PLANNING PERMISSION

HL Deb 20 February 2001 vol 622 cc26-60GC

(". After section 66 of the Town and Country Planning Act 1990, there is inserted—

"Planning permission: commonhold.

66A. A local planning authority shall not enterain any application for planning permission for a building for multiple residential occupancy unless the land to be developed has hem or is to be registered as a freehold estate in commonhold under section 2 of the Commonhold and Leasehold Reform Act 2001."").

The noble Baroness said: This is a very draconian and sweeping amendment. I am bringing it forward quite deliberately because I believe that the whole Bill is—what is the English expression?—a damp squib. It is a great disappointment. The other day, I went to the British Property Federation lunch and I heard people sitting around the table saying, "It does not seem very interesting. What would make us want to do this?" These were people who would be in a position to influence and develop properties. I found it extremely disappointing.

When I say the amendment is draconian, even I. having looked at it, believe that the period indicated is too long; it indicates forever. That would not be necessary. However, a provision of this kind which required that for five years anyone wanting to build anything would have to build commonhold would be of sufficient severity. It would be an attraction, too, because, if people did not comply, they would not be building anything—and no one can tell me that people wanting to develop property will sit and do nothing for five years.

Such a condition could not be enforced on people who already had their planning permission, who had perhaps agreed a building lease and were far advanced in such matters. Therefore, if such a condition were brought in, and for five years, it could not be enforced against people who already had their planning permission and had perhaps agreed a building lease and fire prevention measures. People who are now going for planning permission are in a position to be able to negotiate the terms of the ground on which they are building and they would then get commonhold. In Australia, it has been clearly established that the price people are prepared to pay for a commonhold unit—in Australia it is called strata title—is so far above what anyone would otherwise pay for a flat that no-one would consider building anything else now. Interestingly, some leasehold is creeping into Australia. Local authorities do not want to part with their land and so they are creating 99-year leases, which have never existed there before. Thus, the swing is slightly the other way.

For residential accommodation to be occupied by people who wish to own and control their destiny, commonhold is the only thing. That is why I have put forward the amendment. Unless there is an element of compulsion even for a limited period of time, it will not get off the ground. Although I probably will not be alive to see it, in another 10 or 20 years it will be considered a great pity that this opportunity was missed in 2001. This is a new century. It is time for this country to be looking at new ways of people owning property and having their rights in perpetuity. I beg to move.

Lord Goodhart

I asked for my amendment, Amendment No. 236, to be grouped with this amendment. Although our amendment seeks to amend an entirely different part of the Bill, both amendments are in fact directed at the same objective—that is, preventing a grant of new leases in a form which would recreate the problems dealt with by this Bill and its predecessors. The noble Baroness, Lady Gardner of Parkes, attacks this objective through the planning process. In one respect at least, her amendment goes too far, as it would prevent not only the erection of buildings for long leases but also that of buildings for short leases at a market rent. There is a substantial demand for leases of that kind. Our version would prohibit the grant of leases at a premium. Therefore, it does not apply to a lease for no premium at a market rent. Our amendment would not prohibit new build leaseholds altogether but would require a minimum term for the lease, if granted at a premium, of 150 years. That would defer the problem for a long time, by which time entirely different problems would no doubt have arisen and this problem might well have ceased to exist.

This is to some extent a probing amendment, to see the Government's reaction. There has been a great deal of pressure from some leaseholder groups to ban the grant of new leases altogether. The noble Baroness's amendment would not achieve that because it would apply only to new build. However, I am also concerned that the commonhold system is untried. It may well succeed and I suspect that what the noble Baroness, Lady Gardner of Parkes, says about Australia will probably happen in this country; namely, that commonhold flats will sell for substantially more than leasehold flats. Market forces will thus mean that commonhold will drive out leasehold. However, I would ask the Government to consider these issues because there is at least something to be said for restricting the grant of new leaseholds in order to give commonhold a fair start.

Lord Selsdon

What we are discussing here is how to give people an incentive in order to introduce something that we would all like to see introduced. Governments and parliaments throughout history have had incentive departments. Some are called corrupt departments—as carrot and stick. I would like the Government to look at any way they can find to introduce an incentive for this system. We can run through the whole tax gambit of enterprise loans or granting roll-over relief to those who build commonhold. I do not support the details of my noble friend's amendment but, as always, I support her spirit.

Lord Monson

I should perhaps explain that, although I must have spoken on three or four leasehold Bills over the years, I did not take part in the Second Reading of this Bill because it took place on a Monday and train services from the North are not yet fully reliable. However, I did attend the greater part of the debate. I have no interest to declare as regards commonhold or leasehold, although as an owner of a straightforward rented property, I am naturally concerned that the principle of confiscation or partial confiscation of property rights should not become too widely established.

I believe this pair of amendments are too paternalistic. In addition, the amendment tabled by the noble Baroness, Lady Gardner, as the noble Lord, Lord Goodhart, said, would also affect blocks of flats built specifically for rack renting.

The late Lord Brook, Henry Brook, the eminent former Cabinet Minister, once told the House of Commons that leasehold had been enormously beneficial for him and his family. It had enabled them to live in a much larger and better house in a much better area than would have been possible had only more expensive freehold houses been available. Why should not people nowadays have the right to opt for a spacious and well designed house or flat in a nice area, albeit a slightly wasting asset, in preference to a much smaller property in a less salubrious area which holds its value in real terms in perpetuity? Surely it should be up to them to decide which they want to do.

Lord Bridges

I make a brief intervention on this point. I am a leaseholder of a London flat but my interests do not arise on this clause. We all hope that the commonhold system will work and be a success, and I hope that we can copy the Australian experience, but is it right to introduce a restriction and a degree of compulsion that seems to apply to both these amendments? I would much rather see the commonhold system gain affection among the occupants of property in this country on its own merit, and that is what should happen. I do not like the thought that we shall use the manipulation of the state to force it in one direction or another.

There might still be a certain market for leasehold properties in this country, even after the introduction of commonhold, because it is familiar. People know what it is and they might be able to buy a leasehold property more cheaply than a commonhold property. I do not feel able to support these amendments.

Lord Jacobs

I am very happy to support both amendments, although I agree that the amendment of the noble Baroness, Lady Gardner, is somewhat restrictive. It would not be a difficult matter to have a clause which provides that properties for rent could be excluded. That would be a very straightforward provision to make.

I would not be speaking out of turn for probably 2 million leaseholders in this country in saying that those who know about it are utterly astonished to learn two rather sad facts. Firstly, that their chances of getting into commonhold for existing leases are very small indeed. The discussion that has already taken place confirms that. Secondly, that new developments will take place across the country and they may not be commonhold. It is almost impossible to explain to them why, if the Government are bringing in this quite complex legislation, all new properties should not be commonhold.

I have asked those on my own Benches who from a legal point of view know more about this than I do. They have explained that the Government recognise that it is quite difficult legislation and that they want to field trial it and not compel everybody to develop under commonhold. That may be the case, and it may even be quite reasonable, but if they do not develop under commonhold they can develop on 75-year or 99-year leases. That is why I support the amendment of my noble friend Lord Goodhart, who has suggested 150 years. In discussion with him, I put forward the idea that 900 years would be more appropriate. At least then the developers would recognise that there was no reversionary gain to be sought by not going into commonhold. If we could discourage developers from considering any more leasehold, the Government's objective would be achieved.

Lord Bach

I would not seek to describe anything that the noble Baroness, Lady Gardner of Parkes, does as draconian; in the same way, I am not entirely happy about being associated with something that is a damp squib or a great disappointment. However, there is no doubt that radicalism of an extreme nature exists and is alive in the House of Lords, and it is very good to see it in her amendment. I would not describe the amendment as draconian; I would describe it as an ingenious attempt to arrive at a position in which future developments of leasehold flats would he forbidden.

The Government have been clear, rightly so—the noble Lords, Lord Selsdon and Lord Bridges, made the point—that the development of commonhold offers an alternative to leasehold. It has been clear that we have no intention of cutting off the possibility of leasehold development if that is what developers and the market still want. Indeed, to suggest anything else and to go down the road of compulsion would be something for which we would be attacked as quickly as we suggested it.

Of course we want to see that there are no significant, unforeseen problems with the new system. The opposition parties—and my own—would be the first to criticise any actual or arguable fault which the new system of commonhold put up. What we ask is that the market should be left to make up its mind.

If, in due course, it seems proper to come to some decision about the continuation of leasehold, no doubt that can be looked at and taken, but we do not think that that is likely to happen in the very short term. To prevent leaseholds altogether, we fear, would be a prohibition and an interference with an owner's use of property and might—I use the word "might"—potentially be a source of problems in relation to the first protocol to the European Convention on Human Rights.

I know why the noble Baroness has raised this issue in the way that she has; she wants to draw attention to it. I can see her point of view; it would, in a way, be something that was agreeable.

However, I have to point out to the noble Baroness that if in Australia they are beginning slowly to construct leaseholds again—even if in a small way—there cannot be any prohibition there of the kind she is suggesting should be imposed here. But I do not believe she is absolutely serious in suggesting that there should be a prohibition.

What the noble Lord, Lord Selsdon, said attracts us. We shall look carefully at ways in which we can, to coin a phrase, "market" the commonhold system. There is no reason why there should not be some marketable incentives towards encouraging people to move to commonhold, provided the playing field remains even. However, I say with confidence that we believe that commonhold will be a success. It will be a success on its own merits and not because we are, as it were, abolishing some other form of land tenure. I ask the noble Baroness not to press her amendment and to withdraw it.

As far as concerns the amendment of the noble Lord, Lord Goodhart, we see the reasoning behind it. However, at this stage—I do not wish to give any false hopes—we are not convinced that it would be effective in solving the problems faced by leaseholders and might create some very real, practical problems. I shall deal with these shortly.

In many cases, developers may be able to acquire land only on a leasehold basis. They will be unable to offer leases for a longer term than the term granted to them. Land subject to a lease of less than 150 years could not be utilised for residential development unless the developer could persuade the landowner to grant a new lease of an appropriate term. That may distort the market and prevent the sensible use of land. There may be difficulties in redeveloping existing leasehold property which has reached the end of its life if those concerned are unable to acquire the freehold or to do so on reasonable terms. In addition, council tenants have the right to buy a long lease on the flat in which they live. Local authorities may hold the land on which the flats are built only on leasehold.

The amendment, if carried out to the letter, would remove consumer choice in prohibiting the grant of any lease below 150 years for a premium. We are advised that it would, therefore, apply to an assured shorthold tenancy where the rent was payable as a lump sum in advance. Where willing parties wish to agree to such an arrangement, such as a company requiring temporary accommodation for an employee, it would be wrong to interfere. The amendment does not deal with the fundamental problem, as the noble Lord sees it, of leasehold tenure. It would not prevent leasehold abuse nor prevent the lease depreciating over time, albeit a long period of time. It would probably merely postpone the latter problem. However, the noble Lord raises a serious issue and we shall look at it again.

Lord Jacobs

Is the Minister aware of his department's own consultation paper Residential Leasehold Reform in England and Wales? The introduction deals with the fundamental point under discussion: existing and new leaseholds. I read briefly the first two paragraphs: The leasehold tenure is almost unique in England and Wales. It has its roots in the feudal system and gives great powers and privileges to landowners. It is totally unsuited to the society of the twentieth—let alone the twenty-first—century … The Government believes the leasehold system is fundamentally flawed. It is committed to introducing a new form of tenure for flats—commonhold—which in future will enable the individual flat-owners in a block to own and manage the whole building collectively from the outset. We see commonhold as the best way to tackle the problems faced by many existing"— I emphasise that word— residential leaseholders". Does the Minister agree that what he said about the earlier amendments and the likelihood that very few existing leaseholders would be able to change to commonhold—the noble Lord now says that the Government want to keep leasehold going even when the commonhold legislation is enacted—does not tie up with any of the aspirations of his party from the very beginning?

5.45 p.m.

Lord Bach

The noble Lord is wrong. Naturally, our aspiration is that eventually there will be no leasehold, but it is a question of how that is arrived at. In a free society people cannot be compelled to lose a tenure that has existed, rightly or wrongly, for centuries. We want to persuade people that with the new commonhold system there is no need for leasehold, and that will take time. People cannot be compelled to do that. In time commonhold will assert itself, but any government would be highly irresponsible if they took any course other than the one that we have taken.

Lord Richard

The noble Baroness, Lady Gardner of Parkes, said that this looked like a damp squib. The longer the Committee stage goes on, the damper the squib appears to become; indeed, it is rapidly becoming sodden. I am disappointed by the attitude and approach of the Government in this matter. I am grateful to the noble Lord, Lord Jacobs, for referring to the consultation paper, which is not the kind of thing that a loyal supporter of the Government would wish to do in public. However, since he has done so I am glad of it. With great respect to the Government, we have oversold this to the general public if the concept is as seems to be emerging this afternoon. That concept appears to be based on no compulsion in terms of whether one moves to commonhold; and it must be 100 per cent and no less, on which I have already expressed my views.

We are now told that the amendments tabled by the noble Baroness, Lady Gardner of Parkes, and the noble Lord, Lord Goodhart, are not acceptable to the Government because there is an element of compulsion or quasi direction which the Government do not like. I say with all goodwill to the Minister that if he takes that attitude, he has to do something else. He has to say how commonhold will be encouraged if there is no legal framework within which people are being pushed into commonhold. The Minister indicated that the Government might have in mind other incentives. With great respect, he should spell them out. If he does not spell them out, the general public will be left suspended between a flying freehold and the possibility of a commonhold. What are they to make of it?

We have been selling commonhold. We have all said what a splendid idea it is and people are still saying what a splendid idea it is. But from something which was designed to replace leasehold, it has now become an additional option. The Government will have to face up to that and spell the position out.

Baroness Hanham

I am much indebted to the noble Lord for having mentioned the consultation paper. The Minister was not too clear when responding on the question of the existing premises, which were clearly marked out in the consultation paper. The impression that has been given is that existing leaseholders will not want to or be able to change to commonhold, but that is not what the consultation paper was about, and it is not what everyone thought commonhold was about. There has always been an aspiration that people with leasehold can change to commonhold. I am sure the Minister meant to reply to that point. I am just giving him another opportunity to do so.

Lord Monson

In contrast to the noble Lord, Lord Richard, I congratulate the Government on having second thoughts, on adopting a more libertarian attitude and on allowing willing buyers of the leaseholder properties to acquire them from willing sellers.

Lord Bach

Having been attacked on all sides, I am beginning to think that I may be in just about the correct position now. As far as concerns marketing for commonhold, my department has a budget for raising awareness by training and education and carefully placed advertising among developers, managers and other professionals, and especially among leaseholders, for over the 12 months after Royal Assent. We have already given some thought to that, and we would like to give more thought to it.

Lord Williams of Elvel

I am grateful to the Minister for giving way. He has already said that existing leaseholders would normally not qualify for commonhold—they would not want to go in for it. What is the point of a marketing programme for existing leaseholders when they have no rights therein whatever?

Lord Bach

If the noble Lord will forgive me, it was he, not I, who said that it had absolutely no relevance to existing leaseholders. In fact, I said the opposite. I said that we hoped that existing leaseholders might, in some cases, take advantage of commonhold. I did not pretend for a moment that it would happen in a large number of cases. I do not think that it will and the Government do not think that it will. But we do hope that it happens in some cases. I mentioned leases where there were just a couple of leaseholders. I am certainly not saying that there will be never be a case where there will be some conversion from existing leasehold to commonhold; I think that there will. That is why we will be trying to persuade leaseholders or talking to leaseholders about changing to commonhold. But we are realistic about it. We know that it cannot be done overnight.

Commonhold has to prove itself. We have enough confidence in commonhold to believe that it will prove itself. That is the best way I can respond to my noble friend Lord Richard. We have not changed our stance in any particular way. We want eventually to see the end of leasehold. We do not believe that the proper way to do it is just to abolish it. That would not have the desired effect. By establishing an alternative leasehold such as commonhold, we believe we will get a much better system of tenure in due course.

Lord Jacobs

The Minister said that the Government had not changed their policy in any way. I did not intend to raise this matter but, having heard that statement, I feel I must. I discussed this paper with the Minister in another place and asked him how he squared the direction that the policy was clearly taking with this ministerial foreword. He thought for some moments and said, "I did not write the foreword". That was the only response he could give.

The Minister is aware, as are we all, that there has been a change of direction. I do not know why and I do not know anyone else who does. The Government came forward with the position that they were going to support existing leaseholders in trying to get out of their present situation and into commonhold; and. as we understood it, they were going to bring in commonhold for new developments in replacement of leasehold. So clearly there has been a change of policy, which the Minister in another place recognised.

Baroness Hanham

I wonder whether the Minister will accept from me—I was so impressed by it that I wrote it down—that he did say in his earlier remarks that he did not see commonhold being developed from leasehold.

Baroness Maddock

Perhaps I may press the Minister a little further on the issues of advertising and getting people on board, a point that I raised at Second Reading, particularly with reference to builders and new developers. Given the disquiet in the Committee today, can the Minister enlarge on what discussions have taken place with builders and developers? We have been told by various sources—the Minister will be aware that we are inundated with letters and information from people—that builders and developers are not taking much interest in this. I should be grateful if the Minister could expand a little.

Lord Bach

I am not in a position to give the noble Baroness many details but, from what we have heard—and also from what we have read in the same journals that she has no doubt been able to read—there is considerable interest among developers in commonhold development. That is our understanding. I shall go back to the department, find out what inquiries have been made and write to the noble Baroness.

Baroness Gardner of Parkes

I thank those who have supported me in my unreasonable amendment. When the Minister talks about raising awareness, that is going in quite the wrong direction. The public are already very aware of this issue. The Government promised them that they would be given this solution, which would make life better and fairer for them and give them the right to have their own property. Instead, it is getting nowhere.

The Minister implied the need to raise awareness among developers as well as the public. There is only one way to interest the developers; that is, to follow my noble friend's suggestion of providing incentives for them. The only time I saw anyone perk up with interest at the British Property Federation lunch was when I said that properties attracted much higher prices if they were sold commonhold. Suddenly, someone looked quite alert and said, "Oh really! Is that so?"

You need to take this kind of line when you are talking to developers. You have to prove to them that it will be financially wise to do this. In that way, you might provide incentives for them. Perhaps the Chancellor's forthcoming Budget will contain some incentives.

Anything that will get this system going will be a very important factor. Once this is established in London—I shall not refer to the case that someone is going to do something in Northampton, which is quoted all the time; I am talking about something being done in London—it will be under a magnifying glass. It does not matter which part of London; everyone will be aware of what happens in the capital. If you can provide the incentive for someone to do it here, it will speak for itself. People will be so pleased with it that, once one developer sees it is a success, it will go on.

This matter is not to be taken lightly. It would be a terrible let down for people if nothing happened. In the meantime, I beg leave to withdraw.

Amendment, by leave, withdrawn.

Clauses 11 to 13 agreed to.

Clause 14 [Use and maintenance]:

6 p.m.

Lord Kingsland moved Amendment No. 25: Page 7, line 24, leave out ("and maintenance") and insert (", maintenance and regular upgrading").

The noble Lord said: This amendment would require the commonhold community statement to impose a duty to ensure that the unit was regularly upgraded. One of the long-standing problems with leasehold management occurs where leases make no provision for the improvements of buildings. This prevents the cost of improvements being recovered through the service charge. It can lead to services in the building not being modernised because they will count as an improvement rather than a repair or maintenance. The problem has been acknowledged in the Bill. Schedule 9 includes amendments to the existing legislation to add improvements to the standard definition of a service charge.

We believe that similar provisions in commonhold legislation should be inserted to ensure that these problems are prevented from the start. We propose that the statement should require regular upgrading rather than improvement. This is because we recognise that there can be disputes over what constitutes improvement. In any block there will be spenders and savers as well as those who can afford to pay and those who cannot afford to pay. It is important to ensure that the rights of the minority are protected, and that the spenders and better off members of the commonhold community do not railroad the savers and less well off into an obligation to pay for top-of-the-range improvements.

We have therefore used regular upgrading to signify the intention for progressive modernisation of the building over time, although we do recognise that there is as much scope for argument as to what constitutes "regular" and "upgrading" as there might be in "improvement". Amendment No. 39 makes similar provision for the regular upgrading of the common part. I beg to move.

Baroness Gardner of Parkes

I have views on this regular upgrading. It worries me in the same way as an upward-only rent review. Having had property in Australia, I saw very clearly that there was a huge division between those who lived in the block and wanted the luxury entrance, and those who perhaps because they were working away or for some other reason had sub-let their property. Those people were barely getting a return on the service charge and the upgrading that was envisaged. Maintenance is very important, but definition of upgrading is the most difficult feature.

Baroness Hamwee

Although I understand what underlies the noble Lord's amendment, and his concerns and those of the British Property Federation, I, too, find difficulty with the words. "Regular upgrading" sounds a little like estate-agent speak. When I first read it, it suggested a new kitchen every 10 years. I am sure that that is not what is meant, but I find difficulty in construing the words of the legislative term.

Lord Selsdon

I, too, have some difficulty with this. There is not a great problem with the new buildings but as regards many existing buildings some have reserve funds included in the service charge but others do not. Most service charges were based on original rateable values but there are now awful argument about the lifts. It often happens that the people who do not pay for the lifts do not want them to be upgraded. They must be maintained annually under a maintenance contract and have the appropriate insurance. In some areas, normal external redecoration is required every five years and internally every seven years.

Upgrading causes a major problem when some parts of a building are falling down and it is protected by English Heritage. Other buildings may have little foundation and suffer from hump and heave and cracks. There will be those who would like to have a roof which did not leak but who are required to replace it with old tiles which will always leak. It is the term "upgrading" that I do not like. Neither do I like the term often used by the noble Lord opposite, "modernization", which seems to be things spelt with a zee.

Lord Lea of Crondall

Does the Minister intend to cover the following point? I have not read the new memorandum of association of commonhold which we have just received from the Printed Paper Office, but presumably in secondary legislation or in some other way there will have to be a benchmarking of the standards of maintenance. If not, all the problems of company law, imposing the liability on the two or three residents who do not want to pay and so forth will be a nightmare. I speak as the chairman of a residents' association, as I mentioned at Second Reading. The problem of ensuring that we facilitate the necessary legal structures is very important. It arises in a number of places in the Bill and it certainly arises here.

Lord Bach

Yes, we will try to make clear what my noble friend Lord Lea asks for. As he knows, we accept that the memorandum that is in existence at the moment is a draft only. The three amendments would all reduce a degree of certainty dictated by our policy and provided for us by the draftsmen by adding words and phrases which would bring no discernible advantage if they were employed in the Bill.

Amendments Nos. 25 and 39 would both introduce a duty regularly to upgrade. We agree with what the noble Baroness, Lady Gardner, said and we are not quite sure what it means. We are not aware that it is a term of art among developers. It is not a term regularly used in leases or other contracts. Furthermore, it has the distinct disadvantage of being impossible to define accurately, as the noble Lord, Lord Kingsland, admitted, in both its parts; "regularly" and "upgrade". The duties with which it would be allied are all well understood and readily ascertainable; in other words, to insure, to repair and to maintain. In any event, regular upgrading, even if it were possible to say what it exactly what it means, is not something that one would expect to impose on freeholders.

Commonhold brings with it certain duties and responsibilities. It is a concept of freehold in itself and we have no desire to impose further on the freehold concept, thus risking making commonhold less easy to sell as a unit than might have been the case. We are therefore not in favour of those amendments.

Amendment No. 82 to Clause 66 would add the words "where practicable". Practicability seems to us to be a predefinition of decisions relating to rebuilding and reinstatement and therefore it would add nothing to the clause. We therefore ask the noble Lord to withdraw the amendment.

Baroness Hamwee

When the Minister responds to the points made by the noble Lord, Lord Lea, will he distinguish between the obligations that relate to the whole building and those that relate to individual units? I had intended to say that one of my concerns about the first of the amendments related to the duty that would be imposed on the individual unit-holder as regards what he did within his own unit which may not affect the structure of the building. It would be helpful to have that distinction.

Lord Bach

We will make that distinction in our reply.

Lord Bridges

The phrase "regular upgrading" might well mean that if a building held in commonhold had an aerial on top for reception of television, a new aerial would be required when digital television was introduced. I am not sure that such provision needs to be in a community statement but occupants of the building would clearly want to discuss that question and decide whether they wanted to pay for it before it appeared in their budget. That is one way in which I imagine it would be handled in practice.

Lord Kingsland

It might be said that the amendments have received a very moderate "hello" from your Lordships. My amendment has received a very moderate greeting from the Committee. In those circumstances, I shall of course withdraw my amendment and, in so doing, reflect upon some new formula that I may table at Report stage to meet what I still believe to be a desirable need. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Caithness moved Amendment No. 26: Page 7, line 27, at end insert— ("( ) Notwithstanding these duties, the commonhold association shall always be responsible for the structure of the building, including repairs and insurance of the structure on a full reinstatement basis.").

The noble Earl said: In moving Amendment No. 26 I should like to speak at the same time to Amendments Nos. 38, 40 and 61. We return to a point that I and the noble Lord, Lord McIntosh of Haringey, debated earlier: the standardisation of the commonhold association statement. Since we debated this matter in a previous amendment my noble friend Lord Selsdon has hurried to the Printed Paper Office and provided me with a copy, for which I thank him. However, I do not believe that my problem is yet solved, since in the brief time that I have had to read through it I do not see an obligation on the commonhold association to maintain the structure and internal walls of the building. The statement refers to common parts but does not define them. I hope that the Minister will be able to clarify the situation.

Amendment No. 26 refers to insurance of the structure of the building. Although insurance is dealt with in paragraph 49 of the draft statement, it refers to, insurance, including public liability insurance in respect of the common parts".

Does that refer to the structure of the building? That is the principal point which underlies the four amendments.

When I moved Amendment No. 19 the noble Lord, Lord McIntosh, said that it would not be possible to contract out of what would be in the model association statement. Yet in Clause 14(2) it is provided that, A commonhold community statement must make provision imposing duties in respect of insurance, repair and maintenance of each commonhold unit".

If that statement is binding on both parties, what is the purpose of having it in the Bill? I beg to move.

Lord Williams of Elvel

There is a distinction between the structure of the building and its contents. I agree with the noble Earl that obligatory insurance of the structure of the building should be imposed only on the commonhold association and that unit-holders' fixtures, fittings and contents can be insured by the unit-holders themselves. That clear distinction goes to the heart of a commonhold association. It is also sensible that a single body should be responsible for the integrity of the building as far as concerns insurance. I support the noble Earl's amendment.

6.15 p.m.

Lord Bach

These amendments appear to have been tabled as a result of a misunderstanding. If passed Amendment No. 26 would give rise to an unfortunate unintended consequence and duplicate a provision already in the Bill that is designed to fulfil the presumed intention of the noble Earl. In its present form the amendment would make the commonhold association responsible for the insurance and maintenance of commonhold houses, detached or otherwise, and other independent buildings such as detached business units. It may be that the noble Earl intends to restrict the force of the amendment to flatted properties, in which case he will find that the provisions of Clause 25 already require the commonhold association to insure and maintain the common parts. In the case of flats, but not necessarily houses, that includes the structure of the building. If I am right in what I have said, I hope that that also deals with the other amendments in this group.

Lord Williams of Elvel

Does maintenance include insurance?

Lord Bach

Clause 25 states: A commonhold community statement must make provision—

1. (a) regulating the use of the common parts;
2. (b) requiring the commonhold association to insure the common parts".

That may well be the structure of flatted properties.

The Earl of Caithness

My problem still remains that there is no definition, as I see it, of what common parts are in the draft statement at which I have just glanced. Although the Minister has kindly confirmed that the structural part of the building is involved in the common parts, I hope that this can be made clear in the association statement.

I ask the Minister to consider the second point that I made. We have various statements in paragraph 14 about how commonhold statements must include certain provisions. The noble Lord has just mentioned Clause 25. However, given what the noble Lord, Lord McIntosh of Haringey, said—that everything in the statement is binding on both parties—is it necessary to have it in the Bill as well as in the statement? Can there not be a subsection in the Bill providing that there will be a model commonhold statement from which neither party may contract out but to which they can add? That would cover it. Everyone would know after that.

Lord Bach

I shall certainly consider what the noble Earl has said. Perhaps I may refer him to a definition of common parts in Clause 24(1) of the Bill. It states: In this Part 'common parts' in relation to a commonhold means every part of the commonhold which is not for the time being a commonhold unit in accordance with the commonhold community statement".

The Earl of Caithness

I am grateful to the Minister for that clarification, which goes some way to reassure me. However, I would like to read what he has said and give it further thought. I am also grateful that the noble Lord has agreed to look at the other question that I raised. I believe there is something in that which would make the Bill and the statement much more intelligible to both parties. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 14 agreed to.

Clause 15 [Transfer]:

The Earl of Caithness moved Amendment No. 27: Page 7, line 42, at end insert— ("( ) Outstanding debts and arrears due to the commonhold association must be paid upon transfer of the unit.").

The noble Earl said: Those Members of the Committee who have been involved with leasehold properties will know how difficult things become when a property is transferred and debts or moneys are owed from that lessee. The amendment seeks to ensure that when there is a transfer of a commonhold property all debts and arrears are paid. That will ease the commonhold association's liabilities and problems and will make the whole administration of running the building a great deal easier. I beg to move.

Lord Williams of Elvel

The noble Earl is right. There is a problem with how one transfers the obligations of units and, in particular—I raise this point because Amendment No. 58 is grouped with Amendment No. 27—how one enforces that and what kind of penalties should be imposed. There is a serious problem here which I am sure my noble friend will wish to address.

Lord McIntosh of Haringey

There is certainly a serious problem and I am grateful to the noble Earl and to the noble Lord for the way in which they have introduced it. The trouble is that Amendments Nos. 57 and 58 would close down the range of options available to the commonhold association to collect debt. We doubt whether there should be specific mention on the face of the Bill of a power for the commonhold association to take a first charge on the unit to recover unpaid debts. Under the current law, that is one way in which a creditor may attempt to recover what is owed by a debtor, but it is only one, and it is not the only one.

I do not believe that to take a first charge to recover a debt in the commonhold would never be appropriate, but specifying it as "the" way to recover money owed under Clause 36 regulations or otherwise is to close down the options unnecessarily.

Presumably, we would only be considering a charge to enforce a debt when the various forms of alternative dispute resolution, which we will require, have failed, but charges seem to represent jam tomorrow, whereas a commonhold association will want to recoup its losses as soon as possible after they arise. If, as I suspect, they have had to get to court to get this far, the charging order is available to them, but so are execution against goods orders, attachment of earnings orders and garnishee orders, all of which might have a more immediate effect in regaining outstanding money than a charge.

The flexibility of enforcement available to judgment creditors under the present system is valuable and ought to be available to commonhold associations.

Amendment No. 27 might have made more sense if it required a particular party to settle the outstanding debts. As it is, the burden might fall on either party, and it is rather strange to think that a buyer might be expected to sign two cheques, one to the seller, and one to the commonhold association to settle the seller's debts.

Baroness Gardner of Parkes

Amendment No. 27 is an important one. Amendment No. 58 goes too far—that is where the Minister referred to putting on a charge, and so on. Amendment No. 27 would mean that, for anyone buying a unit, his or her solicitor would automatically have to check that there was money outstanding to the commonhold group. We should bear in mind that if someone is not paying their share, all the other commonholders will suffer as a result. I support the amendment of the noble Earl, Lord Caithness.

Lord Selsdon

We can learn some things from existing leasehold arrangements. In general, if a tenant wishes to sell a flat or a property, the buyer has to have obtained the consent of the landlord, and that consent must not be unreasonably withheld. Usually, those searches are on what amounts of money are outstanding and due. If one takes over a lease from someone else, one takes over all of his obligations. I do not see why it is not possible to give commonhold associations the right to refuse transfer until and unless all outstanding debts are settled.

Lord McIntosh of Haringey

Then it would not be commonhold. Clause 15(2) states: A commonhold community statement may not prevent or restrict the transfer of a commonhold unit". The benefit of commonhold is that it applies the conditions of freehold to multiple occupation properties. If we did not have that transfer, we would not have commonhold at all. I am not saying that there is not a problem of people selling on their property and being unavailable to pay their outstanding debt. We have already had the answer to that—outstanding debts to the commonhold association ought to be revealed on a solicitor's search, and that ought to be settled before the transfer takes place.

Lord Jacobs

Is the Minister saying that it is not possible to devise a system so that somebody cannot transfer their commonhold until they have settled their debts to the association; or is he saying that he has tried to devise a system but has not been able to come up with one? Will he look at this again?

Lord McIntosh of Haringey

I am not saying that at all. I am not saying either of those things. I am saying that there is a whole series of procedures in the courts for the recovery of debts. To restrict it in this way would be to weaken rather than strengthen the position of the commonhold association.

Lord Jacobs

Surely, the difficulty is that perhaps the owner is from abroad and leaves outstanding debts. He takes his money from the sale of the commonhold and has not paid his debts to the association. In any reasonable equity situation one would have to discharge one's debts before one obtained title, in this case to the commonhold. The vendor would have to discharge the debt.

I understand the point that the Minister makes but, taking into account what may happen on occasions where the previous owner disappears, or perhaps just goes abroad, are the Government unable to find any way to put a stop in the system to prevent people completing a transfer before they have settled their debts?

Lord McIntosh of Haringey

The problem of recovery of debts has been endemic in human society since the time of cave-dwellers. What is proposed in the amendment, and is at issue here, is that commonhold should somehow be weakened so that transfer of the ownership of a commonhold unit should be made subject to the settlement of debts to the commonhold association. I am not keen to have any restriction on the use of the courts to recover debt. I am very nervous about reducing the quality of commonhold ownership by saying that it is in effect up to the incoming owner to take some responsibility for the outgoing owner's debts.

Lord Jacobs

Does the Minister agree that in reality there is no way that one can receive the proceeds of sale of a freehold without being obliged, I believe by the lawyers—I do not know how it is done—to deduct any outstanding liabilities? Everyone accepts that that is reasonable. Nobody would regard it as unreasonable that one cannot transfer one's commonhold while one owes a big debt for work that has been done, or money is owing to the commonhold association. All I am asking is whether at least the sale of a commonhold can be in parity with the sale of a freehold.

Lord Richard

As I understand the argument, I believe that the Government are absolutely right and, with great respect to the noble Lord opposite, he is wrong. Assuming that I am a commonhold unit-holder and I want to sell it to the noble Lord opposite, if I have not paid my debts and he finds out about it—the chances are that he will—he need not sign the contract. If he signs the contract for the sale of the unit obviously he is bound, and I am bound if I sign it. This is a question of how one recovers debts, rather than how to stop the transfer of property. I am not in favour of this amendment.

The Earl of Caithness

I am grateful to all those who have taken part in this short debate. I am particularly grateful for the support that I have received. I disagree with the noble Lord, Lord McIntosh, that to insert something like Amendment No. 27 would weaken commonhold. Far from it; it would strengthen commonhold. To run property is not an easy business; it requires a good deal of effort by a number of people if it is to be done successfully. I know many people who for many years have longed to run their flats and to be part of a management company but, when they have achieved that position, have regretted it because of the effort and commitment required.

I am simply trying to make commonhold work better. As the noble Lord, Lord Richard said, it is a question of collecting debt. But why not use this opportunity to strengthen the hand of the commonhold association and all the other commonholders who have units? I agree that if a particularly troublesome person is constantly in arrears with monies due to the commonhold association there is a range of flexible measures which the commonhold association can take to deal with that individual. However, when it comes to the transfer of the unit there is a golden opportunity to get that situation up to date for the benefit of all the other commonholders in the association. It is that one person, or perhaps two people, who are holding back the regular maintenance; holding back the upkeep of the building. Here is a chance to say, "Right. You cannot transfer your commonhold unit until all the debts have been paid. When you have paid your debts, that is great. You go ahead and transfer it". Surely that is a sensible approach. I hope that the Minister will think again on this issue. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6.30 p.m.

Clause 15 agreed to.

Clause 16 agreed to.

Clause 17 [Leasing: residential]:

The Deputy Chairman of Committees (Lord Lyell)

I should advise the Committee that if Amendment No. 28 is agreed to, I shall not be able to call Amendment No. 28A on the supplementary sheet.

Lord Goodhart moved Amendment No. 28: Page 8, line 20, leave out subsections (1) and (2) and insert— ("(1) No term of years absolute may be created in a residential commonhold unit—

1. (a) for a term exceeding 7 years;
2. (b) in consideration of the payment of a premium or other lump sum;
3. (c) which does not comply with such other conditions as may be prescribed.").

The noble Lord said: The viability of commonhold depends on the unit-holder having a satisfactory degree of flexibility for the way in which he or she deals with the unit. The unit-holders will not all be permanent residents: some may buy a unit, be posted abroad and want to come back; some may buy a unit for retirement in advance of retiring and taking up residence; and some may buy a unit for investment, and there is no reason why they should not. Unit-holders must have a power to rent out their flats. If they were not able to do so, commonhold would lose a good deal of its attraction because it would be much more difficult to deal with than a leasehold property.

At the same time, it is reasonable to say that unit-holders should not be allowed to create long leases at a premium. That would simply recreate the leasehold problems and complicate management. In addition, members of commonhold associations should regard themselves as members of a co-operative body and have a real and personal interest in the commonhold property.

The Bill seeks to leave these issues to regulations. We think that some issues are fundamental to the viability of commonhold schemes and are too important to be left to regulations; they should be on the face of the Bill. We need commercial certainty. It is necessary that vital matters should not be left to regulations, which could always be changed at short notice.

In our view, two matters are essential and should be on the face of the Bill. One is the maximum length of the lease; the other is the exclusion of the premiums. Our amendment proposes a seven-year maximum for the lease, which we think is the right length of time. Of course, there is nothing to prevent the unit-holder renewing the lease by agreement when the original seven years are coming to an end if at that point he does not want it for his own residence or for leasing to someone else. Less than seven years would not give enough flexibility; if you have more than seven years you begin to get into long leasehold issues and the unit-holder ceases to have any real personal interest in the unit.

Seven years is recognised by existing legislation as the point at which, for example, certain maintenance and repair responsibilities shift from the landlord to the tenant. We think that 15 years, as proposed by the noble Lord, Lord Kingsland, is somewhat too long. We believe it is appropriate to use the same dividing point for commonhold purposes as is used, for example, for the shift of responsibilities for maintenance and repair. I repeat that this is a matter of such importance that it should be placed on the face of the Bill and not be left simply to regulations. I beg to move.

Baroness Gardner of Parkes

Grouped with this amendment is the debate whether Clause 17 shall stand part of the Bill. I am opposed to Clause 17, but I am equally opposed to the amendment. There should be no restrictions whatever. Once you own your unit of commonhold, it should be entirely up to you what you do with it. If you want to let it for ever, that is up to you; if you want to let it for a short time or a long time, that is also up to you. I do not know where the provision comes in about seven years and the liability for repairs. It is not something I have ever thought about. I am not familiar with it and I do not understand it. I have known of people owning units and living abroad for 20 years. That does not apply to me—I have lived abroad for 40 or 50 years. The whole essence of commonhold is for it to be free. The noble Minister told us just a moment ago that he did not want that last restriction about transferring title, nor any restriction on commonhold. He referred to the value of the freedom of commonhold; that it is yours, to do with as you wish. Then we come to this clause and see that we are going to restrict what you can do with it, in terms of having a tenant or anyone else.

Lord Goodhart

I am grateful to the noble Baroness for giving way. However, would she allow a unit-holder to grant a 99-year lease at a premium?

Baroness Gardner of Parkes

I probably would, but I doubt whether anyone would want to do that. It would seem most extraordinary for anyone to have such an aim. However, if you own a unit, it is entirely up to you what you do with it. That is how the Australian system works and it is the right way. There should be no unnecessary restrictions. In response to the previous amendment, the Government said that they did not wish to impose that degree of restriction with regard to people settling their debts. So why should they wish to make this one?

Lord Selsdon

I am sorry to intervene again. However, this is a perfect example of where we can find incentives. One of the biggest growth markets in this country among the retired and semi-retired should be buying to let. The same is the case with expatriates around the world. If you have the protection of buying a commonhold unit with the intention of letting it, that is better than handing over the money from your pension to a government who will give you a useless annuity over a period of time. That same kind of mood is prevalent around the world. You are providing accommodation for rent, for which there is a demand. I think that my noble friend is wrong and that the noble Lord, Lord Goodhart, is wrong. Somewhere in this is the need to encourage not necessarily owner occupiers but investors.

Lord Lea of Crondall

Is this not another issue which relates to the commonhold association memorandum? I would be surprised if one could restrict the right of the commonhold association to put in a covenant about sub-letting or other matters along those lines. Will there not be issues to clarify at that stage? There will be a need to clarify what is the scope for restrictive covenants on this document.

Baroness Gardner of Parkes

Perhaps I may come back on that point. At Second Reading, I made it clear that there had been two forms of title in Australia. The first was called company title, where you had to get consent of other people for whatever you did in your property. The second one—the strata title—is what we were aiming to produce in this country as commonhold. In the latter case, you were totally unrestricted, even on the point about repairs, which came up on an earlier amendment. Certainly, you were liable to ensure that the building as a whole stayed up, but if you allowed your unit, internally, to become a pig sty, that was entirely your choice. No one in the commonhold could enforce any improvement in that, unless it became noxious or was spreading some terrible infection to other unit-holders. The whole point about the commonhold is that it is your little piece of freehold in that big building.

Lord Lea of Crondall

My question is not really answered in that way. I am asking whether it is not within the scope of the commonhold association to agree restrictive covenants about various things that people can do. Is that right?

Baroness Gardner of Parkes

No.

Lord Kingsland

Clause 17 imposes restrictions on a residential unit-holder's right to create a lease of his unit. According to the Explanatory Notes, the intention is that regulations made under Clause 17(1) set down that no premium should be payable for a lease, and that it should be at a rack rent, and also that the maximum period for a single term of lease should be restricted to seven years.

As Members of the Committee are well aware, criticism was made of this clause at Second Reading. The noble Lord, Lord Goodhart, and the noble Lord, Lord Richard, thought that some restriction would be appropriate but that the present proposals were too restrictive. My noble friend Lady Gardner of Parkes, as we have just heard, drawing on her own immense experience of strata titles in New South Wales, strongly and persuasively opposed any restriction as she has done today. The noble Baroness, Lady Hamwee, suggested that tight restrictions would hamper the reinvigoration of the rental market.

Since the principal intent behind the proposal for commonhold is to place unit-holders as nearly as possible into the same position as though they were outright freeholders—that is, with as few restrictions as possible on their powers of disposition and alienation—the presumption should be against any restriction unless clearly justified. As far as I am aware, no such justification has been given; hence this clause should be omitted in its entirety.

If the concern is that problems may arise if some unit-holders are absentee landlords, those problems are more properly to be treated as problems of management to be dealt with in accordance with the CCS or the M&A rather than by regulation. However, in the case of a new development, the intending purchaser for a commonhold unit would know before he contracted to buy the unit just what restrictions on his powers of disposition and alienation are imposed by the CCS and/or the memorandum of association and will be able to take those into account when deciding whether or not to buy the unit and, if so, at what price.

In case of a conversion from leasehold, the question of whether or not there should be any such restrictions would have to be debated and agreed upon before an individual leaseholder decided whether or not to consent to the proposed application.

In any event, the proposed restrictions are far more restrictive than those imposed by, for example, Section 41 of the Settled Land Act 1925, where the basic maximum term for a lease by a tenant for life is 50 years, with longer terms being allowed in special cases. The Trusts of Land and Appointment of Trustees Act 1996, which replaced the Settled Land Act and the later provisions in the Law of Property Act 1925 providing for modern trusts of land, specifically provides that trustees of land shall have all the powers of an absolute owner.

The Bill does not deal with the leasing powers of trustees of land, nor does it spell out the consequences of granting an invalid lease for an instant purchaser. If it be intended that such matters shall be dealt with by regulation to be made under Section 19, these are all matters of fundamental importance which should be debated and form part of the primary legislation and not left to delegated legislation.

Lord McIntosh of Haringey

I was going to wait until the disputes on the other side of the room had died down and hoped to pick up the pieces with the maximum disagreement of those who were proposing these amendments. I cannot quite do that, so let me remind Members of the Committee from the Explanatory Notes what we are doing in Clause 17.

Clause 17 places one of the few restrictions that the commonhold scheme requires on the ability of a unit-holder to treat his unit as though freehold. It is government policy that residential commonhold units should not be let for long, unbroken periods. The only purpose of that is that we should not be returning to long leaseholds by the back door. That is why Clause 17(1) provides that, It shall not be possible to create a term of years absolute in a residential commonhold unit unless the term satisfies prescribed conditions", relating to length, the circumstances in which it is granted or any other matter.

Amendment No. 28 seeks to bring some of those matters onto the face of the Bill by prescribing a period not exceeding seven years and eliminating the possibility of the payment of a premium or other lump sum. It is legitimate to bring matters onto the face of the Bill. After all, the whole of this part of the Bill contains matters that may or may not, or must or must not, be included in the memorandum and articles or the CCS. We believe that it is necessary to give statutory force to the CCS to ensure that commonhold is as close as is humanly possible to freehold and that we do not slip back to long leasehold.

As a member of the Delegated Powers and Deregulation Committee, the noble Lord, Lord Goodhart, has failed to recognise that that committee did not object to this degree of delegation to regulation. Although I was not privy to its debate, I hope and believe that it recognised that our intention here was to do only the absolute minimum to stop commonhold being frustrated and slipping back into the creation of long leasehold. We do not wish to interfere any more than is necessary with the use to which unit-holders put their units, but we want to ensure that long leasehold cannot be reintroduced.

The amendment would put on the face of the Bill the terms on which the Government intend to allow letting. I reiterate the need for flexibility, and I believe that this is a good example of that need. I acknowledge that our original intention was to impose very tight controls on the letting of residential units. It was impressed on us from a number of quarters that tight regulation would tend to make commonhold developments unpopular as buy to let would be next to impossible. We were told that a significant part of the market in flatted properties was buy to let. We have considered that advice and decided to take it. The amendment sets out the terms at which we have arrived on that advice.

This is a matter of reacting to the market. If in due course there is a change in circumstances and it is necessary to alter the regulations—perhaps there is a new attack on commonhold from those who wish to weaken it as a concept—we need to be able to react. That is why it is dealt with in regulation.

6.45 p.m.

Baroness Hamwee

Before my noble friend responds, does the Minister really mean that in a system that he supports as being as close to freehold as possible, regulations to react to the market, not on a day-to-day but certainly on a fairly frequent basis, are appropriate?

Lord McIntosh of Haringey

Yes. The regulations might be too restrictive and take us further away from the freehold concept, and we might want to change them to preserve the proximity to freehold.

Baroness Hamwee

It would also allow the possibility of making the position more restrictive.

Lord McIntosh of Haringey

On that view there would never be regulations and everything would be on the face of the Bill.

Lord Goodhart

I am not sure that I should disclose what happened in the Delegated Powers and Deregulation Committee. Owing to the timescale the committee had very little time to consider this matter. I was deputed to have a look at it and make recommendations. I am afraid that in the time available I was unable to spot what I subsequently thought were all the possible points that might be made. So it is my fault.

On the substantive question, it seems that there is a fundamental difference, particularly between the noble Baroness, Lady Gardner, and myself, as to what commonhold is really for. The noble Baroness sees it as dividing up a block of flats into what are basically a number of completely separate freeholds, with unit holders having complete freedom to do pretty much what they like with them. I hope I speak for my noble friends as well as for myself, but we feel that it is much more of a co-operative than that. I can see enormous problems if you say that there are no restrictions on what you can do with your little freehold.

Lord McIntosh of Haringey

If we talk in New York terms, surely it is more like a condominium than a cooperative. A co-operative is extremely restrictive.

Lord Goodhart

Yes. I agree it is not as restrictive as a co-operative. I am not suggesting that we should go the way of New York co-operatives, where all the members have to agree and where you can say that you do not want Bill Clinton coming in as a tenant because you do not like him.

If you have the freehold with power to create long leases, you will end up with a separation between the management and the people who are really interested in maintenance. For example, let us say that someone does let a unit off as a leasehold, for a premium, over a long period of time. It will be the landlord who will be the member of the commonhold association and it will be the landlord who decides what is to be done. However, if the lease has been granted at a relatively low rent and a substantial premium, the landlord or unit holder will have no particular interest in having the building properly looked after.

If this system is to work, unit holders must have a real interest in the building as a place in which to live. Perhaps they may not wish to live there immediately—I can quite imagine that some people may not wish to live there for some years; they may go abroad for some years—in which case they could let it on a tenancy, which could be renewed from time to time.

There is no reason why a seven-year tenancy could not he renewed and then renewed again. However, there seems to be a philosophical problem here. In a sense, as this debate has shown, what matters more than whether it goes into regulations or on the face of the Bill is that there should be restrictions which—while giving flexibility to enable people to derive an income from the building while they are not living there—will ensure that the tenants are not simply investors who let their units off for long periods, with no right of recovery, and who therefore have no interest in the building at all. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 28A not moved.]

Clause 17 agreed to.

Clause 18 [Leasing: non-residential]:

[Amendment No. 29 not moved.]

Clause 18 agreed to.

Clause 19 agreed to.

Clause 20 [Other transactions]:

[Amendment No. 30 not moved.]

Baroness Gardner of Parkes moved Amendment No. 31: Page 9, line 32, leave out subsection (3).

The noble Baroness said: I tabled this amendment because I did not understand exactly what was meant in the Bill. The words that I am seeking to delete are: It shall not be possible to create an interest in a commonhold unit unless the commonhold association … is a party to the creation of the interest, or … consents in writing to the creation of the interest".

I tabled the amendment because the provision sounded to me like a company title or co-operative. I wanted to seek the Minister's assurance that that was not the case and that you would be able freely to sell your unit to someone else. I did not know exactly what was meant, and even the Explanatory Notes did not clarify for me what was meant by "interest". I beg to move.

Lord McIntosh of Haringey

I entirely agree.

Lord Kingsland

I also have an amendment in this group, Amendment No. 32, which I can deal with very briefly. This is another restriction on the right of a unit-holder to deal with his unit. No explanation or justification for it has been given in the Explanatory Notes. Any such restriction as may be justified is more properly to be imposed by the CCS so that, in the case of a new development, a unit-holder will know and accept the proposed restriction before he contracts to purchase his unit. In the case of a conversion from leasehold, a unit-holder will have been able to consider and discuss it before giving his consent to the application to register the commonhold. Therefore, subsections (3) to (6) should be omitted altogether.

Lord Goodhart

I support these amendments, particularly that of the noble Lord, Lord Kingsland. The question is: what do the Government have in mind here? Why is the consent of the commonhold association needed? "Interest" is not defined, but I assume that it broadly means an equitable interest in the property of the kind which is familiar to property lawyers. The Explanatory Notes mentioned easements. It is most unlikely that a unit-holder will want to create an easement over the unit, but the most relevant form of interest is the estate contract; that is, the contract to grant a lease or tenancy. The short-term tenancies are more often created by a contract for a lease than by a lease which is formally granted.

Clause 20 as it now stands appears to mean that a contract to grant a tenancy will be void unless the commonhold association consents in writing by a unanimous resolution. That must be wrong. I believe that these subsections should be deleted and that Clause 17 may need amendment to make it clear that it applies to an agreement for a lease as well as to a lease itself.

Lord McIntosh of Haringey

I sympathise with the difficulty which noble Lords have in understanding this part of the Bill—I had exactly the same difficulty. I think the answer is that the Bill is not defective. A lease is not the same as a mortgage. A mortgage is a charge and Clause 21(1) distinguishes between them. It states: It shall not be possible to create an interest or charge in or over … part only of a commonhold unit". That makes it clear that we are not talking about a mortgage. The definition of "interest" is to be found in the Land Registration Act.

Amendment No. 31 would remove a necessary form of control on the operation of a commonhold, and I say that in the context of having said that we want as few controls as possible. Clause 23(3) requires that the commonhold association should either be a party to the creation of an interest or consent to it. The idea is to control the possibility of a unit owner granting, for instance, a right of way or some other right over land which, although it is his commonhold unit, might nonetheless affect the lives and surroundings of other members. That seems to us to be a necessary control. It is only in those circumstances that we would envisage these provisions being used.

7 p.m.

Lord Richard

If that is right, perhaps I may ask my noble friend the Minister why we do not confine the definition of interest in subsection (3). It should not be possible to create an interest that affects the interests of other commonhold unit-holders; otherwise, the provision will be extraordinarily wide. Under the clause the commonhold community statement cannot prevent the unit-holder from creating his interest, but the commonhold association can. In those circumstances it might be desirable for the commonhold association to be restricted. However, with great respect, I think that this is too wide and ought to be spelt out.

Lord McIntosh of Haringey

That is helpful. It reflects the puzzlement that I had about these provisions. Perhaps I may think about the matter between now and Report stage.

Baroness Hamwee

Clause 26(2) provides that 'inerest' does not include … a charge". Therefore, unless one provides that in this clause, the provision suggests that it does.

Lord McIntosh of Haringey

No. It is separate in Clause 20(1).

Lord Goodhart

I ask the Minister to look again at the estate contract point. I would be very surprised if that were not a interest within the meaning of the Land Registration Act. If so, then clearly Clause 20 would great cause complications. If one is free to create a tenancy of any kind, then equally one must be free to enter into a contract. An interest under a contract is not a mistake—that is plain—but it must be an interest. It is certainly something that we can protect by a notice on the register. I ask the Minister to have a look at that point.

Lord McIntosh of Haringey

I do not see how I can look at the point made by the noble Lord, Lord Richard, without covering that as well.

Baroness Gardner of Parkes

It is very satisfactory that the Minister is to examine the point. Certainly, in my own experience, I had a unit in a building where we had the offer of putting a television aerial on the top of it. It saved us a great deal of money. We paid a set amount each year which came off our service charge. That is certainly the kind of issue on which every unit-holder would have wanted to have an opinion. However, other matters might be unnecessarily restrictive. I am grateful that the Minister has agreed to look at the point. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 32 and 32A not moved.]

Lord Goodhart moved Amendment No. 33: Page 9, line 37, leave out ("resolution which is passed unanimously") and insert ("special resolution").

The noble Lord said: With Amendment No. 33 I wish to speak also to Amendments Nos. 68 and 69. These amendments and others in the group deal with circumstances where the build requires a unanimous resolution by the commonhold association. That does not mean that every member of the association must consent. It means that those who vote on the resolution must vote in favour of it.

We have just debated the question of what consent should be necessary under Clause 20. It is therefore inappropriate for me to discuss that point again. It will need to be looked at carefully.

Amendment No. 42, which stands in the name of the noble Baroness, Lady Gardner, is also part of the group. The amendment deals with a unanimous resolution giving a charge over the common parts. That is an unusual step. There can be occasions where it is justified; for instance, in the case of charge of a garden or something else which may be of value to someone other than the holders of the units. Normally, however, common parts are an essential part of the property and enforcement of a charge over them could have serious consequences for members of the commonhold association. There, I would consider unanimity to be justified and I have not put down an amendment to do that.

Amendments Nos. 68 and 69 deal with the addition of new land to commonhold, which is an important issue. I would accept that the vote of a bare majority would not be sufficient to justify it. Equally, the addition of land could have great benefits for the unit holders and one objector alone should not necessarily be able to block it. Our amendments use the well-known concept of the special resolution under company law, which requires a 75 per cent majority of members voting. In fact, it is very much along the lines of the amendment of the noble Lord, Lord Kingsland, but it is slightly easier to achieve the necessary 75 per cent rather than his proposed 90 per cent. I beg to move.

Baroness Gardner of Parkes

Amendment No. 42 is linked with this and follows the earlier argument about the word "unanimous", of which I am not in favour.

Lord Kingsland

I also support the amendment of my noble friend Lady Gardner of Parkes. I would like to take this opportunity of thanking the noble Lord, Lord Goodhart, for drawing the attention of the Committee to my Amendment No. 70, about which I need say no more.

Lord Bach

In dealing with this group as a whole, certain actions of the commonhold association are of sufficient seriousness that they should be supported by a significant majority in favour of them among the members. We are only too well aware of the difficulties inherent in requiring unanimity—it could not be otherwise after our earlier rather long discussion on Clause 3. The process for reaching unanimity, which we have prescribed in Clause 35, requires all members of the commonhold association to be given the opportunity to vote and to cast that vote in any manner provided for under the governing documents. To achieve unanimity, it is therefore necessary for all those who cast a vote to vote in favour. That is a tough but fair target to aim for in important matters.

The amendments that have been moved and spoken to would displace our definition of "unanimity" in some of the places of the Bill where it applies and replace it with a special resolution which, as the noble Lord, Lord Goodhart, says, is a well-known concept in this field. We know that the amendment now intends to do no more than replace one term with another, leaving the process intact. Our view is that the term, "unanimity" ought not to be changed in any event.

Even for the matter to which Amendment No. 33 refers, the use of the term emphasises the importance of what is in hand. To use another term would be to rob the action of some of its significance. "Unanimity" is best for all the places where it appears in the Bill, including also Amendment No. 42 in the name of the noble Baroness, Lady Gardner of Parkes. Our principal unanimity is a better solution for most purposes in the setting of particular limits, as the noble Baroness does in her amendment. It deals with those, first, who cannot be found; notice will go to the last known address on the commonhold association's register for everyone entitled to vote.

It is the business of the unit-holder to keep that up to date. If he or she loses touch and fails to receive the notice, the failure will not hamstring the commonhold. The same considerations apply if he or she receives the notice but chooses not to vote by post or to appoint a proxy. However, because borrowing on the security of the common parts is potentially a serious step, carrying as it does the risk of losing the land on which the loan is secured, all those who take sufficient interest to vote should be persuaded of its wisdom. That is why we are for unanimity in this case.

As the noble Baroness suggests, the setting of the limit at 80 per cent is prone to the difficulties to which high absolute limits are prey. Those who are lost to the system, or who abstain in these circumstances, vote against any proposition and that may well serve to hamper the management of the commonhold. It is perfectly possible, for example, that all of the 75 per cent who vote in such a ballot are in favour but the proportion of non-voters stymies the process. We believe that the scheme we have put forward contains sufficient safeguards yet allows important decisions to be taken by the people who are active and interested in their community. No-one is disenfranchised by the scheme. Those who lose touch, or choose not to vote, are either not interested or content to leave matters to others. We believe it is reasonable that their views should not unduly impact on the active management of the commonhold.

As far as concerns Amendment No. 90 which has been spoken to very briefly, in this case not only is there likely to be capital expenditure from the funds of the commonhold association, or a need to borrow, but there will be the associated costs of servicing any loan and the ongoing costs of managing and maintaining the new land. We believe, therefore, that here again unanimity is not an unreasonable hurdle for those who make the proposal. We find it a little difficult to grasp what advantage there is in reducing that hurdle by just 10 per cent to 90 per cent. On that basis we ask the noble Lord to withdraw his amendment.

Baroness Gardner of Parkes

Perhaps I may ask the Minister to clarify something. I believe the noble Lord said that my 80 per cent would be higher than the number of people required. He said that there would be a much lower number of people, provided that everyone who took part in the ballot voted unanimously for it. If that is correct, what is the lowest number that can qualify to vote? Perhaps the noble Lord is able to clarify whether a very small number—just one or two—can make such a tremendously important decision in the absence of all the others.

Lord Bach

As always, the noble Baroness asks a good question, the answer to which will not come as a complete surprise. The number required to make the vote valid will be set out in the memorandum and articles. I say straight away that that is not a satisfactory response to the question, and a better answer is needed before we deal with the matter at Report.

Lord Goodhart

I am not sure that that answer is correct. The position is that the resolution must be moved at a meeting of the association which has to be quorate, but I do not believe that in any ordinary memorandum and articles there is any requirement for a minimum number of people to vote on the resolution, and I do not see any in these particular ones.

Lord Bach

The minimum would be the quorum but at this stage we have not said what the quorum should be. That will be set in the memorandum and articles.

Lord Goodhart

That will indeed be set in the memorandum but, provided the meeting is quorate and some of the members at the meeting decide to abstain, the resolution will still be valid.

Lord Jacobs

Is the Minister aware that the statement appears to provide that the quorum for proceedings at general meetings should be 20 per cent of the members? Is it proposed that there should be a different quorum?

Baroness Gardner of Parkes

My noble friend refers to the document that we have just received from the Printed Paper Office.

Lord Bach

That is the figure in the draft document which the noble Lord has. There is as yet no concluded view.

Lord Goodhart

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 20 agreed to.

7.15 p.m.

Clause 21 [Part-units]:

Lord Kingsland moved Amendment No. 34: Page 10, line 1, leave out subsections (1) and (2) and insert— ("( ) An instrument or agreement which creates an interest or charge in or over—

1. (a) part only of a commonhold unit, or
2. (b) part only of an interest in a commercial unit, shall have effect subject to any provision of the commonhold community statement.").

The noble Lord said: I rise to move Amendment No. 34 and also to speak to Amendments Nos. 35 and 36. These amendments enable the creation of an interest or charge over part of a unit, as long as that is permitted by the commonhold community statement.

Clause 21 imposes yet another restriction on unit-holders. The intention as stated in the Explanatory Notes is to preserve the integrity of the unit and also to ensure that no event takes place that would require a change to the commonhold community statement which is not in the control of the commonhold association". However, there may be circumstances where it is convenient or financially necessary for a unit-holder to deal with only part of his unit; for example, if he wishes to accommodate an aged parent in a granny flat to which she has contributed her own money. For the same reasons as have been given already in relation to the omission of other such restrictions, in our view any such restriction as may be justified is more appropriately to be imposed by the CCS. I beg to move.

Lord Bach

The amendment, and the others spoken to, would change the policy of the Government to restrict the creation of charges or interests over parts of units. The reason why we arrived at our policy is not difficult to understand, and I try to explain it by way of example. Consider a small estate of very up-market houses, each in its own plot of half an acre with a large garage. The unit-holder wishes to build—to coin the noble Lord's phrase—a granny flat over his garage. He wants to borrow to build it and offers as security the half acre of garden in this prime location. For the sake of the example, let us assume that a lender is rash enough to lend on that security.

When in due course—and this is a sad tale—the unit-holder defaults on his repayments and the lender forecloses, what happens then? The land now owned by the lender is commonhold land and is surrounded by commonhold land. If it is to be taken out of the commonhold, how will this work? If it is to stay within the commonhold, what effect will that have on the commonhold community statement and the payment of commonhold assessments? And how will it be registered? Is the new owner to be a member of the commonhold association, and on what terms? If the charge sits over the whole property, none of these problems arise. The difficulty occurs with the bits that have to be carved out of the commonhold.

A significant argument for commonhold, and part of the system, is the generally standard terms of the CCS. The tenor of the amendments is to allow for wide-ranging variations in matters of central importance, to be subject only to the terms of the CCS which, to do the job, as the noble Lord seems to see it, will become less and less standard. One of the biggest headaches facing those moving from leasehold property to leasehold property is the wide variation in terms of leases. That is something from which we are trying to distance ourselves. The Bill which his government produced in 1996 was more prescriptive than this Bill. We believe that we have struck the right balance between prescription and freedom of choice, and we have prescribed only what seems genuinely necessary for the benefit of those concerned.

If carried to its conclusion, these amendments would have the potential to make the management of the commonhold desperately difficult, and perhaps eventually to bring it down.

Lord Kingsland

I am not at all happy with what the Minister has said but I shall not press him on it. In any event, it would be futile to do so because we cannot vote. I shall simply lick my wounds, remind myself that I must return to this matter at the Report stage, and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 35 to 36 not moved.]

Clause 21 agreed to.

Clause 22 [Changing size]:

[Amendment No. 36A not moved.]

Clause 22 agreed to.

Clause 23 [Changing size: charged unit]:

[Amendment No. 36B not moved.]

Clause 23 agreed to.

[The Sitting was suspended for a Division in the House from 7.21 to 7.31 p.m.]

Clause 24 [Definition]:

Baroness Gardner of Parkes moved Amendment No. 37: Page 11, line 5, at end insert— ("( ) Where a statement under subsection (2) above relates to a parking space, such space shall be deemed part of the commonhold unit.").

The noble Baroness said: I feel strongly about this. People are very aware of the importance of a parking space in their lives. If a parking space is just provided in a unit, it will not have the same appeal as if it were on the title and registered with the commonhold. That has certainly been the case with any unit I have ever had.

It has the disadvantage that some people might have two car parking spaces and although others may wish they also had two, they cannot because the spaces are an integral part of the commonhold title. It is a good thing, however, as well as a commercial consideration, as more attractive car parking spaces add more to the value of the unit. By that, I mean that if there is a low beam in the car parking area so that only a small car can fit underneath it, that unit will have a lower price because it cannot accommodate a four-wheel drive, which lots of people may wish to fit in. It is an important point, therefore, in the selling of the commonhold units to those people wishing to buy them. It should be clearly set out that it would be part of the commonhold title. I beg to move.

Lord McIntosh of Haringey

I can assure the noble Baroness, Lady Gardner, that nothing in the Bill prevents units being sold with the benefit of a reserved space. They would be part of the commonhold of the unit and they would change hands with the unit. Thus, there is no problem with what she wants, nor is there a problem in a case where somebody wants more than one space; he could have two. The problem would be if there were not enough car parking spaces and there were, for example, a waiting list. Somebody would then get a space only when it became available. There is also the problem of transfer. For those reasons, we do not need the amendment.

Baroness Gardner of Parkes

I thank the Minister for his reply and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 24 agreed to.

Clause 25 [Use and maintenance]:

[Amendments Nos. 38 to 40 not moved.]

Clause 25 agreed to.

Clause 26 agreed to.

Clause 27 [Charges: general prohibition]:

[Amendment No. 41 not moved.]

Clause 27 agreed to.

Clause 28 [New legal mortgages]:

[Amendment No. 42 not moved.]

Clause 28 agreed to.

Clause 29 agreed to.

Clause 30 [Form and content: general]:

Lord Kingsland moved Amendment No. 43: Page 12, line 39, at end insert ("otherwise than in accordance with, and subject to, the provisions of the commonhold community statement").

The noble Lord said: I can deal with this very briefly. This amendment is consequent upon and consistent with other proposed amendments which have been discussed earlier, in particular with the proposed omission of Clause 17 and the proposed amendments to Clauses 20 and 21. I beg to move.

Lord McIntosh of Haringey

I shall be equally telegraphic, to use the phrase of the noble Lord, Lord Kingsland. Clause 30(5) provides that inter alia the duty in Clause 30(3)(b) may include in particular subsection 5(e) a duty to refrain from entering into transactions of a specified kind in relation to a commonhold unit". The amendment would add the words, otherwise than in accordance with, and subject to, the provisions of the commonhold community statement". That is already provided for. You can prevent it happening. If you can prevent someone from doing something completely, as you can under the Bill, you do not need to add conditions as to how he does it.

Lord Kingsland

I am obliged to the Minister and in the circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Kingsland moved Amendment No. 44: Page 13, line 8, after ("interest") insert ("and costs of recovery").

The noble Lord said: The amendment would enable the commonhold association to recover the costs of pursuing a late payer as well as charge interest on the late payment. There does not appear to be any provision elsewhere in the Bill to ensure that the commonhold association is not bound to bear its own costs if it is forced to pursue one of the unit holders for payment. It is surely unfair that the common hold community as a whole should have to pay the extra cost involved when one of its number refuses to meet his obligations. I beg to move.

Baroness Gardner of Parkes

In supporting my noble friend Lord Kingsland, I wish to speak also to Amendment No. 65, which I have tabled. It is extremely unfair that there are always some people who are late payers, whether it be in leasehold property or in commonhold. It is unfair on others that that should be the case. I certainly believe that interest payments should be claimable.

Lord Monson

This is very sensible pair of amendments. Most of us know from our business experience how incredibly time consuming and expensive it can be to recover money—often quite small sums—from people who for the most part are well able to pay but are simply too lazy to do so.

Baroness Hamwee

I am sorry to disrupt the harmony of the Committee, but I am afraid that we do not support the amendment. We feel that it is not appropriate to change on a piecemeal basis broad provisions of the law such as those dealing with the pursuit of debts. There are well understood provisions for recovering debts and they should apply in the usual way.

Lord McIntosh of Haringey

The first amendment, Amendment No. 44, would add to the existing provision for the collection of interest in the case of late payment of money owing under a provision of the CCS a provision to collect the costs of recovery. That is not necessary. Clause 36(2)(d) provides that where work is carried out in consequence of the failure to perform a duty, the costs of that work may be recovered. As the calculating and the collection of interest would be work, the new words are unnecessary.

A similar answer applies to Amendment No. 65. Clause 36(2)(b) provides for provision to be made requiring compensation to be paid when a duty arising under the CCS is not complied with. We had in mind non-payment or late payment of money due from the unit holder to the commonhold association as one of the types of duty to which this provision would apply. My view is that it is not necessary to provide for it specifically in this place.

Lord Kingsland

I am most grateful to the Minister for accepting the principle of the amendment. I shall look at the other parts of the Bill to which he referred me to make sure that they cover the problem that sought to address. Meanwhile, I beg to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Bach

This may be a convenient time for the Committee to adjourn until Tuesday, 27th February at 3.30 p.m.

The Deputy Chairman of Committees

The Committee stands adjourned until Tuesday, 27th February at 3.30 p.m.

The Committee adjourned at twenty-two minutes before eight o'clock.