Amendment 41

Part of Leasehold and Freehold Reform Bill - Committee (2nd Day) – in the House of Lords am 6:00 pm ar 24 Ebrill 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Lord Moylan Lord Moylan Chair, Built Environment Committee, Chair, Built Environment Committee 6:00, 24 Ebrill 2024

My Lords, I rise to support, in general, the principle of what my noble friend Lord Borwick has said, but I am not entirely sure that we need to go into this new world that he is creating when we have a perfectly satisfactory world that already exists. I hasten to add that I am not a chartered surveyor, and everything I say is subject to correction by Members of this Committee who understand these matters better than I.

My understanding is, first, that the deferment rate exists already—this is not a new thing being invented. It is essential in any enfranchisement that you have a rate of interest at which you discount to a present value what has to be paid, because you are dealing with transactions that are theoretically happening in the future, but you are paying for them today. For that, you need a rate of interest. At the moment, that rate of interest is set in the environment of a tribunal, and the tribunal can change the rate of interest on the basis of evidence adduced to it, and the basis of argument as to why that evidence is applicable to a particular case. I am sure that to a degree it reflects market value, the circumstances of those properties and the location, whether it is central London or some other part of the country—the rates will be different. Nobody has ever thought that system to be wrong.

The second thing, and this is where I may part company from my noble friend, if I have it correct and he has not grasped the point, is that the rate currently used is a real rate. It is a rate that assumes zero inflation, because the valuations used for future value—the value of my flat in 80 years—assume that there is no inflation over that period. So the appropriate discount rate is a real rate of interest, and that may explain the discrepancy between the four-point-something per cent, on the one hand, and the 10-point-something per cent that my noble friend has come up with. In either case—whether I am right about that or he is not—we need to understand whether the deferment rate is a real rate of interest or one that incorporates inflation. In my view, that is not clear in what has been said.

The Government are proposing that this decision—currently sensitively taken on the basis of evidence and argument by an independent tribunal—should be transferred to become the arbitrary choice of the Secretary of State. This has huge implications. If you really want to make it very cheap for a leaseholder to extend their lease, or to acquire the enfranchisement of their property, all you have to do, arbitrarily, is set a very high deferment rate—because that will produce a very low present value that you have to pay. But if you want to protect the freeholder class, you would set a very low deferment rate, which would mean that the leaseholder had to pay a very large amount.

It is an entirely political choice if the Secretary of State sets the deferment rate without any constraints—it hands money to one class or the other as seems politically suitable to you. We are asked to agree this measure with no indication, as my noble friend has said, as to what deferment rate the Secretary of State will choose. All this—whatever your views on the rights and wrongs, whether leaseholders are good people or bad people, what you should do about charities, and everything else—is profoundly unsatisfactory. We are moving from an evidence-based system to one that is essentially arbitrary. We are giving a power that is inherently political, not financial. We are doing this with no sight whatever of what the decision of the Secretary of State might be. Why on earth would we agree to this? Whether my noble friend’s solution is the correct one or we are better sticking with the current system is an important question, but why are we making changes in the first place and giving these powers away with no understanding?