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.
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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.