Co-ownership of Flats (Hansard, 25 June 1985)

§ Sir Brandon Rhys Williams (Kensington)

I beg to move, That leave be given to bring in a Bill to permit the residents of flats in mansion blocks and substantial conversions in private ownership to form companies with powers to acquire and manage the properties under stated rules of common ownership; to empower such a company in certain circumstances to apply to the courts for the appointment of a managing trustee; to require local authorities to keep lists of persons qualified to act as managing trustees or as secretaries of such companies and for related purposes. The problem at which my Bill is aimed to provide some solution is well known to hon. Members on both sides of the House and was very well aired by my hon. Friend the Member for Chichester (Mr. Nelson) in the debate on the Adjournment of the House on 24 May, to which the Parliamentary Under-Secretary of State for the Environment gave some very helpful, but at this stage still non-comittal, replies.

It is important for the House to look forward to the publication of the Nugee report. I hope that hon. Members who, like myself, have this problem in their constituencies will have the forgiveness of the House if they come forward, even at this late stage, with some specific recommendations which they hope will be helpful.

It has often been pointed out that we have a certain unbalance where the acquisition of residential freehold is concerned. The House long ago agreed that in the private sector those living in houses on long leases should have the right of enfranchisement and be able to enjoy the benefit of freehold ownership. In the public sector the Government have made tremendous strides, which we all appreciate and are grateful for, by allowing people in council houses, and also in council flats, to acquire their own property. But people living in flats in private ownership are, as it were, second-rate citizens, because they do not have the right at present to acquire their freehold. I believe that a formula can be found, which is fair to both sides, that will encourage this type of home ownership for people living in flats.

On previous occasions the House has permitted me to introduce a Bill on this subject. I hope that on this occasion the Bill will make progress, in the sense that the Minister will pay serious attention to the problems, of which he is well aware, which are really widespread in inner London and in other parts of the country. I am honoured that he has chosen to be present during the debate this afternoon. Such things are very much appreciated on the Back Benches.

I shall deal with the Bill as briefly as possible. The purpose is to provide a convenient statutory means by which the tenants and the lessees of purpose-built blocks of flats—or buildings converted so as to consist only of self-contained flats—may act jointly to purchase their landlord's interest in the property at a fair valuation. The Bill would not apply to any property in owner-occupation or to any property consisting of fewer than four self-contained flats, and it would not, of course, extend to local authority properties.

The Bill would specify that in order to exercise the right of purchase a company — which I suggest might be known as a condominium company, making use of an expression which is very well understood in the United States—could be formed, in accordance with a model 793 constitution, which would include provisions to ensure that a block of flats acquired by the tenants under the Bill's provisions would be properly managed. There is a danger that enthusiastic tenants' associations might overreach themselves by acquiring properties which were in need of serious repair and then find that they could not raise enough money among themselves to look after the block properly. That, of course, would lead to dissension and bad feeling, such as there was in the days when there were two sides and the owners were reluctant to find the necessary capital and the people living in the flats felt that the block was being neglected.

The Bill would grant to a properly constituted condominium company the right of pre-emption, to be exercised within a maximum of six months. That, I think, is not very controversial. When a block has been put on the market, most people feel that a tenants' or residents' association, if it acts quickly and responsibly, should have a right of pre-emption. I hope that that will be one of the recommendations of the Nugee report. However, the Bill would only extend the right to require the owner to enter into negotiations to dispose of his interest in other circumstances where all the flats in the property are held on long lease.

The difficulty is one of valuation. Where there are mixed regimes in 'a block, it is extremely difficult for even the most experienced and fair-minded person to know what is a fair price for the block, because estimates have to be made of the dates on which flats under controlled rents may become available, and vacant possession will enable the owner to make a substantial gain on those particular flats.

The payments to be made by the company to acquire the building would be based on a valuation prepared in accordance with principles laid down in the Bill and provide a reasonable assessment of the current value of the vendor's interest. There should be no question whatever of the right being extended to the residents of purchasing the property on confiscatory terms. The valuation should take into account the different forms of tenure in the property and the market value of any ancillary properties, such as shops, offices or other non-residential premises integral to the block. The valuation should be subject to arbitration.

To encourage continuity of ownership, the Bill provides that if any tenant of a flat belonging to a co-ownership scheme of the type envisaged by the Bill should sell his flat within a short period after the acquisition of the building by the tenants' company, any profit he makes would be shared with the company on a sliding scale designed to give the company the main benefit of any windfall capital gains, particularly in the early years.

Where difficulties arise in the relationships between the residents and the owners or their managing agents, the right will be conferred on the residents to apply to the court 794 in certain circumstances for the appointment of a managing trustee. This new suggestion which I am making in this Bill is, I believe, an extremely practical solution to the type of deadlock situations which occur all too often, unfortunately, in mansion blocks where tenants have a deep suspicion of the intentions of the managing agents and nothing can be done about maintenance or even routine upkeep of the block because the tenants' association is not prepared to agree to the normal operation of the service charges.

It would be permissible for a condominium company to issue debentures and also participating preference shares; and it could qualify for grant on the same terms as a housing association. I am very anxious that a residents' association, properly constituted, should have assistance in the early years from building societies and other financial institutions. All too often they are reluctant to lend money on fixed-interest terms, but willing to enter into some sort of participatory arrangement so that they can take their money out after a relatively short time with an element of profit involved. That would encourage outside finance to come to the aid of residents' associations and give them a practical opportunity of meeting the price which they have to meet if they are going to take the chance to buy the block when it is offered to them.

I am hoping to repeat in my Bill the schedule, which is a model memorandum and articles for a condominium company.

Even if my Bill were to make no progress, the fact that it was available in print would, we think, be of use to many people thinking of setting up residents' associations. I hope, therefore, that the House will give me leave to reintroduce my Bill.