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New Clause. — (Restriction on Requir Ing Payment in Advance of Rent Under Decontrolled Tenancies.)

Orders of the Day — Rent Bill – in the House of Commons at 12:00 am on 26th March 1957.

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(1) Where a tenancy is granted, continued or renewed in circumstances in which section twelve of this Act applies, any requirement that rent shall be payable—

  1. (a) before the beginning of the rental period in respect of which it is payable, or
  2. (b) earlier than six months before the end of the rental period in respect of which it is payable, if that period is more than six months long,
shall be void, whether the requirement is imposed as a condition of the grant, renewal or continuance of the tenancy or under the terms thereof; and rent for any rental period to which a requirement avoided by this section relates shall be irrecoverable from the tenant.

(2) A person who purports to impose any requirement avoided by the foregoing subsection shall be liable on summary conviction to a fine not exceeding one hundred pounds, and the court by which he is convicted may order any amount of rent paid in compliance with the requirement to be repaid to the person by whom it was paid.—[Mr. H. Brooke.]

Brought up, and read the First time.

3.37 p.m.

Photo of Mr Henry Brooke Mr Henry Brooke , Hampstead

I beg to move, That the Clause be read a Second time.

This new Clause is designed to tighten up the provision, which was made in Standing Committee, against the demanding of premiums by a landlord. The point is that one needs to cover the case where rent is demanded so definitely in advance that it is in the nature of a premium rather than a normal rent. The matter arises in connection with Clause 12 and the prohibition on the charging of premiums for the tenancies of houses decontrolled under Clause 10 (1) which are granted within three years of decontrol or tenancies decontrolled under Clause 10 (2) and granted within three years after the commencement of the Act.

I said in Committee that it was my desire to ensure that the provisions forbidding premiums were made as foolproof as possible. That is why I am bringing forward this Clause, which provides that if any rent under a tenancy which is subject to the premium provisions in Clause 12 is demanded further in advance than the beginning of the rental period to which it relates—it may be a week, a month or longer—that that sum will be treated as a premium and will be irrecoverable from the tenant. This means that if the tenant has not paid it he cannot be made to do so and the landlord will lose it. I think that that will seldom happen because, if the House agrees to the new Clause, the landlord will be careful not to behave in this way.

There is a further prohibition in the now Clause against a demand of rent more than six months in advance of the end of the rental period. That is designed to close a further loophole which might otherwise exist. To take a purely hypothetical example, the landlord might let a house on a lease of fourteen years and demand the whole of the rent for all those fourteen years at the beginning. That would clearly be more, in the nature of a premium than a rent.

Therefore, we are providing in the Clause against the sum being demanded longer in advance than six months before the end of the rental period. The House will see that the new Clause will be effective in closing two possible loopholes. It imposes a maximum fine of £100 for an infringement and empowers the court to order the repayment of any amount wrongfully demanded and paid.

Photo of Mr Charles Gibson Mr Charles Gibson , Wandsworth Clapham

This is a point which I raised in Committee and I am very glad indeed that the Minister has proposed the new Clause to meet it. I have had nothing very much to say by way of congratulation to the Government on the Bill, but this is an opportunity of saying that I agree with the Minister's action if only because it will solve a rather serious problem that has cropped up in my part of London on more than one occasion. I hope, therefore, that the House will accept the Clause.

Photo of Mr John Hay Mr John Hay , Henley

I entirely approve of the outline of what the Clause does and I am sure that the whole House will be at one with the Minister in saying that the intention is one which ought to be incorporated in the Bill. Undoubtedly, a number of rackets have been going on in connection with new tenancies where premiums have been disguised in the form of payments of rent long in advance. But I am anxious about the effect of this provision in connection with new tenancies under Clause 10 (2), which enables a tenancy to be created free of the Rent Restrictions Acts altogether after the coming into force of the Bill.

May not the new Clause be a little too wide in its terms? I am sure that the whole House would not want to stop the perfectly normal and sensible arrangement for payment of rent, weekly, monthly or perhaps quarterly, in advance. That is often a prudent thing for a landlord to demand, because if he runs the risk of taking as tenant someone of whom he knows little he may find himself with arrears of rent owing. If the Clause is inserted in the Bill, I think that any kind of payment in advance would be covered. Therefore, it would be a criminal offence, carrying a penalty of £100, if the landlord were to ask a tenant, on giving him a new tenancy, to pay rent regularly weekly, monthly, or quarterly in advance.

I hope that the use in the new Clause of the words before the beginning of the rental period… may cover my point and that, if a landlord asks for payment of a week's, month's or quarter's rent in advance at the beginning of the rental period and not before the beginning of the period, that perfectly normal and customary commercial arrangement will be allowed to continue. I hope that that is so, because I do not think that the House wants to strike at that sort of transaction.

I believe that what my right hon. Friend and all of us want to strike at is the payment of large sums of money as rent in advance which really are premiums. I did not give my right hon. Friend notice earlier of this point, but I think that it is one which he might like to look at again, particularly when the Bill is being debated in another place.

3.45 p.m.

We do not want to stop prudent transactions to minimise the risk of arrears of rent, but we do want to stop this racket. If my right hon. Friend feels that my interpretation of the words before the beginning of the rental period … covers the point I shall be quite happy, but if it does not I should be grateful if he would look into the matter and consider whether something can be done in another place to put the situation right.

Photo of Mr Graham Page Mr Graham Page , Crosby

I support the Clause. I joined with the hon. Member for Clapham (Mr. Gibson) in Committee in saying that this provision was necessary to support the Clause in the Bill which relates to premiums. Undoubtedly, there was an opportunity of getting round the premium Clause unless a new Clause such as this was provided, but I have one or two questions to ask on the new Clause because I think it is doubtful whether it will be effective as it is drawn at present. I ask the questions not necessarily to obtain answers today, but in the hope that the points will go on the record and will be dealt with at a later stage in another place.

First, a tenancy, of course, can provide for a variable rent. The rent Clause as drawn does not prevent rent being demanded in advance. Therefore, if there were a tenancy—to take an exaggerated example—for 12 months, of which the rent was £300 for the first six months and £3 for the next six months, it does not seem to me that that tenancy would be caught by the Clause, because the first £300 would be for rental, as the Clause allows. Can my right hon. Friend stop up that loophole with some provision for spreading the rent in such cases over the whole period?

My second point is on the word "requirement". I wonder whether it is sufficient in the circumstances. Let us suppose that the landlord merely says to a prospective or sitting tenant, "Mr. X has offered me two years' rent in advance. I do not require you to pay two years' rent in advance, but what are you going to do about it?" There is nothing in the Clause to prevent the landlord accepting the advanced rent. The Clause is only against his requiring it. If there were in the Clause not only a requirement but a prohibition of acceptance of rent in advance the Clause would certainly be strengthened.

My third point is that, by reference to the premium Clause, this Clause applies to a tenancy excluded from the application of the Rent Acts by subsections (1) and (2) of what is now Clause 10, that is to say, a dwelling-house of a certain rateable value on a certain date, namely, 7th November, 1956, or a dwelling-house let after that date.

Suppose that there is a tenant, in controlled premises, of part of a house who wishes to take another room or rooms in the same house. A tenancy to that tenant of the existing rooms which he already occupies, plus something extra, does not cause the property to become decontrolled. It is caught by the proviso to subsection (2). Therefore, in these circumstances, a landlord could demand rent in advance. He could not demand a premium, because he would be prevented by the existing Rent Acts from demanding a premium on controlled property, but he would not be caught under this Clause because he could demand rent in advance. Perhaps that is a point which my right hon. Friend would look into.

The fourth point is whether, under this Clause, the rent overpaid is recoverable in the county court as a debt as well as if the landlord is prosecuted to conviction. Under subsection (2) of the new Clause, the court may return this overpaid rent if the landlord is prosecuted; that is, the police court may return it. But people do not like to go to the police court, and if this can be recoverable in the county court I think that the Clause will be far more effective. What I would ask is whether this is recoverable only if the landlord is prosecuted to conviction or whether it can be the subject of a civil claim.

The fifth point is that I notice that the court "may" order the return of the amount. Why this discretion in the hands of the court? If we are, in fact, prohibiting the overpayment of rent, why is it left to the court's discretion whether it should be returned, if the landlord is convicted for having acquired it, having been paid that overpayment of rent in advance?

The sixth point—and I have about eight—is this. If the rent is returned, does that relieve the tenant altogether of the payment of the rent for that particular period? Suppose the landlord has demanded rent for 12 months in advance and he is prosecuted for that, and the court orders the return to the tenant of the rent for six months of that period.

Is the tenant, under this Clause, relieved altogether of the payment of rent for that six months? It would seem so, according to the latter part of subsection (1), which says that rent for any rental period to which a requirement avoided by this section relates shall be irrecoverable from the tenant. If that is so, I can see two possible rackets by unscrupulous tenants.

One would come about in this way. The Clause requires the rent overpaid in this way to be repaid to the person by whom it was paid. Those words come in the last line of the new Clause. Suppose that the tenant, who has paid his rent for a long period in advance in this way, in the meantime assigns his tenancy, and that he has obtained from the assignee an apportionment of the rent which he has paid in advance. The assignee cannot recover that from the landlord who received it, because he does not come within what this Clause calls the "person by whom it was paid." The assignor, that is, the original tenant, can recover it from the landlord and can also recover it from the person to whom he has assigned his lease. Unless we have a little tidying up of the wording, I am afraid that it may be that the original tenant will get his money twice over.

Lastly, and this is the second possible racket by unscrupulous tenants, again assuming that the tenant has paid excessive rent in advance in this way, and again taking the example of a person who has paid it for a year and claims back six months' rent, he could he rent-free, apparently, for the second six month of the 12 months for which he overpaid. Then, he could sublet and get his rent twice over, because he could get it again from the sub-tenant, while being free from rent to the landlord. This, I believe, would be quite permissible under the wording of the new Clause, and that is why I raise the point. I believe that the wording requires tidying up, and I therefore ask my right hon. Friend whether he will look at these points.

Photo of Mr Barnett Janner Mr Barnett Janner , Leicester North West

I was rather disturbed by the speech which has just been made by the hon. Member for Crosby (Mr. Page), and particularly by the emphasis which he laid on the ingenuity of the tenant, which, in his experience, no doubt, as well as in mine, has not been so obvious in the last forty years. What has been obvious is something which I hope the Minister will consider between now and the further stages of the Bill in another place.

There is a device practised which, I think, needs to be very carefully watched concerning this question of premiums. It is that a landlord purports to sell his house to the tenant, takes a fairly large sum, which is, in effect, a premium, and gives a mortgage to the tenant. The tenant still has to pay rent, and if he fails to pay the rent the mortgage is called in. The result is that this purported sale turns out to be a tenancy in which a premium has been taken, and in which the tenant continues to pay his rent, which purports to be a mortgage repayment, until such time as he can no longer pay it.

That trick, which has been very extensively practised, should be watched very carefully. The Minister should not be so concerned about possible trickery so far as tenants are concerned, but should direct his attention towards some of the subterfuges adopted by landlords who have obtained large premiums without the practice being revealed until the tenant was compelled to leave.

Photo of Mr Henry Brooke Mr Henry Brooke , Hampstead

This short debate has of itself shown how close and intricate is the knowledge possessed by hon. Members on both sides of the House on these complicated matters with which the Bill deals. I was grateful to the hon. Member for Leicester, North-West (Mr. Janner) for saying that he would not demand an immediate answer to the question he put. It was a somewhat abstruse one, and I will certainly undertake that the Government will examine it before the Bill is considered in Committee in another place.

In reply to my hon. Friend the Member for Henley (Mr. Hay), I can assure him that the words "before the beginning" in para. (a) of subsection (1) of the new Clause do not exclude "at the beginning." Therefore, a payment in advance that is made at the beginning of any tenancy is not hit by the new Clause. By a payment in advance, he and I mean in this context the ordinary payment of rent at the outset of a rental period.

My hon. Friend the Member for Crosby (Mr. Page) asked me a series of seven or eight questions without notice. I certainly do not blame him for that, but he will excuse me if I cannot give him a complete answer at short notice. He asked whether it would be possible for a landlord to demand a high rent for an initial rental period and then a much lower rent for the second period. I am not quite sure what he would gain by that, because there would be no chance whatever of his establishing that the high first payment was not a receipt by way of income, and, therefore, taxable, and one of the dangers in the whole premium affair is that the landlord may succeed in establishing, though he will have to be very clever to establish it against the scrupulous attention of the Inland Revenue, that a lump payment is a receipt by way of capital and not by way of income.

4.0 p.m.

My hon. Friend called attention to the words "requirement ". I think he will find that this is the regular word used in previous Acts of Parliament dealing with matters of this kind, and it is the best word that can be used. He also asked whether the rent would be recoverable through the county court. No, that is not the case in this instance. The landlord would need to be prosecuted and convicted and then the court, if it convicts him, can direct the return of the premium. He questioned the word "may" in subsection (2). I think he will find that in all previous legislation relating to premiums it has always been a permissive power that has been given to the court to order the return of the premium.

As regards the cases of unscrupulous tenants, to which my hon. Friend also referred, it seems to me that any trouble which arose here would have to start by arising from an unscrupulous landlord. Therefore, the landlord could hardly complain if the tenant tried to play back the same game against him. As the proposed Clause stands, it means that the sum which is paid in advance, and, therefore, treated as a premium under this Clause, will be irrecoverable from the tenant, who cannot be made subsequently by the landlord to pay it.

I am sorry if I am not able completely to satisfy my hon. Friend on all his points. I realise the difficulty which the House is in over examining a proposed Clause which it first sees on the Report stage. However, no Amendments were put down, the Clause has had a general welcome, and with the assurance that the Government will have it examined further I hope that the House will now agree to add the Clause to the Bill.

Photo of Mr William Spens Mr William Spens , Kensington South

I want to refer to one point in the reply of my right hon. Friend. That is the fact that a premium paid contrary to both the existing law and, in the future, contrary to this proposed Clause, is not recoverable in the county court, but only by first bringing a criminal prosecution and then hoping to get the whole or part of the premium returned if the judge so thinks fit.

I want to press most strongly for a real change in that law. It is important that a premium paid contrary to the law shall be repayable on demand and recoverable at once in the county court. Otherwise, I am certain that there will be a large number of premiums paid and that people will hesitate to prosecute their landlords before the magistrate. I am sure that the only effective remedy is to alter the law in this respect. The existing law has proved to be useless in stopping premiums, and I am sure that the only certain way of stopping this practice is to make the illegal payment recoverable at once on demand in the county court.

I hope that my right hon. Friend will consider this point carefully, and will introduce the necessary changes in the Bill in another place to make it effective.

Photo of Sir Ian Horobin Sir Ian Horobin , Oldham East

I intervene to add my voice to what has just been said from my own small experience as a social worker. There is no doubt that the ordinary person does not like to be mixed up in the courts. Sometimes, indeed, people seem to have the odd idea that it does not matter whether they are in the dock or in the witness box they do not want to be there at all. Ordinary working folk also, although they do not mind going to the county court if necessary, are not too keen about it. However, they are used to going to the county court for all kinds of things, sometimes treating it almost as a kind of conciliation officer. From the practical point of view of making the Bill work, which is what we all want, I hope that before it finally passes through Parliament the Minister will consider whether something can be done on this point.

I will add one rather different type of argument, but, nevertheless, a strong one. There are some suggestions on the Notice Paper which raise the same point in quite a different and rather unacceptable way. I hope that my right hon. Friend will object to them strongly, as many of us on this side of the House object to them strongly. My right hon. Friend might be well advised to try to meet the general feeling that this should be a civil matter and not a criminal matter in a way which would recommend itself to every hon. Member on this side of the House, lest he adds weight to suggestions which are, if we reach them, to be put forward for dealing with this matter in a way which certainly would divide his followers deeply.

For that reason, apart from any other, my right hon. Friend would be well advised to consider whether he cannot introduce civil procedure into this generally acceptable question of forbidding premiums and advance payments.

Question put and agreed to.

Clause read a Second time, and added to the Bill.