'Paragraphs 4, 4A and 4B of Schedule 13 to the 1993 Act (landlord's share of marriage value) are hereby repealed.'.—[Mr. Sanders.]

Brought up, and read the First time.

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

With this it will be convenient to discuss the following: Government Amendment No. 43.

Amendment No. 8, in Clause 134, page 65, line 20, leave out clause 134.

Amendment No. 9, in clause 135, page 65, line 24, leave out clause 135.

Amendment No. 1, in clause 144, page 69, line 33, leave out clauses 144, 145 and 146.

First, I declare an interest as a freeholder of a flat occupied by a leaseholder who pays a ground rent.

Under the Leasehold Reform Act 1967, marriage value was not deemed to be part of the valuation of the freehold interest; the leaseholder had only to pay the capitalised value of the ground rent, plus the reversion of the site value. In the pamphlet "An End to Feudalism", prepared by the Minister for Local Government and Mr. Dobson before the 1997 election, a call is made to return to

"the fundamentally sound logic of the 1967 Act, which does not include marriage value in the valuation process. Its subsequent appearance has tilted the balance significantly in favour of the landowner and there is a strong case for it to be deleted".

A freeholder can sell a property to a leaseholder for full market value, as there is no difference between the price of a 99-year lease and the price of a freehold purchase. Hon. Members have only to look in an estate agent's window anywhere in central London to see that that is the case. However, after a certain length of time, the leasehold property reverts back to the freeholder, who can sell it again for its full market value. During that entire period, the property's upkeep has been paid by the leaseholder, who must then pay marriage value on top of everything. That fee is exacted to compensate the landlord for the depreciation in the asset's value over the period that it has been in the leaseholder's possession. By paying for maintenance and upkeep for so many years, the leaseholder has already shouldered the financial burden of the property's depreciation. Marriage value is therefore a bounty on top, and it requires that the leaseholder pay again.

The Government have said that most compulsory purchase schemes are based on full open market valuation, and they do not want to depart from that principle. However, they have made a mistake regarding what constitutes the open market value of a property. The Royal Institution of Chartered Surveyors defines that value as:

"An opinion of the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the date of valuation, assuming . . . that no account is taken of any additional bid by a prospective purchaser with a special interest."

The leaseholder obviously has a special interest, as moving from their long-time home would pose much stress and inconvenience. If the Government believe, as they say they do, that the basis for property valuation in collective enfranchisement cases should be the full open market value, the RICS code of practice makes it clear that they should reject the inclusion of marriage value, which arises out of the special purchaser status of the parties involved.

The reality for many people is that they have no choice between freehold and leasehold properties. Due to the circumstances in which they find themselves, they may have no choice but to opt for leasehold, even though it may not be in their best interests. The complicated and murky practice of marriage value is widely misunderstood, and there must be a clearer and easier way to compensate landlords on the transfer of property from leasehold to commonhold.

Let us compare purchasing council housing with buying leasehold properties. For example, leaseholders have paid for mortgages and years of upkeep and improvements to their homes, yet they must still pay a premium to transfer their properties to freehold, but council housing tenants have had the upkeep on their homes paid for by the council—albeit with contributions through rent—yet they can buy their properties at a significant discount.

Leaseholders often feel that they are maintaining someone else's property, yet they are bled once again if they try to improve their position by enfranchising and converting their property to freehold.

Often leaseholders do not even realise that they are being taken advantage of because the calculations involved in these negotiations are complex and specialised. Going to a leasehold valuation tribunal is intimidating and costly, so many people fall prey to unscrupulous landlords without having any idea of their rights.

It is important to remember that leaseholders paid for their property when they originally bought the lease. Why should they have to pay extra to keep what should already be theirs? Additionally, the leaseholder may have paid just as much as neighbouring freeholders for the right to live in their property. Why should they have to pay again when their neighbours do not have to?

The main problem with marriage value is that it takes unfair advantage of the fact that leaseholders have a vested interest in keeping the property in which they live and so are willing to pay whatever it takes to gain freehold rights to their property. In that relationship, freeholders have the power and can force leaseholders to pay exorbitant prices to hold on to the property in which they live. That is not a realistic market situation; it is unfair to the leaseholder, who should not be charged more than an outside investor would be asked to pay for the property.

We have been having this debate in the Chamber for more than 100 years. Its time has come—we should rid ourselves of marriage value.

I will be brief because I understand that a number of other hon. Members want to speak on this issue. I shall begin by speaking to Government Amendment No. 43, which also relates to marriage value.

The Bill generally provides for marriage value to be disregarded in cases where the unexpired term of a lease exceeds 80 years. Our policy aim is to prevent potentially expensive debate over sums of money which would, in any event, be very small. However, in the case of collective enfranchisement, the Bill provides that marriage value should be disregarded only if the unexpired terms of all leases of flats held by participating members of the right-to-enfranchise company exceed 80 years.

On reflection, we do not consider that that approach meets our policy objectives. It has the potential for abuse. If a landlord owned just one flat in a block directly, there would be nothing to prevent him from granting a new, relatively short lease for that flat to an associated company which could then exercise its right to participate in a collective enfranchisement bid.

That argument was made earlier in relation to unanimity and 100 per cent. consent. It is now being used to justify the provisions on marriage value.

The argument refers to the Amendment to which I am speaking; it is not about marriage value.

The position that I have just described would enable marriage value to be claimed on the whole block, even though all the other leases may exceed the 80-year threshold. We decided, therefore, to provide that marriage value should be disregarded on any individual lease with more than 80 years left until its expiry. This is consistent with the approach taken for the individual rights of lease renewal and house enfranchisement, and would be a better way to meet our policy objectives.

More generally, marriage value is clearly one of the most controversial aspects of the Bill. It has been widely discussed and, as I mentioned in Committee, is a major issue for leasehold reform campaign groups. These groups have long campaigned for marriage value to be excluded from the purchase price altogether, and we have considered their representations carefully. However, we concluded that it would be wrong to remove marriage value from the determination of the price. Although some may not like it, we must recognise the property rights of both the freeholder and the leaseholder. That said, there are defects in the provisions that need to be corrected.

The right to enfranchise is a right of compulsory purchase, as is the right to a longer lease on a flat. To exercise it, leaseholders do not have to demonstrate that the freeholder is at fault in any way. It is only fair, therefore, that the landlord should be paid the same price that he would have received from voluntarily selling the freehold—or a longer lease—to the leaseholder or leaseholders.

When leaseholders buy their freehold or renew their lease, they obtain a benefit that no other purchaser would receive. When leaseholders of flats enfranchise, they can gain new 999-year leases without having to pay a penny for them. Similarly, a leaseholder who buys the freehold of a house is no longer subject at all to a lease. The value of that extra benefit is the marriage value. If existing leases still have, say, 80 or more years to run, new longer leases will be worth little more than existing ones, so any marriage value will be insignificant. If the unexpired term is relatively short, however—say 50 years—the difference will be substantial.

It follows that in a sale between willing parties where the unexpired term of the leases was not very long, the leaseholders would be prepared to pay additional money for the extra benefit but would certainly not offer the whole amount of the marriage value. They would be well aware that they represented the freeholder's only chance of obtaining a higher price than he would gain from an ordinary purchaser.

In practice, a sale would be agreed only if the parties agreed to split the difference: if the parties were equally willing and eager, the split would be 50:50. The freeholder would finish up with a higher price than he would have received from another purchaser, but I emphasise that the leaseholders would still finish up with an asset that was worth more than they had paid for it.

People often ask how marriage value can be said to apply to the right to buy a longer lease. After all, there is no joining, or marriage, of the two interests. The answer is that the term does not have quite that meaning in the lease renewal context. Indeed, marriage value is something of a misnomer. Lease renewal marriage value is quite different in concept from the same term in enfranchisement. As defined in the Act, in broad summary, it is the difference between the aggregate values of the landlord's and tenant's interests as they are before the new lease is granted and as they will be after it is granted.

The notion that, in one way or another, extra value is created by the transaction is common to both cases. For lease extension, as for enfranchisement, any amount of marriage value will be extremely small if the unexpired term of the existing lease is still long. As with the right to enfranchise, the split of marriage value has been much argued about in individual cases, but in most cases the LVT has decided that it should be shared equally between the parties.

Our intentions are the same for both lease renewals and enfranchisement cases. The leaseholder should be required to pay no more and no less for the compulsory acquisition of a new lease than he or she would pay in a similar transaction between the same parties if they were equally willing. That is the principle behind marriage value, and the Government believe it to be sound. That is why we cannot support new Clause 1, but have offered an amendment that will improve on the current position.

I broadly support new Clause 1 and have received Constituency representations to that effect. The Government's main argument in justifying retention of marriage value seems to be that abolition would be confiscatory. Almost all popular legislation since 1967—and perhaps even before then—is confiscatory in the sense that it compulsorily intervenes in what would otherwise be a free market for what the Parliament of the day considers to be the broader social interest.

It has been argued that the open market value of the freehold interest is greater to the leaseholder than to anyone else and that the cost to the leaseholder should reflect that. Hon. Members on both sides have expressed concern about the logic of that argument.

The view has also been taken that the leaseholder would gain an unjust windfall at the freeholder's expense. That concern could be overcome by a covenanting provision similar to that introduced under the right-to-buy legislation of the 1980s so that there should be further compensation if someone who bought a lease made a sale within a specified period.

We must ensure that, as far as we can, we expedite the succession of leasehold tenure. We must clarify and simplify those procedures. I hope that is the long-term aim of the Bill. However, the retention of the half share of marriage value remains a controversial and uncertain element in the cost equation. That will continue to be a significant barrier to the proposed progress of enfranchisement.

The abolition—or at least the watering down—of marriage value would thus contribute substantially to the achievement of the aims of the measure. It would be widely welcomed not only by the groups which have been campaigning on the subject but by a great number of lawyers and other professionals who have to deal with the practicalities.

I have to announce an interest on behalf of people living in the 21,000 leasehold houses in my Constituency and in the neighbouring town of Grimsby.

Those people should not be affected by marriage value—the landlord's bounty. However, as I explained to my hon. Friend the Under–Secretary during Committee, because of the complexity of the rules and guidelines on marriage value people are ripped off on many occasions. People are charged far more than they legally should be because marriage value is used to get even more money from enfranchising leaseholders to whom it should not apply.

I point out to Liberal Democrat Members—as I did in Committee—that marriage value will not be scrapped at this stage. I have concerns about it. In Committee, I went through the mathematics of a hypothetical case to show that the landlord realises that value on day one. As the property can revert to him after 99—or 999—years the landlord obtains even more than the market value.

During Committee, my hon. Friend the Minister gave me some assurances that marriage value would apply as little as possible. One of the measures that I asked her to consider was creating a level playing field for flats and houses. Marriage value does not apply to flats where the freeholder voluntarily sells on the leases. The tenants have the right of first refusal and marriage value does not come into play.

That right does not exist for people who live in freehold houses—about half the leasehold houses in the country. About 1 million houses are affected. Landlords can dispose of those freeholds without informing any of the residents. That has happened in whole streets in my constituency. If we were to give the right of first refusal to people living in such houses marriage value would not apply.

My hon. Friend assured me that she would consider that proposal. She also assured me that, due to the complexity of the law and the lack of understanding of the mathematics involved, she would devise a formula—probably through a statutory instrument—to which freeholders would have to adhere and which would show what people were paying for.

Is not one of the concerns that any mathematical formula would have to be far more complicated, because it would have to be regionalised for different parts of the United Kingdom, or even different parts of London? That confusion is one of the reasons why many people feel that we should abolish the whole concept of marriage value.

If we had some simplicity and clarity, people would not have such concerns. Because of the complexities, people are being grossly overcharged—ripped off. There should be an obligation on the freeholder to inform the leaseholder how the price was arrived at. At present, figures are plucked out of the air. In my Constituency, the fee for enfranchising exactly the same type of property can range from £2,000 to £20,000. That unacceptably high level of charge can happen because of the complexities in the structure of marriage value.

I hope that the Minister can assure my constituents and the House that she will do all that she can to ensure that marriage value is applied less to leasehold properties.

I welcome Government Amendment No. 43, which provides the necessary clarification. It is a step in the right direction. Regrettably, however, it is not a big enough step. I am one of the vice-chairs of the all-party group on commonhold and leasehold reform, and I remind the Minister that in the consultation on the original Bill we expressed the hope that the Government would take the opportunity to abolish marriage value entirely.

Mr. Sanders has made an important point about how the leaseholder contributes to the value of the property over and over again, yet marriage value gives a bounty to the freeholder. I see no justification for marriage value in the definition of open market value set out by the Royal Institution of Chartered Surveyors. The Government have missed an opportunity. I will support Government amendment No. 43, but I cannot support the Government in opposing the new Clause.

Let me re-emphasise the point that the leaseholder has paid for the property once, when taking up the lease, and again on enfranchisement. There can be no justification for an extra sum, even if it were to be split 50:50, as the Minister suggests.

Question put, That the clause be read a Second time:—

The House divided: Ayes 48, Noes 294.

Question accordingly negatived.

It being after Ten o'clock, further consideration stood adjourned.

Bill, as amended in the Committee, to be further considered tomorrow.