Dr Douglas Maxwell gave evidence.

Apologies, Douglas, I have one eye on the screen, where the Minister is now on his feet in the Chamber—we do not want to keep you waiting while we do lots of voting. Douglas Maxwell of Henderson Chambers, will you introduce yourself quickly for the record, please?

Dr Maxwell:

Good afternoon. My name is Douglas Maxwell. I am a barrister in private practice at Henderson Chambers in London.

Q Dr Maxwell, I want to ask you about two things: A1P1 and compensation. The Secretary of State’s view is that clause 21 is compatible with the relevant ECHR provisions. I presume you agree. The Government have five options out for public consultation at present. There is a sliding scale of risk in the potential for litigation—although they might well all be litigated in due course—from the capping of the peppercorn down to the freezing of ground rents at their current levels.

On the existing ground rents, to what extent do you think that any of those courses of action in the five options will be compatible with the provisions of A1P1? On compensation, how credible do you find the figure in the Government’s impact assessment? They cite the figure of £27.3 billion as the estimated change in asset value from calculating the loss of ground rent income on the relevant leases. Do you find that a credible figure, or is it subject to a heavy amount of caveats, assumptions and so on?

Dr Maxwell:

To deal with your first question, I think it is important to start by looking at how the European Court of Human Rights, the Strasbourg Court, considers applications under article 1 of the first protocol. The Court has said consistently that where a deprivation of property occurs—article 7 interprets that effectively as when your entire right to property is extinguished and all economic value is lost—there is what is called a presumption of compensation. I am not entirely sure, because we do not have the proposals set out in statute—we simply have the consultation document—

Q But the Secretary of State has expressed a preference for the first option, so let us say it is capping a peppercorn.

Dr Maxwell:

In most instances, it would appear that that would fall within control of use: the freeholder’s right to property is not entirely extinguished, because they retain the ability to use, sell or whatever that property, and they retain the ability to make money through other means such as enfranchisement fees or lease extension fees. I discussed this yesterday with Professor Bright at the APPG, which I know some of you were present at, but there might be instances where it falls within the category of a deprivation, or certainly gets close to that category, where the entirety of the income is derived from ground rent and the removal of that would effectively remove the value.

Absent sight of those sorts of leases and the relevant facts, we are dealing only in hypotheticals here, so that brings us to another question, which is to look at the macro picture of the options as a whole and the micro application of that to certain facts. It might be that on the macro approach, looking at the totality, we are dealing with a control of use, which means that there is no presumption of compensation, but it could be that if we looked at the micro analysis, certain individual circumstances do fall into that. Again, absent the relevant facts, it is only possible to speculate. It is a very broad market and there are lots of different leases.

Q Understood. What about the impact assessment figure?

Dr Maxwell:

I am not an economist. I have skimmed the impact assessment figures and noted the figures that seemed to be quite substantial. I noted for option 1— correct me if I am wrong, but I do not have a copy in front of me—I think it said that in the first 10 years, the loss of ground rent might be £5 billion, and then a loss of value of about £27 billion. I am not an economist, so I cannot really comment on whether that figure is remotely correct or reflective at all.

Q Understood. On a practical level, would you expect any of the five options that are out to consultation to be the subject of litigation on the part of landlords? Or are there some that are safe, well beyond the infringements we are discussing?

Dr Maxwell:

If any of the options are implemented, it will result in a significant loss in value of freeholds. As a result, there is a prospect of challenges being brought. I cannot comment on where those challenges will come from, but it would be slightly naive to say that any of those options are completely safe from challenge. However, the prospect of a challenge being brought is very different from the finding of a violation; seeking to bring or threatening judicial review is very different from the actual court finding that a violation has occurred. Obviously, the risk register—if you want to call it that—of the finding of a breach is effectively reduced if you go down the relevant options to the final one of freezing ground rent, and there are other questions about the proposals as set out in there.

This was discussed last night with the APPG, but it is important to recognise that there is Strasbourg case authority concerning cases from Norway that went to Strasbourg on the capping of ground rent. Obviously, ground rent in Norway is not exactly the same as it is in England and Wales, but there are some similarities. There was an initial case called Lindheim where the Strasbourg Court said that a cap of 0.2% in Norway breached the right to property of article 1 of the first protocol. That was because, effectively, the value was completely lost.

The Norwegian Government engaged in a process like this—a very considered discussion and consideration within the political sphere of the best way forward—and they effectively set a cap, which was the equivalent of about £600 a decare—I had to look that up—which is 0.2 acres. They set a cap, which again was challenged in a case called The Karibu Foundation, and that was when the ground rent related to about 0.6% of the land’s value. In that case, the European Court of Human Rights said, “No, there is not a violation here, because the Norwegian Parliament have clearly considered this and they have what the Strasbourg Court calls a ‘broad margin of appreciation’. These sorts of questions are for Parliament”—they are for you. The EHCR said that it had been adequately considered, they have retained the property, and that is reflected. Therefore, there cannot be seen to be what the Strasbourg Court usually refers to as an “individual and excessive burden” on this foundation, and it said that a breach had not occurred.

The principle is that a cap or a limit on ground rent is not necessarily a violation, but you have to apply it to the certain facts and see whether it falls within causing an “individual and excessive burden.” But we are absent from facts and again dealing in hypotheticals here. We have to look at the macroanalysis.

Are there any further questions?

Q Dr Maxwell, I understand you have written a book—oh, your thesis was on the proportionality of state interferences with possessions under article 1 of protocol 1 to the ECHR.

Dr Maxwell:

There is a book, but it is probably not on your Christmas list.

You are presuming what is on my Christmas list! Anyway, are you able to express a view on whether this Bill and what we are proposing is a proportionate interference in property rights?

Dr Maxwell:

That is an exceedingly broad question. There are 65 clauses in this Bill, and there is a consultation with five potential options. We do not have time to go through every single clause, but in terms of the risk register and potentially successful challenges being brought, I would focus on option 1 of the consultation, on reducing ground rent to a peppercorn.

There are various other people who have looked at this. For example, Giles Peaker, who is a very respected solicitor and has appeared before these Committees previously, has recently written that it would quite obviously, in his view, be a violation and it is important not to give people false hope. There is an undeniable risk of a violation being found in the relevant options. I suspect, but I do not know, that the prospect of a challenge being brought is very high, but again that depends on the relevant facts. It would be my understanding that it cannot be brought in a macro sense against the Bill as a whole, and it would depend on the relevant facts.

For example, the Supreme Court found a breach of the right to property in a case called Mott, which concerned limits on an individual’s right to fish on the Severn estuary. The Environment Agency’s policy of fishing as a whole—limiting fishing for the benefits to the environment—was considered okay. But for Mr Mott, it resulted in a complete loss of his income—fishing represented 95% of Mr Mott’s entire income—and it therefore did cause a breach to Mr Mott in particular. That is why I am slightly apprehensive about giving broad conclusions about consultations and clauses when we do not have the ability to analyse the impact on an individual or entity.

Q But it is my understanding that doing a consultation in and of itself is essential and helps to guard against the future risk of such claims being found successful. Has that been borne out through the courts system? Have you seen that?

Dr Maxwell:

Yes, so in the case I referred to earlier—The Karibu Foundation v. Norway—one of the factors that the Strasbourg Court gave a lot of weight to was that the Norwegian Parliament had sat down with the Council of Europe, because it was following a breach in the Lindheim case, and considered all the relevant options. It was properly aired and debated and they got in experts from various fields. That is clearly a consideration. It shows that the democratic institutions—Parliament—have properly considered it, rather than it being, say, a last-minute amendment without justification.

Thank you.

I am quite keen to wrap this up before the Minister concludes speaking in the Chamber, because otherwise we will have to keep the witness for at least an hour during votes, and I do not really want to inconvenience him that much. Can we have very quick questions and swift answers if possible, please?

Q The Norwegian example that you have cited related to land that, I understand, did have a rental value because it was agricultural land, whereas you cannot rent out a piece of land that already has a building on it, obviously, except to the tenants. I think there is a relevant difference. Have you made a study of elsewhere in the world, such as Australia, Hong Kong and America—the British empire led us to seed leasehold around the world—and what they do?

Dr Maxwell:

In relation to your first point on the Norwegian case, yes, as I said, it was different. It is about agricultural land value. The value was equivalent to several thousand euros. As for what happened with the adoption of, say, strata title in Australia and so on, that is not within my knowledge. What I know or have studied in detail is—

Q I just found it a strange example to choose Norwegian agricultural land, rather than where we know it has actually happened—where these payments were not made, the courts did not find that huge payments needed to be made, and there were no huge court cases. If we look at where else in the world this has happened, actually, it has happened without that sort of thing. I understand you are a lawyer, and no lawyer I have ever known has wanted to refuse a client the opportunity to go to court. But it seems odd that we are not talking about where we know it has happened in an exactly parallel situation. Our leasehold system was introduced in those countries, transformed into strata title or condominium structures, and no great crisis resulted.

Dr Maxwell:

The very short answer to that is that we are dealing with article 1 of the first protocol to the European convention on human rights. Countries such as Australia, and particularly places such as Hong Kong now, are not signatories to the convention, nor do they have a domestic law-giving effect to it. That is why we are dealing with article 1 of the first protocol, and that is why we are dealing with case law from other jurisdictions that is, perhaps, not directly analogous.

As for the sorts of cases, or whether any cases were brought in those jurisdictions when that system was adopted, that is not something I am aware of or can comment on, unfortunately.

Thank you very much.

And then, very succinctly, Andy Carter.

Q My question will be very short. What are the main implications of the provisions in this Bill for the legal profession, particularly solicitors? A relatively short answer, please.

Dr Maxwell:

I am not a solicitor; I am a barrister. I am not able to really comment on the main implications of the Bill for solicitors, unfortunately. That is a nice, succinct response.

That is fine. Thank you.

Thank you—I do apologise for that. Thank you very much on behalf of the Committee. That brings us to the end of this afternoon’s sitting. The Committee will meet again on Thursday to hear further oral evidence on the Bill.

Ordered, That further consideration be now adjourned. —(Mr Mohindra.)

Adjourned till Thursday 18 January at half-past Eleven o’clock.

LFRB01 Community Land Trust Network

LFRB02 James Dart, Dart Compliance Ltd

LFRB03 Christopher Jessel

LFRB04 Homehold Services Ltd

LFRB05 Gabriel C Santos

LFRB07 Annington Management Limited

LFRB08 Michael Hayman

LFRB09 Harriet Fleming

LFRB10 Justin Bennett

LFRB11 Charlie Coombs

LFRB12 Shared Ownership Resources

LFRB13 Izabela Klasa

LFRB14 M H Adcock

LFRB15 British Property Federation

LFRB16 Miriam Lewis

LFRB17 Peter Ballard

LFRB18 Anonymous

LFRB19 The Property Institute

LFRB20 Homeowners Rights Network

LFRB21 Nick Hopkins, Law Commissioner

LFRB22 Homewise Ltd

LFRB23 Dr Mark Andrew and Dr James Culley

LFRB24 Wallace Partnership Group

LFRB25 Mark Loveday, Barrister

LFRB26 Lewis Rolfe, of Audbern Ltd, a Freehold Ground Rent Investor

LFRB27 Anthony Shamash, director and owner of various ground rent investment companies

LFRB29 Anthony Brunt, Anthony Brunt and Co Surveyors and Valuers

LFRB30 Chris Booth

LFRB31 ALEP—the Association of Leasehold Enfranchisement Practitioners

LFRB32 Ania Symonowicz

LFRB33 HorNet, Home Owners Rights Network

LFRB34 Grosvenor