Grand Committee Report of 22 March 2001

Official Report of the Grand Committee on the Commonhold and Leasehold Reform Bill [H.L.]
Thursday, 22nd March 2001.
The Committee met at four of the clock.
[The Deputy Chairman of Committees (Lord Skelmersdale) in the Chair.]
Clause 125 agreed to.
Clause 126 [Replacement of residence test]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 225:
Page 58, line 3 leave out subsection (2).
The noble Lord said: In moving this amendment, it may be for the convenience of the Committee if I speak also to Amendment No. 227. Included in the group are other amendments which propose similar arrangements. We now move on to the question of the renewal of leases. From our debate so far, I understand that the Government are not entirely committed to abolishing leasehold. Therefore, we have to look at the problems of those who remain leaseholders under the present system.
I recognise that the Government have a problem. Having removed the residence test for qualifying tenants who wish to enfranchise, they then have to address, as they have done in Clause 126, the problem of tenants who wish to renew their leases. I do not think that the Government have it quite right in this instance. As drafted, the Bill is unduly restrictive. Having removed the residence test for enfranchisement, it seems to be slightly unfair on those who wish to have a new lease to provide that they should be qualifying tenants for at least the previous two years. My amendment, coupled with Amendment No. 227, would reduce that period to six months. There are some fairly serious arguments in favour of that, which I am sure other Members of the Committee will deploy. It is a question of fairness. I recognise that there is a problem, but I believe that the Government have gone a little too far. I beg to move.
Lord Goodhart: Our Amendment No. 226 is grouped with Amendment No. 225. Amendment No. 226 would retain a residence qualification, though a considerably reduced one in time. For the reasons given earlier, we no longer wish to press for the preservation of a residence requirement. In those circumstances, I shall not be moving the amendment.
Lord Kingsland: I am sad that the noble Lord, Lord Goodhart, does not intend to move his amendment because had he done so we would have supported it.
We also have Amendment No. 226A—Amendment No. 227A is consequential—which seeks to replace the existing residence test with an occupancy requirement. If there is no occupancy requirement, we believe that
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investors will quickly realise that they can benefit from a windfall gain through being able to sell the extended lease at a premium. This would encourage speculative purchasing and would eventually distort the market by pushing up the value of short leases. This, in turn, would make it more difficult to identify a fair price for enfranchisement.
The Earl of Caithness: I rise to support the amendment of the noble Lord, Lord Williams, to which I have added my name. I hope that it will receive a favourable comment from the Government because on Clause 116 stand part the noble Lord, Lord Whitty, said that he did not want speculators to benefit from enfranchisement. If one does away completely with the residency test, it is exactly those speculators who will benefit the most from enfranchisement.
There is no question that there are people out there in the market—particularly in the London market—who buy properties with a view to enfranchising them. If there is no residency test, one will encourage the development of a small and, to my mind, unacceptable group of people who will do that as a professional way of making money. That would be an abuse of the normal housing market and would be bad for the landlord/tenant system.
I thought of tabling an amendment to provide that any non-resident should pay 100 per cent of the marriage value. Having listened to the debate last week, I knew that that would commend itself, notably to the Liberal Democrat Party, which would like marriage value to continue. However, perhaps the better way of achieving what is required is the way that the noble Lord, Lords Williams, has suggested: that there should be at least a six-month residency test. I would prefer a 12-month test. However, I understand the difficulties that some tenants have faced under the present condition of three years. I believe that the noble Lord, Lord Williams, has reached a sensible compromise.
Lord Selsdon: I have a problem with the difference between what is a qualifying tenant, a qualifying person or a qualifying being and what is residency and non-residency. As the Bill stands, it is not so much occupation but ownership that determines matters.
In my banking life, I have come across many situations where a family decides that it will buy a flat for its children for them to occupy for a period of time. Some of these flats may not qualify for enfranchisement. The difficulty we have is in separating those whom we believe morally should have a right to enfranchise from those who would do so from a purely speculative point of view.
Lord Williams of Elvel: I am sorry to interrupt the noble Lord. The definition of a qualifying tenant is set out in Section 6 of the Leasehold Reform, Housing and Urban Development Act 1993, which states:
"That condition is that the tenant has occupied the flat as his only or principal home".
Lord Selsdon: I understand that. I am referring to the difficulties that have been created by previous legislation where it has not necessarily been clear. When one is faced with serving a Section 13 notice and having to prove people's residency status—whether they are domiciled or ordinary residents of the United Kingdom; whether they are expatriates who have been abroad for a particular time; whether for three years out of the past 10 they have been occupying the property—one finds that there are people who put telephone bills and so on in their own names even when they are not there. People get up to these kinds of tricks because of the complexity of the previous legislation and the failure of previous governments to address the issue.
I am trying to say that, if possible, we should treat ownership as the key factor: how long someone has owned a property; whether it is for the benefit of their family or for their own personal benefit I have often been involved with members of the international expatriate community who feel very strongly about the previous legislation. They have bought property for themselves and their future, let it and then found that for some reason they are unable to enfranchise. I should like to see the definition reworded. If we start to argue about whether it should be three months, six months or nine months, speculators may find an opportunity to put someone into the premises and have a side agreement. It is not clear. If our objectives are to treat well those who deserve to be and to try to stop speculation, the Bill as drafted does not achieve them.
Lord Richard: My name is attached to the amendment. I thought that I was putting my name to a proposal to abolish the two-year residence qualification. Having heard the noble Earl, Lord Caithness, I was not sure whether that was the effect of the amendment. On the assumption that it is, I shall listen with great interest to what the Government have to say; if it is not, I shall return to it at a later stage.
The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty): Some of the principles that we have just debated were dealt with in the previous context. We appreciate the concern expressed by the noble Lord, Lord Kingsland, and others that to abolish the residence test could provide an incentive and a temptation for speculative purchasers rather than genuine home-owners. To reiterate, it is certainly not the Government's intention to enable investors to expropriate the assets of others by entering this market. In addition, the existing test excludes leaseholders from the right to renew their leases, and in many cases they are in genuine need of the protection that is afforded by that right.
As has been said, currently many flats are occupied for a variety of different reasons. They may be second homes, against which we are not legislating. To bring
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home the point more acutely to some Members of the Committee, they may be the London homes of people whose main residence is elsewhere for various purposes: others are sublet while the leaseholders work abroad, as the noble Lord, Lord Selsdon, said, or because the owners have had difficulty selling them. The occupiers or owners of those flats are not speculators, or, strictly speaking, investors, but private owners. If the lease becomes too short they will be unable to sell it without first extending it. Without a right to renew the lease at a reasonable price they are left vulnerable to greedy landlords. Moreover, some landlords have made a practice of refusing to let to genuine residents unless they create a company to which the lease is then given. Although these people lease through a company they are genuine residents. That structure would automatically prevent them from ever qualifying under the existing residence test.
Instead of requiring leaseholders to reside in their flats, the Bill provides the alternative requirement that they must have held a long lease for at least two years before they can exercise that right. That is not perfect but it goes some way to remove the opportunity for short term speculative gain while protecting the interests of other residents, which seems to represent a sensible balance. It is, therefore, a matter of balance and a number of these amendments seek to strike a different one.
The amendment spoken to by the noble Lord, Lord Goodhart, dealt with the abuse of company lettings. While a minimum residence of 12 months, as in the amendment of the noble Lord, Lord Kingsland, would be a greater deterrent to speculators than a shorter period, it would still create difficulties for the categories of private owner that I have mentioned.
The issue of evasion mentioned by the noble Lord, Lord Selsdon, is dealt with to a large extent by the two-year provision, because eligibility depends on owning the lease for two years rather than on a dubious basis of proof of actual residence.
Amendment No. 225 would reduce the period to six months. That, again, is subject to the same criticisms as apply to the amendment of the noble Lord, Lord Kingsland. The noble Lord coupled that amendment with the amendment of my noble friend Lord Richard, which would have gone one stage further. Unusually, my noble friend Lord Richard was confused about the implications of his amendment. My noble friend Lord Williams indicated that the two amendments should be taken together. However, as we understand it, Amendment No. 227 not only scraps the residence test but also cuts out the requirement that the leaseholder should have been a qualifying tenant for two years, in which case there would be no anti-speculation test whatever.
Lord Williams of Elvel: I thank my noble friend for giving way. I did not request the grouping. The department produced the grouping. I did not object to it, but I did not request it.
4.15 p.m.
Lord Whitty: I was not talking about the grouping. I may have misunderstood my noble friend, but I thought he said that he wished to couple his amendment with Amendment No. 227.
Lord Williams of Elvel: Yes.
Lord Whitty: It is to Amendment No. 227 that I now address my remarks. The amendment cuts out both the existing residence requirement and the two-year qualification period. I understand the argument that cutting out the two-year waiting period could make it more attractive for people to buy flats with relatively short outstanding leases, but it also opens up the possibility of the kind of speculation that we are trying to avoid. We think that the two-year ownership requirement of the lease would be a reasonable protection and would avoid at least some of the downsides of the existing residence qualification. It is a complex area. We believe that the Government have come up with the best solution so far. Therefore, for the moment at least, I would wish to stick with the Bill as it stands.
Lord Goodhart: Before the noble Lord, Lord Williams, replies, perhaps I may say that there is probably not an enormous attraction here for speculators anyway. Except perhaps in the cases of leases that are coming very close to their end, there is unlikely to be a great difference in price between leases that have already been extended and those that could be extended in the future, except to the extent that the one will take into account the fact that the money has already been paid, whereas in the other the price will have to reflect that money will have to be paid in order to extend. However, I should have thought that there would not be an enormous bonus here for speculators.
Lord Williams of Elvel: I am grateful to my noble friend for his reply. This is a difficult area. I make no bones about that. My proposal was that the residence test should be abolished. Nevertheless, I recognise the argument of the noble Earl, Lord Caithness, that the Government might accept an interim arrangement. However, I understand the problems involved. I hope that by the time we reach the next stage of the Bill those problems will have been digested. I shall read carefully what my noble friend has said. I am sad that the noble Lord, Lord Goodhart, did not speak to his amendment, because I would have liked to have heard his arguments. Nevertheless, in order to get on with the business, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 226 to 227A not moved.]
On Question, Whether Clause 126 shall stand part of the Bill?
Lord Williams of Elvel: The Question whether Clause 126 shall stand part of the Bill was grouped with Amendments Nos. 225 to 227A. I do not know whether the noble Baroness wishes to pursue the matter.
Baroness Gardner of Parkes: I was not present when the Committee resumed because I had to attend the
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meeting of those who sit on the Woolsack during the week. I am sorry that I was unable to speak. My point seems to be totally unrelated to that of the noble Lord, Lord Williams, in that I wanted to retain the residence test. That is why I oppose the clause standing part. I do believe that there is money in this for property speculators. I believe that the modified residence test would be good but not the residence test as provided at present. I would have modified it but kept it in some form. I would certainly not have allowed company ownership. That is why I sought to oppose the clause standing part of the Bill.
Lord Whitty: We have gone over much of the argument. Clearly, all sides recognise that the present residence qualification is not appropriate. We believe that we have reached a position that is the best yet on the table in relation to the two-year holding of the lease. In replying to the previous debate, my noble friend Lord Williams said that we might return to the issue were we to be granted a further stage of the Bill at some point. It may be that people's ingenuity will find something along the lines of what the noble Baroness, Lady Gardner, suggested. At the moment, however, I am not convinced that there is anything better than what the Government have proposed. I am therefore sticking to it. I hope that the clause will stand.
Lord Richard: Before my noble friend sits down, do I take it from that the Government are open to consideration of possible amendments to the structure of the Bill and that they will be prepared to discuss the matter to see whether we can arrive, as he puts it, at something that is better than that which we have?
Lord Whitty: I am not sure what my noble friend means by "structure of the Bill". But, in relation to these provisions, were a new idea to be put on the table we would certainly be prepared to discuss it both formally and at a later stage in the Bill. However, I do not believe that there is an appropriate one on the table today.
Baroness Gardner of Parkes: I accept that. I shall not continue my opposition to Clause 126.
Clause 126 agreed to.
Clauses 127 to 129 agreed to.
Clause 130 [Valuation date]:
Lord Kingsland Lord Kingsland moved Amendment No. 227B:
Page 58, line 36, leave out from ("lease),") to end of line 37 and insert ("in paragraph 1, for the definition of "the valuation date" substitute—
""the valuation date" means the date of service of the reversioner's counter-notice."").
The noble Lord said: In moving this amendment, I should like to speak also to Amendment No. 228A.. We support the proposal to fix the valuation date but we think that it would be more appropriate for it to be fixed at the date of the landlord's counter-notice as that is the point at which the second party engages in the process. We are also in favour of standardising as many elements of the processes under leasehold legislation as possible. The amendment parallels Amendment No. 222A.
Similarly, Amendment No. 228A is a parallel proposal, matching Amendment No. 223A, that interest shall be payable on the purchase price. The same arguments apply. I beg to move.
Lord Whitty: As the noble Lord indicated, we had this discussion in the collective enfranchisement context. Our proposal to fix the valuation date for a renewed lease on a flat as the date of the initial notice was intended to provide certainty but also consistency with a long-standing approach to leasehold houses under the 1967 Act. We see no real reason to depart from that principle by adopting the date of the counter-notice, as the noble Lord, Lord Kingsland, suggests. We would normally expect the landlord to serve a counter-notice relatively quickly after receipt of the initial notice and we certainly want to encourage that. In circumstances where adopting the date of the counter-notice changed the situation dramatically, clearly the landlord had delayed in replying, presumably to gain an advantage at a time of rapidly increasing property value. That is not a reaction from the landlord that we would wish the Bill to encourage.
Amendment No. 228A deals with the interest position. I can appreciate that in a rising property market landlords could, at least notionally, be disadvantaged as a result of the price being determined at the earlier date, but it would not be fair to provide a right to a payment, which would effectively amount to an interest payment, between the date used to determine the price and the date of completion. Any disadvantage to the landlord would have arisen only in a rapidly rising property market. If the property market were static, declining or rising at less of a level than the interest rate, there would be no justification for such a payment because there would not have been a disadvantage to the landlord.
The solution is that the lease renewal process should be as rapid as possible. The intention of this and other provisions is to reduce the scope for procedural delay, reduce the scope for disputes and keep a degree of consistency with earlier legislation in this field. I hope that the noble Lord, Lord Kingsland, will not pursue this matter here or in other contexts.
Lord Kingsland: It may be trite to say, but despite the passage of a week, the noble Lord, Lord Whitty, has learnt nothing and forgotten nothing. Nevertheless, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 130 agreed to.
[Amendments Nos. 228 and 228A not moved.]
Clause 131 agreed to.
Clause 132 [Disregard of marriage value in case of very long leases]:
[Amendments Nos. 228B and 228C not moved.]
Clause 132 agreed to.
[Amendment No. 229 not moved.]
Clause 133 agreed to.
[Amendments Nos. 230 and 231 not moved.]
Lord Goodhart Lord Goodhart moved Amendment No. 232:
After Clause 133, insert the following new clause—
("Long leases

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

  LONG LEASES
  In section 1AA of the 1967 Act, omit—

  (a) in subsection (1), the words "falls within subsection (2) below and",

  (b) subsection (2),

  (c) subsection (4).").

  The noble Lord said: The Leasehold Reform Act 1967 originally applied to houses that were held on a long tenancy at a low rent. The long tenancy was defined as a term of years exceeding 21, and low rent was defined as two-thirds of rateable value, the Act having been passed at a time when rateable value still existed. However, under Section IAA of the 1967 Act, which was inserted by the Housing Act 1996, the lessee of a house that was not at a low rent also acquired the right to enfranchise the house if the term exceeded 35 years. I believe that the distinction between the 21-year period for houses at a low rent and the 35-year period for houses at a somewhat higher rent was anomalous and should be eliminated.
  I can see that it is inappropriate for rack-rent tenancies to be subject to enfranchisement, but we believe that very few, if any, residential tenancies are granted for periods of between 21 and 35 years except at a premium, and that they are therefore not rack-rent tenancies. The reduction of the term of years for tenancies which are not at a low rent to the same period as tenancies which are at a low rent would end an anomaly and simplify this extremely elaborate legislation. I beg to move.
  Baroness Hanham: My Amendment No. 233C, which is in this group, seeks only to achieve what the noble Lord, Lord Goodhart, has suggested should happen; that is, a reduction of the period from 35 years to 21 years.
  Lord McIntosh of Haringey: Amendments Nos. 232 and 233C, and also Amendment No. 233AA standing in the name of the noble Lord, Lord Hodgson, seek effectively to end the low rent test as it applies to houses. We are sympathetic to this proposal. It is only considerations of space which have prevented us from including it in the Bill so far. We will consider carefully what has been said, although we cannot make any commitment at this stage.
  Lord Goodhart: I am most grateful for that reply. It is fair to say that any additional space taken up in this Bill would be at least matched by what is taken out of existing Acts. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  4.30 p.m.
  Lord Goodhart Lord Goodhart moved Amendment No. 233:
  After Clause 133, insert the following new clause—
  ("Excluded tenancies

  EXCLUDED TENANCIES
  In section 1AA of the 1967 Act, omit—

  (a) in subsection (1), the words "and is not an excluded tenancy",

  (b) subsection (3),

  (c) subsection (5).").

  The noble Lord said: This is another problem with the same section of the Leasehold Reform, Housing and Urban Development Act, as amended. Section 1AA excludes from enfranchisement houses that are held for a term which is greater than 35 years, if they are not at a low rent, if they are in certain rural areas designated by the Secretary of State, and if the freehold of the house is held together with adjoining land which is not occupied for residential purposes.
  We note that properties which are let at a low rent are not excluded under that provision, so this applies only to houses which are held for a ground rent which is more than the low rent level; that is, of course, something which is very small.
  The purpose of this exclusion is not clear. Is it to enable landlords to let off surplus farm cottages on terms which would enable them to get them back if they are leased? I understand that there are some villages where a large number of houses are covered by this exclusion. One village mentioned to me is the village of Adlestrop in Oxfordshire, which will be familiar to many people from Edward Thomas's poem of that name.
  Can the Minister explain why this exclusion is justified? If the object is to enable landlords to get the cottages back, they are not likely to want to let the cottages for periods of more than 21 years. The exclusion seems to serve no useful purpose. If the recovery of these houses does not serve a purpose, how can the exclusion be justified? I beg to move.
  Baroness Hanham: I have tabled an amendment similar to that of the noble Lord, Lord Goodhart, although he has outlined the issue far more eloquently than I could have done.
  Lord McIntosh of Haringey: I remember Adlestrop. Before I go into the more general argument, we have spoken to a representative of the leaseholders of Adlestrop and, based on that conversation, we are not entirely sure whether the leaseholders are caught by the rural exemption. But that is a matter on which they must seek their own legal advice.
  The rural exemption exists to prevent the break-up of country estates. When the right to enfranchise was first extended to leaseholders who could not pass the low rent test, it caused great concern among rural landowners. They argued that they would not have leased houses which were an integral part of their rural estate if they had thought there was any risk of the house being permanently detached from the estate as
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  a result, and we have accepted that argument. There may be a case for amending the rural exemption to target it better at the kind of properties that we wish to exempt, and we are willing to look at this question in the longer term. However, I cannot make any greater commitment than that at this time. If we were to do that, we would have to consult interested parties, and I do not believe that we could realistically do that in time to deal with it in the Bill.
  Lord Goodhart: I am grateful that the Minister is willing, in the longer term, to take another look at this issue. It seems to me that this problem is almost certainly over-estimated because, if the houses are potentially part of the estate, they are distinctly unlikely to be let for substantial terms. It is almost certainly an unjustified exemption.
  Nevertheless, I accept that there would have to be consultation on the proposal in order to enable the landlords to put their case for retaining the exemption. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Baroness Hanham Baroness Hanham moved Amendment No. 233A:
  After Clause 133, insert the following new clause—

  PERSONAL REPRESENTATIVES
  (" .—(1) In section 7 of the 1967 Act (rights of members of family succeeding to tenancy on death), after subsection (8) insert—
  "(8A) On the death of a person who has for the three years before his death been a qualifying tenant of a dwellinghouse, the rights conferred by this Act are exercisable, subject to and in accordance with this Act, by his personal representatives; and, accordingly, in such a case references in this Act to the tenant shall, in so far as the context permits, be to the personal representatives."
  (2) In section 5 of the 1967 Act (general provisions as to claims to enfranchisement or extension), at the end of subsection (1) insert—
  "A notice under this section may not be given by the personal representatives of a tenant later than six months after the grant of probate or letters of administration.".").
  The noble Baroness said: In moving Amendment No. 233A, I shall speak also to Amendments Nos. 234A and 234B. Amendment No. 233B is also in this grouping but it slightly different.
  This brings us to a discrepancy in the Bill. Benefits will accrue from the Bill to those who occupy flats but not to those who live in houses. This clause raises the question of the eligibility for obtaining a new lease following the death of the owner. Under Clause 128, to which we have referred today, the personal representative of a qualifying tenant of a flat who dies will continue to be able to exercise the right to a new lease for a period of six months after the grant of probate or letters of administration. However, no such provision is available to those who are the personal representatives of house leaseholders.
  Section 7 of the Leasehold Reform Act 1967 provides that the heirs of a deceased qualifying tenant can inherit the right to serve a claim, but only if they are themselves resident in the property. Non-resident heirs cannot inherit the benefit of a claim if it has already been served before the death of the qualifying

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  tenant. They cannot inherit the right to enfranchise or extend the lease if they do not fulfil the residence qualification. As the Bill stands, that will continue to be three years for a house leaseholder.
  In practice, this residential qualification has caused serious difficulties for families when elderly parents die long after the children have stopped living at home. The problems arise particularly in the Midlands and north-east England where families have tended to treat their homes as family properties, even though they are leasehold. This amendment would give the same rights to house leaseholders as are being given to flat leaseholders enabling personal representatives to both inherit the right to enfranchise or to extend the lease.
  I turn to Amendment No. 233B. Under the Leasehold Reform Act 1967, the owner of the leasehold house—which is where the differences arise—must satisfy a test which involves clocking up three years' residence in order to enjoy the statutory right to acquire the freehold. A more or less equivalent test applies in respect of flat owners under the Leasehold Reform, Housing and Urban Development Act 1993 in relation to collective enfranchisement, and also in relation to the individual leaseholder's right to acquire a 90-year extension to his or her lease.
  The Bill, as we have discussed, scraps the residence test in respect of flats, replacing it with the two-year ownership, but it does not do that in respect of houses. In other words, it amends the 1993 Act but it does not amend the 1967 Act.
  That all seems rather odd in the light of the remarks in the consultation paper of August 2000, which accompanied a previous draft Bill which drew attention to the,
  "need to reform leasehold law and rationalise the rules and procedures where this would be justified and beneficial".
  That consultation paper goes on to state:
  "We propose to abolish the resident test for houses in the Leasehold Reform Act 1967. However, we propose to replace it with a requirement that the lease should have been held for at least two years".
  That would of course have brought it into line. Had that been done, it would have prevented the inconsistency which is now about to be enshrined in this Bill. My amendment seeks to prevent such a thing happening. I beg to move.
  Lord McIntosh of Haringey: These amendments are mainly intended to provide the same kind of changes to the rights of leaseholders of houses to enfranchise or extend their leases to the rights of leaseholders of flats, as we were discussing a few minutes ago. The amendments tabled by the noble Lord, Lord Hodgson, the noble Baroness, Lady Hanham, and the noble Lord, Lord Richard, propose the abolition of the existing residence test. The noble Baroness, Lady Hanham, proposes to allow the personal representatives of deceased leaseholders, who would have qualified for the rights, to exercise them within six months of granting probate or letters of administration.
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  I assure the Committee that the Government are keen to achieve a more consistent approach between the law on flats and houses. As the noble Baroness, Lady Hanham, reminded us, we made this clear in the consultation paper which accompanied the draft Bill. Unfortunately, we have not been able to include in this Bill as many changes as we would have liked. We appreciate the strength of feeling on this matter and, although I cannot make firm commitments, we will consider very carefully the views that have been put forward.
  Amendments Nos. 233B and 235C also affect agricultural tenancies and charitable housing trusts. As that aspect has not been addressed, I assume that it was not intended, so I will not reply to it.
  Baroness Hanham: I thank the Minister for that reply. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 233AA to 233C not moved.]
  Clause 134 [Abolition of limits on rights after lease extension]:
  [Amendment No. 234 not moved.]
  Clause 134 agreed to.
  [Amendments Nos. 234A to 234C not moved.]
  Clause 135 agreed to.
  Baroness Maddock Baroness Maddock moved Amendment No. 235:
  After Clause 135, insert the following new clause—

  EXPIRY OF LEASES
  (" .—(1) Schedule 4A of the 1967 Act (certain leases granted by housing associations) is amended as follows.
  (2) In paragraph 3(1), after "a lease granted by a housing association" insert ", or which reverts to a housing association on expiry,".
  (3) In paragraph 3(2), omit paragraph (d).").
  The noble Baroness said: The amendment refers to the previous Act and the low rent test. I highlighted the issue earlier. It is peculiar to registered social landlords and people who are in the process of buying their houses through shared ownership. This clause will ensure that shared ownership houses can be acquired only by shared owners, through the process of staircasing; that is, gradually increasing their interest in the property eventually to 100 per cent. As I understand it, originally there were amendments to the Leasehold Reform Act 1967 and to Housing Act 1996 to deal with the discrepancies. Many believe that that did not do so effectively, with the result that now shared owners may currently acquire their freehold to their houses through enfranchisement from registered social landlords for very small sums of money. I am sure that this is not the Government's intention. I believe that the amendment would deal with it. I hope that Government will either say that that is not the case or that we can deal with the situation. I beg to move.
  4.45 p.m.
  Lord McIntosh of Haringey: I do not think that the amendment will deal with it, but the noble Baroness, Lady Maddock, has identified a real problem with the

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  1967 Act. It was not designed with shared ownership in mind, and the best thing for us to do is to take the problem away for consideration.
  Baroness Maddock: I am grateful. I hope that it can be sorted out this time. There have been attempts in the past and we have not succeeded yet. I look forward to a successful amendment in the future. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Lord Kingsland Lord Kingsland moved Amendment No. 235A:
  After Clause 135, insert the following new clause—
  (" In section 22 of the 1967 Act, insert—

  VALIDITY OF TENANTS' NOTICE ETC
  "(3A) If a tenant has given notice to acquire the freehold under this Part of the Act, and has received a notice from the landlord in response to his claim, but has not applied to the leasehold valuation tribunal to determine any of the matters referred to in section 21(1) within six months of the date of the landlord's notice, the tenant's notice shall be deemed to be withdrawn."").
  The noble Lord said: This amendment is simply intended to harmonise the procedures for timescales for houses and flats. There is little point in my saying anything about Amendment No. 235B in view of the Minister's response on two previous occasions to amendments seeking to achieve the same objective.
  Lord McIntosh of Haringey: Amendment No. 235A would mean that where a leaseholder did not take timely action to resolve any dispute over the price payable or related matters, the claim would be treated as withdrawn. Given that either party can apply to a leasehold valuation tribunal to resolve such disputes and that, in an enfranchisement case, there is no fee for doing so, we do not see why it is necessary to punish the leaseholder for failing to take the initiative. If the landlord wishes matters to proceed, he has only to apply to the leasehold valuation tribunal himself. We do not consider that it would be appropriate to penalise the leaseholder, and only the leaseholder, where both parties have neglected to take any further action.
  Amendment No. 235B would amend the 1967 Act so that, instead of valuing the property as at the date of the leaseholder's initial claim, the valuation date would be the date of the landlord's counter-notice. As we have said in the context of collective enfranchisement, we would normally expect the landlord to serve a counter-notice relatively quickly after the service of initial notice. We wish to encourage that.
  In those circumstances, adopting the date of the counter-notice rather than the date of the initial notice is unlikely to have a material effect on the price payable. If the landlord delays serving a counter-notice, an advantage could be gained at a time of rapidly increasing property values, and we would not want to encourage that.
  Lord Kingsland: I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 235B not moved.]
  Clauses 136 and 137 agreed to.
  [Amendment No. 235C' not moved.]
  [Amendment No. 235D had been withdrawn from the Marshalled List.]
  [Amendment No. 236 not moved.]
  Clause 138 [Extending meaning of service charge and management etc.]:
  Lord Richard Lord Richard moved Amendment No. 236A:
  Page 61, line 5, after ("properties") insert (", enfranchised houses and flats").
  The noble Lord said: There is a problem that charges arising from a leasehold and freehold of a building included within an estate management scheme are not statutorily subject to reasonableness, nor indeed to dispute procedures through an LVT. Estate management schemes, as I understand it, are there to maintain the character of an area—for example, the Grosvenor estate or the Dulwich estate— and to protect it from any possible damage by enfranchising leaseholders; for example, the hideous crime of pebble-dashing a house in Grosvenor Square.
  The manager of a scheme, usually the landlord, is entitled to levy charges arising from the operation of the scheme. It seems somewhat unjust that homeowners within such a scheme should have no defence against unreasonable estate charges. We therefore propose the extension of Schedule 9 to extend the application of the legislative service charge regime, including requirements of reasonableness, to enfranchised houses and flats. The later suggested amendment to Schedule 9 is designed specifically to include charges arising from EMS. I beg to move.
  Lord Whitty: It is clear that the issue raised by my noble friend Lord Richard needs to be looked at. I regret to indicate to the Committee that we have not worked out an option for doing so in this Bill. We are certainly not opposed to ensuring that enfranchised leaseholders have rights against unreasonable charges, but we need to ensure that such rights would work properly.
  The way in which the amendment is couched does not do so. It seeks to amend the definition of "service charge" so that it includes charges levied under estate management schemes. By implication, that seeks to allow those who pay charges under such schemes to enjoy the same rights as those who pay a service charge under their leases. The problem is that most, if not all, of the relevant rights to which that would give rise are expressly written in terms of rights being exercised by a tenant; for example the Landlord and Tenant Act 1985, which provides that a tenant may apply to a tribunal for determination of the reasonableness of a service charge.
  The obligation to pay a charge under an estate management scheme would normally fall on a freeholder and not on a tenant. Indeed, where it is a house—as is the case in this amendment—that has been enfranchised, the freeholder of the previous leasehold interest will in effect have merged and there

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  will be no tenant in any sense for that property. Changing the definition of "service charge", as these amendments propose, would not achieve the objective.
  Having said that, this is an issue which needs to be addressed, but if we are to do so the whole issue will need to be looked at very carefully. It is our judgment that it would not be possible to do that in time for measures to be included in this Bill. However, in the longer term the Government are intending to examine this area, and with that assurance I ask my noble friend to withdraw his amendment.
  Lord Richard: In view of the expressions of sympathy from my noble friend Lord Whitty, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 236B not moved.]
  [Amendment No. 237 had been renumbered as Amendment No. 238YA.]
  Clause 138 agreed to.
  Schedule 9 [Meaning of service charge and management]:
  [Amendment No. 237A not moved.]
  Lord Goodhart Lord Goodhart moved Amendment No. 238:
  Page 92, line 8, at end insert—
  (" .—(1) Section 21 of the 1987 Act is amended as follows.
  (2) In subsection (3)(a) for "or a resident landlord" there is substituted "(aa) the interest of the landlord in the premises is held by a resident landlord and more than half the flats in their premises are held on long leases,".
  (3) After subsection (7) insert—
  "(7A) References in this Part to a landlord (except in subsection (3)) include any person who is responsible under a lease for the management of the premises or any part of the premises.".").
  The noble Lord said: This is a very short point. It arises under Section 21 of the Landlord and Tenant Act 1987, which exempts from the tenants' rights to apply to the court for the appointment of a manager any premises where the interest of the landlord in the premises is held by a resident landlord. We wish to allow the tenants to apply to the court for the appointment of a new manager even though in certain circumstances there is a resident landlord.
  The exemption would be restricted to cases where the interest of the landlord is held by a resident landlord and more than half of the flats in the premises are held on long leases. Where more than half of the flats in the premises are held on long leases there would in many cases be a right to collective enfranchisement, which would seem to be a more appropriate remedy. Property can be badly managed just as much when the landlord is resident as when he is non-resident and there should not be an absolute bar to the landlord in cases where he is resident. I beg to move.
  Lord Whitty: These amendments are designed to improve the operation of Part II of the Landlord and Tenant Act 1987. They make clear that the right granted by that part to seek the appointment of a new
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  manager would be applicable against any party appointed manager under a lease, and not just a landlord. They also deal with the restriction on exercising that right against a resident landlord.
  The Government agree that there is a need to change the 1987 Act. Indeed, we consulted on this proposal when we were proposing the draft Bill. We are prepared to consider this proposal further, without commitment at this stage, to see whether it would be possible to bring something forward at a later stage of the Bill.
  Lord Goodhart: I am most grateful to the Minister for agreeing to look at the matter again. I hope that the Government will be able to table a suitable amendment. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Schedule 9 agreed to.
  [Amendment No. 238YA not moved.]
  Baroness Gardner of Parkes Baroness Gardner of Parkes moved Amendment No. 238ZA:
  Before Clause 139, insert the following new clause—

  RESERVE FUNDS
  (" . After section 41 of the Landlord and Tenant Act 1987, insert—

  Reserve funds.
  41A.—(1) Notwithstanding the specific terms of any lease of the whole or part of the building, where the tenants of two or more dwellings are required under the terms of their leases to contribute to the same costs by the payment of service charges, the person responsible for the exercise of the management of the premises under the lease shall establish one or more reserve funds to finance the repair and maintenance of the common parts and common services.
  (2) Any demand for payment of service charges shall state the level of contribution within the total sum requested which will be paid into the reserve fund.
  (3) The person responsible for the management of the premises may from time to time vary the level of contribution made to the reserve fund from the service charge contributions, but the level of contributions may not be nil.
  (4) Regulations shall make provision for the preparation of a rolling management programme for repair and maintenance and for its presentation to the contributing tenants.
  (5) In this section—
  "service charge" means a service charge within the meaning of section 18(1) of the Landlord and Tenant Act 1985, other than one excluded from that section by section 27 of that Act (rent dwelling registered and not entered as variable); and
  "the person responsible for the management of the premises" means either—

  (a) the person who is the landlord under the lease,

  (b) the Right to Manage company which has acquired the management functions under Part II of this Act, or

  (c) a manager appointed under Part II of the 1987 Act to act in relation to the premises or any premises containing or contained in the premises".").

  The noble Baroness said: The proposed amendment would amend the Landlord and Tenant Act 1987. It requires all buildings to establish one or more reserve

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  funds. It is considered good management wherever possible to build up a reserve fund in order to cover the cost of planned major works or large renovation. However, many leases do not provide for a reserve fund. In those circumstances, some freeholders may look to borrow to fund the work and then charge the cost of borrowing back to the leaseholders through the service charge. Sometimes the leaseholders find themselves faced with a substantial service charge bill, and quite suddenly, to cover the cost of work which must be undertaken and paid for within that service charge year.
  The amendment follows the format of Clause 38 which gives the commonhold association the power to establish reserve funds. Subsection (1) overrides the provisions of existing leases in order to establish a requirement to have a reserve fund. Subsection (2) requires the service charge demand to state how much of the money paid will be paid into the service charge fund.
  Subsection (3) enables the manager to set the level of contribution, but insists that he cannot negate the purpose of setting up a reserve fund by setting the contribution as nil. The contribution level could still be set at a token figure—say, £1—which would allow those who wished not have a reserve fund to minimise the cost, but the counter argument to that would be that even a small sinking fund is preferable to none.
  Subsection (4) empowers the Government to make regulations which can set out how the manager should establish a rolling programme of work, a budget of anticipated income and expenditure and the form in which this should be presented to the lessees.
  The funds must be trust funds in accordance with Section 42 of the Landlord and Tenant Act 1987. The Committee will recall that the British Property Federation promoted an amendment to the provisions to establish reserve funds for commonhold units to ensure that they were trust funds. Leaseholders should also continue to enjoy all the relevant protection in relation to the reasonableness of service charges.
  Under subsection (4), where the Government would be making regulations as to how to do it, it is very important that it should be well worked out because there is a need for an adequate amount to be in the reserve fund. However, as I have said in speaking to many earlier amendments, it is wrong that anyone should aim to set up an excessive reserve fund. That would be bad in two ways: first, that people would be asked to produce the money for such an excessive reserve fund; and, secondly, that there might be a tendency, particularly when management agents are involved, to do the work simply because the money is there. If the managing agent is on a commission of the work done, there is a double incentive for someone to propose unnecessary works. The issue needs to be thought through in that way and there needs to be some control over the amount in a reserve fund.
  The noble Lord, Lord Whitty, said that he would consider houses in management schemes. That is a typical example in which someone must decide how much is required. Management schemes for houses
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  that have been enfranchised and are now freehold are there to protect the environment and maintain the standard. However, no one wants to carry out excessively expensive schemes, particularly if the people who run those management schemes are the original freeholders and still retain a significant interest and it is in their interest to have the property maintained to a higher standard than is necessary.
  Any credit built up in the reserve fund which relates to a leaseholder should be clearly identified as belonging to that property. If the person intends to sell the flat, or to move for any reason, that money will be taken into account when the property is sold. If, for example, there is £10,000 in the reserve fund to one's credit, one would expect the person who buys the flat to have the advantage of that money. Therefore, that would help to reduce the price of the flat and would be taken into consideration when determining that matter.
  I received a letter from Mr Ernest H Shaw who said that he had replied to the government consultation document. He set out very extensively a method, which I can give to the Minister, to calculate the annual dilapidation cost paid in advance for variable service charges. There is a whole page of it here. I am very impressed that someone has put so much thought into it. I am slightly worried that it appears to involve a number of professional people and, therefore, a considerable amount of fees, which could impact upon the people who are asked to pay these service charges. I appreciate that this is a complex issue but it is an important matter to consider.
  Mr Shaw, who is a lessee in an enfranchised establishment, writes:
  "I am appalled at the lack of intent on the part of my fellow lessees to ensure that an adequate reserve fund sum is correctly estimated and appropriately collected. The standard response from lessees is that they will not be here then, so it is of no concern of theirs"".
  We have to guard against the possibility that people who have been in those flats for a long time are not disadvantaged because of the reluctance of others to maintain the standard. I beg to move.
  5 p.m.
  Baroness Hanham: I should like to speak to Amendment No. 239B which is in this group. To continue with service charges, one area of concern on the part of leaseholders is the protection of service charge moneys. Since the accountancy profession accepts no responsibility for protecting leaseholders' money under Section 21 of the Landlord and Tenant Act 1985, the certification of accounts suggested by the Act seems to promise protection. That provision refers to the necessity for certification of the accounts by a qualified accountant. However, the Act does not give any guidelines, code of practice, or auditing or accounting procedures which the accountant must follow; it does not even make it a requirement that generally accepted accounting principles must be followed. The result is that the certification principle is completely ineffective and no reliance may he placed upon it.

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  This matter was recognised as one of many concerns in the consultation document in 1998. However, that concern was downgraded in the one that followed in August last year. The whole matter has retreated into obscurity in the Bill, in that it is not there at all. This amendment would restore the original concept by strengthening the 1985 Act.
  Lord Richard: Amendment No. 239A stands in my name. It is an addition to the proposals in the earlier draft Bill and requires separate accounts for service charge moneys and greater accounting information for leaseholders. The issue has been raised on a number of occasions and is well known.
  Lord Goodhart: Our Amendment No. 240 is in this group. We support all the other amendments in the group. The amendments seek—certainly Amendment No. 240 seeks—to bring back into the Bill one of the proposals in the consultation paper, which was mentioned by the noble Baroness, Lady Hanham.
  The reforms are important for two reasons. First, they are important for the purpose of transparency, in order that all the tenants in a block subject to a single service charge will be able to find out what is in their fund.
  [The Sitting was suspended for a Division in the House from 5.5 to 5.15 p.m.]
  Lord Goodhart: I now return to the oration that I was about to deliver on this subject. This group of amendments concerns one of the proposals set out in the consultation paper published in August last year. Indeed, it goes back beyond that, as the noble Baroness, Lady Hanham, said. The proposals are important for two reasons. First, they are important for the sake of transparency, so that all tenants in a single unit that is subject to a single, collective service charge know, when they have paid services charges in advance, what is in the fund. For that reason, they will find it easier to notice whether anything has been wrongly taken from it. As the consultation paper pointed out, if funds from different blocks are put into a single account, neither group of leaseholders acting independently of each other would have any way of knowing what sum ought to be in the account. They would therefore be unable to realise whether any money had gone from it improperly. The safeguards for fraud are indeed inadequate. Although the consultation paper suggests that there might be some additional costs—and there possibly would be—such costs would be modest in comparison with the benefit of ensuring greater transparency. I doubt whether the costs are likely to be substantial because a large leaseholder with a number of accounts would very probably be able to negotiate a deal with the bank holding the accounts, under which all the money for the payment of interest was treated as a single, global account.
  Secondly, the proposals give better protection from insolvency for the landlord or manager. Money in a client's account belongs to the client, not to the
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  account holder. If the account holder is insolvent, then it cannot be used to pay the creditors. If it is part of a general fund, even if technically trust money, then normally it may well be accessible to the general creditors. In such a case, the tenants would be in a position of having to claim for their money back as unsecured creditors. Moreover, as unsecured creditors almost always are, they are unlikely to be able to get back any of their money.
  For both those reasons, it is good practice to require advance service charges to be paid into a client account. We believe that that obligation should be made compulsory.
  Lord Selsdon: As I said previously, the Bill is about money. One of the most difficult areas we are about to confront is the letting loose on the property world of thousands of amateur managers. With that goes the problem of liquidity and lack of funds. The possibility of a building failing to have proper lift insurance, failing to observe health and safety regulations and all the standard matters that professional managers know about is a real worry.
  Finance and adequate resources can help. It is often the case that one tenant in a building will fail to pay the service charges but the manager does not notify the others. No penalties can be charged against someone who fails to pay and the other tenants have to cover the costs.
  Without a sink fund or an adequate reserve, there is a serious possibility of management organisations becoming completely liquid. Service charges in general are calculated with a budget in advance by a professional manager to show the expenditure that will be required during the coming 12 months for regular maintenance of the building, but not the exceptional maintenance that is often required for external or roof repairs that may take place under certain leases every four or five years, or internal redecoration of common parts. Depending on where the buildings are—for example, listed buildings in London— such charges can be extremely high and often place a severe burden on the poorer residents of a building. The richer ones will say "I would rather pay as and when the bill comes up". Other people would like to have the opportunity to save something on account for the future.
  It is difficult to legislate for that and it is difficult, too, to get banks to adopt these smaller kinds of account. But in general it is reasonable to point out that between 15 and 20 per cent of an annual service charge should be set aside for a reserve fund. The point has been made by my noble friend that if the reserve fund becomes too large, people try to spend it and then in come the professional charges. "Of course, my dear chap, you must have a surveyor to survey it. You must have an engineer as well". They then send a four-page letter with all the standard scales and before you realise it, 25 per cent of the expenditure has gone out of the window. They must, of course, obtain three or four quotations and there is a duty on them to take the lowest one, though often the lowest one is not the best. It is a worrying area, but I do not see how it can be

  CWH 261
  legislated for. There should be an obligation on people to put aside a percentage of each annual service charge, which should be budgeted in advance.
  This is fairly easy to do, because most of the buildings that we are talking about will have been in existence for a long time and there will be a record of what the expenditure has been. Many will be in default under their leases when they try to extend the refurbishment outside for a further two years because it may have been done properly before. They try to make short cuts from time to time to save money. It is all about money. If the management companies do not have an adequate reserve, they are bound to fail.
  Lord Whitty: We have some understanding of the concerns which lie behind this group of amendments. The lead amendment, Amendment No. 238ZA, seeks to protect leaseholders' interests by, among other things, requiring managers to set up separate reserve funds. Amendment No. 240, standing in the name of the noble Lord, Lord Goodhart, would also require managers to use separate accounts and, moreover, would provide that leaseholders could not be held liable for charges unless they were paid into such accounts. Amendments Nos. 239A, tabled by my noble friend Lord Richard, and Amendment No. 239B, tabled by the noble Baroness, Lady Hanham, are intended to improve the existing arrangements for accounting for leaseholders' money.
  This is a delicate area and the use of property money by people unused to managing it, as the noble Lord, Lord Selsdon, said, will be a new phenomenon. In our consultation paper last August, we put forward proposals to improve the accounting regime. It is only considerations of time and space that have prevented their inclusion in the Bill. We therefore have general sympathy with much of what has been said today. While I cannot make any firm commitments, we will consider carefully the views that have been put forward and perhaps return to them at a later stage. That is not an unqualified view. There are parts of some of the amendments that we would not, in any circumstances, be prepared to introduce in quite the way proposed.
  The lead amendment tabled by the noble Baroness, Lady Gardner, would put landlords under an active obligation to set up reserve funds, to plan ahead and to demand regular advance payments from leaseholders. That is all very good practice, but requiring managers to prepare and present plans is quite a limited use, unless there is some means of controlling the quality of the plans, which is necessarily very complicated, and indeed of enforcing their implementation, which is even more complicated. Nor would it necessarily achieve much to insist that managers demand advance payments, if one cannot ensure that those payments are set at the right level and at the right frequency and that they are used to fund repairs in a timely and appropriate fashion. The amendment would probably go too far from anything that we would look on favourably. We understand the more rule of thumb formula proposed by the noble Lord, Lord Selsdon, and might consider it. It would be important to ensure
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  that any requirements introduced could be enforced in a practical way. However, with regard to some of the intentions of the amendments, particularly of the lead amendment, we have difficulty in seeing how that could be done. Where managers neglect their responsibilities, we have an LVT procedure, which could replace them. We are also considering ways in which we could improve the standards of accountancy—of the presentation of the accounts and of the accuracy of the accounts—as addressed by the amendments of my noble friend Lord Richard and the noble Baroness, Lady Hanham. The whole issue could be looked at in that context, although much of it, as the noble lord, Lord Selsdon, said, is difficult to deal with through a simple legislative requirement.
  Nevertheless, we will look at much of this area again. With that assurance, I hope that the amendments will not be pressed.
  Baroness Gardner of Parkes: I thank the Minister for his reply, which gives me considerable encouragement. I agree that the amendment is far too detailed, but I was impressed that someone had put all that work into preparing it. If the legislation were amended in such a way as to give at least enabling powers to amend the Landlord and Tenant Act in order to create a reserve fund—particularly where leases are defective—that would be progress. It would go some way to protect people's money and to ensure that an excessive amount could not be taken into the reserve fund. That is as important as being able to have a reserve fund. The Minister's officials have been outstandingly good in applying their minds to these issues. I am confident that they will do whatever they can. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 139 [Consultation about service charges]:
  [Amendment No. 238A not moved.]
  On Question, Whether Clause 139 shall stand part of the Bill?
  The Earl of Caithness: Clause 139 takes us on to consultation about service charges. I am not against the clause in principle. I simply seek clarification on two points of detail. I use the example of a block of flats in respect of which there are a number of different types of lease and different types of tenant. It introduces service charges at different levels for different purposes, which is not uncommon in London. When the trigger point has been reached under the regulations, is the landlord or managing agent required to consult all the tenants; or is he required merely to consult the tenant who has triggered the process?
  In simple terms, let us assume that there is a charge. Let us assume that there is a block of flats in which the only person who will be liable to pay the charge is the person who owns the penthouse. It is the biggest flat; the rest are one-bedroom flats. Perhaps there are 10 such flats and a decent sized penthouse. Does the

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  landlord have to consult the 10 people in the one-bedroom flats, who will now have nothing to do with it, or does he have to consult everybody within the block?
  The second point is a matter of nit-picking detail—
  [The Sitting was suspended for a Division in the House from 5.29 to 5.39 p.m.]
  The Earl of Caithness: As I was saying, my second point is one of nit-picking detail. Subsection (2) of Clause 139, at line 19, refers to,
  "a term of more than twelve months".
  However, on pages 46 and 47 of the Explanatory Notes, paragraphs 228 and 229 refer to "12 months or more". Can the noble Lord, Lord McIntosh of Haringey, give me a definitive answer?
  Lord McIntosh of Haringey: I take it that I do not have to give my long speech in defence of Clause 139 and attacking Section 20 of the Landlord and Tenant Act 1985. The Explanatory Notes are wrong. At the front, the Explanatory Notes state that they do not form part of the Bill, and in any such conflict the Bill is right and the Explanatory Notes are wrong.
  In answer to the noble Earl's specific question about who has to be consulted, all tenants have to be consulted. I do not think that that is the answer he wanted.
  Clause 139 agreed to.
  Lord Lea of Crondall Lord Lea of Crondall moved Amendment No. 239:
  After Clause 139, insert the following new clause—

  DISCHARGING OBLIGATIONS BY MANAGING AGENT
  (" .—(1) Section 30B of the 1985 Act is amended as follows.
  (2) After subsection (3)(b) insert "; and

  (c) giving reasons in writing for any decision made by the landlord relating to the manner in which the managing agent has been discharging his obligations and the desirability of his continuing to discharge them".

  (3) After subsection (4)(a)(ii) insert "; and

  (iii) giving reasons in writing for any decision made by the landlord relating to the manner in which the managing agent has been discharging his obligations and the desirability of his continuing to discharge them;".").

  The noble Lord said: The amendment would amend the 1985 Act. It is a modest amendment based on specific experience. I have talked to a number of people in the field and there is a growing recognition of the phrase "amateur managers". There is going to be a major question in many areas of leaseholding about the competencies—in both senses of the word—of the managing agent and of the residents' association, which is the typical generic title. In today's environment, they are generally not called "tenants' associations"; they are generally called "residents' associations", but that is by the by. We are talking about the same animal.
  Apropos the point that has just been made by the noble Earl, Lord Caithness, the realities are that a residents' association would have some
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  responsibilities. It can often be a company and, as I understand it, it can often take responsibilities for members as well as non-members, provided that the members constitute more than 50 per cent of the total number of leaseholders. We are talking about quite an important part of the jigsaw puzzle here, and yet nowhere is there a very clear statement about the standing and competence of the residents' association. Neither is there very much about the role of the managing agents. This seems to be an under-explored part of the whole equation that we have been debating for weeks in this Bill.
  I have a very interesting document here; it is the management code of the Royal Institution of Chartered Surveyors. Many Members of the Committee will be aware of this document, and some Members of the House of Lords have probably written it. It is an interesting attempt to codify the existing law. It also tries to go a little beyond that and maybe mention what one might call good practice.
  One of the difficulties is that on the one hand one does not want to make the law too prescriptive and rigid. On the other hand, a typical code of practice on relations and practice procedure between residents' associations and managing agents, and indeed landlords—in other words, freeholders—tends to rely on the statutory requirement as being the basis of its own code. In other words, I do not know that there is very much in this code of the Royal Institution of Chartered Surveyors which is any different from an intelligent person's guide to the law. That is understandable, but I suspect that there is more to it than good practice, which goes beyond the law.
  Unless we want the law to be very detailed and prescriptive in this area, we ought to be looking for a bigger role for good practice documents, both on the part of the Property Owners' Federation—I do not know whether it has a code, but it probably does—and the Royal Institution of Chartered Surveyors. That is my first general point before I mention the actual terms of the amendment.
  At the moment, the law requires consultation on the appointment of a managing agent and in respect of many other matters. It follows the basic doctrine that the managing agent is responsible solely to the freeholder, and there is no way round that legally. In practice, however, the managing agent has a week-by-week relationship not only with the landlord—in other words, the freeholder—but with the residents' association. It is bad news for that relationship if the landlord can at will sack the managing agent and appoint another one, which is the position at the moment. The amendment seeks to improve that procedural relationship.
  The issue arises in cases in which there will be the right to manage. It arises in a different way in the right to enfranchisement, but the Bill will change the context in which many blocks operate even if they are precluded from availing themselves of RTE or RTM. My own personal intuitive guess is that out of the 1 million people quoted, about half will still be in the position of the relationship being with the managing agent through the residents' association.
  It is necessary to have some proper recognition of the residents' association, and this is a probing amendment to see whether we can throw some light on that relationship and give some recognition to its importance. Will the Minister say something about the status and role of codes of practice in this area? Would it not be useful to encourage a code of practice about relationships when the Bill has been enacted, which we hope will be soon? Otherwise there will be a large gap between the fine words written in the Bill and many residents' associations and managing agents struggling in difficult, circumstances as regards who they represent, who is legally liable for the decisions which they reach and so on. To use the vernacular, it could become a dog's breakfast. That is why I seek some wider discussion on this whole area. I beg to move.
  5.45 p.m.
  Lord McIntosh of Haringey: The amendment before us is very limited and specific but the noble Lord, Lord Lea, has quite legitimately used it as a peg on which to hang more general criticisms of the position in leaseholds that do not qualify for the right to manage or the right of enfranchisement. I shall respond first to the more general points before turning to the amendment.
  It is true that there are still major problems in ensuring good standards of leasehold management. I know that the noble Lord, Lord Lea, has discussed the matter with Ministers and has been told that we want to do something about the issues but must consult more widely. It does not seem possible that we can do so within the time-scale of the Bill. I accept that his points deserve consideration. In particular, the noble Lord makes an interesting point about codes of practice. The answer as to their status is that they can be used as evidence in proceedings; for example, on the question of the appointment of a manager under Part II of the 1987 Act, which is very close to the specific amendment that is before the Committee. It is not possible to do anything within the framework of the Bill. but it is certainly necessary that standards of management of leasehold properties should be improved.
  As regards the specific amendment that is before us, the Bill provides that there must be consultation before the appointment of a manager. We agree that it would be wrong for a landlord to sack a managing agent for trying to be fair to all parties. However, a requirement to consult before sacking him would simply result in delay and would not change the decision. There could be all kinds of other reasons for sacking a manager— and much more likely reasons than that he is being too fair and equitable in his treatment of the leaseholders. Although we are sympathetic to the thinking behind the proposal, we cannot accept the amendment that is before us.
  Lord Lea of Crondall: I indicated that this was a probing amendment, but the recognition of, and regular meetings with, residents' associations will become a big issue when the Bill is implemented. If circumstances arise under which the Bill does not
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  reach the statute book soon, there may be scope for further consideration of how this matter can be addressed more satisfactorily. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 239A and 239B not moved.]
  Clause 140 agreed to.
  [Amendment No. 240 not moved.]
  Clause 141 agreed to.
  Lord Richard Lord Richard had given notice of his intention to move Amendment No. 240A:
  After Clause 141, insert the following new clause—

  VARIATION OF LEASE
  (" .—(1) The Landlord and Tenant Act 1987 is amended as follows.
  (2) In section 35 of the 1987 Act (application by party to lease for variation of lease), leave out "court" and insert "leasehold valuation tribunal".
  (3) In section 35(2)(a) of the 1987 Act (which provides the grounds for the variation of a lease of a flat based on repair or maintenance) after "under it" insert "circumstances when a lease "fails to make satisfactory provision" under this subsection includes the obligation to repair and maintain the property, the person responsible for the repair and maintenance and the frequency at which such works and services are undertaken".
  (4) In section 35(2)(b) of the 1987 Act (which provides insurance matters as a ground for the variation of a lease of a flat) after "paragraph (a)(ii) or (iii)" insert "circumstances when a lease "fails to make satisfactory provision" under this subsection includes where the premises containing the flat are insured as part of a group of properties owned by the landlord or a superior landlord".
  (5) In section 35(2)(e) of the 1987 Act (which provides that the recovery of expenditure by one party to a lease from another as a ground for the variation of a lease of a flat) after "other party" insert "reasonable expenditure means expenditure incurred or to be incurred as a result of repair, maintenance, management and administration of the building, insurance premiums and costs arising from loans in respect of works of repair and maintenance".
  (6) After section 35(2)(1) of the 1987 Act insert—

  (g) the payment and collection of service charges in advance of works (whether repairs or maintenance) being carried out;

  (h) the charging and recovery of a reasonable rate of interest on arrears of service charges;

  (i) such other grounds as shall be prescribed by the Secretary of State.

  (7) In section 42(2) of the 1987 Act, substitute the words after "payee" for "in a separate bank or building society account designated as the client account specific to the building, or estate, subject to those charges".
  (8) After section 42(2) of the 1987 Act insert—
  "(2A) A person who without reasonable excuse, fails to comply with subsection (2) commits a summary offence and is liable on conviction to a fine not exceeding level 4 on the standard scale".
  (9) In section 60(1) of the 1987 Act (general interpretation) at the end of the definition of "landlord", insert "or a party to such a tenancy otherwise than as landlord or tenant".").
  The noble Lord said: This amendment is marked as already having been debated. It was in part debated when we considered an earlier group of amendments. I do not desire to reopen the matter. In so far as details of the amendment were not debated at an earlier stage, I give notice that I shall be contacting Ministers for their response.
  [Amendment No. 240A not moved.]
  Schedule 10 agreed to.
  Clause 142 [Requirement to notify long leaseholders that rent is due]:
  Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts moved Amendment No. 240B:
  Page 64, line 10, at end insert (", and
  (d) (in the case of houses) such information as to enfranchisement and lease extensions, and (in the case of flats) such information as to the right to manage and to collective enfranchisement and lease extensions, as may be prescribed,").
  The noble Lord said: This amendment takes us back to an issue that we debated earlier this afternoon: the potential inequality in terms of expertise, sophistication and knowledge as between landlords and tenants. On the one hand, very often the landlord may have a special interest in property; on the other hand, the primary concern of a group of leaseholders is their flats as places in which to live. When we discussed this issue last week, the noble Lord, Lord Whitty, referred to one side being undergunned. This amendment is intended to bring up some extra artillery.
  Some have argued that there should be a duty on the solicitor who has arranged a new lease, or the purchase of an existing one, to continue to take an interest and advise his client on the particular privileges or rights that he or she might have. This is either unduly onerous and long-lasting for the solicitor, and probably more likely to involve counsel. But the lease is a very important document; it concerns a person's home; it is long-lasting; and it has substantial financial and other consequences for the leaseholder.
  As we have noted during the Committee stage, there are a number of critical points in a lease. For example, we have agreed to the 80-year click-over point for marriage value coming in and having an impact. I am not sure how many unsophisticated groups of tenants would realise in advance the significance of, and the difference between, 80 years and one day and 79 years and 364 days. I suspect there are many other examples as well.
  Perhaps I may compare this with other similar instruments without stretching the analogy too far. An endowment mortgage has a similar long-lasting impact for people. Policy holders receive a yearly statement which explains the value that they have so far built up within their endowment; it shows the gap, if any; and it shows the additional contributions that may be required in funding. If that is true of endowment mortgages, it is even more true about pensions, which have a similar long tail to them.
  My amendment seeks to try to balance the knowledge and sophistication of the parties involved by requiring additional information about the leaseholder's rights to be included in the rent demand made by the landlord. These should remain by regulation; they clearly cannot be prescribed on the
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  face of the Bill. I do not suggest that the amendment is perfectly worded, but the general impact is to have the kind of warning bell that you have on a prospectus; a warning bell which says, "Get professional advice on these points or risk damage to your life and/or your financial health". I beg to move.
  The Earl of Caithness: My Amendments Nos. 241 and 242 are grouped with this amendment. They concern a totally different point. It may be for the benefit of the Committee if the Minister answers the point raised by Amendment No. 240B and then deals with my amendments.
  Lord Whitty: Amendment No. 240B proposes that we should require certain information relating to other statutory rights to be included in the notice demanding ground rent, and this clause is about ground rent. I appreciate, and have some sympathy with, the concerns about the balance of information and negotiating power which lie behind that suggestion. It is clearly important that leaseholders are aware of all the background information relating to their leasehold position and the options which are open to them. Under the present legislation, it is clear that many do not. Many do not even realise that they are leaseholders in that sense.
  There is a gap in the balance of information but I do not agree that this clause is the right place to deal with it. This is a targeted provision—as I shall explain when we come to deal with the amendments of the noble Earl, Lord Caithness—to deal with a specific abuse. It would be inappropriate to use this clause as a portmanteau provision to make leaseholders aware of their rights more generally, not least because not all of the rights that the noble Lord is concerned about have any relationship to ground rent as such.
  Our view is that this is probably best dealt with outside the statutory provisions and to make people more generally aware of their rights and obligations as leaseholders when this legislation comes into force. Even if I were persuaded that this should be on the face of the Bill, this would not be the appropriate clause to which to attach it.
  Lord Hodgson of Astley Abbotts: I understand the point about the right clause. However, leaseholders have certain fundamental privileges and rights and there should be some obligation for them to be informed about those rights. It is good practice. It appears in other financial instruments of a similar nature; in contracts with a long tail, for example. I am disappointed that the Minister does not feel able to undertake to put this matter somewhere on the face of the Bill, although not in this particular clause. In begging leave to withdraw the amendment, I should like the opportunity to think about this matter, and I give notice that I may wish to return to it at a later stage. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  6 p.m.
  The Earl of Caithness The Earl of Caithness moved Amendment No. 241:
  Page 64, line 12, leave out subsection (3).
  The noble Earl said: In moving this amendment, I should like to speak also to Amendment No. 242. As the Minister said to my noble friend Lord Hodgson in responding to the previous amendment, here we are talking about ground rents. Subsection (3) prescribes that the tenant is not liable to make payment of ground rent before a period of 30 days, but no more than 60 days, has elapsed. These are very small payments. In relation to some leases that I have dealt with the rent is £1; in other cases it is a peppercorn. In one particular case the ground rent was one red rose. Why does one require a period of 30 days for such a payment? The average person will shelve that immediately; he will look at the rent demand, realise that he has 30 days to pay the one red rose, if that is claimed by the landlord, and put it into the filing tray. That is not how it is done in practice. I believe that in this case the Minister is being somewhat over-officious and making a relatively simple procedure complicated.
  I believe that subsection (3) should be deleted but that a landlord ought to give notice of his right to recover through proceedings. In particular, there should be written notice of 30 days should he wish to recover two or more periods. He may wish to claim a previous red rose that has not wilted. That is the reason for Amendment No. 2.
  While I am on my feet, it may save the Committee's time if I raise one matter that I could deal with on clause stand part. I refer to subsection (6). Given the chaos of the Post Office at the moment, must the landlord present proof or certification of posting? Given the number of letters lost in the post, is this a requirement? I beg to move.
  Lord Whitty: I am not sure of the answer to the last pointed raised by the noble Earl. If the landlord were challenged, that would be some proof. I do not know whether that could be built into the law. Perhaps I may write to the noble Earl on the matter. It is unlikely that that would be a requirement.
  The main reason for this clause is the fairly widespread abuse that takes place, particularly in various leased properties in the north east of England. It is often the case that a long lease provides that the leaseholder pays a nominal ground rent, which may be relatively small. Frequently leaseholders forget to pay it on the due date. Technically, that puts them in breach of the totality of the lease and opens the way for the landlord to take forfeiture action. One might argue that in practice the courts would never uphold that action. It is nevertheless a threat that unnecessarily oppresses the leaseholder. There is a widespread practice of threatened forfeiture in these circumstances, unless the leaseholder pays not only the ground rent but also a penalty; in other words, it amounts to something close to extortion.
  I appreciate that the amendment of the noble Earl is designed to get away from bureaucracy and to simplify the issue. However, this oversimplifies it and does not
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  deal with the abuse. As I read the amendments, they appear to have the unintended effect, except in those cases where there are two periods involved, as in subsection (2), of allowing the landlord not to give any period of notice at all. Therefore, that would not give the protection that we need from this abuse. We consulted on these arrangements. There was concern that under the original proposals the landlords would be prevented from recovering ground rent until it was 30 days overdue, but that is not the case as the Bill now stands. The Bill allows the landlord to send out the demand up to 30 days before the rent is due. Where that is done, the rent becomes legally payable on the due date, so there is no disadvantage to the landlords in that respect. This is to deal with a noticeable abuse.
  Clearly, landlords will wish to minimise the cost of such notification where there is such a small amount of ground rent required, and no doubt they can incorporate it in other communications with their leaseholder. There is an abuse and the clause is intended to deal with it, but the noble Earl's amendments would undermine that ability.
  Baroness Gardner of Parkes: Will the Minister look at the opposite side of the story? The noble Earl mentioned a peppercorn rent which depended on when the lease was written. In quite a number of leases the ground rent goes up considerably every 25 years, and some of them are now reaching quite large amounts. Some people are deliberately not paying or simply delaying a payment to save themselves money. Earlier in Committee, we said that interest should accrue from the date when the payment was overdue. I have no objection to the 60 days mentioned in this clause, but from the landlords' point of view there should be provision to ensure that they receive their money on the due date.
  The other point raised by the noble Earl related to the post. Any landlord would be very unwise, /She was aiming for forfeiture, not to have sent his second demand by recorded delivery. Therefore, we do not have to worry about that. However, we must consider both sides. I am very interested in what the Minister has said about people using it as an extortion technique, but the reverse situation also occurs.
  Lord Monson: Perhaps I may point out to the noble Baroness, Lady Gardner, that sending a letter by recorded delivery is no guarantee that it is going to arrive. More and more often one finds that recorded delivery letters are simply pushed through the letterbox and not signed for, and there is nothing that can be done about it.
  Baroness Gardner of Parkes: I experienced that situation regularly in industrial tribunals. The Post Office are asked to produce a record showing exactly who signed for the recorded delivery or whether it was not signed for. If no one signs, that is a different matter, but the evidence certainly is effective in terms of tribunals and courts.
  Lord Whitty: I do not want to divert this debate into one on the efficiency or otherwise of the Post Office. If

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  there is a legal point here—and what the noble Baroness described is also my recollection of practice in other arenas—we shall write to noble Lords to indicate whether there is anything we can do about tightening up on this and making clear what proof of posting would be required.
  In relation to the situation referred to by the noble Baroness, Lady Gardner, ground rents can amount to a significant amount of money. People hold back on paying landlords and landlords use the rent as an extortion. The provision would allow the landlord—provided he had written 30 days in advance—to demand the money from the due date. Some leases provide for interest when payment is late. However, that is a matter for contract rather than statutory law, given that the landlord, provided he has gone through the proper procedure, will have the ability to recover that ground rent.
  The Earl of Caithness: I listened with care to what the Minister said in reply to my Amendment No. 242, and he was right to point out the deficiency in it. Would he consider that it might be a better way of tackling the problem? We are both trying to find a way to solve this problem with the minimum bureaucracy and in the best way possible. One may have to come back with an amendment at a later stage and turn the emphasis around, stating that the landlord cannot take action unless he has made a written application to do so and after the expiry of a certain period. In other words, the onus is on the landlord to initiate the action. Although my noble friend Lady Gardner of Parkes is right about some cases of ground rent in central London, for the majority of long leases in the country, a fairly small ground rent exists throughout the term of the lease. Will the Minister consider looking at it from that point of view, rather than his own, bringing forward an appropriate amendment at a later stage?
  Lord Whitty: Without commitment, if the noble Earl cares to put forward an amendment or to outline one in writing that we can consider, we could return to the matter at a later stage of the Bill, should such be conceded to us.
  The Earl of Caithness: I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 242 not moved.]
  Lord Whitty Lord Whitty moved Amendment No. 243:
  Page 64, line 33, at end insert—
  ("( ) In this section "long lease of a dwelling" does not include—

  (a) a tenancy to which Part II of the Landlord and Tenant Act 1954 (business tenancies) applies,

  (b) a tenancy of an agricultural holding within the meaning of the Agricultural Holdings Act 1986 in relation to which that Act applies, or

  (c) a farm business tenancy within the meaning of the Agricultural Tenancies Act 1995.").

  The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 244, 245, 248 and 249. Amendment No. 243 ensures that the new requirement to have demanded ground rent before being able to take action for non-payment applies only to residential tenancies and not to business or agricultural tenancies. Amendments Nos. 244, 245, 248 and 249 tidy up the Bill and ensure consistency of terminology. They make no change to the effect of the Bill. I beg to move.
  On Question, amendment agreed to.
  Lord Whitty Lord Whitty moved Amendments Nos. 244 and 245:
  Page 64, line 36, leave out (""long lease",").
  Page 64, line 37, after ("Part,") insert—
  (""long lease" has the meaning given by sections 73 and 74 of this Act,").
  On Question, amendments agreed to.
  Clause 142, as amended, agreed to.
  [Amendment No. 246 not moved.]
  Baroness Hanham Baroness Hanham moved Amendment No. 247:
  After Clause 142, insert the following new clause—

  LOW RENT TEST: EXTENSION OF RIGHTS
  (" . In Schedule 9 to the Housing Act 1996 (low rent test: extension of rights), after subsection (3)(c) of paragraph 1 (1AA) insert—
  ", and
  (d) the freeholder satisfies a leasehold valuation tribunal that the house is integral to the management of the estate concerned and has been leased on terms relating to that purpose.
  (4) An application to a leasehold valuation tribunal in accordance with paragraph (d) above shall be made by the freeholder within two months of his receipt of the relevant notice of the leaseholder's claim to enfranchise under the terms of this Act."").
  The noble Baroness said: As I did not speak to Amendment No. 247 earlier, perhaps I may have the leave of the Committee to do so now.
  The Housing Act 1996 removed the low rent test in respect of leasehold houses with leases that were originally granted to terms exceeding 35 years. However, it excluded from the reform houses in designated rural areas where the freehold is owned, together with adjoining land which is not occupied for residential purposes.
  There are leasehold houses scattered throughout the country where the freehold is owned, together with the adjoining land and not occupied for residential purposes, but where the houses have no connection whatever with the management of an estate or other agricultural activity. Since the Leasehold Reform Act 1967, there have been cases in which landlords have fixed the ground rent just above the low rent limit, thus frustrating enfranchisement.
  The amendment would have the effect of limiting the rural exclusion in respect of the low rent test to cases where a freeholder is able to establish that the house in question is genuinely part of the functioning of an estate and has been leased on terms relating to that purpose. The position of the rural exclusion,

  CWH 273
  however, is anomalous and the amendment would provide a compromise solution recognising the difference between the tenures. I beg to move.
  Lord Goodhart: Earlier today I moved Amendment No. 233, which proposed the complete removal of excluded tenancies on this ground. I would be happy to support, as an alternative, the amendment moved by the noble Baroness, Lady Hanham.
  Lord McIntosh of Haringey: In response to the earlier amendment, I said that there is a case for amending the rural exemption to target it at the kind of properties we wish to exempt. I said that we were willing to look at that in the longer term but I did not think there was anything that we could do within the time scale of the Bill.
  It is true that the amendment of the noble Baroness, Lady Hanham, is more targeted than the complete removal of the rural exemption. It restricts the rural exemption to cases where a house is integral to the management of a rural estate and had been leased on terms relating to that purpose. We shall certainly consider that element of targeting, although I do not believe that is what was intended by the rural exemption.
  The point of the rural exemption is not whether the house is integral to the management of the estate but whether it has a historical connection to the estate. There is scope for argument about that, but the point that the noble Baroness made in relation to Amendment No. 247 can be taken into account in our considerations.
  6.15 p.m.
  Baroness Hanham: I thank the Minister for that helpful reply. I am not quite sure of the difference between the historical aspect that he mentioned and the legislative aspect. I do not think that it matters. I am grateful to the Minister for the concern that he has shown about the matter. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Baroness Hanham Baroness Hanham moved Amendment No. 247A:
  After Clause 142. insert the following new clause—

  INSURANCE PROVISION UNDER A LEASE
  (" .—(1) Any provision in a lease of a dwellinghouse to which this Act applies, whensoever created, requiring a tenant to insure with a nominated company and through the agency of a lessor (or both) or any other person, firm or company shall be void.
  (2) Such provision shall continue to be effective so far as it relates to the insurance of a dwellinghouse against the usual household risks, for the full reinstatement value and index-linked, with ally reputable insurance company.").
  The noble Baroness said: This amendment seeks to deal with the question of insurance companies and the necessity to insure with particular companies. Under the terms of most leases, there is a requirement for the lessee to insure the leased premises. More often than not, the requirement is that it should be with an insurance company named by the landlord or through the landlord's agency. Under such circumstances,
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  leaseholders do not have the freedom of choice to obtain the best terms and conditions for their insurance. Flat holders can apply to the leasehold valuation tribunal on this matter, but house leaseholders do not have that protection.
  Threats are often made by landlords to take forfeiture action in cases of non-compliance, which can sometimes result in tenants being intimidated into taking out double insurance, with the complications that that entails in the event of a claim.
  The lessees on a long lease, on a full repairing basis, have the major interest in the premises and should be able to insure with any reputable insurance company of their choice. I beg to move.
  Lord Goodhart: I rise to support the amendment. The practice is an abuse. The motive for including such provisions is, almost always, to enable the landlord to obtain commission. I have long taken the view that commission paid by insurance companies is a form of legalised bribery. Anything that reduces it seems to me to be a good thing. It will enable insurance policies to be cheaper than they are now, although that is clearly a long way beyond the scope of the Bill. I am happy to support the provision in the amendment.
  Lord Hodgson of Astley Abbotts: I rise briefly to support the amendment of my noble friend Lady Hanham. I declare an interest in that I am director of a building society. The good practice in a building society now is to allow people to insure more widely. There was previously a practice whereby insurance could be obtained only from one company because that assured the position of the society. The amendment is in keeping with modern consumer choice and gives people a preference.
  Lord Whitty: Again, we have some understanding of the concerns behind the amendment. We have received many reports that leaseholders have been required, usually under the terms of their lease, to insure their property with a nominated company, sometimes at inflated premiums. Under the present provisions, the leaseholder can go to art LVT to challenge the landlord's choice of nominated insurer. We recognise that under the present system the cost of launching such a challenge may turn out to be greater than the money saved. For that reason, among others, we plan to reduce the minimum fee for applying to the LVT in such cases.
  The amendment takes a more sledgehammer approach and suggests that we should ban nominated insurer clauses outright. I have some sympathy with that. But we need to give considerable thought to how that works out in detail. Landlords have a legitimate interest in ensuring that their property is properly insured, and we need to make sure that any new arrangements are fair to the landlord and also give some flexibility to the leaseholder. Moreover, the clause as drafted would require overriding the insurance terms of existing leases. While that might be desirable in certain cases, we could not do that without having previously consulted widely on the implications. I hope, therefore, that the noble

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  Baroness will not pursue the amendment. We undertake to look at this matter as a possible longer term measure outside the scope of the Bill.
  Baroness Hanham: I thank the Minister for his reply. I make two points in response. First, as I suggested in my opening remarks, I believe I am right in saying that leaseholders of flats have the right to go to a leasehold valuation tribunal but leaseholders of houses do not. I am concerned about that discrepancy. I see noble Lords shaking their heads, but I believe that that is the situation. Secondly, I cannot believe that it is beyond the wit of all the wonderful lawyers—it may be beyond mine—to devise a system whereby the landlord can be satisfied that the required insurance is in place. I am sure that nowadays that is perfectly tenable. None the less, I am glad that I have raised the matter. I thank the Minister for his courteous reply. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Baroness Hanham Baroness Hanham moved Amendment No. 247B:
  After Clause 142, insert the following new clause—

  TENANTS OF HOUSES ON LONG LEASES TO HAVE RIGHTS OF FIRST REFUSAL ON DISPOSALS BY LANDLORD
  (" .—(1) Section 1 of the Landlord and Tenant Act 1987 is amended as follows.
  (2) In subsection (2), before paragraph (a) insert—
  "(za) they consist of an individual house;".").
  The noble Baroness said: The Landlord and Tenant Act 1987 makes provision for qualifying tenants in blocks of flats to have rights of first refusal when the landlord sells his interest. The Housing Act 1996 strengthened this provision and made it a criminal offence for the landlord not to offer the freehold to his tenants if he decided to sell it. There is again a discrepancy between flats and houses. House leaseholders do not have the right of first refusal. There have been instances in which whole estates of houses, in particular in the Midlands and the North East, have been bought over the heads of their leasehold owners by professional freehold companies. The amendment will put house leaseholders on a footing of equality with flat leaseholders as far as concerns the right of first refusal. I beg to move.
  Lord Whitty: I understand the concern but I do not believe that we can deal with it as simply as this amendment. In this case the noble Baroness is absolutely right that there is a difference between houses and flats. There are some problems with the existing legislation that governs the right of first refusal in relation to flats, and we may need to look at that. However, it would require lengthy amendments to existing legislation to achieve this objective. We would probably need to draft fresh provisions with which we cannot realistically deal in the timescale of the Bill.
  We are aware that there is a loophole in the existing right of first refusal in relation to flats, in that it does not apply to the sale of a company that owns a freehold
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  as opposed to the sale of the freehold itself. Therefore, companies can be sold without the flat leaseholder having the right of refusal in real terms.
  If we looked at the whole area we would look at the shortcomings of the existing provisions as well as their extension to the housing area, which raises separate issues. The noble Baroness must be fed up with my saying that I have deep sympathy with what she is trying to do, but I do not believe we can do it simply by this method. We do not have the time or scope to do it within this Bill.
  Baroness Hamwee: As the Minister said, this is similar to answers that the Minister has given to other amendments. I do not expect him to respond to this point but nevertheless I make it. I hope that the Government will consider, if the Bill falls because of the dissolution of Parliament in the event of an election, but is brought back afterwards, making real efforts to use the opportunity to pick up many of the points being made in this technical area. It is fairly unlikely that we will have a chance to come back to the question during the next Parliament. We might, of course—who knows—but it would be a pity if opportunities were Missed.
  Baroness Hanham: The noble Baroness, Lady Hamwee, has said something that I was going to say. A number of the amendments that I have produced are technical, but they concern practical issues that have arisen as a result of previous legislation not working as well and as comprehensively as it should.
  I hope that the Minister will not tire of me saying that I am grateful for his response. I hope that we can keep an eye on these matters and, as appropriate legislation becomes available during the coming months and years, we can look forward to an opportunity to put them right.
  Lord Monson: Many of the amendments of the noble Baroness, Lady Hanham, are indeed technical. She is right to ask the Government to get them through at some stage. However, Amendment No. 247 is more than technical; it is quite serious. I admit that I was caught off guard and have not studied it, but I hope that the Government will think carefully before adopting it. It represents quite a major change and should not be accepted, even in principle, without very serious thought.
  Lord Whitty: The noble Baroness, Lady Hamwee, said that she did not expect a response; the noble Baroness, Lady Hanham, then added to that. Clearly, we take this matter seriously; the Government will look at it further.
  As to the plea of the noble Baroness, Lady Hamwee, which seemed to presume the result of the general election, the contents of the Queen's Speech, and the parliamentary programme for the next Session, I could not possibly comment.
  Amendment, by leave, withdrawn.
  Clause 143 agreed to.
  Clause 144 [Section 143: supplementary]:
  Lord Whitty Lord Whitty moved Amendments Nos. 248 and 249:
  Page 66, leave out lines 13 to 15.
  Page 66, line 17, at end insert (", and

  "long lease" has the meaning given by sections 73 and 74 of this Act, except that a shared ownership lease is a long lease whatever the tenant's total share.").

  On Question, amendments agreed to.
  Clause 144, as amended, agreed to.
  Clause 145 agreed to.
  Baroness Hanham Baroness Hanham moved Amendment No. 250:
  After Clause 145, insert the following new clause—

  CONTINUATION OF TENANCIES
  (" . In section 3 of the Landlord and Tenant Act 1954 (continuation of tenancies to which section 1 applies), omit subsection (3).").
  The noble Baroness said: In moving Amendment No. 250, I shall speak also to Amendment No. 251. Since the passing of the Landlord and Tenant Act 1954, under which other leasehold tenants were given security of tenure, tenants of houses with higher rateable values have been without security of tenure at the end of a lease. That has had an impact particularly in inner city areas, where higher rateable values are likely to be the most prevalent.
  The Bill again fails to give security of tenure to such leaseholders. Instead, it gives security of tenure at the end of the lease to leaseholders who surrender their rights to security of tenure in exchange for a 50 year extension of lease, without premium but as a modern ground rent. This does not really address the problem of those houses with a higher rateable value.
  Amendment No. 251 deals with the valuation basis on which such tenants face enfranchisement. It is because of' their higher rateable values that they come under the special valuation basis which was introduced into the Housing Act in 1974. The Hansard report of the debate in this House on this aspect made it clear that there was an assumption of security of tenure at that time.
  Schedule 15 to the Leasehold Reform, Housing and Urban Development Act 1993 provides for this assumption in respect of houses that came into eligibility for enfranchisement under the Housing Act 1974. It does not, however, provide for it if the house is coming into eligibility under the 1993 Act. This proposed amendment is again aimed at tidying up unfinished business as far as enfranchisement is concerned.
  Baroness Hamwee: Perhaps I may take the opportunity to clarify my previous remarks. Whichever party is running the Government, and whoever sits on the Front Bench, the civil servants will be there.
  6.30 p.m.
  Lord McIntosh of Haringey: Although we are sympathetic to the amendment of the noble Baroness, Lady Hanham, it is not possible to include it in this
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  Bill, or any successor to it. The real problem raised by the noble Baroness, which is security of tenure for high value houses, is not faced simply by long leaseholders; it also affects those who rent such property. The Long Title of the Bill is restricted to commonhold and leasehold property, and if one were to cover this problem properly one would require a more general housing Bill. Even if there were no general election and we had time to deal with it, the matter would not fall within the scope of the Long Title.
  To some extent, that also applies to Amendment No. 251 which would alter the valuation basis of higher value houses. Obviously, the vacant possession value of a house is greater than the value of the house with a tenant in it, particularly when the tenant has security of tenure. This means that leaseholders without security of tenure have to pay more for their freehold. Amendment No. 251 would mean that a house would be valued as though the leaseholder was entitled to security of tenure even though that was not the case. We do not believe that it is proper to accept that amendment. If the law does not give security of tenure, we cannot pretend that it does so for valuation purposes.
  Baroness Hanham: Even if I have not flushed out too much sympathy, I have elicited the fact that there will be a general election quite soon. I am grateful for confirmation of that given the way that the Minister put it. I note what he says and beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 251 not moved.]
  Clause 146 agreed to.
  Baroness Hanham Baroness Hanham moved Amendment No. 251A:
  After Clause 146, insert the following new clause—
  Notices of claim to be overriding interest

  NOTICE OF CLAIM TO BE OVERRIDING INTEREST
  .—(1) Section 5 of the Leasehold Reform Act 1967 is amended as follows.
  (2) In subsection (5), the words "nor shall any right of a tenant arising from a notice under this Act of his desire to have the freehold or to have an extended lease be an overriding interest within the meaning of the Land Registration Act 1925; but any such notice shall be registrable under the Land Charges Act 1925 or may be the subject of a notice or caution under the Land Registration Act 1925, as if it were an estate contract" are omitted.
  (3) In section 70(1) of the Land Registration Act 1925, after paragraph (f) there is inserted the following new paragraph—
  "(fa) The right of every tenant of a dwelling held on a long tenancy at a low rent within the meaning of the Leasehold Reform Act 1967, as amended, and the Leasehold Reform, Housing and Urban Development Act 1993, as amended, arising out of a written notice of his desire to have the freehold or an extended lease;".").
  The noble Baroness said: This is a shorter matter. The purpose of this amendment is to make a tenant's notice of his wish to have the freehold on an extended lease an over-riding interest within the meaning of Section 71 of the Land Registration Act 1925.
  The registration of a caution against the landlord's title is an unnecessary expense and burden on a tenant. As the law now stands, a notice of claim unprotected by a caution is not binding on a purchaser, although such a disposition to a third party will be a breach of contract.
  It is not unknown for landlords to try to thwart a leaseholder's claim by transferring the freehold, subject to a claim, to a third party such as an associated company. This amendment serves to protect the tenant's position without the complication of the registration of a caution. I beg to move.
  Lord Whitty: This amendment would deal with a situation where in the middle of an enfranchisement process a landlord sold the freehold to a third party. It is obviously desirable in those circumstances to ensure that one does not have to start the process all over again. As the Bill now stands, leaseholders can register with the land registry the fact that they have issued a notice of their intention to enfranchise or to obtain an extended lease. If they do so, anyone who purchases the freehold before the enfranchisement process is complete, or the lease has been extended, is already bound to complete the process.
  Moreover, in the case of flats the new owner will often have to offer the freehold to the leaseholders under the right of first refusal. The amendment will therefore simply save the leaseholders the expense of registering their notice. On the other hand, it would have the effect of meaning that a potential purchaser would no longer have anywhere to check whether there was an outstanding enfranchisement process in train when the existing lessees had expressed their wish to the existing owner to buy the freehold or extend their lease. This would encourage non-registration and therefore make it more difficult in a moving property market for a potential third party buyer to establish whether there was a process proceeding or not—unless the vendor of the freehold informed them of the position.
  Although I have some sympathy with the amendment, it would have a detrimental effect because it would not allow the process to move smoothly and ensure that everyone knew that an enfranchisement process had started.
  Baroness Hanham: I thank the Minister for that reply. The intention behind the amendment was, first, to save tenants some expense and, secondly, to make it compulsory upon the landlord to declare that a caution had been issued. I note the Minister's reply and I thank him for it and for all that sympathy. I am hugely grateful. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clauses 147 and 148 agreed to.
  Schedule 11 [Leasehold Valuation Tribunals: Procedure]:
  Lord Kingsland Lord Kingsland moved Amendment No. 252:
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  Page 95, line 40, after ("tribunal") insert ("and to any such other party as the leasehold valuation tribunal may direct").
  The noble Lord said: In moving Amendment No. 252, I shall speak also to Amendments Nos. 253 to 255 and to Amendments Nos. 256 to 258. As far as Amendments Nos. 252 to 255 are concerned, at present leasehold valuation tribunals have no power to direct disclosure of documents or information relevant to an application. As the Committee will be aware, this is anomalous in the context of civil litigation and may lead to parties withholding information, or documents harmful to their case, without sanction. In short, leasehold valuation tribunals need to be given teeth and their new powers should be exercisable for the benefit, and on the application of parties to the proceedings before them.
  As far as Amendments Nos. 256 to 258 are concerned, the Explanatory Notes to the Bill state that the Bill provides a power to make regulations enabling leasehold valuation tribunals to exclude the whole or parts of cases of parties who fail to comply with directions. However, no such power appears in the Bill, as far as I am aware or, at least as far as I can see.
  At present, leasehold valuation tribunals cannot make directions either about the preparation for or about the conduct of an application, and have no sanction except for adjournment—with no power to award costs if a party does not heed its exhortations to produce reports and documents in good time before a hearing. As a result, all too often a party turns up on the day of the hearing with an expert's report which has not been disclosed before thus leaving the other party with a dilemma: whether to go ahead without having a proper opportunity to verify the contents of the report or to prepare a cross-examination on it, or whether to ask for an adjournment, thereby losing the cost of the day. This practice—as some Members of the Committee will no doubt be aware—has gained notoriety among users of leasehold valuation tribunals. It must cease, and it can cease only if the tribunal is given the teeth envisaged by this group of amendments. I beg to move.
  Lord McIntosh of Haringey: I accept the implied criticism of some of the aspects of leasehold valuation tribunals in the past, but I hope I can assure the noble Lord, Lord Kingsland, that the provisions we are making in the Bill, although largely by regulation, address the issues that he has raised.
  Starting with Amendments Nos. 252 to 255, the power in paragraph 4 of Schedule 11 already enables leasehold valuation tribunals to do all the things that these four amendments would seek to allow them to do. Paragraph 4 is about information, and documents are but one form of information that an LVT might require. It is the normal practice of LVTs to share any information that they receive with all parties involved, as a matter of natural justice. The LVT can exercise the power under its own initiative although, of course, it may equally well decide to do so in response to a request made by one of the parties.
  Amendments Nos. 256 to 258 relate to the ability of LVTs to make directions. We share the concern of the noble Lord, Lord Kingsland, that they should be given

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  sufficient teeth to ensure that their directions to parties are obeyed. Again, we think that the measures in the Bill as they stand make adequate provision.
  Amendments Nos. 256 and 257 would allow LVTs to issue directions at a directions hearing. However, it is the usual practice of LVTs to use pre-trial review hearings to issue any necessary directions and, if they see a need, they can also use the review to try and find common ground between the parties. We think that it would only confuse matters to create the concept of a directions hearing as something separate from the pretrial review.
  Amendment No. 258 provides that the procedure regulations may include provisions enabling LVTs to enforce their directions by dismissing applications and so on if a party fails to comply. We agree that the LVTs need this kind of power. In other words, I accept the case which the noble Lord, Lord Kingsland, is making. He is certainly right that the fact that they have not had these powers until now has been a hindrance to their work and ii has been a major factor in the disappointingly long time it can take for LVT cases to be dealt with.
  However, I am advised that, as they stand, the powers in this Bill to make procedure regulations are wide enough to allow us to provide that the LVT may exclude the whole or part of any party's case where that party has failed to comply with directions. I think that would answer the specific point made by the noble Lord, Lord Kingsland; for example, an expert opinion of which no notice had been given. Obviously, where the whole of the applicant's case is excluded, that will amount to dismissing the case.
  I turn now to Amendment No. 266. Although the noble Lord, Lord Kingsland, has not spoken to this amendment, it might speed things up if I reply to it because it was spoken to on the second day of the Grand Committee proceedings. The noble Lord, Lord Kingsland, said that he moved the amendment because he wished the LVTs' powers to appoint managers to remain unchanged. I want to reassure him that we have no intention of taking away the existing rights that leaseholders enjoy under Sections 21 to 24 of the 1987 Act.
  Amendment No. 266 would retain Section 23(2) of the 1987 Act. This particular subsection merely enables procedure regulations to make provision for certain persons to be notified when the leaseholder seeks the appointment of a manager and for certain persons to be joined in these proceedings. However, paragraphs 2 and 6 of Schedule 11 make equivalent provision for the purpose of any application brought before the leasehold valuation tribunal, including an application for the appointment of a new manager. Therefore, Section 23(2) is obsolete, which is why we think it is safe to repeal it.
  6.45 p.m.
  Lord Kingsland: I am most grateful to the Minister for his reply. When contemplating what amendments to table to Schedule 11, I considered simply one, which would have provided that the civil procedure rules
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  apply to leasehold valuation tribunals. That would, at a stroke, have provided me with everything I needed and given the noble Lord a very short reply to make to the Committee.
  However, if I understand correctly the response of the noble Lord, he is saying that he agrees with the substance of all the amendments that I have tabled so far but that I ought to be happy with what is already in Schedule 11; that is to say, the appropriate national authority may make regulations about the procedure of leasehold valuation tribunals. May I, therefore, take it from his reply that the regulations that will be made under Schedule 11 will afford leasehold valuation tribunals all the powers necessary to achieve the objectives that are implied by my amendment?
  Lord McIntosh of Haringey: I can give the noble Lord that assurance, but I cannot say that the regulations will cover all the points in the civil procedure rule, because there are other matters which are not referred to in these amendments. On the points raised in the amendments that we have been debating, yes, the regulations will cover those points.
  Lord Kingsland: That is a most satisfactory reply and I thank the noble Lord very much indeed. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 253 to 258 not moved.]
  Lord Kingsland Lord Kingsland moved Amendment No. 259:
  Page 96, line 26, at end insert ("if all the parties so request").
  The noble Lord said: Paragraph 8 of Schedule 11 provides for regulations to include provision for the determination of applications, or transferred proceedings, without an oral hearing and by a single panel member.
  It is not clear what kind of applications are envisaged to be appropriate for determination in this way. It would be necessary, in order to satisfy the Human Rights Convention right to a fair and public trial, to require that such regulations should include provision entitling an aggrieved party to a hearing before a full tribunal.
  In the circumstances, it is to be doubted whether the regulations foreshadowed by paragraph 8 will have any real use unless all parties agree to dispense with a hearing and to a determination by a single panel member. That is the purpose of the proposed amendment. I beg to move.
  Lord McIntosh of Haringey: We certainly do not want to deny either party their right to an oral hearing where they honestly believe that natural justice requires that there should be a hearing. We also do not wish to open the way for machiavellian landlords to prevent leaseholders from using the written representation route merely as a way to push up costs and discourage leaseholders from exercising their rights. That might be the effect of these two amendments.

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  Perhaps I may explain our reasons for deciding to have a written representations route and the kind of circumstances under which we think it could be used and how we might encourage it. The written route is primarily aimed at simple cases involving small sums. In those cases, the fees payable for challenging unreasonable service charges could be disproportionate to the amount at issue. For example, disputes over insurance premiums or administration charges could involve relatively small sums. It is not worth spending £300 or more to take a case to the leasehold valuation tribunal unless substantially more than that sum is at stake.
  We propose to make changes to the fee structure through procedure regulations which would relate the amount payable to the amount in dispute. That would mirror the approach adopted in the county court and reduce the minimum fee payable. However, these are publicly funded bodies and we have to consider the interest of the general taxpayer when deciding on the level of fees. The cost of a full hearing with three members in attendance might not be justified. One purpose of the hearing fee, which does not begin to cover the full cost of a hearing, is to discourage parties from wasting public funds on cases having little merit.
  However, some of these small cases could be resolved by making representations to a single member with relevant expertise. For example, a dispute over insurance could be a matter of considering alternative quotations. That would reduce the cost of providing the LVT service and enable more cases to be dealt with in a shorter timescale, which is what we propose to do with the fee structure. All applicants would be required to pay an application fee, which could be as low as £50, but a further fee would be payable only if the matter were dealt with at a full hearing. The written representation route would be a more cost-effective way to deal with disputes over small sums both from the Government's perspective and that of the parties concerned.
  We do not want to deny either party the opportunity of a full hearing before a tribunal. In some cases an important principle could be involved, even though the sum was small. However, we do see a danger that some landlords may insist on a full hearing simply to push up the costs to a disproportionate level and discourage the leaseholder from proceeding. Therefore, we intend to provide that where a respondent to a case wants a full hearing, he can have one provided that he pays the hearing fee. That will encourage the use of the written representation route. Amendments Nos. 259 and 260 would discourage its use.
  Lord Kingsland: I am most grateful to the Minister for his reply. I am partly reassured by his comments and will look carefully at Hansard to see whether I want to raise these matters again at Report stage. Meanwhile, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 260 not moved.]
  Lord Kingsland Lord Kingsland moved Amendment No. 261:
  Page 97, line 9, after ("pay") insert ("the whole or part or).
  The noble Lord said: In moving Amendment No. 261, I wish to speak also to Amendments Nos. 262 to 264. Paragraph 10 of Schedule 11 would, for the first time, provide leasehold valuation tribunals with powers to award costs; but only where an application is dismissed on the ground that it is frivolous, vexatious or an abuse of process, or where the party in question has acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably in connection with the proceedings. Even then the amount payable cannot exceed £500.
  It would perhaps be wrong, bearing in mind the perception of the leasehold valuation tribunal as an informal, inexpensive tribunal, to empower such tribunals to award costs following the event in all cases. However, there must be a greater power to impose sanctions where a party has failed to comply with directions—thereby occasioning an adjournment—or where, although a party's conduct of the proceedings themselves might not have been unreasonable, that party, nevertheless, acted unreasonably in bringing the proceedings at all or in pursuing them after a reasonable offer is made by the other party; or where a party has been forced to take proceedings because of the unreasonable conduct or stance of the other party. Examples of unreasonable action might be: specifying a ridiculously high or low enfranchisement price; or, in the case of a landlord, by shocking mismanagement, or by a tenant, in refusing to pay service charges without any justification, thereby throwing the costs of recovery onto his fellow tenants through the service charge provisions. Only when the leasehold valuation tribunal has the powers envisaged by the amendment will there be a proper deterrent from "playing the system", as it is often called.
  Furthermore, a costs limit of £500 is both arbitrary and too low to operate as a sanction in the case of wealthy parties. Tribunals should be empowered to award costs at such level as they think fit up to the full amount incurred by the innocent party, subject only to an obligation to have regard to the paying party's needs.
  Finally, under Clause 85 of the Bill an RTM would be liable for a landlord's costs before the tribunal if the tribunal dismissed its application for a determination that it was entitled to the right-to-manage premises. As things stand, such a power would be anomalous in the context of the tribunal's limited powers as to costs, and paragraph 10(4) of Schedule 11 would appear to be inconsistent with Clause 85. This group of amendments would reduce the anomaly and remove the inconsistency. I beg to move.
  Lord McIntosh of Haringey: These amendments take me back to my days as a borough councillor in the 1960s. They were the great days of Rachmanism. I hope that we do not follow this route because it would take us back, not to the 1960s, but to some of the

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  problems that we experience under the existing legislation. The noble Lord, Lord Kingsland, has correctly described the function of paragraph 10 of Schedule 11. The present position is that leasehold valuation tribunals sometimes find it difficult to deal with parties who refuse to comply with directions or who act abusively at a hearing. The power in paragraph 10 would enable them to control the parties more effectively. If the noble Lord is worried about the £500 limit, the maximum sum payable could be increased through legislation. However, that could be done only with the approval of both Houses.
  The grounds on which costs might be awarded are deliberately expressed in very broad terms. In Amendment No. 262 the noble Lord, Lord Kingsland, tries to particularise them and be more explicit. The danger of that approach—I am not allowed to use lawyers' Latin since lawyers themselves cannot use it— is that the inclusion of one implies the exclusion of others. These are good examples of the kinds of behaviour that we believe should be subject to a cost penalty, but we believe that the provisions as they stand encompass all the specific grounds that the amendment seeks to introduce. If we accepted Amendment No. 262 we might encourage the courts to interpret paragraph 10 more narrowly and exclusively than we would wish. We cannot accept this amendment.
  I referred to the issue of the maximum amount because the noble Lord, Lord Kingsland, wishes to empower LVTs to award costs without limits. Even allowing for the precaution in Amendment No. 263 that the tribunal should have regard to the financial resources of the party who is to pay the costs, it would still disadvantage leaseholders. When service charge disputes were still a matter for the county courts, landlords would intimidate leaseholders with the threat of large bills for costs since they could afford the best legal advice. Leaseholders were concerned about their ability to win their case even when they felt that they were clearly justified, and they often decided not to take their case to court. That is why we provided a cap. If we did not, they might fear that even an innocent mistake in interpreting directions or a failure to meet a deadline could lead to a very large bill for costs. Those fears would be exaggerated if they were not familiar with the LVT proceedings. Unscrupulous landlords could encourage those fears and use them to discourage leaseholders from exercising their rights.
  When it comes to the suggestion of considering the financial resources of the offending party, we do not consider it right to fetter the discretion of the tribunals in this way. We would not want tribunals to feel inhibited from punishing unreasonable behaviour merely because that could cause a little hardship.
  I can be more accommodating with Amendment No. 264—indeed, much more accommodating— because it addresses the conflict between Clause 85 and paragraph 10 of the schedule. It may be that when we look at it more closely, the conflict will be more apparent than real, but we are willing to consider this matter further.
  7 p.m.
  The Earl of Caithness: I found the Minister's reply to my noble friend's Amendment No. 263 very disappointing, in particular his comment that legislation through both Houses could change the £500. Members of the Committee know how difficult it is to get legislation at any time, let alone get it through both Houses.
  Lord McIntosh of Haringey: I did not say legislation; I said regulation.
  The Earl of Caithness: I stand corrected, but regulation is equally difficult to get, and it is impossible to amend unless one prays against it and it is thrown out.
  I am concerned about this, as is my noble friend Lord Kingsland. Some of the Minister's replies seem totally to ignore subsection (b) of Section 2. Given some of the points that the noble Lord mentioned in defence of tenants and against an unscrupulous landlord, I would have thought that the leasehold valuation tribunal would have seen fit to put many of those into the category of Section 2(b). I hope that my noble friend Lord Kingsland does not go away and forget about this; I hope he will come back with renewed vigour at another stage, when I shall certainly support him.
  Lord Kingsland: I am grateful to my noble friend Lord Caithness for the support he has given me. I thank the Minister for agreeing to look at Amendment No. 264, but I must confess to being extremely disappointed at his reaction to Amendment No. 263.
  It is my impression, standing back and trying to look objectively at my own amendments, that far from being pro-landlord, these amendments discriminate strongly against the landlord—because it is the landlord's financial power that enable him to spin things out at a tribunal in a way that quickly exhausts the resources available to the leaseholder.
  Amendment No. 263, by taking into account ability to pay, will assist the leaseholder in resisting that kind of conduct from the landlord. That is a crucial part of the framework I am trying to put in place here.
  I hope that the Minister will reflect on this between Committee and the Report tage, because I assure him that I shall return to this matter again when we get there. Meanwhile, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 262 to 264 not moved.]
  Schedule 11 agreed to.
  Clause 149 [Appeals]:
  Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts moved Amendment No. 264A:
  Page 68, line 22, at end insert—
  ("( ) Leave to appeal under subsection (2) shall only be given if—

  (a) the appeal would substantially affect the rights of one or more of the parties, and

  (b) the decision is at least open to serious doubt.").

  The noble Lord said: I have the feeling that the Committee is rounding the final bend and approaching the finishing post, so I will be brief.
  The amendment is concerned with potentially capricious appeals to the Lands Tribunal against decisions of the leasehold valuation tribunals. We should be seeking wherever possible to reach a speedy resolution to disputes, particularly where they concern such sensitive matters as exist between landlords and tenants. The bitterness of disputes can increase in direct proportion to the length of time that they last.
  I am told that a practice has grown up whereby when landlords receive unwelcome decisions from the LVT there is a knee-jerk reaction to reach for the lands tribunal and to appeal. Apart from the delay that this causes, there must also be potential inequality between the parties as to both financial resources and readiness to take risks involving further professional fees and further costs. The landlords may have nothing to lose; the tenants may be concerned about increasing their financial liabilities and their exposure.
  The amendment seeks to restrict appeals to bona fide cases as laid out in the amendment and the wording broadly follows Section 69(3) of the Arbitration Act 1996, which does not seem to be a bad precedent for us to follow. I beg to move.
  Lord Kingsland: My Amendment No. 265 is grouped with Amendment No. 264A in the name of my noble friend Lord Hodgson of Astley Abbotts. It seeks to limit the nature of the appeal to the lands tribunal as being by way of a review rather than a full hearing.
  The success of the amendment will in part depend upon the success of the noble Lord's regulations under Schedule 11. One of the reasons why review has not been as successful a way of dealing with matters that have come from the tribunals, is because of the varying quality both of the evidence and of decisions that have emerged from the LVTs. The reason why that quality has varied has had nothing to do with the ability of the individuals sitting on those tribunals, which has been mercifully very high, but because the rules have been so broadly based that they have allowed a wide variety of approaches by panel members.
  While I urge this amendment upon your Lordships, at the same time it has to be coupled with appropriate amendments to Schedule 11 to which I have already spoken.
  Lord Whitty: I shall deal with the amendments in reverse order. The amendment to which the noble Lord, Lord Kingsland, has spoken seeks to limit the circumstances in which an appeal, if granted, should involve a full hearing of the lands tribunal.
  As with one or two of the earlier groups, one of the difficulties is that it strays into realms that are operated in this area, stemming from the procedures of tribunals in general, and we already have an independent review under Sir Andrew Leggatt which is still going through the process of conducting a strategic determination of
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  the tribunal system. That includes the LVTs and the lands tribunal and the whole question of appeal. It would therefore seem probable that that review will have a bearing both directly and indirectly on whether appeals should involve a full rehearing and the circumstances in which new evidence should be admitted in the appeals proceedings. Our view is, therefore, that it would be premature to write into the Bill something in advance of receiving a further report from Sir Andrew Leggatt.
  Amendment No. 264A from the noble Lord, Lord Hodgson, again gets into this territory. It seeks to clarify the circumstances in which a party to an LVT decision should be given leave to appeal against it. It is our view that an appeal to the lands tribunal is justified where a case raises important or novel issues of principle or where there are grounds for arguing that the LVT itself has erred in law or erred in fact. However, there is a widespread concern that in the past some landlords have abused the unfettered right of appeal and enfranchisement in lease renewal cases with a view to persuading leaseholders to settle at a higher price. It is that abuse that we wish to bring to an end in this section of the Bill.
  In service charge cases, the right to appeal is already subject to a leave filter; that is, the need to obtain the leave of the LVT or the Lands Tribunal. The relevant statute does not set out the circumstances in which leave should be granted, but rather gives the tribunal wide discretion to decide whether an appeal would serve the interests of justice. We feel that in that area it has worked well. We therefore wish to apply similar arrangements extending the right to appeal against any LVT decision. For the sake of consistency, we wish to do that in the way provided in the Bill.
  I repeat that it would be premature to consider any move—especially in relation to the grounds on which appeals maybe granted—in advance of the general review of this process for tribunals by Sir Andrew Leggatt. We will await his report before enacting legislation on that basis. In the light of that explanation, I hope that the noble Lord will withdraw his amendment.
  Lord Hodgson of Astley Abbotts: I am grateful to the Minister. I have listened carefully to what he said. I understand his desire to include this matter in a wider review. I see the force of the argument and, in those circumstances, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 265 not moved.]
  Clause 149 agreed to.
  Clause 150 agreed to.
  Schedule 12 agreed to.
  Clauses 151 to 154 agreed to.
  Schedule 13 [Repeals]:
  [Amendment No. 266 not moved.]
  The Earl of Caithness The Earl of Caithness moved Amendment No. 267:
  Page 100, leave Out line 53.
  The noble Earl said: We now come to the last amendment on which we shall speak. Having put my name to the first amendment, perhaps it is appropriate that I should speak to the last one. It seems a long, long time ago that we discussed Amendment No. 1 with the noble Lord, Lord Bach.
  This is a technical amendment, but an important one. Clause 115 provides for the removal of the requirement for two-thirds of the qualifying tenants to participate in enfranchisement. Clause 123 fixes the freeholder's share of the marriage value at 50 per cent in all cases. The effect of reducing the qualifying number for enfranchisement and the repeal of Section 18 of the Leasehold Reform, Housing and Urban Development Act 1993 simply compounds the issue. The result will be to ensure that only the minimum number for eligibility rather than all tenants who wish to participate in enfranchisement will apply in the first instance.
  With the marriage value fixed at 50 per cent. it effectively means that the landlord's value falls to 25 per cent. That, I believe, is unfair to the landlord. It also indicates that Clause 123 is misleading when it mentions 50 per cent. It is for that reason that I believe that Section 18 of the 1993 Act should be retained. That is the purpose of my amendment. I beg to move.
  Lord McIntosh of Haringey: We certainly agree with the noble Earl, Lord Caithness, that it would be unfair to the landlord if a group of qualifying tenants conspired together so that only the bare minimum number participated in the enfranchisement—thus keeping the price down—and then all the others climbed aboard afterwards. I think that that is the fear he expressed.
  It is true that Section 18 of the 1993 Act was intended to address the problem. Unfortunately, it is unlikely to be effective. It would be very difficult for landlords to prove that agreements with nonparticipating leaseholders existed at the relevant time and, as a result, the provision would be unenforceable. Therefore, we decided to repeal it. Apart from that, we believed that the existence of Section 18, combined with its unenforceability, could serve as an advertisement for the very malpractice at which it was aimed. 'We do not have any evidence that abuse of this kind is perpetrated on any scale. That possibility will arise only in cases where the unexpired terms of the lease are relatively short, since the potential abuse relates only to the marriage value component of the purchase price.
  Although in theory there might be a temptation for people to conspire in the way that the noble Earl, Lord Caithness, and I described, surely that would be restricted by the fact that a conspiracy would require the others not to participate in the enfranchisement in order to join in afterwards to keep down the marriage value. They might be reluctant to do that, and they might believe that there were risks in not participating. Therefore, at the moment we are not convinced that there is any reality in this threat. However, if it can be shown that there is a real risk—so much so that it
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  would be better to keep Section 18—we are open to any representations that may be made between now and a later stage.
  7.15 p.m.
  The Earl of Caithness: I am grateful for the way in which the Minister answered the point and for the courtesy with which he and all the Ministers have responded throughout the proceedings on the Bill. I am a little surprised by the noble Lord's answer. When we debated Amendment No. 263 moved by my noble friend Lord Kingsland, the Minister put forward an argument about landlords being oppressive, threatening and beastly to tenants. Yet here we have a situation where the Government open a Pandora's box and tenants behave in an extremely nasty way to a landlord. I can visualise some of the tenants with whom I have dealt ganging up against a landlord and having a side agreement that some of them will not participate in order to reduce the marriage value and settle the matter later. That would not be beyond the wit of a good number of tenants, and there must be some way to stop that happening. By the time we get legislation to correct it, it will be too late: many landlords will have had their interests and assets taken away from them without compensation, which I believe to be totally wrong.
  There must be a method by which the landlord is entitled to hope value, or those who do not subscribe in the first instance cannot receive enfranchisement without payment. The Minister might even consider that the landlord could take an overriding lease of the non-participating flats, which would solve the problem. We can get round the problems of the service charge, because the landlord would be obliged to pay the service charge for the non-participating flats, whether or not he had received the money from the occupying lessee.
  I believe that this problem needs to be addressed by the Government before the Bill is enacted, because if we do not deal with it now it will be too late. The Government open a Pandora's box by the removal of Section 18. I take the point that it may be unenforceable and difficult to implement. If that is the case, let us find another way to tackle it.
  Lord McIntosh of Haringey: Before the noble Earl decides whether this matter should be pursued, I thought that I made conciliatory noises at the end when I said that if evidence could be produced that this problem was widespread we would think about it again. I should also say a word about hope value. The landlord is entitled to hope value in relation to sales of lease extensions to participants as well as non-participants.
  The Earl of Caithness: I do not dispute that the noble Lord, Lord McIntosh, made some conciliatory noises towards the end of what he said. I hope that I thanked him for that. If I did not make it clear to begin with, let me do so now. I thank him. I was just re-emphasising the point. This is a matter on which I should like to test the opinion of the Committee, but I cannot. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Schedule 13 agreed to.
  Clause 155 [Commencement etc.]:
  [Amendments Nos. 268 and 269 not moved.]
  Clause 155 agreed to.
  Remaining clauses agreed to.
  Title agreed to.
  The Deputy Chairman of Committees (Lord Lyell): The Question is that I report the Bill to the House with amendments.
  Lord Goodhart: Before that happens, perhaps I may expand a little on a point made earlier by my noble friend Lady Hamwee. If, as is still more likely than not, this Parliament is dissolved in approximately two weeks' time, it is surely clear that the Bill will not be rushed through in the last few days and will therefore fall. I can also see the attraction to the Government—in the event of their being re-elected—of bringing back the Bill early in the next Parliament on the grounds that your Lordships' House may have a certain amount of time on its hands at that stage. I ask the Government seriously to re-consider this matter. A great number of points have been made. A number of issues have been raised today at which the Government have said they will look again. It would be unfortunate if those could not be looked at because of lack of time.
  Many other points have been made, of which the most important is the question of the 100 per cent requirement for the introduction of commonhold. It is no doubt possible to devise a system that would enable commonhold to be introduced with something short of 100 per cent agreement, though it would undoubtedly require substantial agreement. It is also clear that there is a large demand among leaseholders— certainly among leasehold organisations—for that to happen. That would require fairly substantial amendment to the Bill and a number of additional provisions. Therefore, I seriously ask that the Government
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  consider taking the Bill away for a period of a few months and not bring it back until after the Summer Recess.
  Lord Lea of Crondall: Some of us noticed the implication that there would be a reasonably substantial delay. I do not know the order of these matters coming back. However, as we are debating the issue, I would put the emphasis slightly differently. We should look at the matters that need to be considered if we are to make some structural improvements to the Bill. Some of those have been highlighted. The order of the day should be to keep up the momentum. That is the message I leave with noble Lords.
  The Parliamentary Secretary, Lord Chancellor's Department (Lord Bach): I am grateful to Members of the Committee who have spoken at this rather unusual stage of proceedings. I listened carefully to what the noble Lord, Lord Goodhart, said and we will consider it in the reasonable way in which he mentioned it. What has struck me is the degree of consensus on the Bill and on the broad topics covered by it. By that I mean the introduction of commonhold as a form of land tenure. I listened hard but there seemed to be no disagreement at all about the concept. That is hardly surprising: our predecessors in their own turn proposed commonhold, just as we have done. For the life of me, although there are details—perhaps even important ones—that divide some of us, they have come down to very little when compared to the principle of commonhold, which is broadly accepted. That also seems to apply to the reform of leasehold. Of course there have been differences and some are important ones. On the whole, however, there has been a consensus that I and all Ministers have noted. In fact, it would be hard not to notice it from wherever one has sat in the Committee.
  My noble friend Lord Lea has a serious point when he says that it would be a great shame for the many people outside the House who are looking to us—by "us" I mean the Houses of Parliament—to legislate on these important matters that affect their daily lives if somehow the Bill were to disappear, not to return again for a long time. Therefore, we will think very carefully about what the noble Lord, Lord Goodhart, said. In return, we should be grateful if noble Lords on all sides would consider carefully whether there is very much that divides us at this stage.
  Bill reported with amendments.
  The Committee adjourned at twenty-five minutes past seven o'clock.