I move: "That this Bill be read a Second Time." At the outset of the remarks which I propose to make I would like to draw a distinction between the Increase of Rent Restrictions Act and the existing Town Tenants Act. The former are a series of Acts which had their origin during the Great War, when it was found that there was a very considerable shortage of houses and when profiteering in houses began. It was also found that the prices of commodities of all sorts were soaring to a height which up to then had been entirely undreamed of, and, in consequence, it was found necessary to regulate the prices of all sorts of commodities. Of the general scheme of regulating prices, the regulation of rents and, at the time, of interest upon mortagages became a part. At the close of the war it was easy to take control off the ordinary commodities which heretofore had been controlled, because in every instance supply equalled demand. In consequence of that fact, the restrictions were removed, but it was found that while it was easy to bring the amount of food, clothing and fuel required up to the level of the necessities of the community, it was not possible to build houses at the same rate, and we have had to keep on the regulation of the rents of houses. That is only a temporary necessity, and will exist only so long as the supply of houses falls short of the demand. There is, on the other hand, a permanent problem, and that problem is the regulation of the relationship between landlord and tenant in town areas, which regulation is necessary whether the supply of houses is or is not equal to the existing demand. I would like the House, in considering this Bill, to keep those two problems completely and entirely separate. I would like the House to consider that there is a passing problem arising owing to the temporary shortage of houses, and, at the same time, that there is a permanent problem which is affected very little indeed by the supply of houses. It is with the latter problem that we are dealing to-day. We are dealing with the regulation in ordinary times for permanent purposes of the relationship between landlords and tenants in towns, and not with the temporary need arising from the temporary shortage of houses.
That is dealt with by the Rent Restrictions Acts which are still existing law. The Town Tenants Act was originally introduced in 1906 before any Rent Restrictions Act was passed, because there were problems then existing as there are problems now existing, and it is to cope with the problems which were then existing that the present Bill is introduced. As the House knows, in the year 1906 an Act was brought in for the purpose of regulating the relationship between owners and tenants of property situated in urban areas and by urban areas I mean areas defined as urban areas in the Bill now before the House—houses situated in county boroughs or other boroughs, in towns or villages. That 1906 Act introduced certain new principles. It gave, on quitting his holding, a right to a tenant to compensation for the improvements which he had made during his tenancy and in the case of business premises when the tenant was disturbed, without good and sufficient cause, in his tenancy, he was entitled to compensation for the goodwill which he had in the premises and for the expenses of removal of his property from the premises from which he had been ejected. Those were two valuable rights conferred upon tenants, and as is pointed out in the Report of the Town Tenants Commission that Bill of 1906 appeared upon the face of it to be a splendid enactment for Town Tenants, but unfortunately in the words of the same report it was stultified by definitions and unobtrusive provisions the significance of which only became apparent when the Act had to be interpreted by the Court. The failure then of the Town Tenants Act to achieve the purpose for which it was passed led to the setting up of a Town Tenants Commission. The Town Tenants Commission examined into the whole question very fully and they brought in, after hearing a great deal of evidence and after full consideration, a report which I think all parties in this House will agree was an extremely able and valuable report. It is upon that report that the present Bill, of which I am now moving the Second Reading, is founded and I trust that this Bill will be found to set upon a permanent, just, fair and equitable basis for the future the relationship between landlord and tenant in towns and will bring them both into fair relationship one with the other.
The Town Tenants Act of 1906 had one very serious defect, I think. The authors of it were too much imbued with the spirit of respect for the doctrine of freedom of contract. The doctrine of freedom of contract, of course, was a cardinal doctrine in the minds of all liberal thinkers. During the eighteenth century you find it embodied for instance in the American Constitution. It was one of the declaration of the Rights of Man which were made before the outbreak of the French revolution. No doubt the doctrine of freedom of contract, properly understood, is a sound doctrine and a doctrine upon which society must, to a very large extent, be based. But a doctrine can be enunciated in too general terms, and can be pressed too far, and the doctrine of the freedom of contract should be considered rather in this light, that the parties to the contract should be entirely free to contract. They should entirely understand the nature of the contract in which they are entering and the supreme consideration of the welfare of the State cannot be left out. Owing to the fact, as I have said, that the authors of the Town Tenants Act of 1906 paid rather too much reverence to that doctrine they excluded entirely from the safeguards of the Act any improvements which had been made or any houses which had been built in pursuance of a convenant contained in a building lease. They left the existing law unaltered, the law that exists down to the present day that if the owner of land lets land for building purposes and there was a covenant in the lease that the tenant shall build a house, at the expiration of the lease the house becomes the entire and absolute property of the owner of the soil. He has not put in anything to improve the soil. The capital which has been invested in the house is not his capital and in many instances the very trifling ground rent might, at the expiration of the lease, be increased to an enormous extent, possibly on occasions, forty or fiftyfold or more. We do not think that that is right or just, and accordingly the first new provision which this Act contains is a provision dealing with building leases. Where a tenant has built a house on land and his lease expires, whether he built that house in pursuance of a contract or not, we consider that he has got rights in that house. As a general proposition we consider, and we ask the House to agree with us in considering, that he should have a right to a new tenancy and that new tenancy which we suggest he should be given is what is called a reversionary lease under this Act.
In a case where the successor in title of the building tenant is himself in occupation of the land, a very serious question would arise. Under this statute, he would be entitled to go into Court and to have a reversionary lease made to him. The lease will be a long-term lease. We suggest a lease for a 99 years' term, and it will be at a rent to be fixed by the Court upon the following principles, which are embodied in Section 43 of the Act. They are these:—In the first place the Court will assess the gross rent. As you see in sub-section (b):—
"The gross rent shall be the rent which, in the opinion of the Court, a willing lessee not already in occupation would give and a willing lessor would take for the land comprised in such reversionary lease in each case on the basis of vacant possession being given, and in circumstances of normal competition, and having regard to the other terms of such reversionary lease, and to the letting value in circumstances of normal competition of land of a similar character to and situate in the vicinity of the said land comprised in the said reversionary lease, but without having regard to any good-will which may exist in respect of the said land comprised in the said reversionary lease."
That is practically the definition of fair rent which is contained in the Meredith Report. It is expanded by the words which direct the Court to consider the value of property in the vicinity which, of course, must be one of the real tests in estimating the value of any property.
Sub-section (e) of the section states: "The allowance"—that is the allowance which is deducted from the gross rent when you are arriving at the rent which the tenant has to pay—"shall be such proportion of the gross rent as is, in the opinion of the Court, fairly attributable to buildings erected or improvements made on or amenities provided for such land other than buildings, improvements and amenities erected, made or provided by or at the expense (whether by way of reduction of rent, payment of compensation, or otherwise) of the person granting such reversionary lease or any of his predecessors in title."
In other words, you subtract from the gross rent the value of the house which the tenant has built and by that means you arrive at the proper rent which the ground landlord is to receive, in fact the value of his ground. That, as I say, is a comparatively simple case. That is the case where you have merely got a ground or head landlord and you have the building lessee in occupation. By building lessee I mean the person who for the time being holds the interests of the lessee in a building lease. But the question becomes a very much more complicated one than that where, as very often happens, the building lessee is merely a middleman and he has sublet his interest to some other person. There, if the building lessee in subletting his interest has charged a very large fine for his interest and has reserved merely a nominal rent it is perfectly obvious that that sub-lease is really more in the nature of a sale than in the nature of a lease, and that the real equities in the building lease have passed to the sub-tenant in that instance. But there may be other still more difficult cases in which the sub-lease has been made partly in consideration of a substantial fine and partly in consideration of a substantial rent. The more difficult case to decide is whether it was in fact a letting or a sale. What is suggested in this Bill is that there shall be what is called a proprietary lease when a subtenant holds for a substantial period—our Bill says a period of 31 years, which is a very ordinary middle term for a lease, neither a long term nor a short term, but a substantial term. That lease is made partly in consideration of payment of a sum of money by the lessee to the lessor. "The said sum of money was not less than twenty-five times the yearly amount of the rent." Then not the person who is nominally the tenant under the building lease, but the holder of the proprietary lease as defined by sub-section (2) of section 1 to which I have just referred the House, shall be entitled to obtain a renewal of the lease. In other words, we are endeavouring always to see who really has got the property in the bricks and mortar which constitute the house. There may be more than one sub-letting. A proprietary lease may have been made, for instance, but the rights of the proprietary lessee start with the person who is actually living in the house at the time.
There are certain restrictions on the right to a reversionary lease. That is where the landlord, for general purposes of good estate management, should have the reversion of the house. For instance, there may be in a populous area in which there are very good class houses one small, unsightly building which is destroying the general amenities of the district. It may be necessary, for instance, to make a new road for the general development of the district, and that a house the lease of which has expired should be pulled down for that purpose. In cases like that the right to a reversionary lease would not exist in either the building lessee or the holder of the proprietary lease. In fixing the proper rent which should be paid by the person who is obtaining the reversionary lease, the aid of the Commissioner of Valuation will be called in, either if the judge so requires or if either party so requires. We are introducing another new provision into this Bill. In this part of the Bill which relates to building leases and the other parts of the Bill which relate to compensation for disturbance or improvements, whenever there is a question of value in dispute between the landlord and tenant, the views of the experts of the Valuation Department will be available for both the landlord and the tenant.
If I might digress for a moment, I am quite certain that this Bill will be stigmatised in this House, as I am aware it has been stigmatised outside, as a Bill which will lead to endless litigation. I am, as I said, more likely to hear that than to hear any methods by which litigation arising out of legislation dealing with a very large and important class of property in this country could be avoided, but I do venture to think that there is no way better of preventing litigation than by placing at the disposal both of landlord and of tenant, the views of perfectly impartial experts. While I am willing to admit that I do think that for a time after the passing of this Act there will be a considerable amount of litigation, I am confident that after a comparatively short time the amount of litigation will fall off to a very large extent, and that having before them the views of trained and impartial experts, landlords and tenants will be able to arrive at arrangements between themselves without having recourse to the intervention of the courts, and that the cases which will be settled by the silent and unobtrusive working of this Act, will largely exceed in number the cases which will be finally determined in the courts. I have now dealt with the two new provisions which this Bill introduces, provisions not contained in the 1906 Act.
I now come to another class of provision which is also new. As I stated a few moments ago, under the Town Tenants Act of 1906 if the tenant of a business premises was disturbed in possession without good and sufficient cause he was entitled to monetary compensation for the loss of goodwill which he sustained. We introduce a new principle here. In the ordinary case the tenant of a business premises will be entitled, not to monetary compensation, but to a new tenancy. He will be able to carry on his business in the premises in which he had heretofore been carrying on his business. The cases in which new tenancies can be granted, apart from the new tenancies granted under the building lease from which I have passed away and to which I will not again refer, are shown in Section 17. The House will notice that the first sub-section is confined to business premises. The word "tenement" there means the subject-matter of a lease or a tenancy of any nature. Section 17 sets out:—
On the termination within the meaning of this section of a tenancy in a tenement, this Part of the Act shall apply to such tenement if such tenement complies with any one of the following conditions... (a) such tenement was, during the whole of the three years next preceding the termination of such tenancy used by the tenant for the time being thereof wholly or partly for the purpose of carrying on therein a business and immediately before such termination either was held by the tenant thereof under a tenancy from year to year or under a lease or other contract of tenancy .....
Let me say here that if there were any lesser period than three years it would be impossible for a tenant to build up anything in the nature of goodwill. Goodwill consists of gradually giving good value to customers and so bringing customers to the establishment. You cannot establish a goodwill unless you have been in the premises for some little time, and three years appear to be the very shortest time in which it would be possible to create goodwill. If the tenancy under which this tenement was held was a tenancy from year to year or was held under a lease or tenancy for a term of not less than five years or a lease for a life or lives or had been for not less than seven years continuously in the occupation of the person who was the tenant thereof immediately before such termination or of his predecessors in title, then he would be entitled to a new lease.