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.
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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.