Lord Howard of Rising:

Moved by Lord Howard of Rising

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

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.

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.

Noble Lords might ask what I know about this. I taught property law for many years and, although I have forgotten much of the detail, I can assure your Lordships that this area of law goes back to the Middle Ages—in fact, it probably goes back 1,000 years. It is by no means simple to reform it, although I understand that the Government’s intentions towards leaseholders are good ones and that one day leasehold will be phased out. But the law is so complex that this cannot be done quickly or unfairly. The Law Commission has written thousands of pages on this area; it is far from a simple matter. Indeed, to replace the leasehold system might take decades, if not longer.

The main argument against the Government’s proposals is 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 his 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”.

If we do not accept the amendments in my name and that of the noble Lord, Lord Howard, this law stands a very strong chance of being attacked under human rights law, 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 and unfairness in this, and accept the proposals in these amendments.

My Lords, it is a privilege to speak after the noble Baroness, with her depth of knowledge about this subject, and my noble friend Lord Howard of Rising, who did me a number of favours. First, he saved me from any obligation to explain the meaning of marriage value. Secondly, he made a moderate and temperate case for his amendment when my argument might be expressed in a somewhat less moderate and well-tempered manner, because I feel a real sense of outrage about what is being proposed.

As my noble friend has explained, marriage value is a real financial asset. His Majesty’s Government say that they are abolishing it. They are not abolishing it; they are, in effect, transferring, at the stroke of a pen, value from the freeholder to the leaseholder without any compensation. It is, simply, expropriation. My amendment, which is a probing amendment—I would not expect it to be part of the Bill—obliges the Secretary of State to pay compensation to those who have lost out as a result. Of course, I really want the Government to scrap the provision itself, rather than for compensation to be paid, and I would not expect my amendment to be a practical policy. It is a probing amendment to raise the question about expropriation without compensation.

I want to make three broad points. There are genuine evils in the leasehold system. I made it clear at Second Reading that there were things that I support in the Bill. For example, it was scandalous that in recent years some housebuilders sold leasehold houses with rapidly escalating ground rents, which they then securitised in order to increase their capital receipts. Also, it is scandalous the way that many freeholders are implementing their obligations in relation to the cladding crisis; people are genuinely suffering as a result.

However, how many of these evils are actually being addressed by removing marriage value from the calculation of the enfranchisement premium, or the premium paid for extending a lease? It is not germane to the main evils that the Bill has been advanced as addressing.

Expropriation of this character implies some wrongdoing on the part of the person whose assets are being expropriated. It requires a high test. Noble Lords will have noticed that even in the case of the friends of Putin, we have been sensitive and careful about expropriation. We have frozen assets, but when it comes to whether we should expropriate them and give them to Ukraine or do whatever useful stuff we might do with that money, we all draw back from it because of the legal consequences. Here, we are perfectly happy to expropriate assets and hand them around the market without any consideration, and with very few people rising to protest about it, even in your Lordships’ House.

I believe that the Secretary of State said that he sees this as an act of justice, but what justice is involved in transferring wealth from a group of people who include, as my noble friend has said, charities and pension funds to leaseholders, who in many cases are frightfully rich? We will shortly come to amendments in the name of the right reverend Prelate the Bishop of Manchester which deal specifically with charities, which I have put my name to. I live in Kensington, and as I declared at Second Reading, I live in a flat on a long leasehold. However, there are many people around Kensington with very expensive properties who are salivating at the prospect of this going through. This is not substantially helping the poor and middle classes; it is going to transfer huge amounts of wealth to people with long leases. The more valuable the flat, the bigger the benefit that they are going to get from it. Where is the justice in all this? I simply do not understand how that point can be made.

My second point relates to the European Convention on Human Rights, on which I do not claim to be an expert. I have a suspicion that my noble friend, when she rises to answer, will say that in respect of Article 1 of the first protocol—to which the noble Baroness, Lady Deech, has referred with such learning—similar cases in the past have been taken to the court, and that the landowners, the freeholders, have lost. Therefore, the Government are certain that this will pass that test. I am, of course, wholly unqualified to comment on the legal merits of the case in either way. However, even if it did pass that test, is this something that should pass the test in England, as far as the older rights that we have inherited are concerned? This is principally England that we are talking about, with its tradition of respect for private property and not implementing retrospective law or seizure of assets without very good reason. I would suggest that it does not pass the test. Even the Law Society—the “leftie lawyers”, as they are often referred to, which is not a phrase that I would use, and I hope Hansard will put that in quotation marks—is concerned about the damage that this will do to the reputation of English law.

My final point is addressed to my fellows on these Benches, who take the Conservative Whip. Are we and our noble friends on the Front Bench here to expropriate property without compensation, without justice, without an argument, or without there being serious wrongdoing on the part of the person whose assets are seized? Is this what we came into this House to do? I do not think it is. This is something that the Government need to take away and rethink very seriously, because it is wrong, it smells, and it is something that we should have nothing to do with.

My Lords, I declare an interest as a long-standing leaseholder, as I have done before. I support the expressed view of His Majesty’s Government on abolishing marriage values—I take a somewhat different view from that of the noble Lord, Lord Moylan—so making lease extensions cheaper and easier. I therefore oppose all the amendments in the names of the noble Lord, Lord Howard of Rising, the noble Baroness, Lady Deech, and others, the subsequent amendment in the names of the right reverend Prelate the Bishop of Manchester and the noble Lord, Lord Moylan, plus the amendment from the noble Lord, Lord Borwick, which we will come to later.

All these amendments impact on the issue of marriage value. I know that your Lordships’ House debated marriage value to some extent at Second Reading, but it is clear to me that reform is long overdue. I will not repeat the discussion that we had at Second Reading about the definition of marriage value. I must tell your Lordships’ House that, as a long-standing leaseholder, I have extended the lease of two properties in two different apartment blocks. I do not know how many noble Lords have gone through the process, but it is quite something to go through.

The current process is a farce—a piece of theatre designed to enrich everyone but the leaseholder, who pays all the costs. First, the freeholder comes up with an imagined figure of the future value of a property which bears no resemblance whatever to market reality. Basically, think of a figure and double it, and that is what your freeholder comes up with. The hapless leaseholder then employs a valuer and solicitor, and so does the freeholder, and the negotiation dance begins. The leaseholder ends up paying much less than the original premium—the original figure—but an awful lot of money in fees.

For the leaseholder, the whole process is uncertain, expensive and stressful. For the freeholder and associated professionals, it is lucrative, and their bread and butter. The current lease extension process is designed to protect the freeholder’s long-term interests at the expense of the leaseholder. It is nothing to do with transferring wealth—we keep hearing this figure of £7 billion being transferred—and everything to do with retaining it, as understandable as that may be.

Several of London’s great estates have maintained their property empires over hundreds of years by exploiting the system and making leasehold extension, or enfranchisement, extremely difficult, opaque and tedious. Leaseholders’ insecurity and uncertainty provide freeholder security. The more freeholders keep control of leases, and discourage extensions, the more they can protect their accrued wealth, and that is really what the debate is about today.

I do not intend to repeat what I said a couple of days ago in your Lordships’ House about the Church of England’s feudal property empire, and the work that it does with charities, except to say that it is a multi-billion-pound business, and, like all businesses, the Church will fight to protect its interests as one of the country’s leading landowners. Abolishing marriage value could, of course, affect all that.

I do not accept all the doom-laden warnings that we have heard from, for example, the noble Lord, Lord Howard of Rising. We have heard such dire warnings before about the impact this could have. We heard the same from the pension funds—remember that they were saying that the abolition of ground rent would cost them tens of billions of pounds. Well, just today, the Society of Pension Professionals and its chair have said that this is exaggerated and overplayed. In fact, the scale, relative to total assets, is probably not that significant in the long run. I think we will find the same when it comes to marriage value.

I know that a lot of people, including the noble Baroness, Lady Deech, who is very experienced legally in these matters, mentioned the European Convention on Human Rights. A number of major estates and property owners are citing that. I had a hedge fund lobby me, saying that their human rights would be breached under the ECHR were marriage value to be abolished. I do not think the great British public will be awfully sympathetic about hedge funds’ human rights being breached because some people want to reform leasehold and marriage value. In fact, I heard today from noble Lords, including the noble Lord, Lord Moylan, a wonderful case for an opt-out from the ECHR. If billionaires and hedge funds are going to hide behind the ECHR to prevent reform, I think it is a good idea to opt out—maybe some of the noble Lord’s colleagues in GB News would support that as a proposal.

Some say that there will just be a transfer of wealth from one group of rich people to another. There is obviously a certain amount of truth in that—the properties owned by people in central London, whether they are local or foreigners, are expensive—but if you abolish marriage value you will make the housing market more transparent and bring many more properties on to the market, thereby providing more homes. The problem with short-lease properties—I have found this myself—is that they are often unsaleable and un-mortgageable. That means that they can be purchased only by cash. Often, they remain short-lease properties because, as I have already described, extending the lease is a complicated process, lacks transparency and is prohibitively expensive, so they clog up the market. There are an awful lot of short-lease properties, which could be opened up to the market as a whole.

That situation may suit freeholders, who see an early return of their asset when they get a shorthold property back into their hands, but it is bad for the housing market as a whole. It would be better if short-lease properties—there are about half a million of them—were smoothly converted to long-lease properties relatively cheaply, transparently and efficiently. That would benefit the whole economy, not just large freeholders. Getting rid of short leases—and making extensions cheaper and easier, which is the Government’s intention—was one of the key points of the entire Bill, and freeholders should not be able to frustrate it.

On the deferment rate designed to replace marriage value, I fear that it can become marriage value by another name, so, in a way, I understand the point the noble Lord, Lord Moylan, made. Marriage value, as such, is not being entirely abolished as a concept; it is being replaced by the deferment rate. I agree with Amendment 42 in the name of the noble Baroness, Lady Taylor of Stevenage, which states:

“In setting the deferment rate the Secretary of State must have regard to the desirability of encouraging leaseholders to acquire their freehold at the lowest possible cost”.

Otherwise, there is a danger that, in replacing marriage value with the deferment rate, His Majesty’s Government will make extending leases even more costly than at present. I hope the Minister can put my mind at ease on that score.

Amendment 41 in the name of the noble Lord, Lord Borwick, which would give a fixed formula based on the bank rate, appears attractive at first sight, except that no one can possibly know where the rank rate will be in the future. It looks too high at the moment, and the bank rate plus 5% looks overly generous. If the noble Lord can later advise the Committee on where investors can currently achieve certain returns of over 10%, I would be very grateful.

My Lords, the noble Lord, Lord Truscott, explained very well what I would have liked to say, so “hear, hear” to that. I was beginning to worry that the debate might be getting a bit dull—until the noble Lord, Lord Moylan, spoke. He so infuriated me that I feel I have to say something. I am not able to stay for the rest of the evening, but I wanted to clarify a number of things.

It is true that there are some people who own lease- hold flats who are not poverty stricken, but the characterisation of the 5 million leaseholders in this country as wealthy is ludicrous. The main reason why people—certainly me—are forced to buy leasehold flats is that they are cheaper than non-leasehold flats. As I will indicate in an amendment to be discussed on the next day in Committee, very few of us were originally aware of what a leasehold meant. We thought that we were entering into the housing market and buying a house, having saved up very hard to do so, without realising that we were, in effect, pseudo-tenants with very few rights. That has all been discussed often in this House.

The other thing that I wanted to clarify—I hinted at it, and it will come up again—is the notion that any charity that is a freeholder is doing good in the world; that strikes me as at least open to question. Many of the problems that leaseholders face are due to their being local authority—local authorities are not charities, but there are real problems with local authority flats. Also, housing association leaseholders have endured incredible problems with how the leasehold is set up. It is not appropriate to assume that, because charities say that they are doing charitable work, they are not accountable for some of the uncharitable consequences of the fact that they are, in effect, freeholders making a huge amount of money out of leaseholders.

In that sense, what really wound me up was the idea of this being a limitless expropriation scheme. Leaseholders have felt for some time that they are on the receiving end of a limitless expropriation scheme. The reason why this Bill is here and why people across the political parties, from right to left and in between, are so committed to tackling leasehold is that the inequity is in that capacity to expropriate, via the service charge, ground rent and so on. It means that leaseholders feel there is no way to defend themselves against a freeholder who can just take, take, take. Having paid quite a lot in service charges, I know that you do not necessarily get a service and there is not very much you can do about it, which is what the Bill is trying to address. I am pleased that the Government are addressing this, although they are not going far enough.

This is whipping up a climate of fear, and the notion that mad socialists are going around stealing property from freeholders is absolutely mythical. It is very important that we do not allow myths to emerge in the midst of this discussion, and that we have a proportionate sense of how to respond. I do not think that all freeholders are evil, but the system is iniquitous. I mentioned before that it has taken a few years of me being here to hear so much enthusiasm for feudalism, but it seems to be coming up again. It might make it difficult to untangle the law—as the noble Baroness, Lady Deech, explained, this goes back many hundreds of years—and I am not trying to be glib, but there have been a lot of commissions looking into this. However, it is not appropriate to sing the virtues of feudalism, either. Feudal property rights are not in the interest of modern democrats, whether they are on the left or the right. The idea that this is the equivalent of the difficulties of expropriating from Putin does not make any sense.

As to the European Court of Human Rights: the irony of the position of Conservative Peers! By the way, I am one of the people who would leave the ECHR— I know everyone here will hiss and boo when I say that —because I do not think it should determine the decisions we make in this or the other House. But Conservative Peers, who would otherwise say that the European Court of Human Rights is unreliable, defending it for hedge fund managers is ludicrous. Freeholders are not necessarily virtuous, benevolent, benign landowners; some are, but most are money-making rentiers. It is actually a criticism of the failures of capitalism that the only way anyone thinks they can make money is by ripping off leaseholders—and then describing them as rich, just because they have got a decent flat. Noble Lords get the gist.

My Lords, I remind the noble Baroness, in light of what she has just said, that it was in this place in 1215 that the barons said to the King, “This is the Magna Carta”. This principle was established and made very clear that a person’s property could not be seized by the King, except by the lawful judgment of his Peers over the law of the land. The assumption is that if you take the property, compensation must follow, even if you are taking such property because you want to convert some or all of it into leaseholds, so that they too can become owners. The Magna Carta will tell you, “Have you forgotten your history? Have you forgotten your law?” The rule of law in this country is what gives us liberty. It is not just a question of the European Court of Human Rights; it is also Magna Carta, which is really the foundation of all these things. To seize somebody’s property, even by an Act of Parliament, would go against the whole reason why Magna Carta came out and gave us the rule of law, in the end.

Let us be very careful in this Bill. If you take away somebody’s property without compensating them, those barons from 1215 will be rising up and saying, “Remember your history, remember your law, remember the tradition that it has created, and safeguard it”.

I do not think that freeholders are simply wanting to hold on to things, in the way that the noble Baroness described some of them, or are not doing any good charitable thing. I live in Berwick in Northumberland, and the duke there has plenty of other things. I have also seen some of the charity work that is being done.

Let us not use language and words because we are enthusiastic in one direction or another and ignore the Magna Carta. It is what has given freedom and liberty even to newcomers such as me. My friends, the rule of law cannot ever simply be brushed aside because of a desire to correct a particular question. The rule of law matters. The Magna Carta matters.

My Lords, I support each of the three amendments in this group. I was going to say that the amendment from the noble Lord, Lord Moylan, concerning compensation, was so articulate that it really needed no reinforcement, but I was not expecting the fine history lesson just now, which has reinforced it with great skill and humour. The noble Baroness, Lady Deech, explained that she taught property law for many years. I studied property law for many years, and I am sure that, if I had studied under her—which would of course not have been appropriate at all in age terms—it would not have taken me so many years.

The expropriation is bad enough, but to add the retrospective characteristic in this legislation is shameful. My principal interest in contributing is the 80-year rule referred to by the noble Lord, Lord Howard of Rising, because that is a very sensible, intelligent compromise to the sledgehammer of absolute abolition of marriage value and hope value in the calculation being entirely reserved to the lessees. Many of the highest-value elements of this paragraph are, indeed, in central London and the south-east, and many are non-resident.

This clause would save the Treasury billions, in addition to earning it some billions, which we heard referred to by the noble Lord. There is logic to the 80 years proposed in his clause. That is the threshold below which mortgagees such as banks and building societies are very reluctant to lend on property. Lessees therefore have no choice but to negotiate an extension if they want to use borrowed money—and, of course, nearly all do. The 80-year rule is a compromise between the very long leases and those moving into the unmortgageable zone. It makes a great deal of sense to cut the pack in this way because it excludes those freeholders of over 80 years but encapsulates the value of the expiring leases. It should be supported.

My Lords, like the noble Baroness, Lady Deech, I come to this from a professional viewpoint. I am a chartered surveyor and, until recently, I was a registered valuer with my professional body. Coming from my background, I see the balance to be struck. When I was in the public sector, I was dealing with matters of compulsory purchase and compensation. Later on, after the passing of the Leasehold Reform, Housing and Urban Development Act 1993, I became the first chairman of the Leasehold Advisory Service. Although I was not a practitioner in the matter of leasehold enfranchisement, I had a very close up and personal involvement with what was happening there.

As we have heard from the noble Lord, Lord Howard of Rising, marriage value exists. It is not a fiction. It is there in legislation and referred to. It is one of the things that is supposed to be taken into account, for instance when dealing with a compulsory purchase case or something like that. I do not make any particular claim for one or other camp; I make a claim for order and rationality in what is happening here. My fear is that if the Bill creates a disorderly process, it will be highly undesirable for everybody concerned—for the public interest, for the people who lose assets and also, incidentally, for leaseholders. With the interconnected way in which property and finance function, I do not think you can simply fillet out all the bits you want for the leaseholder. There would be an imbalance.

We heard from the noble Baroness, Lady Deech, about the ECHR and the principle of fair compensation where assets are necessarily taken away by the order of the state, whether taken directly for the purposes of the state or removed in some other way. That is based on the principle of fair compensation, as defined by reference to the term “market value”. Noble Lords may wish to refer to paragraph 4 of Schedule 4 to the Bill, which refers to market value. I shall return to this theme, because it is very likely that later I shall have amendments of my own to clarify this.

It is worth reiterating what market value means. First, it is part of an international valuation standard—it is not just UK. It is brokered by the Royal Institution of Chartered Surveyors and a body called the International Valuation Standards Council. Market value is:

“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

My difficulty—I think it is probably germane to what is happening here, because bits of this Bill interleave with other bits at earlier and later stages—is that the definition of market value for the purposes of Schedule 4 is something rather different. It does not identify a willing buyer and a willing seller, just a willing seller. I will come back to this matter at a later stage.

I am sure that the noble Lord, Lord Thurlow, has dealt with commercial rent review, as I did for many years when I operated out of the West End. Anybody who has done so will know that the question of each party being described as “willing” is significant to the outcome of the assumed deal that has to be brokered—ultimately, if not by agreement, by an arbitrator or an independent expert dealing with the valuation. Typically, this will be for a rent review or a rent under a new lease where the commercial lease is entitled to a process of renewal.

It is very important that we understand that that failure to have a willing seller and a willing purchaser implicitly results in a skewing of the outcome; in other words, it can be argued that the only willing party to this is the seller—in theory, at whatever figure might be offered by the person trying to acquire the asset. That cannot be right, so that needs to be dealt with and picked up to clarify where we are going on that.

With regard to the comment from the noble Baroness, Lady Fox, about the cost of dealing with this—I think it was her and not the noble Lord, Lord Truscott; forgive me if I have got it the wrong way around—fairness and justice involve considerable care, expertise and no small cost. It is a bit like the price of democracy, if you please. We should not just say that because it is expensive, it is expendable. It is not. I think the noble and right reverend Lord, Lord Sentamu, would agree with that principle.

This is an important part. The impact assessment says at paragraph 152:

“We do not expect freeholders will exit the market as following our reforms; many freeholders will continue to hold a valuable long-term interest in leasehold buildings”, and it goes on to describe those. The problem is that we have a successive draining away of the asset that is available to those freeholders. That might be fine, were there not a particular legacy issue about which I have spoken in this House many times before, and will do again at a later stage of the Bill—I give due warning of that—which is the question of building remediation, where it is required. Ultimately, you can drain so many resources away that there is nothing left for remediation and the person who is made responsible, particularly under the terms of the Bill elsewhere, is the owner of the building.

What is to happen with the owner of the building if, as the noble Baroness, Lady Andrews, wants, permitted development rights are removed? For all sorts of reasons that I think the noble Baroness, Lady Pinnock, referred to, I agree there are some really rubbish, poor-quality additions to buildings that should not be there and have not respected the structure underneath—for instance, in terms of wind-loading and load-bearing structures and stuff like that—never mind the inconvenience to those living immediately underneath. None the less, it is there, and I suspect that if the Government were to turn around and say, “We’re going to get rid of a whole tranche of permitted development rights”, there would be another issue to do with whether compensation is not available this time, possibly not in relation to this Bill, but under planning laws. We have to be really careful about this. I am worried that there will be a default in terms of remediation—that freeholders will end up with so little that they have no skin in the game worth having any more, and that they engineer the process where they can financially exit from the whole thing.

There is one last point here, which has been made already. This is a matter of confidence in the system that we have: do we have a rules-based system or do we not? What would happen to our wider reputation as a country where investment in property and this sort of thing can be made? What else might be taken away at a moment’s notice? I fear for that. If we are not to have greater reticence and a response to risk in terms of short-termism and a degree of hedging of bets—which, in valuation terms, leads to higher costs and lower values—we need to be very careful about what we are doing. On that point, I will sit down.

My Lords, the debate on this group of amendments has taken an interesting turn. I was not expecting to be discussing expropriation or to hear reference to the European Court of Human Rights, particularly from those who have in the past criticised it. I was not expecting the debate to hinge on the rule of law, of which I had thought we had a good example in previous days.

I am very grateful to the noble Baroness for giving way. If there is any suggestion that I have been critical of the European Convention on Human Rights, if that remark was addressed to me, I should be glad to know when that was the case because I have never said that we should withdraw from that convention. I do not know whether the remark was addressed to my noble friend Lord Howard of Rising and not me. If that was the case, I apologise for intervening.

There was, of course, no mention of or reference to any noble Lord in this Chamber. It was a general reference to criticisms of that court under the human rights legislation. We have heard in debates in your Lordships’ House over the past weeks that have hinged on the rule of law. So it is most interesting, for those of us who have felt that the rule of law had been breached in the decisions that have been made, that it is now being raised in defence of these amendments. The debate has become emotive on this issue.

I hope that we can draw back from that rather, because what we have here is the Government’s intention to rebalance the rights of leaseholders as against the rights of freeholders. From these Benches, we support the rebalancing of those rights. In many cases, we think that the Government are not going far enough, but there ought to be a rebalancing of those rights. That is not referencing in this case the fact that there seems to be an argument among those who have moved or supported the amendment, that the loss of value can be defined as an expropriation. I find that difficult to accept because all along, in changes to legislation on major infrastructure projects, property is infringed and property holders feel abused. But it is for the state to make those decisions. So I am not sure why we are going to the barricades on this issue.

I am grateful to the noble Baroness for giving way. In the case of infrastructure, it is certainly true that private property owners can have their property taken away from them to allow infrastructure to be built. But this is under a compulsory purchase regime whereby they receive something approaching the market value, normally plus a premium of so many per cent on top. My amendment would ensure that those expropriated of their marriage value would receive that. Is the noble Baroness, in fact, swinging in behind my amendment? There is a clear difference between what is proposed today and the compulsory purchase regime.

I thank the noble Lord for his intervention. To me, the issue here is quite simple. We expect leaseholders to fund the enfranchisement of their lease—to pay the costs of the enfranchisement—and then to share the increased value of the lease with the freeholder, who has made no financial input to the extension of the lease. From a leaseholder’s point of view—although I do not have a leasehold myself—that seems to me to be the wrong balance. This is what the proposals in the Bill are attempting to put right. From that perspective, we would want to agree with that.

We are constantly warned that no investments can be regarded as safeguarded for all time. That must be true for property as it is for any other investments. We have heard arguments this afternoon about protecting freeholders, seemingly for ever. I accept the argument of the noble Baroness, Lady Deech, that phasing might be an answer to freeholders’ difficulties, but you cannot keep things in aspic for ever. Change is on the move and the Government are right to try to provide a better balance of rights and responsibilities between freeholders and leaseholders.

We on these Benches would prefer to move entirely to commonhold—but that argument has yet to be completed. I accept that the situation is very complex. Whenever we have a substantial change in legal rights, there is a loss on one side and arguments about that, and benefits on the other. Nobody can be absolutely clear and certain how the balance will be reset.

I take the noble Baroness’s point about things changing, but I ask her to cast her mind back—although she was not there at the time, any more than I was—to the great reforms in the Law of Property Act 1925. There was a big discussion about all sorts of matters to do with tenure and getting rid of things such as entails, and modernising the system. If we are to make a seismic change—and I think this Bill will produce something of a wobble—there ought to have been that big discussion about the fundamentals of property law. Does the noble Baroness not agree that, instead of tinkering around piecemeal with this and trying to shoehorn it into the unfortunate focal point of leasehold reform and the balance between leasehold and freehold, that discussion should have taken place first?

I thank the noble Earl for that intervention, because he is right in many cases. I am not a lawyer, but I know that the 1925 property Act made a huge change away from the old system, which was feudal at that point, and modernised property legislation. This Bill may do the same. In some instances, as we have heard this afternoon, it will have big consequences—for freeholders, in the context of this set of amendments. I accept that maybe there ought to have been—as we heard on Monday from the noble Lord, Lord Young of Cookham—a draft Bill on commonhold. Maybe it requires an in-depth, cross-House, cross-party committee to get into the detail, rather than the 300 or so pages of the Bill that we have in front of us, in order to get to grips with the consequences of what is being proposed.

I go back to the principle, and the principle has to be right. We are trying to rebalance the rights between freehold and leasehold. There is frequent talk on the Conservative Benches that the basis of Conservative philosophy is a property-owning democracy, but leaseholders will not be full participants in that until these changes are made. So it will be interesting to hear what the Minister has to say with regard to this very challenging debate.

My Lords, this has been a more wide-ranging debate than was anticipated at the beginning of the group. The noble Lords, Lord Howard and Lord Moylan, made some interesting points in introducing their amendments, and it is for the Minister to clarify and address her noble friends’ concerns. All three amendments in this group attempt to make changes to Schedule 4, which is where the market- value element of the premium for any enfranchisement claim is determined.

I listened to the noble Baroness, Lady Fox of Buckley, in relation to the European Convention on Human Rights. Although we have differing views on that, it is interesting how legislation and the regard for international law are debated in different debates in this House—without pinpointing any noble Lord in particular.

The noble Baroness, Lady Deech, laid out and stipulated the complexity of the issue as a teacher in property law, while the noble Lord, Lord Thurlow, as a student of property law, made some interesting points about complexity and about working and bringing change in a fair manner.

In conclusion, I ask the Minister what consideration the Government have given to the principles of grandfathering for leases of various lengths and other conditions when developing the Bill? For example, in the instance of a lease of a very short length, when the Bill becomes law, what are the ramifications of the Bill as it is written? Do the Government think that some shorter leases are going to be treated in a way that may be fairer on wider principle but do not seem appropriate, given the shorter lengths? If so, did they consider any mitigation?

I finish by referring to my noble friend Lord Truscott, who advocated in a diligent manner the ending of marriage value and talked about the wider unfairness in leasehold properties. I look forward to the Minister’s response.

My Lords, I thank my noble friends Lord Howard and Lord Moylan for their amendments in this group. Amendments 26 and 27 would require marriage value or possible hope value to be payable by a leaseholder who has fewer than 80 years remaining on their lease on the passage of the Act.

The Government’s stated objective is to make it cheaper and easier for leaseholders to extend their lease or acquire their freehold. We want them to attain greater security of tenure. The amendments are directly counter to our objective. In particular, they would prevent us from helping the trapped leaseholder—that is, a leaseholder with a short lease who is unable to afford to extend because of the prohibitive marriage value payable, and so is trapped with an asset of diminishing value.

We do not believe that the leaseholder should have to pay marriage value. For the freeholder, the marriage value that is payable under the current law is a windfall created by the freehold and leasehold interests being married earlier than they otherwise would have been—namely, at the end of the lease. It is a sum that the freeholder would not receive if the lease ran its course. Parliament has previously determined that the value should be split equally and the leaseholder should pay half of it to the freeholder on enfranchisement, but we do not believe that freeholders should continue to receive that windfall.

The leaseholder needs to enfranchise, because by its very nature a lease is a wasting asset. Without either extending their lease or buying their freehold, they will suffer financial loss as the lease runs down or lose possession when it has fully run down. Nor has the lease- holder meaningfully chosen to enter such an arrangement, since leasehold is very often the only available form of tenure outside the rented sector at certain price points or in certain locations. The lease- holder’s need to enfranchise is born out of their insecurity of tenure; that is, out of the inherent injustice of the leasehold system. Our objective is to enable them to obtain greater security and to address that inherent injustice. By not having to pay marriage value to the freeholder, the leaseholder’s ability to obtain security of tenure is much improved.

A third party who bought the landowner’s interest would not pay marriage value, and we do not think it is right that the leaseholder should pay more than that same interest. Requiring leaseholders to pay more than a third party—or, in other words, enabling the freeholder to profit from the sale to a leaseholder by comparison to a third party—is to punish the leaseholder for their need to enfranchise, and therefore to affirm the very injustice we are trying to address.

The noble Earl, Lord Lytton, and many other noble Lords brought up compensation. Under our valuation scheme, the freeholder is compensated as if the lease simply ran its course. We believe that this is adequate compensation; it is sufficient to reflect their legitimate property interests.

Amendments 26 and 27 would also further complicate an already complex system. They would create a new two-tier system, with different rules for leases that were under 80 years at the time of the Act and those that fell under 80 years thereafter. This is undesirable, as it runs contrary to our stated aim to simplify this complex tenure.

Before I move on to Amendment 29, I will answer one or two specifics. First, the issue of human rights has been brought up by a number of noble Lords. The Government consider that all provisions in the Bill are compatible with the relevant convention rights and that in the case of the provisions engaging Article 8 and A1P1 any interference is justified and proportionate. There is a GOV.UK page where noble Lords can read further information on that should they wish.

The noble Baroness, Lady Deech, also brought up phasing, which is important. Following Royal Assent, we will allow time for a smooth transition to a new system, while making sure that leaseholders and freehold home owners on private and mixed-tenure estates— which is an issue—can benefit from it as soon as reasonably possible. We will also support leaseholders, freeholders, landlords and agents to adjust to and understand the new rules. We will work with delivery partners to make sure that the necessary support is in place, including through the publication of appropriate guidance.

I am grateful to the Minister for those comments. It reminds me that in the case of the 1925 legislation, the centenary of which approaches us, there were six different statutes with a long lead-in time. Apparently, many solicitors gave up practice entirely because they could not cope with the new law, so it is good to know this will be gently introduced.

On human rights, I am all in favour of the European convention; I would not want to drop it. I just find it rather dismaying that if the possible claimant were a hedge fund manager or a rich freeholder then we should not worry about them. The point about the European Convention on Human Rights is, whether you like the claimant or not, the thing must be taken as a whole; we cannot pick and choose. I would like some disassociation from the notion that hedge fund managers and rich freeholders should not have their rights considered under that convention.

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.

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—

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.

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.

Amendment 27 not moved.