Small Business, Enterprise and Employment Bill

Lord Stoneham of Droxford Excerpts

Monday 12th January 2015 Grand Committee

[Lord Cromwell (CB)]

My Lords, I apologise most sincerely that events conspired so that I was unable to attend earlier discussions of the Bill, but I hope that the Committee will nevertheless allow me to speak to the amendment standing in my name. I raised the matter with the Minister in a meeting with Cross-Bench Peers before Christmas.

I should declare an interest as a trustee of a trust which in a small way lets out residential property. In another part of my life I am involved in working with entrepreneurs, some of whom invest in and let out property. I have also run a small business and an international chamber of commerce for several years. Enough about me.

As others have said, there is much to be welcomed in the Bill. One aspect of that is the removal of the risk to a landlord letting out residential property that a business run from such a property will give rise to a business tenancy under the 1954 Act. I certainly assure the Committee that this is a very real problem for landlords letting out property. In that, I have absolutely no doubt. I share the concerns expressed by the noble Baroness, Lady Hayter, about the definitional aspects but I am sure that many of us have had the experience of trying to write page after page of legal definition and ending up by replacing it with the word “reasonable”. I suspect that tenancy documentation will evolve to cope with this issue.

However, there is a second leg to this issue: the fear which landlords have that allowing a residential home to be used for a business will end up getting them entangled in the rating system, particularly if that business does well, grows and prospers, which presumably we would all welcome. That concern among landlords relates not just to the period when a tenant is in occupation but when they leave; the landlord fears finding themselves with a property that is unlet but subject to business rates. The effect of that is simply to make landlords reluctant to let out property with home businesses, to put clauses in agreements which prevent it and to avoid colluding with tenants who nevertheless try to start up such a business.

I am sure that many of your Lordships will be aware that small businesses can apply for relief from rates. However, almost everyone seems to be in agreement that the rating system is not simple; indeed, it is complex. Perhaps as an indicator of this, I notice that there are a number of businesses which, as a chargeable service, offer to assist small businesses in navigating through the rating system. I would hate to put them out of business but, as an indicator of the complexity that small businesses face, the market speaks for itself.

Moreover, I believe that among landlords there is a perception that it is dangerous to allow someone to run a business, no matter what reliefs there may be available, within their residential premises. The noble Lord, Lord Deben, touched earlier on the point that perception of regulation is every bit as important as its actuality. This amendment seeks to achieve simplicity and clarity by making it clear in straightforward terms that allowing a home business to operate will not bring the property within the rating system. It is my proposal that combining clarification on the tenancy issue and the rating issue would be the two sides of the bridge that get us across this river of landlords’ resistance to letting out residential properties to people who wish to run businesses within them. I beg to move.

[Lord Stoneham of Droxford (LD)]

My Lords, I was tempted to intervene in the last debate that we had on the amendment of the noble Baroness, Lady Hayter, because this is quite an interesting issue. I am not going to be able to support fully the noble Lord, Lord Cromwell, but I am pleased to come in on this debate. I have often voted for him in parliamentary by-elections because his was a name that I knew. I also thought that the genes were probably more in favour of change and reform than conservation.

[Lord Cromwell]

I have to disillusion the noble Lord but I am very grateful for his support. I must disabuse him of that—I have no genetic link to others of that famous name. My family is older but my instinct to chop off the heads of the overmighty may have been inherited by mistake.

[Lord Stoneham of Droxford]

I do not take away from my comments because that is exactly how I was behaving in those elections.

The amendment cannot be supported as it stands, although it has good liberal tendencies. It is a very difficult area, as the noble Baroness, Lady Hayter, said. It is difficult to get a balance here between defining by restriction what we can do and opening it up; the general tenor of the Bill is to try to open up the issue to encourage home businesses. The one thing that this amendment does not make absolutely clear is that the tenant or owner must occupy this property, so any tenant or somebody who owns it would have that overriding right, and the planning law does not accept that. Therefore in that sense the amendment cannot be accepted. This is the issue—whether we define the planning restrictions on home businesses in the legislation; the Minister has already told us about the danger.

With great respect to the noble Baroness, Lady Hayter, as regards some of the definitions she has used, she accused the definition of “home business” of being vague, but the fact that you have to take account of the location of a property does not tell you whether you can allow a home business. That will be a matter of judgment, therefore quite vague, whereas the intention of the legislation is to open this up and to encourage home businesses, obviously within the planning restraints that are currently there: you have to occupy the property, you cannot fundamentally change the home for the business, you cannot have people coming to buy from the premises, and you cannot employ people. We know that there is already great flexibility in where we are and that people do those things, but obviously, if they overstep the mark, there is the danger that if their neighbours think that their community life in their residential area is disturbed, they will object and have the grounds for doing so. Therefore this is an area of great interest. I would be in favour of where we are in the Bill, where we do not define it in the legislation, although we may come back to it through regulations. Clearly we cannot accept the amendment because it does not make it absolutely clear, which it has to, that the premises have to be occupied by the owner or the tenant.

[The Earl of Lytton (CB)]

My Lords, the noble Lord, Lord Cromwell, raises an interesting point. Before I go any further, I declare an interest as a practising chartered surveyor. Rating is one of the things I get involved with; I am a landlord of holiday and private rented accommodation as well as business accommodation, so I get a bit of everything here.

The chief difficulty is one of fact and degree about when things move from being “residential property” as a term of art to something quantifiably different. The problem is that they are different tests for different purposes. For instance, there may be a test under regulations that come out as a result of the Bill. A different test may be applied by the Valuation Office Agency to determine what is and what is not a business. When I think in terms of holiday lettings, for instance, I am aware that if a residential property is available to let as a holiday unit for more than 120 days in the year, I think, it is deemed to be a business use. I am not suggesting that there is an issue between holiday letting and home businesses in this instance, but that exemplifies the point about the fact and degree transition.

The empty rates issue would be a live one were it to kick in, because the amount levied under empty rates is typically considerably more than the amount that would be levied under a council tax assessment. I have raised this matter before in the House, and used as an example a property of my own, a 1,000 square foot property let as offices to a business tenant under a conventional contracted-out commercial lease. The rating assessment, off the top of my head, was £12,000 rateable value, and something over £5,500 was payable annually by that small business in business rates.

Fifty yards up the road I occupy a large residential property in band H, but I pay nowhere near £5,500 or so in council tax. My bins are emptied for me within that charge, which, of course, is not the case for the business rate payer. The issue comes about because of the way in which business rates are levied. As I have said before, business rates are disproportionate when compared with residential rates given the services provided and the nature of the accommodation in question. Assessments made on property value, services or any other measure you might choose do not support that differential. There is potential to change this situation through a change of definition and results from a non-domestic assessment, bearing in mind the tests that may be used by the Valuation Office Agency, which is charged with optimising the revenue obtained from those rates. This issue needs to be clarified.