’s comments on that before he sits down.

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

The Minister has already spoken. He has sat down.