The “bargain”

In the course of a meeting during the Labour Party Conference last September the newly appointed Housing Minister, Lord Falconer, in reply to a leaseholder, stated, “As you are well aware, this Bill is the result of a bargain between the interested parties. We cannot go back on that bargain now”. Leaseholders, however, though indeed an interested party, were not privy to that bargain and had no knowledge of it until he spoke.

Its broad terms are evident from the Act: the landed interest would be allowed to retain a share of ‘marriage value’ (see para. 5 below) and other privileges including forfeiture, provided leaseholders were granted the right to manage the property. But this has proved a dubious gift for, as the Government has since conceded, a freeholder cannot be excluded from the management of a block of flats.

Impartiality was further compromised by a decision to delegate work on the Bill to an agency, the Leasehold Advisory Service (LEASE), which provides preliminary advice on the existing law to the public. LEASE, however, was part-funded by the landlords’ body (The British Property Federation) and was closely associated with representatives of the major landowners and professionals whose income derived from leasehold tenure. Representatives of the British Property Federation’s working party on leasehold reform then suggested to Peter Haler, chief executive of LEASE, that together they should draft a paper for joint submission to government (The BPF’s Property Journal’ June 1998). Again, leaseholders had no knowledge of this deal until they read a report (The Estates Gazette 23 May 1998) that the paper had been submitted.

Despite two subsequent showpiece ‘consultation’ exercises, no significant changes have been made to that initial framework promulgated by LEASE and the landlords’ body. It is their joint paper which forms the basis of the Act. Given its origins, it is unsurprising that during the debate at the Second Reading (8 January 2002), and at the later stages in the House of Commons, serious doubts were raised about the effectiveness of the Bill, in particular its failure to return to the original valuation basis (“which does not include marriage value”). This long-standing Labour Party policy had been restated in 1995 (An End to Feudalism) and repeated during the passage of the Housing Act 1996.

When the interests of leaseholder and freeholder are joined, the value of a freehold with vacant possession is often more than the sum of the leasehold and freehold interests valued separately. The difference is called “marriage value”. It was introduced by the Leasehold Reform, Housing and Urban Development Act 1933, which stated that it should be shared between the parties. However, to include it in the price payable for enfranchisement results in double counting. Indeed, the Valuation Manual of the Royal Institution of Chartered Surveyors indicates (Practice Statement 4) that Marriage Value is not to be regarded as an element of Open Market Value in cases where the purchaser is a lessee. In these circumstances it is in fact an additional charge.

For what reason did the Government, with an overwhelming majority, fail to honour its commitment to abolish marriage value, or indeed provide an effective means for flat owners to convert from leasehold to commonhold? The answer must lie in the “bargain” that New Labour struck with the landed interest, probably in the run up to the 1997 election when the party, after years in the wilderness, was desperate to return to office. It is a story of political jobbery.

Following Lord Falconer’s disclosure of the existence of the “bargain”, three parliamentary questions have been put down in the House of Lords by Lord Jacobs (26 March: Was there a bargain?, 24 April: Who represented the leaseholders in the bargain?, 13 May: What was the bargain? Why is it not possible to say who represented the leaseholders in the bargain? Who represented the landlords in the bargain?). The Government’s replies prevaricate and avoid answering these questions.

The results of the “bargain”

With regard to the Commonhold part of the Bill we can but agree with Barry Gardiner MP’s view (see page 5) that “It is a quite staggering achievement to neuter one’s own Bill before it ever gets on the statute book”. Much of the same can be said of the Leasehold Reform part of the Bill because it fails to address seriously the fundamental defect of the leasehold system, the wasting asset (the diminishing lease), for which enfranchisement is the only solution. The small number of concessions that the Bill does contain are little more that ineffective gestures.

Labour’s failure to meet its commitments on leasehold reform and the cynicism of the measures it has produced must inevitably come back to haunt it. There will certainly have to be further legislation because the Act we have been given will not solve the problems of leasehold tenure and will make matters worse for many people.

What one resents most is the dance we have been led over the five years since Labour came to power: the work, the false hopes, the bogus ‘consultations’, the much vaunted meetings with ministers, the midnight oil burnt drafting submissions and writing letters when, all that time, the deal with the landlords was irrevocably sewn up.

The parliamentary process

Due to the interruption of the 2001 election, the Bill had an unusually extended parliamentary passage, having to go through the House of Lords twice (one fairly prolonged series of sessions each side of the May election). It then went briefly to the House of Commons where consideration of it was severely curtailed by the Government.

As the Bill went through Parliament LEA representatives were in attendance throughout, drafting amendments and providing briefing material and case studies. We were greatly assisted by a number of our members who took the trouble to raise particular issues with Members of both the House of Commons and the House of Lords.

Our briefings gave rise to some important debates (especially on the marriage value, forfeiture and insurance questions) but we were unable to bring about any but the most minor improvements. The Government used its over-sized majority to force the Bill through without material change.

The agreement to retain marriage value provides an unearned windfall to the landlords said to be worth in excess of £10 billion. It is understandable therefore, when there was so much at stake, that the Government put great pressure on its Labour MPs to conform. In the final debates in the House of Commons, for instance, the Labour back-benches had been stripped bare. We feel it right in these testing circumstances to salute courage and backbone where we saw it. The accolade goes first (as mentioned above) to Barry Gardiner, Labour MP for Brent North, whose remarkable speech at Second Reading is reproduced in shortened form on pages 5 and 6.

High praise goes also to Shona McIsaac, Labour MP for Cleethorpes, and to Dr Brian Iddon, Labour MP for Bolton South East, who stood their ground on the issues of marriage value and forfeiture. David Crausby, Labour MP for Bolton North East, fought a good fight on the insurance question. Adrian Sanders, Liberal Democrat MP for Torbay, was tireless in Opposition. John Taylor, Conservative MP for Solihull, fought valiantly for a better outcome, alongside Andrew Selous, Conservative MP for South West Bedfordshire. Our Westminster members will be glad to know that Mark Field, their Conservative MP, spoke for the abolition of marriage value and the simplification of the enfranchisement process. We thank those MPs, of all parties, who voted in favour of the Liberal Democrat motion to abolish marriage value (Hansard 11 March, Col. 727).

In the House of Lords not a single Labour Peer was prepared to raise his head above the parapet, although any experienced parliamentarian would be well aware of the deficiencies of the Bill. We are grateful to Lord Jacobs (Liberal Democrat) for his perceptive understanding of the issue, and to Baroness Hanham (Conservative) whose informed interest has been of benefit to leaseholders over many years. Lord Hodgson of Astley Abbots (Conservative) most helpfully defined for all time what is wrong with the ‘right to manage’. In the Bill’s final parliamentary moments, Lord Williams of Elvel (Labour) did ask the luckless officiating Minister if she would “...accept that, under the Bill as presently drafted, commonhold will not work?” (Hansard 15 April 2002, Col. 691).

The Act received Royal Assent on 1 May 2002 but parts of it will take some time to come into force. Before taking action it is important to check the dates of the Commencement Orders for any particular section because the new provisions will apply only to claims made after the law has come into force. The telephone numbers for the Civil Servants responsible for the Act are: 020-7944 3464 or 020-7944 3465 (direct lines).