Derek McDowell (Labour)

This group of amendments is related to the insertion of two new sections relating to ground rents in the Bill. They are amendments Nos. 51 and 52. The purpose of these new sections is to deal with problems that have arisen under current ground rents legislation.

By way of background, I should tell the House that section 8 of the Landlord and Tenant (Ground Rents)(No. 2) Act of 1978 contains the general right to acquire the fee simple. Section 9 provides that this general right to acquire the fee simple applies to a person holding the land under a lease provided that the conditions set out in that section, section 9, and one of seven alternative conditions in section 10 is met. The seven alternative conditions in section 10 cover a broad range of situations. Section 16 of the 1978 (No. 2) Act, on the other hand, contains various specific restrictions where the right to acquire the fee simple does not apply.

Amendment No. 51 will add a new category to the restricted list in section 16. It will prohibit the acquisition of the fee simple, that is, the purchase of the ground rent, in a case of the sub-lease of land granted by a lessee who is not eligible to acquire the fee simple. In other words, if someone holds land under a long lease and is not entitled to acquire the fee simple, he or she cannot, simply by creating a dummy company and giving it a lease of the land on conditions that do comply with the Act, effectively give to the dummy company the right to do something he or she cannot do. This will ensure that an eligible sub-lease cannot in future be carved out of a non-eligible lease in a manner that was neither intended nor foreseen by the 1978 (No. 2) Act.

One exception is being allowed and that arises in the case where the only reason a lessee is not eligible to acquire the fee simple is that a covenant entered into by that lessee to erect permanent buildings on the land has not been substantially complied with on the date on which the sub-lease is granted but the covenant is substantially complied with by the sub-lessee after that date. This exception to the general prohibition has been recommended by the Law Reform Commission.

Amendment No. 52 amends section 28 of the same Act. It also stems from a recommendation of the Law Reform Commission. The commission has identified an anomaly within existing law where, on acquisition of the fee simple, not only covenants within the lease under which the land was held, say, for certain specified covenants, but also collateral covenants are extinguished. The new text of subsection (1) contained in this amendment makes it clear that only covenants in the lease under which the person held the land, save for the specified covenants, will be extinguished on the acquisition of the fee simple. It also provides that new covenants may be entered into with the agreement of the person acquiring the fee simple. Both of these amendments take effect from 27 February last, that is, the date on which I circulated the text of the amendments and issued a press release indicating my intention to deal with the problem that has arisen. This backdating was vital because if I had signalled that I intended to halt people's right to create sub-leases, get around the groundsman's legislation and not specify a date from which this new closing off of the loophole would operate, people would have rushed to their solicitors in the last few weeks to create all these leases.

Any time lag in giving effect to them would have afforded an opportunity to those who could profit from these weaknesses in the current legislation to take advantage of them prior to the enactment of this legislation. As these new sections to the landlord and tenant code relate to it, it has been necessary to amend the Long Title to exclude those sections in the collective citation and commencement provisions of the Bill.