Commonhold and Leasehold Reform Bill [H.L.]

HL Deb 10 April 2001 vol 624 cc1068-136

11.38 a.m.

Report received.

Clause 1 [Commonhold land]:

Baroness Hamwee moved Amendment No. 1: Page 1 , line 10, at end insert ("or a term of years absolute in the land with not less than 200 years unexpired is registered as a leasehold estate in commonhold land).

The noble Baroness said: My Lords, I can give the House a lot of numbers for the sake of the record while some noble Lords leave the Chamber in order to find other things to do with their morning. In moving this amendment, I shall speak also to Amendments Nos. 5 and 6, 8, 17 to 19, 21 to 31, 37 and 38 and 40, all of which stand in my name and that of my noble friend Lord Goodhart.

Perhaps I may begin by apologising to the House for the absence of my noble friend Lord Goodhart who is currently abroad. I cannot begin to do justice to the amendments that he tabled in the expectation that he would be here to move them at this stage. In the best traditions of this House, my noble friend has not merely retabled amendments to which he spoke in Committee; he has responded to the debate. I wish that my thinking and my technical ability were as good as those of my noble friend. However, I shall do my best to propose the amendments.

It was not until just before I entered the Chamber that it occurred to me that I have just a little more in common with the noble Baroness, Lady Thatcher, than I had ever realised. Missing my noble friend I realised that she was quite right to say that "every woman needs a Willy".

Before I discuss the substance of the amendments, which, as I say, reflect the debate at the previous stage—therefore, I believe that my comment is apposite—I should say that we on these Benches continue to be concerned that the Government are pressing forward with a Bill which many of us believe has little or almost no prospect of completing its passage in this Parliament. It deals with matters of substance which seem far from being satisfactorily resolved.

First, we. consider commonhold and, later, leasehold reform where there is much concern that the amendments do not go far enough to achieve what the supporters of reform seek. As regards commonhold, it is a serious matter to introduce a new form of tenure. It is imperative that it is introduced correctly. It is not like leasehold where there is scope to tweak and adjust at future stages. A new form of tenure needs to be right from the very start. It would appear from the later amendment to provide for an ombudsman scheme that the Government are not confident that their commonhold measures amount to a robust set of provisions.

I turn to the large group of amendments we are discussing. They all allow commonhold leases to be created with terms of 200 years or more. That would allow new build commonholds to be created as part of mixed use buildings with the commonhold association granted a long term over the residuary parts. Because the interest created is a leasehold, positive covenants—on which we spent a little time at the previous stage—would be enforceable both by and against the commonhold association. The amendments are also designed to meet the criticism that leaseholders would be an anomaly in a commonhold development by, as it were, interposing the commonhold association. I beg to move.

The Earl of Caithness

My Lords, I support the noble Baroness. The amendment concerns a fundamental point that we shall deal with in some detail later; that is, whether one can have leasehold mixed with commonhold. The Government have adopted an intransigent position against that principle but I do not fully understand on what basis they can substantiate that. I have considered our earlier discussions and it seems that it is possible to have leaseholds within commonhold units. The noble Baroness tackles the matter from one angle. I and the noble Lord, Lord Williams of Elvel, will tackle it from a different angle on another amendment. We and the noble Baroness seek to make the system of tenure work.

The Government have proposed a new system of tenure which is radically different from anything we have experienced in this country but their ambition and their horizon are extremely limited. They have set themselves a minimalist target of allowing the system to be adopted for residential units in new developments. They do not want to take it any further than that and it is not compulsory for new developments. I fear that commonhold, which has many attractions, will never be a success without positive support from the Government. I do not believe that the Government are giving that support in the Bill as it stands. I believe that the noble Baroness is trying to enlarge the remit of commonhold, as I shall try to do in a moment. For that reason I support the amendment.

Baroness Gardner of Parkes

My Lords, I do not wish to speak to the amendment but I seek clarification. I have received from the Lord Chancellor's Department the list of amendments and comments on them. However, the text does not state to which amendments it relates. Will the Minister match the text to the amendments as they are discussed? I agree with some of the amendments but disagree with others. However, unless I know to which amendment the text relates, I shall find it difficult to speak to them.

Lord Kingsland

My Lords, I simply add that I agree entirely with what the noble Baroness, Lady Hamwee, and my noble friend Lord Caithness have just said.

11.45 a.m.

The Parliamentary Secretary, Lord Chancellor's Department (Lord Bach)

My Lords, I shall deal first, although, I suspect, not entirely satisfactorily from her point of view, with the comments of the noble Baroness, Lady Gardner of Parkes. No department knows the final arrangement of the amendments until the Marshalled List is published. It was published yesterday morning. In an attempt to be helpful to noble Lords who have taken an interest in the Bill, we tried to issue some of the briefings on the amendments to be discussed early on so that they would have a chance to look through them. The text does not state to which of the amendments on the Marshalled List it relates, for which I apologise. I may not be able to help the noble Baroness as much as she would like. However, I shall do my best.

The noble Baroness, Lady Hamwee, underrates herself considerably. The amendments have a touch of the "Goodhart" about them. They are well drawn and we thought that the pen of the noble Lord, Lord Goodhart, had been at work. It is no fault of the noble Lord that he cannot be here today. He did not want the Report stage to be held today but there was nothing we could do about that. We shall miss his comments on the amendments. I believe that those on all sides of the House would agree that he is the acknowledged master on the Bill. But, having said that, we must do our]best without him.

This is a large grouping of amendments but, as the noble Baroness made clear, the point behind them is a simple one. My reply will not be much longer than her remarks in moving Amendment No. 1. Before dealing with the substantive amendments, it may be helpful if I concentrate on the fundamental principles of the commonhold scheme as we see them. With the advice—this is an important point—of those who have assisted us in developing the Bill, we have reached two distinct conclusions. They may not be agreed by those on all sides of the House.

First, there is little interest in the possibility of residential commonhold based on leasehold. It would introduce a complex structure because it would be necessary to resolve the inevitable conflicts that would exist between the terms of the lease and the documents governing the commonhold. Yet the main attraction of commonhold is the simplification that it brings to land tenure. It is a form of tenure that is to be free from the problems of leasehold.

I turn to the second general point. The weakness of leasehold is that it can invariably be forfeited for breach of covenant. The commonhold might not even be held under a head lease but might be held by way of an underlease. The commonhold would then be at risk of termination because the head lease was forfeited, even though the members of the commonhold were not in breach of the terms of the lease which they themselves held. Nor is it a viable option to remove the landlord's right of forfeiture to overcome this difficulty. Such a right—whether we like it or not—is a property right and, if there is to be compliance with the European Convention on Human Rights—I refer to Article 1 of the First Protocol: Protection of Property—it cannot be taken away without the compensation not just of one landlord but of each and every landlord, whether immediate or of some superior lease to the commonhold.

Many of the amendments in the group are consequential, arising from the need to ensure that whenever freehold is mentioned in an exclusive way, the leasehold scheme introduced by the amendments is also permitted. I shall not deal with all the amendments, but I shall make some specific points. Amendment No. 1 would allow for the setting up of the leasehold commonhold provided that the underlying lease had at least 200 years to run. I have already spoken about the dangers inherent in basing commonhold on a lease, which might be forfeited. I emphasise "might", because I am not saying that that would happen or would be likely to happen, only that it could happen.

There is also the problem of overlaying layers of rights and responsibilities. Would the terms of the underlying lease trump those of the commonhold community statement and the memorandum and articles? What criteria would leaseholders use to decide whether there was any advantage to be had from converting to commonhold if they were in blocks based on underlying leases that ran for more than 200 years, given what I have already said about risks?

Amendment No. 13 would amend Schedule 2 to restrict the rule against flying commonholds to freehold schemes. I understand the point which the noble Baroness is making. If a non-grounded commonhold is derived from a lease rather than being freehold land, it is not open to the same difficulties as a flying freehold, as provision could be made for positive obligations to run with the commonhold as a whole and with the property below it, in the same way as if the commonhold were a single flat. However, that brings into sharp focus the reduced nature of the interest that the unit holders in such a commonhold would have compared with the present structure of the Bill. Instead of a freehold unit, they would have a piece of a lease.

Perhaps more basically, while the noble Baroness has taken great pains to follow through the basic idea in various parts of the Bill, it is rather less clear that she has considered, still less provided for, the possible ramifications in property law, which I know that she knows well from practice. If nothing else, the amendments would be likely to require a number of consequential amendments to other legislation.

More worryingly, it might be argued that if commonhold is not simply to be a form of freehold ownership, but also a form of leasehold ownership, it will be neither, but will be a new third tenure. What consequential amendments across the field of property law might that require? There would at least have to be a very wide power to rewrite areas of property law by secondary legislation. One looks in vain for that in the amendments, although I do not criticise them for that. If the noble Lord, Lord Goodhart, were here, I would take some pleasure in asking him about that, particularly given his important membership of the Delegated Powers and Deregulation Committee, which has strong views on excessive regulations.

Much of the rest of the group is consequential on the original proposition that there should be leasehold commonhold. That is the basis on which the noble Baroness has moved the amendment. I have to say, with regret, that we are firmly opposed to that principle. We think that it is too risky a scheme for residential property.

Baroness Hamwee

My Lords, the Minister issues a challenge to my noble friend Lord Goodhart to set about writing the consequential amendments required to other legislation. If I were the Minister, I would not be too confident that my noble friend will not take up the challenge.

The Minister said that the Government wished to introduce a form of tenure free from the problems of leasehold. We support that, but a great deal of concern has been expressed that commonhold will not be as attractive—panacea may be too strong a word—as we all wish because of the constraints contained in the Bill, so it might not supersede leaseholds over the years. Those who want an end to leasehold are disappointed by the provisions. We wanted to extend opportunities. However, I note what the Minister has said and I have no doubt that my noble friend will read his comments carefully. For the sake of his health, I shall advise him not to spend too much time amending the rest of the statute book over the Easter break. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 2 and 3 not moved.]

Clause 2 [Application]:

[Amendments Nos. 4 and 5 not moved.]

Schedule 1 [Application for registration: documents]:

[Amendment No. 6 not moved.]

Clause 3 [Consent]:

Baroness Hamwee moved Amendment No. 7: Page 2, line 15, at beginning insert ("Subject to subsection (1A),").

The noble Baroness said: My Lords, I shall speak also to Amendments Nos. 10 and 15. The group also includes Amendments Nos. 9, 11, 12 and 14.

The Earl of Caithness

My Lords, the noble Baroness lost me then. I thought that she was regrouping some of the amendments, but she then mentioned all the amendments listed in the grouping. Will she clarify that, please?

Baroness Hamwee

My Lords, I shall speak to Amendments Nos. 7, 10 and 15. There are other amendments in the group. I was simply giving the numbers for the record.

Amendment No. 7 is a paving amendment for Amendment No. 10, which deals with the consent required for commonhold and the question of 100 per cent provision, on which we spent a good deal of time in Committee.

The 100 per cent provision in the amendment would not apply if flat owners representing up to 20 per cent of the flats were to withhold their consent. The lease of their flats would remain outside the commonhold system, but they would have the right to opt into the commonhold association at any time on the payment of a price to reflect the value of the reversion and the value of membership of the commonhold association. When the lea se expired, if there had not been an opt-in, the commonhold association could sell the property as a commonhold unit and keep the proceeds.

I hope that most of our arguments are clear from the amendments, but I shall say a few words about paragraph 6 of the proposed schedule, which fleshes out the provisions that would apply to what my noble friend has chosen to call non-consenting parties. The paragraph would exclude the right to an extended lease in order to put pressure on tenants to convert to commonhold. However, it would be right to recognise that that right to an extension was held before the conversion to commonhold, so in valuing the reversion, regard should be had to the right to extend the lease.

Many of us feel that if commonhold is to succeed, it should not be sabotaged by what may be no more than one perverse leaseholder in a block. A great deal of concern has been expressed about that and other attempts will he made on Report to address the issue.

We heard in Committee of the Government's view that it would not be right to impose commonhold unless everyone involved agreed. It has been pointed out to us that one might make an analogy with company law. Under companies legislation, it is permissible to make what one might call a "compulsory acquisition" of the shares of up to 10 per cent of non-assenting shareholders. That is a very close analogy.

Also available is the commonly used provision of a special resolution to amend the articles of association of a company. That requires only a 75 per cent majority. I believe that that, too, provides a very close analogy in that a company's articles of association are its basic constitution and also comprise a contract between the shareholders.

I turn totally Amendment No. 10. The noble Lord, Lord Kingsland, has tabled amendments in this group on the same subject—that is, flying commonholds. Amendment No. 10 would ban flying commonholds applying only to freehold land. We see no reason why there should not be a flying leasehold commonhold. I beg to move.

Noon

The Earl of Caithness

My Lords, I rise to speak to Amendment No. 14 standing in my name and that of the noble Lord, Lord Williams of Elvel. Before I do so, I want to say that I agree with much of what the noble Baroness, Lady Hamwee, said with regard to her amendment.

As I mentioned earlier, we are trying to achieve a situation whereby leaseholders may transfer to commonhold. That is not being encouraged by the Government. As the law stands, it can be done only with the agreement of 100 per cent of the tenants. We know that that is patently unrealistic. There is no serious chance that the tenants in a decent block of flats, or, indeed, in a building with perhaps more than two occupiers, will be able to move from a leasehold to a commonhold situation.

Like the noble Baroness and the noble Lord, Lord Goodhart, the noble Lord, Lord Williams, and I have considered what was said in Committee and have come forward with a variation on what we proposed on that occasion. Your Lordships may be surprised by some of the percentages that we have used. Noble Lords will recall that in Committee we used the figure of 80 per cent. We have reduced that to 50 per cent and the reason is very simple: it is to form a seamless transition from the right to manage to the enfranchisement to the commonhold.

In Committee on 20th February, the noble Lord, Lord Bach, said: It may be that relatively few leaseholders will wish to take the final step of converting to commonhold once they see the extent to which Part II of the Bill will satisfy their needs, and how very far towards the ideal of commonhold that will get them".—[Official Report, 20/2/01; col. CWH 11.] When we discussed Part II, I bore those comments in mind but I am not satisfied by what the noble Lord said. I do not believe that it will satisfy the aspirations of many people. Although I hoped that it might, I am certainly not convinced at present. That was one reason why we considered it important to put forward this amendment.

Perhaps I may take up the challenge which the noble Lord, Lord Bach, has again thrown at us with regard to the difficulty of management. I do not see a difficulty. There will be no greater difficulty in managing a commonhold which has leaseholds within it than there is at present under a partly enfranchised block. The leaseholders who remain will actively consent to do so, and the commonhold will still be subject to democratic control.

Indeed, with regard to the human rights issue, a fundamental principle in making conversions operate is the existence of long leaseholds within a commonhold. The objectors will retain the Landlord and Tenant Act rights but will not have a vote in the commonhold association, just as a non-shareholder of a management company does not have a vote in running that company.

I do not see any great difficulties in that regard. I can envisage the situation of a leasehold block in which the agreed percentage of tenants wish to move to commonhold but in which those who do not want to move will remain in the same position. In order to protect the interests of those tenants, we have added another subsection—subsection (3)—to our amendment. If more than 10 per cent of the leaseholders object to the conversion, they can take the whole proposal to a tribunal court. The tribunal can then look at both sides of the argument.

I hope that the Government will appreciate that we have made every effort to meet the concerns that they put forward in Committee and to meet the legitimate aspirations of those who wish to make commonhold a success.

Lord Hylton

My Lords, before the noble Earl sits down, does he have in mind the lands tribunal or some other type of tribunal?

The Earl of Caithness

My Lords, it would be the appropriate tribunal. We shall discuss tribunals later, but I believe that the best tribunal in this regard is the right one.

Lord Williams of Elvel

My Lords, I support the noble Earl in his Amendment No. 14. When we were in Committee, I never quite understood the Government's position on existing builds. It appeared that at times my noble friend was saying that the Government did not expect many applications for commonhold in existing builds; at other times, my noble friend seemed to make it perfectly clear that the commonhold arrangement was for new builds.

If that is the case, and if the Government are to set their face against existing properties moving into commonhold, why are there provisions in the Bill which allow for the conversion of existing properties into commonhold? If, on the other hand, the Government have not set their face against the conversion of existing properties into commonhold, may we please have sensible arrangements by which that could be achieved? It simply cannot be achieved with 100 per cent agreement.

Therefore, the noble Earl and I have tried to put forward an amendment which would allow the Government to make a firm statement that they would like to see existing properties converted into commonhold. Not only that; we also propose a way of doing so which would not leave other leaseholders at a disadvantage. It would allow people who wanted to go into commonhold to do so, subject to a majority vote. Those who did not want to go into commonhold would be able to remain as leaseholders in a commonhold association. It is perfectly simple. Neither we nor our advisers can foresee any problems in that.

Therefore, perhaps I may say to my noble friend that there lies the dilemma for the Government. I put it in a form that I am sure my noble friend will relish— it is a challenge. Will my noble friend make it absolutely clear what are the Government's intentions in respect of the conversion of existing properties as opposed to new builds?

Baroness Gardner of Parkes

My Lords, first, I support the noble Baroness, Lady Hamwee, who said that a situation should never arise in which only one person would be able to prevent a move to commonhold. I then go on to support the amendment in the names of my noble friend Lord Caithness and the noble Lord, Lord Williams of Elvel.

I believe that the Government are overlooking entirely the fact that people approach commonhold differently according to their age. Many older people in blocks of flats will say, "I can't go through all the bother. I don't really want to be involved". However, I believe that younger people, who should be entitled to be part of a commonhold as early as possible in their lives because that is a much better position for them to be in, would be disadvantaged simply because many people would not be bothered with such a change. Therefore, I support the amendments as put forward.

Baroness Maddock

My Lords, I add my voice to the voices of those who have already spoken for reasons that noble Lords have already given. Why is a significant aspect of the Bill devoted to enabling people to move from leasehold to commonhold if that process will be so difficult that it may be almost impossible to make the move? If that is the case, we are wasting much time—indeed, we have already done so. The Government must respond to that point.

People were under the impression after the introduction of the Bill that they would be able to escape—I hope that I can put it like that—from what they saw as the chains of the old-fashioned way in which we run leasehold in this country. They are bitterly disappointed. We are still getting correspondence from people who cannot understand why the Government have adopted their approach. In relation to the amendments moved by my noble friend Lady Hamwee, my noble friend Lord Goodhart tried to help the Government to find a solution to the problem.

The arrangement that I have described is wanted by people from all sides, not simply by one little group. The Government should take that on board. Many experts think that the Bill should contain a means of enabling people to move to commonhold without the 100 per cent arrangement. The position is not as difficult as the Government keep saying it is. The Government should look carefully at what people have said. The view that I described has come from all sides.

Lord Kingsland

My Lords, my amendments—Amendments Nos. 9 and 12—mirror those that I tabled in Committee. I have nothing to add to what I said then.

12.15 p.m.

Lord Bach

My Lords, I shall start on a conciliatory note. That may not be where I end, but it is at least where I shall begin.

One amendment in this group has not been spoken to; namely, government Amendment No. 11. I shall move it in due course but speak to it now. Amendment No. 11 follows the logic of the amendment of the noble Lord, Lord Goodhart, which we accepted in Committee. That amendment swept away mention of those with interests in the land to become commonhold land. Those whose consent is now required are registered proprietors of an estate, registered proprietors of charges, registered cautioners and any others to be specified in regulations. That being the case, the words removed by that amendment are not required and so are being removed.

I turn to the amendment of the noble Lord, Lord Kingsland. In his traditional and very helpful way, when he spoke to Amendment No. 9, he in effect employed the same arguments that he used in Committee. He will not be completely surprised if I employ the same arguments back at him.

Amendment No. 9 would introduce into Clause 3, which deals with consents to commonhold registration, a "surface area" exception, under which, if the aggregate of all those whose consent were to be required but who failed to give it did not exceed 20 per cent, their consents should not be required. Another amendment would add to the list of matters for which regulations could make provision. It would relate to the way in which the surface area was to be calculated and it would enable a court to determine issues about whether consent was required. The effect would be uncertainty. It is not clear what the purpose of the amendment is other than to apply a somewhat arbitrary rule to the giving of consent. As I shall explain—I know that this will be a disappointment to noble Lords—we are not prepared to accept any rule other than the 100 per cent rule.

The amendments of the noble Lord, Lord Kingsland, ask us to say that might is right and that the loudest voice wins. I hope that noble Lords will forgive me if I use the same analogy that I used in Committee. That involved the case of a freeholder who owns a substantial country house in 4 acres of attractive parkland. His substantial country house is divided into leasehold flats, the aggregate floor area of which is certainly less than 20 per cent of 4 acres and the surface area, if calculated by aggregating the surfaces of floor, walls and ceilings, would still fall far short of 20 per cent of 4 acres. In Committee I asked, can the freeholder dispense with their consents, deprive them of their leases and take them into a commonhold without so much as a by your leave? If that example is objected to, we may consider another example. A freeholder may live in the main part of the house and may have let one wing as leasehold flats, the surface area of which amounts to less than 20 per cent of the total of the house. Can the leaseholder be dragged into commonhold? Will such people find themselves suddenly faced with a part, however small, of the upkeep of the park and stables as common parts, because their consent was not required to register and the landlord has effectively extinguished their leases and substituted a CCS in the construction of which they had no part?

No doubt the noble Lord might respond by saying that it is just such problems that the regulations that are proposed in the amendments would overcome, and should the regulations fail to overcome them effectively, the courts could pick up the pieces.

Our fundamental objection in this regard involves our firmly held intention of requiring 100 per cent of all those whose interests would be affected by the registration of a commonhold to consent. The amendment would add layers of uncertainty to what is otherwise a clear and straightforward process. It does nothing to address what one would do with the 20 per cent dissenters.

I now turn to what I may call the main amendment in this group; namely, Amendment No. 14, which was spoken to by the noble Earl, Lord Caithness, and supported nobly by my noble friend Lord Williams of Elvel, who, almost in a sporting way, set me a challenge regarding our intentions. I believe that he slightly misquoted me; he did not use my exact words. Perhaps a better way to put it is to say that he slightly misunderstood me.

It is not our intention that there should never be opportunities for existing buildings to be converted to commonhold. I make that absolutely clear. We see no reason why in practice small blocks of flats, for example, with four—or perhaps slightly more—leaseholders might not all agree to join a commonhold. We agree in practice that large blocks of existing leasehold flats are not likely, with the 100 per cent rule, to convert to commonhold. I do not think that that amounts to a surprise announcement it is basically what I said in Committee. There is no reason why smaller blocks should not convert. We hope that new residential developments will adopt commonhold as the form of land tenure that residents require. We do not say that that will not happen but we are realistic and believe that it may happen only in small blocks of flats.

I shall deal as best I can with Amendment No. 14. Of course we understand why it was tabled but we believe that it and the basis on which it has been argued are mistaken. We have no interest in standing in the way of those who wish to convert existing leasehold blocks to commonhold blocks. However, we are strongly opposed to the prospect of converting, in the name of commonhold, to something that is not commonhold. As I said in Committee, although we have set a high hurdle which not all may clear, we believe that we are right because, by going through substantially the same processes as would be required to convert to commonhold, it will be possible, using the radical provisions of the leasehold part of the Bill, to get to substantially the same position.

Perhaps I may explain the Government's position in a little more detail by going through the noble Earl's amendment bit by bit. He wishes to allow conversion from leasehold to commonhold with existing leaseholders. He wishes the commonhold association to be the unit-holder, presumably in commonhold terms, and thus to he the freeholder landlord of the continuing, or as we think of them, anomalous leaseholders. He wants existing rights under the lease to remain and he also wants to maintain the rights of mortgagees.

We believe that to do as the noble Earl asks in a commonhold context would lead to something which is not commonhold, at least not in our terms. But more than that, it would create serious and ongoing problems for all those associated with the project. In the first place, those undertaking the conversion process must be the registered proprietors of the freehold of the land to be converted, and so must either have obtained the consent of the freeholder or bought out his interest. In the latter case, they will have an RTE company.

However, the commonhold association is the holder of the common parts, not a freeholder of units. To achieve what is asked for in this amendment would require significant change to the purposes of the commonhold association to enable it to own and manage the continuing leasehold units. Again, problems would arise from a complex structure that combined commonhold and leasehold.

The amendments want the terms of the lease to continue. How will the decision be made between the commonhold community statement and the lease where the two are in disagreement? Will the leaseholders also be subject to the commonhold community statement? If not, will there be two potentially quite different regimes running in the one block? How will service charges be set for the leaseholders? Will they have access to all or, indeed, any new facilities provided by the commonhold association and if so, on what terms will they have such access?

There then comes the alteration in the plan put forward by the noble Earl that conversion can take place without a majority or if the 50 per cent means 51 per cent, then with only a very bare majority. We believe that that is an extremely thin foundation on which to found such a monstrous edifice, if I may use that expression.

Of course, I am sure that if we were to strain to do so, we might be able to produce regulations of truly fantastic complexity. That could be done. But I must ask the noble Earl why he wants to vitiate the commonhold concept when it is not necessary. If there are those in existing long leasehold buildings who do not want to convert from their current long leases to some other position in the midst of a converting majority, the leasehold part of this Bill, Part II, sets out how they can do that. Those who do wish to take greater control can buy out the freeholder, set up their RTE company, which will look very much, in some ways, like a commonhold association for all practical purposes, and grant themselves 999-year leases on new terms if they wish; thus, in effect, owning their property in perpetuity while those who do not wish to be involved can stay with their old leases.

We believe that that is the position which, in the end, the noble Earl's amendment seeks to reach. If that is so, we invite him to withdraw it because, if it is passed, it would undermine a number of the underlying principles of commonhold without providing any practical benefit. The RTE company is a purpose-built vehicle for those who wish to have mixed types of tenure in a single block. Commonhold is based on the concept—this is crucial to our case—of parity between unit-holders. We believe that that would be undermined and whatever emerged would not be commonhold.

When moving Amendment No. 7, the noble Baroness, Lady Hamwee, said that she was dealing with the problem of 100 per cent conversion. She takes a different line. Where the noble Earl, Lord Caithness, would leave the anomalous leaseholders within the commonhold as lessees of units, the noble Baroness would leave them as tenants of the commonhold association but outside the commonhold, if we understand her right, for their flats will explicitly not be units and if not units, surely not common parts.

The argument could be made that that gets round our objection based on the concept of parity between unit-holders. I see that that comment is agreed to on the Liberal Democrat Benches. But we believe that it begs some of the same questions, and some others. If the anomalous leaseholders' flats are not part of the commonhold, what will be the nature of their rights in relation to the common parts and how will their service charges be assessed as against a general commonhold assessment to be paid by the unit-holders? Will they in any way contribute to a reserve fund and if not, will they benefit from any reserve fund set aside from commonhold assessments?

All that would have to be dealt with by regulation-making powers shortly set out at the end of the proposed new schedule, which is one of the amendments spoken to. That is a very simple power to cover questions which we think are of great complexity. There might well have to be an element of a Henry VIII power if there were to be anything like certainty of covering all the modifications necessary; and it is by no means clear that that power does enough. Even if we were to assume that it did, I ask the same rhetorical question as I asked of the noble Earl: should we really stand to gain?

I am sorry that I have taken some time, but we accept that this is an important group of amendments and I hope it is understood that I am not doing this on any party basis. I conclude by quoting to the House the comments of the noble Lord, Lord Goodhart, when he tackled this problem of 100 per cent conversion. He dealt with it both on Second Reading and in Committee. I shall not quote from him on both occasions, but on Second Reading he said: Commonhold overcomes the technical difficulties of freehold flat ownership and it gives the unit-holder an interest which potentially will last for as long as the building itself. One criticism of the scheme which has been voiced in some quarters is that the conversion of an existing block of flats to commonhold requires the unanimous consent of the interested parties. As a result, most commonholds are likely to be established in new blocks developed as commonholds. It may be difficult to secure the consent to convert of all t Le lessees in existing blocks of flats, in particular if these are blocks of any size". He went on to say: I have some sympathy with that view. It is arguable that, where a substantial majority are in favour of conversion, they should be able to convert. However, serious legal and managerial problems would arise in a block which was part commonhold and part leasehold. Complex legislation would be required to deal with such problems. Ultimately, I should like to see the possibility of effecting conversion without complete unanimity, but I should prefer to see commonhold start on a straightforward basis before we encounter the more difficult issues. That should be a matter for future legislation rather than the present Bill".—[Official Report, 29/1/01; cols. 462–631 In the Government's view, that comment, coming as it does from someone who really, on the whole, does not want to see 100 per cent, shows how necessary it is to get this Bill through as it stands at present.

The Earl of Caithness

My Lords, before the noble Lord sits down, as he concentrated a lot on my amendment, perhaps I may take up one or two points before the noble Baroness decides what to do with the main amendment.

The Minister quoted again the remark which he made in Committee. He described what my noble friend Lord Kingsland, the noble Lord, Lord Williams, and I are asking for as saying that might is right and that the loudest voice wins. Surely that is exactly what is happening in Part II. That is the whole essence—the loudest voice does win. We are merely trying to give to those who have the loudest voice in Part II the same commonhold benefits as for those who occupy a new development.

The noble Lord said that what we propose is not commonhold in our terms. Of course it is not; it is a radical shift. The whole purpose of the amendment is to have a strict definition of "commonhold" for a new development and a slightly different definition of "commonhold" where one is moving from an existing building and converting into commonhold. There has to be a difference between the two. The Government have taken what I believe the noble Lord called a high fence jump. I am trying to lower that fence.

I still do not fully appreciate the difficulties of management to which the noble Lord alluded. The problems that he put to the House are no different from those one has with a mixed block of leases or from those which a manager now has to face with a wide variety of leases: long-term, medium-term and short-term and, as regards service charges, in dealing with those who are tenants by right.

I am not entirely convinced. I am grateful for the courteous and full way in which the Minister responded to the group of amendments. I shall read what he said. At this stage, I am by no means convinced that he is totally right and I am totally wrong.

12.30 p.m.

Baroness Hamwee

My Lords, I am sure that my noble friend would not want me to retract on his behalf, because he would not do so himself, the concerns to which the noble Lord alluded. I believe that those concerns are about how this is to be done. Perhaps I may restate his view and mine. It is not satisfactory to have a position where one or two individuals can block the conversion to commonhold.

I have one or two drafting concerns about the amendment tabled in the names of the noble Earl, Lord Caithness, and the noble Lord, Lord Williams of Elvel. However, we share the same concerns and goals. I believe that the noble Lord, Lord Williams of Elvel, is right. We either have to restrict commonhold to new build and accept that as the case—and as regards this point the Government seemed to be admitting the limited nature of conversion in a way which we have not heard before—or we make conversion realistic.

In his amendment, my noble friend attempted, imaginatively and effectively, to address the technical problems about which we have heard. The Minister spoke of the need for regulations of fantastic complexity. I suspect that regulations might have to be of considerable length, but they would be towards the simpler rather than the complex end of the spectrum. Length and complexity are not necessarily the same thing.

If we ever reach Third Reading of the Bill I am sure that this will be a matter to which we would wish to return. Having said that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 8 to 10 not moved.]

Lord Bach moved Amendment No. 11: Page 2, line 27, leave out from ("consent") to ("successors") in line 28 and insert ("to bind").

On Question, amendment agreed to.

[Amendment No. 12 not moved.]

Lord Kingsland moved Amendment No.13: After Clause 3, insert the following new clause—

FLYING COMMONHOLD (" .—(1) Commonhold land may consist of, or include, a building, or part of a building, which is above or below other land. (2) Where subsection (1) applies, a positive covenant relating to the commonhold or the other land entered into between the commonhold association and the registered proprietor of an estate in the whole or part of the other land shall be enforceable by and against their successors in title and persons deriving title under them if the covenant so provides.").

The noble Lord said: My Lords, Amendment No. 13 was also moved in Committee when I spoke to it at some length. I shall therefore restrict my remarks simply to saying that the amendment would encourage developers of mixed-use buildings to consider using commonhold. Many are reluctant to promote the whole building as commonhold because of their preoccupation with the fact that that might be regarded as limiting the investment value of the commercial element.

Permitting flying commonholds would enable the residential elements to be sold on a commonhold basis and the commercial elements retained on a freehold/ leasehold basis. I beg to move.

Baroness Hamwee

My Lords, I am reminded that the word used by the noble Lord, Lord Kingsland, in Committee was "telegraphic". At that stage the amendment was moved by my noble friend Lord Goodhart. For that reason, we support it.

Lord McIntosh of Haringey

My Lords, in commendably few words, the noble Lord, Lord Kingsland, has raised an issue of great importance. It is of such great importance that I doubt whether it can be adequately dealt with in the context of the Bill. As he well knows, the problem is that in this country, and under English law, positive covenants do not run with freehold land after the first purchaser has sold on his interest. Any amendment of this kind, which would allow a commonhold to be developed on noncommonhold land would bring that problem into play. The second subsection of the first amendment would make it possible for covenants to be entered into between the commonhold association and the proprietor of what might be called the supporting land, which would be enforceable by and against the successors. Perhaps a little oddly, that would only be enforceable if the covenant so provided.

The Government recognise that for many years there has been a real problem with positive covenants. The noble and learned Lord the Lord Chancellor referred to it in his speech at Second Reading. The problem was first considered in 1965 when the Committee on Positive Covenants Affecting Land, chaired by the noble and learned Lord, Lord Wilberforce, who was in his place for this part of the Committee stage, reported to Parliament. This is not a problem which can be solved within the context of the Bill. It is under review by the Law Commission. It should be considered in the context of the Law Commission report. I assure the House, as I did in Committee, that the noble and learned Lord the Lord Chancellor is a strong supporter of the work of the Law Commission and is anxious for this part of its work to reach a speedy conclusion, to be consulted on as it would need to be, and to be brought, as appropriate, into legislation. However, that does not mean that I can support the amendment.

Lord Kingsland

My Lords, the noble and learned Lord, Lord Wilberforce, drafted his report on the question of positive covenants in 1965. I am delighted to hear from the Minister that the pace is, indeed, quickening. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 14 and 15 not moved.]

Schedule 2 [Land which may not be commonhold land]:

[Amendments Nos. 16 and 17 not moved.]

Clause 6 [Registration in error]:

[Amendments Nos. 18 and 19 not moved.]

Lord Kingsland moved Amendment No. 20: Page 3, line 24, leave out subsection (2) and insert— ("(2) The register may be rectified by the Registrar if— (a) he is satisfied that that the error is a minor matter: or (b) if all relevant parties consent to the rectification.").

The noble Lord said: My Lords, as your Lordships are aware, the Chief Land Registrar already has wide powers to rectify errors. The amendment would ensure that minor or uncontested errors are resolved quickly. If the registrar does not consider a matter to be minor, or if the parties do not agree, it is appropriate to refer the question to the courts to decide. I beg to move.

Baroness Hamwee

My Lords, we believed the noble Lord, Lord Kingsland, to be right on this matter at the last stage, and we believe that he still is. The argument put forward by the Minister was dealt with admirably briefly.

Lord Bach

My Lords, I well remember the noble Lord moving the amendment in Committee, along with another amendment at that time. I attempted to answer both. I believe that the reply was satisfactory as regards the other amendment but not as regards this one. I am not surprised to see it back again today. It has been moved in the utterly reasonable way in which it was last time. On the face of it, but only on the face of it, it seems a reasonable amendment. Perhaps I may take up a little of the House's time—I am afraid rather more than the noble Lord did in moving it—and try to make a good case as to why the amendment is mistaken.

The amendment would weaken a control which we believe would help to prevent fraudulent or reckless applications for the registration of commonhold. Under the clause as it exists now, the three circumstances in Clause 6(1) which would trigger the use of the court to make a declaration are, first, that the application did not accord with Clause 2; secondly, that the certificate to be given by the directors of the commonhold association was incorrect; or, thirdly, that the registration itself contravened some provision of Part I of the Bill. None of these is a trivial matter and, on the whole, we believe that none of them is likely to happen accidentally.

For that reason, we have specified that it should not be possible to rectify the register but that the court should be invited to declare that the estate should not have been registered as commonhold, with all that follows from that. The amendment would allow rectification if either the registrar were to be satisfied that the matter was a minor one or that the affected parties consented. In our view, that weakens the protection against possible malpractice or serious carelessness. The circumstances will not be trivial and the parties, if they have got so far as to formulate an application that would deal with those circumstances, are unlikely to consent.

The existing powers of rectification by the registrar under Section 82 of the Land Registration Act 1925 would be available in a limited range of circumstances for commonhold. Those would include cases where land is not capable of being commonhold land under Schedule 2. In those instances, there would have been an error or omission in the register. These can be dealt with by the existing powers of rectification in the Land Registration Act and there is no need to amend them.

In the cases where there are minor mistakes in the certificate—for example, a clerical error as to name, date or spelling—they can be corrected by the registry under rule 13 of the land registration rules. Those powers will still apply to commonhold. I believe that they are known collectively as the "slip rules".

However, where land has been properly registered by the registry in reliance on the certificate under paragraph 7 of Schedule 1, there is no basis for rectification under Section 82, even if the certificate is later found to he inaccurate. If the certificate is inaccurate in that it states that the memorandum and articles and/or the commonhold community statement satisfy the requirement of the Act but in fact they do not, there is no basis for rectification under the 1925 Act. The registry will not know that it has completed registration on the basis of an inaccurate certificate until it receives an application for registration of an amended memorandum and articles or commonhold community statement, or the court orders that the land shall cease to be commonhold land.

In those cases, the inaccuracy goes to the creation of the commonhold association. If the association does not comply with the formalities so as to exist as a commonhold association, the land cannot be commonhold land. If the land ceases to be commonhold land, the registry will need direction from the court as to how the property interests should be divided between the various owners.

Those cases raise issues of company matters as well as distribution of property interests and are therefore outside the scope of the land registrar's powers of rectification. If the land ceases to be commonhold land and the property interests need to be reallocated, there will be registration against the proprietor in possession of the land. That can be done only within Section 82(3) of the 1925 Act when it is ordered by the court. We believe that those are powerful reasons why it is appropriate that rectification for the matters set out in Clause 6(1) of this Bill should be referred to the court. We believe that the land registry agrees with us.

Baroness Hamwee

My Lords, before the noble Lord, Lord Bach, sits down, perhaps I may say that his response will repay reading carefully. If a matter requires rectification and the parties are all in agreement, does that fall within the existing rules to which he referred?

Lord Bach

My Lords, perhaps not at the present time. I may have an answer for the noble Baroness but I do not want to make one up. Having used sporting metaphors previously, perhaps I may write to her with a correct answer to that "bouncer".

Lord Kingsland

My Lords, I should be grateful if the Minister would be kind enough to send me a copy of the letter he proposes to send to the noble Baroness, Lady Hamwee—unless the noble Baroness were to object. In that case, I should understand.

I agree with the noble Baroness, Lady Hamwee, that what the noble Lord said in response to my amendment would repay reading. He spoke at considerable length with much cogency and, if I may add, great feeling. In those circumstances and at this stage I am extremely happy to withdraw my amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 21 and 22 not moved.]

Clause 7 [Registration without unit-holders]:

[Amendments Nos. 23 to 30 not moved.]

[Amendment No. 31 not moved.]

Clause 10 [Extinguished lease: liability]:

12.45

Lord Kingsland moved Amendment No. 32: Leave out Clause 10 and insert the following new Clause—

EXTINGUISHED LEASE: LIABILITY

(" . The superior leaseholder shall be liable for loss suffered by a person who holds an inferior lease which is extinguished by virtue of section 7(3)(d) or 9(3)(f).").

The noble Lord said: My Lords, Clause 10 in its original form is inappropriate where, as proposed under Clause 3, the consent to an application does not have to be unanimous. It would be illogical and unfair if a lease were extinguished but the superior leaseholder could nevertheless escape liability for loss just because he was among a dissenting minority.

If the unit-holder had the necessary leasing power, he might mitigate his liability by granting a new lease in place of one that had been extinguished. I beg to move.

Lord Bach

My Lords, Clause 10 attempts to ensure that where a leaseholder whose consent is required to a conversion to commonhold gives it, and as a result an inferior leaseholder loses his rights because his lease is extinguished, the inferior leaseholder should be compensated by the superior leaseholder for his loss. He will, after all, have considered the upshot of his decision to consent. The inferior leaseholder—who by definition will not have a registered interest because, if he did, his consent would have been required—will have no choice in the mater. He should under Clause 10 be compensated.

The noble Lord's new clause presumably follows his earlier amendment which dispenses with the need for consent of any aggregate of those with interests amounting to less than 20 per cent of the surface area. No doubt he wishes to be sure that inferior leaseholders holding from superior leaseholders who fall among his up-to-20-per-cent of non-consenters will be protected. However, if his intention is that a non-consenting leaseholder who is "strong-armed-into commonhold should still be responsible for the losses of inferior leaseholders, there is a danger of an argument against it under the Human Rights Act. Certainly it seems wrong to us, but we are insisting and continuing to insist on 100 per cent consents. With that in mind, we do not believe that the noble Lord's scenario should arise.

The practical effect of the noble Lord's amendment is to retain Clause 10(2) as far as the end of subsection (2)(a) but to do away with the rest of the clause. This means that the clause will no longer state when it applies and the definition of the term "superior leaseholder" will not appear in Clause 10. We believe that both changes are of doubtful benefit. Further, it will mean the disappearance of the proposition that no compensation is due from the superior leaseholder to a sub-leaseholder whose consent (the subleaseholder's) to conversion is required. We believe that that is an oddity. If the intention is to ensure that a leaseholder whose lease is extinguished is always compensated by his landlord for any loss that he suffers, it does not in practical terms achieve that any more effectively than the present Clause 10. A sub-leaseholder whose consent is required will be in a position to ensure that he is properly compensated in return for giving that consent because that sub-leaseholder will not consent or agree to be part of the commonhold except on terms that give him that very compensation. It is for those reasons that we invite the noble Lord to withdraw his amendment.

Lord Kingsland

My Lords, the noble Lord has explained that this amendment to Clause 10 is intimately associated with a series of amendments made to Clause 3. In view of the noble Lord's reaction to the earlier amendments to Clause 3, all I can do is thank him for his response and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 11 [Definition]:

The Earl of Caithness moved Amendment No. 33: page 6, line 17, leave out ("may") and insert ("must").

The noble Earl said: My Lords, in moving Amendment No. 33 I should like to speak also to Amendments Nos. 34 to 36, 59 and 60. I make no apology for rerunning the principle behind these amendments which we argued at some length in Committee. I believe that it is extremely important to the smooth running and implementation of the Bill. I hope that these amendments will receive a more favourable reply from the Minister than my previous amendment. Rather than widening the scope of the Bill, this amendment tries to improve its implementation on the ground.

The key purpose of the amendments is to make absolutely certain that it is the commonhold association, not the unit-holder, which is responsible for the repair, maintenance and insurance of the structure of the building. The existing provisions of the Bill make the balance of the structure which is not maintained or insured by the unit-holder the responsibility of the commonhold association. I and the noble Lord, Lord Williams of Elvel, who has also put his name to this amendment, believe that that could pose a major risk to the community as a whole and the individual unit-holder. It would be very easy for this to go wrong in practice.

I am grateful to the Minister for sending me the commonhold community statement, the latest draft of which, dated 15th March, spells out in more detail some of the matters to which I refer. In clause 28 on page 14, under "Repair and Maintenance of the Common Parts", it is stated: The Commonhold Association shall be responsible for the repair and maintenance of the Common Parts in accordance with any specifications and standards which may be set". and so on. The words "common parts" become key.

To go back to clause 24, under "Repair and Maintenance of the Common Units", it is provided that, Each Unit-Holder shall be responsible for the repair and maintenance of the interior of his Commonhold Unit". I stress the words "the interior of" because they are in italics in the copy before me. I understand that the words in italics can be changed. We seek to avoid any possibility of change when it comes to the repair and maintenance of the structure of the building.

What does "interior" mean? For that we have to go back to the beginning of the document and look at the definition of "common parts". That expression is not defined in the draft statement. Clause 4 states: Definition of the Common Parts (in words) including: (a) a description of the Common Parts (including any structures. fittings. apparatus or appurtenances excluded from the Commonhold Units)".

When one comes to repair and maintenance, the position is unsatisfactory and not sufficiently clear. Perhaps I may give the example of a floor between two units. Who is responsible for the load-bearing capacity of the floor? It may be that the unit-holder is responsible for both the plaster to the ceiling and the paintwork or wallpaper up to it and the unit-holder above is responsible for the timber floorboards. But we need to be absolutely clear that it is the commonhold association that is responsible for the structure of the floor.

Similarly, if one has a main supporting wall in the middle of a number of units one must be absolutely clear that it is the commonhold association that is responsible for the maintenance of that wall, not the unit-holder. It would be all too easy for the unit-holder to become responsible.

If we turn to clause 5 of the draft commonhold community statement, there is provision for a plan to show each commonhold unit and the common parts attached. The plan is pictorial evidence of what should be clearly stated. Most plans will be coloured or the area of the unit will be in coloured edging. What happens if the lawyer or agent makes a mistake and includes in the coloured area, or that area within the area edged red, a main supporting wall? That will, therefore, be the unit-holder's responsibility. What happens when a dispute arises upon it?

These are just some of the problems that can be faced unless we get this absolutely clear now. I have had far too much experience of blocks of flats where the position has riot been clear in existing leases. Here we have an opportunity to get it absolutely right at day one. I commend the amendment to the House. I beg to move.

Lord Williams of Elvel

My Lords, I very much hope that the Government will accept this amendment because it follows their own logic. I am all in favour of the Government following their own logic, if possible. The noble Earl makes his case on detail; I simply make mine on the principle that the commonhold association should be responsible for all the things outlined in the amendment. There is no great difficulty. "May" should become "must". I very much hope that when my noble friend finishes his conversation he will be able to respond favourably.

1 p.m.

Lord McIntosh of Haringey

My Lords, I am grateful to both the noble Earl and my noble friend for the way that they have introduced these amendments. I certainly sympathise with their desire that there should be precision in the definition of what is a commonhold unit and what is a common part. It is true that the Bill as drafted provides that within a given property there must be more than one commonhold unit and everything else that is not part of the commonhold units is the common parts. We certainly agree that in most cases outside walls, load-bearing interior walls and the structural part of a floor will be common parts, but they will not be in commonhold houses. There is perhaps a drafting difficulty here. We believe that the right solution is to allow the commonhold community statement to specify in a particular case what is and what is not a common part because the amendments before us would lead to an odd state of affairs. They would require a commonhold community statement in defining a unit, to do things which may or may not be necessary or desirable in a particular case.

Clause 11(3)(b) allows the definition of a unit to include excluded structures, if appropriate. They could be balconies in flats or shared heating ducts. As the Bill is currently drafted, they could be treated as common parts even though they are accessible only in or through a unit. The amendment requires the definition to exclude structures and so on. That may not be appropriate in a commonhold detached house.

Clause 11(3)(c) allows that the structures delineated in an area might be excluded, but the amendment would require them to be. So if the amendment were to be accepted the wall around the garden of a detached house would be a common part as a structure delineating the garden, which in our definition and in commonsense terms, would be part of the unit.

Clause 11(3)(d) allows the definition to refer to a unit as being made up of two or more areas of land whether or not contiguous. I do not believe that it makes sense to require the definition to do that because most units will simply be dwellings without extras to define. With Clause 11 one has to read Clause 24 which contains a neat and tidy definition of common parts. Common parts are anything not defined as a unit in the commonhold community statement.

Amendment No. 59 would define them by reference to the structural parts of the commonhold and areas used in common. Amendment No. 60 sets about defining the structures that one would expect to be common parts.

Even if that were an exhaustive and sufficiently precise list of structures in relation to any particular type of commonhold structure—and I very much doubt whether that is the case—it certainly is not enough to cover everything because anything might be part of a commonhold. We can expect developers to develop detached, semi-detached or indeed terraced houses. The definition proposed by the amendment simply will not do. The definition process for ci unit in Clause 11 allows for the definition of the structures mentioned by the noble Earl, Lord Caithness, on a case-by-case or even on a building-by-building basis in any commonhold. The definition of common parts, as presently drafted, does the rest.

The noble Earl has referred in detail to the current draft of the commonhold community statement. His comments are very helpful and valuable. As we finalise that statement I have no doubt that the points he has made will be taken into account. But the fundamental difficulty with all the amendments is that it is a onesize-fits-all approach, which does not allow for flexibility. We have to provide flexibility by allowing it to take place within the context of the commonhold community statement.

The noble Lord, Lord Kingsland, has not spoken to his Amendments Nos. 61 to 63 so he will forgive me if I do not respond to them.

The Earl of Caithness

My Lords, I am grateful to the noble Lord, Lord McIntosh, for his full reply, but I fear that he is still going to cause problems through the lack of clarity. I understand his point as regards flexibility, but that will cause all sorts of problems for the unit holders and the Commonhold Association in the future. Within our amendments we have designed some flexibility. I refer the noble Lord to Amendment No. 60, paragraph (e) of which states, such other areas not forming part of the commonhold unit". That provides the necessary flexibility, but on a much more limited scale. I ask the noble Lord to think again on this matter. When one produces a new system of tenure such as commonhold, it is absolutely vital that one reduces the amount of flexibility as regards repair, maintenance and insurance. It has to be crystal clear to everybody who is responsible for what. I repeat that too often in the past there has not been such clarity from day one and we are now sorting out problems as regards leases which are up to 50 years old, or even older in some cases. All those who were parties to the original agreement are no longer alive. We have to interpret what is written and in many cases it is contradictory and difficult to interpret. That leads to excessive service charges sometimes being put on the leaseholder, but here it would be on the unit-holder. Conversely, it leads to the commonhold association not being responsible for enough or too much. I hope that the noble Lord will look at this again. At the end of the day, I do not believe that there is very much between us because we are both trying to achieve the same thing, but it is critical that we get it right. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 34 to 36 not moved.]

Clause 12 [Unit-holder]:

[Amendments Nos. 37 and 38 not moved.]

Clause 14 [Use and maintenance]:

Lord Kingsland moved Amendment No. 39: Page 7, line 24, leave out ("and maintenance") and insert (", maintenance and improvement").

The noble Lord said: My Lords, I return to a matter which I raised in Grand Committee. One of the most serious problems with leasehold management occurs when the lease makes no provision for improvements to the building. The effect is to prevent the cost of improvements being recovered through the service charge, with adverse implications for the fabric of the building. I note with pleasure that Schedule 9 includes amendments to the existing legislation to add the expression "improvements" to the standard definition of the service charge. There should be similar provisions in commonhold leglisation.

The expression I used in my amendment in Grand Committee was "upgrading" rather than "improvement". However, from the debate that took place there was a sense that upgrading was too uncertain a concept and open to misinterpretation. I therefore suggest to your Lordships today at Report stage the expression "improvement" in order to maintain the parallel with leasehold legislation. I beg to move.

Baroness Hamwee

My Lords, we still have difficulty in supporting this amendment despite the change in terminology. I still regard "improvement" as a wide concept. At the earlier stage I thought that upgrading meant that there needed to be a new kitchen installed every 10 years. I am not sure what "improvement" means either. In the context I am unhappy to support the duty.

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lord, Lord Kingsland, for abandoning the phrase "regularly upgrade". We did not understand what "regularly" or "upgrade" meant, and I do not believe that there is any case law to suggest what either means. In one sense it is certainly an improvement on his wording to use the word "improvements". But there is not really a good parallel with Schedule 9. Not only is Schedule 9 to the Bill concerned with the leasehold part; it is also concerned with service charges. Clearly, it is right that service charges should reflect the cost of improvements where those take place. However, I do not understand Schedule 9 to mean that improvements are imposed on anyone, or that improvements where they take place can only be reflected in the service charges.

In the commonhold part of the Bill, "improvements" is not usually a term of occupation of residential premises. Since the tenure here is a freehold, provided that unit-holders fulfil their bare duties, it would not be helpful to require more of them. If they want to make improvements by agreement they can do so. Everyone has an interest in ensuring that the premises are maintained. That is why the Bill is drafted as it is. The redraft does not add significantly to the Bill and is subject to the same shortcomings as the previous amendment.

In practice, the word "improvements" is not objectively definable. It is not a well-accepted term, unlike the terms in the earlier clauses on which there is a good deal of existing law. I do not accept the analogy; and I cannot accept the amendment.

Lord Kingsland

My Lords, the Minister says that the expression "improvements" is not an accepted term, yet it clearly appears in Schedule 9 to the Bill. Schedule 9, paragraph 2(2) states that, after 'repairs' insert 'or improvements'".

Lord McIntosh of Haringey

My Lords, I thank the noble Lord for giving way. Yes, I should not have said that it was not an accepted term. I hope that I have set out why that is not a good analogy with his amendment. If I withdraw my accusation that it is not an accepted term, that means that I need to think about the relationship between Part I and Schedule 9 to the Bill. I shall undertake to do so.

Lord Kingsland

My Lords, it was certainly not my intention to score a point off the Minister, whether cheap or otherwise.

Lord McIntosh of Haringey

My Lords, I did not say "cheap".

Lord Kingsland

My Lords, I did not say that the Minister said that. I just wanted to reassure the noble Lord about my intentions. However, a building is a building is a building. The fact that "improvements" applies to leasehold property is because the Government have clearly thought about the matter and recognised that the object of our leasehold legislation should be to maintain the fabric of our buildings. If that is the objective under the leasehold regime, why should that objective not equally apply to the commonhold regime?

I understood that one of the matters that the Government were seeking to achieve in the commonhold regime was an improvement in the fabric of our buildings. Introducing obligations about improvements therefore would achieve that objective successfully. I hope the Minister will reconsider the matter between now and Third Reading and return with a government amendment which reflects my intentions. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

1.15 p.m.

Clause 15 [Transfer]:

[Amendment No. 40 not moved.]

The Earl of Caithness moved Amendment No. 41: Page 7, line 42, at end insert— ("( ) Notwithstanding other remedies which may be available to the commonhold association, outstanding debts and arrears due to the commonhold association must be paid by the vendor on transfer of the unit.").

The noble Earl said: My Lords, Amendment No. 41 moves on to the subject of debt, which was discussed at some length in Grand Committee. The Minister will recognise that we have moved considerably to meet some of his concerns and criticisms of the previous amendment.

At that stage the Minister raised particularly two points: first, that we threatened inadvertently to do away with the other remedies available to recover outstanding debts; and, secondly, the valid point that the amendment did not say by whom the debt should be paid. The amendment makes it absolutely clear that the commonhold association can pursue other remedies. The amendment does not prevent them from so doing. But, on the transfer of a unit, the outstanding debts and arrears due to the commonhold association must be paid by the vendor. Having gone so far to meet the noble Lord, I hope that he will come a short way to meet us and accept the amendment. I beg to move.

Lord Williams of Elvel

My Lords, as the noble Earl said, in Grand Committee we gave long consideration to the question of smooth transfer to commonhold. One of the problems we came up against was that the debts that were outstanding, as the Bill is presently drafted, need not be paid by the vendor to the new commonhold association. In Grand Committee all noble Lords agreed that it is vitally important that the transfer should be as smooth and as free from aggravation as possible. The noble Earl's important amendment makes sure that this is done without any undue complications.

Baroness Hamwee

My Lords, with regard to Amendment. No. 41, I take the point that from the drafting it was not clear who could take action in the events referred to; nor whether, if outstanding debts and arrears were not paid on the transfer, it would be invalidated. Perhaps the Minister will deal with those matters when he replies.

I turn to Amendment No. 68 which relates to Clause 30. It seeks to provide that a commonhold community statement can require a unit-holder to grant a charge as security for sums owing to the commonhold association. Clause 30(8) provides that, A commonhold community statement may not provide for the transfer or loss of an interest in land". That prevents forfeiture.

In Committee, the Government said that it would be possible for there to be a charging order. I am obliged to a member of the Leasehold Reform Professional Committee for this point. We referred to that organisation in Committee as comprising professionals who are entirely professional, coming to the matter without any political baggage. The point is that if there is to be no right of forfeiture, a provision is needed that sums owing to the commonhold association should be secured by a continuing charge in its favour. In our amendment we have provided for a first or a later charge.

Of course, it could be said that if it is not a first charge the association would be prejudiced by ranking behind other charges and would not have protection if there was no equity in the property. But we believe that the power to lend on the security of the first or other charge should be deemed to extend to lending on the security of the commonhold land, where the only prior charge is in favour of the association.

Is it right that a lender who has a charge is to be satisfied in priority to the rights of the commonhold association? I do not believe that what we propose would be unfair to a secured lender. It would expect its borrower's liability to pay rates, service charges and the normal outgoings of the property to be serviced out of the borrower's income in priority to capital repayments. We do not think that the proposal for a charge to secure the position of the commonhold association is offensive in the way that was suggested at the Committee stage.

Lord Kingsland

My Lords, we support Amendment No. 41 tabled by my noble friend Lord Caithness and the noble Lord, Lord Williams of Elvel. Although standard conveyancing practice would mean that a solicitor would advise a purchasing client not to complete a sale until any outstanding debts or arrears were discharged, that should be set out explicitly in the legislation. As I recall, in Grand Committee the Minister was somewhat reluctant to accept the amendment because it was not clear from the original drafting on whom the duty to pay the debts and arrears fell. The revised amendment makes it clear that that is the responsibility of the vendor.

I turn to Amendment No. 67 standing in my name. There is no provision elsewhere in the Bill to ensure that the commonhold association is not bound to bear its own costs if it is forced to pursue one of the unit-holders for payment. It is surely unfair that the commonhold community as a whole should have to pay the extra costs involved when one of its number refuses to meet its obligations. When the point was raised in Grand Committee the Minister said that the amendment was unnecessary because Clause 36(2)(b) enables regulations to require compensation to be paid in the event of a failure to comply with a duty under the commonhold community statement. But that is not the same thing as enabling the recovery of costs.

Lord McIntosh of Haringey

My Lords, I acknowledge at once that Amendment No. 41 avoids some of the difficulties that we identified with the comparable amendment in Committee. However, I still have to doubt whether it is enforceable and whether it is not addressing an issue—a perfectly real issue—that is beyond the scope of the Bill, which is the whole history of debt collection, going back, as I said in Committee, to the time of cave dwellers.

The sale of a unit will take place under the terms of an enforceable contract between the parties. The purchaser will have completed and paid up; the transfer will take place; and then what will happen? It is not being suggested that the commonhold association will be able to intervene. The new unit-holder will have an enforceable right to move in. It may be that he will find in due course that the outgoing unit-holder has been less than candid in response to his solicitor's inquiries and it will be up to him to chase that up. Provided that the commonhold association has a judgment for the debt, it will be able to proceed to recover the outstanding sum in a number of ways. That could well include a charging order. We take the view that a commonhold association that is on the ball will be able and wish to take action such as a charging order.

We have thought hard about this issue since the debate in Committee, but we are afraid of setting up a special debt collection process in the commonhold context, and in the commonhold context alone. Forfeiture is widely abused and it is a much hated form of action for debt, however well intentioned it was when it was introduced. The Government do not wish to be party to some other equally well-intentioned short cut to debt collection which might have a similarly disreputable future.

I have been asked whether, in view of the change in the amendment since the Committee stage, I would be willing to consider the matter again. Certainly, I shall consider whether there is any possibility of ensuring that the vendor pays the arrears on the transfer of the unit, which I think is what is behind the amendment. But it will be clear that I see difficulties in setting up a new system specifically for commonhold.

I turn to Amendment No. 67 standing in the name of the noble Lord, Lord Kingsland. My answer to him is the same as it was in Committee, although my reference was to Clause 36(2)(d) rather than to Clause 36(2)(b). Subsection (2)(d) provides that where work is carried on in consequence of the failure to perform a duty, the costs of that work may be recovered. As I argued in Committee, the calculation and collection of the interest would be work and therefore Amendment No. 67 is not necessary.

Amendment No. 68 revives the same difficulty we had with the amendment tabled by the noble Earl, Lord Caithness, in Committee. It would allow a CCS to require a unit-holder to grant a first or other charge in favour of the commonhold association as security for any sums owing. That narrows down the possibilities open to the commonhold association when pursuing debts. A charging order is one possibility, but only one of many. I am not convinced that, in so far as we are providing a freehold interest in a unit, it is appropriate to hedge the enjoyment of that interest around with special powers. If, in due course, a dispute has reached the stage where the defaulter owes compensation, costs and interest to the CA, it is surely time for the courts to be involved and, armed with an appropriate order, the whole range of debt collecting machinery will be open to the CA.

With some qualification in what I have said to the noble Earl, Lord Caithness, I am sorry that I am not able to accept the amendments.

Baroness Hamwee

My Lords, before the Minister sits down, I am not sure whether I entirely followed him. He suggested that Amendment No. 68 would outlaw other remedies. The amendment states that a commonhold community statement "may" require the granting of a charge. I know that the Government tend to use "may" and "shall" often as if they are synonymous. They are not synonymous in our mind.

Lord McIntosh of Haringey

My Lords, we do not try to use them as synonymous, but I accept that legislation often uses "may" and "shall" in what we might call counter-intuitive ways.

I should have responded more fully to the point made by the noble Baroness, Lady Hamwee, about a first charge for arrears. We have been considering the point and we still have the same problem with it. The provision might make mortgage lenders reluctant to lend a high proportion of the value of the unit, they might demand high protection payments or they might be reluctant to lend at all. That is not an overwhelming argument against a first charge for arrears, which I shall certainly be willing to consider, but it is an argument that ought to have some weight.

The Earl of Caithness

My Lords, I am grateful that the Minister has agreed to consider the matter further because I really do believe that we have a problem here. My noble friend Lord Kingsland, the noble Baroness, Lady Hamwee, the noble Lord, Lord Williams of Elvel, and I have been trying to solve a problem that causes a great deal of aggravation at the moment. Not to include in the Bill a provision that would prevent a commonhold association from being penalised by one of the unit holders who is causing problems for the association and for every other unit holder by non-payment of service or other charges, would be a missed opportunity.

The noble Baroness has approached this from one angle with her amendment; I have tried it from another. I do not see the problems envisaged by the Minister should the proposed paragraph set out in Amendment No. 41 be included. I do not think that the use of such powers would lead to a disreputable future for commonhold associations. Indeed, such powers will be used very infrequently. We know that there will not he a great deal of commonhold because the Government have set their face against transfer from existing units other than with 100 per cent agreement. This will affect only new developments, most of which will be in our major cities; indeed, the vast majority of commonhold will take place in London. However, the end result is that there will be little commonhold and therefore the number of times that this power is likely to be used would be limited.

I am grateful to the Minister for saying that he will look at this again. I hope that we can find a practical method by which to tackle this curse for management on the transfer of units to the benefit of all. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

1.30 p.m.

Clause 17 [Leasing: residential]:

Baroness Hamwee moved Amendment No. 42: Page 8, line 20, leave out subsections (1) and (2) and insert— ("( ) No term of years absolute may be created in a residential commonhold unit— (a) for a term exceeding 7 years: (b) in considerations of the payment of a premium or other lump sum: (c) which does not comply with such other conditions as may be prescribed.").

The noble Baroness said: My Lords, my noble friend moved this amendment at the previous stage. Clause 17 provides that, It shall not be possible to create a term of years absolute in a residential commonhold unit", without satisfying prescribed conditions. Our amendment does not provide for a complete bar, but that no terns may be created in such a unit for a period exceeding seven years or for a payment of a premium or lump sum, and no term may be created that does not comply with other prescribed conditions.

In Grand Committee, my noble friend referred to the need for commercial certainty and pointed out that the issues here are fundamental to the viability of commonhold schemes. They should not be left wholly to regulation. It is important that unit-holders are given adequate flexibility as regards the way in which they deal with the unit. To put a complete bar on leasing simply is not reasonable. My noble friend pointed out that the period of seven years is recognised in other legislation as the point at which maintenance and repair responsibilities, for example, shift from landlord to tenant. That was why he proposed the period.

I regard this proposal not as a technicality but as a point of some considerable importance. I have made the point before but I do not apologise for making it again: the invigoration of the private sector rented market is something we believe to be extremely important. To prevent groups from coming into this market—given that commonhold will apply only to new developments—would be a great shame, as well as presenting problems for those who cannot or do not wish to purchase long leaseholds or commonholds, but do wish to rent in that market. In a Bill which seeks to extend tenure, I find it ironic that provisions have been made which may in fact restrict the tenures of property which may be available to be taken up in the future.

In Grand Committee the noble Lord, Lord McIntosh of Haringey, said that it was government policy that residential commonhold units should not be let for long, unbroken periods. That is not what this amendment seeks to do. The Minister spoke of the need for flexibility, but I have to say that conferring flexibility which allows the Government to decide what is policy from year to year in this context would be unfair and quite wrong. He also spoke of the need to react to the market, saying that if, through a change in circumstances, it becomes necessary to alter the regulations, then they would be altered. That does not provide the level of certainty that one would expect to see in the property market. I beg to move.

Lord Kingsland

My Lords, I have tabled three amendments in this grouping. So far as concerns Amendment No. 43, I shall not weary noble Lords again with a speech of the kind that I made in Grand Committee. I simply submit that the restrictions set down in Clause 17 could adversely affect the marketability of residential units and that if restrictions are truly desirable, they could be better provided for in the constitution of the commonhold association. Amendment No. 44 is consequential on Amendment No. 43 and thus I shall not need to add anything to my comments.

However, I shall comment briefly on Amendment No. 46. The Government have still not explained the purpose of subsections (3) to (5) and I submit that their implications have not been sufficiently thought through. For example, as the noble Lord, Lord Goodhart, pointed out in Grand Committee, the common way to create a short-term tenancy is by contract rather than by the grant of a lease. Why should such an everyday transaction need the joinder or consent by unanimous resolution of the commonhold association? Moreover, if subsection (3) is not complied with, so that an interest is not created, may the grantee have some other kind of right, such as a licence, or a mere equity, or rights by estoppel?

Lord Bach

Perhaps I may take first the amendments tabled by the noble Lord, Lord Kingsland, but not Amendment No. 46, to which I shall need an answer which I do not have to hand; he has raised a serious issue here. I shall speak now to the first two amendments, which of course in themselves are major issues—before the noble Lord rises to his feet to press that point.

The Government have no wish to interfere unreasonably with the use to which unit holders can put their units, but we are concerned to ensure that long leasehold cannot be reintroduced by the back door. We believe that, unless we impose the restrictions that these amendments would sweep away, those who invest in commonhold will be tempted to sell long leases at a premium and we shall be back where we started. That is why—to use the same shorthand as used by the noble Lord—we cannot accept his first two amendments.

So far as concerns the amendment tabled by the noble Baroness, Lady Hamwee, she wishes to put on to the face of the Bill the terms on which the Government intend to allow letting. In spite of the powerful arguments put forward by the noble Baroness, we still believe that it would be better for these terms to be set out in regulations. Of course, the word "flexibility" is trotted out on these occasions when the Government seek to do something by regulation; and the word "consistency"—although I do not think that it was the exact word used by the noble Baroness—is trotted out by those who want to see it on the face of the Bill. It is a regular and proper subject of debate depending upon which side of the fence one falls on a particular occasion.

Our original intention, as anyone who has looked at the consultation papers will know, was to impose very tight controls on the letting of residential units. However, it was impressed upon us from a number of quarters that overtight regulation would tend to make commonhold developments unpopular because "buyto-let" would be next to impossible. We were told that a significant part of the market in properties for flats was for buy-to-let. We have taken notice of that advice and decided to take it.

I am glad that, in one sense, the amendment proposed by the noble Baroness sets out the terms at which we have arrived, except that we would rather introduce them by way of regulation than on the face of the Bill. The phrase we were "reacting to the market" was, by implication, criticised, but that is what we have to do in this case. We want to be in a position to adapt to the market in due course—for instance, if a different term of years, not the seven that we intend, should prove to be more attractive to developers and purchasers. It is for that reason that we believe that setting the terms by regulation is the right mechanism. We are grateful for the implicit acceptance of our reasoning for the restrictions and the terms that we are suggesting.

We shall not come running back to Parliament every two months on the basis of the regulations. The Chief Whip confirms what I have said, in quite straightforward terms that even I understood. We would not be allowed to do such a thing. The noble Baroness can perhaps be content that we will not take one view of the market and come rushing back, and then, two months later, take another view of the market and come rushing back. If we decide in due course that the figures are wrong, then, after due consideration, we shall attempt to find space in the parliamentary calendar to come back and lay statutory instruments. That will be much easier, if we found that we were wrong—or, indeed, that the noble Baroness was wrong—than introducing legislation in order to change the number of years. We think that, on balance, we are right in this instance.

As to Clause 17 making it clear that leases will be possible, what will go into the regulations will be the details which will allow the letting details to follow the market. We are worried about the re-emergence of long leasehold and we believe that we have the balance of advantage here.

In speaking to Amendment No. 46, the noble Lord, Lord Kingsland, made a point which I am not able to answer satisfactorily at present. If I may, I shall write to the noble Lord and others who are interested in this subject with a full answer.

Baroness Hamwee

My Lords, before the noble Lord sits down, will a draft of these regulations be available before the next stage of the Bill? As he knows, it is not possible to amend a statutory instrument; therefore, the legislation will be the only opportunity we may have to affect—other than by persuasion—matters such as the term, which will be the subject of the regulations.

Lord Bach

My Lords, I think I can say with a fair degree of confidence that the answer to the noble Baroness's question is yes.

Baroness Hamwee

My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 43 not moved.]

Clause 18 [Leasing: non-residential]:

[Amendment No. 44 not moved.]

Clause 20 [Other transactions]:

1.45 p.m.

Lord Bach moved Amendment No. 45: Page 9. line 28, alter ("in") insert ("the whole or part on.

The noble Lord said: This group of amendments involves a number of government and opposition amendments. I hope that some of the opposition amendments will be covered by what I say as I move the government amendments. I shall move the government amendments and then, if I may, sit down and respond to the opposition amendments at the end.

In moving Amendment No. 45, I shall speak also to Amendments Nos. 48 to 50, 52, 54 to 58 and 98. This group of government amendments arises from what we consider to have been fair and just criticism of the Bill: that it was both restrictive of the rights of unit-holders to create interests in their units, and that it was, if I may say so, slightly hard to follow. These amendments to Clauses 20 and 21 are designed to overcome those problems.

Amendment No. 45 paves the way for the main liberalisation of these clauses by making it possible to create an interest over part of a unit. So, for example, a unit-holder who has, as part of his commonhold unit, a garage that he does not use, may let it to another, a course of action which is forbidden under the Bill as it stands.

Amendment No. 48 would ensure that it is possible for a unit-holder to let his unit, under an allowable lease,. without the commonhold association being required to consent. Amendment No. 49 is another reference to the fact that it will now be possible to allow the creation of an interest in a part-unit.

Amendment No. 50 seeks to change the basis on which the commonhold association can vote to be a party to the creation of an interest, or can give its consent to such a creation, from the Bill's definition of unanimity to what is, in effect, a special resolution.

Amendment No. 52 is a consequential tidying-up amendment to ensure that throughout Clause 20 the term "interest" is not taken to include charge or interest arising by virtue of a charge. This is because the clause differentiates between interests and charges. It will be possible to create an interest in a part-unit but not a charge, which must be over the whole unit.

Amendment No. 54 confirms that it will not be possible to create a charge over a part-unit. This amendment removes the prohibition which has existed in the Bill on the creation of interests in part-units. It has been the policy of successive governments in the preparation of commonhold schemes that charging part-units should not be allowed. We agree. The risk to the integrity of the commonhold and the considerable confusion that would follow on an attempt by a creditor to foreclose on a part of a unit is out of all proportion to the relatively small inconvenience of not being able to charge a part of a unit.

Amendment No. 55 seeks to introduce three new subsections. Subsection (1A) ensures that, when charged, land becomes commonhold land; any existing charge which could not be created by virtue of Clause 21(1)—that is to say, a charge over part of the land—is extinguished. New subsection (1B) gives power to the regulation to forbid the creation of prescribed kinds of interests over part-units, and new subsection (1C) does for existing interests what new subsection (1A) does for existing charges.

Amendment No. 56 seeks to ensure that, as the words "interests or" have been removed from Clause 21(1), and that, as reference to forbidden interests has been moved to new subsection (1B), it is still clear that a document: which purports to create an interest forbidden by the new subsection (1B) is of no effect. Amendment. No. 57 tidies up Clause 21(3) to ensure that it takes in the new subsections introduced by one of the amendments. Amendment No. 58 seeks to reinforce the point that, for these purposes, the term "interest" does not include charges.

The final government amendment, Amendment No. 98, seeks to tidy up a slip in logic. The wording as it stands suggests that the voting provisions in Part I of the Bill in some sense depend on the passing of a resolution by the commonhold association. Of course, they do not. They do, however, refer to the passing of resolutions, and that is what the amendment achieves.

We hope that we have covered what the Opposition's Amendments Nos. 47 to 51 were tabled to achieve. I shall hear in due course whether we have covered them satisfactorily or at all. I look forward to hearing the Opposition's amendments in this group spoken to before I respond. I beg to move.

Lord Kingsland

My Lords, first, perhaps I may proffer the noble Lord the Minister an apology. When I spoke to Amendment No. 46 during debate on the previous grouping, I was in fact speaking to Amendment No. 47—hence the noble Lord's wholly justifiable confusion. Rather than repeat what I said a few minutes ago, perhaps I may invite the noble Lord to address himself to what I said previously.

The government amendments in part meet my concerns. As I recall, my amendments in Grand Committee sought to enable the creation of an interest or charge over part of a unit so long as that is permitted by the commonhold community statement. The amendment in the name of the noble and learned Lord the Lord Chancellor will permit the creation of a charge over part of a unit but not an interest. I believe that that is the distinction. I prefer my solution, but I readily recognise that the noble and learned Lord the Lord Chancellor and the noble Lord the Minister have gone some way to meeting my concern.

My Amendment No. 65 is similar to an amendment which I tabled but did not move in Grand Committee, so perhaps I may say something about it now. Subsections (3) and (4) of Clause 27 provide for the extinguishment of existing charges over commonhold land in so far as they relate to the common part. There is no provision to compensate a chargee for his loss. It might have been felt unnecessary if consent to an application to register a freehold estate in commonhold land had to be 100 per cent, including that of all proprietors of charges.

Such a provision does, however, seem necessary if consent is less than 100 per cent, as proposed in the relevant amendment; or if, in some cases, consent is deemed to have been given under Clause 3(2)(e), or if consent is dispensed under Clause 3(2)(f).

It would seem only just and consistent with Article 1 of the first protocol of the European Convention on Human Rights—the article that deals with the peaceful enjoyment of property—that a chargee can get fair compensation or adequate substituted security before his charge over common parts is extinguished.

Amendment No. 66 is rather like Amendment No. 42 tabled by my noble friend Lady Gardner of Parkes, which was not moved in Grand Committee. The requirement of unanimity here seems unnecessarily restrictive. The amendment presupposes that the commonhold association is a company limited by guarantee as in the Bill. If it were not, and members' voting rights were varied, the majority of 80 per cent should be of the total vote whether or not actually cast.

Baroness Hamwee

My Lords, our amendment in this grouping is Amendment No. 51. The amendment returns to the degree of support required for an interest in a commonhold unit to be created. We suggest again that a special resolution should be adequate to enable the commonhold association to give consent to the creation of the interest or to be a party to the creation of the interest. I shall read what the noble Lord has said in seeking, in part at any rate, to satisfy the arguments that we set out at the previous stage. I confess that I cannot immediately work out whether that is so. We tabled the amendment again, acknowledging that the Government's requirement of "unanimity" is not unanimity in the normal sense of the term, but unanimity in the sense that no one actually votes against. In another situation it would be regarded as "nem con". The noble Lord said that this was a tough but fair target. We know that the Government are tough but tender in places. I am not sure whether they are sufficiently tender. I shall look again at the noble Lord's comments in relation to this issue.

Lord Bach

My Lords, I am grateful to the noble Lord, Lord Kingsland, for pointing out the difference between Amendment No. 46 and Amendment No. 47. Amendment No. 46—about which I shall not now write to him, if he will forgive me—was a consequential amendment to the other two that he moved in the previous group.

As to Amendment No. 47, I accept that my remarks may not satisfy the noble Lord entirely. In speaking against that amendment, and so far as concerns Amendments Nos. 51, 53, 65 and 66, I hope that our amendments will have gone some way towards satisfying the proposers of the other amendments.

We believe that Amendments Nos. 47 and 51 would achieve what the government amendments were tabled to do. The Government have recognised that the restrictions on the creation of interests in commonhold units were unnecessarily stringent. We have tabled amendments to lift the restrictions. The Government have also addressed the resolution needed to create interests and have replaced unanimity with a 75 per cent resolution in favour. We believe that that has the same effect as the amendment proposed by the noble Baroness, Lady Hamwee.

We presume that Amendment No. 53—which would allow the creation of interests in part units, subject to provisions of the CCS—is intended to relax the absolute prohibition on interests and charges on part units. Government Amendment No. 54, to which I have spoken, has the effect of allowing interests except prescribed interests on part units following a resolution in favour by the commonhold association. It is still our intention that charges over part units should not be possible. However, I hope that the reduction in restrictions on interests in part units will encourage the noble Lord, Lord Kingsland, not to press his Amendment No. 53.

As they relate to charges, perhaps I may deal also with Amendments Nos. 65 and 66 to Clauses 27 and 28. Amendment No. 65 would introduce a further layer of complexity which we do not believe is required. Because of the provision in Clause 3, chargees must have consented to the registration of the land as commonhold land before registration can take place. By what process they are persuaded to consent and with what compensation or substitute security is a matter between them and the developer under Clauses 7 and 9, and in the case of added land under Clause 29 between them and the commonhold association.

We believe that the necessary negotiations required to arrive at a consent and the arrangements ultimately arrived at are not a matter for the Bill. We have the Human Rights Act and the ECHR at the forefront of our minds in preparing regulations and would not seek to deem consent to be given in circumstances where that would lead to the extinguishment of deemed consent as interest without any compensation.

As for Amendment No. 66, unanimity for our purposes does not in fact mean that all those who are entitled to vote must vote in favour. It means that all those entitled to vote must be given the opportunity to vote by whatever means the memorandum and articles provide. Thereafter, unanimity is represented by a vote in favour by all those who then choose to vote. We believe that this is a better solution for most purposes than the setting of particular limits. First, it deals with those who cannot be found. Notice will go to the last known address on the CA's register for everyone entitled to vote. It is the unit-holder's business to keep that up to date. If he or she loses touch and fails to receive the notice, the failure will not hamstring the commonhold. The same considerations apply if he or she receives the notice but chooses not to vote by post or to appoint a proxy.

However, because borrowing on the security of the common parts is potentially a serious step, carrying as it does the risk of losing the land on which the loan is secured, all those who take sufficient interest to vote should be persuaded of its wisdom. That is why we have devised the scheme that we now have. The setting of a limit of 80 per cent is prone to all the difficulties to which high absolute limits are prey. Those who are lost to the system, or who abstain, effectively vote against the proposition, and that might well serve to hamper the management of the commonhold. It is perfectly possible that all of the 75 per cent who do vote in such a ballot might be in favour, but the proportion of nonvoters would just stymie the process.

We hope and believe that the scheme we have put forward contains sufficient safeguards and yet allows the important decisions to be taken by the people who are active and interested in their community. No one is disenfranchised by the scheme. Those who lose touch, or choose not to vote, are either not interested or content to leave matters to others. We believe that that is reasonable, but that their views should not impact unduly on the active management of the commonhold. As I said, we hope that by moving our amendments we have gone at least part of the way towards meeting the criticisms—some of which were justified—about Clauses 20 and 21. I commend Amendment No. 45 to the House.

On Question, amendment agreed to.

[Amendments Nos. 46 and 47 not moved.]

2 p.m.

Lord Bach moved Amendments Nos. 48 to 50: Page 9. line 32, after ("interest") insert ("other than a term of years absolute'').

Page 9, line 32. after ("in") insert ("the whole or part of").

Page 9, line 37, leave out from ("only") to end of line and insert ("if—

1. (a) the association passes a resolution to take the action, and
2. (b) at least 75 per cent. of those who vote on the resolution vote in favour.").

On Question, amendments agreed to.

[Amendment No. 51 not moved.]

Lord Bach moved Amendment No. 52: Page 9, line 40, leave out ("subsection (3)") and insert ("this section").

On Question, amendment agreed to.

Clause 21 [Part-units]:

[Amendment No. 53 not moved.]

Lord Bach moved Amendments Nos. 54 to 58: Page 10. line 1, leave out ("an interest or charge in or") and insert ("a charge").

Page 10, line 3, at end insert—

("(1 A) Where—

1. (a) land becomes commonhold land or is added to a commonhold unit, and
2. (b) immediately before that event there is a charge over the land which could not be created after registration by reason of subsection (1),

the charge shall be extinguished by virtue of this subsection to the extent that it could not be created after the event mentioned in paragraph (a).

(1B) Regulations may provide that—

1. (a) it shall not be possible to create an interest of a prescribed kind in part only of a commonhold unit;
2. (b) it shall not be possible to create an interest of a prescribed kind in part only of a commonhold unit unless prescribed conditions are satisfied.

(1C) Regulations under subsection (1B) may provide for extinguishment of an interest in land to such extent as the regulations may specify where—

1. (a) the land becomes commonhold land or is added to a commonhold unit, and
2. (b) the interest is of a kind which could not be created after that event by reason of the regulations.").

Page 10, line 5, at end insert ("or regulations under subsection (1B).").

Page 10, line 6, leave out ("and") and insert ("to").

Page 10, line 6, at end insert—

("( ) In this section "interest" does not include—

1. (a) a charge, or
2. (b) an interest which arises by virtue of a charge.").

On Question, amendments agreed to.

Clause 24 [Definition]:

[Amendments Nos. 59 to 63 not moved.]

Clause 25 [Use and maintenance]:

[Amendment No. 64 not moved.]

Clause 27 [Charges: general prohibition]:

[Amendment No. 65 not moved.]

Clause 28 [New legal mortgages]:

[Amendment No. 66 not moved.]

Clause 30 [Form and content: general]:

[Amendments Nos. 67 to 69 not moved.]

Clause 31 [Regulations]:

[Amendment No. 70 not moved.]

Clause 32 [Amendment]:

[Amendments Nos. 71 to 77 not moved.]

The Deputy Speaker (Lord Dean of Harptree)

My Lords, I call Amendment No. 78, standing in the name of the Lord Chancellor.

Lord McIntosh of Haringey

My Lords, this is an error on the Marshalled List. Amendment No. 78 was tabled by the noble Lord, Lord Kingsland.

[Amendment No. 78 not moved.]

Clause 33 [Constitution]:

Lord Kingsland moved Amendment No. 79: Page 14. line 30, leave out ("is") and insert ("shall be").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 80 to 88. The issues that underlie these amendments were fully debated in Grand Committee. I do not propose, therefore, to elaborate again on all the issues at this stage. Suffice it to say that there are two matters of fundamental importance for consideration. The first is a proposition by the Opposition that a company by guarantee is not as appropriate a vehicle for the commonhold management system as a company by shares. Secondly, we propose that the memorandum of association and the articles of association in this company ought to be on the face of the Bill. That is what Amendments Nos. 86 and 87 seek to achieve.

I accept that some of the detail in the amendments—indeed, perhaps all of the detail—may be controversial, either for the Government or for other noble Lords. However, the main objective is to get what would otherwise be determined by regulation on to the face of the Bill so that your Lordships can play a part in amending the new schedule at the next legislative stage.

In my submission, it is not satisfactory for the Government simply to say that these matters will be dealt with by regulation. I am aware that the Government have, helpfully, provided your Lordships with certain drafts; but those drafts have been provided on a take-it-or-leave-it basis. I submit that those drafts deal with matters of such importance to the individual unit-holder that he is entitled to see what he is letting himself in for on the face of the Bill. That is why I have tabled these amendments. I beg to move.

Baroness Hamwee

My Lords, I was hoping that the noble Lord, Lord Kingsland, would justify the provisions of the proposed memorandum and articles of association as they differ in a number of respects from the Government's drafts, not just in the sense that the company concerned would be limited by shares rather than by guarantee. I have some queries. As the noble Lord has not dealt with the detail, perhaps it would be inappropriate for me to detain your Lordships longer. However, I shall put my next point in the form of a question rather than a complaint. How are the Government consulting on the draft documentation which they have circulated on the memorandum and articles of association and the commonhold community statement?

Lord McIntosh of Haringey

My Lords, I was prepared to give an exegesis of a company limited by shares as opposed to a company limited by guarantee and of the memorandum and articles of association. However, in view of the admirable self-restraint of the noble Lord, Lord Kingsland, I shall deprive myself of that opportunity. I shall simply—

The Earl of Caithness

My Lords, I hope that he will not deprive us.

Lord McIntosh of Haringey

My Lords, I do not think that I can attack what has not been defended.

Lord Kingsland

My Lords, as I explained to the noble Lord in Grand Committee, the object is to persuade him and the Government to agree to allow the draft on to the face of the Bill so that at the next stage we and other noble Lords, including perhaps even the opposition, can table amendments to it.

Other noble Lords could equally have done the same thing to the Government's drafts, or indeed the Government could have done the same thing to their own drafts. They could have tabled those drafts as a schedule to the Bill and then allowed noble Lords to amend those drafts. But the Government have not yet taken that initiative. I know that the noble Lord, Lord McIntosh of Haringey, was something of a legend when he was in opposition for adopting such a technique. Here we are. The boot is now on the other foot. Perhaps the noble Lord will accept my Amendment No. 79 and those grouped with it so that at a later stage your Lordships will have an opportunity to get into the detail. However, there is not much point in getting into the detail of the matter until it has some formal status in relation to the Bill.

Baroness Hamwee

My Lords, with the leave of the House, why did not the noble Lord, Lord Kingsland, table the drafts as proposed by the Government? That would have enabled us to debate the detail of what is being proposed. Someone has gone to a great deal of trouble to write a different form of memorandum and articles of association. We are deprived of the arguments of the noble Lord, Lord Kingsland, in supporting the provisions that he is putting forward. I do not disagree with his point of principle that we should have a proper debate on these important documents that will be fundamental to the successful operation of commonhold. However, I am not sure that we can do so on the basis of this amendment.

Lord Kingsland

My Lords, if the noble Baroness is attracted by the idea of having the Government's drafts on the face of the Bill, I invite her to pursue that line.

Lord McIntosh of Haringey

My Lords, am I allowed in on this discussion? I thought that I was paying the noble Lord, Lord Kingsland, the compliment of taking seriously the points that he made. I take it that the real thrust of his argument is, first, that a commonhold association should be a company limited by shares rather than a company limited by guarantee, and, secondly, that the memorandum and articles of association should be on the face of the Bill rather than in regulations. I take those points seriously and I propose to respond to them.

What I do not propose—despite the invitation of the noble Earl, Lord Caithness—is to point out some of the inconsistencies in the way in which the noble Lord, Lord Kingsland, seeks to achieve those aims, either in his amendments, which refer to the nature of the company, or in his draft memorandum and articles of association. The memorandum and articles appear to apply to some kind of a tenancy company rather than to a commonhold association, with a flat management company or a general commercial company rather than something specifically designed for a commonhold association.

The noble Lord, Lord Kingsland, reminds me that I used to do the same thing when I was in opposition in order to secure debate. I used to put down the Government's draft regulations as a schedule and then amend my own amendment to show what they ought to say. I assure the noble Lord that that caused terrible trouble to the Government Front Bench.

Lord Kingsland

My Lords, I am grateful to the Minister for graciously giving way again. I did not want to put the Government to the trouble of going through both stages, so I have simply presented the amendments that I would have tabled to the regulations if the Government had tabled them as a schedule to the Bill.

2.15 p.m.

Lord McIntosh of Haringey

My Lords, let us concentrate on the two points of substance in what the noble Lord says. The first is the issue of a company limited by guarantee as opposed to one limited by shares. There is a subordinate issue of whether it is a private company. One of the amendments would take out, "private", but the memorandum and articles include the word. I am not sure which of the two the noble Lord is referring to.

The point about a company limited by guarantee is that its members are by definition the owners of commonhold units within the commonhold association. That membership has to be transferred with ownership of the unit. Shares are by definition transferable and saleable. With a company limited by shares, the membership of the commonhold association might no longer map against the occupation of the commonhold units. That is not what was intended by commonhold and cannot be defensible.

The second issue is the memorandum and articles. The noble Lord, Lord Kingsland, appears to be cross-referring to the Companies (Tables A to F) Regulations 1985. The draft model that we have produced is free-standing, because we recognise that commonhold associations will involve the participation of lay people, who may not have easy access to those regulations and their interpretation. We wanted to avoid the difficulties caused by the need to read across to other legislative documents if we could.

Whatever the differences and defects, the draft of the noble Lord, Lord Kingsland, does not take into account the nature of commonhold as a community enterprise. It would be wholly inappropriate for a company limited by guarantee. For those reasons, I hope that the noble Lord will not press the amendments.

The Earl of Caithness

My Lords, the Minister said that shares could be transferred or sold to those outside the association, with the result that the shareholders would not correspond to the unit-holders. Would it not be easy to insert a clause to ensure that shares did not go to those who were not members of the association?

Lord McIntosh of Haringey

My Lords, what would the advantage be? The shares would not be readily convertible assets and it would simply be a form of guarantee by another name.

Lord Kingsland

My Lords, I thank the Minister very much for his response. I am not surprised by what he has said. I regret that he has not felt able to accept the insertion of the articles and the memorandum into the Bill so that he could amend them on Third Reading and I could have second thoughts about some of the provisions.

I urge the Minister to think again about replacing the model of the company limited by guarantee, because, as I said at some length in Grand Committee, it would be much easier for a company limited by shares rather than by guarantee to raise the money necessary to undertake its obligations. The company would also be better able to reflect differences in scale of ownership or contribution in a commonhold property. Those are the two main reasons why I proposed the other model. I shall reflect on what the Minister has said. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 80 to 84 not moved.]

Schedule 3 [Commonhold association]:

[Amendments Nos. 85 to 88 not moved.]

Clause 34 [Duty to manage]:

Lord Bach moved Amendment No. 89: Page 15, line 6, after ("unit-holder") insert ("(the "defaulter")").

The noble Lord said: My Lords, I shall speak also to government Amendments Nos. 91, 93, 102 and 130. Amendments Nos. 89 and 91 arise from an amendment tabled by my noble friend Lord Brennan in Committee. He wished to ensure that when the directors of a commonhold association decided to exercise their discretion in such a way as not to take action against a particular unit holder, they should have considered and concluded that there would be no significant loss or disadvantage to other unit holders.

In order to achieve that in practice, we have, by Amendment No. 89, inserted a description of the unit-holder against whom the directors do not proceed and have called him the "defaulter". Then, in Amendment No. 91, we have inserted a form of words to ensure that there should be no significant risk of loss or disadvantage to any but the defaulter.

The next two government amendments—namely, Amendments Nos. 93 and 130—fill a gap which we believe we left inadvertently at earlier stages of the Bill. Our intention has always been to provide in the Bill as wide as possible a range of possibilities for alternative dispute resolution, or ADR. Among them, we had intended to include the possibility of an ombudsman scheme. Unfortunately, it has been suggested to us that the terms of Clause 36 were not drawn widely enough to include the possibility of setting up or approving an ombudsman scheme. Therefore, we have introduced these amendments in order to ensure that we do not miss this opportunity.

Amendment No. 93 simply adds the possibility of an ombudsman scheme to the list of other ADR possibilities set out in Clause 34(3)(b). Amendment No. 130 adds a new clause at the end of the section on the operation of commonhold. It gives the Lord Chancellor the power to make regulations which might require commonhold associations to belong to an approved ombudsman scheme. It also sets out what the basic characteristics of such a scheme might be. It allows for both the CA and the unit-holder to have access to the scheme and also provides for a unit-holder to enforce against a CA which does not honour the regulations requiring membership.

In Committee, the noble Lord, Lord Kingsland, suggested that there should be greater certainty in Clause 36(3) about the provision for calculation of the amount of compensation to be paid and for the payment of interest in the event of late payment. We agree with him, and we hope that our Amendment No. 102 achieves that aim. We are grateful to the noble Lord for having pointed that out to us.

I shall now sit down so that the opposition amendments in this group can be spoken to.

Baroness Hamwee

My Lords, it may be helpful if I raise a question at this point in relation to Amendment No. 91, which, as the Minister reminded us, is an amendment to Clause 34(3)(a). It provides that the directors need not take action if they believe that inaction would be best in achieving harmonious relationships between the unit-holders.

In debate in Committee, I raised the question of the directors' normal fiduciary duties. I have received from the noble Lord a long and helpful exposition citing a great deal of case law. However, I regret that I am still left with questions. He says that, many commonhold association directors will not be familiar with company law and Clause 34(3)(a) will draw their attention to their capacity for inaction". Certainly, it will be the case that many commonhold associations will not be familiar with company law. However, I suggest that they will have to become familiar with company law and that the occasional signpost in the Bill will not be adequate.

It still appears as though Clause 34(3)(a) is intended to override the Companies Act. It would allow the directors to exercise their discretion as to what they do, how they do it, and whether they refrain from exercising their powers. It seems that there is nothing in the Government's argument deployed on the previous occasion, today or in the letter to which I referred regarding the promotion of harmonious relationships which would not apply if the Companies Act applied without this provision. I hope that the Minister can assist me a little further in that regard.

To summarise, will the Minister confirm that Clause 34(3)(a) will not override the Companies Act and that the normal provisions allowing discretion will still apply?

Lord Kingsland

My Lords, towards the end of his intervention, the Minister said that he agreed with one of my amendments but I cannot remember which one.

Lord Bach

My Lords, I referred to our Amendment No. 102, which deals with the point that the noble Lord raised in Committee.

Lord Kingsland

My Lords, if I inadvertently do not give the Minister credit for that in my response, I hope that he will forgive me.

On Amendments Nos. 89 to 97, Clause 34 will impose a duty to manage on a commonhold association. The Minister pointed out that subsection (3) allows the directors of the association to decide not to act against failure by a unit-holder to do something if they think that that would maintain a harmonious relationship between unit-holders. The amendments of the noble and learned Lord the Lord Chancellor add a refinement to the clause's original conception so that the directors of a commonhold association do not have to take enforcement action so long as that does not cause significant loss to anyone else.

Amendment No. 93 adds referral to an ombudsman to the list of possible forms of dispute resolution. My Amendment No. 95 would disqualify a director from taking part in the decision about whether or not to act if he organisation she were the defaulter. Amendment No. 96 has a similar effect and would permit no action if that would be in the best interests of the commonhold association. It would continue to allow the directors not to act against every trivial infringement if that would maintain harmony in the community. The requirement to exercise that discretion in the best interests of the community offers a protection against directors who do not take enforcement action against their friends when it would be to the benefit of the whole community if they were to act. I entirely accept the Minister's contention that the amendments of the noble and learned Lord the Lord Chancellor are helpful and we shall support them.

Amendment No. 99 would remove the requirement that the regulations should make provision for a tenant of a let unit to enforce a duty against another tenant unit-holder or the association itself. Although there is logic in allowing those who live in the units a right to seek enforcement of obligations against others, we believe as a matter of principle that enforcement should remain between unit-owners and the association and that subsection (2)(g) should be deleted for that reason. The problems that that provision seeks to overcome can be dealt with by using other legislation or via the provisions of the tenancy agreement. That provision grants tenants of rented units greater rights than they would enjoy elsewhere. Allowing the tenant to offset money paid to the association from that owed to the landlord enables the tenant to protect his own position if the landlord is in default while ensuring that the overall effect does not lead to him being double charged.

Amendments Nos. 99 to 103 relate to Clause 36. On Amendment No. 99, our view is that enforcement should be between only the unit-holders and the association. I have already emphasised that point in another context. Tenants should not be directly liable to the association so should not have rights except against their landlord. Tenants of a freehold would not have rights except in tort against neighbouring freeholders, so exactly the same should apply in the case of commonholders.

In respect of Amendment No. 100, in our view, compulsory ADR leads both to delay and possible prejudice. Although Clause 19(3)(a) states that regulations may make a similar provision, there is no reason for that not to be on the face of the Bill. As regards Amendment No. 102, compensation does involve property rights and the court is the proper forum to determine those. I suggest that there will be human rights implications if no court is involved.

Finally, in relation to Amendment No. 103, provision for charging the interest of the unit-holder is essential to prevent default. Otherwise, the association has no effective sanction. Relying on obtaining a judgment and subsequently enforcing it by a charging order is, in our view, too slow, too costly and too cumbersome. There may also be no equity left in the property at that stage. An express costs sanction is an essential deterrent to prevent unit-holders defaulting and the way to avoid prejudice to other unit-holders, particularly where the amounts involved may be under the small claims limit.

2.30 p.m.

Lord Bach

My Lords, I am grateful to the noble Baroness and to the noble Lord for their comments on this group of amendments. Amendments Nos. 92 and 100 address alternative dispute resolution. Amendment No. 92 would weaken the duty on the directors of the commonhold association to have regard to alternative dispute resolution by substituting the word "may" in Clause 34(3)(b) for the word "shall". Amendment No. 100 would prevent regulations from specifying a particular form of ADR which must be used before legal proceedings are brought. We believe that as commonhold will be based on community living, the potential acrimony and financial cost of legal proceedings should be avoided except as a last resort.

Amendment No. 90 would leave out the paragraph which gives commonhold association directors the discretion not to proceed against defaulters. Clause 34(3)(a) is designed to be a safety valve. If the directors of the association, acting, of course, with the best interests of that association in mind, as they are bound to do by virtue of their office, genuinely believe that inaction in the face of a complaint is more likely than not to establish or maintain good relations between the unit-holders, this permits them to exercise some discretion. They may legitimately refuse to take formal action against a unit-holder who, for example, hangs out his washing on a Sunday afternoon in contravention of the commonhold community statement, thinking instead that a quiet informal word on a meeting in the lift or over coffee would be far more conducive to good relations than the issue of the notice they would be entitled to serve.

The noble Baroness, Lady Hamwee, asked a fair question. I am grateful that she received my letter. No doubt she researched the same cases that I did, or that were researched for me, in terms of what was a very long letter. We do not believe that we are overriding any of the Companies Act duties. We believe that we are merely pointing out the desirability in this—I stress the next word—community context of those duties being exercised in a particular way, as long as that is consistent with Companies Act duties.

Undoubtedly, company law allows directors to exercise their discretion acting bona fide in the best interests of the company to choose whether or not and in what manner to exercise their powers. However, many commonhold association directors will not be familiar with company law—a point which, as the noble Baroness reminded me, we made in Committee—and Clause 34(3)(a) will draw their attention to their capacity for inaction. The clause is intended to stress the need for directors to have particular regard to the unique characteristics of the company as a commonhold association responsible for managing and enforcing the rights and responsibilities of unit-holders.

Amendment No. 95 would disqualify a director from acting in his own cause. Amendment No. 96, tabled in the name of the noble Lord, Lord Kingsland, would require the directors to act in the best interests of the company as a whole. A director is under a duty both to act always for the good of the company and also to ensure that he never places himself in a position where he has a conflict of interest. If such a conflict arises, he has a duty to inform his fellow board members that he has a conflict and they will decide.

The general principle is that he does not place himself in such a conflict. Provisions in the Companies Act from Section 317 onwards deal with specific conflicts of interest. They do not apply in this case. Any breach of those sections in the Companies Act would enable the company to avoid agreements reached. There are criminal penalties, both for the director and the company. As I said, the direct or has to tell his fellow directors of conflict and they may decide whether or not he should vote.

That provision is contained within the articles of the company under table A. It has been adapted in our present draft form of articles. Those duties arise from the law governing companies, and we have taken care to import into this Bill those useful checks and balances by making the structure of the vehicle which owns and manages the common parts a private company limited by guarantee. We do not think, therefore, that the amendment tabled by the noble Lord is necessary. The duties of the directors are just as they are in any such company.

In the second case the duty of the directors is again as under the Companies Act, always to act in the best interests of the company. There is nothing to he gained and there would be potential for confusion if that duty appears, expressed differently, in a multiplicity of places on the statute book. We have decided to opt for a Companies Act vehicle for the commonhold association. We do not think that that was a capricious choice. It was taken in the knowledge that we imported with it many useful concepts which fitted well with our policy intentions.

I turn briefly to Amendments Nos. 97 and 99. Amendment No. 97 would leave out subsection (4) which allows a tenant of a unit to be treated in the same way as a unit-holder for the purpose of Clause 34. Amendment No. 99 would remove the subsection in Clause 36 which would allow a tenant of a unit-holder to enforce a term of the commonhold community statement, the M&As, or some term of the Act against others in the commonhold. That provision was included to balance the fact that a tenant would be subject to the terms and conditions of the commonhold community statement, at least as part of his lease or other agreement. Clause 19 allows such obligations to be imposed. We think that it is wrong to deny the tenant the protections available in the same document by failing to apply Clause 36(2)(g).

Perhaps I may say a little more about Amendment No. 99. It may well be that a tenant of a freehold house would have no or limited rights to enforce any covenants or other rights and obligations affecting the house against his neighbours. But the difference is that such a tenant is not living in the community context as a tenant of a commonhold. The community context is one of the most important differences in principle between commonhold and what might be called regular freehold.

Amendment No. 101 duplicates the provisions of Clause 19(3)(a) which provides that any sums paid by the tenant to the commonhold association in default of the unit-owner may be set against sums owed by the tenant or, indeed, under Clause 19(3)(b) may be recovered from the unit-holder.

Finally, Amendment No. 103 would provide for charging a defaulter's interest in his unit to secure payment of compensation, costs and interest. We have said before that that narrows down the possibilities open to a commonhold association when pursuing debts. A charging order is only one possibility among many. Insofar as we are providing a freehold interest in a unit, we are not convinced that it is appropriate to hedge around the enjoyment of that interest with special powers. If in due time a dispute has reached a stage when the defaulter owes compensation, costs and interests to the association, surely then it is time for the courts to be involved. Armed with an appropriate order, a whole range of debt-collecting machinery would be open to the commonhold association. I beg to move.

On Question, amendment agreed to.

[Amendment No. 90 not moved.]

Lord Bach moved Amendment No. 91: Page 15, line 10, after ("unit-holders,") insert ("and that it will not cause any unit-holder (other than the defaulter) significant loss or significant disadvantage.").

On Question, amendment agreed to.

[Amendment No. 92 not moved.]

Lord Bach moved Amendment No. 93: Page 15, line 12, after ("procedures") insert ("(including referral under a scheme approved under section (Ombudsman))").

On Question, amendment agreed to.

[Amendments Nos. 94 to 97 not moved.]

Clause 35 [Voting]:

Lord Bach moved Amendment No. 98: Page 15. line 17. leave out ("depends on") and insert ("refers to").

On Question, amendment agreed to.

Clause 36 [Enforcement and compensation]:

[Amendments Nos. 99 to 101 not moved.]

Lord Bach moved Amendment No. 102: Page 16, line 14. leave out ("may") and insert ("shall").

On Question, amendment agreed to.

[Amendment No. 103 not moved.]

Clause 37 [Commonhold assessment]:

Lord Kingsland moved Amendment No. 104: Page 16, line 22, after ("to") insert ("prepare an annual statement of projected expenses which the association might reasonably expect to incur and").

The noble Lord said: My Lords, in moving Amendment No. 104, I shall speak also to the other amendments in the group which stand in my name. Noble Lords who were present in Grand Committee will recall the issues raised by the amendment, which is similar to the one tabled at that time. In my submission, the Government are wrong to suggest that a breakdown of expenses is implied in the provision for an estimate of total income. A mere estimate of total income is uninformative. What is useful to a unit holder is a breakdown of expenses. I do not understand why there should be any extra burden in producing such a breakdown. By contrast, it would be a significant benefit to unit holders.

Amendments Nos. 105 and 106 and 108 to 110 provide for two situations. The first is that in which the expenses are not shared by a rigid percentage split; for example, in a block of six units, only two unit holders have access to a garden and they may share the costs of the garden 50:50 but pay a smaller proportion, say, one-sixth, of other expenses. The amendments are also intended to deal with a situation in which units are added or removed from the commonhold.

Amendments Nos. 116 to 125 deal with similar problems in relation to the reserve funds. I beg to move.

2.45 p.m.

Lord Bach

My Lords, there are some government amendments in this group, and perhaps I may deal first with Amendments Nos. 107 and 118. At Committee stage the noble Baroness, Lady Gardner of Parkes, made the eminently practical suggestion that if a notice was to be given to a unit-holder specifying how much he had been assessed to pay into a reserve fund, that notice should also tell him when the money was due to be paid. We are grateful to the noble Baroness for that suggestion, and our Amendment No. 107 does that. So obviously sensible is the suggestion that Amendment No. 118 extends it to cover notices relating to commonhold assessments under Clause 37. I hope the noble Baroness agrees that it is also right to do that.

I deal next with government Amendments Nos. 111, 112, 114 and 117. These four amendments tidy up an inconsistency in the current draft of the Bill between Clauses 37 and 38. These amendments ensure that Clause 38 makes as clear as Clause 37 that it is the directors of a commonhold association who must fulfil the duties provided for in the clause.

I turn to the amendments spoken to with such care by the noble Lord, Lord Kingsland. I deal first with Amendments Nos. 106, 110, 116 and 124. To us they appear to do nothing other than change our formulation "percentage of any estimate" to "proportion of any estimate", and at present we see no advantage in that. As to Amendment No. 104, which we debated in Committee, our view now, as then, is that our formulation does the job adequately. Members of a commonhold association are concerned about what they are likely to owe. We do not believe that it would be possible for the directors of a commonhold association to produce their estimate of the income required without producing an estimate of expenses, but from the point of view of the unit-holders the important thing is the estimate of how much will he required to keep the whole thing afloat, and that is what we have provide for.

Amendment No. 105 would change our quite specific requirement for the CCS to say what percentage of the total each unit-holder is responsible for paying to the much less direct provision of the formula on which that percentage is based. We do not believe there is any reason why such a formula might not be included if a commonhold association wished it, but the essential point for the unit-holder is "How much do I owe?". The direct method of stating a percentage, which can simply be divided into the figure that we still expect to be available if the noble Lord's previous amendment is withdrawn, will provide that sum quickly and with the maximum of simplicity.

The noble Lord's Amendment No. 108 would require the commonhold association to recalculate assessments on the change in the number of units. We believe that the Bill does that already. We see the point that the noble Lord makes, but we hope to convince him that the job is already done. Any new units in a commonhold must appear as amendments to the CCS, and Clause 37(1)(c) requires the CCS to specify the percentage allocation to each unit. That means that, however many units there are from time to time, the allocation of the assessment must be made between all of them, always bearing in mind that it is possible to allocate nought per cent, if appropriate. That is my short explanation to the noble Lord.

Amendment No. 109 would remove the subsection requiring the allocation of percentages to equal 100. Odd though it seems—I recall the noble Baroness, Lady Gardner of Parkes, referring in Committee to the well known case involving a broom cupboard—we are assured that it is not unusual for figures in excess of 100 per cent to crop up in some leasehold situations. We believe that this is a useful reminder that regular attention should be given to recalculation. One can imagine reasons, other than an increase or decrease in the number of units, which may alter the levels of assessment set, and regular consideration will ensure that the burdens are evenly shared.

Amendments Nos. 115 and 115A would do for reserve funds what the noble Lord's Amendment No. 104 did for assessments. I employ the same arguments against them. We hope that Amendment No. 119 is adequately covered by government Amendment No. 118. Amendment No. 120 would provide for the payment of interest on the late payment of levies. That is already provided for by Clause 36(2)(b) which provides that where a duty is not complied with, regulations may make provision for the payment of compensation. The payment of levies is a duty and thus failure can already be dealt with.

Amendment No. 121 is the counterpoint to Amendment No. 108. Amendment No. 122 changes the reference about payment of allocated levies from subsection (2)(c) to subsection (2)(b). Our reference makes it clear that the unit-holder is responsible for making payment. We believe that by using the reference we do, it is plain that the allocation and payment are inextricably bound up with each other. Although the noble Lord's amendment would do no violence to that policy, it would nonetheless lessen the immediacy of that link. Amendment No. 123 is the counterpart of Amendment No. 109.

Finally, I turn to Amendment No. 125 which is substantial. It would require reserve funds to be held as trust accounts. We believe that that is not necessary. The circumstances under which that regime was set up were such that the payers of the levies did not have any direct control over the fund because it was held by a landlord or his agent and felt to be at risk. The circumstances of commonhold could not be further from that position. The fund will be an asset of the commonhold association, which is wholly owned and controlled by those paying the levies. The position as regards the tax payable, referred to by the noble Lord, Lord Goodhart, in Committee, would be a matter of advice to each commonhold association on the merits of its own position.

If the members of a company choose to elect or sack the directors, they and only they in this instance, have control. Because it is a Companies Act company, those directors, whether or not they are also unit-holders, have a fiduciary duty to the commonhold association. Of course, that would not stop the utterly unscrupulous director or other company official from stealing if they were sufficiently motivated, but neither would trust account status. Therefore, we believe that it would be a somewhat unnecessary complication and we cannot agree with Amendment No. 125.

Baroness Gardner of Parkes

My Lords, before the noble Lord sits down, perhaps I may thank him for including his comments about the date. I shall not question him about the powers of the commonhold because I spoke to someone in the noble Lord's department who convinced me that these amendments were not necessary.

When a decision is taken by the commonhold to allow, for example, each unit to put in its own air conditioning or sun blinds, it is clearcut that when such permission is given it is entirely at the expense of the unit-holder. But what happens afterwards? Is there some way by which the commnhold has the right to write in that the maintenance of the items would continue to be the responsibility of those who elected to instal them rather than of the commonhold? Is that already covered or is it something that we should look at again?

Lord Bach

My Lords, I believe that it is already covered. If the noble Baroness would allow me. I shall write to her with an answer to the specific issues which she has raised. I shall make sure that other noble Lords have that answer. That is a safer way of answering the question.

The Earl of Caithness

My Lords, I should also like to question the Minister before he sits down. He made reference to Clause 37(1)(c) and said that the commonhold community statement would reflect any additions or alterations to a property. That means that there could well be a succession of commonhold community statements. Does the Minister believe that that should be brought to everyone's attention by including on the face of the Bill something along the lines that when an alteration is made which affects the service charges then a new commonhold community statement must be prepared? It was certainly a matter that I had not picked up until the noble Lord mentioned it. But I can very well see a situation where people are proceeding on an old commonhold community statement that is wrong.

Lord Bach

My Lords, on the face of it that is an excellent point. Can we consider the matter and bring it back at the next stage with, it is to be hoped, something positive?

Lord Kingsland

My Lords. I thank the Minister particularly for pointing out the effect that Clause 37(1)(c) might have on two of my amendments. I shall go away and reflect on his potentially helpful observation.

I take the Minister back to Amendment No. 204. The noble Lord's position is that the amendment is unnecessary because, in order to reach an annual estimated income, an exercise would need to be undertaken involving subtracting expenses from revenues. Therefore, a commonhold association, in doing its sums every year within the framework of the commonhold community statements, would inevitably have to gather all the information that I expressly seek in my amendment.

If that is the Minister's position, would he agree to give the unit-holders access to those financial documents which lie behind the calculation of income? If the Minister tells me that these documents are necessary to determine what the income is, I should be surprised if he sees any harm in their becoming documents available to all the unit-holders. Perhaps I may pause there for his reaction.

Lord Bach

My Lords, my immediate inclination is to say, yes, there seems to be no reason why all those who belong to the commonhold association should not see such documents.

Lord Kingsland

My Lords, that was a helpful response.

Finally, perhaps I may take the Minister to Amendment No. 125. During the Standing Committee stage in the House of Commons, the then Minister of Housing suggested in relation to the provisions of Section 42 of the Landlord and Tenant Act 1987, that, without a trust fund arrangement, receipts would be taxable. Can the Minister confirm that he does not believe that a trust fund arrangement is necessary in the context of these provisions because principal sums put into reserve would not be taxable?

Lord Bach

My Lords, it is very tempting to confirm that matter. It would be very easy to do so within an hour of the House rising for the Easter Recess. I shall not confirm the matter without checking it out. The noble Lord will understand why I say that.

Lord Kingsland

My Lords, I understand why the Minister reacted the way he did. Perhaps, on mature reflection, he would be kind enough to drop me a line. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 105 and 106 not moved.]

Lord Bach moved Amendment No. 107: Page 16, line 34, at end insert ("and the date on which each payment is due.").

On Question, amendment agreed to.

[Amendments Nos. 108 to 110 not moved.]

Clause 38 [Reserve fund]:

Lord Bach moved Amendments Nos. 111 and 112: Page 16. line 42. after ("the") insert ("directors of the"). Page 17, line 1. after ("the") insert ("directors of the").

On Question, amendments agreed to.

3 p.m.

The Earl of Caithness moved Amendment No. 113: Page 17, line 3, at end insert ("owned by the commonhold association').

The noble Earl said: My Lords, as the Minister will realise, I degrouped this amendment from the previous grouping and did not speak to it as it covers a very different point from that on which he was answering my noble friend Lord Kingsland.

When the Minister responded favourably to my noble friend Lady Gardner of Parkes by bringing forward Amendment No. 107, he said that he had done so for the purpose of clarity. I have tabled Amendment No. 113 for exactly the same purpose. The amendment seeks to make it certain that the reserve fund is not used to support unit-holders other than those units that are owned by the commonhold association. The Minister will recall the debate we had on this subject in Grand Committee when he made the valid point that there could be a situation in which there was a warden or someone like that in the unit owned by the commonhold association. I hope that I have responded to that point by limiting the amendment so that funds that are held in the reserve fund can be used only on units that are owned by the commonhold association; otherwise, all those funds have to be used on the main structure and common parts of the building. The unit-holders are therefore separate and have their own responsibilities and liabilities. I beg to move.

Lord Bach

My Lords, the noble Earl's amendment would restrict the building up of a reserve fund by a commonhold association for the maintenance of units to units owned by the commonhold association. We see what the noble Earl is getting at but his amendment would not allow a commonhold association to maintain a unit of which it was a tenant. We prefer not to restrict the use of such funds, given that the control of those funds is in the hands of the members of the company. That is why we cannot at present accept the amendment.

The Earl of Caithness

My Lords, the Minister's reply disappoints me because I thought that we were getting somewhere. As the Bill stands, the commonhold association is required to establish and maintain one or more funds to finance the repair and maintenance of commonhold units. I put it to the Minister that that as it stands is ambiguous. The maintenance and repair of commonhold units could include items that are legitimately the repair and maintenance responsibility of the unit-holders. That is what I am trying to get away from. It comes back to the theme that I was addressing earlier. We must make it absolutely clear that these funds are not to be used for the responsibilities and liabilities of the unit-holders.

I take the Minister's point about the commonhold association tenanting a unit. That is acceptable, but it must not go further than that. No unit-holder must be under the impression that there will be a reserve fund to bail him out of his responsibilities. That is what I am trying to achieve. Surely it is not beyond the wit of us to devise something that makes the Bill clearer.

Lord Bach

My Lords, I shall certainly reflect carefully on what the noble Earl has said with a view to seeing whether before the next stage we cannot find a way of dealing with his sensible point.

The Earl of Caithness

My Lords, I am grateful to the noble Lord. I just wonder whether he might want to say anything more before I beg leave to withdraw the amendment.

Lord Bach

My Lords, the noble Earl has anticipated that I would have a little more to say. I am advised that there may be a further possibility of having an emergency fund for the repair of units whose state is causing danger. Of course it is necessary to remember that it is the unit-holder's money, however it is held.

On reflection, I rather wish that I had not risen to my feet again. I stand by what I said to him earlier in our exchange.

The Earl of Caithness

My Lords, on the face of it, I agree with the noble Lord. We could be opening a huge Pandora's Box here, but I shall not expand on that.

I am most grateful to the Minister for saying that he will take this away and look at it again. I would be happy to meet with him to discuss the matter in detail between now and the next stage, should that come about. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Bach moved Amendment No. 114: Page 17, line 7. after ("the") insert ("directors of the").

On Question, amendment agreed to.

[Amendments Nos. 115, 115A and 116 not moved.]

Lord Bach moved Amendments Nos. 117 and 118: Page 17, line 14, after ("the") insert ("directors of the"). Page 17, line 15, at end insert ("and the date on which each payment is due.").

On Question, amendments agreed to.

[Amendments Nos. 119 to 125 not moved.]

Clause 39 [Rectification of documents]:

Lord Kingsland moved Amendment No. 126: Page 17, line 34. after ("unit-holder") insert ("or the commonhold association").

The noble Lord said: My Lords, this is the shortest of points. The amendment seeks to permit the commonhold association to obtain rectification of a mistake in documentation. I beg to move.

Lord Bach

My Lords, the commonhold association, if it finds that its documents are non-compliant, can arrange for them to be amended and re-registered. It does not need a declaration from the court to tell it so. This clause is designed to give unit-holders whose lives are, to a great extent, governed by these documents an opportunity, where they find that the documents are non-compliant and that the commonhold association is not willing to act, to force them to do so.

We do not think that the amendment is appropriate because under Clause 39(3) the Bill empowers the court to require the directors to undertake specific tasks. We do not think that it would be wise for directors to have to apply to the court to undertake those tasks which in any event the directors should themselves be undertaking. For those reasons, I invite the noble Lord to withdraw his amendment.

Lord Kingsland

My Lords, I am most grateful to the Minister for that response. I shall reflect on what he has said and see whether it will be necessary to return to the matter at the next stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 40 [Enlargement]:

[Amendments Nos. 127 to 129 not moved.]

Lord Bach moved Amendment No. 130: After Clause 40, insert the following new clause£

OMBUDSMAN (" .—(1) Regulations may provide that a commonhold association shall be a member of an approved ombudsman scheme. (2) An "approved ombudsman scheme" is a scheme which is approved by the Lord Chancellor and which—

1. (a) provides for the appointment of one or more persons as ombudsman,
2. (b) provides for a person to be appointed as ombudsman only if the Lord Chancellor approves the appointment in advance,
3. (c) enables a unit-holder to refer to the ombudsman a dispute between the unit-holder and a commonhold association which is a member of the scheme,
4. (d) enables a commonhold association which is a member of the scheme to refer to the ombudsman a dispute between the association and a unit-holder,
5. (e) requires the ombudsman to investigate and determine a dispute referred to him,
6. (f) requires a commonhold association which is a member of the scheme to cooperate with the ombudsman in investigating or determining a dispute, and
7. (g) requires a commonhold association which is a member of the scheme to comply with any decision of the ombudsman (including any decision requiring the payment of money).

(3) In addition to the matters specified in subsection (2) an approved ombudsman scheme—

1. (a) may contain other provision, and
2. (b) shall contain such provision, or provision of such a kind, as may be prescribed.

(4) If a commonhold association fails to comply with regulations under subsection (1) a unit-holder may apply to the High Court for an order requiring the directors of the commonhold association to ensure that the association complies with the regulations. (5) A reference in this section to a unit-holder includes a reference to a tenant of a unit.").

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendment No. 131: Before Clause 41. insert the following new clause—

WINDING-UP RESOLUTION (" .—(1) A winding-up resolution in respect of a commonhold association shall be of no effect unless—

1. (a) the resolution is preceded by a declaration of solvency,
2. (b) the commonhold association passes a termination-statement resolution before it passes the winding-up resolution, and
3. (c) each resolution is passed with at least 80 per cent. of the members of the association voting in favour.

(2) In this Part—

• "declaration of solvency" means a directors' statutory declaration made in accordance with section 89 of the Insolvency Act 1986,
• "termination-statement resolution" means a resolution approving the terms of a termination statement (within the meaning of section 44), and
• "winding-up" resolution means a resolution for voluntary winding-up within the meaning of section 84 of that Act.").

The noble Lord said: My Lords, in moving government Amendment No. 131, I shall speak also to Amendments Nos. 132 to 173—I hope that the House will allow me not to read them out separately—along with Amendments Nos. 193, 205, 208 and 209.

All of these amendments relate to the voluntary winding up of a commonhold association while solvent and its eventual termination. It was pointed out to us after Second Reading by an organisation of insolvency practitioners that, in some circumstances, where a commonhold association was dilatory in making progress with the various applications involved, it was possible that it might terminate by default under the terms of the Bill as it now stands. This raft of amendments is designed to overcome that possibility. In essence, tasks which were to have been carried out by the commonhold association will now be the duty of the liquidator, and the commonhold association must have passed a termination-statement resolution at the outset.

Amendment No. 131 seeks to insert a new clause before Clause 41 setting out the criteria which a commonhold association must meet before a winding-up resolution can be of effect. There must be a formal declaration of solvency by the directors, a termination-statement resolution must have been passed, and each of the resolutions must have had at least 80 per cent of the members of the commonhold association voting in favour.

Amendments Nos. 132 and 141 require the addition of the mention of the termination-statement resolution as a prerequisite for further action. Amendments Nos. 133 and 142 define the section of the Insolvency Act under which the liquidator is to be appointed. Amendments Nos. 134, 143 and 147 move the responsibility for carrying such a liquidation forward on to the liquidator from the directors. Amendments Nos. 136 and 148 make it possible for a unit-holder or some specified other person to make the necessary application if the liquidator fails to do so, and Amendment No. 137 removes subsections (3) and (4), which define the terms used, from Clause 41. The relevant terms have been defined in the new clause inserted before Clause 41 by Amendment No. 131.

Amendment No. 149 seeks to remove subsection (4) of Clause 42 as this is an unnecessary requirement now that, under Clause 42(1), a termination statement must be approved by a resolution with the support of 80 per cent of the members of the commonhold association at the outset.

Amendment No. 165 is required as a consequence of the change made to Clause 41 by Amendment No. 132. As a result of that amendment, the liquidator will have an approved termination statement.

Amendment No. 167 seeks to make the necessary consequential changes to Clause 45(3)(a) as the result of the requirement to have approved the termination statement by the commonhold association membership.

Amendment No. 170 seeks to introduce a new subsection which defines that the liquidator under this clause is to be one appointed under Section 91 of the Insolvency Act 1986. It also states that where the members' voluntary winding-up order converts to a creditors' winding-up order, the liquidator is to be appointed in accordance with Section 100 of the Insolvency Act 1986.

Amendment No. 172 seeks to specify that the application of Clause 46 is to a situation where a termination application has been made under Clause 41; and Amendment No. 173 seeks to introduce a new subsection which applies the clause additionally to applications made under Clause 42.

Amendment No. 193 seeks to leave out Clause 52—I notice that the noble Lord, Lord Kingsland, has put his name to this amendment, although, in his case, it is a part of his wider cull of Clauses 41 to 54 en bloc—the effect of which was to ensure that the process for winding-up a commonhold association could be completed where the commonhold association was dilatory in making its formal application to the registrar. The earlier amendments require the making of a termination application a duty imposed either on the liquidator alone or concurrently with the directors. As the liquidator will control the application to the registrar, the clause is no longer required.

Amendments Nos. 208, 209 and 210 are the final three government amendments in this group. They make the necessary consequential amendments to Clause 67, which lists the terms used in this part of the Bill and indicates where they are defined in the Bill.

Amendment No. 205 seeks to amend Schedule 5 and to make a consequential amendment to Section 84 of the Insolvency Act 1986, which refers to voluntary winding up, to ensure that for commonhold purposes the new provision of the Bill has effect.

In the same group are Amendments Nos. 177, 178 and 180. These three amendments apply to Clause 48 and the making of succession orders. It is an important plank of the winding-up process as it relates to insolvent commonholds that the first aim will be to ensure that unit-holders who are blameless will not be deprived of their homes. To achieve this, it will be possible for a court considering making a winding-up order to make another order, called a succession order, effectively bringing into existence a new commonhold association to take forward the continuing existence, carving out the insolvent association, which will remain responsible for the liabilities it accrued and which led to the insolvency.

Amendment No. 177 provides for the court to hear an application for the making of a succession order. This amends the current provision which provided for the court to make a succession order but was silent, in its first part, about the making of the application.

Amendment No. 178 makes a consequential amendment as the result of the amendment to subsection (1) of this clause in that it refers back to the new mention of the application; and Amendment No. 180 inserts a new subsection which provides that the court shall make the succession order unless it thinks that it is inappropriate to do so. The appropriateness or otherwise of making such an order will be a matter of fact in each case, but courts will no doubt take into account such matters as the extent to which the insolvency was the result of neglect or dishonesty and how far those factors spread among the unit-holders.

Finally, within this group of government amendments, Amendments Nos. 189 to 191 are designed to ensure that the registrar has all the information he needs when dealing with the commonhold which is wound up and where no succession order has been made.

Amendment No. 189 requires the liquidator to notify the registrar of any directions under the Insolvency Act and to tell him of specific notices and applications as set out in the amendment. Amendment No. 190 requires him to supply copies of those documents to the registrar in support of his notification.

Amendment No. 191 requires the registrar to act, as soon as is reasonably practicable", to ensure that the land for which the terminated commonhold association was responsible is no longer registered as commonhold land, reverting to its original plain freehold status. I shall respond to the Opposition's amendments in this group in due course. I beg to move.

3.15 p.m.

Lord Bridges

My Lords, it would help me in understanding this clause if the noble Lord would kindly explain the circumstances in which he thinks it might be necessary to wind up a commonhold association if insolvency is ruled out. I find it a little difficult to understand why these very careful provisions should be necessary unless we can see that a circumstance is likely to occur which makes it desirable.

Lord McIntosh of Haringey

My Lords, insolvency is not ruled out. The most important single thing that the amendments do is to provide that, if winding up is necessary and if insolvency is necessary, those holders of commonhold units who are blameless are not affected.

On Question, amendment agreed to.

Clause 41 [100 per cent. agreement]:

Lord McIntosh of Haringey moved Amendments Nos. 132 to 134: Page 19. line 8, after ("resolution") insert ("and a termination-statement resolution"). Page 19, line 10, at end insert ("under section 91 of the Insolvency Act 1986."). Page 19, line 11, leave out ("commonhold association may") and insert ("liquidator shall").

On Question, amendments agreed to.

[Amendment No. 135 not moved.]

The Deputy Speaker (Lord Murton of Lindisfarne)

My Lords, in calling Amendment No. 136, I should point out that there is an error in the amendment as printed on Marshalled List. It reads: If the liquidator fails to make a termination application within the period specified in subsection (3) a termination application may be made". The reference should be to subsection (2).

Lord McIntosh of Haringey moved Amendment No. 136: Page 19, line 13, at end insert— ("( ) If the liquidator fails to make a termination application within the period specified in subsection (2) a termination application may be made by—

1. (a) a unit-holder, or
2. (b) a person falling within a class prescribed for the purposes of this subsection.").

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendment No. 137: Page 19, line 14, leave out subsections (3) and (4).

On Question, amendment agreed to

[Amendments Nos. 138 to 140 not moved.]

Clause 42 [80 per cent. agreement]:

Lord McIntosh of Haringey moved Amendments Nos. 141 to 143: Page 19, line 19, after ("resolution") insert ("and a termination-statement resolution"). Page 19. line 21, at end insert ("under section 91 of the Insolvency Act 1986."). Page 19, line 22, leave out ("commonhold association may") and insert ("liquidator shall").

On Question, amendments agreed to.

[Amendments No. 144 to 146 not moved.]

Lord McIntosh of Haringey moved Amendments No. 147 and 148: Page 19. line 28. leave out ("commonhold association may") and insert ("liquidator shall"). Page 19, line 30, at end insert—("( ) If the liquidator fails to make an application under subsection (2) or (3) within the period specified in that subsection an application of the same kind may be made by—

1. (a) a unit-holder. or
2. (b) a person falling within a class prescribed for the purposes of this subsection.").

On Question, amendments agreed to.

Lord McIntosh of Haringey moved Amendment No. 149: Page 19, line 31, leave out subsection (4).

On Question, amendment agreed to.

[Amendments Nos. 150 to 152 not moved.]

Clause 43 [Termination application]:

[Amendments Nos. 153 to 155 not moved.]

Clause 44 [Termination statement]:

[Amendments Nos. 156 to 163 not moved.]

Clause 45 [The liquidator]:

[Amendment No. 164 not moved.]

Lord McIntosh of Haringey moved Amendment No. 165: Page 20, leave out lines 23 and 24 and insert— ("(3) In the case of a termination application made under section 41 the liquidator shall either—").

On Question, amendment agreed to.

[Amendment No. 166 not moved.]

Lord McIntosh of Haringey moved Amendment No. 167: Page 20, line 25, leave out ("statement") and insert ("termination statement submitted with the termination application").

On Question, amendment agreed to.

[Amendments Nos. 168 and 169 not moved.]

Lord McIntosh of Haringey moved Amendment No. 170: Page 20, line 34, at end insert— ("( ) In this section a reference to the liquidator is a reference—

1. (a) to the person who is appointed as liquidator under section 91 of the Insolvency Act 1986, or
2. (b) in the case of a members' voluntary winding up which becomes a creditors' voluntary winding up by virtue of sections 95 and 96 of that Act, to the person acting as liquidator in accordance with section 100 of that Act.").

On Question, amendment agreed to.

[Amendment No. 171 not moved.]

Clause 46 [Termination]:

Lord McIntosh of Haringey moved Amendments Nos. 172 and 173: Page 20, line 35. at end insert ("a termination application is made under section 41 and—"). Page 20, line 39, at end insert— ("( ) This section also applies where a termination application is made under section 42.").

On Question, amendments agreed to.

[Amendments Nos. 174 and 175 not moved.]

Clause 47 [Introduction]:

[Amendment No. 176 not moved.]

Clause 48 [Succession order]:

Lord McIntosh of Haringey moved Amendments Nos. 177 and 178: Page 21, leave out lines 17 to 20 and insert— ("(1) At the hearing of the winding-up petition an application may be made to the court for an order under this section (a "succession order") in relation to the insolvent commonhold association. (2) An application under subsection (1) may be made only by—"). Page 21. line 25, leave out ("(2)") and insert ("(1)").

On Question, amendments agreed to.

[Amendment No. 179 not moved.]

Lord McIntosh of Haringey moved Amendment No. 180: Page 21, line 30, at end insert— ("( ) The court shall grant an application under subsection (1) unless it thinks that the circumstances of the insolvent commonhold association make a succession order inappropriate.").

On Question, amendment agreed to.

[Amendment No. 181 not moved.]

Clause 49 [Assets and liabilities]:

[Amendments Nos. 182 to 186 not moved.]

Clause 50 [Transfer of responsibility]:

[Amendments Nos. 187 and 188 not moved.]

Clause 51 [Termination of commonhold]:

Lord McIntosh of Haringey moved Amendments Nos. 189 to 191: Page 22. line 26, after ("powers),") insert—

1. ("(ba) any notice given to the court and the registrar of companies in accordance with section 172(8) of that Act (liquidator vacating office after final meeting),
2. (bb) any notice given to the Secretary of State under section 174(3) of that Act (completion of winding-up),
3. (bc) any application made to the registrar of companies under section 202(2) of that Act (insufficient assets: early dissolution),
4. (bd) any notice given to the registrar of companies under section 205(1)(b) of that Act (completion of winding-up),").

Page 22, line 28, at end insert—

("( ) Notification under subsection (2)(b) to (bd) must be accompanied by a copy of the directions, notice or application concerned.").

Page 22, line 29, after ("shall") insert—

1. ("(a) make such arrangements as appear to him to be appropriate for ensuring that the freehold estate in land in respect of which a commonhold association exercises functions ceases to be registered as a freehold estate in commonhold land as soon as is reasonably practicable after the receives notification under subsection (2)(ba ) to (bd), and
2. (b)")

On Question, amendments agreed to.

[Amendment No. 192 not moved.]

Clause: 52 [Winding-up without termination application]:

Lord McIntosh of Haringey moved Amendment No. 193: Leave out Clause 52.

On Question, amendment agreed to.

[Amendments Nos. 194 and 195 not moved.]

Clause 53 [Termination by court]:

[Amendment No. 196 not moved.]

Clause 54 [Release of reserve fund]:

[Amendment No. 197 not moved.]

Clause 58 [Compulsory purchase]:

Lord McIntosh of Haringey moved Amendments Nos. 198 and 199: Page 25, line 16, at end insert— ("(1B) But subsection (1) does not apply to a transfer if the Registrar is satisfied that the compulsory purchaser has indicated a desire for the land transferred to continue to be commonhold land."). Page 25, line 22. leave out ("subsection (1)") and insert ("subsections (1) and (1B)").

On Question, amendments agreed to.

[Amendment No. 200 not moved.]

Lord McIntosh of Haringey moved Amendment No. 201: Page 25, line 31, leave out from ("means") to end of line 32 and insert ("—

1. (a) a person acquiring land in respect of which he is authorised to exercise a power of compulsory purchase by virtue of an enactment, and
2. (b) a person acquiring land which he is obliged to acquire by virtue of a prescribed enactment or in prescribed circumstances.").

On Question, amendment agreed to.

Clause 61 [Orders and regulations]:

Lord McIntosh of Haringey moved Amendment No. 202: Page 26, line 4, leave out ("58(3)") and insert ("58").

On Question, amendment agreed to.

Lord McIntosh of Haringey

My Lords, I should point out at this stage that I moved Amendment No. 198 formally by mistake. I do not know whether the noble Lord, Lord Kingsland, wishes to challenge that amendment; indeed, he is fully entitled to do so. I apologise for the situation. I believe that the noble Lord will have to raise the matter on Third Reading. I think it is due to the Greek calends!

Lord Kingsland

My Lords, I am sure that the noble Lord does not need me to persuade him of the force of the amendment. No doubt the noble Lord will incorporate it in the next draft of the Bill.

Lord Kingsland moved Amendment No. 203: Page 26, line 14, at end insert— ("( ) A copy of any regulations made under this Part shall be sent free of charge to each commonhold association and published in electronic format on the Internet before, or within 7 days of, the regulations come into force.").

The noble Lord said: My Lords, this is the shortest of short points. In our view public access to the information is appropriate and should ideally be provided by post but also perhaps by the Internet. I beg to move.

Baroness Hamwee

My Lords, this point was raised at the previous stage by my noble friend Lord Goodhart. We have an amendment which is grouped with the one we are discussing that noble Lords may think is rather more old-fashioned as it is confined to "snail" mail rather than electronic communication. If the Minister does not accept one of the two amendments, or some variation of them, will the Government consider some form of guidance to commonhold associations written in plain and accessible English? Earlier we touched on the fact that many directors of commonhold associations will not be accustomed to holding a directorship. At the previous stage my noble friend was concerned to ensure that regulations were not simply readily available but actually proffered. The general point is to offer information and assistance to those who are unaccustomed to the post.

Lord Bach

My Lords, we dealt with this matter in passing in Committee. I said then, We are prepared to consider this amendment and will make inquiries between now and Report, at which time I will come back with a more definite answer". I am glad that I added, It may not be a positive answer".—[Official Report, 27/2/01; col. CWH 97.] I am afraid that it will not be positive today.

These amendments would result in commonhold associations being provided at public expense, with documents published for sale by the Stationery Office. Having considered the cost to the taxpayer of providing such material free of charge to companies who levy commonhold assessments on their unit-holders for the express purpose of, among other things, covering the costs of managing the commonhold, we are not prepared to accept the amendments. We do not think that there is any justification for having such a requirement on the face of the Bill, even if, in due course, we elect to take up some of the suggestions. That is rather a grumpy response to well-meaning amendments. However, we shall provide plain English guides to the documents.

Lord Kingsland

My Lords, I am most grateful to the noble Lord for his response despite the fact that it was unsympathetic. I hope that whoever is responsible for drawing up the regulations—whichever government ultimately are in power—will reflect on the amendments tabled by the noble Baroness, Lady Hamwee, and myself and will ensure that commonhold associations are properly informed about their rights and responsibilities. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 204 not moved.]

Baroness Gardner of Parkes moved Amendment No. 204A: After Clause 65. insert the following new clause—

REPORT ON USE OF COMMONHOLD

(" .—(1) The Lord Chancellor shall lay a report before both Houses of Parliament not more than two years after the commencement of this Part of this Act of the number of registrations of commonhold land, together with a commentary on the market response to the provisions of this Part.

(2) The report shall include a statement of opinion by the Lord Chancellor as to whether he believes that the take-up of commonhold in the market is satisfactory.

(3) If the Lord Chancellor's report states that he does not believe that the take-up of commonhold is satisfactory. he may lay a draft order which shall require all new developments of blocks of flats and all conversions of buildings to self-contained flats for residential use to be registered as freehold estates in commonhold land.

(4) Any draft order laid in accordance with subsection (3) shall not come into force until approved by an affirmative resolution of both Houses of Parliament.").

The noble Baroness said: My Lords, this is a self-explanatory new clause. I have tabled the amendment because I consider that the whole process of commonhold in the Bill is completely negative. There will be no incentive whatever for people to become involved in it. In Grand Committee I tabled an amendment to make it compulsory, but even I thought that was a bit extreme. I should at least have limited the number of years.

Since then I have tried to approach the issue from another angle. On Amendment No. 203 a few moments ago, the noble Baroness, Lady Hamwee, said that many directors of commonhold will be inexperienced. I do not think that there will be many directors of commonhold, because I do not think that there will be many commonholds.

If the Government are not prepared to look at the carrot or the stick, both of which we discussed in Committee, we might try the alternative approach of at least giving the Government a set procedure to review the system after the law has been operational for two years. That is when we will see clearly whether we have any commonhold.

I know how difficult it is for any government to find time for major Bills, so I cannot see primary legislation being used to change the system. The amendment would provide an opportunity to insist on the development of commonhold for at least a limited period. Under subsection (4), that could be done only by affirmative resolution. It would be a simple way of reviewing and redetermining whether we really wanted commonhold. The Bill does not indicate that there is any real wish for it. We have gone to a great deal of trouble and talked a lot about commonhold. Unless it is really going to happen, we are just fooling ourselves. I beg to move.

3.30 p.m.

Baroness Maddock

My Lords, I support the thrust of the amendment. In Grand Committee we talked about whether the proposal would ever get off the ground and what house builders were doing. I have a letter from the Minister on the issue, but it is not entirely satisfactory, because the Government have not really pushed the issue even with the building trade. If they are not doing that, the idea will be a bit of a damp squib, as the noble Baroness has said. It is important to return to it to see whether what we are saying is true.

However, I would not go quite as far as the noble Baroness. It is probably not appropriate to give the Lord Chancellor as much power as she suggests. Some of my colleagues on the Delegated Powers and Deregulation Committee would agree with me on that.

Nevertheless, I support the thrust of the amendment. I expect the Government to come back today or at a later stage with a little more detail on how they think that commonhold will be taken up. There is a lot of evidence that it will not be taken up and that builders and property developers are not very interested.

Lord Bach

My Lords, the Government are not nearly as pessimistic about the possibilities of commonhold as are the two noble Baronesses who have spoken. It will take a little time, but we think that it will be a success. The important thing is to get the Bill through so that commonhold can be set up. I am grateful to noble Lords on all sides for the assistance that they have given to the Bill.

The noble Baroness, Lady Gardner, is much too polite to call the amendment a sunset clause, but that is what it is. She has proposed a mechanism—which is not as draconian as her previous proposal, but perhaps that is only a matter of degree—whereby the future development of leasehold flats might be forbidden. This time, the Government would have a one-off opportunity to assess the take-up of commonhold two years after the enactment of Part 1. If the Lord Chancellor deemed take-up to be unsatisfactory, he could lay an affirmative resolution order to require new developments or conversions to be commonhold. I look forward to seeking what the Delegated Powers and Deregulation Committee would have to say about giving such power to my noble and learned friend. I believe that such a power to change the law of the land in one fell swoop would be greater than that ever held by anyone in his position. However, I understand the noble Baroness's intention in proposing the amendment.

We remain convinced that the development of commonholcl which we offer provides a real alternative to leasehold. However, we do not take the view that we can simply cut off the possibility of leasehold development if that is what developers and the market still want. We cannot buck the market in that way, at least until it is quite certain that there will be no significant unforeseen problems with this new system of land tenure. In spite of the temptation that noble Lords from all sides have put in our way, we still believe that that is the right and responsible approach.

Finally, if in due course it appears appropriate to accelerate the end of leasehold, no doubt it will be possible to do so. We do not believe that it would be appropriate to seek to achieve it in the sort of timescale proposed in the noble Baroness's amendment. However, once this Bill becomes an Act, we shall keep the whole issue under review, as I am sure governments of any hue would, in order to ensure that our long-term aim is achieved. Therefore, I hope that the noble Baroness will withdraw her amendment.

Baroness Gardner of Parkes

My Lords, I thank the Minister for his reply, which is not quite as miserable as I had feared. However, it was still not too good. The noble Lord may say that we are pessimistic. Generally I look upon myself as an optimist, but not in this context. I believe that commonhold is most valuable. I have lived with it, experienced it and seen how good it is. However, it will take a little time to convince developers in this country that that is so.

In Committee, the noble Lord, Lord Selsdon, said that the Government would do things via an incentive. I remember very clearly the time when incentives—probably far too many—were given for building hotel rooms in London. Suddenly, all developers decided that nothing would be nicer than to build many more hotel rooms. Therefore, even a slight tweak on the incentive side may help to bring in commonhold.

I fear that unless something such as an incentive is forthcoming, as we have said today, the provision will apply more to new build than to anything else. The point has been raised again and again that it will be difficult to convert existing leaseholds. Therefore, we are talking about new build and I believe that the Government should consider seriously some form of incentive. Meanwhile, I thank the Minister for his reply, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 5 [Commonhold: consequential amendments]:

Lord Bach moved Amendment No. 205: Page 76. line 23, at end insert— ("Insolvency Act 1986 (c. 45) .At the end of section 84 of the Insolvency Act 1986 (Voluntary winding-up) there shall be added— (4) This section has effect subject to section (Winding-up resolution) of the Commonhold and Leasehold Reform Act 2001.

On Question, amendment agreed to.

Lord Bach moved Amendment No. 206: Page 76, line 46, at end insert— ("Housing Act 1996 (c. 52) .After section 94( 1 )(b) of the Housing Act 1996 1 provision of advice) there shall be added— or (c) any aspect of the law of commonhold land. so far as relating to residential matters."").

The noble Lord said: My Lords, on the subject of incentives, we believe that this government amendment provides a small but important incentive. Section 94 of the Housing Act 1996 made provision for an independent advisory service. That led to the recreation on a new and permanent basis of the Leasehold Enfranchisement Advisory Service, known as LEASE. It began life in January 1994 and was partly funded by government and partly by the private sector. The remit of LEASE, which has been extended over the years, covers not only enfranchisement issues but also aspects of the law of landlord and tenant as it relates to residential tenancies more generally.

Your Lordships will know that my noble friend Lord Richard is the very distinguished chairman of LEASE. Over a long period, its officers have been most helpful in the preparation of this Bill. We are told that they are already being approached for advice about commonhold, despite it being at an early stage. I hope that that encourages some noble Lords. There appears to be no advantage in reinventing a wheel when the one in existence works as well as does LEASE. Therefore, we are pleased to propose this amendment in order to recognise the operation of the real world.

The amendment will add to Section 94 of the Housing Act 1996, extending the scope of Section 94(1) so that it covers the provision by LEASE of advice about the law relating to commonhold land as well as the aspects of law relating to residential tenancies, presently covered in that section.

We are very conscious of the comments that the noble Lord, Lord Selsdon, made in Committee and of those made today by the noble Baroness, Lady Gardner of Parkes, about the need to sell, if I may use that expression, commonhold. We are actively thinking of ways in which to do that. The amendment is a small but important measure along the way. I beg to move.

Baroness Maddock

My Lords, I am happy to support the amendment. We are being positive towards the end of our deliberations!

During the passage of the Housing Act 1996 I had something to do with these provisions. It would be remiss of me if I did not say how glad I was about the proposal. It is important for people to get proper advice. On previous occasions we have discussed the resources that may be available. I hope that the Government will ensure that there are sufficient resources to provide such advice. That issue came up in 1996 and it has arisen during the passage of this Bill.

On Question, amendment agreed to.

Clause 66 [Interpretation]:

Lord Kingsland moved Amendment No. 207: Page 28. line 15, after ("reinstating") insert ("where practicable").

The noble Lord said: My Lords, the amendment qualifies the duty to use the proceeds of insurance for rebuilding or reinstating, and it would apply only when that is practicable. As noble Lords are aware, in some cases it is not practicable to build or reinstate. In such circumstances, an absolute duty to use the funds for that purpose could present an obstacle. I beg to move.

Lord Bach

My Lords, the amendment would add to the clause that defines a duty to ensure by comprehending the use of the proceeds of insurance for the purpose of rebuilding or reinstating the qualification, where practicable. That is an example of attempting to qualify in an unquantifiable way a fairly straightforward requirement in the Bill. As such, I am afraid that we cannot accept it.

Lord Kingsland

My Lords, I hear what the Minister says. It may not be possible to reinstate a destroyed property; my point is as simple as that. Has the Minister nothing to add to his observations?

Lord Bach

My Lords, I add—it is only courteous to do so—that I appreciate that my reply was very short and that we shall of course consider what the noble Lord said.

Baroness Gardner of Parkes

My Lords, before the Minister concludes, what would happen if the commonhold had fallen off the edge of a cliff? That has happened recently.

Lord Bach

Goodness, my Lords! I have been rather taken by surprise by the concept of a commonhold falling off the edge of a cliff. I know that that happens—the matter was raised in Committee. I need a bit of time to consider my response.

Lord Kingsland

My Lords, we have been talking about flying freeholds this afternoon; it is but a short step to a flying commonhold.

In the circumstances, it would be prudent if I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 67 [Index of defined expressions]:

Lord Bach moved Amendments Nos. 208 to 210:

Page 28, line 31, at end insert—
("Declaration of solvency	Section (Winding-up resolution)")
Page 29, line 8, at end insert—
("Termination-statement resolution	Section (Winding-up resolution)")

Page 29, line 12, leave out ("41") and insert ("(Winding-up resolution)").

On Question, amendments agreed to.

Lord Bach

My Lords, although I know that it will be of some upset to quite a number of noble Lords, I beg to move that consideration on Report be now adjourned.

Moved accordingly, and, on Question, Motion agreed to.