§ ?(1) A judgement creditor of a commonhold association may apply to the court for an order enabling him to enforce payment of all or part of his debt against a unit-holder.
§ (2) In considering whether to make such an order the court shall—
- (a) not order a unit-holder to pay a greater part of the debt than the amount he would be expected to have contributed to it by payments under section 37 or 38, and
- (b) give due credit for the payments which the unit-holder has made under those sections.'.—[Mr. Cash.]
§ Brought up, and read the First time.
3.41 pm§ Mr. William Cash (Stone)I beg to move, That the clause be read a Second time.
We have tabled the new clause on judgment creditors of commonhold associations because, in discussion with the Law Society, we came to the conclusion that there is inadequate provision for dealing with questions of liability for the viability of the commonhold system. The problem that arises relates particularly to the form of the commonhold association memorandum and articles of association.
The Bill provides that there must, understandably, be a commonhold association that will own and manage the common parts of the commonhold development. It will be a private company limited by guarantee, with members consisting exclusively of all the unit-holders in the development. The issue concerns the nature of the company that is being created and the extent to which it is the appropriate structure for the commonhold association. We concluded that a private company limited by guarantee would be appropriate, but there is still the problem of what the liability would be in relation to such a commonhold association. We believe that strict limitation of liability is not appropriate for commonhold associations—indeed, it is likely to harm the viability of the entire commonhold system.
There is a real problem here. Contractors are likely to be cautious about dealing with commonhold associations if the limited liability may make it impossible to collect sums owing. That is important, because the extent to which repair and maintenance will be properly catered for is part and parcel of the commonhold association's duties and functions. Recovery of work costs and related matters lie at the heart of the system and whether it will work. If contractors are not prepared to go along with the system because they are concerned about the strictly limited liability currently scheduled for commonhold associations, the physical state of the building in question could be brought into question. Indeed, such strict liability could even lead to physical neglect of buildings. For example, if contractors were unhappy with the liability for 641 costs and other responsibilities in respect of the commonhold association, long-term lift maintenance contracts might be vitiated by the fact that no one was prepared to enter into them. That would be a serious problem, and we urge the Government, even at this late hour, to consider it seriously.
§ Home owners with freehold houses are not protected by limited liability, yet they expect to meet the cost of repairs. It seems appropriate that primary liability should rest with the commonhold association, which would make contracts. Secondly, if one unit-holder defaulted—if he were bankrupt, for example—it should be possible to reallocate his share of service charges among the remaining unit-holders. Thirdly, on final default by the association, it should be possible for individual unit-holders to be held accountable for their respective shares of the debt.
Our proposals are contained in new clause 17. The Law Society supports the proposal that, in the case of final default by the association, judgment creditors should be offered the chance to obtain a court order against individual unit-holders. That would limit cases to those in which a court had adjudicated that a debt was due and allow the court flexibility to take account of the circumstances that affect each unit-holder—in other words, it may consider what they have already paid.
§ Mr. Adrian Sanders (Torbay)We support the new clause. In Committee, I questioned whether a limited liability company would be the correct constitution for commonhold associations. The new clause would helpfully reduce the onerous responsibilities that would be placed on people who wished to form such a company. We hope that the Government can move along those lines.
§ Sir Teddy Taylor (Rochford and Southend, East)I have one brief question for the Minister on this complex issue. Does a commonhold association have the right to ask part of its membership to make a payment for a development that is contrary to the rules that the association has itself laid down? I ask simply because leasehold arrangements, such as those that exist in some parts of Southend, may contain a restriction to the effect that only single properties may be built, or a further restriction on the size of such properties. In such cases, an individual can say that he wants to add an extra part to a proposed building and to be considered to be allowed to build flats where others may not do so. Even if the freehold rules lay it down that that cannot be done, the freeholder would have the right to agree to it so long as the person paid him some money. I do not like that idea on principle.
It would be helpful to know whether the restrictions on freehold or leasehold contract arrangements can be passed on to the commonhold associations. Will such associations have the power to insist on restrictions and to charge a fee if the restrictions are ignored? Will the Minister explain whether that would be covered by the new clause?
§ The Parliamentary Secretary, Lord Chancellor's Department (Mr. Michael Wills)Before I answer the hon. Gentleman's question, I shall address the substance of the new clause that the hon. Member for Stone (Mr. Cash) urged us to consider I assure him that we have considered it, but we are going to reject it.
First, new clause 17 would allow someone who has a judgment against a commonhold association to proceed against an individual unit-holder to recover the debt owed—but to what end? Such a course would have serious and unwelcome consequences. The hon. Gentleman accepted that a company limited by guarantee is an appropriate form for a commonhold association, but the new clause would breach a fundamental principle of company law—that a company is a distinct legal entity separate from its members.
Secondly, the proposal would put the unit-holder at a distinct disadvantage when compared with an enfranchised leaseholder in similar circumstances. The leaseholder would be protected by existing company law from being pursued personally by a creditor of the company owning the freehold but, in similar circumstances, the commonhold unit-holder would not have that protection. Given the concerns that have been widely expressed about the threshold of 100 per cent. consent that we have set for conversion to a commonhold—I am sure that we shall return to those arguments later—I suggest to the hon. Gentleman that the new clause hardly provides an incentive for leaseholders to move to commonhold as opposed to a right-to-enfranchise company.
Nor do I share the hon. Gentleman's concern that contractors would be cautious about dealing with such limited liability companies. I am surprised that such a worldly gentleman should take that view. Contractors deal with limited liability companies all the time—they are hungry for such business and I do not think that they would be less hungry in these circumstances.
Notwithstanding all that, is the new clause really necessary? If a judgment creditor cannot get the commonhold association to pay him what he is due, he has the ultimate deterrent—he can threaten to put the association into receivership and eventually to wind it up, with access to the association's assets in liquidation. The unit-holders would be aware that the demise of the association risks the ultimate termination of the commonhold if a succession order is not made. That would leave them in a difficult position because if there is no association there is no commonhold, and if there is no commonhold, they risk becoming the owners of flying freeholds that are difficult to manage and unsaleable.
§ Mr. Mark Field (Cities of London and Westminster)The Minister has put what seems a salient point in legal terms but how could a contractor go through all those hoops in practice? In reality, if the straightforward option proposed by my hon. Friend the Member for Stone (Mr. Cash) is not accepted, a contractor would find himself in far greater difficulty.
§ Mr. WillsI am happy to assume that the hon. Gentleman believes what he says, although I can see no reason whatever for his belief. 1 have just explained that contractors deal with limited liability companies all the 643 time. To breach our company law as the new clause proposes seems wholly inappropriate. There is no evidence to suggest that there would be any such caution.
§ Mr. CashThe Minister may be guilty of misleading himself about the nature of the companies concerned. There is no doubt that contractors deal all the time with limited liability companies. He may be missing the fact that we are talking about a company limited by guarantee, which is not a normal company with shareholders. Companies limited by guarantee are frequently controlled by just a couple of people. In the case of a block of flats, for example, one is dealing with a company limited by guarantee and a large number of unit-holders. The point made by my hon. Friend the Member for Cities of London and Westminster (Mr. Field) should not be forgotten. As the Minister was speaking. I was conscious of—
§ Mr. Speaker: Order. The Minister was indeed speaking, and the hon. Gentleman's intervention has gone on far too long. He should let the Minister continue.
§ Mr. WillsWe are going round the houses here, I am afraid. I hope that I am not guilty of misleading myself. I am not perhaps the best judge of that, but I do not think that I am. Conservative Members fail to make the distinction between a corporate entity and an individual. That is the distinction on which we are resting. Of course a company limited by guarantee is a different corporate entity—
§ Mr. WillsIt is a point, but not the one that is relevant here.
There is no evidence that contractors will be any more wary about dealing with commonhold associations than they are with any other corporate entity. The point is that there is a remedy available to such contractors, and it is a pretty severe deterrent to the cornmonhold association. If people do not discharge their obligations, they could end up with unsaleable properties.
Even if all that were not the case, and there were to he a power such as that in the new clause, who is to pay the extra costs of chasing the individual unit-holder through the courts—both the cost of the order committing the enforcement action and that of the enforcement itself?
The new clause would bring about an iniquitous position. It would introduce an unjustifiable and unnecessary provision in what is likely to be the real world of commonhold management.
In response to the hon. Member for Rochford and Southend, East (Sir Teddy Taylor), if something is contrary to the articles of association, there can be no obligation on the members of that association to be bound by it. However, it is of course possible for an association to change its articles and then oblige any individual member to contribute. I hope that I understood his question correctly and have been able to reassure him.
§ Sir Teddy TaylorClause l says:
a commonhold community statement makes provision for rights and duties of the commonhold association and unit-holders".How can the association ensure that an unwilling individual fulfils his duties?
§ Mr. WillsThat takes us rather away from the new clause, and we covered this ground extensively on Second 644 Reading and in Committee. Various options are available to the association to pursue obligations that are properly incurred by individual unit-holders. I will be happy to give the hon. Gentleman further details, but I will not pursue the point at length now.
I understand that Opposition Members are genuinely concerned to ensure that commonhold works effectively in the real world and that scenarios such as those outlined by the hon. Member for Stone do not arise, but I hope that I have given sufficient reassurance that the new clause is not necessary. I urge the hon. Gentleman to withdraw the motion.
§ 4 pm
§ Mr. CashI am afraid that I am not persuaded by the Minister's comments. He suggests that we should not impose unnecessary liabilities on individual unit-holders. On use and maintenance, the Bill sets out that the commonhold community statement must make provision that the obligation to insure, maintain and repair each unit is subscribed to. However, there must also be the flexibility to allow each of those responsibilities to be imposed on either the unit-holder or the commonhold association.
Perhaps the Minister is familiar with my argument, but let me give him an example of the problem. The explanatory notes say that the statement could require the unit-holder to take out an insurance policy on the fabric of a flat while making the commonhold association responsible for insuring and maintaining a balcony. It could also require a unit-holder to be responsible for the decoration of the inside of window units while making the commonhold association responsible for the outside of the same units. In other words, a division of responsibility is inherent in the Government's explanation of the difference between the responsibilities of the unit-holder and the commonhold association. So the Minister's argument that the liability of the commonhold association should be inviolate is extraordinary.
We could spend hours discussing that problem, and no doubt in due course the Court of Appeal, the House of Lords and, for all I know, the European Court of Human Rights will debate it. The bottom line is that for practical purposes we are concerned with whether buildings are likely to be better looked after under the arrangements.
The Law Society might reasonably claim to know a little about the law as it relates to leasehold and commonhold, and the practical effects of the arrangements. Although I am a solicitor, I would not claim that I know a great deal about every aspect of the law. We all learn as we go along. However, the Law Society is a chartered body with a repository of knowledge that I am sure that the Minister is happy to accept. Irrespective of the manner in which he presents his arguments, the plain fact is that it takes a contrary view, and I agree with it. My hon. Friend the Member for Cities of London and Westminster (Mr. Field) disagrees with the Minister, as I suspect do other Conservative Members. Indeed, I do not notice vast enthusiasm among Labour Members for his arguments. However, as is often the case with legislation that deals with a niche market, there are not as many hon. Members present as one might hope.
We are dealing with a practicality. I gave the example of lift maintenance contracts, which are long term. It could be that other contractors are put off by the 645 arrangements because they are insufficiently flexible, in which case we are making the situation unnecessarily difficult. We therefore intend to divide the House on the new clause. As the Minister knows only too well, there was much mutual indulgence in Committee and we have not engaged in terribly bitter conflicts, although we have had our disagreements. None the less, on this occasion, I shall press the motion to a Division.
§ Question put, That the clause be read a Second time:—
§ The House divided: Ayes 140, Noes 241.
647| Division No. 187] | [4.5 pm |
| AYES | |
| Ainsworth, Peter (E Surrey) | Heathcoat-Amory, Rt Hon David |
| Amess, David | Hendry, Charles |
| Ancram, Rt Hon Michael | Hoban, Mark |
| Arbuthnot, Rt Hon James | Holmes, Paul |
| Atkinson, Peter (Hexham) | Horam, John |
| Bacon, Richard | Howard, Rt Hon Michael |
| Baker, Norman | Jenkin, Bernard |
| Barker, Gregory | Johnson, Boris (Henley) |
| Baron, John | Jones, Nigel (Cheltenham) |
| Barrett, John | Kennedy, Rt Hon Charles(Ross Skye & Inverness W) |
| Beith, Rt Hon A J | |
| Bercow, John | Key, Robert |
| Beresford, Sir Paul | Kirkwood, Archy |
| Boswell, Tim | Laing, Mrs Eleanor |
| Brady, Graham | Lansley, Andrew |
| Brake, Tom | Leigh, Edward |
| Brazier, Julian | Letwin, Oliver |
| Brooke, Mrs Annette L | Liddell—Grainger, Ian |
| Browning, Mrs Angela | Lidington, David |
| Burns, Simon | Llwyd, Elfyn |
| Burt, Alistair | Luff, Peter |
| Cable, Dr Vincent | McIntosh, Miss Anne |
| Carton, Mrs Patsy | MacKay, Rt Hon Andrew |
| Cameron, David | Maclean, Rt Hon David |
| Carmichael, Alistair | McLoughlin, Patrick |
| Cash, William | Malins, Humfrey |
| Chapman, Sir Sydney(Chipping Barnet) | Maples, John |
| Maude, Rt Hon Francis | |
| Chope, Christopher | Mawhinney, Rt Hon Sir Brian |
| Clappison, James | May, Mrs Theresa |
| Clifton—Brown, Geoffrey | Mitchell, Andrew (Sutton Coldfield) |
| Cormack, Sir Patrick | Moore, Michael |
| Cran, James | Moss, Malcolm |
| Davies, Quentin (Grantham) | Murrison, Dr Andrew |
| Djanogly, Jonathan | Norman, Archie |
| Dodds, Nigel | O'Brien, Stephen (Eddisbury) |
| Doughty, Sue | Opik, Lembit |
| Duncan Smith, Rt Hon Iain | Osborne, George (Tatton) |
| Fabricant, Michael | Ottaway, Richard |
| Field, Mark (Cities of London) | Page, Richard |
| Flight, Howard | Paice, James |
| Forth, Rt Hon Eric | Paterson, Owen |
| Foster, Don (Bath) | Prisk, Mark |
| Francois, Mark | Pugh, Dr John |
| Gale, Roger | Randall, John |
| Garnier, Edward | Rendel, David |
| Gibb, Nick | Robertson, Hugh (Faversham) |
| Gillan, Mrs Cheryl | Robertson, Laurence (Tewk'b'ry) |
| Goodman, Paul | Roe, Mrs Marion |
| Gray, James | Rosindell, Andrew |
| Green, Damian (Ashford) | Ruffley, David |
| Grieve, Dominic | Russell, Bob (Colchester) |
| Hammond, Philip | Sanders, Adrian |
| Harvey, Nick | Sayeed, Jonathan |
| Hawkins, Nick | Selous, Andrew |
| Hayes, John | Shepherd, Richard |
| Heath, David | Simmonds, Mark |
| Spelman, Mrs Caroline | Tyrie, Andrew |
| Spicer, Sir Michael | Waterson, Nigel |
| Spink, Bob | Watkinson, Angela |
| Spring, Richard | Webb, Steve |
| Stanley, Rt Hon Sir John | Whittingdale, John |
| Steen, Anthony | Wiggin, Bill |
| Streeter, Gary | Wilkinson, John |
| Stunell, Andrew | Willetts, David |
| Swire, Hugo | Wilshire, David |
| Syms, Robert | Winterton, Nicholas (Macdesfield) |
| Tapsell, Sir Peter | Yeo, Tim |
| Taylor, Matthew (Truro) | Young, Rt Hon Sir George |
| Taylor, Sir Teddy | |
| Tredinnick, David | Tellers for the Ayes: |
| Trend, Michael | Dr. Julian Lewis and |
| Turner, Andrew (Isle of Wight) | Mr. Desmond Swayne. |
| NOES | |
| Ainger, Nick | Dawson, Hilton |
| Ainsworth, Bob (Co/try HE) | Dean, Mrs Janet |
| Allen, Graham | Denham, Rt Hon John |
| Anderson, Rt Hon Donald(Swansea E) | Dhanda, Parmjit |
| Dobbin, Jim | |
| Armstrong, Rt Hon Ms Hilary | Dobson, Rt Hon Frank |
| Atherton, Ms Candy | Doran, Frank |
| Atkins, Charlotte | Dowd, Jim |
| Austin, John | Drown, Ms Julia |
| Banks, Tony | Eagle, Maria (L 'pool Garston) |
| Barron, Kevin | Edwards, Huw |
| Beard, Nigel | Efford, Clive |
| Begg, Miss Anne | Ellman, Mrs Louise |
| Benton, Joe | Ennis, Jeff |
| Berry, Roger | Etherington, Bill |
| Blackman, Liz | Farrelly, Paul |
| Blizzard, Bob | Field, Rt Hon Frank (Birkenhead) |
| Bradley, Peter (The Wrekin) | Fisher, Mark |
| Bradshaw, Ben | Fitzpatrick, Jim |
| Brennan, Kevin | Flynn, Paul |
| Brown, Rt Hon Nicholas(Newcastle E& Wallsend) | Foster, Michael Jabez (Hastings) |
| Galloway, George | |
| Brown, Russell (Dumfries) | Gapes, Mike |
| Browne, Desmond | Gardiner, Barry |
| Bryant, Chris | Gerrard, Neil |
| Buck, Ms Karen | Gibson, Dr Ian |
| Burden, Richard | Goggins, Paul |
| Burgon, Colin | Grogan, John |
| Burnham, Andy | Hall, Mike (Weaver Vale) |
| Cairns, David | Hamilton, David (Midlothian) |
| Campbell, Mrs Anne (C'bridge) | Hanson, David |
| Campbell, Ronnie (Blyth V) | Harris, Tom (Glasgow Cathcart) |
| Caplin, Ivor | Healey, John |
| Casale, Roger | Henderson, Doug (Newcastle N) |
| Caton, Martin | Henderson, Ivan (Harwich) |
| Cawsey, Ian | Hendrick, Mark |
| Challen, Colin | Hepburn, Stephen |
| Chapman, Ben (WirralS) | Heppell, John |
| Chaytor, David | Hermon, Lady |
| Clapham, Michael | Heyes, David |
| Clark, Mrs Helen (Peterborough) | Hill, Keith |
| Clark, Paul (Gillingham) | Hinchliffe, David |
| Clarke, Rt Hon Tom (Coatbridge) | Hoey, Kate |
| Clelland, David | Hood, Jimmy |
| Clwyd, Ann | Hopkins, Kelvin |
| Coaker, Vernon | Howarth, George (Knowsley N) |
| Coffey, Ms Ann | Hoyle, Lindsay |
| Coleman, Iain | Hughes, Beveriey (Stretford) |
| Cook, Rt Hon Robin (Livingston) | Hughes, Kevin (Doncaster N) |
| Cooper, Yvette | Humble, Mrs Joan |
| Corston, Jean | Hutton, Rt Hon John |
| Crausby, David | Iddon, Dr Brian |
| Cruddas, Jon | Irranca-Davies, Huw |
| Cryer, John (Hornchurch) | Jackson, Helen (Hillsborough) |
| Cunningham, Jim (Cov'try S) | Jamieson, David |
| Cunningham, Tony (Workington) | Jenkins, Brian |
| Davey, Valerie (Bristol W) | Johnson, Alan (Hull W& Hessle) |
| Davies, Rt Hon Denzil (Uanelli) | Jones, Helen (Warrington N) |
| Jones, Kevan (N Duitiam) | Prentice, Ms Bridget (Lewisham E) |
| Joyce, Eric | Primarolo, Dawn |
| Kaufman, Rt Hon Gerald | Prosser, Gwyn |
| Keeble, Ms Sally | Purchase, Ken |
| Keen, Ann (Brentford & Isleworth) | Purnell, James |
| Kelly, Ruth | Quinn, Lawrie |
| Kemp, Fraser | Rapson, Syd |
| Khabra, Piara S | Raynsford, Rt Hon Nick |
| Kidney, David | Robertson, John(Glasgow Anniesland) |
| King, Ms Oona (Bethnal Green) | |
| Knight, Jim (S Dorset) | Roche, Mrs Barbara |
| Ladyman, Dr Stephen | Rooney, Terry |
| Lammy, David | Ross, Ernie |
| Lawrence, Mrs Jackie | Ruddock, Joan |
| Lepper, David | Russell, Ms Christine (Chester) |
| Leslie, Christopher | Ryan, Joan |
| Levitt, Tom | Salter, Martin |
| Linton, Martin | Sarwar, Mohammad |
| Lloyd, Tony | Savidge, Malcolm |
| Love, Andrew | Sedgemore, Brian |
| Lucas, Ian | Shaw, Jonathan |
| Luke, Iain | Sheridan, Jim |
| McAvoy, Thomas | Shipley, Ms Debra |
| McCafterty, Chris | Simon, Sion |
| MacDougall, John | Skinner, Dennis |
| McFall, John | Smith, Angela (Basildon) |
| McGuire, Mrs Anne | Smith, Rt Hon Chris (\slington S) |
| McIsaac, Shona | Smith, Geraldine (Morecambe) |
| McKechin, Ann | Smith, Jacqui (Redditch) |
| McKenna, Rosemary | Smith, John (Glamorgan) |
| Mackinlay, Andrew | Soley, Clive |
| McNamara, Kevin | Southworth, Helen |
| McNulty, Tony | Starkey, Dr Phyllis |
| McWalter, Tony | Stewart, David (Inverness E) |
| Mahmood, Knalid | Stewart, Ian (Eccles) |
| Mandelson, Rt Hon Peter | Strang, Rt Hon Dr Gavin |
| Marris, Rob | Straw, Rt Hon Jack |
| Marsden, Gordon (Blackpool S) | Stuart, Ms Gisela |
| Marshall, David (SheWeston) | Taylor, Rt Hon Ann (Dewsbury) |
| Marshall-Andrews, Robert | Taylor, David (NWLeics) |
| Meale, Alan | Thomas, Gareth (Clwyd W) |
| Merron, Gillian | Thomas, Gareth R (Harrow W) |
| Miliband, David | Timms, Stephen |
| Miller, Andrew | Trickett, Jon |
| Moffatt, Laura | Turner, Dennis (Wolverh'ton SE) |
| Mole, Chris | Turner, Dr Desmond (Kemptown) |
| Moonie, Dr Lewis | Turner, Neil (Wigan) |
| Moran, Margaret | Twigg, Derek (Halton) |
| Mudie, George | Twigg, Stephen (Enfield) |
| Mullin, Chris | Vis, Dr Rudi |
| Munn, Ms Meg | Walley, Ms Joan |
| Murphy, Jim (Eastwood) | Wareing, Robert N |
| Naysmith, Dr Doug | Watson, Tom |
| Norris, Dan | Watts, David |
| O'Hara, Edward | White, Brian |
| O'Neill, Martin | Williams, Rt Hon Alan(Swansea W) |
| Owen, Albert | Williams, Mrs Betty (Conwy) |
| Palmer, Dr Nick | Wills, Michael |
| Pearson, Ian | Winterton, Ms Rosie (Doncaster C |
| Perham, Linda | Woolas, Phil |
| Pickthall, Colin | Wright, David (Telford) |
| Pike, Peter | Wright, Tony (Cannock) |
| Plaskitt, James | |
| Pollard, Kerry | Tellers for the Noes: |
| Pond, Chris | Mr. Gerry Sutcliffe and |
| Pope, Greg | Mr. Graham Stringer. |
§ Question accordingly negatived.