Housing Bill

HL Deb 13 June 1996 vol 572 cc1908-58

8.1 p.m.

House again in Committee.

Clause 78 [Restriction on termination of tenancy for failure to pay service charge]:

Lord Lucas moved Amendment No. 242K: Page 50, line 37, at end insert— ("() The reference in subsection (1) to premises let as a dwelling does not include premises let on—

1. (a) a tenancy to which Part II of the Landlord and Tenant Act 1954 applies (business tenancies),
2. (b) a tenancy of an agricultural holding within the meaning of the Agricultural Holdings Act 1986 in relation to which that Act applies, or
3. (c) a farm business tenancy within the meaning of the Agricultural Tenancies Act 1995.").

The noble Lord said: In moving Amendment No. 242K I wish to speak also to Amendments Nos. 242L and 242M. At last we come to some amendments on which we are totally in agreement. These measures are designed to improve tenants' rights to challenge unreasonable service charges. Many Members of the Committee will be aware of the increasing concern over recent months about a minority of landlords who exploit their position to levy excessive service charges. The measures in Chapter I of Part III are designed to curb these abuses.

One of the techniques used by these landlords is to exercise the right of forfeiture as soon as any dispute arises. This intimidates leaseholders into paying service charges even when they are excessive. Forfeiture is an important weapon of last resort for landlords to make sure that service charge contributions can be collected and buildings can therefore be insured and maintained. But it should be a last resort. Unfortunately, some landlords use this weapon even while a leaseholder may be seeking to challenge whether a service charge is reasonable.

In practice landlords very rarely obtain forfeiture. If the leaseholder is properly advised, it is possible to resist forfeiture and also to dispute service charges. But many leaseholders may be intimidated into paying up by the mere thought that they may lose their home to the landlord, even though in practice that is unlikely. Clause 78 therefore provides a new arrangement. Landlords will only be able to proceed to forfeiture once it has been established that a service charge is lawfully due. That may be done either by the leaseholder admitting that the sum is due or by the landlord obtaining a court judgment that it is due. So if the leaseholder wishes to fight, he will be able to do so before the court or before the leasehold valuation tribunal purely on the basis of a dispute about the service charge rather than one on the basis of a forfeiture action.

It is the Government's intention that the procedure should apply to residential flats and houses. Although the clause refers to, "premises let as a dwelling", there is some concern that that may not be sufficiently precise. Amendment No. 242K therefore makes it clear that the change applies only to residential tenancies and not to business or agricultural lettings. Those regimes have always been separate and distinctive from the regime applying to residential tenancies, and it is important to clarify that the provisions in the Bill have no impact in those sectors.

Subsection (5) of Clause 78 requires that any landlord serving the statutory notice often required before seeking forfeiture—known colloquially as a Section 146 notice—should make clear that the landlord cannot begin forfeiture until the liability to pay the service charge has been established. Otherwise some landlords might seek to intimidate leaseholders with Section 146 notices implying that forfeiture is imminent. Unless the tenants know better, they might be paying up even where they have a legitimate case. But there was some concern in another place that landlords might do this in obscure or legalistic language. The Government are therefore taking a power for the Secretary of State to prescribe a form of words to be used if that proves necessary or if it seems there would be advantage in having a standard form of words. Amendments Nos. 242L and 242M achieve this. I beg to move.

Lord Dubs

In principle I support any amendments which safeguard the rights of tenants; that is, people occupying their flats. However, I wish to raise a specific issue on Amendment No. 242M. The amendment states: The Secretary of State may by regulations prescribe a form of words in order that proper notice is given. That provision is quite reasonable but I am concerned about subsection (4) of the proposed new clause which states: The information or words required must be in characters not less conspicuous than those used in any other part of the notice". I appreciate that we do not normally obtain such detail in legislation as regards pieces of paper. However, there is a certain ambiguity here in that we could be talking about a small footnote printed in a small typeface. Therefore the information or words might not be more conspicuous in a footnote. I wonder whether the Minister can find some way to tighten up the wording so as to achieve fully the laudable aim he described.

Lord Lucas

I am delighted that the noble Lord supports the aim of these amendments. I shall certainly examine the point he made about Amendment No. 242M. I shall look at the wording, if I may, at leisure to see whether I can either give some comfort that the words mean what the noble Lord and I think they should mean, or, if an amendment is necessary, bring that forward on Report.

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 242L: Page 51, line 1, leave out subsection (5).

On Question, amendment agreed to.

Clause 78, as amended, agreed to.

Lord Lucas moved Amendment No. 242M: After Clause 78, insert the following new clause—

NOTICE UNDER s.146 OF THE LAW OF PROPERTY ACT 1925 (".—(1) Nothing in section 78 (restriction on termination of tenancy for failure to pay service charge) affects the power of a landlord to serve a notice under section 146(1) of the Law of Property Act 1925 (restrictions on and relief against forfeiture: notice of breach of covenant or condition). (2) But such a notice in respect of premises let as a dwelling and failure to pay a service charge is ineffective unless it complies with the following requirements. (3) It must state that section 78 applies and set out the effect of subsection (1) of that section. The Secretary of State may by regulations prescribe a form of words to be used for that purpose. (4) The information or words required must be in characters not less conspicuous than those used in any other part of the notice. (5) In this section "premises let as a dwelling" and "service charge" have the same meaning as in section 78. (6) Regulations under this section—

1. (a) shall be made by statutory instrument, and
2. (b) may make different provision for different cases or classes of case including different areas.").

On Question, amendment agreed to.

Clause 79 [Determination of reasonableness of service charges]:

Lord Lucas moved Amendment No. 243: Page 52, leave out lines 32 to 47 and insert— ("() The power to make regulations under section 74(1)(b) of the Rent Act 1977 (procedure of rent assessment committees) extends to prescribing the procedure to be followed in connection with any proceedings before a leasehold valuation tribunal under this Act. () Such regulations may, in particular, make provision—

1. (a) for securing consistency where numerous applications under this Act are or may be brought in respect of the same or substantially the same matters; and
2. (b) empowering a leasehold valuation tribunal to dismiss an application, in whole or in part, on the ground that it is frivolous or vexatious or otherwise an abuse of the process of the tribunal.'"').

The noble Lord said: In moving Amendment No. 243 I wish to speak also to Amendments Nos. 244, 245, 246ZA, 247 and 248. This group of amendments is concerned with establishing procedures which leasehold valuation tribunals (LVTs) should follow when dealing with service charge disputes and applications for the appointment of a manager. Amendment No. 243 will allow the procedural rules for LVTs to secure consistency in handling separate cases about the same issue. For example, if a number of tenants in a block challenge the same service charge it may be convenient to join the separate cases or to select one as representative of the class. If a case has previously been decided on the same point and no new evidence is available, the LVT will want to give a summary judgment.

The second element of Amendment No. 243 will allow LVTs to strike out frivolous or vexatious cases or those which are an abuse of process. The provision is aimed equally at landlords and tenants. The Committee will be familiar with the chronically litigious person who is out of step with all his neighbours. On the other hand, the unscrupulous landlords at which our reforms are aimed are quite capable of attempting to wear down their tenants by taking all disputes to adjudication. The LVTs will be able to throw out such cases if they are an abuse of process.

Clause 79 already allows LVTs to order that one party to an action must reimburse the fee to the other. Amendment No. 245 allows the LVT to order that only part of the fee should be reimbursed. For example, there may be a dispute where the landlord has asked for service charges of, say, £5,000, prompting the tenants to apply for a determination, maintaining that only £3,000 is reasonable.

If the LVT decides that the correct figure is £4,000, it may well wish to order that half the fee should be reimbursed to the tenants. Without this amendment it would be all or nothing.

Amendments Nos. 247 and 248 parallel the provisions of Amendments Nos. 243 and 245 for the application to the LVT for the appointment of a manager under Clause 81.

I now turn to Amendment No. 246ZA, and its consequential amendment, Amendment No. 244. Service charge disputes are likely to arise both in the county court as well as the LVT. A common scenario may be that the tenants dispute their service charges as part of a wider dispute with their landlord. The landlord, unable, because of the provisions of Clause 78, to threaten them with forfeiture for their alleged breach of covenant, starts a county court action for the recovery of the debt. The court can remit the determination of the reasonableness of the service charge to the LVT, but it may be that only part of the service charge is in dispute. It is possible that the painting of the window frames is agreed but the roof repairs are contentious.

Amendment No. 246ZA will allow the court to refer the contentious items to the LVT and to dispose of the rest, enforcing the tenants' obligation to pay the amount which is not in dispute to the landlord. This means that one contentious item will not hold up a decision on the rest. The LVT's determination may then be enforced by the court as if it were its own order. I beg to move.

Baroness Gardner of Parkes

I particularly welcome Amendment No. 243 regarding the right to dismiss a frivolous or vexatious application. I sit on industrial tribunals. We did not have that power until the last employment Act. It was quite remarkable how many vexatious people turned up. I was told that it involved probably only about half a dozen people in the whole country, but that had a remarkable effect. I am, therefore, pleased about that provision.

I understand that under paragraph (c) of new section (2A) of Clause 79, an application may be made to the tribunal as to, whether an amount payable before costs are incurred is reasonable". Under that provision could a landlord apply to set up a sinking fund for a building? In Australia that is a very common process. A block of flats may have what is called a sinking fund. Every year people pay a small amount into that fund. When a roof or a major repair is suddenly sprung upon the tenant, there are at least already some funds earning interest in hand for the tenants' benefit. That is rather better than suddenly finding oneself faced with an enormous Bill.

If the Minister cannot answer now, I shall be pleased to have the answer to this question in a letter. If the lease does not so specify, can a landlord still go to a tribunal to make such an application? I am not clear whether there is any power in the Bill for that application. It is an interesting point to consider.

Lord Monkswell

Perhaps I may inquire of the Minister about the frivolous and vexatious applicant. Presumably the leasehold valuation tribunal will itself determine that issue. The applicant may think that it is an important issue. It may be a matter of judgment. Does the applicant have any right of appeal against that decision of the LVT? I presume that he would. It would be nice if the Minister will confirm that point.

Baroness Gardner of Parkes

In the case of an industrial tribunal, the applicant can apply to the court. Even if he has been ruled a vexatious litigant, that does not prevent him bringing a genuine case. He can make an application to the court in order to have the right to go to the tribunal. But he cannot routinely put in dozens of applications to the tribunal. I shall be interested to hear from the Minister whether the position is the same under the Bill.

Lord Lucas

Some things the Minister would be interested to hear too!

As regards my noble friend's question about the sinking fund, that will be only if the lease allows it, and then only to the extent that the amounts are reasonable.

As regards the question posed by the noble Lord, Lord Monkswell, so far as I know my noble friend is right. There is always a right of appeal from LVTs to the court. It is the normal appeal mechanism that one would expect from such tribunals. We would expect the LVT to hear the tenant before ruling on whether or not he was a vexatious litigant.

Lord Dubs

I would have asked a question on the same point. However, the Minister more or less answered it. I fully understand that there is merit in not wasting time on frivolous or vexatious applications. On the other hand, there is always a danger once in a while that an application which seems on the face of it to be frivolous or vexatious has substance to it. However, the person putting forward the application may not express it so fluently that it seems a sound application. One has to be careful that there are safeguards. One does not want more work for the courts because the LVT has declared the litigant to be vexatious. The courts then have to do more work than the tribunal. That would not be the best way forward.

Having said that, I should like to study in Hansard tomorrow what the Minister said. If necessary, we shall have the possibility to return to the matter on Report.

On Question, amendment agreed to.

8.15 p.m.

Lord Lucas moved Amendment No. 244: Page 53, line 3, leave out from ("court") to end of line 5.

On Question, amendment agreed to.

Lord Selsdon moved Amendment No. 244A: Page 53, line 5, at end insert ("except as provided in section 31D").

The noble Lord said: In moving the amendment perhaps I may speak to Amendments Nos. 244B and 246A which also stand in my name.

The amendments are designed to prevent vexation. They refer to Clause 79 which provides that leasehold valuation tribunals will have a power to settle service charge disputes. Service charges are the bane of everyone's life—landlords and tenants. They are not perfect. There is so much room for misunderstanding. Those charges cause tremendous fear and aggravation if they are not planned in advance and suddenly on the desk or at the home of a tenant appears a large bill for decoration.

This means that where a lessee believes that his service charge is excessive, as the Government have already declared, he may challenge it through the tribunal without the threat that his lease will be forfeited. That is good. This new procedure was introduced by the Government in response to the actions of a small number of landlords who had been levying inflated service charges, pursuing the collection of those charges aggressively through the courts, all the while threatening forfeiture of the lessee's lease. Under the Government's amendments I hope that this will not be possible in the future.

However, the aggravation does not necessarily end there. There are problems in the general trend. My amendments relate to the landlord's costs under the new procedure. A landlord is not necessarily a titled lord with large land. Essentially "landlord" means whoever is responsible for collecting the service charge. I believe that we all agree that the right to manage, the freedom to manage, the right to be nearer to the decision-making process in relation to one's own house or flat, is good. But that brings with it certain problems.

The term "landlord" essentially involves those who collect the service charge. It may cover, for example, the traditional freeholder, whom to some extent we have been attacking today as a landlord. It may cover the head lessee of a long leasehold property. It could also encompass a management company which may be set up by tenants in a building to manage and run their own block, where the lessees themselves own the freehold.

Finally, if commonhold is introduced—the noble Lord, Lord Dubs, referred to it in Second Reading; I support him; and the Minister said that we all believe in it—then commonhold and the management of it would also be covered. Under the new procedures it is not simply a question of collecting the service charges. The noble Lord, Lord Dubs, pointed out that there are good and bad landlords. Under my definition of "landlord" there will still be good and bad landlords. But there are also good and bad tenants. There are absentee tenants. For example, under a head lease there may be a requirement to paint a building every four years to keep things up to standard.

I speak more of London than of anywhere else. We all know that one of the benefits of London is that there have been good managers where buildings have been painted and maintained on time. If the management falls down, there is a major problem. Often management can fall down when there is a shortage of money. Arguments arise in blocks of flats where six or eight people live, two of them abroad. A requirement to repaint that building every four years may exist but someone says that it does not need painting, "It took a long time to paint it and we are not prepared to repaint it". Someone else may say: "I live on the ground floor. Why should I pay for the lift to be maintained or the entry phone?" Often people who are ill-informed cannot understand the justice of service charges where they are required to pay for things that they think are not correct.

There is inefficient management but my worry is where there is a shortage of money. Under the new procedure, there are two elements of cost. First, the applicant to the tribunal must pay an application fee. Secondly, the parties to the hearing may need to employ solicitors or expert witnesses to present their case. In respect of the first cost, the application fee, the tribunal will have discretion and may make an award.

However, with regard to the other costs, the legal costs, the tribunal is specifically prohibited by the Bill from making an award. Therefore, if the lease does not allow legal costs to be collected through the service charge—and I gather that almost half the leases say that legal fees can be collected through service charges and the other half say that they cannot—the majority of the costs will be unrecoverable. That could cause problems for landlords of all types in collecting properly due service charges, particularly if the landlord as manager lacks resources and has to rely on the cash flow paid under service charges, many of which are late, and if he does not have a sinking fund.

There is a certain unfairness on the other side. When a lease requires that all costs are borne by the service charges if the freehold or head lessor takes action against a particular tenant for not paying his bills, it is extremely unfair that if there are six or eight tenants in a block and two have defaulted, the costs that those tenants incur in terms of legal fees should be spread across the rest of the tenants. When they took on their lease they might not have understood or appreciated that.

When people feel someone else is paying the legal bills, they do not worry, they let the lawyers get on with it. The lawyers are relatively slow because they know they will be paid in the end. As we know, legal fees can make an enormous dent in service charges if there is litigation due to one tenant who has behaved badly. That is the case for the other side.

My amendments deal with the landlord. It may well be that they should deal with the tenant as well, but I am in an embarrassing situation. I declared my interests on Second Reading and perhaps I should declare them again. I am a landlord, reluctantly, because when we got together to buy a head lease, I ended up holding the head lease. I have to manage the apartment and I cannot tell the Committee the problems when Mrs. So-and-so's washing machine leaks and causes damage on floors below and someone says that the insurance should pay. It is illuminating. However, at the other end of the scale, I am a tenant and own a lease of one of the great estates in London. If I put down an amendment to the effect that if I were to take action against that great estate, my legal costs should be recoverable, it would probably be immoral. Members of the Committee from the other Benches might suggest that, they seem to support the tenant more often than the landlord and I would support them.

The problem would be particularly acute for lessee-owned management companies which have no significant independent resources on which to draw. It is difficult to see, therefore, how they can manage their blocks efficiently in the future—I am not talking about today—using the Government's new procedures as drafted. For example, they might run out of money. Also, one must accept that some may not be efficient but, with the best will in the world, they will try to do what they can. If they are short of money, they will not be able to meet certain costs.

Amendment No. 246A seeks to address the problem by giving the tribunal discretion to make an award for legal costs. Under my amendment, the tribunal would have three options. First, it could make no award, in which case the costs would not be recoverable. Secondly, where a lessee in challenging a service charge has acted without the support of the residents' association or other lessees in the block, the tribunal could—I stress could—make an award against that individual. That should deter spurious or vexatious non-payment of service charges. Thirdly, where a lessee has the support of the residents' association, or where the lessees challenge the service charge collectively, in those circumstances the tribunal will have discretion to allow the costs to be recovered through the service charge, if it feels that the lessees collectively have behaved unreasonably.

My amendment does not give the landlord carte blanche to recover costs. That would clearly be undesirable. But if the landlord—and I remind the Committee that the landlord could be small groups of people—had patently acted unreasonably, I should expect the tribunal to use its discretion and make no award for costs. The lessees will also have the safeguard of new Section 20C of the Landlord and Tenant Act 1985 which permits them to apply for the landlord's costs to be disregarded for service charge purposes.

Amendment No. 244B is intended as a saving provision, to ensure that where the lease allows for legal costs to be recovered through the service charge, the new provisions of the Bill will not override that. As some concern has been expressed on the issue by leading counsel, it is important that we put the matter beyond doubt.

I did not draft the amendments, not being a great draftsman, and I gather that the Government are short of parliamentary draftsmen at the moment. The amendments were drafted by professionals and in this world I am an amateur. Perhaps I am not an amateur because an amateur is someone who loves the subject. I do not love the responsibility of having to manage a building. I am told that the amendments are approved by the Federation of Private Residents' Associations, the Royal Institute of Chartered Surveyors and the Association of Residential Managing Agents, as well as a number of managing agents to whom I spoke. Advice was also taken from the Leasehold Enfranchisement Advisory Service.

If costs are incurred by a landlord in the pursuit of something legal, correct and proper, he ought to be able to recover the costs. I must not put my own causes, but I feel that that should apply equally to the tenant. I beg to move.

The Earl of Lytton

I declare an interest in that I am chairman of the Leasehold Enfranchisement Advisory Service and I wish to speak in support of the gist of what the noble Lord, Lord Selsdon, moved, for the reasons he gave. With regard to tenants' own management companies, which I believe is the real point, if they do not keep reserve funds—and I cannot see how logically they could insist on building up a reserve fund for the purposes of covering otherwise uncovered costs—they would end up with a deficit. They would not be able to satisfy their obligations under the Companies Act. It seems to me that the noble Lord suggests a neat way of providing that proper discretion is exercised. I should be interested to know what the Minister has to say about it.

Lord Coleraine

I have not spoken before on the Bill so it falls to me to declare my interests. In 1993, when the previous Bill was enacted, I was the tenant of a flat under a long lease at a low rent. The lease had eight years to run, so it was collectively enfranchisable. I am now a lessee under a lease of 999 years of the same flat. I am also the owner of one share in the company which owns the freehold. I changed my status and those in my block changed theirs without any need to resort to the provisions for collective enfranchisement in the 1993 Act.

I have a further interest and I am embarrassed that I am declaring it at this stage because I am an honorary consultant to the Federation of Private Residents' Associations. As my noble friend stated, the federation generally approved the provisions of his amendment.

I have grave doubts about the amendment. The principal one is that provided it is in the case of a sole tenant who goes to the valuation tribunal that the cost provisions arise, it sanctifies in some way the position of the majority of the tenants in a building or of the residents' association. We must all recognise that there is in fact no such sanctity, that disputes arise between lessees within a building and that there is no reason why we should assume that it will always be the majority who are in the right and the minority who are in the wrong. As my noble friend said, the provisions of his amendment are one-sided. He would agree that that should be rectified.

If it were the case that a sole lessee who went to a leasehold valuation tribunal were to bear the costs of his application, it should also be the case that, were he to be successful, the landlord should bear the costs. My noble friend clearly agrees with that.

A further point has been made that where the lessees of a building take over the freehold, they will not have the resources to go to a leasehold valuation tribunal under the provisions of the Bill. That is correct and applies to any landlord. The landlord must have resources. I suggest that the proper management of a tenants' buy-out should include some form of agreement whereby it is made clear that, should the situation arise, those who participate in the buy-out must make funds available to enable the costs of an application to the LVT to be paid.

In the long run, however, I think the answer to my noble friend's amendment is that there is probably enough in the Bill to get round the very real difficulties that the decoupling of forfeiture from the collection of service charges has created. That is ultimately where the problem arises.

We have just passed an amendment to provide that frivolous and vexatious applications can be dealt with summarily by the LVT. I feel sure that that is one way in which single tenants acting unmeritoriously will be seriously deterred from going to a tribunal.

An existing provision in the Bill also enables the valuation tribunal to charge "reasonable" fees for the first time. I have no idea what those "reasonable" fees are. Perhaps, in replying, my noble friend will help me. It is very difficult to envisage an application to an LVT going forward at a cost of less than £500 per day in LVT fees. Those fees could fall on a tenant who has made an unsuccessful application.

Those two provisions are enough to safeguard landlords from the difficulties my noble friend sees. I hope that he will not press his amendment.

8.30 p.m.

Lord Lucas

My noble friend Lord Selsdon has raised some important points. I believe I can reassure him on some of them, and I shall reflect on some of the others. I deal first with Amendment No. 244B, which is aimed at making it clear that nothing in the Bill undermines any provision in a lease which allows a landlord to recover his costs as part of the service charge. Claude 79 does contain a provision—the new Section 20C of the Landlord and Tenant Act 1985 on page 54 of the Bill—which allows a leasehold valuation tribunal to order that such cost should not be recoverable. That provision, which largely repeats the existing Section 20C of the Act but extends it to LVTs as well as the court, is to deal with the case where the landlord has behaved unreasonably in some way in defending a case.

For instance, if a landlord has used a legal team of disproportionate weight—a QC, duly instructed by a solicitor, with a Fellow of the Royal Institution of Chartered Surveyors and perhaps an accountant in attendance to argue a minor point about whether maintenance work has been done—the leaseholders could challenge whether the costs have been "reasonably incurred". The LVT would no doubt take a commonsense view.

But if the LVT does not exercise that power, the necessary implication is that the cost of defending an action is recoverable if the lease allows for this type of expenditure to be recovered in the service charge. That is certainly the Government's intention and understanding of what the Bill achieves. I am pleased to place that on the record. I hope that on that basis my noble friend will not press Amendment No. 244B.

My noble friend's other amendments, Amendments Nos. 244A and 246A, deal with responsibility for paying for costs more generally. The effect is to give the LVT a jurisdiction to make a single tenant pay the landlord's costs if he has acted individually or to order that the landlord may recover them as part of his service charge if the case is on behalf of the tenants collectively. In that case all leaseholders would have to pay. I am not sure that Amendment No. 246A quite achieves that because making the costs "relevant costs" does not itself make them recoverable if the lease does not provide for that.

I am not sure it would be right to put individual tenants at risk of having to meet their landlord's costs in this way. Part of the point of giving the leasehold valuation tribunals jurisdiction to settle service charge disputes is to reduce the risk that tenants might have to meet the legal fees of their landlord, which, in the case of some of the less scrupulous landlords, may be significant—often unreasonably so. There are cases where a minority of tenants, or even one tenant, may have a legitimate case but where the majority are uninterested. I think the amendment goes too far. To that extent I am of one mind with my noble friend Lord Coleraine.

But that leaves the question of how the landlord's legitimate costs are to be met. Many leases, particularly the more modern ones, will include a broad-ranging provision allowing the landlord to include within his management expenses the costs of proceedings of this type. Collecting service charges is part of the job of managing a block of flats. In those circumstances the landlord will be able to recover his costs unless the tribunal makes a ruling under Section 20C which I mentioned earlier.

But some older leases may not make sufficiently broad provision. They may not have anticipated tribunal proceedings. In those cases, unless some new provision is made, the landlord will have to bear the costs himself. I can imagine many cases in which that may not be unreasonable, or may even be richly deserved. But there may be cases where it does pose a problem. For example, at Second Reading my noble friend Lord Gisborough raised a point concerning blocks where the leaseholders themselves own the freehold, and there is simply no source of money other than service charges to pay for a surveyor, for example, to present their side of the argument before a tribunal.

I do not think it would be right to introduce a general provision about awarding costs into LVT proceedings. Tribunals generally, not just leasehold valuation tribunals, do not award costs against a losing party in the way a court does. They are less formal and more accessible. Legal representation, for example, is not necessary. If costs could be awarded, the notorious landlords would no doubt continue to intimidate their leaseholders from bringing even well-founded cases for fear of the potentially ruinous consequences of losing.

The better course might be to empower the tribunal to give a ruling (if the landlord asks for it) that his reasonable costs in defending the case should be recoverable as service charges, even if the lease does not provide for that. It is, of course, important that Parliament should not lightly give the LVT a power which amounts to imputing into leases new terms which place new obligations on leaseholders. The LVT should perhaps be allowed to do so only where convinced that it is fair, given all the circumstances of the case, and only to the extent that the landlord's costs are reasonable. In some ways this would mirror the current provisions which allow the tribunal to rule that the landlord's costs should not be recoverable, even where the lease would allow it, if the landlord had acted unreasonably.

My noble friend Lord Coleraine asked what level of fees we might expect from LVTs. He has the right idea. We think that £500 would be about the standard minimum; for longer cases £2,000 a day is about the level we are thinking of. With those words, I think, of considerable comfort, I hope that my noble friend Lord Selsdon will be able to withdraw his amendment.

Baroness Gardner of Parkes

On the question of legal costs, at an industrial tribunal people regularly defend themselves and therefore expenses are not high. We hardly ever award costs. Even if the applicants are represented legally on both sides, each party has to bear their own costs.

We recently had a case, the first in over 20 years, in which we awarded costs of £1,000. Everyone in the tribunal building considered that a very high amount. The circumstances were exceptional. They involved someone who had pursued the case, had had it deferred several times, and who in the end did not turn up. Costs were awarded against that person. I doubt whether they will ever be recovered since I believe he has absconded or left the country. So it may only be theoretical.

It is worrying if the "reasonable costs" referred to can be awarded and possibly then come back as part of a service charge. When we talk of legal expenses, the sky is the limit. I should be very concerned about any high costs being added on to service charges, which most tenants find quite worrying to meet now. I hope that the Minister and my noble friend Lord Selsdon will look carefully at the particular point of the type of costs involved and perhaps put a ceiling on what could be awarded.

Lord Meston

Perhaps I may follow up the noble Baroness's point. Her analogy with industrial tribunals is a valuable one. In those tribunals the power to award costs can be a disincentive, which is useful in itself; but the knowledge that in normal cases costs will not be awarded either way is also a disincentive of some value, because the parties know that it is much to their advantage to settle. Win, lose or draw, they are unlikely to get costs against the other side. I feel that the analogy that the noble Baroness drew is very valuable.

Lord Monkswell

I was rather concerned by one of the Minister's remarks. If I did not hear him aright, no doubt he will correct me. He said that the majority of leases granted nowadays contain the requirement that any costs incurred will be added to the service charge. If that is so, it is rather disturbing.

There may be a situation in which the landlord effectively makes excessive service charges, which are being challenged. If the landlord has the right to increase the service charges by any amount because he has incurred costs in defending those excessively high service charges, the poor leaseholder is on a hiding to nothing and the protection that the Government and we all are seeking against excessive service charges will be nullified. It should be borne in mind that, if money is no object and the costs will simply be passed on in service charges, all kinds of experts may be brought in—legal experts, surveyors and so on, some of whom are very expensive—and the person bringing the argument against the excessive service charges may be completely swamped.

I hope that the Minister will look at this matter very carefully and ask whether it is what we seek.

8.45 p.m.

Lord Strabolgi

I should like to support my noble friend. Service charges can become quite a racket. Some years ago there was a block of flats near the Albert Hall where the service charges were allowed to be used for some refurbishment to the building. In fact, they were being used to do up other flats, putting in extra bathrooms and so on, which the owners of the block were then going to sell on long leases and the tenants were receiving the most enormous bills. There have been cases recently too in which people have been able to buy freeholds at auction for a couple of thousand pounds and then do what they liked with the building and the tenants. The so-called accountants who are supposed to assess the service charges are in league with the freeholder, as are the decorators who do up the places. The freeholder is getting a cut all along the line. It is a major scandal.

I remember the old days in the 1950s when many of the flats in central London were owned by old-established companies—key flats and so on—and everybody was very happy. The rents were low and went up normally every year or so. There was a nice porter in the hall with a coal fire and so on. It was a very satisfactory way of living and many people preferred it to living in a house. Then one or two speculators realised that they could make a large fortune by buying up the blocks of flats. They threatened the people with eviction—at that time the Government had taken off all controls—and the unfortunate tenants, in order to remain in their homes, had to agree to buy long leases from the new owners. The owner would then recover in service charges what he had lost in rent. Such people made very large fortunes. However, one or two of them went bankrupt, I am glad to say. It was quite a racket.

I am afraid that the Conservatives taking away security of tenure had absolutely unforeseen repercussions and distorted the whole of the housing market in central London and other big cities. We have never recovered from it. Attempts by the Government to try to control the situation with the 1988 Act and the present Act have all stemmed from that mistake, when they allowed speculators and crooks to take over blocks of flats and distort the market.

The Earl of Lytton

I apologise for rising to speak again on this matter. However, it seems to me that, speculators and racketeers apart, there still remains a problem which I should like to illustrate for the benefit of the Committee. Some years ago I worked in Brighton and I remember a large block of flats in Kemp Town. Part of it had had a bomb dropped on it during the last war, with the result that it had been reconstructed. Part of it was brand spanking new, relatively speaking and the rest was old and—to use common parlance—clapped out. That produced a significant differential in running costs between the two halves. I remember that the method of apportioning service charges was a constant source of problems to the residents.

Returning to the point about the tenants' own management systems, tenants are not a consistent breed. From my personal experience I know of several cases in which one group of tenants has radically disagreed with what another group of tenants has done in the name of the block as a whole. I referred to those problems at Second Reading when I mentioned the different aims of different tenants. For example, the elderly may want one particular service while the young and fit want another type of service.

There has to be a method of reconciling those views some way or other. It may be rough justice or a little like the Judgment of Solomon, but reconciled they have to be. I feel that what the Minister said about leaving discretion with the tribunal is probably the best that we can hope for in the circumstances. I do not believe that either side should be penalised. I do not feel that a deficit should be left in the hands of the tenants' own management company which will cause it severe legal problems about—apart from anything else—how the unsatisfied debt that it has accumulated will be expunged. Those people may have acted for what they genuinely felt was the benefit of the majority, taking an overall view of the block—perhaps a strategic forward view, based on doing more repairs at the present moment, taking the stitch-in-time rather than the sticking plaster approach. This matter will probably always be a source of contention. I want to see this Bill go forward with the opportunities for contention diminished.

I support what the noble Lord, Lord Selsdon, said. Maybe his formula is not quite perfect, as the Minister suggested. Perhaps the Minister's solution—if that is what it is—is a good one. If there is anything that it does not cover, perhaps that could be looked at and considered at a later stage.

Lord Coleraine

I should not like the strictures made by the noble Lord, Lord Strabolgi, against Conservative policies to go unanswered when this Bill leaves the Committee. The reason why we have the present dreadful long leasehold system in central London, with all the opportunities for bad dealing, is basically old Labour Party rent controls, which made it quite impossible for landlords to let their flats on short leases. They made it inevitable that they would seek to take premiums and get rid of the flats on long leases. That to a large extent is why we have the situation today.

Lord Lucas

I should perhaps steer clear of that particular controversy. Perhaps I can say two things to the noble Lord, Lord Strabolgi. First, if one buys a leasehold, one had better read the lease. Secondly, most of the problems he described I hope will be effectively dealt with by the Bill.

To the noble Lord, Lord Monkswell, I say that there are two ends of the spectrum. At one end we have a block owned effectively by the people who live there, where the company owning the back end of a 999-year lease will effectively have no assets and no income other than the service charges which it levies on the people who live there. If one tenant does not pay the service charge, there must be a mechanism by which the company can levy charges on all the other tenants to fund the action it needs to take against the defaulting tenant. That is why that is a common mechanism in that sort of lease and indeed in other leases.

To deal with people who try to abuse that system, we have given the leasehold valuation tribunal the duty to make sure that the actions by the landlord are reasonable. The proposed new Section 20C of the Landlord and Tenant Act 1985—appearing on page 54 of the Bill—is a provision to deny the landlord the right to recover his legal and other costs through the service charge if he has acted unreasonably.

That provision places a great weight on the wording of the Bill. I would be happy to hear, perhaps on another occasion or through letter, from Members of the Committee who think we may be able to improve the wording to achieve what we all wish to achieve; that is, to make sure the leasehold valuation tribunal deals in a commonsense and effective way with landlords who abuse their position to try and terrorise the tenants. But we have perhaps come to an end of this conversation for now.

Lord Monkswell

One way of reducing the cost for both landlord and tenant in disputes involving the leasehold valuation tribunal is to ensure that in front of the tribunal the parties shall not be represented and shall not call experts. They shall argue for themselves.

Lord Selsdon

I am grateful to Members of the Committee for commenting for 35 minutes on something I hoped would take a brief moment. I am reassured by one thing. I believe for the first time today that the adversarial attitude of both sides of the Chamber appears to have disappeared. I do not know why in the Leasehold Reform Act I had the opinion that those on the other side of the Chamber were permanently in favour of the tenant and those on this side appeared to be permanently in favour of some rich landlord. That attitude did not do your Lordships' House any good.

The noble Lord, Lord Strabolgi, made the point that there have been some bad things in the past. The objective of this legislation is to improve matters. I still have a hang-up that too many people in this business try to talk through lawyers. When one has an expensive lawyer with a triple-barrelled name on one side and a barrack-room lawyer on the other, one ends up with enormous costs and increased aggravation, particularly for the bulk of people who do not know what "litigation" means and do not understand it.

In this part of the world, in England, I believe property law to be rubbish. Frankly, I prefer it in Scotland. I hope there will be an element of goodwill here. If the Minister had said, "Leave it to the Secretary of State", I would have panicked; but when he says, "Leave it to a nice organisation called a tribunal", I am comforted. My noble friend Lord Coleraine, who knows so much about these matters and who is so much wiser than I am, tells me not to worry. I shall make a note of his remark and if he proves to be wrong, perhaps someone will take action against him. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 244B not moved.]

Lord Lucas moved Amendment No. 245: Page 53, line 33, leave out ("amount") and insert ("whole or part").

The noble Lord said: I spoke to Amendment No. 245 with Amendment No. 243. I beg to move.

On Question, amendment agreed to.

Lord Archer of Sandwell moved Amendment No. 245A: Page 54, line 4, at end insert— ("() Notwithstanding the generality of subsections (5) and (6), an order under this section requiring the payment of fees shall provide that no fee shall be paid or reimbursed by a person whose financial resources are such as to make him eligible for representation under Part IV of the Legal Aid Act 1988 (Civil Legal Aid) without being liable to make a contribution in respect of the costs of that representation.").

The noble and learned Lord said: I too begin by declaring an interest. Much of my motivation in tabling this amendment and much of what I propose to say reflects the deep anxiety of the Council on Tribunals which I am privileged to chair.

As the noble Lord, Lord Lucas, reminded us a few moments ago, this part of the Bill addresses a problem which acquired notoriety some time ago. A property company buys the reversion to a block of flats. It increases service charges to an unreasonable degree and then, when the tenants fail to pay, it brings forfeiture proceedings. Of course, it is open to a tenant to challenge the reasonableness of the service charges in the county court under Section 19 of the Landlord and Tenant Act 1985. That is sometimes done, as a number of Members of the Committee said, in the course of forfeiture proceedings. The proposal in this clause is to detach that issue from the forfeiture proceedings and transfer the jurisdiction to local valuation tribunals. That is a sensible proposal and has a number of advantages.

The leasehold valuation tribunals have expertise in these matters which no court, exercising a general jurisdiction, could hope to emulate. Furthermore, the proceedings are likely to be less costly and will probably be more expeditious. But there are two items of bad news to which some Members of the Committee have already referred.

First, unlike proceedings in the county court, legal aid is not available for proceedings before the LVT, at least in respect of representation. That may be a source of injustice. The landlords to whom we are now referring are usually property companies and will normally engage the services of experts. They will bring in people who are professionals. Sometimes that is sensible. Sometimes there are issues which require preparation and usually presentation by professionals. They, on their side, will have that advantage.

We know from the researches of Professor Hazel Genn that those who are represented before tribunals have a much greater prospect of success than those who appear unrepresented. As the noble Lord, Lord Selsdon, said, those who have never been to a tribunal in their lives are at a disadvantage when trying to elicit their case.

I say at once in the presence of the noble Baroness, Lady Gardner, that she took me to task in a different context some time ago for what I obviously expressed badly and which she interpreted as a criticism of tribunals. It is not intended in any way as a reflection on tribunals; it arises from the fact that it is difficult to combine the judicial function with trying to elicit everything that can be said on the side of one of the parties. I say at once that it need not be representation by lawyers. Sometimes representation by a surveyor before the LVTs or even by an accountant may be more advantageous than bringing in a lawyer. But to leave the tenant wholly unrepresented against professional people on the other side can make for injustice.

That is not the subject of the amendment, but it is part of the background against which it must be considered. I said that there were two items of bad news. The second is the one to which some Members of the Committee referred a few moments ago. It is to be found in new Section 31B which Clause 79 seeks to insert into the 1985 Act. It is the provision for the fixing and paying of the court fees by the parties to proceedings before the LVT.

I share the anxieties of the noble Lord, Lord Coleraine. When the noble Lord, Lord Lucas, quoted a few moments ago the kind of figures the Government had in mind in this context—if I understood him correctly—and claimed that that was comforting news, I must say that I missed the comforting part. It seemed to me somewhat alarming news.

As I understand it, the intention is that the parties will pay the whole of the judicial costs in relation to this service, and new Section 31B(3) makes it clear that overall the fees are to meet the full costs of providing that service. That is bad news indeed. I am aware that the Government are at present considering proposals for introducing in the courts a system of charging fees to litigants on a full costs recovery basis, which means that anyone availing himself of our system of adjudication would be required to pay for that system. I say at once, speaking for myself, that I find that very troubling. I believe that there are some services provided by the community which ought to be paid for by the community generally and not simply by those who have occasion to avail themselves of the services. I hope we never reach the point when every road in the country is maintained at the expense not of the community but of those who have occasion to drive over the road, so that at the entrance to every road we have to pay a toll. That is a difference of political ethics between the Government and those who share my views. This amendment does not seek to change that policy. In fact, it would not be appropriate in this Bill. But I hope that we would hold the line on any application of that policy to tribunals. In saying that, I do speak for the Council on Tribunals.

As long ago as the Franks Committee, and even further back with Donoughmore in 1929, it was said that one of the great advantages which tribunals contribute to the legal system is that they are inexpensive, so that people—landlords, tenants or whoever—are not deterred from pursuing their rights by the fear of the financial consequences. If that line is to be breached, it should not be in the course of a Bill on a totally different subject dealing with the part of the jurisdiction of one tribunal. It should be after careful consideration, careful consultation and full debate in Parliament.

But it is not even that principle which this amendment seeks to uphold. It really is a very modest amendment. It is designed to meet what I believe to be a gap in subsections (5) and (6). The Government have recognised that the consequences of these provisions may be financial hardship for those with limited resources. The Bill gives power to the Secretary of State to reduce or waive fees by reference to a party's financial resources and to empower the tribunal to make an order that one party should reimburse the other for the fees he has to pay. The council welcomes that. In fact, we take comfort from the fact that the Government have obviously addressed their minds to some of the consequences of this problem. However, I believe the proposal falls short of what is necessary in two respects.

If a potential party is told that, with luck, he may find at the termination of the process that he does not have to bear the burden of fees, that may not be sufficient to set his mind at rest. Unless he can be sure, he may be deterred from taking the risk of seeking to enforce his rights. People should not be at risk of a possible order. Those of us who spend our lives trying to predict the outcome of proceedings, either in courts or tribunals, know how notoriously difficult that is. No one can ever have an assurance of what the outcome will be. People should not be at risk of an order which could mean a severe financial disaster for them. People will be deterred from availing themselves of a provision which the Government have very sensibly included in the Bill. Unless they can be assured not that their tribunal fees may be waived or that they may be paid by the other side but that, if they meet the financial conditions, they can be certain that they will not be subject to those fees, I believe they will not take the risk.

The effect of the amendment would be that someone whose means were such that he would qualify for legal aid if he were in civil proceedings in the courts and in accordance with the Government's own rules could be assured that he would not be liable for fees or liable to recompense the other party for an outlay on fees. By definition, it relates to those who cannot afford to pay.

The noble Lord may be able to assure us that any order made under this section will include that provision. If he does that, it will go some way towards meeting our anxieties. But that provision falls short. To go the whole way, I believe that that safeguard should be written into the Bill. Legislation by undertaking leads to difficulties which many of us in our parliamentary careers have written on our hearts. I am sure that, if the noble Lord is persuaded of the necessity of the burden of the amendment, he will have no difficulty in writing it into the Bill. I hope that he will feel able to accept the amendment. I beg to move.

9 p.m.

Lord Meston

I support the amendment and in doing so suggest that much of the need for it derives from the really rather curious wording of the proposed new Section 31B(6), which is quite difficult to understand. It is drafted in a curious way. It refers to "the latter case", which I think must refer back to one of the alternatives in the proposed subsection (5), and then goes on to say, the order may apply, subject to such modifications as may be specified in the order, any other statutory means-testing regime as it has effect from time to time". I find that remarkably unclear. Even if it were clarified, I would suggest that there is a strong case for the amendment moved by the noble and learned Lord, Lord Archer.

Baroness Gardner of Parkes

I am somewhat concerned by this amendment because of the point that I have made at other stages in the debate. People tell me that if one is sued or taken on in any proceedings by someone who is legally aided—and this situation is equivalent because of the exemption provision—one has a "no-win" situation. Even if one wins the case the other person cannot lose a penny or be endangered in any way.

As regards the tribunals, I believe that their chairmen go to great trouble to assist unrepresented people. I rarely agree with the noble Lord, Lord Monkswell, but he made a very interesting point when he said that the only way to be sure was for no one to be represented at the valuation tribunals.

Lord Lucas

We have had the pleasure of listening to a very powerful presentation by the noble and learned Lord, Lord Archer of Sandwell on a subject on which he is a great authority. I am sure that we shall ponder everything he said. Perhaps I may be allowed to concentrate on the substance of this particular amendment. As the noble and learned Lord said, in subsections (5) and (6) we have provided ourselves with the power to make arrangements for a leasehold valuation tribunal to waive fees depending on the financial resources of the party by whom they are to be met. We have also provided that statutory means-testing regimes may be used, but we have deliberately not specified which regimes these are as they are subject to frequent change.

At this stage we feel that it is unnecessary to require any order made under this power to reflect a specific means-testing regime such as that proposed in this amendment, to be put on the face of the Bill. We need to give further consideration to the detail of how to operate this scheme flexibly. There is a great deal of work for us yet to do. We need to consider such matters as passporting connected with other benefits.

I believe that the core of the point made by the noble and learned Lord, Lord Archer of Sandwell, is this. If some poor person is considering going to a LVT and he can see by then—we shall have the order in place—that he is eligible for a remission of fees, how does he know that he will get that remission without having to go through the whole process and take the risk of not getting that remission at the end? We plan that the rules shall be clear enough for that to be settled at the very outset of the application by the clerks to the LVT. We also hope that the rules will be clear enough to enable the tenant to work out for himself whether or not he will qualify for fee remission. Therefore, in practice, we believe that this is a problem that will not arise because it will be settled at the outset before the fee has been incurred.

Lord Archer of Sandwell

I am grateful to those who have participated in this debate. In particular I am grateful for the point made by the noble Lord, Lord Meston. Perhaps that is something we should reflect on before Report stage. As regards the two comments made by the noble Baroness, perhaps it was my fault for introducing something which was not directly relevant to this amendment. I accept her comment that legal aid can be unfair in reverse. It does not seem to me that the answer to that is to withhold legal aid; still less to ensure that no one has the benefit of professional advice and representation which both sides so obviously need. That is perhaps an issue which we can join at a later stage.

I am grateful to the noble Lord, Lord Lucas, for at least the assurance which he has given that it is intended to frame the order in a way which will ensure that someone knows at the outset and before committing himself, whether he will be liable for fees. I am not sure whether that includes liability to reimburse the other side for outlays on fees. I invite the Government to consider that.

The Minister's reply does not wholly meet the point which we had in mind because, as I said, legislation by undertaking or even by, "what we intend to put in the order" gives rise to difficulties. I am not wholly clear why it should not be stated in the Bill because this is a principle which is not liable to change. As the noble Lord himself implied, it is the opposite of flexibility which we are seeking here. The problem with flexibility is that it is unpredictable. However, perhaps we should all reflect after this preliminary canter. I give no promises about my future good conduct, but at this stage I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (The Viscount of Oxfuird)

Amendment No. 246ZA has been substituted for Amendment No. 246.

Lord Lucas moved Amendment No. 246ZA: Page 54, line 9, at end insert— ("Transfer of cases from county court. 31C.—(1) Where in any proceedings before a court there falls for determination a question falling within the jurisdiction of a leasehold valuation tribunal under this Act, the court—

1. (a) may by order transfer to such a tribunal so much of the proceedings as relate to the determination of that question, and
2. (b) may then dispose of all or any remaining proceedings, or adjourn the disposal of all or any of such proceedings, pending the determination of that question by the tribunal, as it thinks fit.

(2) When the tribunal has determined the question, the court may give effect to the determination in an order of the court (3) Any such order shall be treated as a determination by the court for the purposes of section 78 of the Housing Act 1996 (restriction on termination of tenancy for failure to pay service charge). (4) Rules of court may prescribe the procedure to be followed in the court in connection with or in consequence of a transfer under this section.").

The noble Lord said: I spoke to this amendment with Amendment No. 243. I beg to move.

On Question, amendment agreed to.

[Amendment No. 246A not moved.]

Lord Meston moved Amendment No. 246AA: Page 54, line 12, after ("tenant") insert ("or recognised tenants' association").

The noble Lord said: I hope the intention of this amendment is obvious. It suggests that it will be useful if a recognised tenants' association, as defined in Clause 86 of the Bill, can make an application under the proposed new section, especially as a recognised tenants' association can appoint a surveyor for the purposes of Clause 81. I beg to move.

Lord Lucas

We would expect that most applications would be made by the tenants during the course of proceedings. It would be odd if a tenants' association needed to make a separate application at a later date. We have provided in the clause that one tenant can apply on behalf of everyone, so we do not see what advantage there would be in a recognised tenants' association also having this right. We therefore feel that this amendment is unnecessary as we have provided for its effect in Clause 79.

Lord Meston

I am grateful for the Minister's response to the amendment. I shall need to think about this but, in the meantime, I beg leave to withdraw the amendment

Amendment, by leave, withdrawn.

Clause 79, as amended, agreed to.

Clause 80 agreed to.

Schedule 4 agreed to.

[Amendment No. 246B not moved.]

9.15 p.m.

Clause 81 [Appointment of manager by the court]:

Lord Lucas moved Amendment No. 246C: Page 55, line 29, after ("made)") insert (", in paragraph (a) (breach of obligation by landlord), omit sub-paragraph (ii) (requirement that circumstances likely to continue). () In that subsection,").

The noble Lord said: In moving Amendment No. 246C, I should like to speak also to Amendments Nos. 246D to 246G, 247A, 248A to 248G, and 275A, and to refer in passing to Amendment No. 247B.

These amendments make a number of changes to Clauses 81, 82 and Schedule 5 to the Bill which establish the right of a tenant of a flat to apply to a leasehold valuation tribunal for the appointment of a manager on the grounds that the landlord is in some way failing in his management responsibilities. There are two changes of substance.

Amendments Nos. 246C, 248B and 275A concern the grounds for appointing a manager set out in the existing legislation; namely, that the landlord is in breach of his obligations under the lease and that this breach is likely to continue. The amendment deletes the second part of this condition which has been widely criticised by members of the Opposition in another place-and probably would have been criticised here if we had not removed it—and tenants' groups. This is because it allows the landlord to give assurances to the court that although he may have failed in the past, he will mend his ways and not do so in future. It is further suggested that the courts have often felt obliged to accept these assurances, such that there are very few cases of tenants ever succeeding in exercising this right.

The Government have considered those criticisms carefully. As my right honourable friend the Secretary of State for the Environment said at Report stage in another place, we have to consider the case where the freeholder was for some genuine reason not able to deliver a service in the past but can demonstrate that he will be able to do so in the future. He may therefore have genuine reasons for a temporary breach of his obligations. However, on reflection we believe that the tribunal will be in a position to take all such factors into account, particularly as the provisions in Part II of the Landlord and Tenant Act 1987 also require the tribunal to satisfy itself that it is just and convenient to make the order in all the circumstances of the case.

Also under the two additional grounds introduced by Clause 81, there is no such requirement for the tribunal to take account of the likely future behaviour of the landlord. This amendment therefore ensures a degree of consistency between the three grounds which the tribunal will have to consider, and should improve the chances of tenants succeeding in cases where a history of bad management can be demonstrated.

Amendments Nos. 247A and 248G will restrict the right of appeal in the cases from a leasehold valuation tribunal to a Lands Tribunal. An appeal will only be possible with the approval of either tribunal. This parallels the appeal procedures that we have introduced in relation to the new jurisdiction contained in Clause 79 of the Bill for leasehold valuation tribunals to determine the reasonableness of service charges. It is designed to deal with the possibility of the quite unacceptable intimidation of leaseholders by unscrupulous freeholders. It is well known that one of the means of intimidation used by some freeholders is to threaten their tenants that they will take every case to appeal, no matter what the strength of their argument, in the hope that the potential costs involved will deter the leaseholders from pursuing their case.

I note that the noble Lord, Lord Dubs, has tabled a similar amendment, Amendment No. 247B. I hope that he feels that our amendment, Amendment No. 247A, achieves the desired effect.

Finally, Amendments Nos. 246D to 246G, 248A, and 248C to 248F are minor drafting amendments to these provisions of the Bill, in relation to the application to a leasehold valuation tribunal for the appointment of a manager. I beg to move.

Lord Dubs

The noble Lord has put the case for Amendment No. 247B which stands in my name very well. He said that it is similar to Amendment No. 247A. My inspection of the two amendments suggests that it is identical, so the noble Lord could just as well accept my amendment as the government amendment. I am delighted that the noble Lord has put the case for the amendment and I suppose that he is at liberty to accept either of them.

On Question, amendment agreed to.

Lord Dubs moved Amendment No. 246CA: Page 56, line 13, at end insert— ("() In subsection (9) (applications to vary or discharge a management order) at beginning insert the words "Subject to subsection (9A)". () After subsection (9) insert— (9A) An order made under this section shall not be varied or discharged (whether conditionally or unconditionally) by the court on the application of the landlord unless the court is satisfied that the conduct of the manager appointed by the court under this section would have satisfied the conditions for the appointment of a manager contained in subsection (2) had the manager been the landlord.".").

The noble Lord said: The basic point of the amendment is not all that different from what the Minister said in relation to the previous amendment. When there is an order regarding management, in order that that should be discharged, it seems to me that it would be proper that the onus of proof should be somewhat different from the way it is in the Bill. That is to say, if it is right for fault to be established before the management can change, then that should apply equally to freehold landlords and leaseholders so that, if a landlord wishes the order to be discharged, there should be some onus of proof on him as to why the management was not proving effective. That makes it equal as between the situation before there was an order and when there is a request to have the order discharged.I hope that I have made that clear. The Minister looks rather puzzled. I beg to move.

Lord Lucas

On considering the amendment in detail, and, in particular, after listening to the eloquent words of the noble Lord, Lord Dubs, we are clear that the wording currently in the Bill needs looking at, particularly, as the noble Lord said, in relation to the amendments I have just moved, and to the arguments we accepted in that case, and to the potential which the wording in the Bill at the moment might give for an unscrupulous landlord merely to replace managers in never-ending succession, forcing tenants to start the whole procedure again. We do not feel comfortable with the amendment as drafted by the noble Lord, but we shall look at the matter again and write to him or take some suitable action before Report.

Lord Dubs

I thank the Minister for that. I am happy about that. I look forward to his eventual response when he has had a chance to consider the matter further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendments Nos. 246D and 246E: Page 56, line 14, leave out ("made") and insert ("for an order"). Page 56, line 15, after ("1987") insert ("which are made").

The noble Lord said: I spoke to both amendments with Amendment No. 246C. I beg to move.

On Question, amendments agreed to.

Clause 81, as amended, agreed to.

Clause 82 [Appointment of manager: transfer of jurisdiction to leasehold valuation tribunal]:

Lord Lucas moved Amendments Nos. 246F, 246G, 247 and 247A: Page 56, line 25, after ("context") insert ("in those sections"). Page 56, line 31, at end insert (", and (b) in paragraph (a), for "rules" substitute "regulations"."). Page 56, line 45, at end insert— ("() Procedure regulations may, in particular, make provision—

1. (a) for securing consistency where numerous applications under this Part are or may be brought in respect of the same or substantially the same matters; and
2. (b) empowering a leasehold valuation tribunal to dismiss an application, in whole or in part, on the ground that it is frivolous or vexatious or otherwise an abuse of the process of the tribunal.").

Page 57, line 11, at end insert— ("() No appeal shall lie to the Lands Tribunal from a decision of a leasehold valuation tribunal under this Part without the leave of the leasehold valuation tribunal concerned or the Lands Tribunal.").

The noble Lord said: I spoke to these amendments with Amendments Nos. 246C and 243. I beg to move.

On Question, amendments agreed to.

[Amendment No. 247B not moved.]

Lord Lucas moved Amendment No. 248: Page 57, line 31, leave out ("amount") and insert ("whole or part").

The noble Lord said: I spoke to this amendment with Amendment No. 243. I beg to move.

On Question, amendment agreed to.

Clause 82, as amended, agreed to.

Clause 83 agreed to.

Schedule 5 [Text of Part II of the Landlord and Tenant Act 1987, as amended]:

Lord Lucas moved Amendments Nos. 248A, 248B, 248C, 248D, 248E, 248F and 248G: Page 142, line 22, leave out ("rules") and insert ("regulations"). Page 142, leave out lines 40 and 41. Page 142, line 44, leave out ("court") and insert ("tribunal"). Page 142, line 49, leave out ("court") and insert ("tribunal"). Page 143, line 3, leave out ("court") and insert ("tribunal"). Page 143, line 37, leave out ("court") and insert ("tribunal"). Page 144, line 25, at end insert— ("() No appeal shall lie to the Lands Tribunal from a decision of a leasehold valuation tribunal under this Part without the leave of the leasehold valuation tribunal concerned or the Lands Tribunal.").

The noble Lord said: I spoke to these amendments with Amendment No. 246C. I beg to move.

On Question, amendments agreed to.

Schedule 5, as amended, agreed to.

Clause 84 agreed to.

Clause 85 [Notice required to be given by landlord making disposal]:

Viscount Caldecote moved Amendment No. 248H: Page 58, line 20, leave out ("two") and insert ("five").

The noble Viscount said: Before speaking to the amendment, I must declare an interest, in that I am a long leaseholder in a London flat and involvement in negotiations with the head lessor and the freeholder has brought home to me the chaotic state of the law in this area. The outcome of the amendments will not affect me in any way since the pass has already been sold under existing legislation.

In general, Government policy has been and still is to bring a more fair and sensible balance between long leaseholders and their superior landlords. Although during the past 10 years several Acts have made progress in that direction there are still loopholes in the law which seem to me to frustrate the broad intentions of Parliament.

A basic principle of this part of the Bill is that long leaseholders have a close interest in the property which is often his or her home and that interest is just as important as that of any superior landlord. In the case in which the superior landlord has made a relevant disposal of his interest in the property occupied by a long leaseholder, as defined in Section 11 of the Landlord and Tenant Act 1987, the latter is given certain rights, in particular the right of first refusal to buy the interest being sold.

In that connection I welcome the provisions of Clause 85(1), which go some way to closing a loophole in the existing law. Until now that has enabled a superior landlord to avoid his obligations by taking a share in the buying company and so making it an associated company as provided for in Section 4(1)(1) of the Landlord and Tenant Act 1987. However, the amendment to that section, which is contained in Clause 85 of the Bill, requires the interest in the associated company to have been held for two years. For a competent property company, planning two years ahead presents no difficulty but this could seriously jeopardise the exercise of the rights of the long leaseholder, who is often relatively inexperienced in these matters. Amendment No. 248H increases the period from two to five years, which will make it much more difficult for the superior landlord to avoid his obligations and will provide a fairer balance between the two parties involved.

I submit that only a slick property owner wanting to take advantage of the relative inexperience of long leaseholders can logically object to the amendment. It more accurately reflects the intentions of Parliament.

I hope that the Government will accept it. I beg to move.

Lord Coleraine

I support the amendment because on 20th May 1993 I moved an amendment to the Leasehold Reform, Housing and Urban Development Bill at the request of the residents of Harley House in the Marylebone Road. I pointed out the very same loopholes to which my noble friend has drawn attention. My noble friend Lord Strathclyde, on behalf of the Government, accepted that in five years they had not found a way to fill them in. He said that he would like to do what he could to continue to examine the issue until a solution was found. The solution provided in the Bill by the Government goes a little way, but only a very little way, towards solving the problem of those loopholes. Nevertheless, it must be accepted in good faith and, if my noble friend's amendment can be accepted, that will be a further step forward.

9.30 p.m.

Lord Lucas

I very much appreciate what my two extremely experienced noble friends have said on this matter. This is clearly a problematic area and it is also clearly an area which is likely to remain problematic, since, if one were to go the whole hog in preventing such activities, one would freeze up the entire structure of property companies which own leasehold properties and might go so far as to prevent trading in the shares of a public company which happened to own a leasehold property somewhere in its tentacles.

It is necessary for us to strike a practical balance between doing the best that we can as regards the protection of leaseholders without hindering genuine corporate restructuring activity. Although I sympathise with my noble friend's desire to make things more difficult for people who wish to avoid the provisions of the 1987 Act, we believe that Amendment No. 248H would go too far in inhibiting the commercial freedom of bona fide associated companies. I appreciate that this is a matter of fine judgment but I hope that my noble friend will withdraw the amendment.

Viscount Caldecote

I understand what my noble friend says. As he says, it is a fine balance. My view is that the balance is tipped too far in the direction of an experienced property owner but, as he says, it is a fine distinction. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 248J to 250 had been withdrawn from the Marshalled List.]

Clause 85 agreed to.

Lord Lucas moved Amendment No. 251: After Clause 85, insert the following new clause— PART I OF THE LANDLORD AND TENANT ACT 1987: PROCEDURAL CHANGES (".—(1) In section 5 of the Landlord and Tenant Act 1987, after subsection (2) insert— (2A) Where a landlord has, in accordance with this section, served an offer notice on the qualifying tenants of the constituent flats, he shall not during—

1. (a) the period specified in the offer notice under subsection (2)(c), or
2. (b) such longer period beginning with the date of service of that notice as may be agreed between him and the requisite majority of such tenants,

dispose of the protected interest except to a person or persons nominated for the purposes of section 6 by the requisite majority of such tenants. (2) In section 6 of that Act (acceptance of landlord's offer)— (a) for subsection (2) substitute— (2) In this section "the relevant period" means—

1. (a) the period beginning with the date of service of the acceptance notice and ending with the end of the period specified in the offer notice under section 5(2)(d), or
2. (b) such longer period beginning with that date as may be agreed between the landlord and the requisite majority of qualifying tenants of constituent flats."; and.

(b) in subsection (3), for "the period so specified" substitute "the relevant period". (3) For sections 7 and 8 of that Act substitute— "Rejection of landlord's offer. 7. Where—

1. (a) a landlord has, in accordance with section 5, served an offer notice on the qualifying tenants of the constituent flats, and
2. (b) an acceptance notice is not served on the landlord by the requisite majority of qualifying tenants of the constituent flats within—
1. (i) the period specified in the offer notice under section 5(2)(c), or
2. (ii) such longer period beginning with the date of service of that notice as may be agreed between the landlord and that majority of such tenants,

the landlord may, during the period of 12 months beginning with the end of that period, dispose of the protected interest to such person as he thinks fit, but subject to the restrictions mentioned in section 6(3)(a) and (b). Landlord's response to notice of nomination. 8.—(1) This section applies where—

1. (a) section 6(1) applies to a landlord, and
2. (b) any person has been nominated for the purposes of section 6 by the requisite majority of qualifying tenants of the constituent flats within the period specified by the landlord in his offer notice under section 5(2)(d).

(2) The landlord shall, within the period of one month beginning with the date of service of notice of the nomination, either—

1. (a) serve notice on the nominated person indicating an intention no longer to proceed with the disposal of the protected interest, or
2. (b) send to that person the requisite contract, that is to say, a form of contract for the acquisition of that interest which includes the principal terms particulars of which were contained in the landlord's offer notice under section 5(2)(a).

(3) If the landlord—

1. (a) serves notice in pursuance of paragraph (a) of subsection (2), or
2. (b) fails to send the requisite contract to the nominated person within the period specified in that subsection,

sections 6(8) and 9(4) to (6) shall apply as if the notice were served in pursuance of section 9(4) or, as the case may require, a notice in pursuance of section 9(4) were served at the end of that period. (4) If the landlord sends the requisite contract to the nominated person within the period specified in subsection (2), that person shall, within the period of two months beginning with the date on which it is sent or such longer period beginning with that date as may be agreed between the landlord and that person, either—

1. (a) serve notice on the landlord indicating an intention no longer to proceed with the acquisition of the protected interest, or
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2. (b) offer an exchange of contracts, that is to say, sign the contract and send it to the landlord, together with his remittance for the requisite deposit;

and in this subsection "the requisite deposit" means a deposit of an amount determined by or under the contract or an amount equal to 10 per cent of the consideration, whichever is the less. (5) If the nominated person—

1. (a) serves notice in pursuance of paragraph (a) of subsection (4), or
2. (b) fails to offer an exchange of contracts within the period specified in that subsection,

sections 6(8) and 9(1), (5) and (6) shall apply as if the notice were served in pursuance of section 9(1) or, as the case may require, a notice in pursuance of section 9(1) were served at the end of that period. (6) If—

1. (a) the nominated person offers an exchange of contracts within the period specified in subsection (4), but
2. (b) the landlord fails to complete the exchange within the period of 7 days of beginning with the day on which he received that person's contract,

sections 6(8) and 9(4) to (6) shall apply as if a notice in pursuance of section 9(4) were served at the end of that period. (7) Except in a case falling within subsection (5) or section 9(1) or 10, the landlord shall not dispose of the protected interest except to the nominated person. (8) Nothing in subsection (7) shall be taken as prejudicing the application of this Part in any case where, in accordance with the provisions of section 5, the landlord serves a subsequent offer notice on the qualifying tenants of the constituent flats. (9) Nothing in this section applies where a binding contract for the disposal of the protected interest has been entered into by the landlord and the nominated person. (4) In consequence of subsection (3)—

1. (a) in section 6(9) of that Act (acceptance of landlord's offer), in the definition of "the protected interest", omit "(subject to section 9(9))";
2. (b) in subsection (1)(a) of section 9 of that Act (withdrawal of either party from transaction), omit "by virtue of any provision of sections 6 to 8";
3. (c) in subsection (1)(b) of that section, omit the words in parentheses;
4. (d) in subsection (9) of that section, omit the definition of "the protected interest";
5. (e) in section 10 of that Act (lapse of landlord's offer), for subsection (4) substitute—

(4) Where—

1. (a) in the case of a landlord to whom section 6(7) applies—
1. (i) the landlord has discharged any duty imposed on him by that provision, and
2. (ii) any such consent as is there mentioned has been withheld, and
3. (iii) no such declaration as is there mentioned has been made, and
2. (b) the landlord serves a notice on the nominated person stating that paragraph (a) above applies,

the landlord may, during the period of 12 months beginning with the date of service of the notice, dispose of the protected interest to such person as he thinks fit, but subject to the restrictions mentioned in section 9(2)."; (f) in section 11(1)(b) (duty of new landlord to furnish particulars etc.), for "sections 6 to 10" substitute "sections 5 to 10"; and (g) in section 20(1) (construction of Part I etc.), in the definition of "the protected interest", omit "(subject to section 9(9))".").

The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 252, 253, 254, 275 and 277. These are extensive and important amendments and I make no apology for the fact that I shall take some time to describe them. I do that to enable noble Lords who do not wish to stay too late this evening to be able to read a full description of our intention in Hansard with a view to returning to us with critical eyes on Report.

These amendments concern the right of first refusal, which is set out in Part I of the Landlord and Tenant Act 1987. Some of these amendments have been drafted to fulfil commitments given in another place, and others have been inspired by responses to the Department of the Environment's consultation exercise.

It may help the Committee if I describe the right of first refusal and how our proposals to curb abuses of this right fit into the rest of Chapter I of Part III. The right of first refusal requires that a landlord wishing to sell his interest in a block of flats must first offer it to the qualifying tenants, which includes both leaseholders and regulated tenants. If he fails to do this, the tenants have a right to buy that interest from the purchaser at the price he paid. I should clarify here that the relevant interest is the one immediately superior to that of the residents of the flats: this will often be the freehold, but is sometimes a headlease.

The Committee may recall that Part I of the 1987 Act arose from the work of the Nugee Committee, which reported in 1985. Although it constrained the previous rights of landlords to sell freely, the principle was accepted in many quarters: the British Property Federation, for example, had already given guidance to its members suggesting that they should offer the residents first refusal when disposing of blocks of flats.

The assumption was, no doubt, that as the price was the same, the freeholder would be as happy to sell to the tenants as to a third party. In the Act's passage through Parliament, no one suggested that landlords might not fulfil their obligations: the right to buy from the purchaser was perhaps thought to be a sufficient safeguard. In this context, penalties for failing to offer the right might be considered superfluous.

The Committee will have noted that the Government have withdrawn Amendments Nos. 249 and 250. The reason is that we need to give further thought to how they are drafted. Clause 85 of the Bill creates a criminal offence if a landlord makes a relevant disposal without first having served notices on the qualifying tenants under Section 5 of the Landlord and Tenant Act 1987 offering them his interest in their blocks of flats.

Amendment No. 249 defines the moment when the offence introduced by Clause 85 is crystallised as exchange of contracts. The drafting of that amendment also implied that a relevant disposal itself took place on the conveyance of the landlord's interest. The 1987 Act itself does not define at which stage in the transfer of a property the relevant disposal is made: but the introduction of the criminal offence makes it essential that we do so now, at least for the purposes of determining when the offence is committed.

The Department of the Environment will be considering whether to define a relevant disposal as exchange of contracts (when equity is transferred) or conveyance (when the legal interest is transferred). We should be grateful for views on that point should any spring immediately to the minds of Members of the Committee. If not, noble Lords may care to write to us. We shall return to the matter on Report.

I turn now to Amendment No. 251 which makes changes to the procedures to be followed once the right of first refusal process has been set in motion. Subsection (1) closes a loophole which might become attractive to unscrupulous landlords once failure to serve notices becomes a criminal offence. Without that provision a landlord could serve the notices required to offer the right, thus staying within the law, but frustrate the Act by selling to his preferred purchaser before the tenants have had a chance to reply.

Subsection (2) is consequential to subsection (3) and also allows the "relevant period" between the service of the tenants' acceptance notice and the end of the time allowed for the tenants to nominate a purchaser to be extended by agreement. Subsection (3) itself introduces new procedures to be followed after the service of notices by the landlord. New Sections 7 and 8 are substituted into the 1987 Act by Amendment No. 251. The existing Sections 7 and 8 provide for the tenants to reject the landlord's offer and make a counter-offer, and for the landlord to make a fresh offer and conduct further negotiations. That procedure in the 1987 Act appears reasonable but is a trap for tenants.

The nature of the trap is that even if the tenants make a counter-offer, their landlord can treat the rejection of his original offer as final and may then sell his interest elsewhere, although on no better terms than were offered to the tenants. Our new procedure in new Sections 7 and 8, as set out in Amendment No. 251, works on the principle of advance or withdraw. Once the tenants have nominated their purchaser, the procedures in new Section 8 require contracts to be offered and exchanged, any deposit to be paid, and the transaction completed, within certain time limits. If the parties wish to negotiate, the time limits can be extended by agreement. The alternative is for the party whose turn it is to respond to withdraw. If either the landlord or the tenants' nominee withdraws, that party is liable for certain of the costs incurred by the other. The costs incurred are those which have accrued subsequent to the date which is four weeks after the tenants have nominated their purchaser.

The system to be introduced by Amendment No. 251 eliminates, in consequence, other provisions in the 1987 Act which allow the process to lapse without requiring the parties to enter into a contract. The misuse of Section 10(4)(b), for example, has been a source of great frustration for tenants. A landlord can engineer the lapse of the process by failing to enter into a binding contract within three months of the end of the period for nominating a purchaser. I therefore believe that the new procedures set out in Amendment No. 251 will both simplify the process of the right of first refusal and bring certainty to the outcome.

I turn now to deal with Amendment No. 252. Members of the Committee will be aware that if the landlord sells his interest without first offering to the tenants, the tenants have a right to buy from the new landlord at the price he paid, using the provisions in Sections 11 to 17 of the 1987 Act. Amendment No. 252 will assist tenants by extending the time limits which apply when they wish to exercise their right to buy from a new landlord or respond to notices served by a prospective new landlord under Section 18 of the 1987 Act.

There is a statutory requirement under Section 3 of the Landlord and Tenant Act 1985 for any new landlord to inform his tenants that the vendor's interest has been assigned to him. At present, Section 11 of the 1987 Act says that after the service of a Section 3 notice, or some other notice if Section 3 does not apply, the tenants have either two months to ask the new landlord for information about the terms of the disposal or three months to serve a purchase notice on the new landlord.

Under our new proposals, which are set out in Clause 86, the new landlord must also serve a notice under new Section 3A of the Landlord and Tenant Act 1985 on all qualifying tenants if the sale was within the scope of the 1987 Act. The time limits for serving a Section 3A notice are the same as for serving a Section 3 notice; in practice, we would expect them to be served simultaneously. It is already an offence to fail to serve a Section 3 notice, and it will also be an offence to fail to serve a Section 3A notice.

The Section 3A notice must say that the disposal was one to which the 1987 Act applied; that the tenant may have rights to obtain information and to acquire the new landlord's interest; and that the time limits for action start once a requisite majority of tenants have received the notice. And it must say what those time limits are.

Amendment No. 252 doubles the limits to four months for the tenants to serve notice and six months for the tenants to serve a notice of purchase on the new landlord. The clock will now start running from the service of a Section 3A notice which, as I said, will set out the tenants' rights. We believe that it is entirely reasonable to give tenants extra time to exercise their rights.

I should remind Members of the Committee that the new landlord has only obtained the property because the sale to him was in contravention of the principal provisions of Part I of the 1987 Act. We do not think that he is therefore in a position to complain if we give the tenants further rights against him.

The Committee will be aware of the problem that arose when the Henry Smith charity sold properties to the Wellcome Foundation. We hope that Amendment No. 252 will curtail the abuses that followed on that occasion. Amendment No. 254 is consequential to Amendment No. 252. Amendment No. 253 applies the right of first refusal in three special cases. These are disposals by auction, disposals for non-monetary consideration, and disposals in pursuance of options or rights of pre-emption. These have all been the subject of abuse and I hope that the Committee will agree, on studying the wording of this amendment, which I think is fairly self-explanatory, that we have dealt with these three cases in a reasonable way.

As regards the remaining amendments in this group, Amendment No. 275 makes consequential changes in Schedule 16. Amendment No. 277 changes the commencement because we will require transitional provisions which will be more conveniently made by order. This package amounts to a considerable strengthening of the right of first refusal. We have taken account of the experience of those who have been used to the existing legislation. Where there appear to have been gaps in the earlier scheme, we have brought forward changes. I hope that the clarification and tightening-up will be helpful to both landlords and tenants. It will be more difficult for landlords to ignore their obligations, and more difficult for them to defeat a tenant's bid by finding a loophole. I beg to move.

Lord Dubs

I listened carefully to the Minister's detailed exposition. He will appreciate that I think most of us will need to look at his words in Hansard before we can reach a full assessment of the position. My instincts tell me that these amendments represent a change for the better. However, I should like to reach a final conclusion when I have had a chance to consider in detail what the Minister said this evening.

Lord Coleraine

I found the amendments on the Marshalled List extremely difficult to understand. I look forward with great interest to reading my noble friend's contributions. I have one question to ask him. The consultation papers from the Department of the Environment were issued at a late stage. As far as I recollect, what was envisaged at the time was that only the parts of the amendments which needed to be dealt with by legislation would be dealt with; that is to say, the penal sanctions. At that time the proposal was that the remaining amendments to Part I of the 1985 Act would be dealt with under a Henry VIII clause contained in that part. I am, of course, delighted to find that so much of what was envisaged at that time is already contained in the amendments before us today. Are there any further amendments arising out of the consultation papers which remain to be dealt with under the Henry VIII provisions, or have the Government done in these amendments all that they thought needed to be done?

Lord Lucas

Indeed, there are no further amendments to be made under that heading. These days Henry VIII clauses are only allowed in Opposition amendments.

Lord Strabolgi

I wish to congratulate the Government on Amendment No. 252 which the noble Lord, Lord Lucas, said was to tighten up the matter involved in the Smith charity's sale to the Wellcome Foundation. If I remember rightly, it got round the situation by serving notice over the weekend when it knew that it would not be delivered. I am sure that what the Government have done will tighten up the position. Let us hope that the landlords' too clever by half lawyers will not be working on the legislation to find further loopholes. At present it looks to me satisfactory. I am very glad that the Government have taken the issue in hand and recognised the scandal, for scandal it was.

Lord Monkswell

I thank the Minister for his detailed explanation. It may be pertinent to point out that this Bill has been through another place. It has been through quite a lot of parliamentary business already. An amendment of this complexity at this stage of the Bill's procedures seems a little tardy. It would assist parliamentary consideration if such an amendment could be included within the Bill at an earlier stage.

Lord Lucas

High as our opinion may be of our own deliberations, we must allow that occasionally another place will have good ideas and will impress them upon the Government. In that case, as in this instance, the Government will have to bring forward amendments when the Bill reaches this House.

On Question, amendment agreed to.

9.45 p.m.

Lord Lucas moved Amendment No. 252: After Clause 85, insert the following new clause— PART I OF THE LANDLORD AND TENANT ACT 1987: OTHER AMENDMENTS (".—(1) In section 11 of the Landlord and Tenant Act 1987 (duty of new landlord to furnish particulars of disposal), for subsection (2) substitute— (2) The period referred to in subsection (1) is the period of four months beginning with the date by which—

1. (a) notices under section 3A of the Landlord and Tenant Act 1985 (in this Act referred to as "the 1985 Act") relating to the original disposal, or
2. (b) where that section does not apply, documents of any other description indicating that the original disposal has taken place,

have been served on the requisite majority of qualifying tenants of the constituent flats. (2) In section 12 of that Act (right of qualifying tenants to compel sale etc)—

1. (a) in subsection (2)(a) and (b), for "three months" substitute "six months"; and
2. (b) after subsection (3) insert—

(3A) Without prejudice to the generality of subsection (3), a purchase notice—

1. (a) shall require so much of the consideration for the original disposal as did not consist of money to be treated as such amount in money as was equivalent to its value in the hands of the landlord; and
2. (b) may provide for any such amount in money to be determined by a rent assessment committee in accordance with section 13."

(3) In section 13(1)(b) of that Act (determination by rent assessment committees of questions relating to purchase notices), after "section 12(3)(b)" insert "or (3A)(b)". (4) In section 18(3)(a) of that Act (notices served by prospective purchaser), for "28 days" substitute "two months". (5) Before section 19 of that Act under the heading "Supplementary" insert— "Application of Part Ito special cases. 18A. Schedule 1A (which provides for the application of this Part to special cases) shall have effect. (6) After Schedule 1 to that Act insert, as Schedule 1A, the provisions set out in Schedule (Schedule 1A to the Landlord and Tenant Act 1987) to this Act.").

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 253: After Schedule 5, insert the following new schedule— ("SCHEDULE SCHEDULE 1A TO THE LANDLORD AND TENANT ACT 1987 "SCHEDULE 1A APPLICATION OF PART I TO SPECIAL CASES Disposals by auction 1.—(1) This paragraph applies where, in any case to which section 5 applies, the landlord proposes to make the relevant disposal by means of a sale at a public auction held in England and Wales. (2) Section 5 shall have effect as if, in subsection (2)— (a) for paragraphs (a) and (b) there were substituted— (a) contain particulars of the principal terms of the disposal proposed by the landlord, including in particular the property to which it relates and the estate or interest in that property proposed to be disposed of; (aa) state that the disposal is proposed to be made by means of a sale at a public auction; (ab) state the effect of paragraph 1 of Schedule 1A and of any election made under that paragraph; (b) state that, accordingly, the notice constitutes an offer by the landlord, which may be accepted by the requisite majority of qualifying tenants of the constituent flats, for the contract (if any) entered into by the landlord at the auction to have effect as if a person or persons nominated by them, and not the purchaser, had entered into it;"; and. (b) in paragraph (d), for "two months" there were substituted "28 days". (3) The notice under section 5 must be served not less than four months, nor more than six months, before the date of the auction and—

1. (a) the period specified in the notice under section 5(2)(c) must end not less than two months before that date; and
2. (b) the period specified in the notice under section 5(2)(d) must end not less than 28 days before that date.

(4) Unless the time and place of the auction and the name of the auctioneers are stated in the notice under section 5, the landlord shall, not less than 28 days before the date of the auction, serve on the requisite majority of qualifying tenants of the constituent flats a further notice stating those particulars. (5) Section 6 shall have effect as if, in subsection (3), for paragraph (a) there were substituted— (a) that the disposal is made by means of a sale at a public auction;". (6) Section 8 shall have effect as if subsections (2) to (6) and (9) and, in subsection (7), "subsection (5) or" were omitted. (7) Section 9 shall have effect as if, in subsection (2), for paragraphs (a) and (b) there were substituted—

1. "(a) that the disposal is made by means of a sale at a public auction, and
2. (b) that the other terms on which the disposal is made must correspond to those specified in the offer notice."

(8) A person nominated for the purposes of section 6 by the requisite majority of qualifying tenants of the constituent flats may, by notice served on the landlord not less than 28 days before the date of the auction, elect that sub-paragraphs (9) to (12) shall apply; and if such an election is made, those sub-paragraphs shall apply accordingly. (9) If a contract for the disposal is entered into at the auction, the landlord shall, within the period of 7 days beginning with the date of the auction, send a copy of the contract to the nominated person. (10) If, within the period of 28 days beginning with date on which such a copy is so sent, the nominated person—

1. (a) serves notice on the landlord accepting the terms of the contract; and
2. (b) fulfils any conditions falling to be fulfilled by the purchaser on entering into the contract,

the contract shall have effect as if the nominated person, and not the purchaser, had entered into the contract. (11) Nothing in the contract as it has effect by virtue of sub-paragraph (10) shall require the nominated person to complete the purchase before the end of the period of 28 days beginning with the day on which he is deemed to have entered into the contract. (12) Sections 11 to 17 shall have effect as if the reference in section 11(1)(b) to any provision of sections 6 to 10 included a reference to any provision of this paragraph. (13) If a person nominated for the purposes of section 6 by the requisite majority of qualifying tenants of the constituent flats—

1. (a) does not serve notice on the landlord under sub-paragraph (8) within the period there mentioned; or
2. (b) does not satisfy the requirements of sub-paragraph (10) within the period there mentioned,

sections 6(8) and 9(1) shall apply as if a notice in pursuance of section 9(1) were served at the end of that period. Disposals for non-monetary consideration 2.—(l) This paragraph applies where, in any case to which section 5 applies, the consideration required by the landlord for making the disposal does not consist, or does not wholly consist, of money. (2) Section 5 shall have effect as if, in subsection (2)— (a) after paragraph (b) there were inserted— (bb) state the effect of paragraph 2 of Schedule 1A and of any election made under that paragraph; (be) state that, accordingly, the notice also constitutes an offer by the landlord, which may be accepted by the requisite majority of qualifying tenants of the constituent flats, for a person or persons nominated by them to acquire the property in pursuance of sections 11 to 17;"; (b) in paragraph (c), for "that offer" there were substituted "either offer"; and (c) in paragraph (d), after "which", in the first place where it occurs, there were inserted "(where the offer stated under paragraph (b) is accepted)". (3) Section 6 shall have effect as if, in subsection (1)(b), for "the offer contained in his notice" there were substituted "the offer stated in his notice under section 5(2)(b)". (4) If, within the section 5(2)(c) period, the requisite majority of qualifying tenants of the constituent flats accept the offer stated in that notice under section 5(2)(bc)—

1. (a) section 8 shall not have effect, and
2. (b) that majority of such tenants may, by notice served on the landlord within the section 5(2)(d) period, elect that sub-paragraph (6) shall apply;

and if such an election is made, that sub-paragraph shall apply accordingly. (5) In sub-paragraph (4)— the section 5(2)(c) period" means—

1. (a) the period specified in the offer notice under section 5(2)(c), or
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2. (b) such longer period beginning with the date of service of that notice as may be agreed between the landlord and the requisite majority of qualifying tenants of the constituent flats;

the section 5(2)(d) period" means—

1. (a) the period beginning with the date of service of the acceptance notice and ending with the end of the period specified in the offer notice under section 5(2)(d), or
2. (b) such longer period beginning with that date as may be so agreed.

(6) If the landlord disposes of the protected interest without contravening section 6(3)(a) and (b), sections 11 to 17 shall also have effect as if—

1. (a) no notice under section 5 had been served;
2. (b) in section 11(2), the reference to four months were a reference to 28 days;
3. (c) in section 12(2), each reference to six months were a reference to two months.

Disposals in pursuance of options or rights of pre-emption 3. Where—

1. (a) paragraphs (a) and (b) of section 11(1) apply to a relevant disposal affecting any premises to which at the time of the disposal this Part applied ("the original disposal"), and
2. (b) those premises are still premises to which this Part applies, and
3. (c) the original disposal was the grant of an option or right of pre-emption, and
4. (d) in pursuance of the option or right, the landlord makes another disposal affecting the premises ("the later disposal") before the end of the period specified in section 12(2),

sections 11 to 17 shall have effect as if the later disposal, and not the original disposal, were the relevant disposal."").

On Question, amendment agreed to.

Clause 86 [Duty of new landlord to inform tenant of rights]:

The Deputy Chairman of Committees (The Viscount of Oxfuird)

In calling Amendment No. 254 I have to advise the Committee that should this amendment be agreed to, I cannot call Amendment No. 254ZA due to pre-emption.

Lord Lucas moved Amendment No. 254: Page 59, line 44, leave out subsection (2).

The noble Lord said: I spoke to this amendment when moving Amendment No. 251. However, I am conscious that I shall pre-empt an amendment in the name of my noble friend Lord Caldecote. If he wishes to say something on his amendment, perhaps that will be convenient.

Viscount Caldecote

I, too, found the amendments proposed by my noble friend complex and difficult to follow. In his excellent explanation he covered a lot of ground in a relatively short time. I am not quite clear now whether the amendment in my name is necessary. However, the point I wish to make is that the period of two months specified in Section 11(2) of the Landlord and Tenant Act, now incorporated in Clause 86 of the Bill, is far too short a period for notice of disposal.

Perhaps I may give one example. Let us suppose that that notice is served in mid-July or mid-December. It is quite impossible in practice to inform all the tenants involved in time for them to take legal advice on the course of action they wish to take.

I may not quite have understood the amendments my noble friend moved and which have been passed. My amendment may not be necessary. However, I should be grateful for an explanation.

Lord Lucas

I can give my noble friend the comfort that the effect of his amendment is subsumed in Part I of Amendment No. 252. Therefore, effectively we have accepted his amendment by proposing ours. I beg to move.

On Question, amendment agreed to.

[Amendment No. 254ZA not moved.]

Clause 86, as amended, agreed to.

Lord Meston moved Amendment No. 254ZAA: After Clause 86, insert the following new clause— PROTECTION FROM EVICTION: INVESTIGATION OF OFFENCES (" . After section 6 of the Protection from Eviction Act 1977 there shall be inserted— "Investigation of offences. 6A. It shall be the duty of every local housing authority to investigate alleged offences contrary to this act within their administrative area.".").

The noble Lord said: In moving this amendment, perhaps I may speak also to Amendments Nos. 254ZAB and 254ZAC. The amendments seek to reinforce the Protection from Eviction Act 1977. Under Section 6 of that Act a local authority has the power to prosecute persons for offences of harassment and/or illegal eviction. However, it is only a power. The fact is that some local authorities do nothing and the reinforcement which the first of the three amendments seeks to introduce is to provide that local authorities should have a duty to investigate potential offences under the Act.

In the third of the group of amendments, Amendment No. 254ZAC seeks to add to the category of persons on whom notice may be served under Section 7(1)(b) of the Protection from Eviction Act 1977: any person presently or previously authorised to arrange for the letting of the premises; or … any person currently engaged in the management of the premises".

It is designed to deal with the problem of shifting landlords. As drafted, Section 7(1) of the 1977 Act enables a local authority to demand from the agent or persons named in the receipt of rent to supply information relating to the name and address of the landlord.

The amendment proposes that the requirement should be extended to cover any persons engaged in the arrangements for letting or managing a property. Of course, there is a sanction within the 1977 Act for non-compliance with a notice, but that sanction does not apply if the person upon whom the notice is served can show to the satisfaction of the court that he did not know and could not, with reasonable diligence, have ascertained the facts required by the notice to be disclosed. I suggest that this is a sensible amendment adding to the range of powers under the 1977 legislation.

Finally, Amendment No. 254ZAB seeks to give additional powers of entry to enable tenancy relations officers to make inquiries to establish whether an offence has been committed within the terms of the 1977 Act. At present, officers are frustrated in their duties by their limited powers of entry. I suggest that even outside the provisions of this Bill, the improvements—which I believe they are—to the 1977 Act have considerable merit. In the context of the Bill and the deregulation which it proposes, it is essential that tenants' remaining rights should be protected as much as possible by conferring on local authorities the necessary statutory powers to make appropriate inquiries. I beg to move.

Lord Dubs

I am very much in sympathy with what the noble Lord, Lord Meston, seeks to do in the amendments. Perhaps I may put to him some questions about Amendment No. 254ZAB and the powers of entry. I am concerned that we should have adequate safeguards for homes which officials might want to enter, no matter how good the motive. Are these likely to be residential premises as well as business premises? What would be reasonable grounds for suspecting that an offence under the Act had been committed? How much evidence would the local authority official have to have to indicate that there were reasonable grounds for suspicion and therefore for obtaining entry into someone's home? The right is not something that we should give away too lightly. Although I am aware that many officials have rights of entry to people's homes, I wish to be satisfied that there are sufficient safeguards of the power.

Lord Mackay of Ardbrecknish

The noble Lord's Amendment No. 254ZAA would impose a new duty on local authorities to investigate alleged offences under the Protection from Eviction Act 1977. I start by assuring the Committee that the Government agree that landlords who harass or illegally evict their tenants should be dealt with severely by the law. That is why we introduced tough new sanctions against bad landlords in the Housing Act 1988.

However, in considering the noble Lord's proposals it is important to put the problem in context. The survey of English housing reports that three-quarters of tenants say they are on good terms with their landlords; one-fifth are on neither good nor bad terms; and only 4 per cent. say they are on bad terms with their landlords. It does not follow that just because the tenant is on indifferent or bad terms with the landlord he or she is at risk of harassment or illegal eviction.

I am aware of a report published by the Campaign for Bedsit Rights in 1994 which states that 9 per cent. of all privately renting tenants face harassment. However, it is important to put this statistic in its proper context. The figure comes from the OPCS survey of private renters in 1990. Seven per cent. of tenants had simply reported that their landlord had made them feel uncomfortable at some time and want to leave. But this does not necessarily indicate that the landlord was guilty of harassment. There may just have been a poor personal relationship between them or the tenant may have felt uncomfortable when asked for the rent or approached about some other aspect of the tenancy agreement.

These statistics indicate that it is only a very small minority of landlords who are likely to harass their tenants or take illegal action to get them to move. However, I can assure the Committee that I do not underestimate the distress that such behaviour must cause to tenants who are subjected to it.

Local authorities already have a power under Section 6 of the Protection from Eviction Act 1977 to institute proceedings where an alleged offence under the Act has taken place. I have difficulty with the noble Lord's amendment, which would require local authorities to investigate every allegation of harassment. Local authorities' current powers allow them to take action where they believe that an offence may have taken place but do not require them to get involved where, for example, the tenant is alleging harassment simply because the landlord has repeatedly asked for rent arrears to be paid or where the tenant is known to be a trouble-maker. We believe that it is essential that local authorities should retain their existing discretion to act. The noble Lord's amendment would place an unacceptable burden on local authority staff and budgets.

The noble Lord's Amendment No. 254ZAB would give local authorities specific powers of entry to the property where the alleged offence had taken place and to the landlord or managing agents' business premises to collect evidence in connection with the alleged offence. It also provides for entry by force. Local authorities do, of course, have powers to enter premises for specific inspection purposes in connection with their duties to enforce environmental health and fitness standards. However, I share the reservations expressed by the noble Lord, Lord Dubs, that the noble Lord's amendment would represent a pretty substantial extension of those powers. Such powers are generally available only to the police to investigate criminal offences, and even then strict rules and checks are applied before entry is authorised.

Proposals to give new powers of entry are scrutinised carefully by the Home Office. A new power of entry is approved only if it is clear that it is a vital element in enforcing the law and that the consequences to the public of not having that power would be serious. I do not believe that is the case for the type of offences we are talking about where there is unlikely to be much documentary evidence that an offence has been committed. I do not underestimate the seriousness of the offences we are talking about. However, I do not believe that the situation calls for the very striking extension of local authority powers that is proposed.

The noble Lord's Amendment No. 254ZAC would extend the existing notice requirement in Section 7 of the Protection from Eviction Act 1977 for disclosure of the landlord's name and address to cover anyone arranging the letting of the property or managing the property. I do, of course, accept that the tenant, or someone acting on the tenant's behalf, should have the right to know who the landlord is and how he can be contacted. The law already requires whoever is collecting the rent, where it is not the landlord himself, to disclose the name and address of the landlord if a notice under Section 7 is served on him or her to do so. I think we can confidently assume that a landlord will appoint someone to collect the rent if he cannot do so himself. This amendment would therefore seem to me to be unnecessary.

In view of the difficulties I have outlined and the assurances I have given in relation to the existing position, I hope that the noble Lord will feel able to withdraw his amendments.

10 p.m.

Lord Meston

I do not intend to press any of the amendments at this stage but I wish to comment on some of the points made by the Minister. I do not dispute that the great majority of tenants would neither need nor want to invoke the powers which presently exist under the 1977 Act or which are proposed by way of extension in these amendments. But, as I believe he recognises, the problem is a few hard cases involving elusive landlords who may move on, move away or hide away and who need to be tracked down. It is principally for that purpose that we seek to extend the net slightly by Amendment No. 254ZAC.

With regard to the point raised by the noble Lord, Lord Dubs, I accept his instinctive concern about extending any power of entry into private premises, whether they be business or domestic premises, and I must accept that in some circumstances a place of business can also be a place of residence. That is inescapable. The fact is that concern about powers of entry—I remember that they were discussed at length during the passage through this House of the Child Support Act—always emerges when a provision of this kind is suggested. Usually the reassurance has to be given that the power will only be exercisable when there are reasonable grounds to believe that an offence has been committed—that is covered by this amendment—and, of course, that only responsible officers of the local authority or the authority which happens to be invested with the powers provided will be entitled to exercise those powers. But the necessity for these powers, I maintain, is still apparent. I suggest that they are a necessity to give some further teeth to the Protection from Eviction Act to enable local authorities to glean information as to the identity of elusive landlords and the way in which they conduct their business.

As I said, I do not propose to press any of the amendments at this stage. I reserve the right to come back at a later stage. Meanwhile I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 254ZAB and 254ZAC not moved.]

Clause 87 [Provision of general legal advice about residential tenancies]:

Lord Dubs moved Amendment No. 254A: Page 60, line 16, at end insert (", or (c) any aspect of good management practices to be adopted in the running of flat management companies").

The noble Lord said: The purpose of this amendment, tabled in my name and the name of the noble Lord, Lord Meston, is to extend the scope of the Department of the Environment's existing commitment to providing information on enfranchisement and estate management schemes to include advice for self-managed blocks of flats on good management practice.

It is clear that flat management is not an easy task. It requires people to accept wide responsibilities, show a sense of commitment and expend a lot of energy in order to carry out the management function. I say that not from personal experience but having heard it from friends who are in that situation.

The commitment given under the 1993 Act to co-fund the Leasehold Enfranchisement Advisory Service was expanded to provide general legal advice about residential tenancies including estate management schemes. However, no commitment is given to providing general advice and assistance on good management practice to groups of leaseholders once they have bought their freehold. Those are the people who have the responsibility to oversee the management.

It has been demonstrated on a number of occasions that the willingness of the residents to get involved and not the nature of the building itself is the key factor in the success of a flat management company. The ability and motivation of the members is therefore crucial, and in order that that can happen effectively there needs to be access to impartial advice. After all, many of the residents in flats find themselves with a management responsibility possibly for the first time. It is not something for which they can plan in advance. Once they achieve the position of being able to exercise management, they must move quickly because it usually happens in circumstances when there has not previously been good management. It is for those reasons that I hope the Government will be sympathetic to the amendment. I beg to move.

The Earl of Lytton

This amendment gives me an opportunity to sing the praises of the Leasehold Enfranchisement Advisory Service—not, I hasten to add, on my own account, but to pay tribute to the extremely hard work put in by the chief executive and his staff, for which I am enormously grateful.

The Leasehold Enfranchisement Advisory Service welcomes the clause in the Bill because there have recently been more inquiries on the subject of management. Unless I misread the provision, I did not understand Clause 87 as it stands, and in particular subsection (1)(a), to be exclusive of the management provision. It seemed to me that it was not prescriptive as currently drafted.

Bearing in mind that LEAS is a jointly co-funded operation, it seemed to me that the nature of the advice should follow the funding, the source and the remit from that. As an advisory service giving impartial advice, we at the LEAS want to stick to giving advice on what the legal rights and legal remedies might be. The legal position therefore is a baseline that flows from both the legislative provisions on the one hand and the landlord/tenant relationship under a lease on the other.

I would be a little concerned if the wording of the amendment led us on to the practical application of day-to-day management matters. It would be extremely difficult to be impartial with that degree of detail. On a purely practical note, it could add substantially to the burdens, at any rate on the LEAS, regardless of what may happen to any other advisory service. I may have mistaken the extent of what the noble Lord intended and I appreciate his reasons for tabling the amendment. However, I felt that the Committee should know what my thoughts are on the matter.

Lord Strabolgi

I support the amendment moved by my noble friend Lord Dubs. Flat management carries with it communal responsibilities. Although self-management is demonstrably better than management by remote freeholders—the kind of people we were discussing earlier—it can suffer from problems of apathy among the majority of residents, particularly in larger blocks of flats such as those in the central metropolitan area of London. Service charge arrears can also be a problem when some tenants do not pay their "whack" on time. There may be a lack of planning for management and maintenance, especially in the older blocks, and a lack of clarity about maintenance responsibilities in leases causes difficulty with planning, particularly in the smaller and older converted blocks.

It seems to me that the provision of good advice on aspects of management will become crucial when the Government deliver their commitment—now a longstanding commitment—to introduce a system of commonhold and when flat owners are offered the benefits of self-management and freehold title. Unless an advisory agency exists to promote good practice and practical advice it is difficult to see how some problems inherent in human beings dealing with other human beings will be resolved.

The noble Lord, Lord Mackay of Ardbrecknish, mentioned earlier the state of affairs on the Continent which is so much more satisfactory than what we have here, with the system of leasehold and large freehold landlords. Perhaps the Government could also consult our colleagues in the Community, particularly in France, where they have a very satisfactory system of freeholds of apartments, and perhaps get some useful practical knowledge from them. In the meantime, I hope the Government will institute some sort of scheme as suggested in the amendment.

Lord Meston

My name is associated with the amendment and I speak briefly to support it since it seems to me to focus on practical assistance rather than merely the provision of legal advice, and would go a considerable way to prevention rather than cure of the problems which can arise in the situations which have been described by previous speakers.

Lord Lucas

I have listened with great interest to what noble Lords have said but I think I can boil down my speaking note to, "We don't want to do it".

Lord Strabolgi

The noble Lord must say rather more than that and give some explanation. The noble Lord has been most thorough and courteous the whole way through this Committee stage. I am very surprised at what the noble Lord has just said. I know it is getting late and perhaps we are all getting tired, but I think the noble Lord should give some explanation. He must have a brief. If he has not, perhaps the Box could help.

Lord Lucas

Indeed I do have a brief. I can say in two pages exactly what I have said in one sentence. If noble Lords would like me to do that, I shall now do it.

The noble Lord, Lord Dubs, has suggested that an agency funded under Clause 87, such as the Leasehold Enfranchisement Advisory Service, should also be able to advise on any aspect of good management practices to be adopted in the running of flat management companies.

Clause 87(1)(a), as presently drafted, allows the person or agency funded by the Secretary of State to give advice on any aspect of the law of landlord and tenant so far as relates to residential tenancies. This is a very wide remit indeed. It would include giving advice on matters covered by any code of practice approved by the Secretary of State under Section 87 of the Leasehold Reform, Housing and Urban Development Act 1993. Noble Lords will be aware that, under Section 87, such codes are admissible in court or tribunal proceedings and may be taken into account in determining any question arising in the proceedings. The result is that, so far as Clause 87 of this Bill is concerned, such approved codes and their application to individual disputes are to be treated as part of residential landlord and tenant law: and a person or agency funded under Clause 87 will be able to advise freely on such questions.

However, the amendment moved by the noble Lord, Lord Dubs, would go somewhat further than this, in a way which we think would be undesirable. For example, we do not think it would be appropriate for the Government to fund an agency providing general advice on aspects of property management. In particular, this would cut across the Secretary of State's powers to approve codes of practice relating to these matters.

Given my assurances as to the wide scope of the existing powers in Clause 87, I therefore hope that the noble Lord, Lord Dubs, is willing to withdraw his amendment.

Perhaps I may also point out that grouped with the amendment is Amendment No. 278, which is a minor measure which commences Clause 87 automatically two months after Royal Assent. As it is an enabling power, with no transitional implications, there is no need to trouble Parliament with a commencement order. Automatic commencement also has the benefit of having the legislative cover in place before Parliament will be asked to vote any money.

I see nothing in that which adds to my brief reply to the noble Lord, Lord Dubs. I am sorry if I offended the noble Lord, Lord Strabolgi, and others by attempting to speed up proceedings by being summary in my execution. But if the noble Lord has found something extra in what I have just said that I did not say originally, he is a better man than I. But I suspect he is anyway.

10.15 p.m.

Lord Dubs

I listened to both speeches of the Minister with equal attention, but I was not persuaded by either of them. I can understand his reservations about the particular model that would follow from this amendment. I am a little concerned that the Minister has not accepted that there is a problem. If tenants are going to exercise effective self-management, then some help is necessary. It may be that he believes that the existing help is there in sufficient quantity for any further help not to be necessary. I believe that that was part of the point that he made. There is a problem here. Some tenants, in exercising management, may need some help and support for the system to work well. It is the wish to have that problem recognised that motivated me in tabling this amendment rather more than the thought that the Minister might accept it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 87 agreed to.

Baroness Gardner of Parkes moved Amendment No. 254B: After Clause 87, insert the following new clause— CUSTODIAL DEPOSIT SCHEMES (" .—(1) A local housing authority may make and submit to the Secretary of State for confirmation by him a scheme (in this section referred to as a "custodial deposit scheme") authorising the authority or another body to register and hold all rental deposit monies charged by landlords letting properties within the authority's area. (2) A custodial deposit scheme may—

1. (a) specify the information to be kept on the register;
2. (b) specify the person required to notify the local authority of deposits charged and to lodge deposit monies with the authority;
3. (c) make it a duty of such persons as may be specified by the scheme to notify the authority of the payment of a deposit;
4. (d) make it a duty of such persons as may be specified by the scheme to lodge deposit monies with the authority;
5. (e) specify the time limit within which the deposit should be lodged with the authority;
6. (f) make provision for the funding of the scheme through interest raised from deposits held;
7. (g) set down criteria for the use of interest raised for the benefit of private tenants in the local authority's area;
8. (h) specify the method by which tenants are to be notified of the lodging of the deposit;
9. (i) specify the methods by which disputes over the return of deposits are to be resolved.

(3) A custodial deposit scheme shall not come into force before it has been confirmed but subject to that comes into force on such date as may he fixed by the scheme or, if no date is so fixed, at the expiration of one month after it is confirmed. (4) A person who contravenes or fails to comply with a provision of the deposit scheme commits a summary offence and is liable to a fine not exceeding level 3 on the standard scale and if the contravention or failure continues, he commits a further summary offence and is liable on conviction to a fine not exceeding one-tenth of the amount corresponding to that level for every day or part of a day during which the contravention or failure continues.").

The noble Baroness said: At Second Reading I made the point that I thought that it was very desirable to have some formal place where tenants' deposits can be held. I quoted the New South Wales system as being an example where this works very well. Following that, the citizens advice bureaux approached me and asked whether I would accept this amendment which it has worded. I have accepted it and I put it forward tonight as a probing amendment. I have reservations as regards the very first line which refers to, "A local housing authority". I am not sure that such a housing authority will be the appropriate body to deal with this matter.

In New South Wales there is a specific authority called the Rental Bond Board of New South Wales which covers the whole state and which is very much bigger than a local authority here covering a much smaller number of people. I believe that a local authority would be given a great deal of additional work as the proposal is set out in this amendment.

Since I raised this matter and having tabled the amendment, I have received communication from the Small Landlords Association. I am impressed by the fact that it researched the New South Wales scheme, which I knew little about. It made the point that out of all the cases there only 0.8 per cent. were disputed. The consumer claims tribunal for settlement, which resolves who is to get the refund, awarded 16 per cent. of claims to the tenants and another 16 per cent. were fully awarded to the landlords. In the rest of the cases some kind of compromise position was taken.

I am not sure whether my amendment is of the right type or whether it would be preferable to have some kind of insurance or bonding system on behalf of letting agents. A number of them already operate such systems. My concern is about cases where no one is responsible for the money. Someone may well vanish with it. The argument about dilapidation is usually settled through inventory clerks who check in and check out and determine the exact position of a property. I do not believe that that is such a difficult issue.

It is important for people to feel that their money is safely held somewhere. Whereas in the past agents used to give tenants the benefit of the interest on the money, they now say that the cost of administration is so high that they can no longer give tenants the benefit of any interest. I note that quite heavy costs attach to the New South Wales scheme, and that has been pointed out by the Small Landlords Association. It is a disadvantage if the tenants' deposits are going to be eroded by the cost of the scheme, so there are snags to it. I have put forward this amendment because the principle is a good one. I shall be very interested to hear the Minister's comments on it. I beg to move.

Lord Strabolgi

I listened with great interest to what the noble Baroness said about the situation in New South Wales. In contrast to that, the citizens advice bureaux have told me that, so far as they are concerned, disputes over the return of rental deposits are one of the commonest forms of landlord/tenant disputes with which they have to deal. Those disputes are not only distressing and disturbing for their clients, but they also distort the housing market. They reduce flexibility and choice for the tenant and are a disincentive to renting out property, particularly for inexperienced landlords, and thus act to restrict the revival of the private rented sector.

Since January 1989, as we know, almost all new private tenancies have been either assured or assured shorthold. In future, they will mostly be shorthold. Many tenants pay their landlords security deposits—sums of money held as security against rent arrears, damage to property or removal of furniture. Over here there is no legal obligation for security deposits to be kept in separate accounts or to be returned with interest at the end of the tenancy—although both conditions are, of course, common practice among good landlords. It is with the landlords who are not so good that we are dealing.

Every year the citizens advice bureaux deal with three-quarters of a million housing problems. They tell me that one of the most common forms of dispute in the private rented sector relates to the return of rental deposits. Sometimes the deposits are held by an agency, as I mentioned earlier. I understand that a client in London rented a flat via an agent and paid a deposit of £750. The agency subsequently went into receivership and the client was anxious to recover the deposit. The bureau reported that the local council was concerned about the number of agents going into receivership and the number of deposits being lost.

The amendment would build on initiative by giving local authorities new powers to establish an independent custodial service for rental deposits which could be run by local authorities or other organisations. That would surely provide a value-for-money service for both landlords—good landlords—and tenants, and create greater security in the private rented sector. I therefore hope that the Government will take account of the amendment, which would be a useful innovation.

We are dealing here—this is why we are legislating—not with the good landlords, but with the very murky world of verbal agreements and all that kind of thing, where, at the end of the tenancy when the tenant is evicted because the landlord wants to try to get more rent from somebody else, although the tenant may have paid a deposit, the landlord may deny that he has ever received it or may say that furniture has been damaged when it has not been damaged. We have to deal with such cases. It would be a great advantage if such deposits could be held by an outside body, preferably by somebody officially appointed by the local authority. I support the amendment.

Lord Meston

I, too, wish to support the amendment—or something like it. It seems to have the potential for considerable practical value. It is encouraging to see that it is based on the considerable experience of the citizens advice bureaux. I agree with what the CAB says about the disproportionate amount of time and effort which is spent on disputes about relatively small amounts of money originally provided by way of deposit.

Turning to the point raised by the noble Baroness about the appropriateness of having the local housing authority as the custodian of the deposit scheme, it seems to me that it might be possible for local housing authorities to make joint arrangements with other bodies. Subject to those remarks, I support the amendment.

The Earl of Lytton

I support the principle that the noble Baroness raises with the amendment. However, I do not believe that what she has set out here is the right way forward. What we are talking about is landlords taking pecuniary advantage—I can put it no more kindly than that—of tenants. But the scheme must not be something that is bureaucratic or disproportionate in terms of its running costs compared to the amount being held.

I support the comments of the noble Lord, Lord Strabolgi, because I, too, am aware of circumstances where landlord management companies have gone into liquidation holding the stake, not just in connection with rental deposits, but money due for repairs and such things. There are not the proper accounting methods. The matter should be addressed, but it must be looked at in the context of the resources necessary to provide it. I should say that the Leasehold Enfranchisement Advisory Service is not looking for that task.

Lord Dubs

I have looked at this amendment with interest. Obviously I feel sympathetic towards its aim. I congratulate the noble Baroness on having put it forward. Something of this sort is desirable, but I have some difficulties with some of the detail as suggested within the amendment. We do not, after all, want to impose upon local authorities something so cumbersome and complicated that it will be very time-consuming. I should look for something that was a bit simpler than the scheme proposed. I wonder whether that could be devised.

I worry a little also about one of the points in the amendment which provides: set down criteria for the use of interest raised for the benefit of private tenants in the local authority's area". If I were a tenant and I had deposited my money with the landlord, which I would expect to get back on leaving the property, I would regard that as my money, and I would regard the interest as my money in the same way as if a solicitor held money on my behalf when I would receive interest from the solicitor for the money that he had on deposit.

I am not happy that money which belongs properly to one tenant should be used for general purposes in an area, no matter how laudable they may be. I am worried that some of the earlier points are very detailed. We have something which is worthy and has a great deal of merit to it, but I am worried about some of the details as they are stated in the amendment.

Lord Mackay of Ardbrecknish

My noble friend's new clause would allow a local authority or an authorised body to set up a scheme to register and hold all rental deposit moneys charged by local landlords in its area. As we have heard, the scheme, which would have to be submitted to the Secretary of State for confirmation, would be able to specify a number of duties and conditions on the person receiving the deposit. Failure to comply with those would carry the sanction of a fine not exceeding level 3 on the standard scale.

In cases where there is no dispute, involving the local authority or a body authorised by the authority to register and hold deposits is likely to complicate and slow down arrangements which are already working satisfactorily.

My noble friend's amendment would also allow the authority or body operating the scheme to specify the methods to be used to resolve disputes. I recognise the very real difficulty that disputes can cause to both landlords and tenants. In those cases where there is a dispute, the key problem is finding a speedy and effective means of resolving who has the best claim to the deposit moneys. There will be cases where the landlord has a legitimate claim to some or all of the deposit to cover theft or damage. In other cases, the tenant will have every reason to expect the full deposit back.

In the light of what I have said, it is perhaps not surprising that my noble friend's proposal that the schemes could decide for themselves how they would handle disputes causes me some concern. That concern is, of course, that we might be asking the schemes to act in lieu of the courts. I cannot see how that would be appropriate. If I am not right about that, I am not clear what benefits these schemes would bring.

The small claims court already offers a cheap and relatively simple way of dealing with such disputes. If the claim is not contested there is no need for a court hearing. If it is, the amount in dispute is likely to be sufficiently small for the hearing to be dealt with under the informal, small claims arbitration procedure.

I do not want to appear dismissive of my noble friend's proposal. I should like to reassure her, like other noble Lords who have spoken, that I fully understand and share her concern that a small minority of landlords or agents should not be allowed to misappropriate their tenants' deposits. I am sympathetic to my noble friend's suggestion that we should look at schemes in other countries to see whether they have any advantages for our own situation. My noble friend, not surprisingly, drew our attention to the scheme in New South Wales. If this is a temptation to find me a reason to go to Australia this summer to examine that scheme, perhaps I might indeed welcome her amendment. But I do not think that we should rush to legislate in the matter. I know that the National Association of Citizens Advice Bureaux is keen to promote such a scheme. However, other options have also been put forward. The Association of Residential Letting Agents favours bonded schemes run by recognised letting organisations.

As I explained, the issue of handling disputes needs to be thought out very carefully. In that context perhaps I may suggest again that we should wait and take account of the forthcoming report of the noble and learned Lord, Lord Woolf, on access to justice, which I understand will recommend ways of speeding up cases through the small claims court.

While my noble friend has made an attempt to bring forward a possible framework for resolving some very difficult and unpleasant problems which may be occurring, we ought to be careful before we embark on what could turn out to be a fairly complex and bureaucratic system. Perhaps we should study systems in other parts of the world, as we are prepared to do, and wait on the report I mentioned before we come to any decisions on whether we ought to move and whether there is a reasonable scheme we could move to.

Baroness Gardner of Parkes

I thank those who have supported the amendment in principle. I feel that I must respond to one point made by the noble Lord, Lord Strabolgi. He referred to the tenant being evicted. I am not talking about cases of eviction. I am talking about cases where the tenant leaves and the same situation arises. I say to my noble friend the Minister that I am not really speaking entirely about cases where there is a dispute about how much money one should get back. I am more concerned about the type of case referred to by the noble Earl, Lord Lytton, where someone goes into liquidation or someone vanishes with all the money rather than an argument between the landlord and tenant. Perhaps the bonded scheme suggested by the letting agents is a good answer. However, the small property people make a point which I think is very important. Many unscrupulous tenants send out the advice through leaflets not to pay the last month's rent and in that way ensure that they will not be looking for their deposit. That seems equally unfair to the landlord because the deposit is there to cover dilapidation and any damage. I hope that we will be able to consider the principle further. I beg leave to withdraw the amendment.

The Deputy Chairman of Committees (Lord Cocks of Hartcliffe)

Is it your Lordships' pleasure that the amendment be withdrawn?

Lord Williams of Elvel

No.

The Deputy Chairman of Committees

The Question is that the amendment be agreed do. As many as are of that opinion will say "Content"; to the contrary "Not-Content". I think the "Not-Contents" have it. Clear the Bar.

Division called.

The Deputy Chairman of Committees

Tellers for the "Contents" having not been appointed, pursuant to Standing Order No. 51, a Division therefore cannot take place. I declare that the "Not-Contents" have it.

Amendment negatived.

10.37 p.m.

On Question, Whether Clause 88 shall stand part of the Bill?

Their Lordships divided: Contents, 28; Not-Contents, 8.

Division No. 3
CONTENTS
Annaly, L.	Howe, E.
Blatch, B.	Inglewood, L.
Boardman, L.	Long, V. [Teller.]
Caldecote, V.	Lucas, L.
Carnock, L.	Mackay of Ardbrecknish, L.
Chesham, L. [Teller.]	Mackay of Drumadoon, L.
Clanwilliam, E.	McNair, L.
Coleraine, L.	Meston, L.
Courtown, E.	Mountevans, L.
Cumberlege, B.	Rankeillour, L.
Denton of Wakefield, B.	Shrewsbury, E.
Gardner of Parkes, B.	Trumpington, B.
Hamwee, B.	Wilcox, B.
Henley, L.	Wynford, L.
NOT-CONTENTS
Cocks of Hartcliffe, L.	Graham of Edmonton, L. [Teller.]
Desai, L.	Hollis of Heigham, B.
Dubs, L.	Strabolgi, L.
Gladwin of Clee, L. [Teller.]	Williams of Elvel, L.

Resolved in the affirmative, and clause agreed to accordingly.

Lord Lucas: I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.