Upon the subject of existing contracts the Royal Commission on Local Taxation was unanimous in the opinion that no interference with such contracts is justifiable. The "Separate Report on Urban Rating and Site Values in England," says, "Legislation enabling occupiers to violate the contracts which they have deliberately made, and to escape the obligations which they have solemnly undertaken, would be, in our opinion, indefensible," and the signatories add that they "could admit no compromise on this matter of principle"; whilst Judge O'Connor contends that "equity requires that all existing contracts should be absolutely respected."
Generally speaking, most of the witnesses who gave evidence before the Royal Commission on Local Taxation totally dissented from the suggestion to impose rates upon lessors, irrespective of existing contracts under which lessees have agreed to pay all rates. Some, however, suggested that in certain circumstances such contracts to some extent might be over-ridden.
Those who objected to the proposal did so on the grounds that the amount of rent is fixed with due regard to the liability undertaken by the lessee to pay rates, and that it would be unjust to upset one condition in a bargain without allowing other conditions dependent upon it to be revised by the parties. Those who held the view that all, or the greater part of, the rates really come out of the lessors' rent, argued that they would be rated twice over if existing contracts were ignored, and, further, that they would be rated for expenditure in the benefit of which they would not share.
It was also pointed out that if existing contracts were interfered with, much greater injustice would be done to the lessor who had recently entered into a contract, than to the lessor whose contract had been running for some time, as he would not have the opportunity of revising the terms of his contract so soon. But, in the case of those who had fixed permanent interests with no opportunity of revising their bargains at any period, as in the case of the freehold rentcharge system, or leases for 999 years, or feu duties, it was pointed out that the hardship would be still greater. And this point applies not only to perpetual rents, but also to many terminable leasehold rents. For such rents may be, and often are, created with only a nominal reversion, and in such a case they are no less "unimprovable" than a feu duty or chief rent. Indeed, as such rents often represent return on builders' outlay, they might even be held to have a special claim to exemption.
Parliamentary Paper Cd. 638, of 1901, pp. 44, 163, and 183.
H. A. Hunt, 21,001-7, 21,077-8, and Vol. IV. of Min. of Ev., App. No. II., par. 10. Cross, 21,603, 21,608. De Bock Porter, 22,731. Mathews, Vol. IV. of Min. of Ev., App, No. VI., par. xi. Sargant, 23,176, 23,177-9. 23,186-7, 23,190, 23,202-5, 23.223-7, 23.237.
It was further urged that a lessor should not be prevented from making a contract to secure a fixed income from his property, and that the imposition of rates, without regard to existing contracts, would be especially hard on people with small incomes from land. Mr. Sargant expressed the opinion that the class of persons who invest in ground rents are the last people who should have their contracts broken against them." They are the most prudent class of investors, such as insurance companies and trustees, who invest largely in them. They are persons who have sacrificed getting a large income in order to get an absolutely secure income, and a perfectly fixed income; they are the same class of persons who invest in the debentures of railways."
Those who thought that existing contracts should be wholly or partially set aside, justified such a course on the ground that the imposition of rates upon lessors, irrespective of existing contracts, would not involve greater injustice than the present system, by which the increase of existing rates, or the addition of new rates, are, during the continuance of a lease, thrown upon the tenant, who could not have foreseen them. It is argued that the State frequently imposes a new tax regardless of existing contracts, for instance, in the case of the Income Tax (Schedule A.) where the occupier is enabled to make a deduction from his rent.
Mathews, 22,186-90. Costelloe, 20,085-7.
Among the resolutions passed by the London County Council on the Report of the Local Government and Taxation Committee, dated November 16, 1897, was the following: - "That any existing or future contract or agreement by which an owner purports to exempt himself from the owner's tax, or to cause it to be paid by any other person in his stead, be invalid." But Mr. Costelloe, who represented that Body before the Commission, admitted that there was a difference between interfering with freedom to make future contracts, and interfering with existing ones. He said: "I think that Parliament may say, and ought to say, in the most absolute way, that when it has determined that a charge shall fall, say, on the owner of site values, any future contract which professes to alter that incidence shall be absolutely void." . . . . "But, as regards the bearing of such a charge upon running contracts, and whether any exemption or compensation was to be given to persons who might be supposed to be damnified under running contracts, that is another matter, and is a mere question of practical expediency. I think it is not a matter for a clause in the Bill so much as for adjustment in the burden. As regards that, all I say is that I do not think this scheme gives cause for any such adjustment of the burden in the practical equities of the system."
Mr. Fletcher Moulton thinks that: "Existing contracts may turn a fairly apportioned tax into an unfair one, and the force of existing social customs, combined with our laws of property, make it impossible to prevent this injustice being continued by future contracts." But he considers that existing contracts should be respected to a certain extent, so far as there is a transference of existing burdens, but no allowance should be made for a new rate. He said: Costelloe, 19,926-31, 20,167,76, 20,391,
20,300-2, and Vol. II. of Min. of Ev., App. No. XI., par. 53.
Moulton, 23,118, 23,125, and Vol. IV. of Min. of Ev., App. No. X., par. 4.
Moulton, Vol. IV. of Min. of Ev., App. No. X., par. 4. Moulton, 22,877-87, 22,890-8,
23,113. 23,126, and Vol. IV. of Min. of Ev., App. No. X., par. 10.
"So far as the tax would constitute an increase of taxation, it would be proper, in my opinion, for Parliament to authorise it to be imposed on all land in towns, whatever be the condition of its present holding. But so far as it is covered by existing rates, which are the subject of contracts which are at present permitted, it would be just to take these into consideration before carrying out in its entirety the division of taxation to which these considerations relate." ..."I have always conceded that, so far as it is a transfer, you are bound to consider that people were allowed to contract for the payment of taxes on their property by other people, and you have no right to say, therefore, that these contracts shall be set aside as though they were invalid at the time."
Also : - "So far as it is an old tax, I do not think you ought to put it upon those who unquestionably were permitted to stipulate that this old tax should be paid by their lessees, without adjusting between them and those who undertook to pay it.
"The reason why I allow for existing contracts is that the owner took a smaller rent because of the obligation to pay rates which was put upon the tenant. To that extent the owner is therefore bearing those rates. The principle of transfer would be to respect the owner to the extent to which he is in this way de facto bearing the rates.
"If I had to set about it, I should probably take what I consider to be a fair allowance for the rates that were stipulated for, and either add that to the rent, or allow that still to be paid by the occupier as a payment under his contract."
Mr. Moulton did not suggest any solution of the difficulty of dealing with existing contracts. He presumed that a Bill having reference to site values would deal with it. On being asked if he was prepared to lay down any general principles, he replied, "I should like to think over it a little more before I enunciate principles of that kind." ..."The actual machinery I should not like to pronounce upon without further thought."
Mr. Sargant thought that it would be impossible to make equitable allowances in the case of existing contracts, and that Mr. Moulton's suggestions seemed too vague for practical application.
He says generally of schemes like Mr. Moulton's that "they would rate owners of fixed rents in respect of an expenditure, the benefit of which accrues primarily to the owners of marginal rents, or, in other words, to the persons having the right to the actual beneficial occupation and enjoyment of the property rated. They would, in fact, rate the wrong man."
Sir Robert Giffen says that "an occupier could not be empowered to deduct the whole or portion of a rate he has hitherto paid under agreement or custom from the owner without injustice. Contracts must in all cases be kept. If it is thought desirable for any reason to make such an arrangement regarding rates, the only equitable method of carrying it out as regards existing rates would be to add the amount of the deduction in the first instance to the rent."
Sargant, Parliamentary Paper C. 9528 of 1899, p. 216.
Giffen, Parliamentary Paper C. 9528 of 1899, p. 98. Sidgwick, ibid, p. 108.