I move that the Bill be now read a Second Time.
I would like, initially, to give Deputies a very short résumé of what the Bill contains. Its main object is to give lessees and certain yearly tenants who pay a group rent the right to purchase the fee simple of their property, that is, to acquire the greatest estate in land that can be acquired under our law. Persons who have to collect rent from neighbouring lessees and pay the total to a common landlord are being given the right to obtain an apportionment of the rent, following which each lessee will pay his portion of the rent direct to the landlord. Where disputes or difficulties arise with regard to the exercise of these rights a simplified system of arbitration by county registrars is being established to cater for them.
One of the matters which the county registrar will be able to settle is the purchase price of a ground rent where the parties cannot agree. To reduce to the very minimum the possible field of disagreement a maximum purchase price is being provided where the land is held under a yearly tenancy or under a lease which has not less than 25 years to run and where the land does not exceed an acre; in that event the purchase price will be such sum as would enable the landlord to maintain his income if he had invested the purchase money in the most recent National Loan.
The Bill also amends, in a number of respects, the existing landlord and tenant law. It reduces from one-sixth to one-eighth the fraction of the gross rent which will be payable when a reversionary lease is given on the expiration of a building or proprietary lease pursuant to the Landlord and Tenant (Reversionary Leases) Act, 1958. It provides that, where a landlord relaxes a covenant restricting change of user or the carrying out of minor improvements, he will not be entitled to gain financially, and that, where planning permission for such works has been obtained, it will not be necessary to obtain the landlord's consent at all. It deems a covenant in a lease requiring the lessee to insure with a named insurance company to be one which does not specify such a company. It abolishes the general rule that the lessee must bear the lessor's costs of drawing up the lease. Finally, it provides that certain covenants will continue to have effect after purchase of the fee simple, namely, covenants which protect the lessor's own amenities or which are required to enable the lessor to comply with a statutory obligation.
As I have said, the main purpose of the Bill is the introduction to Irish law of the principle of leasehold enfranchisement. Over the years there has been a great deal of argument for and against this principle. These arguments were fully considered by the Ground Rents Commission, which came down unequivocally on the side of giving lessees the right to become fee simple owners of their property. I do not intend to go into the arguments for and against leasehold enfranchisement except perhaps to say that I consider it fully in keeping with good social policy. The law should encourage private ownership of houses and householders should be allowed to become full owners of their houses, if they so wish. Indeed, I am happy to be in a position to sponsor legislation which will, I hope, mark the end of this thorny question, and I am particularly happy that the solution has been recommended unanimously by a Commission who were highly qualified to deal with all aspects of the matter.
The persons who are to enjoy the right to purchase the fee simple are building and proprietary lessees within the meaning of the 1958 Act and certain yearly tenants. It is generally accepted that these persons are those who might be said to own the "bricks and mortar" interest in their property subject to the payment of a ground rent. The right is being given to these persons irrespective of the use to which they put the property — that is whether the premises are used for business purposes or for residential purposes. The Commission proposed that the right of purchase should be given to lessees of residential and composite residential and business property. The Government have decided that it should also be given in respect of purely business premises. As far as leasehold enfranchisement is concerned I see no logic in distinguishing between property owners by reference to the uses to which the property is put. The essential distinction is that between the owners of the bricks and mortar interest in the property — and all others.
Naturally, the question of the purchase price gave the Commission and myself a great deal of difficulty. The Commission suggested a rather elaborate formula which required that a number of criteria be considered in deciding upon the purchase price, the main one being that the price should be what a willing purchaser would pay and a willing vendor accept for the interest. They rejected the idea that the price be related to a specific number of years purchase as this must inevitably, in certain cases, be unjust either to the landlord or the tenant. While I accept that the provision of a specified purchase price by reference to a given number of years purchase would lead to anomalies as feared by the Commission, I have been strongly of opinion that the absence of some clear indication to prospective purchasers as to what the purchase price should be would be a practical defect in the legislation. The resulting uncertainly would deter leaseholders who would otherwise avail themselves of the facilities given by the Bill. It would tend to encourage litigation where the amount in dispute would not be considerable. The solution which the Bill proposes will, I hope, prove satisfactory. It is that the formula suggested by the Commission will apply to all cases but that, in addition, the price so decided shall be subject to a maximum in practically all cases. The maximum price will be a sum which if invested in the most recent National Loan would give a gross income equivalent to the rent being purchased. This will ensure that landlords, whose interests are being compulsorily acquired, will be able to maintain their income.
It is, in my opinion, necessary to approach this whole question from the point of view of maintaining the landlord's income because in a large number of cases the landlords may be the trustees of a charity or policyholders in an insurance company and any legislative provision providing for a purchase price which would result in a drop in their income could have serious financial results not alone in relation to the reduced income but also by reference to a drop in the value of their assets. The maximum will apply in all purchases pursuant to the Act except where the lease has less than 25 years to run or where the land demised is over an acre in extent.
The exclusion from the maximum price provision of larger properties raises the difficult problem of potential development value. It is sometimes argued that a landlord's interest in leasehold property consists not only of the value of his rent but also the fact that he may be able to share in the increased value of the site on redevelopment. As against this it is argued that the landlord can never benefit from potential development value during the currency of the lease without the lessee's first taking the necessary steps towards redevelopment.
The solution adopted in the Bill is based on the practical view that in smallish properties the landlord's chances of realising any share of the redevelopment value are very slight and that purchase of the fee simple by reference to the rent only is fair in such cases. However, where there is a good deal of land accompanying the property the purchase of the fee simple could mean freedom from a covenant restricting development and could result in a windfall of several thousand pounds to the lessee who had bought the fee simple on the basis of a small rent. This is particularly important where such properties were originally leased at low rents for the purpose of retaining an open character in a neighbourhood or for providing sporting amenities. I consider that drawing the line at an acre of land is a fair solution to this problem. In cases where the lands are extensive the purchase price will, in default of agreement, be determined by the county registrar who will have regard inter alia to the nature of the land, its location and user, to the current price of similar property and to any other matters which he considers relevant — in short, to all the various criteria which the Commission recommended should be taken into account.
The exclusion from the maximum purchase price of leases with less than 25 years to run is consistent with the Commission's recommendation that the current rent should be taken into account in deciding the purchase price only where the lease had at least 25 years to run. This recognises that on termination of the lease the landlord is entitled under the 1958 Act to increase the ground rent to a sixth of the gross rent. This prospect of an increased rent has a present value which becomes greater as the lease runs out. I accept the Commission's view that this value is of no significance when the prospective increase is 25 years or more away.
Next to the purchase price, perhaps the most important question the prospective purchaser will ask himself is what will the costs be. This is a question which is very difficult to answer because the circumstances affecting leases differ very widely. Some leases which are held direct from the fee simple owner will not present very much difficulty and the costs involved in purchasing the fee simple will not be very great. On the other hand, there may be a number of intermediate interests between the purchasing lessee and the fee simple owner. Naturally, in such cases the purchase of the fee simple will give rise to greater difficulty and the costs will be greater. Apart from the ordinary costs of conveying the fee simple, costs may also be involved in disputes when the parties cannot agree on any question arising on a proposed purchase. I think it would be generally agreed that very little can be done to avoid the necessary costs of conveyance; such costs will be borne by the lessee who is compulsorily acquiring the interest. I think this is fair. However, the lessee can go to the county registrar if he feels the costs are unreasonable and the latter can award costs against any party who has been unreasonable.
Very careful attention has been given to keeping the costs of settling disputes to a minimum. Because of the provision in the Bill for a maximum purchase price very few cases should have to come before any county registrar. In addition, a procedure by which the county registrar will decide the issue is provided which is as simple and inexpensive as possible. I think that this procedure should prove effective and satisfactory to all parties in the type of case which will come before a county registrar. By way of a safeguard, however, there is provision for an appeal against an award of the county registrar to the Circuit Court so that, in effect, the traditional jurisdiction of that court in landlord and tenant matters is being preserved. Finally, the provision that costs may be awarded against any party who has been unreasonable should go a long way towards keeping costs to a minimum. To sum up, what is being provided is, in effect, a simple procedure to enable parties to settle, by arbitration, disputes which in most instances will relate to small amounts of money in such a way as to avoid costs as far as possible; a procedure, moreover, which does not exclude recourse to the courts if this should prove necessary in any case.
I would now like to deal with the miscellaneous amendments proposed in the Bill. Perhaps the most important of these, from the practical point of view, is that which proposes to reduce the rent payable when a lease is renewed under the 1958 Act from one-sixth of the gross rent as defined in that Act to one-eighth of that rent. The gross rent, introduced in the Landlord and Tenant Act, 1931, and repeated with some modifications in the 1958 Act, is a national rent. It is not the actual open market rent but a rent arrived at by the court on the basis that the demand and the supply of the type of premises in question is in equilibrium and the tenant agrees to do all repairs, pay rates and take out fire insurance.
This formula should have produced, one might say, a level of gross rents which was not affected by the scarcity of premises for letting in recent years. A gross rent fixed this year should, for instance, be the same as a gross rent fixed back in 1958 subject only to an increase to compensate for the change in the value of money. In fact, however, the increases since 1958 have been much greater than the decline in the value of money. The Bill accordingly proposes to reduce the fraction mentioned in the 1958 Act from one-sixth to one-eighth. This is calculated to ensure that a rent under a reversionary lease fixed by the courts will be fair, having regard to the decline in the value of money and the corresponding rents being charged when the 1958 Act was passed.
The Bill also proposes that future alterations in this fraction may be made by way of a Ministerial order. To have effect, however, the order will need to be approved by both Houses of the Oireachtas. It is clear that the gross rent formula does not provide a static measure which will ensure a fair rent on reversion and that, accordingly, it is not unreasonable to envisage that periodical alterations in the fraction may become necessary and should be provided for. For such an alteration I think that to proceed by way of legislation would be unnecessarily elaborate and that the requirement of prior approval by both Houses of the Oireachtas enables the net issue involved to be fully ventilated beforehand.
It is also provided in the Bill that where a lessee proposes to change the user of premises or carry out minor improvements contrary to a convenant in his lease the landlord must not make any financial gain from giving consent. It is already provided in the 1931 Act that the landlord must not unreasonably withhold his consent and that he cannot make any financial gain from consenting to a change of user except where structural alterations are involved. The Bill also proposes, as a logical extension of these provisions, to enable a lessee who has already obtained planning permission for a change of user of minor alterations to go ahead with the work without getting the consent of the landlord. Taken together, these provisions mark the passing from private control to the control of the planning authority of any work which a house-owner wishes to undertake by way of a change of user of the premises or small additional buildings or alterations.
In this connection I would like to stress that the landlord's control over bigger works is not being affected. The `improvement' is defined in the 1958 Act to mean an addition to or an alteration of a building or the erection of ancillary or subsidiary structures but not including any alteration or reconstruction of the buildings so that they lose their original identity. While therefore a lessee who wants to put up a small front porch or any other subsidiary or ancillary structures would be free to go ahead once he gets planning permission, anybody who wants to build on a hotel or a factory or engage in housing development on the unbuilt-on land will still need the permission of his landlord if there is a covenant in his lease prohibiting change of user or the building of additional structures. Of course, in the latter case the lessee will now have the alternative of purchasing the fee simple if he cannot agree terms for relaxation of a covenant with the landlord.
The only other matter of real importance arising on this Bill is the question of restrictive covenants generally. The Ground Rents Commission recommended that convenants protecting the amenities of a district should run with the land following purchase and should be enforceable by the planning authority and by the former landlord in certain circumstances. This is a matter to which I have given very close attention. I am satisfied that under planning legislation the planning authorities have sufficient powers to achieve the desired measure of control formerly exercised by means of such covenants and that a specific provision enabling them to enforce these covenants would be superfluous. Making former landlords responsible for the enforcement of such covenants would be ineffectual and would, in most cases, be unwelcome to such landlords.
Accordingly the provision in the Bill on this matter is that the amenity covenants will lapse on the purchase of the fee simple and that the purchaser will be the fee simple owner in the fullest sense. There are only two cases where I have considered it reasonable to make an exception to this principle. I refer to covenants which protect the lessor's own personal amenities and covenants which are required to enable the lessor to comply with a statutory liability imposed on him. Such a covenant might, for example, specify that the lessee will not build over a certain height so as to obstruct the view from the lessor's own residence; or, say in a lease of railway lands, there might be a covenant allowing the lessor access to the lands so as to maintain bridges, drains, etc. as required of the railway company under statute. The distinction between this type of covenant and the ordinary covenants designed to protect the general amenities of a neighbourhood is that the restrictions imposed in the first case are specific in operation, are reflected in the rent reserved under the lease and cannot be satisfactorily provided for by planning legislation. The covenants normally inserted in leases to protect neighbourhood amenities, such as covenants as to user and the erection of further buildings, are general in their operation and planning legislation caters for them substantially.
In connection with covenants which will survive purchase, I would like to mention that I propose to introduce, on the Committee Stage, an amendment which will ensure that section 27, which proposes that a lessee may change user or carry out minor improvements without the lessor's consent, will not operate to nullify the provisions which propose to preserve these particular covenants.
I hope that the explanatory memorandum will be of assistance to Deputies. Some of the provisions in the Bill are, of necessity, complex and it has been difficult to envisage all the specific problems of a practical nature which may arise when the Bill becomes law. This is particularly so because of the great variety of leases and tenancies which exist. For this reason I would like to stress that any suggestions for detailed amendment of the provisions of the Bill will be most carefully considered. As I see it, the general principles in the Bill are acceptable to all of us; but as it is a measure which is concerned with a great deal of matters of detailed procedure, that this will be — I think Deputies will agree with me — a Committee Stage Bill. I look forward to a very useful discussion of the various provisions at that stage.
In conclusion, I would like to repeat how pleased I am to bring before the Oireachtas a Bill which marks so definite a break with the traditional concepts underlying the relationship of landlord and tenant, namely the introduction of the doctrine of leasehold enfranchisement. Irrespective of the extent to which the rights given in this Bill are used, their very existence will be of the utmost significance in the future. I am very conscious of the great work which was done in the investigation of this problem by the Ground Rents Commission under the chairmanship of Judge Conroy. Despite the many difficulties involved, the Commission succeeded in recommending unanimously in favour of giving these rights to leaseholders. I should like to take this opportunity of expressing my appreciation of their valuable services and I am sure I am speaking for all Deputies when I say this.
I ask that the Bill be given a Second Reading.