05 August 2011

Equity For Rent

I've been thinking about equity for rent.

As I once said before,
All rent paid on land will buy a beneficial interest as will any investment in the property. The renter will immediately become a beneficiary and will then have all the settled equitable rights and benefits that are already in place.
I think that this could be accomplished by repealing section 1(1)(b) of the Law of Property Act 1925 which provides,
The only estates in land which are capable of subsisting or of being conveyed or created at law are— ...
(b) A term of years absolute.
which would leave section 1(1)(a) of the same Act which states,
The only estates in land which are capable of subsisting or of being conveyed or created at law are—
(a) An estate in fee simple absolute in possession;....
If it wasn't possible to rent, what would happen?

By making the suggested change it would only be possible to have legal ownership until you decided to sell the property, if you wanted to rent the property you would only be capable of slowly selling portions of it. The money that passed to the landlord as rent would make the renter a beneficial owner, he would own a proportion of the property in direct proportion to the amount of money that he had paid as rent. In other words, his rental payments would buy equity.

When the tenant wanted to move on he could rely on trust law to ensure that his beneficial interest was secure. Overnight the country would become a property owning democracy. (Recall that the Thatcher government did something similar with council houses when they instigated their right to buy scheme. The amount that a tenant had paid in rent was taken into account when the tenant applied to buy the property).

Before dismissing the idea consider rentcharges. If you've never heard the expression rentcharge imagine that you own some property which you want to sell, perhaps to a builder. As part of the sale you negotiate that the owner of the land pays you money forever just because you once owned the land. The purchaser (builder) buys the land and pays you an annual income; if he's a builder, when he sells the property the rentcharge is passed on to whoever buys the property. Further, these rentcharges could go back hundreds of years. They aren't consider to be fair and are being phased out.

For more background on rentcharges consider, Report on Rentcharges (Report) [1975] EWLC 68 (pdf).

If we're prepared to scrap rentcharges: why not scrap rent? Aren't the reasons for scrapping rentcharges the same reasons for scrapping rent?

11 comments:

  1. I don't see any particular justice in this proposal.

    If A has savings, part of a pension plan for example, which he invests in a house and which he rents to B at a net profit of 3% a year, why should A progressively transfer ownership of the house to B?

    Why, for that matter, if such an obligation existed, would A provide B with the opportunity to rent a house?

    If B wants ownership, he can borrow at 3% to buy a house similar to that offered for rent by A. B will then acquire ownership as he pays down his debt, with any capital loss or gain accruing to B, who has taken the risk of buying rather than renting.

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  2. Hi Canspeccy

    What you propose (and what happens as we speak) depends upon screwing someone out of the equity that they've paid for. Over a lifetime people end up paying many times for the property that they live in. Just because someone may be planning a pension around depriving someone out of the equity that they're buying doesn't make it just.

    We can agree to disagree.

    What do you make of rentcharges? Do you think that property owners/tenants should pay someone a rentcharge simply because hundreds of years ago an ancestor used to own the land?

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  3. "What you propose (and what happens as we speak) depends upon screwing someone out of the equity that they've paid for. "

    I don't think so. What someone is paying for is the use of the capital invested in the property they are renting. If the landlord did not own the property, he would have his money either for present consumption or for alternative investment. Maybe you want an economic system where money lending does not occur. But if so, you have to show how that is as productive and more equitable than the system we have now.

    But as for rentcharges, I am not familiar with them. But if they arise through contracts freely made in a market economy they do not seem to me to be necessarily a bad thing. Presumably, when the charge first arose, someone gave up the use of land or buildings in exchange for an agreement to pay rent in perpetuity. If that seemed fair to the parties at the time, it is not clear that the arrangement should be nullified now. However, I can see there may be a downside to it.

    I think, perhaps, what mainly concerns you is the idea of inherited wealth. At one time I favored 100% estate duties. However, this is not a practical possibility -- people move offshore, or use trusts, or hand over their assets before they die. A better means of achieving a degree of leveling, I now believe, is a capital tax such as they have in Switzerland. At the rate of 1 to 1.5% per year, it is something that the rich can tolerate, but it mounts up over a life-time. And it is fairer than an estate tax that impinge on families in an arbitrary and accidental way.

    But whatever is proposed, the rich you will always have with you. And they may even have their uses, though they need watching.

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  4. ^ "I don't think so."

    We did agree to disagree.

    "Maybe you want an economic system where money lending does not occur. But if so, you have to show how that is as productive and more equitable than the system we have now."

    This is the basis of Muslim finance (Islamic Banking) and the teachings of an interesting chap called Ian Dallas or more properly, Abdalqadir as Sufi. I don't think that I could do a better job than they do.

    "But as for rentcharges, I am not familiar with them."

    There's a link to a law commission report on them in the blogpost.

    "But if they arise through contracts freely made in a market economy they do not seem to me to be necessarily a bad thing."

    The law commission report disagrees.

    "I think, perhaps, what mainly concerns you is the idea of inherited wealth."

    Not at all. My concern is the accrual of other people's wealth and using the law to do so.

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  5. "My concern is the accrual of other people's wealth and using the law to do so. "

    But I don't see how this is done, based on the examples you have provided.

    If you give me the use of property in exchange for a monthly payment of rent, in what way are you appropriating my wealth? We are simply engaging in a voluntary exchange of a benefit for cash.

    If I call you a swindler because you retain the title deeds to the property and seek to compel you to give me the property because I rent it from you, obviously you will prefer to kick me out and, in the absence of a more amenable tenant, sell the property and use your capital in some other way, which will net you a similar income to the rent you have foregone -- through investment in the stock of a publicly traded company, for example.

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  6. ^
    "But I don't see how this is done, based on the examples you have provided."

    Fine: we can agree to disagree.

    Have you read Paulo Freire's, Pedagogy of the Oppressed?

    p45,

    "But almost always, during the initial stage of the struggle, the oppressed, instead of striving for liberation, tend themselves to become oppressors or 'sub-oppressors'. The very structure of their thought has been conditioned by the contradictions of the concrete, existential situation by which they were shaped.
    ....

    Thus, the behaviour of the oppressed is a prescribed behaviour, following as it does the guidelines of the oppressor."


    I'd recommend the book but it's a difficult read first time around.

    In the situation described in the quotation (including the parts I elided for ease/idleness); how does one debate with the oppressed without simply hearing an echo of the oppressor's arguments and prescriptions being thrown back at you?

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  7. "Fine: we can agree to disagree."

    If you wish. But then one cannot have much confidence in a proposition its advocate will not debate.

    To demand that those who question the argument must read some obscure book, seems at least a little unreasonable.

    You are trained in one of the hard sciences. Surely your argument can be reduced to a set of propositions that can be stated with relative brevity? To say that those who reject your view are somehow deluded looks like a cop out.

    And with respect to p45, I have already acknowledged that if you don't like the present capitalistic system and its laws about money lending, etc. you need to explain the alternative economic system and show that it would achieve satisfactory outcomes. So I continue to urge that you say what the alternative is.

    But of course you don't have to. I just don't agree that to disagree without an argument makes very much sense.

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  8. "But then one cannot have much confidence in a proposition its advocate will not debate."

    Why not? You have the capacity for reason don't you? The author of e=mc^2 may not want to debate it: does this mean you don't have any confidence in it?

    "obscure book" is it really obscure?

    Are you able to debate the finer points of Shakespeare without having read any of his work?

    "Surely your argument can be reduced..."

    I'm not discussing hard sciences. I'm discussing social science. It isn't amenable to this form of analysis. Asking to reduce the argument is like asking Wittgenstein the length of his ruler and the units in which it is measured.

    "you need to explain the" I've given references for this; it's up to you to make up your own mind.

    "But of course you don't have to."

    If I was explaining the third dimension to a fellow flatlander, and I made an utter and complete hash of the explanation: would this mean that the third dimension didn't exist?

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  9. So what you are saying is that you believe that the existing economic arrangements could be vastly improved upon (hardly a revolutionary thought) but you are unable to give even an outline of how, or the reason why.

    Well you can say what you like. It's your blog!

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  10. But in any case, you say the argument is tricky and that if you attempted to summarize it you might botch it. But with those provisos, why not give it shot! I'm quite interested. Others may be too. But we aren't going to rush out and buy the book. At least I'm not, unless I have more to go on and some reason to believe it might tell me something important.

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  11. ^ "So what you are saying is.." I'm saying what I said in the blogpost and comments; nothing more, nothing less.

    "why not give it shot!" Follow the given links and references if you want more.

    "I'm quite interested." So follow the links and references.

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