I move that the Bill be now read a Second Time. As Deputies will have seen from the explanatory memorandum, the provisions of the Bill are based on the recommendations in the Conroy Report on Reversionary Leases presented in April, 1954. The Bill repeals the existing statutory provisions dealing with reversionary leases, that is to say, Part V of the Landlord and Tenant Act, 1931, and an amending Act passed in 1943, with the incorporation of the amendments suggested by the commission and a few modifications of detail made in the course of departmental consideration or as a result of observations made by the various interested parties.
The measure is a highly technical one and before proceeding to deal with particular provisions I think it desirable to say something about the state of the law as it existed before the passing of Part V of the Landlord and Tenant Act, 1931, and the changes which Part V brought about.
Before 1931 the law was that when a building lease expired the land, together with the buildings erected thereon by the lessee or his predecessor in title, reverted to the ground landlord in accordance with the terms of the lease. The ground landlord was free to sell or let the property to the best bidder. In practice the larger estates granted a reversionary or renewal lease on the expiry of the building lease at a rent which although higher than the rent under the building lease was considerably below the full occupation rent of the property. The practice on the larger estates was to grant the reversionary lease to the person who in their opinion had acquired the beneficial or proprietary interest in the property— in other words, to the person who "owned the bricks and mortar." That person was not always the successor in title of the original building lessee, that is, his descendant or a person who had bought the building lessee's interest outright by way of assignment. Very often it was a person who had bought the property not by assignment but by taking a sublease of it at a low rent for a long term and, in addition, paying a considerable capital sum to the building lessee as consideration for the sublease. In such a case the proprietary interest in the property had passed from the building lessee to the sublessee, the sublease having had virtually the same effect as an outright assignment.
Part V of the 1931 Act gave a statutory right to a reversionary lease on favourable terms and its provisions were designed to secure that the leaseholder who was to get the reversionary lease should be the person who had acquired the proprietary interest in the premises, that is, either the person holding the building lessee's interest or, as I have just explained, a sublessee (called a "proprietary lessee") whose sublease was really in the nature of an assignment for full value of the building lessee's interest.
Thus, for example, if in respect of any particular property the building lessee held for a term of 99 years at an annual rent of £5 but had granted out of his term a sublease for a term of 98 years in consideration of the payment by the sublessee of a sum of £600 there and then and of an annual rent of £30, the 1931 Act regards the building lessee as having parted with the proprietary interest in the property and deems the sublessee to be a proprietary lessee and so entitled to get a reversionary lease from the ground landlord to the complete exclusion of the building lessee. To put it more technically, that particular sublease is deemed to be a proprietary lease because the capital sum paid (£600) was more than 15 times the rent reserved by it (£30) and because it expired not more than five years before the end of the building lease.
On the other hand, if the sublease had been framed so that it expired say six years before the end of the building lessee's term or if the capital sum had been only 14 times the rent reserved (e.g., £420 and £30), the sublessee would not be a proprietary lessee and would not oust the building lessee's claim to the reversionary lease.
The Act leaves the parties free to negotiate the terms of the reversionary lease but, where they cannot agree, it provides that the court should settle the terms in accordance with Section 48, the main provisions of which are that the reversionary lease should be for a term of 99 years at a rent equal to one-fourth of the "gross rent", that is, of the full open-market occupation rent. When the commission had examined the working of the 1931 Act they came to three main conclusions. The most important one was, perhaps, that the rent which may now be reserved by a reversionary lease is too high and should be reduced to one-sixth of the gross rent from the present fraction of one-fourth.
Secondly, the commission concluded that certain leaseholders who in equity are entitled to the benefits of Part V are, as the law stands, not eligible for a reversionary lease. Lastly, the commission thought that compensation for disturbance should be paid to a lessee whose claim to a reversionary lease is defeated by the ground landlord successfully objecting on certain grounds, e.g., that it would not be consistent with good estate management to grant a reversionary lease.
The commission's recommendations —and of course the provisions of the Bill, which give effect to the recommendations—are based on these conclusions and I propose to confine myself, for the present, to these main recommendations. That is not to say that many minor changes of the law were not proposed also but most of them are technical in character and would, I think, be more appropriately dealt with on the Committee Stage.
As regards the proposed reduction in the rent to be reserved by a reversionary lease the Conroy Commission said that they had evidence that in the great majority of cases it was the practice to charge a rent lower than might be obtained if the rent were calculated strictly in accordance with the formula provided for in the 1931 Act. While they appreciated that there were advantages in leaving scope for bargaining between lessor and lessee, they considered that one-fourth of the gross rent was too high a fraction and was so divorced from realities that bargaining powers rested only in the hands of the lessors. The commission concluded that if the rent reserved by a reversionary lease were made one-sixth of the gross rent no reasonable lessor could have any grounds for complaint. Section 17 (4) of the Bill gives effect to the commission's recommendations.
The commission also recommended that Part V be amended in certain respects with a view to ensuring that full effect is given to the principle that a reversionary lease should be given to a leaseholder who has acquired the proprietary interest in the property concerned. In the commission's view certain leaseholders who had acquired the proprietary interest were excluded from the benefits of Part V. The property affected by these recommendations may be conveniently divided into two classes, firstly, property in respect of which no leaseholder has a right to a reversionary lease and, secondly, property in respect of which the leaseholder who at present has a right to a reversionary lease is not, in the commission's opinion, the leaseholder having the proprietary interest.
As regards the first class of property the commission found that during the last century there was a great deal of building, for example, in the Dún Laoghaire area, under leases which would have been building leases within the meaning of Part V of the 1931 Act if that Act had then been in force. These leases expired, or were surrendered, before the 1931 Act came into operation and in some cases the ground landlords granted renewal leases, or fresh leases, to the persons holding the lessee's interest under the expired leases at rents which, although higher than the old rents, were lower than the full occupation rent. The persons holding under the renewal leases (or any sublessees who have acquired the proprietary interest in the property) are not, as the Act stands, building lessees or proprietary lessees and so are not entitled to get a reversionary lease on the favourable terms prescribed by Part V.
The only statutory rights these leaseholders may have to remain in possession are limited to those they may have under the Rent Restrictions Acts or under Part III of the 1931 Act but, even where these provisions apply, the leaseholders might be obliged to pay a rent considerably higher than the rent prescribed by Part V, that is, one-fourth of the gross rent. The commission recommended that these leaseholders should be brought within the scope of Part V as also leaseholders of certain other properties in respect of which, for technical reasons, no leaseholder has a right to a reversionary lease, for example, buildings which have been so reconstructed that they have lost their original identity and buildings leased by the ground landlord to purchasers from a builder under a prior arrangement between the ground landlord and the builder. Effect has been given to these recommendations in Section 9, Section 2 (by extending the definition of "improvement") and Section 5 of the Bill, respectively.
With regard to the second class of property, that is, property in respect of which the leaseholder at present entitled to a reversionary lease is not the leaseholder who has acquired the proprietary interest, the commission recommended that the law should be amended so that only the leaseholder who had acquired the proprietary interest should get the reversionary lease. For example, at present the building lessee is the person who is entitled to get a reversionary lease unless there is a sublessee (called a "proprietary lessee") whose sublease can satisfy the conditions which Part V laid down with the object of establishing that the proprietary interest had passed to him from the building lessee. These conditions require, among other things, that the sublease must, irrespective of its duration, expire not more than five years before the building lease and that the consideration money for the sublease must not only be at least 15 times the rent reserved by it but must be paid at or before the granting of the sublease.
The commission propose that these conditions should be modified so that a sublease should be deemed to have transferred the proprietary interest even if it expires as much as 15 (instead of five) years before the end of the building lease and even if the sublessee does not pay sufficient consideration money at or before the grant of the sublease—so long as he subsequently pays by way of commutation of the amount reserved a capital sum which, together with the original consideration money, is at least 15 times the rent as reduced by the commutation payment.
The commission also consider that any sublease which is for a term of not less than 99 years and which fulfils the other relevant conditions should, even if it expires more than 15 years before the building lease, be deemed to have transferred the proprietary interest. These recommendations are incorporated in Section 7 of the Bill. The commission also recommended that a lessee who otherwise would have no right to claim a reversionary lease should not acquire such a right merely because, in pursuance of a covenant in his lease, he has reinstated buildings which had been destroyed by fire or otherwise. In the commission's view the respective rights of the building lessee or proprietary lessee should not be prejudiced by fortuitous happenings of this kind. Provision is made accordingly in Section 4 (5) of the Bill.
The third major recommendation of the commission was that compensation for disturbance should be paid, where a ground landlord succeeds, on certain grounds, in getting a declaration that a lessee is not entitled to a reversionary lease. For example, a ground landlord may satisfy the court that the grant of a reversionary lease would not be consistent with good estate management. The commission pointed out that where a reversionary lease is refused the lessee will sustain a severe financial loss even though no business is carried on in the premises. Provision for compensation in such circumstances is contained in Section 15 of the Bill.
So much for the main provisions of the Bill. Before concluding, however, I should like to say a word or two about the report itself. I am sure all sides of the House will agree with me when I say that it is a comprehensive and lucid exposition of a very technical subject. I take this opportunity of thanking the learned chairman and the members of the commission for having performed a valuable public duty.
