Official Report of the Grand Committee on the Commonhold and Leasehold Reform Bill [H.L.]

HL Deb 01 March 2001 vol 622 cc131-86GC

Thursday, 1st March 2001.

The Committee met at four of the clock.

[The Deputy Chairman of Committees (Lord Murton of Lindisfarne) in the Chair.]

The Deputy Chairman of Committees (Lord Murton of Lindisfarne)

Before we begin, I should remind your Lordships that if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung, and then resume after 10 minutes.

Clause 71 [RTM companies: membership and regulations]:

Lord Kingsland had given notice of his intention to move Amendment No. 109. Page 30, line 34, leave out subsections (1) and (2) and insert— ("(1) The persons who are entitled to be holders of "A" shares in an RTM company shall be qualifying tenants of flats contained in the premises.

• (1A) Any person being—
1. (a) the landlord of the whole or any part of the premises (including mesne landlords), or
2. (b) a management company party to any lease of the premises or any part thereof, who prior to the acquisition date had the right to manage the premises shall be entitled to be holders of "B" shares in an RTM company.
• (1B) The acquisition date shall be the date on which the RTM company acquired the right to manage.
• (1C) The paid-up capital of a "B" share in an RTM company shall be one pound and no person shall be required to hold more than one "B" share in an RTM company.
• (1D) The holders of "B" shares in an RTM company shall have the right to appoint two directors to the board of directors of the company and the right on a requisition signed by a majority of them to call extraordinary general meetings of the RTM company.
• (1E) The Secretary of State, after consultation with the National Assembly for Wales, shall (subject to section 70(2) and the previous subsections hereof) make regulations about the form and content of the memorandum of association and articles of association of RTM companies.

(2) Such regulations shall be laid before Parliament and shall be subject to an affirmative resolution of both Houses of Parliament.").

The noble Lord said: I believe that the first group of amendments has already been debated. My memories of the final half hour of the Committee's proceedings on Tuesday are somewhat hazy, so I may be mistaken.

[Amendment No. 109 not moved.]

[Amendments Nos. 110 to 111 not moved.]

Lord Kingsland moved Amendment No. 111A: Page 30, line 42, at end insert— ("( ) The appropriate national authority shall provide RTM companies with explanatory material setting ott, the responsibilities and risks associated with right to manage.'').

The noble Lord said: I can deal with this amendment very briefly. The decision to exercise the right to manage should not be taken lightly. It is vitally important that the tenants are fully aware of the responsibilities they face in forming an RTM company. The amendment would ensure that the appropriate national authority provides clear information about the RTM and the potential risks associated with it. I beg to move.

Lord Williams of Elvel

I should like to speak to Amendment No. 111A moved by the noble Lord, Lord Kingsland. I should like to speak also to Amendments Nos. 125A, 128 and 133A. I do not propose—and nor does the noble Earl, Lord Caithness—to speak to Amendment No. 116, which covers a rather different point. We will take that amendment in its place on the Marshalled List.

Members of the Committee will be aware that at Second Reading I raised the point that people should not go into the management of premises unaware of the problems involved. At a previous stage of the Committee, the noble Earl, Lord Caithness, explained that he personally had been involved in the management of premises. I can say that I personally have been involved in the management of premises. Many years ago, I and eight other leaseholders took over the freehold of our property in South Kensington, and we tried to run it. We were totally unaware of the problems of running a property of that nature. We had to be instructed by lawyers that we had responsibility for civil liability. If a slate fell off the roof onto someone in the street, it was our responsibility. None of us knew that, and in the end we decided to sell the freehold on to a trust which already had a managing agent, simply in order to get a proper managing agent in control of the premises.

This is a subject of fundamental importance. I have received many letters on it as I am sure have other Members of the Committee. People cannot go into the management of premises without being aware of the problems involved. Whether it should be through the formula of the noble Lord, Lord Kingsland, or the formula that I and the noble Earl suggest, is a matter for debate. I accept that there are disadvantages with both formulae.

The amendment of the noble Lord, Lord Kingsland, would impose something of a burden on a national authority. As to my amendment, I recognise that there may be a chicken and egg situation in that you cannot have an invitation to participate without having a company, and you cannot have a company without an invitation to participate. Having said that, there are many ways around that chicken and egg problem. But the principle must be right; anybody going into an RTM company and exercising the right to manage, must be aware of the problems involved.

Lord Goodhart

I support strongly what the noble Lords, Lord Williams and Lord Kingsland, have said. The difficulties involved in the management of leasehold property are very considerable. It could be that many leaseholders who would be better off leaving things as they are now, could undertake management themselves and get their fingers badly burnt as a result. It is very important that the right-to-manage scheme, which in principle we wholly support, should start on a proper footing. This would undoubtedly involve making the leaseholders who are contemplating a right-to-manage scheme aware of both the problems they potentially face and the quite considerable amount of work they will have to undertake if they are to be successful. I hope that the Government will accept that there is a need for something of this kind without being in any way prescriptive about how it is to be achieved.

The Earl of Caithness

I rise to support the amendment of my noble friend Lord Kingsland and to speak to Amendment No. 128, to which I have added my name.

The noble Lords, Lord Williams and Lord Goodhart, have covered most of the points but, from my experience, I would re-iterate that the most difficult situations one was put into as an agent were those where leaseholders felt that they could run the property better than a landlord; that anybody could run it better than a landlord and his agents. They would say, "This is all terribly easy. Let us form our own management company". One then had to go in after the event to firelight; to try to put it on the right lines and manage it properly. They found it incredibly more difficult and complex and much more time consuming than they had originally bargained for. As I said, that is the stage where the leaseholders start to drift away and do not turn up for meetings—except for one or two who, if they are still willing, try to run the company and hold it together.

The purpose of Amendment No. 128 is not to frustrate the Government's efforts but to try to make the right to manage more practical and workable. It is therefore important that anyone who wants to participate in a right to manage scheme must be given the appropriate information in advance. They must be told what the assets and liabilities are, and what the potential downsides are, of running a right-to-manage company. I hope that the Minister will understand that this a serious and constructive way to improve the legislation and to make it better for all potential right-to-manage companies, which I thoroughly support.

Lord Kingsland

I apologise for rising again—I must have been suffering from advanced myopia because I had assumed, when the amendment was called, that Amendment No. 111A was on its own. In fact, I see that it is standing in a group with some other amendments of mine and with the very important Amendment No. 116, which has been tabled by the noble Lord, Lord Williams of Elvel, and my noble friend Lord Caithness.

Lord McIntosh of Haringey

The noble Lord, Lord Williams, has made it clear that that amendment will be debated separately.

Lord Kingsland

I am much obliged. Perhaps I may speak to my Amendment No. 125A. We on this side of the Committee are concerned that those who seek to exercise the right to manage should be fully aware of what they take on. Block management can be a difficult and complex task, particularly in larger buildings, and the RTM company will assume considerable responsibilities. It is important that prospective members of the company realise that from the outset.

A major concern in relation to the right to manage is that it will place the management of a building in the hands of those who may not have the necessary skills to perform the task. We are also concerned that, whereas a good professional landlord will regard a building as a long-term investment and seek to maintain the value and quality of that investment through a planned programme of maintenance, leaseholders may in certain circumstances take a more short-term view, not least because they are likely to hold a lease for a shorter period before moving on to another property.

Landlords, understandably, wish to have confidence that, if they are no longer responsible for the management, they are assured proper stewardship of their assets. The nightmare scenario for landlords is that the leaseholders acquire the right to manage in order to reduce to the minimum the level of service charges. The building consequently declines and, with it, the value of the landlord's investment and, ultimately, the value of the leaseholder's investment.

The Bill provides that anyone who is dissatisfied with the quality of management by an RTM company will be able to seek the appointment of a manager in its place, following the existing rights of leaseholders under the Landlord and Tenant Act 1985. However, we believe that it is more effective, and in the interests of all parties involved, to seek prevention by minimising the prospect of poor management from the start rather than to rely on the efficacy of the cure.

In discussions during the period leading up to the arrival of the Bill in your Lordships' House, the Government resisted the suggestion that the RTM company should demonstrate that it is competent to manage, not least because it wishes to minimise the potential for freeholders to obstruct a rightful claim by questioning whether the level of competence is adequate. We quite understand the position. Nevertheless, we would be much reassured if the RTM company was required to make some formal demonstration to indicate that it could be expected to manage competently, even if that was not subject to any greater test.

I turn to Amendment No. 128 in the name of the noble Lord, Lord Williams. Is the noble Lord to speak to that amendment?

Lord Williams of Elvel

The noble Earl has spoken to it.

Lord Kingsland

I am happy to leave it at that.

4.15 p.m.

The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty)

We all recognise it is important that those who take on the responsibilities under the right to manage have access to expertise and properly understand the management responsibility of an RTM company. However, we do not believe that to prescribe exactly how they do that in the form of this group of amendments is the most sensible way to spell it out. For example, Amendment No. 125A tabled by the noble Lord, Lord Kingsland, refers to "principal responsibilities and obligations", but the Bill already provides an outline definition of the management functions of the RTM. As it stands the Bill also makes clear that the company needs to look beyond that definition and see what is provided for under the terms of the individual leases.

Broadly speaking, if the lease makes anyone other than the tenant responsible for doing something, the acquisition of the right to manage will make that the responsibility of the RTM company. The individual leases will therefore already spell out pretty clearly what the RTM company will be required to do, in addition to any requirements imposed by statute. It should, therefore, be sufficiently clear to anyone what the RTM company's principal responsibilities will be without introducing the quite burdensome requirement of having to detail all of them in every claim notice.

The problem of prescribing it in the legislation is evident. If we are required to spell out detailed requirements in the notices that the RTM company must serve we need to turn to our experience under the existing enfranchisement rights which regrettably shows that landlords are quick to look for any excuse to allege that the relevant procedures have not been complied with. We do not want to set out detailed and slightly unclear statutory provisions that afford landlords the opportunity to try to use them as a way to avoid the consequences of the Bill. That would need substantial adjudication and the process would undoubtedly be slowed down.

Having said that, it is not sensible to prescribe it on the face of the Bill. We recognise the importance of producing guidance to support the right to manage and inform those who are thinking of undertaking the right to manage. Our view is that such guidance would need to cover not only the basic mechanics of exercising the right but more general matters, which I believe to be the motivation behind the amendments, relating to good management of the property. There may well he merit in producing guidance on good leasehold management more generally than in this situation, but we do not see any need for a statutory requirement such as that provided for in the amendments; indeed, it could be counter-productive.

Amendment No. 128, to which my noble friend Lord Williams has spoken, proposes that the RTM company be required to circulate a prospectus at the beginning of the process. We appreciate that sometimes leaseholders who enfranchise, or are members of a management company provided for in the lease, will inevitably fail to grasp the difficulties and complexities of the management task, lack the skills and resources needed to make a success of it and, therefore, fall down on the job. I understand why it is suggested that we should make a fledgling RTM face up to its responsibilities right at the outset, confront its difficulties and give to those whom it invites to participate some account of how it proposes to tackle the issues. Again, it is not sensible to set that down on the face of the Bill.

The idea of a statutory requirement on the RTM company to provide information on what it will do under the right to manage, alongside the invitation to participate, has some serious objections. It would be good practice for the company to give qualifying tenants, who had not yet decided whether to join, an indication of the way in which it proposed to manage the building. If it failed to do so it would be wise for tenants to question the company closely before deciding to join. Nevertheless, we should be wary of imposing formal procedural requisites on the acquisition of the right to manage on the face of the Bill. It would only open up for those who were trying to get a consensus within a particular block, or with the landlord, the possibility of challenge at an early stage of the process. It would give an ill-disposed landlord additional opportunities to trump up a challenge and to appeal to the LVT in the hope of delaying the acquisition or deterring the lessees from pursuing the matter further. That would itself lead to substantial scope for dispute as to whether the prospectus matched up to the detailed statutory requirements.

In practice, the nature of what is required to inform those who might participate needs to be simple and straightforward. The detail will vary from block to block and case to case. It is not suitable, therefore, for specification on the face of the Bill, as the amendments suggest. The message is best conveyed in a manual of guidance which will undoubtedly be needed for those leaseholders who think of embarking on RTM. We would prefer that way forward rather than the kind of statutory obligation set out in the amendments.

The Earl of Caithness

I found the Minister's answer rather disappointing. His first sentence was constructive and I thought we were going to get somewhere. But then he became very negative and was digging in deeper and deeper the more he spoke. Will the Minister think again and perhaps incorporate in regulations what we are trying to achieve? I understand his point about the difficulty of having the matter on the face of the Bill, but I should have thought that it could be included in some form of documentation that people have to be aware of what they are going to go into and the complications and financial implications involved in that.

What we propose is certainly not a plank on which we want any objections to be raised by the landlord. That is not the point of what we propose. I am sure that the Minister and his advisers could construct something that does not allow the landlord to object to a right to manage. With regard to the guidance, will the Minister confirm that he will be consulting bodies such as the RICS so that a common format is issued by the professional bodies and by the department?

Lord Williams of Elvel

I support the noble Earl's contention. There are various forms of guidance, as I am sure my noble friend is aware. There is guidance that means you can take it or leave it but this is the sort of thing we like; there is rather more formal guidance saying that this is what you should be doing; and there is guidance that is introduced by law; in other words, X is required to pay attention to or have regard to the guidance. We have had that in many statutes in the past. Will my noble friend consider that third possibility of putting in statute that the RTM company and anyone who is involved should have regard to the guidance? There are plenty of examples of that in law. I hope that my noble friend will consider it as a possibility.

Lord Whitty

What my noble friend Lord Williams indicates is what normally in local government legislation is referred to as statutory guidance, which at first sight always appears a contradiction in terms, but which nevertheless does embody the code of practice or whatever with some degree of legal precision. I do not think that is particularly appropriate here.

To answer the noble Earl's point about regulation, there may be some aspects of what is covered by these amendments which it might be appropriate to put into regulations, but the degree of detail as to what is required in an invitation in a prospectus and in a statement of claim is more appropriate for a form of guidance that is relatively flexible but clearly gives an indication of the responsibilities and the kind of expertise on which the company will need to call. I do not think that that kind of guidance would be appropriate for statutory guidance in the way suggested by the noble Lord, Lord Williams.

We are, however, considering a form of guidance which, if not complied with, could constitute grounds for appointment of a replacement manager under the legislation which already exists under the 1987 Act. In other words, if someone failed to take note of that guidance, that could be one of the grounds on which a replacement manager could be sought. However, the nature of these documents may vary from case to case, and what is appropriate may vary from case to case. Apart from the basic requirements on the face of the Bill, possibly enhanced slightly within the regulatory framework, the rest of it should be fairly broad but directional guidance, if I may put it that way. That is what we have in mind for people taking on the RTM responsibilities in a variety of different situations.

Lord Kingsland

We acknowledge that the Government wish to avoid creating a situation where the claim for the right to manage is anything more than a formal demonstration of compliance with the requirements. I also appreciate that the Government are unwilling for the competence of management to be tested. Nevertheless, I still think it important to reassure freeholders that the RTM company should be expected to manage competently and that freeholders can feel secure in that.

I strongly support what the noble Lord, Lord Williams of Elvel, and my noble friend Lord Caithness have said about the importance of guidance. In the circumstances of the Bill, the right to manage can be initiated by leaseholders even though a freeholder is conducting himself or herself impeccably; even though the freeholder is faultless; and there may be circumstances in which the result will be a much less competent stewardship than existed before.

The Bill ought to have in mind the overall desirability of maintaining the fabric of our buildings as well as possible. If there are circumstances in which worse can replace better, then I submit that they ought to be addressed in the Bill now; we should not wait until it is enacted and have to learn by harsh experience.

I hope that between now and Report stage the Minister will give further thought to his reflections at the Dispatch Box and perhaps introduce a government amendment. Otherwise I suspect that Members of the Committee will wish to return to this matter. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 112 to 115 not moved.]

Clause 71 agreed to.

Lord Williams of Elvel moved Amendment No. 116: After Clause 71, insert the following new clause—

REGULATION OF MANAGING AGENTS

(".—(1) A person who wishes to practice as a managing agent and hold the service charge trust fund shall be required to—

1. (a) be subject to a code of practice,
2. (b) undergo yearly auditing of accounts,
3. (c) be covered by professional indemnity and fidelity insurance, and
4. (d) undergo a minimum quota of annual management training.

(2) Regulations shall make provision about the form and content of the above and make such other rules, requirements and restrictions as may be appropriate to ensure proper standards are maintained, and the interests of landlords. RTM companies and leaseholders are safeguarded.").

The noble Lord said: Let us suppose that we have an RTM company, successfully set up, and it has taken over the management of the premises. The company then states, after a while or immediately, "We need somebody to help us run this operation". If it has paid attention to the guidance which I have no doubt the wise government will produce, it will do that on day one rather than on day 30. To whom does the company turn? Who is qualified, and how are they qualified, to run buildings of this nature?

There are various codes of practice, but I would suggest that an agent who is invited and required to run a property of this nature needs to be properly regulated, properly qualified and adhere to what I suggest in the amendment. They should be subject to a code of practice; undergo yearly auditing of accounts; be covered by professional indemnity and fidelity insurance; and undergo a minimum quota of annual management training. I believe that is the only way we will get sensible management of our property.

I know this idea has been floating around for some time—I believe it was in the Government's mind at one point—but it now seems to have got lost. This is an essential part of the jigsaw we are trying to create. I hope that the Minister will agree with me. I beg to move.

4.30 p.m.

Lord Goodhart

I support the amendment moved by the noble Lord, Lord Williams of Elvel. There is a real risk that inexperienced leaseholders who find themselves running an RTM company and come to the realisation that they are not capable of managing it themselves, may be tempted to go to a cowboy managing agent who offers them agency services at a low price. Within a few months, they will realise that it is a very bad bargain. There is a need to protect leaseholders in circumstances of that kind, and something along the lines of this amendment would be highly desirable in that regard.

The Earl of Caithness

I rise to support the amendment, to which I have put my name. Sadly, there are still too many bad agents about. I am disappointed about that. I very much hope that my profession will get its act together. Indeed, good agents have got their act together, but there is no bar on the noble Lord, Lord Whitey, setting up as a managing agent this afternoon and taking over the management of a block of flats. Confident though he is, is he the right man for the job and has he had the training?

This is a vital amendment. We need to give confidence to the right-to-manage company that it has the right kind of managing agent. The competent agent has nothing to fear from the amendment. It will not be a panacea and there will still be difficulties. The solicitors who regulate these matters at the moment cause just as many problems in property deals as agents do, with due respect to the noble Lord, Lord Goodhart, and my noble friend Lord Kingsland. We will come on to more about that when we come to the Homes Bill in due course. Agents should be subject to a code of practice and they should have to undergo regular training. A number of bodies, such as the RICS and the Association of Residential Letting Agents, do this already. I have been on refresher courses but I know a great many of agents who have not, and who manage properties to a lesser standard than I would have hoped. For that reason, I support the amendment.

Baroness Hanham

I rise to support my noble friend's comments. I am still somewhat enchanted by the view of the Minister becoming a managing agent—the prospect of him managing property, as well as the money, leaves me highly intrigued. It is the aspect of the money, apart from everything else, that is so concerning here. There will be very substantial sums of leaseholders' money and it is absolutely vital that they are looked after properly.

It is not just the prospects of the future that one is concerned about; it is the actuality of the past and the present in terms of some managing agents, about whom a number of people who are living in blocks of flats already have considerable concerns. It is slightly surprising that this is not a part of the estate management process and that it is not regulated. Managing agents have been around for a long time and there does not seem to have been any regulation. The experience is that some are not as good as others, and some are downright shoddy. It is those from whom we must protect those seeking the right to manage.

Baroness Maddock

I strongly support the amendment. Indeed, I raised this issue at the Second Reading of the Bill. I do not understand why the Government have backtracked because, in the original Bill, they thought that this was an important point.

Today, many people expect best practice, wherever they are in life. If the Bill is to be successful, then we should promote best practice. Many people have written to us with stories about how they have suffered under leasehold. If we are to change that situation, what is proposed in the amendment seems absolutely fundamental.

I hope the Government can explain why they have changed their mind. It is not only in this area of housing that the Government seem to have cold feet in regulation; it is in other areas. The home is the most important part of a person's life and it is our duty to ensure that he or she can remain safely in that home and understand how to deal with the problem.

Lord Lea of Crondall

When the Minister responds to this important debate, can he clarify whether we are talking here about the regulation of managing agents in the context of RTM or the regulation of managing agents, period? If we are talking about the regulation of managing agents in the context solely of RTM, we could be in the position of making it more onerous to have responsibilities to be a managing agent vis-à-vis RTM than vis-à-vis a freeholder. This is a practical question, because the choice before people in a year's time will presumably be what are we going to take on, as the noble Lord, Lord Williams. has correctly identified with regard to RTM. Otherwise, we have the opportunity to carry on as we are where the managing agent is responsible solely to the freeholder. Many of the criticisms that have been made about what one might call the unsatisfactory tail of the profession are in regard to the present scenario. I query whether what is proposed will touch that.

Lord Hodgson of Astley Abbotts

I rise briefly to support the amendment in principle. It has a great deal to commend it. Within the RTM company, one may have tension between the leaseholder and the freeholder. If one adds to that slightly explosive mixture an incompetent managing agent, one will have something quite difficult to handle. If we raise too high the levels which people have to achieve to become managing agents, we will shut off the supply of firms prepared to take it on. Only a small number of firms will be prepared to do it. While I can see that the outline of the regulations proposed in the amendment are thoroughly worthy, there are such things as professional indemnity and fidelity insurance which may prove extremely expensive and difficult to get. That needs to be given further thought before we wave it on its way. However, in principle, it is a worthwhile idea.

Lord Kingsland

I rise to support the noble Lord, Lord Williams, my noble friend Lord Caithness and, indeed, everyone else who has spoken in this debate so far.

The original consultation document on the reform of residential leasehold law regarded the regulation of managing agents as one of the key elements of successful reform. However, the Government have not brought forward proposals in the Bill and their absence is the greatest single gap in that part of the legislation which deals with leasehold.

The need for greater regulation of managing agents is recognised by everyone involved in the leasehold sector. Regulation is the most effective way of ensuring that managing agents meet acceptable standards of knowledge and practice and are required to act with both professionalism and integrity. Many landlords are concerned that they may lose control of their investment to right to manage not through any fault of theirs as owners but through the inadequacies and incompetence of their managing agents.

Is it because the Government have yet to resolve in their own mind how they can take forward the regulation of managing agents that they do not feel able to compel people to make use of them? If so, that weakens their overall proposals since, if people could be required to use professional property managers who were working to a recognised standard, freeholder landlords would be much less nervous of the implications of a right to manage for the management of their investments.

Lord Whitty

Once again I have some sympathy with the objectives behind the amendment. The reason the Government are not prepared to accept it was touched upon by the noble Lords, Lord Lea and Lord Hodgson. What we would be doing here, if we were to legislate in this context, would be to require a certain standard of managing agents for RTM companies but not for anyone else. There are managing agents all over the place who work for freeholders, for leasehold companies and for various groups or organisations. There is a case for regulation—or certainly for higher professional standards—probably through a degree of registration and standard requirements for the profession as a whole.

Whether we are talking about landlords, leaseholders who have been enfranchised or RTM companies, we know that it is desirable to have a competent manager. We know also that all bodies under existing kinds of tenure have difficulties with management agents. We therefore indicated in the consultation paper, as the noble Lord, Lord Kingsland, and the noble Baroness, Lady Maddock, said, that we would look at the whole question of the quality of management agents and that we would produce a consultation paper on it across the board. We still intend to produce such a paper. The issue is complicated. I understand why people feel that they have had to wait a long time for the paper, but are working on the matter and we hope that its publication is not too distant.

The options that will be considered in the consultation paper may range from a full-scale licensing scheme, which was favoured by many people who responded to the original consultation paper, to something closer to a self-regulatory system. This will include obligations of the kind to be found in the clause, to which the noble Lord, Lord Williams, referred, but will be imposed on those who employ management agents more generally.

Each of the options within that spectrum has its own advantages and disadvantages. The consultation period will allow us to address them not only for RTM companies but also for those who seek and need the services of management agents more generally. Were we, however, to legislate in this field and establish a register of management agents solely for RTM companies, as the noble Lord, Lord Lea, said, that would of itself create a further threshold and barrier to the creation of RTM companies. The Government's view is that the issue should be addressed in the round. A consultation paper should be available within the next few months and the results of that would clearly be intended to apply right across the form of tenure for everybody employed as a managing agent.

Lord Williams of Elvel

I am grateful to my noble friend for that reply, although I find it disappointing. As I said, this is a piece of a jigsaw and Members of the Committee—with the exception, to a certain extent, of my noble friend Lord Lea and the noble Lord, Lord Hodgson—supported the idea that it is part of a jigsaw. It is no good giving people the right to manage property unless one controls the people who are going to manage that property.

The Government appear to have ducked a rather important issue. We have heard of consultation papers before; they take a long time. There is a consultation period and then, as a result, there is usually a White Paper. There then follows deliberation on the White Paper and, if we are lucky, there is then legislative time—which will see us all out of this House and probably, if I may say so, see my noble friend promoted to a greater job in the future.

I am rather disappointed by my noble friend's reply. I shall not press the amendment at this stage but, nevertheless, I believe that we shall have to come back to this debate on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 72 [Long leases]:

The Deputy Chairman of Committees

In calling Amendment No. 117, I should point out that if it is agreed to I cannot call Amendment No. 118 owing to pre-emption.

[The Sitting was suspended for a Division in the House front 4.44 to 4.54 p.m.]

Baroness Maddock moved Amendment No. 117: Page 31, line 17, at end insert (or is a registered social landlord, as defined by the Housing Act 1996, owning a long lease and whose tenant is an assured tenant under the terms of the Housing Act 1988').

The noble Baroness said: Amendments Nos. 117 and 120 deal with those who are in housing association accommodation. Amendment No. 117 deals with the situation of assured tenants in a housing association. As the Bill is drafted, it is my understanding that they would not be permitted to be members of a right-to-manage company. That being so, it would seem that they should get some rights somehow, and the amendments I have put forward would mean that the housing association under which they were assured tenants would take on that responsibility for them. That seemed to be the best way of ensuring that tenants' interests were represented in the management of the block. It may be that the Government think there is a better way of dealing with this, but it is a problem at the moment and it is something raised by housing associations. I hope that the Government can respond to that in a positive way.

Amendment No. 120 deals with a slightly different situation, and I know from having read the housing press that the Housing Minister in another place, Nick Raynsford, certainly does not agree with this. It deals with charitable housing associations where the leasehold schemes are for a particular group of people. That may be elderly people who have a professional background. Teachers, for example, often set up blocks of this type.

The purpose of the amendment is to put back something that was included in the original draft Bill, which will enable charitable housing trusts to be managed in the way that reflects whatever their purpose. It is fairly specific, and it would not allow all kinds of other groups to join the bandwagon. I hope that the Government will look positively at this, and if it is not the right way to do it they may be able to come forward with another way of dealing with it. I beg to move.

Lord McIntosh of Haringey

There are two separate concerns with the amendments. I hope I can satisfy the noble Baroness, Lady Maddock, that there is no problem. The first is the fear that where there is a flat with a tenant who is not a qualifying tenant, such as one held by an assured tenant, no one could be counted as a qualifying tenant for that flat.

I can appreciate that it is difficult because the Bill is somewhat elliptical. The situation is that we do not require leaseholders to be resident to qualify for the right to manage, so any person or organisation who holds a long lease will qualify. When a long leaseholder sublets his flat on a short lease or an assured tenancy, the long leaseholder—in this case the housing association—will be considered by the Bill to be the qualifying tenant for the flat. A registered social landlord who sublets the flat on an assured tenancy will automatically be the qualifying tenant by virtue of the long lease and there is no need to make special provision.

The second proposal is that tenants of charitable housing trusts should not qualify for the right to manage. That would be consistent with the position under the right to enfranchise, but there is a very good reason why tenants of charitable housing trusts do not enjoy the right to enfranchise. They have acquired their leases on very favourable terms, designed to make home ownership affordable to those for whom it would not otherwise be a realistic option. It would be wrong to enable them to take advantage of enfranchisement and then sell on in the open market.

The right to manage, however, does not affect the ownership of the property or the owner's ability to sublet it as he or she chooses. It merely transfers management functions to the people who have purchased the majority share in the equity. So charitable housing trusts could continue to let out other properties to tenants of the appropriate kind after exercise of the right to manage. We have discussed this with most of the people concerned and nobody came forward with any sound reason for exempting charitable housing trusts from the right o manage, as distinct from the right to enfranchise. Indeed, both the housing corporation and the Charity Commission support the application of the right to manage to such properties.

Baroness Maddock

I thank the Minister for his helpful reply. It will be helpful for those who have been concerned about this to be able to read quite clearly what the position is, particularly in respect of the first amendment.

On the second amendment, I would like to read more carefully what the Minister said and consult again as to whether it will be satisfactory. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5 p.m.

Lord Kingsland moved Amendment No. 118: Page 31, line 17. at end insert— ("and is either—

1. (a) an individual residing in the flat or
CWH 145
2. (b) a company controlled directly or indirectly by an individual residing in the flat or jointly by individuals both or all residing in the flat.").

The noble Lord said: The remarks I want to make apply equally to Amendment No. 84A. This is a central issue. The effect of the amendment is to limit the right to manage blocks of flats where the residents want to manage. The Bill as presently drafted gives the right to manage to all leaseholders, including companies and people who hold leases solely for investment purposes. These are typically those living abroad who invest in residential property with a view to letting it out.

It does not seem right to give such investors these valuable rights to manage. The whole thrust of this legislation should be to enhance the rights of residents. Indeed, we find it strange to find such enthusiasm among the Government for the capitalist classes.

Let me deal with the proposal that a company should be entitled to the right to manage if it is controlled by an individual residing in a flat. I have heard reports that certain landlords are refusing to grant long leases, or refusing the assignments of long leases, unless the lessees buy through the medium of a limited company. The reason for this is that the landlords wish to avoid tenants having the various rights to enfranchise and to extend leases which they are given by legislation dating from 1967 onwards.

This is an abuse. The fact that an individual buys via the corporate vehicle of a limited company should be neither here nor there, so long as that individual is in truth a resident. Accordingly, the purpose of the amendment is to ensure that residents—and only residents—have the right to manage, but that it is irrelevant whether the residents hold the lease in their own names or the names of companies. I beg to move.

Lord Monson

In introducing Amendment No. 84 on Tuesday, the noble Lord, Lord Kingsland, suggested that removing the landlord's right to manage was tantamount to expropriation and might indeed fall foul of the European Convention on Human Rights, if I understood him correctly—a point of view which is widely held in his party and elsewhere. Perhaps there may be an element of expropriation here, albeit not remotely in the same league as the expropriation inherent in Clauses 123 and 124 of the Bill as it stands.

Surely a landlord expects most of his profits to come from the ground rent, with perhaps a modest profit from managing the property as a little cream on top. If it is the other way around, with most of the landlord's net income arising from the management of the property, surely he must be abusing his monopoly position as sole provider of management services by overcharging. In this case, the Government are being neither unreasonable nor unfair in introducing an element of competition into the process, as the Bill effectively does, and as the previous administration started to do in their legislation.

Having said that, the ground landlord has a legitimate interest in ensuring that a property, whoever manages it, is properly maintained so that it does not deteriorate. As the noble Lord, Lord Kingsland, said, somebody who is a sub-tenant, who is there for only a few months, or somebody who may be the leaseholder but is perhaps a tax exile—as many leaseholders in Belgravia, for example, may be—and is abroad for nine months of the year or more is unlikely to have either the capability or, in many respects, the incentive to manage the property as efficiently as a landlord.

As the noble Lord, Lord Selsdon, said on Tuesday, and the noble Lord, Lord Williams, hinted a few minutes ago, even those who have permanent residential status are likely to have management problems if they are inexperienced in the matter. I have pleasure in supporting the amendment.

Lord Whitty

The amendment seeks to introduce a requirement that an individual must be resident in his flat in order to be a qualifying tenant for the right to manage. I understand why the amendment is moved and the noble Lord's indication that our main concern must be for those who are resident within the block. However, it would be extremely difficult to implement such a requirement. Issues of principle are involved here. The rationale behind the right is that if in effect a group of leaseholders owns the majority of the equity in the building it should have the right to exercise the right to manage it. The logic of that principle applies whether or not the owner of a lease, as an individual lessee, occupies the premises to which the lease applies.

In any case, even if one discards that principle and says that one is acting solely on behalf of people who are resident the definition of "resident" is extremely difficult to establish. Does one have to be resident for one week, a year, or three months a year? In the "company" test, does one literally need to be a company, or can the company actually bestow at least partial residence on someone else? Even if we accept the principle of the approach, there are great complexities of definition which are not addressed in this amendment.

As the noble Lord, Lord Kingsland, indicates, practical experience of existing enfranchisement rights is that there is an abuse of the situation by recalcitrant landlords who wish to stop the rights being used. They can use it as an excuse to harry leaseholders and pry into their private lives in respect of where they reside and who resides there. We do not want to get into that area. The straightforward position is that the person who is the lessee is able to trigger the right to manage. However desirable may be the principle of looking after the residence, as a matter of principle and practicality this is not the way in which we should limit the right.

No doubt there are some strong feelings on this matter both inside and outside the Committee. I suspect that we shall return to this matter, but I hope that the noble Lord, Lord Kingsland, at least accepts some of my argument.

Lord Kingsland

Apart from me, the noble Lord the Minister was the only noble Lord to speak to this amendment. I am surprised that there were not stronger feelings about it in the Committee. I beg the Committee's pardon. One other noble Lord spoke to this matter with great feeling. It is most unlike me to have the memory of an observation by the noble Lord, Lord Monson, erased so swiftly. I shall reflect on the definition of "resident". I see the validity of the Minister's criticism that that may be too ill-defined a concept. However, I must confess to having some surprise at the overall approach of the noble Lord to my amendment. I would have expected the philosophy of the Bill, generally, to have militated towards my amendment. So I shall reflect on what he said and return to the issue at the Report stage. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 119 and 120 not moved.]

Clause 72 agreed to.

Clause 73 [Long leases]:

Lord Goodhart moved Amendment No. 121: Page 31, line 36, leave out ("21") and insert ("7").

The noble Lord said: In speaking to Amendment No. 121, I shall speak also to Amendments Nos. 122 to 124. It is a variant on the amendment just debated and moved by the noble Lord, Lord Kingsland, and it is directed to the same purpose: to bring the responsibility for management closer to those who are in occupation, though it does not do so by any means completely.

The amendment changes the definition of a long lease for the purposes of the right to manage from a lease for more than 21 years to a lease for more than seven years. The question is: who should exercise the right to manage as members of an RTM company? There is a conflict of interest to some extent between the lessees under short leases and those under long leases, the occupiers as against the reversionaries. Short lease holders are obviously more concerned with the maintenance of current services and, to some extent, with the current standard of decoration. Long leaseholders will naturally be more concerned with the structure of the building.

One of the purposes of the right to manage is, or at any rate ought to be, to ensure that the maintenance is in the hands of those who either live there themselves or have some fairly close connection with the property and are not merely very long-term investors. People who live on the premises have much more contact with each other than absentee leaseholders. They are much more likely, for example, to turn up to meetings of the RTM company and to be willing to take on the responsibilities of being a director of the RTM company.

Surely, we do not want members of an RTM company to be absentee landlords. I accept that the right to manage should not be the responsibility of rack-rent tenants for short terms. In many parts of London, certainly in large parts of Kensington, the tenants under such tenancies are young people, highly mobile, moving in and out and with no real interest in the maintenance of the property.

The long lease for the RTM purposes does not need to be the same length as the long lease for enfranchisement purposes. We believe that the definition of a long lease should be reduced to the shortest length at which it can reasonably be said that the members have something more than a merely transient interest in the property. That is why we have selected a lease which lasts for more than seven years. That, again, as we know is a significant dividing line because of the switch in the responsibilities for maintaining various installations under the statutory law from the landlord to the tenant.

If a 99-year lease is subject to a sub-lease for 10 years, we believe that the sub-lessee rather than the head lessee should be the member of the RTM company and that there is a balance to be struck between short and long leaseholders. We also believe that drawing the dividing line at seven years, as we propose, is the best place at which to strike that balance. I beg to move.

5.15 p.m.

Lord Jacobs

I rise to support the amendment tabled by my noble friend. I have a feeling that it mainly applies to residential properties in London. On some of the larger estates the leases are divided between what under present law are long leases, a significant number of 20-year leases and a number of rack-rent leases. Effectively, some of the major estates have managed to arrive at a position where perhaps one-third of the tenants are on long leases as presently defined; one-third are on about 20-year leases; and the remaining one-third are on rental leases. From the point of view of management, people who have 20-year leases seem to regard themselves as living in long leases—there is no difference from their point of view.

While seven years is not proposed as a level for enfranchisement, it may be different for management. The people have been living in the property for more than seven years, which is a reasonable time, whether under a seven or eight-year rental lease—or a nine-year rental lease which I happen to know exists—or under a 20-year lease for which they have paid a capital sum, or under a longer lease. Under all those circumstances they should not be denied the right to manage. I therefore strongly support the amendment.

Baroness Hamwee

I want to ask the Minister about the wording of Clause 73(2)(b). Clause 73 explains what leases are long leases and paragraph (b) provides that it is for a term fixed by law, and so on. and adds in parenthesis: (but it is not a lease by sub-demise from one which is not a long lease). We seem already to have dealt with that under Clause 72(4)(a). The Minister now has 10 minutes to think of an answer.

[The Sitting was suspended for a Division in the House from 5.18 to 5.28 p.m.]

Baroness Hamwee

I am not capable of a smooth resumption. Before we adjourned for the Division, I was asking the Minister to explain the necessity for the words in parenthesis in Clause 73(2)(b). My reason for asking is not because I am so concerned about the repetition of the provision which appears in Clause 72(4)(a), but in case by repeating the words there is an implication that the provision and the application of Clause 72 differs from Clause 73(2)(b) as compared with the rest of Clause 73. I should have thought that Clause 73(2) is subject to Clause 72 as well as to Clause 74.

Lord Kingsland

The noble Lord, Lord Goodhart, said that he thought that the amendment goes some way to achieving the objective I sought to achieve in Amendment No. 118. However, I fear that the costs that it will impose will outweigh any benefits that are gleaned.

The effect of this amendment would be to devastate what remains of the short leasehold market. It assumes that the rental market consists only of short-term lettings where the rent is paid on a periodic basis.

There is a ready market for properties for which people are prepared to pay to occupy for a limited number of years but where they would prefer to pay a lump sum for the lease rather than an annual rental. In effect, the price paid to acquire the lease is the capitalisation of the rent. It is arguable that the ability to sell short leases provided a degree of flexibility in the residential property market, particularly in central London. It requires an income of around £50,000 a year to obtain a mortgage on a flat, virtual freehold—that is to say, a 999-year lease—valued at £150,000. I estimate that a 35-year lease for the same flat would be worth about £90,000, which would require an income of £30,000 to obtain a mortgage. The value of a 21-year lease would be lower still, and therefore more affordable to those on slightly above average incomes.

Most freeholders have ceased to sell leases of between 21 and 35 years since the 1993 Act, as those would be subject to enfranchisement. Freeholders have continued to grant short leases of less than 21 years but they would be unlikely to do so in future if this would contribute to their losing the management of their building.

The amendment may also have an impact on how the institutional investors view the residential investment market. The institutions are beginning to return to the residential market, concentrating mainly in the letting sector. It is essential that the institutions are not deterred from this sector at this improving time.

5.30 p.m.

Lord Jacobs

I do not agree with the noble Lord, Lord Kingsland. He is claiming that, in the rental market, people may in certain circumstances prefer to pay a capital sum rather than an annual rent, but the position is usually the other way around. The only reason we have these 20-year leases with large capital sums is as a means of raising capital for the landlord without giving the opportunity to enfranchise. That grew up a few years before legislation introduced by the previous government. The 20-year leases were designed just to avoid the legislation. I do not see that they have any relationship, from the tenant's point of view, as a means of living in what is notionally called a short-term rental property and paying a capital sum instead.

Lord Kingsland

Perhaps I may say that the purpose of my intervention was to indicate that the amendment of the noble Lord, Lord Goodhart, would have an adverse effect on the supply of properties, for which there is a considerable demand.

Lord Whitty

The amendment rather cuts across the Government's aim, which is primarily to give the right to manage to those who have acquired a long-term stake in the property. In other words, it is those who see themselves as more akin to the owner-occupier than to someone who is on a rack-rent. These are the people who probably would not have chosen to buy leasehold in the first place if, under English property law, buying a freehold flat had been a practical and sensible solution at that point. It is to be hoped that when the Bill comes to full fruition the successors of such people will become commonholders.

All leaseholders are technically tenants, irrespective of the way in which they have paid for their lease. It is quite difficult to draw a completely logical line between those who are would-be owner-occupiers and those who are would-be renters. Any test is subject to the criticism that a few people fall on the wrong side of the line. The Government came to the 21-year option, which seemed to give about the right level of balance and which, as the noble Lord, Lord Jacobs, said, is the point at which the right to enfranchise exists under current legislation. I admit that the noble Lord was pointing to some detrimental effects of that but, nevertheless, there is a consistency here.

A number of people think that there should be shorter leases with the same rights as those of long leases. It is certainly true that in some circumstances a long-term renting tenant may pay more than a long leaseholder does as a lump sum, but that is not really the point. The question is: what is the balance of stake in the building itself that would justify tipping the balance towards giving them the right to manage? There is a difference of opinion between the noble Lords, Lord Jacobs and Lord Kingsland, as to the nature of the market, and in a sense both are right.

The noble Lord, Lord Kingsland, claims that, if we were to reduce the threshold for the right to manage below 21 years to seven years, that would destroy the existing market. The noble Lord, Lord Jacobs, said that to a large extent that market exists only to get round the existing enfranchisement provisions. I understand both those concerns but I must also say to both noble Lords that it is quite a limited part of the totality of the leasehold market, which probably applies only in central London. In most other parts of the country, would-be buyers would not be prepared to sink such large sums of capital into what is, after all, a fairly short-term interest with a rapid rate of depreciation. This sub-market is dominated by perhaps the kind of people whom the noble Lord just accused me of favouring—relatively well-heeled investors, purchasers and corporations.

Although I understand the arguments put forward by the noble Lords, Lord Goodhart and Lord Jacobs, it would distort the totality of the approach to the leasehold market as a whole if we were to change the threshold here. There is some merit in consistency between enfranchisement provisions and right-to-manage provisions and I am not convinced by what has been said in the past few minutes that we should depart from that consistency here.

As regards the question asked by the noble Baroness, Lady Hamwee—it was a good question—the clauses are more or less lifted from the 1993 Act, which is not an excuse for me not being able to give a clear explanation. However, they are different types of lease. It is probably better if I write to the noble Baroness and leave a copy of that letter in the Library for the enlightenment of other Members of the Committee. However, I resist the proposed reduction from 21 years to seven for the reasons explained.

Lord Goodhart

I am disappointed by the Minister's reply. Perhaps I may say also that I do not agree with the noble Lord, Lord Kingsland, that our proposals would damage the market. If anything, they would probably improve it, because those who wish to dispose of property for a period of anything between eight and 20 years are unlikely to want to be involved in the management of the property. Quite frankly, they would much prefer to have a clean situation whereby they get the rent and do not have to worry about the property. They would be much more likely to prefer that than to be active members of the RTM company. There is a real risk that RTM companies will end up with a number of inactive members who feel they have very little stake in the property other than to draw the rent from their sub-tenants.

The Minister referred to the head lessees in this situation as being something akin to an owner-occupier but, quite clearly, somebody who has sub-let for a 20-year term is not an owner-occupier. It seems to me that it is much better to get the management into the hands of those who are closer to occupation of the property. However, I shall not repeat my arguments. We may well want to look at this matter again. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 73 agreed to.

Clause 74 [Long leases: further provisions]:

[Amendments Nos. 122 to 124 not moved.]

Clause 74 agreed to.

Clause 75 [Notice inviting participation]:

[Amendments Nos. 125 and 125A not moved.]

5.45 p.m.

Lord Kingsland moved Amendment No. 126: Page 33, line 31, at end insert— ("(4) The provisions of section 196 of the Law of Property Act 1925 as to service of notices shall apply to the service of notices under this section. (5) If a notice of invitation to participate is not served in accordance with this section, every director and officer of an RTM company at the time of the breach shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale. (6) If any director or officer of an RTM intentionally fails to give notice to any qualifying tenant in accordance with this section, such director or officer shall be liable on summary conviction to not more than 3 months imprisonment and a fine not exceeding level 5 on the standard scale.").

The noble Lord said: I rise to move Amendment No. 126 and I hope that it will prove uncontroversial. Section 196 of the Law of Property Act 1925 makes some fairly simple provisions of the deemed service of notices; for example, service by recorded delivery is deemed to be good service. This plainly reduces problems of proving service on qualifying tenants, which might otherwise be the subject of potentially expensive and divided disputes.

The other proposed subsections deal with enforcement. Problems have arisen in the past about how to enforce provisions for tenants to have notice of rights. Some Members of the Committee may recall a notorious case where the trustees of two of the biggest property-owning charities in the country decided to swap their property portfolios. In order to stop the tenants exercising their right to buy the freehold, those supposedly reputable trustees, with supposedly reputable advisers, devised a scheme which had the effect of defrauding tenants of their rights. The Court of Appeal held that the scheme in large part worked because the enforcement provisions were inadequate.

In order to avoid problems with enforcement, I therefore propose that two criminal offences be enacted. The first is an offence of strict liability which bites where notice that an RTM company intends to apply for the right to manage is not properly served. This will ensure that directors and officers of the RTM company have an incentive to ensure adherence to the proper procedures for giving notices.

The second is a more serious offence, punishable with up to three months imprisonment, for those directors and officers who cynically avoid serving notices with the intention of preventing certain qualifying tenants from exercising their rights. There is a risk with this legislation that an RTM company will be promoted by a small group of tenants who deliberately seek to shut other tenants out of participation in the right to manage. The second offence is designed to provide a proper incentive to ensure that all qualifying tenants have an equal opportunity to participate in the RTM company.

Amendment No. 126A would enable any of the present managers of the block to require the RTM company to prove that it had complied with the requirement to serve the notice of participation on all qualifying tenants. I beg to move.

Baroness Hamwee

Perhaps I may ask about the position if plain notices are not given. The noble Lord, Lord Kingsland, has not proposed a sanction. What happens if the notice of invitation to participate is not given? Is the claim notice then invalidated? It seems to me that it is not. Can the Minister confirm the position?

Lord Whitty

I would draw the notice of the noble Lord, Lord Kingsland, to Clause 108 of the Bill which provides detailed requirements on the serving of notices under the right to manage. That is sufficient provision without in effect replicating the similar provisions of Section 196 of the Law of Property Act, as he suggests.

The second part of the amendment relates to directors being held personally responsible where a participation notice is not properly served; we consider that somewhat unnecessary, if I have understood the point raised by the noble Baroness, Lady Hamwee, correctly. After all, any failure to serve notices properly would in itself invalidate any attempt to exercise the right to manage and therefore, they would have to start all over again. There would be no point in having an additional penalty since no benefit would have been achieved. The intention is that not serving the invitation to participate properly would invalidate the claim notice. We think that the Bill as it stands does that.

The noble Lord, Lord Kingsland, also proposes allowing the landlord to require evidence that the notice to participate has been served. We see no need for such a provision. The invitation to participate is intended to ensure that all leaseholders know that it is proposed to acquire that right, which will also help the RTM company to sign up sufficient members. As such, the service of the notice of invitation to participate has nothing directly to do with the landlord. Giving him rights to demand information about how it has been served therefore serves no other purpose than to provide unscrupulous landlords with yet a further excuse for challenging the process.

The interest of a leaseholder is not directly prejudiced by a failure to receive a notice of invitation. The right to manage can be acquired only if enough of the leaseholders become members of the RTM company. Anyone who had not become aware of the proposed acquisition would not have been in a position to prevent it going ahead, provided that enough of the others had signed up, but would in any event have the right to become a member of the RTM company at any time.

That is the central part of Amendment No. 126. The provisions in relation to how notice is served are not necessary. The other provisions are a misunderstanding of how the process should work and are unnecessary.

Lord Kingsland

I thank the Minister for his response. I shall look again at Clause 118 and meanwhile give the Minister the benefit of the doubt. I shall reflect also on his remarks about the second part of my speech. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 126A not moved.]

Clause 75 agreed to.

Lord Williams of Elvel moved Amendment No. 127: After Clause 75, insert the following new clause—

APPOINTMENT OF SURVEYOR

(".—(1) To prepare for future management. prior to the service of a notice of invitation to participate, the RTM company may appoint a surveyor in accordance with section 84 of the Housing Act 1996 (right to appoint surveyor to advise on matters relating to service charges).

(2) A surveyor appointed under subsection (1) shall report on the current condition of the property, both physical and financial.").

The noble Lord said: In moving Amendment No. 127, I shall speak also to Amendments Nos. 268 and 269. I shall not press the argument on Amendment No. 127 because I believe that the Minister, when he replied to the general debate on guidance, subsumed this whole matter. I hope that he can give us some assurance that there would be facilities for an RTM company to appoint surveyors. The last thing one wants is for an RTM company to take over common parts of the building and find those common parts in total shambles. I hope that will be in the guidance. If my noble friend can assure me that it is, I shall go no further with the argument.

Amendments Nos. 268 and 269 refer to the commencement clause of the Bill. We now know that the commonhold provisions in Part I of the Bill are essentially enabling provisions. They set out a framework under which regulations can conveniently be made. It is not precise, and I understand exactly why that is so. The Government need to consider very carefully what kind of regulations they will issue under Part I of the Bill when it becomes an Act.

On the other hand, the right to manage does not require a great number of regulations. It hardly requires any regulations at all. I am persuaded by advisers that the one thing that is needed from the Bill immediately after it receives Royal Assent is the right to manage. That will be the crucial matter for the Bill. Commonhold can wait, but I do not believe that the right to manage can wait, which is why in Amendments Nos. 268 and 269 I invite my noble friend to split the clause and commence Part II, Chapter I—the right to manage—more quickly. I see no reason why the Government should not commence the whole of Part II much more quickly. They should simply specify a date for enactment, as in the Countryside and Rights of Way Bill. If we do that it will provide enormous reassurance to people who wait for this to become law but do not want to wait for the whole procedure of commonhold to be implemented. They will have the right to manage quite soon after the Bill receives Royal Assent. I beg to move.

Lord Lea of Crondall

I have sympathy with the amendment in so far as it gives the Minister an opportunity to consider whether there may be some asymmetry between RTM and other matters. I have raised this matter in another connection. I believe that there is some asymmetry between the clauses to do with RTM and other matters in the Bill, and it may be worth while to consider that.

Lord Whitty

As regards Amendment No. 127, which allows the RTM company to appoint a surveyor prior to exercising the right to manage, my noble friend Lord Williams may be right that we can deal with this matter in guidance. I shall certainly look at that carefully. It is, however, possible that we may need something like his original amendment because that gives the surveyor right of access to the building and to relevant documents. As to that, we may need to establish a statutory right. Ideally, it should be dealt with in guidance, but if it was necessary to clarify the statutory position on access we might need to look at it further.

As to the date of commencement, in a sense there may well be some asymmetry in the Bill, but in the area of the right to manage we are committed to a substantial period of consultation, principally in relation to the constitution of the RTM company itself As explained earlier, we are committed to consulting before making regulations. We want to ensure that proper guidance is in place before the commencement of that right. All of that will take time. It may take six months as the amendment suggests; it may take longer or even less time, but there will certainly be a substantial period of consultation and drafting. At this stage the Government prefer to have flexibility in the Bill rather than be tied to a commencement date.

Baroness Hamwee

I, too, have sympathy with the amendment. Can the Minister confirm that Clause 155, which provides that the provisions of the Bill shall, come into force in accordance with provision made by order", allows for different parts of the Bill to be brought into effect at different times?

Lord Whitty

If that is what is stated, it allows flexibility. I believe that that is the normal form of words.

Lord Williams of Elvel

I am grateful to the noble Baroness, Lady Hamwee, for raising that issue. I am sure that that is right. I hope that the Government will take seriously the fact that the right to manage is a fundamental matter that many people look to in the Bill. If there must be consultation, let there be a sense of urgency about it, because people want the right. I am grateful for my noble friend's observations about Amendment No. 127. No doubt he will look at it and let noble Lords know at a later stage what the Government propose to do about it. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 128 not moved.]

Clause 76 [Right to obtain information]

Lord Kingsland moved Amendment No. 129: Page 33, line 33, after ("person") insert ("who has a right to manage the premises or any part thereof").

The noble Lord said: The purpose of the amendment is twofold. First, it is to limit the RIM company's powers to obtain information and, secondly, to provide sensible enforcement powers.

As presently drafted, the clause gives the RIM company extensive powers to demand information from anyone whomsoever. It must be remembered that the RTM company has this power at a time when it has not yet acquired the power to manage. In other words, it is just a putative RTM company—a company that wants to acquire the right to manage.

The main thing which the RTM company needs at this stage is a list of all the qualifying tenants in the block. The person who knows that will be the person with the right to manage. The purpose of the first two amendments is to limit the power to demand information so that, in practical terms, only the landlord need give information, and to limit the information that can be demanded to the information which needs to be put in the claim form.

As at present drafted, Clause 76(1)(b) is extremely imprecise. What limits are to be placed on information which the RTM company may reasonably require? This is potentially an extremely intrusive provision. All sorts of confidential agreements could reasonably be demanded by the RTM company and there is no limit as to whom can be asked for information.

A proper enforcement power is also needed. As at present drafted, I suppose an RTM company might be able to apply for an injunction, ordering the recipient of a notice to provide information. That is hardly a cheap and cheerful means of enforcing this obligation. It would be much better to have a narrow duty of disclosing the names of tenants and the details of their leases, which is imposed on the landlord and is enforceable by summary criminal proceedings in the event of breach. I beg to move.

Lord McIntosh of Haringey

I am grateful to the noble Lord, Lord Kingsland, for explaining his amendments, which are as we understood them. The amendments are intended to restrict the power for RTM companies to obtain information. Under the amendment, the power could be used only to obtain information relating to certain matters which are required to be included in the claim notice which is, in turn, required by Clause 78. However, I observe that the noble Lord has tabled amendments to Clause 78 itself, which would extend the matters which would be required to be included in the claim notice.

The main purpose of Clause 76 is indeed to ensure that an RTM company can obtain this information, but the company may have a legitimate reason to obtain other information which is pertinent to the claim. It is difficult to set that out exhaustively on the face of the Bill. We have therefore decided to provide a general power to obtain other information which the company reasonably requires. The noble Lord, Lord Kingsland, asked me about the limitation. The answer is that the word "reasonably" should protect landlords and other managers from being faced with unnecessary or unjustified demands. Indeed, I should remind the noble Lord that he argued previously that the RTM company will need to have made all manner of management plans. If it is to do that, it will need information on the existing management. If the Bill were limited in the way suggested by the amendments, it would not achieve what the noble Lord wants.

We have another problem with the amendment. It creates a criminal sanction for a failure to comply. We are reluctant to create new criminal offences unless there is a pressing need to do so. The noble Lord, Lord Kingsland, suggests that it is not enough to go for an injunction to the court, but Clause 103 provides the power to apply to the court for an order to provide the information requested. We consider that to be enough.

6 p.m.

Lord Kingsland

I thank the Minister for his response. Clause 76(1) is limited to situations before the RTM company acquires the power to manage. It refers to its power to make a claim. The Minister quite rightly drew my attention to the fact that, in another amendment, I have asked that more information be provided by the existing management of the company so that a putative RTM company can make an objective assessment about what it is taking on.

However, those amendments sought to place an obligation on the existing management to produce that information. Here I am talking about a claim which the Minister will observe applies to any person. Therefore, with great respect, I do not believe that the two approaches are incompatible.

I understand the Minister's desire not to introduce more criminal offences—it is very good to find a Minister who feels that way about a parliamentary Bill—and I agree with him that an injunction is a reasonable alternative, but it is much more expensive for an individual to put on foot. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 130 to 132 not moved.]

Clause 76 agreed to.

Clause 77 [Notice of claim to acquire right]:

Lord Kingsland moved Amendment No. 132A: Page 34, line 12, leave out ("14") and insert ("28").

The noble Lord said: Amendments Nos. 133, 134 and 135 in this group are also in my name. I propose not to move them when the appropriate moment arrives.

Amendment No. 132A, which I shall move, would increase the minimum period of time between the service of the notice of participation and the service of the notice of claim from 14 to 28 days. We believe that 14 days is too short a period to allow the leaseholders to decide how they wish to respond to a notice to participate. What if a notice were served the day after a leaseholder left for a two-week holiday? We consider that 28 days would be more appropriate. I beg to move.

Lord Whitty

As regards the proposal to increase the minimum period from 14 to 28 days, we consider that it is unnecessary and would cause another delay. The 14-day gap is intended to allow leaseholders the opportunity to reflect on whether they support the acquisition of the right to manage. If enough of them do, the notice can be served once the 14 days have expired. If they do not, the company will have to wait until sufficient members agree and it can serve the notice.

If someone was away, it would not affect that calculation at all. When they returned they could indicate that they wished to participate. However, if there was a majority there already, their subsequent view would not be relevant. If someone was away on a holiday for longer than 14 days and there was not a majority, the whole process would have to wait anyway. I do not believe that these amendments are necessary.

Lord Goodhart

Before the Minister sits down, surely there is a problem here. If someone was away but wanted to participate, they would be unable to do so if the necessary majority had been obtained without their joining in. Is that not correct?

Lord Whitty

No. Anyone who is qualified can join at any time, whatever view he or she may have taken at the beginning.

Lord Kingsland

The Minister is confident that his own provision will work effectively. I disagree with him, but I cannot put the matter to the vote. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 133 not moved.]

Clause 77 agreed to.

Clause 78 [Contents of claim notice]:

[Amendment No. 133A not moved.]

Lord Kingsland moved Amendment No. 133B: Page 35, line 8, at end insert— ("( ) It must include an offer of cover to provide for the RTM company directors' and officers' liability insurance, fidelity guarantee and professional indemnity insurance.").

The noble Lord said: This amendment would require the RTM company to include in its notice of claim that it had secured an offer from an insurance company to provide appropriate insurance cover. The intention of the amendment is to offer a means by which the RTM company can demonstrate its competence to manage and reassure all parties without laying itself open to any form of challenge regarding the degree to which it would be competent.

The amendment would require the company to obtain the three forms of insurance specified. The first is directors' and officers' liability insurance to protect those leaseholders involved in the management of the RTM company. It is already widely regarded as good practice for residents and management companies to obtain that form of insurance. The protection it offers against personal liability for the consequences of any errors on the part of a lessee who is involved in management may encourage more people to volunteer to serve.

The second is a fidelity guarantee to protect leaseholders' funds held by third parties in service charge or reserve fund accounts against theft or embezzlement, with the intention that the moneys would be directly protected. Any loss would be restored immediately while the insurers pursued the culprit.

The third protection is professional indemnity insurance to insure the company against the consequences of any failure in the day-to-day management of the block. It is unlikely that an insurer would agree to offer professional indemnity insurance without being certain that those undertaking the day-to-day management were competent. To give one example, insurers would wish to be certain that health and safety issues would be managed in a professional and competent manner, which would be expected of a commercial managing agent. We see no reason why an individual leaseholder should expect any less protection from the arrangements put in place by the RTM companies. The benefits to the leaseholders and the RTM company from these forms of insurance are, we believe, self-evident.

Amendment No. 133C is also in this group. That amendment sets a deadline of two months, rather than one month, to respond to the notice of claim for the right to manage. As with Amendment No. 132A, we believe that the timeframe proposed is too short. We prefer the deadline for responses to be two months, in keeping with the parallel requirement for responses to claims, enfranchisement or lease extension.

My noble friend Lord Caithness and the noble Lord, Lord Williams of Elvel, have tabled Amendment No. 136 which is also in this group. I support that amendment. I beg to move Amendment No. 133B.

The Earl of Caithness

Perhaps I may draw the Committee's attention to Amendment No. 136 which is grouped with this amendment. I call this my "health warning provision". There is a potential liability as to costs for a right-to-manage company in various circumstances. I believe that it is only right that before—this is the important point—one enters into a right-to-manage company one's attention is drawn to these liabilities, which can be substantial. The Committee will find the liabilities in Clauses 85 and 86 of the Bill.

It is important to remember that these are joint and several liabilities; there is not only your potential share of the liability as a member of the RTM company but the overall liability should one of the other people involved default on their share of the costs. I believe that that should be drawn to everyone's attention before the proceedings start, rather than waking up to it later, as I have experienced in my practice.

Lord Williams of Elvel

I have added my name to the noble Earl's amendment. It is an improvement on the amendment of the noble Lord, Lord Kingsland. I have very serious problems with the amendment of the noble Lord, Lord Kingsland.

Directors and liability insurance is now almost impossible to obtain. Certainly an RTM company would have enormous difficulty in obtaining this kind of insurance in the market—as it would with fidelity insurance—and even the larger firms of consultants are having difficulty in renegotiating their professional indemnity insurance. I understand that the legal profession also is having problems with this. I do not see this as a practical proposition for directors of RTM companies. I do not believe that any underwriter would accept them.

Although the provisions of Amendment No. 136 are quite draconian, I believe, as the noble Earl said, that there should be a health warning for people going in for the right to manage. Again, it comes down to the proposition that people should go into the right to manage with their eyes fully open as to what they are letting themselves in for. When the Bill is enacted, a section such as this would be helpful in that regard.

Lord Hodgson of Astley Abbotts

I think that the health warning in Amendment No. 136 is a very worthwhile addition to the Bill. In many cases we will be dealing with people who may be quite inexperienced in what they are taking on; therefore, what they are getting into needs to be made very clear. It is all too easy for people to be seduced into thinking that a right to manage is very attractive, but they need to be faced very clearly with the consequences.

I also have some concerns about Amendment No. 133B. My concerns partially reflect what the noble Lord, Lord Williams of Elvel, said. The amendment as it stands seems attractive, but it is all about quantum. You could have a very low amount of cover which achieves very little other than providing something for a fig leaf of respectability. It is about the quantum cover and the nature of the wording of the cover that is to be provided. You can have wording which is sufficiently opaque and broadly drawn as to have very little impact.

There is also another reason why we probably do not need this provision. I suspect that every director of an RTM company will want it. You therefore do not need to write it into the legislation because the directors of the RTM company will themselves be seeking it in order to protect their position. It will therefore be drawn in inexorably by the directors of the RTM company who will want to have it. Amendment No. 133B represents another hurdle which we do not need to impose.

6.15 p.m.

Lord McIntosh of Haringey

I am sorry that we cannot agree that the claim notice should have to include an offer to take out liability assurance. I am less sorry after hearing the noble Lords, Lord Hodgson and Lord Williams, because it would effectively make insurance a further qualifying criterion by the back door.

The right to manage is designed to reflect the fact that the leaseholders hold a majority of the equity of the building and should therefore already have a say in the management of the block. We are putting leaseholders on a more even keel with other home owners. We cannot agree that that needs to be hedged around with requirements that are based on the presupposition that they will not be competent enough to take sensible decisions about the management of that property. We have heard graphic examples from a number of Members of the Committee of people who have been put in the position of managing property who are not competent to do so. However, there is no protection to be found from having a nanny state and putting on the face of the Bill things that are not appropriate.

The noble Lord, Lord Kingsland, is right: the benefits of insurance are self-evident. It would be very sensible for the RTM company to consider taking out insurance of that kind. However, the noble Lord, Lord Hodgson, had a valid point: the fact of saying that there should be insurance does not guarantee that there would be adequate insurance, and the problem of defining "adequate insurance" on the face of the Bill would be quite significant. We cannot agree to making them do so, therefore.

The noble Lord, Lord Kingsland, also proposes allowing two months to respond to a claim notice. The procedure for acquiring the right to manage, and particularly the timescale involved, have been the subject of much discussion with interested parties. Nobody has suggested that one month is too short, so we stick to the view that one month is enough. Adding a further month would only introduce further delay for no good purpose.

The amendment tabled by the noble Earl, Lord Caithness, is interesting. It is intended to ensure on the face of the Bill that the parties are aware that in the event of the failure of an RTM bid the individual leaseholders, as well as the RTM company, are jointly and severally liable for the landlord's reasonable costs. I certainly agree that everybody should be aware of the respective rights and liabilities.

The Bill provides that the form and content of both the notices of invitation to participate, required under Clause 75, and claim notices may be prescribed by regulation. That would provide the opportunity for us to require an appropriate statement about this matter to be included in the notices. That would meet the requirements of the noble Earl, Lord Caithness, that people should be made aware before they become members. This amendment, which refers only to claim notices, would not do that. Our power under regulations will also apply to the notice of intention to participate and therefore meets his requirement. The detail of it is still subject to consultation, and that is as it should be. However, it is better to have it in regulation than on the face of the Bill for that reason.

The Earl of Caithness

I am grateful to the Minister for that reply. May I take it that something to this effect will be in the regulations? He said that there would be consultation and that the Government have the power to bring in regulations. As the noble Lord is only too well aware, once the regulations come to this House they cannot be amended, but it would be a great help to all of those who are concerned about the matter to know that it would definitely be in in some shape or form.

Lord McIntosh of Haringey

I can certainly give that assurance.

Lord Kingsland

When gunfire comes from behind as well as in front, it is usually prudent to withdraw as decently as one may. I shall not seek to press the amendment this afternoon. I am pleased that the Minister has, in effect, supported the amendment of the noble Lord, Lord Williams, and my noble friend Lord Caithness; some satisfaction has been acquired. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 133C to 136 not moved.]

Clause 78 agreed to.

Clause 79 [Claim notice: supplementary]:

Lord Kingsland moved Amendment No. 136A: Page 35, line 20, leave out subsection (1).

The noble Lord said: The amendment removes the subsection that states that a claim notice for the right to manage is not invalidated by inaccuracies in the particulars required. This is intended as a probing amendment. If a claim notice is not invalidated by inaccuracy, what requirement is there to be accurate? We appreciate that the intention may be to ensure that minor errors, such as spelling mistakes, errors in the precise postcode, or mixing up the leaseholders and their flat numbers. need not invalidate a claim. However, we would be interested to know how accurate a claim should be in the light of this subsection.

Amendment No. 136B was also in the group. This amendment requires a claim notice for the right to manage to be registered with the Land Registry, so that it will show up on any searches undertaken on behalf of the prospective purchaser of any flat or freehold. This proposal parallels the provision which is already in place for leasehold enfranchisement and lease extension, through the Leasehold Reform Regulations (1967) and the Leasehold Reform Regulations (1993), as they relate to Section 110 of the Land Registration Act 1925, which requires the vendor to ensure that all relevant information regarding title is registered with the Land Registry. I beg to move.

Lord McIntosh of Haringey

I am relieved to find that Amendment No. 136A is a probing amendment. We think subsection (1) of Clause 79 is a very important provision which we would not wish to lose. Subsection (1) says that any inaccuracy in the claim notice does not, of itself, invalidate that notice. We know from experience that many landlords will look for any excuse to reject a claim notice. The noble Lord, Lord Kingsland, suggests it could be a wrong postcode, a wrong flat number, or even a mis-spelt word, but that is obstructive behaviour which subsection (1) would prevent.

At the same time, as the Explanatory Notes to the Bill make clear, this subsection does not allow the leaseholder to get away with making a false claim. If the claim notice incorrectly claims that the leaseholders are entitled to acquire the right to manage, the landlord will be able to make a counter-notice disputing their eligibility to do so. We feel that a sensible balance has been struck.

The next amendment requires that the RTM company be required to register a claim notice. We are not convinced that there is any need for this. It is for a potential purchaser of any landlord's interest to make appropriate inquiries about the interest he is planning to buy. Vendors of freeholds will have duties to provide relevant information to prospective purchasers. If a purchaser is not given all of the right information, such as the existence of a claim notice, that would seem to be mis-selling and the purchaser should look to the vendor for redress. We do not see this as the responsibility of the RTM company.

Following the introduction of a right to manage, we would expect purchasers of freeholds, or their advisers, to be aware that the right may be exercisable where the property is eligible and make purchasing decisions on that basis.

Lord Kingsland

Amendment No. 136A was a probing amendment and therefore I have no intention whatever of pursuing it in substance. I would like to thank the noble Lord the Minister for his very full answer.

So far as Amendment No. 136B is concerned, I shall re-table it at Report stage and feel strongly inclined to put the matter to the vote if the Minister responds in like manner. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 136B not moved.]

Clauses 79 agreed to.

Clause 80 agreed to.

Clause 81 [Counter-notices]:

Lord Kingsland moved Amendment No. 137: Page 36, line 27, at end insert ("or (c) that it is not just or convenient that the RTM company should acquire the right to manage,").

The noble Lord said: Grouped with this amendment are Amendments Nos. 138 to 140 and 147. The amendments to this clause are very important to this side of the Committee and its approach to this part of the Bill. We consider them essential to make the Bill compliant with the Human Rights Act.

The Government's approach is to give lessees an absolute right to manage. It matters not on the Government's approach that the landlord is a paragon of virtue and carries out his management functions meticulously and cheaply. It matters not on the Government's approach that the lessees' whole purpose in acquiring a right to manage may be to avoid doing vital repairs to the building. No matter how good the landlord, no matter how disastrous the lessees' intentions might be, the lessees will have the right to manage.

It seems to us, on this side of the Committee, that the right solution is to have a much more flexible system. Everyone's objective must be to improve the quality of the country's housing stock and it is in the interests of both landlords and tenants to ensure that the management of property is the best possible.

The solution, in my view, is for the leasehold valuation tribunal to carry out a balancing exercise to determine whether a particular block is likely to be better managed by the landlord or by the tenants. In some cases, it may be clear that the tenants should have the right to manage. The landlord may for years impose exorbitant service charges for repairs which are lamentably carried out. In other cases, the landlord may have been first-class, but the leases in the building have only a few years to run and the tenants want to avoid carrying out extensive structural work that is essential to keep the building in good condition. Amendment No. 139 sets out a number of matters which would be relevant to the carrying out of a sensible balancing exercise.

If these amendments are not accepted, it seems to me that the Government will have great difficulty in showing that a landlord's human rights have not been infringed. As I said in setting out the Opposition's approach to this part of the Bill, the right to manage is a valuable one. Landlords quite legitimately, in order to manage blocks of flats, have those rights. It is justifiable to take away that right without paying compensation if the landlord is abusing his position. This kind of case would plainly satisfy the Duke of Westminster criteria set down by the European Court of Human Rights.

What is not justifiable is taking away not only the profits of managing but also potentially damaging the landlord's reversionary interest in cases where necessary repairs are likely to be postponed. There is simply no pressing social need for that kind of expropriation without compensation. That is why giving the leasehold valuation tribunal the power to carry out a balancing exercise is important. The message which needs to go out from this Commit tee is that Parliament condemns bad landlords but supports good landlords. I beg to move.

6.30 p.m.

Lord Goodhart

No doubt the noble Lord, Lord Kingsland, will not be surprised to hear that we on these Benches disagree very strongly indeed with this group of amendments. We believe that the whole purpose of the right to manage in Chapter 1 of Part II of the Bill is to get over the problems that have been shown up in the past few years by the necessity for proving that there has been mismanagement by the landlord. One gets round all that by making it a right for people to take over the management. We know that in many cases, if the landlord is a good landlord, they would certainly be well advised not to take over the management themselves. However, there will be many cases in which they do. It will be infinitely simpler and a great deal cheaper for them if they come along and say that they have the necessary number of qualifying tenants who agree that they want to take it over, and they then set up their RTM company.

These amendments would take us back to the existing system and would potentially make it enormously costly as one would need to have substantial litigation in order to establish one's right. One only has to look at Amendment No. 139 and at the list of issues that the leasehold valuation tribunal will have consider to see that the proceedings could stretch for days, if not weeks; the potential cost could be enormous. We believe that the effect of this group of amendments would be to effectively destroy the whole of the right-to-manage scheme.

Lord Monson

In contrast to the noble Lord, Lord Goodhart, this seems to me a very worthwhile group of amendments. They would introduce a highly desirable safeguard into the Bill, particularly as one could count upon the leasehold valuation tribunals to come to a fair and balanced judgment. The noble Lord, Lord Goodhart, may have overlooked that point.

Lord Jacobs

I cannot support the amendment. Of all the provisions that the Government are putting into the Bill, the one most supported by leaseholders—and the least disappointing—is the right to manage. The amendment would destroy any benefit that leaseholders will secure.

Having said that, as I said before, I live in central London and have one of the greater landlords as the freeholder, who manages the property. In the last two or three years, he has doubled and redoubled his efforts to do the most professional job imaginable. One would need to be barking mad to consider taking over the management because it could not be done to the same standards. However, the possibility of the tenants taking over the management is a spur to good management, particularly to the landlords. I, therefore, strongly oppose the amendment.

Lord McIntosh of Haringey

The noble Lords, Lord Goodhart and Lord Jacobs, are right; these amendments expose the real difference between us on Chapter I, Part II of the Bill. If they were to be agreed to, Part II of the Bill would not be worth pursuing.

The principle behind the Bill is a "no-fault" right to manage. The criterion for the right-to-manage is that the leaseholders should have the greatest share of the equity of the building. We argue that, if they have that, they should be able to take over responsibility for managing the investment without having to prove shortcomings on the part of the landlord or to prove that they were more suitable managers. The noble Lords, Lord Goodhart and Lord Jacobs, have made it clear that if they thought they would be conspicuously less suitable managers—and if there was no cause for complaint—they would not wish to manage, and that that is the protection.

The phrase "just and convenient" comes from Part II of the Landlord and Tenant Act 1987, which enables leaseholders to apply to a leasehold valuation tribunal for the appointment of a manager where the landlord has failed to comply with his obligations. The use of the phrase in those circumstances allows the tribunal to balance the landlord's failings against the consequences of losing management responsibility. That does not work in these circumstances. "Just" to whom? "Convenient" to whom? The question is left entirely open.

It has been said already that Amendment No. 139 has a long list of matters which would have to be taken into account, but the list is not exhaustive. Amendment No. 139 says "shall have regard in particular" to these matters, which allows others to be involved.

There are plenty of safeguards in the Bill. There are safeguards for landlords or other occupants if the RTM company fails to manage the building. This includes the right to apply to a leasehold valuation tribunal for the appointment of a new manager, to which I have already referred. The manager could be the landlord himself if the tribunal accepted that he was suitably competent to carry out this role. It is unnecessary to add a further hurdle to be overcome before the leaseholders can exercise the right in the first place.

The noble Lord, Lord Kingsland, said that the landlord has a right to protect the reversionary value of his property. Clause 94(1) allows a landlord to require a right-to-manage company to carry out its management responsibilities. This, together with his right to be a member of the company, allows him to safeguard his reversionary interest. If the RTM company persistently falls down in its duties, anyone affected could seek its replacement under the 1987 Act.

It would be wrong for the right to be taken away on spurious grounds. The amendment suggested by the noble Lord, Lord Kingsland, would provide unscrupulous landlords with every opportunity to frustrate or obstruct leaseholders' legitimate aims. We simply cannot accept what would, in effect, destroy Chapter 1 of Part II.

Lord Kingsland

To make it absolutely clear to the Committee, we strongly support the principle of the right to manage. That is not in issue. Moreover, we deplore the conduct of bad landlords and their practices.

Our concern is where a good landlord, who has an unblemished record, is required to transfer the right to manage to a right-to-manage company which subsequently manages the property badly. The Minister has described to the Committee a number of provisions in the Bill which he believes will prevent such a situation occurring. In our submission, however, those provisions, in themselves, are insufficient to deal with the problem that I have outlined. I shall reflect on the noble Lord's reply and come back to this issue, perhaps in a different form, on Report.

I omitted to speak to Amendment No. 147 in the group. I shall speak to it when we arrive at its place in the list. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 138 to 140 not moved.]

Clause 81 agreed to.

Clause 82 [Landlords etc. not traceable]:

[Amendment No. 141 not moved.]

The Earl of Caithness moved Amendment No. 142: Page 37, line 21, leave out ("court") and insert ("leasehold valuation tribunal").

The noble Earl said: In moving Amendment No. 142, I shall speak also to Amendments Nos. 143 and 144. They are simple amendments. They seek to leave out "court" and insert "leasehold valuation tribunal". The Bill rightly gives emphasis to increased role for the leasehold valuation tribunals. I see no reason why that is not the appropriate body to deal with landlords who are not traceable, which is the kernel of Clause 82.

A leasehold valuation tribunal is a much less daunting prospect for a right-to-manage company than going to court. Much as I admire and like solicitors, unless it is absolutely necessary, the further they are kept away from property the better. This is one area where they can be kept just that little bit further away. I beg to move.

Lord Goodhart

We support the amendment. It seems appropriate that the leasehold valuation tribunal should become a specialist court, dealing as far as possible with all the issues that arise under the Bill. It is appropriate that these particular issues should be determined by the LVT. It will be a more informal and, we hope, a quicker and cheaper way of dealing with such issues.

Lord Kingsland

We also support the amendment, although we consider that the operation of the leasehold valuation tribunals at the moment leaves something to be desired. We shall table amendments later in the Bill to that effect.

Lord McIntosh of Haringey

The reason we suggested putting this to the courts was because the courts have to make similar decisions in other areas and no particular specialist expertise is required. We do not think that leaseholders, going to the courts in this way, are likely to receive a substantial bill of costs. There is a precedent in the 1993 Act for the procedure for collective enfranchisement where the landlord cannot be found, but we do not feel very strongly about this. There are other precedents in other parts of the Bill, where we have transferred some categories of leasehold disputes to the leasehold valuation tribunals. Therefore, we are perfectly prepared to consider this matter for the Report stage if Members of the Committee feel strongly about it.

Lord Williams of Elvel

Could it be that my noble friend is accepting the amendment?

Lord McIntosh of Haringey

Parliamentary draftsmen never allow us to accept amendments unless they have been drafted by parliamentary counsel. I have said that we do not feel strongly about it, and we will consider it.

Lord Goodhart

In that case, perhaps I may ask why it was that the Government accepted my Amendment No. 3, which was drafted by me and not by parliamentary counsel?

Lord McIntosh of Haringey

Because we said we would.

The Earl of Caithness

I am grateful to the noble Lord, Lord McIntosh of Haringey. We have moved from "consider" to "not objecting", which is a monumental step forward. In this spirit of encouragement, perhaps we can look forward to some more positive speeches from the noble Lord.

I agree with the noble Lord, Lord Goodhart—I am grateful for his support—that the LVTs need strengthening. I would be grateful if the Minister could confirm that as a result of this Bill there will be improvements in the staffing resources and efficiency of the LVT in order to carry out all the tasks it is required to do.

Lord McIntosh of Haringey

That question goes beyond parliamentary consideration of this Bill, but I am told that such strengthening of resources is in hand.

The Earl of Caithness

I am much obliged to the 5th Cavalry. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 143 and 144 not moved.]

Clause 82 agreed to.

Clause 83 [Withdrawal of claim notice]:

[Amendment No. 145 not moved.]

[Amendment No. 145A not moved.]

Clause 83 agreed to.

Clause 84 [Deemed withdrawal]:

[Amendment No. 146 not moved.]

Clause 84 agreed to.

On Question, Whether Clause 85 shall stand part of the Bill?

Lord Goodhart

We believe that, as between the landlord and an RTM company, there should be no liability for each other's costs, as now provided by Clauses 85 and 86. Members of an RTM company are almost always likely to be less able to afford costs than the landlord. There will therefore be a serious disincentive to them if they have to pay the landlord's costs as well as their own—and, of course, they will have to pay their own. Equally, if the landlords are liable to pay their own costs, there will be an incentive on them to reach an early agreement.

It is true that, under Clause 85, the landlord's costs had to be reasonable, but "reasonable" is, frankly, an elastic word. If the RTM company wishes to challenge the reasonableness of the landlord's claim costs, that challenge will itself be the subject, potentially, of further litigation, increasing the lessee's costs still further.

If we seriously want to help lessees obtain the right to manage, we should exclude this proposed liability to pay the landlord's costs.

Lord Whitty

These clauses would completely remove the right of recipients of claim notices and landlords to recover the reasonable costs of dealing with those notices. While one does not want to use the emotive term "expropriation", unlike the noble Lord, Lord Kingsland, it cannot be right that someone who has had his rights taken away compulsorily should bear the costs involved in dealing with that. Anyone who is served with a claim notice has a legitimate right to defend himself if he wishes to challenge it.

As the noble Lord, Lord Goodhart, indicated, it is not a blank cheque; one must be reasonable. The process of challenging those costs is through the LVT, which we have all agreed is a sensible and relatively informal way to resolve these issues. This amendment is not appropriate. The landlord must have the ability to recover reasonable costs.

Lord Jacobs

I support my noble friend Lord Goodhart. The argument of the Minister that each side should have the right to claim costs in the event of a loss sounds very reasonable at first blush. However, the parties are unequal, and that is where the problem between leaseholders and freeholders starts. If in the main the parties are unequal and power and strength lie with the freeholder, as we have seen with leasehold extensions before the LVT where the parties may take some time to put forward their cases, the costs incurred by landlords may be quite frightening. On occasion they employ, not surprisingly, the very best, and hence the most expensive, counsel, and that scares leaseholders most of all. It is wrong to treat the two parties as equal; in reality, almost invariably that is not so.

Lord Whitty

It would probably establish a right of precedent for the RTM. If the RTM is successful in its claim it has redressed that inequality. At that point the landlord is no longer an unequal party and, therefore, has a claim to have his reasonable expenses repaid. I accept that there may be landlords who try to seek unreasonable expenses; certainly, history indicates that that happens, but in relation to that there is the safeguard of the LVT. Clause 85(2) is also an important qualification, in that costs are reasonable only if they are of the kind that the landlord would incur if he was personally liable for them. There are a number of safeguards here. Therefore, I hope that these clauses are not deleted.

Lord Goodhart

We shall consider this matter further in the light of what the Minister has said. We shall not press our opposition to the clause on this occasion.

Clause 85 agreed to.

Clause 86 agreed to.

Lord Kingsland moved Amendment No. 147: After Clause 86, insert the following new clause—

("Cessation of RTM company rights

CESSATION OF RTM COMPANY RIGHTS

.—(1) After an RTM company acquires the right to manage any premises, from time to time any person who is—

1. (a) a qualifying tenant,
2. (b) a tenant of any part of the premises who is not a qualifying tenant, or
3. (c) the landlord of the whole or any part of the premises (including mesne landlords) or a management company party to any lease of the premises or any part thereof who prior to the acquisition date had the right to manage the premises, may apply to the leasehold valuation tribunal for an order that the RTM company cease to have the right to manage.

(2) The grounds on which such an application may be made are that on the date of the application—

1. (a) that where there are only two flats in the premises the tenants of both flats are not both qualifying tenants and members of the RTM company.
2. (b) if there be more than two flats in the premises the tenants of fewer than one half of all the flats in the premises arc both qualifying tenants and members of the RTM company, or
3. (c) it is not just or convenient that the RTM company should continue to have the right to manage the premises.

(3) The application must be served on—

1. (a) the RTM company, and
2. (b) the landlord of the whole or any part of the premises (including mesne landlords) and any management company party to any lease of the premises or any part thereof who but for the RTM company's right to manage would have the right to manage the premises.

(4) The Secretary of State may make regulations for the procedure for such applications, including provisions as to costs.").

The noble Lord said: The purpose of the amendment is to ensure that there is a safety net in place if an RTM company takes over the management of a block and things go wrong. One of the omissions from the Bill is the failure to include any method of removing an RTM company once it has started to manage a block. There are two situations in which it may become appropriate to remove an RTM company from management: first, where the tenants no longer want the company to manage; secondly, where the company grossly mismanages.

If the RTM company ceases to have the support of the majority of the tenants it must be right that interested parties can apply to have the company removed as the manager. Equally, in the second situation where the company shows that it is unable to manage the block properly, interested parties should have the right to intervene. A tenant, for example, who finds that essential repairs are not being carried out should be given the right to have the management of the property put in alternative hands. I beg to move.

6.45 p.m.

Lord McIntosh of Haringey

I answered this amendment in dealing with Amendments Nos. 137 to 140. The same arguments apply to the cessation of the RTM company rights as apply to the establishment of RTM company rights. They are a mirror image, as it were. That is borne out by the fact that Amendment No. 147 uses the same "just and convenient" phrase which was to be found in Amendment No. 137. All tenants have the right to seek the replacement of a defective RTM company under the 1987 Act by virtue of Schedule 7. There is plenty of protection. We can see no more reason to accept Amendment No. 147 than the previous amendments.

Lord Kingsland

The Minister said that his response to this amendment was the same as his response to my Amendments Nos. 137 to 140. I can equally say that my response to his response on that occasion applies equally in this case. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 87 [The acquisition date]:

[Amendment No. 148 not moved.]

Lord Kingsland moved Amendment No. 148A: Page 40, line 14, leave out from ("is") to end of line 15 and insert ("a quarter day not less than three months after the date on which the determination becomes final, unless otherwise agreed by the parties").

The noble Lord said: In moving Amendment No. 148A, I shall speak also to Amendment No. 148B. These amendments would require the acquisition date to be set as a quarter day and to allow a minimum three-month handover period, unless the parties agreed otherwise. The date of handover of management responsibility should, in our submission, be linked to a clear date in the service charge year. The quarter days are fixed and well known. Although not all leases refer to quarter days, landlords and managing agents are used to working around these dates as focal points for management activity.

We believe that the minimum period of one month specified in Clause 78(7) is too short to allow an effective and orderly handover, and recommend that a three-month minimum period after the service of the counter-notice be allowed and that the RTM company should take over responsibility on the next quarter day after that.

I have had no luck so far with my amendments to extend time periods. I look forward to the Minister's reply with a degree of fatalism. I beg to move.

Lord Whitty

I am glad the noble Lord has no serious optimism because I am certainly not going to give him any grounds for it. There are a number of routes by which the RT'M company can acquire the right to manage in so far as the point of agreement is concerned. Where there is a counter-notice, that has to be determined by a leasehold valuation tribunal. Whether it is by agreement or whether it is by decision of the tribunal, these amendments would extend the period from that date to the point where the acquisition occurs. We can see no justification for that.

The leaseholders have a right to a say in the management of the property—that has been established either by agreement or by the tribunal—and there is no reason for undue further delay, whether by reference to three months, to quarter days or whatever. One month seems to us to be adequate. If it has been challenged, there has already been some delay and there is no reason to extend it further.

Lord Kingsland

I am disappointed but not in the least surprised at the Minister's response. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 148B not moved.]

Clause 87 agreed to.

Clause 88 [Notices relating to management contracts]:

[Amendments Nos. 149 and 150 not moved.]

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

Lord Kingsland

I rise to speak to the Question that Clauses 88 and 89 shall stand part of the Bill. I am not convinced that the Government's intentions with respect to these provisions are clear, and I think they will pose practical problems. I appreciate that the intention of these arrangements is to ensure that an RTM company is not bound by what are called "sweetheart contracts"—to prevent a disgruntled landlord from shackling the RTM company with unsuitable contracts during the handover period.

We understand that the Government's intention is that existing contracts will transfer to the RTM company, when the right to manage is exercised, only if both the company and the contractor agree: but we are not sure that this is clear from the Bill as drafted.

Clauses 88 and 89 deal with the service of notices relating to management contracts but do not make clear what happens to those contracts once the notice is served. Landlords will he required to serve notices on their contractors at least one month before the handover of management so that the contractor has time to make any arrangements in the light of the changing circumstances and negotiate as necessary. It would be extremely helpful to have clarification from the Minister as to his understanding of the position relating to compensation as a result of a contract being frustrated.

We are not convinced that the Government have appreciated that contractors may be influenced in their decision as to whether to continue a contract by the financial strength of the RTM company. A contractor may be happy to deal with the landlord who has a track record and real assets; he may be less certain in dealing with an RTM company. We wonder whether contractors will accept a contract from an RTM company if they do not believe that the company will be in a position to pay.

We are also concerned that the Government have not considered the impact of buildings withdrawing from the landlord's bulk purchasing arrangements on those leaseholders who remain under the landlord's management. It is quite possible that they, through no fault or decision of their own—or indeed the landlord's—will find themselves forced to pay more for services because the landlord is unable to obtain as good a deal with a smaller portfolio.

As to insurance matters, as I understand it, it is not possible to frustrate insurance contracts under the present law because of the continuity of the insured interest, which is not affected by management arrangements. The circumstances appear rather closer to that of a novation or assignment where the freeholder must be specifically released from the obligation. I beg to move.

The Earl of Caithness

I am grateful for this opportunity to stand up and get the circulation going in this rather cold room in which the Committee is being conducted. I agree with what my noble friend said about this clause. I find it highly unclear and it is a very important section that needs clarification.

The purpose of Amendment No. 151, which is grouped with the clause stand part debates in respect of Clauses 88 and 89, is designed to write into the Bill what I think the Bill is trying to say. It is not trying to add to the Bill; it is merely clarifying the situation.

I need the Minister to do that for me. What will happen to existing contracts at the handover of the management, and what will happen to frustrated contracts?

7 p.m.

Lord Goodhart

Amendment No. 152 is also part of this group. Clause 88 and 89 undoubtedly require clarification. Having read the clauses and having looked at the Explanatory Notes, I came to an entirely different conclusion from the noble Lord, Lord Kingsland. My understanding was that the existing contracts would be continued but simply transferred from the landlord to the RTM company. Indeed, it seems generally appropriate that that should be the case. Let us take, for example, a contract with a gardening contractor in respect of which there is no problem. If that contract is only terminable on, let us say, six months' notice given on either side, I see no reason why the change from the landlord to the RTM company should have the effect of terminating the rights of the gardening contractor.

For that reason, I would on this occasion be unable to support Amendment No. 151 which would treat all contracts entered into by the landlord as being null and void and frustrated. The effect would be that somebody who had entered into a contract and who might have incurred expenditure on the basis of that contract continuing for a period of time, would have no right whatever to compensation.

We have come up with a different solution. We recognise that there can be a problem with existing service contracts. Sometimes, as the noble Lord, Lord Kingsland, said, there is a sweetheart contract, a contract with an associated company of the landlord or some element of mutual back-scratching. However, we believe that there is no reason why there should be an automatic termination or why the RTM company should have power to terminate a fair and reasonable contract. We believe there should be a power to terminate the cause, and Amendment No. 152 first suggests that any contract entered into after the RTM claim notice has been served should be subject to review. Once the claim notice has been served, of course, the landlord is on notice that he is not in a position to enter into long-term contracts without the risk of the RTM company disclaiming them when it takes over the right to manage. That would prevent contracts being dished out by the landlord to his associates.

Amendment No. 152 gives a power to terminate contracts entered into before the claim notice has been served for a cause. We have suggested what those causes should be: where the money payable to the contractor party is too much, where the services to be provided are inappropriate—for example, services that do not actually need to be done—where they are done to an excessively high and expensive standard, or where the contractor party is not a fit and proper person to provide the services. We believe that those are matters to be dealt with in the opinion of the directors, but that opinion must be a genuine opinion before the power to terminate can be entered into. We would be perfectly happy if this amendment was accepted on the basis that it should be not only a genuine but a reasonable opinion. We believe that this amendment is the right solution to what is obviously a somewhat complicated problem.

Lord Whitty

This is certainly a complicated problem about which there is some misunderstanding. I shall try not to add to that. The Bill allows normal contract law to apply where the right to manage is acquired. Under contract law, contrary to what the noble Lord, Lord Goodhart implied, the reality is that a contract will normally fall as frustrated where one of the parties is placed in a position where he or she is no longer able to fulfil the obligations. Hence, a contract which relates to the management of a property will normally be frustrated where the right to manage is acquired for that property, because it will take away the existing manager's management functions and his ability to fulfil his side of the contract.

As far as concerns compensation, which was raised by the noble Lord, Lord Kingsland, under normal contract law at the point where a contract falls frustrated the contractor can recover the costs already incurred under the contract, but there is no entitlement to further compensation above that respective compensation. We believe it right that when the RTM company takes over it should not have to take over all the contract. We, therefore, do not want to interfere with what would be the normal operation of contract law.

We recognise, however, that there are a number of other considerations. First, it would not be fair for contractors simply to lose their business without having had notice. There will also be contracts which the RTM company will wish to take over. It is for that reason that we have not provided in the Bill that contracts must always be frustrated. That would be too inflexible and counter-productive. In many cases the RTM company will want to take over those contracts. We also want to give landlords the opportunity to re-negotiate contracts which perhaps apply to more than one property, such as a gardening contract, or whatever.

In the light of those considerations, the Bill makes provision for notices to be served in good time to make everyone aware that the right is to be acquired and the legal position which follows, and to make the necessary adjustments. I should also make clear that nothing in the Bill overrides the employment rights of anybody concerned, including those under TUPE. There is nothing in the Bill which causes a right-to-manage company to be obliged to take over a gardening contract, or any other, unless it has agreed to do so. There is, therefore, no need for the powers envisaged by the noble Lord, Lord Goodhart.

I also have some trouble with the amendment tabled by the noble Earl, Lord Caithness, which provides that all contracts are automatically frustrated once the RTM company acquires the right to manage. This would mean that the RTM company could not, by agreement or whatever, take over any of the landlord's existing contracts. It would, therefore, be put in the position of always having to start from scratch, whatever was the most sensible situation. It would also leave a landlord who had more than one property, and a contract covering more than one property, with the requirement to re-negotiate the existing contract but to exclude the RTM property in all circumstances. We have designed the provisions in these clauses and elsewhere to prevent such ridiculous situations arising.

Amendment No. 151 tabled by the noble Earl, Lord Caithness, also purports to provide that the normal rules of contract law shall continue to apply. That is the case but it has the consequences which I spelled out rather than the ones which the noble Earl, Lord Caithness, and the noble Lord, Lord Goodhart, spelled out. It is difficult and complicated and we have taken careful advice. If we were to state it in such broad terms in the Bill, it could be misleading. Instead, we would have to set out in all detail what the application of contract law means.

Members of the Committee will appreciate that we are not all that keen to undertake such a significant expansion of the Bill. However, normal contract law will apply where the right to manage is acquired. It has the consequences I have tried to spell out, and there are good reasons why the fact that it applies should be implicit rather than explicit in the way that the amendment of the noble Earl, Lord Caithness, would suggest. Given the complexity, for the purposes of both the landlord and the putative RTM company, this issue will also need to be spelled out in detail in the guidance.

Lord Goodhart

Before the noble Lord, Lord Kingsland, replies, I have not researched this but I am not quite as sure as the Minister that the contracts necessarily would be frustrated. The issue about transferability of contracts is a complicated one. The basic rule is that the benefit of a contract can be transferred but the burden of a contract cannot. However, if the gardening contractor who is providing the services is willing to continue to provide those services to the RTM company, I am not entirely certain that the court would not be prepared to draw an implication that the contract was not, in those circumstances, frustrated, and that the gardening contractor was entitled to continue to provide those services and to receive payment for them from the RTM company rather than from the landlord. That may or not be the case—I am not saying that it is—but I believe that this issue will need to be looked at with some care in the interval between now and Report stage. I shall try to do so myself and perhaps the Government will also consider doing so.

The Earl of Caithness

The Minister said that he had received careful advice. Having listened to what he has had to say and being interested to hear how the noble Lord, Lord Goodhart, took a different view from me on reading the Bill, I wonder whether the Minister would seek more careful advice on this clause. I am more muddled than I was before I heard what has been said. I shall have to read it in Hansard because the acoustics in this room are not great at the best of times. This area needs clarification. Perhaps we can look at it between now and the Report stage.

Lord Kingsland

I do not rise to withdraw an amendment because I do not have an amendment down. I simply speak to the Question that Clause 88 and 89 shall stand part of the Bill. My noble friend Lord Caithness and the noble Lord, Lord Goodhart, gave the Committee very good advice. We can all go away and read what we each said, form our own views and come back at Report stage to hear whether or not the Minister will reaffirm what he has already said, or whether he has reconsidered his position and returns with a modified view.

Clause 88 agreed to.

Clause 89 agreed to.

[Amendments Nos. 151 and 152 not moved.]

7.15 p.m.

Lord Kingsland moved Amendment No. 152A: After Clause 89, insert the following new clause—

CONTINUING LIABILITIES

(".—(1) Where a liability exists as a result of an event prior to the acquisition date, the responsibility for that liability rests with whoever was the manager party at the time of the event.

(2) If a liability such as described in subsection 1) exists, the RTM company shall permit the former manager party and any person authorised to act on his behalf reasonable access to any relevant documentation (or, if the information is recorded in the document in a form in which it is not readily intelligible, to give any such person access to it in a readily intelligible form) which is in its control.").

The noble Lord said: I rise to speak to Amendment No. 152A. The amendment ensures that if a liability exists, it remains the responsibility of whoever was responsible for the management at the time it arose, and gives the former manager a right of access to any relevant files in such circumstances until the issue is resolved.

Where there are continuing liabilities arising from an event prior to the date of the hand-over of responsibility, it should be made clear that the liability remains with whoever was responsible at that time, and does not transfer to the new management regime. It is logical, in these circumstances, that the landlord should have the right of access to the relevant files until the matter is concluded, even where the RTM company would have a subsequent interest once the case is settled. I beg to move.

Lord Whitty

I am grateful to the noble Lord, Lord Kingsland, for explaining that. At first sight, we do not agree that this provision is necessary. There is nothing the Bill itself will do to transfer any liability which was incurred before the acquisition of a right to manage. This is partly bound up with our previous discussion on what will happen to existing contracts. It may be that we can reach greater clarification on that at a later stage in the Bill.

The amendment also proposes granting powers to the landlord to access documents held by the RMT company. That does not seem necessary. Clause 90 requires the previous manager to hand over only information which is required in connection with a company's management of the building. As liability does not pass across, it should not be the case that any documentation relating to that liability would have passed across. Therefore, I do not see the need for that part of the amendment either.

Lord Kingsland

Perhaps on reflection, it would have been better to have dealt with this amendment in the course of the discussion on the previous grouping. We shall wait to hear what the Minister has to say on Report on the general issue of contractual liability, and in the light of that, reconsider whether or not I should press this amendment. In the meantime, I beg leave to withdraw.

Amendment, by leave, withdrawn.

[Amendment No. 153 not moved.]

Clause 90 [Duty to provide information]:

The Earl of Caithness moved Amendment No. 154: Page 42, line 47, leave out ("four) and insert ("three").

The noble Earl said: In moving Amendment No. 154, I wish to speak also to Amendments Nos. 158, 162, 163 and 164. As I read the Bill, information on a hand-over could be as long as two months after the right-to-manage company has acquired the right to manage. In other words, there is an RTM company that we want to see succeed, we want to see take over the block, but it is not getting all the information that it needs, and some it will not get until two months after it has taken over the management of that block.

That is wrong. As soon as the claim notice has been put forward, there ought to be an overlap period. There should be a regular flow of information for at least two months between the landlord and the right-to-manage company before the right-to-manage company takes over. There is also a provision that where information is not provided, that matter could be referred to the LVT. I beg to move.

Lord Williams of Elvel

I should like to support the amendment of the noble Earl, Lord Caithness, and I have put my name to the other amendments in the group. I am particularly concerned that an RTM company could start business without any funds. That seems to be something that the Government do not intend and which this amendment would correct.

As I read the Bill at present, there is no obligation for the landlord to hand over uncommitted service charges at the acquisition date; it may wait until the appropriate moment. This seems to put the RTM company in a very difficult position. We are trying to achieve a smooth handover from a landlord to an RTM company. I believe that these amendments, taken in the round, would ensure that the handover is as smooth as it can possibly be. There will undoubtedly be difficulties, but we want to make it as smooth as possible.

Lord Whitty

I appreciate that we are all seeking to ensure a smooth transition of management. Quite frankly, with this Bill it has been quite difficult to know what to do for the best and there are conflicting suggestions. We appreciate that in many cases it would indeed be helpful if the transfer of functions and the handing over of monies were to take place at the same time. However, we also recognise that some leaseholders will wish to take over the management at the earliest possible date because they are concerned that the existing landlord may well exploit any delay.

We fear that this amendment would leave leaseholders vulnerable to such a position and also reduce the time available for landlords to produce the records. The arrangements for handover in the Bill were drawn up after extensive consultations and represent a compromise between the various conflicting concerns. We would be reluctant to move away from those arrangements. There will be many situations where an element of co-operation will enable the parties to agree sensible arrangements for the transfer of responsibility and to agree sensible timetables—the provisions in the Bill allow plenty of scope for that—but where there is an element of antagonism or mistrust, leaseholders would almost certainly wish to gain control as rapidly as possible. In such cases, they would need to accept a temporary period of inconvenience and may need to finance expenditure arising. Nevertheless, the issue as to who was controlling the building would be resolved.

Nothing is completely satisfactory in this area. We believe that our provisions are better than those contained in the amendment.

The Earl of Caithness

A compromise is a compromise is a compromise and can even be re-compromised. I hope that, on reflection, the Minister will think carefully about these amendments because they are specifically designed to ease the transition period and to ensure a smooth handover.

The Minister said that in a bad situation the right-to-manage company will be eager to take over as soon as possible. I can understand that. However, I would have serious concerns for that RTM company if it does not have all the information. The landlord must be required to provide information for the right-to-manage company by a certain time, otherwise that company would be opening itself up to potential liabilities in order to enter into a contract in good faith. The RTM company wants to see its block properly managed and believes that it can manage it better than the landlord, but, unless it has all the information required, how can it possibly be in a position to make a sensible judgment?

This is a very serious area that we have still to resolve. I do not like the situation in which relevant information could be handed over as much as two months after the new management company has taken over. That is surely not right. I hope that the noble Lord will reflect on that further between now and another stage.

I am grateful for the support of the noble Lord, Lord Williams of Elvel, on these amendments. He raised a very important point about finance for an RTM company that has adequate funds. Can the Minister give me an assurance that he will have a serious look at this issue again—without commitment—in order that this problem may be properly addressed?

Lord Whitty

On that basis, certainly.

The Earl of Caithness

I am grateful to the Minister. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 155 to 157 not moved.]

Clause 90 agreed to.

[Amendment No. 158 not moved.]

Clause 91 [Duty to pay accrued uncommitted service charges]:

[Amendments Nos. 159 and 160 not moved.]

Lord Goodhart moved Amendment No. 161: Page 43, line 21, at end insert— ("( ) Costs contingently payable under existing contracts shall be treated for the purposes of subsection (2) as having been previously incurred; but where the amount of such costs when determined is less than the amount deducted in respect of them under subsection (2), the balance shall be paid to the company as soon as is reasonably practicable.").

The noble Lord said: This is a short and somewhat technical point. Under Clause 91 the landlord must hand over to the RTM company uncommitted service charges. Those are sums that he has received and holds by way of service charges, less whatever amount is required to meet the costs which have previously been incurred in connection with the matters for which service charges are payable. The problem is that, although the costs may have been incurred, the amount that is needed to pay for them may well be uncertain.

In an ordinary building contract the landlord may say that the amount is too much because the work has not been done properly. Equally, the builder may say that the amount under the contract is not enough because additional work has been done as a result of extras falling outside the contract. Therefore, there may be uncertainty as to what is required. Where there is such uncertainty it seems appropriate that the landlord should be entitled to hold on to the sums that are payable for work that has already been clone, but if at the end of the day it turns out that the amount he has to pay is not as large as that the balance must be handed over, along with the uncommitted service charges that have already been handed over, to the RTM company. I beg to move.

Lord Whitty

There is a need to clarify potential confusion about what money should be handed over by the landlord. We are, therefore, prepared to consider this matter to see whether we should table an amendment at a later stage.

Lord Goodhart

I am very pleased with the Government's response. This is the second time today that we have had such a concession. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 162 and 163 not moved.]

Clause 91 agreed to.

[Amendment No. 164 not moved.]

Clause 92 [Introductory]:

[Amendment No. 165 not moved.]

Clause 92 agreed to.

7.30 p.m.

Clause 93 [Management functions under leases]:

[Amendments Nos. 166 and 167 not moved.]

Lord Kingsland moved Amendment No. 167A: Page 44, line 5, leave out ("and management") and insert (", health and safety, management and compliance with all relevant statutory provisions and guidance").

The noble Lord said: Amendment No. 167A seeks to clarify the full extent of management responsibilities and to ensure that there is a particular reference to health and safety issues.

It is important that the legislation makes clear that once the RTM company has acquired responsibility for management it and not the freeholder holds the primary responsibility for exercising all management functions under the lease. It would be undesirable for all concerned if leaseholders, dissatisfied with the decisions of the RTM company, should then sue the freeholder for failing to carry out his or her management responsibilities. I beg to move.

Lord McIntosh of Haringey

I do not know whether to say "nanny state" or "burdens on small business". We see no need to expand the definition of "management" in the way suggested in this amendment. "Management function" is intended to relate to what the company will take on under the leases to the property. The company will also be required to comply with any statutory requirements which are binding upon it as a manager. They will include health and safety legislation as well as requirements under leasehold, landlord and tenant law. This matter is already covered and no amendment is necessary.

The noble Lord, Lord Kingsland, also suggests that the RTM company should be required to comply with all relevant guidance. Setting aside the question of precisely what that guidance should be, in any event we see no justification for requiring compliance with guidance. The whole point of guidance is that it is advisory. We encourage people to follow it but do not require it.

Lord Kingsland

I am grateful to the Minister for confirming that health and safety matters are covered in the concept of management. I shall allow the noble Lord his point on guidance. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Goodhart moved Amendment No. 168: Page 44, line 7, leave out paragraph (a).

The noble Lord said: Amendment No. 168, together with our objection that Clause 100 stand part of the Bill, raises the question of the area which the RTM company manages. One starts with Clause 93 which details the management functions. Subsection (5) provides: 'Management functions' are functions with respect to services, repairs, maintenance, improvements, insurance and management". Subsection (6) provides: But this section does not apply in relation to— (a) functions with respect to a matter concerning only a part of the premises consisting of a flat or other unit not held under a lease by a qualifying tenant".

A "qualifying tenant" is a tenant who holds a lease of a residential flat under a long lease.

The result of this appears to be that the RTM company is responsible for discharging the management functions over all flats which are occupied by long leaseholders, whether or not the long leaseholders are members of the RTM company. However, it does not apply to flats which are held on short-term rental leases, assuming there is no intermediate long leaseholder; nor does the right to manage apply to shop or office premises. I believe that that division of responsibility will be unworkable where a block contains flats, some of which have qualifying tenants and some of which do not. It appears that the dividing line between a matter which concerns only a particular flat and a matter which concerns that flat and other parts of the premises is not clear. For example, if the landlord originally covenants to provide hot water and heating to the flat and there is a particular problem which affects one flat only which does not happen to have a qualifying tenant, it appears that that is not part of the management functions of the RTM. Whose responsibility is it? Is it some residual function of the landlord?

I believe that the RTM company should be entitled and required to take over the management of all units which are served by the same common parts whether or not they have qualifying leaseholders. Most commercial premises will not use the same common parts; for example, they will be on the ground floor with separate entrances. I certainly do not object to the amendment of the paragraph so as to exclude from the RTM management functions in respect of units which do not share common parts. There would still be some problems, particularly with structural repairs, and it will be possible to live with that. In my view, you cannot have flats in the same building sharing the same services and the same common parts without a single unified management.

I am also puzzled by the interaction of Clauses 93 and 100. Clause 100 assumes that the service charges payable in respect of excluded units go to the RTM company. How are funds to be made available for any management function in respect of excluded units which are not carried out by the RTM company? Clauses 93 and 100 need to be looked at again and need to be revised. I believe the solution should be that in respect of units sharing the same common parts at least, the management function should be taken over wholly by the RTM company, and the service charges should be paid direct to the RTM company. I beg to move.

Lord Kingsland

We oppose this amendment. We agree that the RTM company should be responsible for the management up to the door of the units but not beyond. We support the Bill's intention that freeholders should remain responsible for managing flats let on short leases, which we believe should include relevant assured tenancies and Rent Act tenancies and any units let on business leases.

The relationship between the landlord and these tenants is entirely different from that between the freeholder and leaseholder. Any interference in that relationship could compromise the ability of the landlord to manage his investment and this aspect of the business.

Lord McIntosh of Haringey

I am grateful to the noble Lord, Lord Kingsland, for his support. What the noble Lord, Lord Goodhart, is saying is entirely consistent with what he has been arguing throughout, most recently when he was trying to get the right to manage brought down to leases of seven years instead of 21 years. It is certainly consistent, and if we were to follow that approach it would make greater sense for the RTM company to take over responsibility for the whole property, including matters which are internal to units held on commercial and short leases. But that is not what we are intending to do. This would represent a fundamental shift away from the purpose of the right to manage.

Our objective is to provide long leaseholders, who have made a substantial investment in their own homes, with the right to manage the building as a whole. We do not consider it appropriate that they should be able to interfere in the relationship between the landlord and short-term or commercial tenants. It is not our intention to provide other tenants, who will not normally have made a substantial investment in their premises, with the right to manage.

There is no problem at all about the common parts of the property because somebody is responsible. The landlord is responsible or the long leaseholder is responsible, and they are responsible in proper proportion. The noble Lord, Lord Goodhart, asks who pays for the works done in the units which do not become the responsibility of the RTM company. The relationship of these units under the lease is not affected. If the lease says the tenant pays the landlord, that still applies; it is unaffected by the Bill. We do not see that there is a problem here. The common parts are protected, the members of the right-to-manage company have their own responsibilities, and the landlords have the responsibility for the others.

As regards Clause 100, the noble Lord, Lord Goodhart, was concerned about the relationship between Clause 93 and Clause 100 rather than Clause 100 as a whole. I have a very long speech in defence of Clause 100, but I do not think it was being attacked. If he will allow me, I should like to write to him about the relationship between Clause 93 and Clause 100.

The Earl of Caithness

I hope the noble Lord will copy the correspondence to us. We have been looking forward all afternoon to hear his defence of Clause 100, and we feel rather left out of the correspondence between the noble Lord, Lord Goodhart, and the noble Lord, Lord McIntosh of Haringey.

Lord McIntosh of Haringey

Anyone who wants it can have it. I shall place a copy in the Library. There is no shortage of paper. It can be a long letter if you want.

The Earl of Caithness

Another rain forest is cut down at the same time.

On a serious point, I was confused by the point made by the noble Lord, Lord McIntosh of Haringey, on common parts. He said that the management could be done either by the landlord or by the management company—at least, that is what I thought he said.

Lord McIntosh of Haringey

The responsibility for paying is in proportion to the units.

The Earl of Caithness

But the management will be done by the management company, will it not?

Lord McIntosh of Haringey

Yes.

The Earl of Caithness

I am grateful to the noble Lord, Lord McIntosh of Haringey, for that. I misheard him to begin with and I am grateful for the clarification.

Lord Goodhart

I remain quite worried by this. It is true that the proposal that the RTM company should take over the management of the whole block as far as it shares the same common parts is consistent with the line we have been taking. However, the amendments are not driven so much by that as by my concern about the workability of the system under which the responsibilities will be divided between the right-to-manage company and the landlord. I simply do not believe that is workable.

If there is going to be a right-to-manage company, it has to take over responsibility, like it or not, for the whole of the block. How will it regard the excluded units? How will one allocate the facilities charge between the RTM company and the landlord? How will one deal with issues such as heating where the RTM company maintains the boilers and so on? If there is a blockage somewhere in the pipes which affects only the radiator of the excluded unit, the responsibility for dealing with that will shift over to the landlord. That is just not workable.

Lord McIntosh of Haringey

I would not like the noble Lord, Lord Goodhart, to sit down feeling dissatisfied with the answers. He is quite right in saying—and I failed initially to make clear to the noble Earl, Lord Caithness—that it is the right-to-manage company which implies the duty to manage. It is responsible exactly as the noble Earl, Lord Caithness, and the noble Lord, Lord Goodhart, say.

The question of who pays is what I thought was being addressed. The answer is that somebody pays for each of the units, either the RTM company member, the leaseholder, or where there is a shorthold, they pay. If it is a short-term or commercial tenancy, then the responsibility for payment is set out in the lease. Somebody pays for all the units, and therefore somebody pays his share of all the common costs.

The only remaining problem would be if there were a problem of access to get to defective pipes in a single unit, but I cannot imagine that that is what the noble Lord, Lord Goodhart, is worried about.

The Earl of Caithness

I am not sure I followed the noble Lord, Lord Goodhart. I am with the noble Lord, Lord McIntosh of Haringey. Surely it is not that different from what is happening now. If the landlord is managing the property now, and there are long leases and other leases, which is quite normal, it is not a question of the apportionment of the cost and the liability; it is not to do with the management per se.

The noble Lord, Lord McIntosh of Haringey, has confirmed that it is the right-to-manage company which takes over the management; it is a question then of the apportionment of the costs which needs to be sorted out right from the beginning.

7.45 p.m.

Lord Lea of Crondall

This confusion was beginning to emerge during the debate on Schedule 6 about the two kinds of common parts. There are common parts between the residential parts, and there are common parts for the whole of the shell of the building. My only thought is that when my noble friend Lord McIntosh writes his letter he should address the question of which type of common parts fall into which category. Two kinds of common parts are being talked about here. There are certainly common parts between the residential areas and common parts for the whole shell of the building. That certainly seems to be part of the debate that is going round at the moment.

Lord Goodhart

We are in a state of some confusion. My understanding is that the effect of Clause 93(6)(a) is to leave the RTM company with the responsibility for managing common parts, but not with the responsibility for exercising management functions with respect to matters that are internal to a single unit. Those matters that are internal to a single unit therefore must necessarily remain the responsibility of the landlord, so that management is divided.

Lord McIntosh of Haringey

I shall include it in my letter.

Lord Goodhart

That would be helpful. I may have misunderstood matters, but it seems to me that they are fairly obscure. I would welcome a letter on this point. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 93 agreed to.

Lord Whitty

In this atmosphere of confusion, yet to be enlightened, I would suggest that the Committee adjourn.

The Deputy Chairman of Committees (Viscount Simon)

The Committee stands adjourned sine die.

The Committee adjourned at thirteen minutes before eight o'clock.