Lords Sitting of 16 October 2001

Preamble
The House met at half-past two of the clock. The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Birmingham.

Lord Maclennan of Rogart
The Right Honourable Robert Adam Ross Maclennan, having been created Baron Maclennan of Rogart, of Rogart in Sutherland, for life—Was, in his robes, introduced between the Lord Thomson of Monifieth and the Baroness Williams of Crosby.
Lord Livsey of Talgarth
Richard Arthur Lloyd Livsey, Esquire, CBE, having been created Baron Livsey of Talgarth, of Talgarth in the County of Powys, for life—Was, in his robes, introduced between the Lord Geraint and the Lord Carlile of Berriew.

Register of Lords' Interests
2.49 p.m.
Lord Campbell of Alloway Lord Campbell of Alloway asked the Leader of the House:
Whether Lords of Appeal will be invited to attend the sub-committee convened to advise the registrar on registration of Lords' interests; whether a Lord of Appeal will preside; whether the decision of the registrar is subject to review by the courts and the European Court of Human Rights on compatibility with Articles 8 and 10 of the convention, and if so whether the sub-committee may receive representations by counsel and regulate its own procedures.
The Lord Privy Seal (Lord Williams of Mostyn): My Lords, there are four separate questions. The answers are: no, Lords of Appeal will not attend the sub-committee when it is advising the registrar; yes, the sub-committee is chaired by a Law Lord; no, the registrar's decision is not subject to review in the courts; and, no, the sub-committee may not receive representations by counsel although it is free to regulate its own procedures within limits.
Lord Campbell of Alloway: My Lords, as a matter of traditional courtesy I thank the noble and learned Lord the Leader of the House for his reply. But, may I ask, if these suggestions, which to some noble Lords may appear to be manifestly reasonable in the interests of the House, are to be rejected, surely the Government would give some thought to the proposals of the noble and learned Lord, Lord Nolan, that there should be some joint decision on registration? Is it accepted by the Government that
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ordained disclosure of private interests of spouses, relatives, friends, if it is disproportionate to the rights and freedoms of others—as, indeed, I suggest it is—is contrary to Article 8 of the convention and incompatible with it and also with Article 10 as interpreted by the Court of Human Rights?
Lord Williams of Mostyn: My Lords, the noble Lord has proceeded on a misapprehension. The registrar will have the limited functions of giving advice to Members—that advice having been accepted is a perfect defence, as I have pointed out—and maintaining the register.
Of course, private and confidential matters will have to be disclosed, as your Lordships supported in the vote. Plainly, anything supported by your Lordships is not capable of being disproportionate.
This Chamber is not subject to the Human Rights Act conditions, but even if it were, there is nothing in the code in contradiction of Article 8 or any other article. It is an entirely proportionate step. In the context of family and friends, that has been the position for many years.
Lord Renton: My Lords, the noble and learned Lord will remember that when he moved the Motion requiring Members of your Lordships' House to register their interests, he included the registration of our friends' interests. All of your Lordships have a wide range of friends, very few of whom are likely to affect our judgment very much. Will responsibility for deciding which friends' interests should be recorded rest on the registrar? If not, how will it be done?
Lord Williams of Mostyn: My Lords, since I moved the Motion, I seem to have no friends at all. The answer is to be found in paragraph 12 of the code that we supported. It says in bold type that "relevant financial interests",
"may also include (depending on their significance) … the financial interests of a spouse or relative".
The quality of judgment is exactly the same as that presently exercised so admirably by all of your Lordships when deciding under the present regime, which has been in place since 1995.
Lord Goodhart: My Lords, does the Leader of the House agree that the concern about the registration of interests of friends is exaggerated and misplaced? Is it not correct that what has to be registered by a Member of your Lordships' House is not the interests that his friends would have to register for themselves if they were also Members of the House, but only those interests of friends that are so important that they might be seen as having an influence over the decision of the Member who is making the entry in the register?
Lord Williams of Mostyn: My Lords, the noble Lord is right. Even the most cursory reading of paragraph 12 brings one inevitably to such a conclusion.
Lord Strathclyde: My Lords, do not the questions asked by my noble friends demonstrate that there is some confusion about how the register will work in practice? That view is shared not just by others in my party, but all round the House. Is it not wise, therefore, to look back on the words of the noble and learned Lord the Leader of the House? Will he repeat again that the register regime should always be interpreted with the very lightest touch?
Lord Williams of Mostyn: My Lords, of course I am always happy to repeat my own words with particular approval. It is all there in the code. I hope that the noble Lord will forgive me for pointing out paragraph 17 to him yet again. It says:
"The Registrar is available to advise Members of the House. A Member who acts on the advice of the Registrar … fully satisfies the requirements of the Code of Conduct".
It could not be simpler or lighter. The system is eminently workable and those in another place are looking with envy at the conclusion that we have arrived at.

Government Ministers: Special Advisers
2.57 p.m.
Lord Campbell of Croy Lord Campbell of Croy asked Her Majesty's Government:
What is the total number of special advisers working for Government Ministers.
The Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster (Lord Macdonald of Tradeston): My Lords, there are 81 special advisers working for UK Government Ministers.
Lord Campbell of Croy: My Lords, I thank the noble Lord for his reply. Has it been correctly reported that special advisers and Civil Service private secretaries have collectively been renamed "policy" advisers? Is it an accepted function of a special adviser to arrange for unpopular news to be released at a moment when it is likely to be smothered by news of events such as acts of terrorism and their consequences?
Lord Macdonald of Tradeston: My Lords, I confirm that the advisers in question are still known by the title of "special adviser". On occasions, some might be known as "special expert advisers". The noble Lord may be referring to the policy directorate in No. 10, for which many of them work. In answer to the second part of the question, I have seen no evidence to support any allegations that the Government have used the appalling events of 11th September to rush out difficult announcements. For example, the Home Secretary has made it clear that a difficult announcement relating to asylum seekers originally scheduled for 11th September was immediately delayed to avoid any such impression.
Lord Boardman: My Lords, what is the total cost to the Exchequer of special advisers in the past 12 months and what was the comparative cost of those employed by the previous Conservative administration?
Lord Macdonald of Tradeston: My Lords, the current figure of 81 special advisers compares with 79 under the last administration. The cost is about £4.4 million. I have no figures for the cost of special advisers under the previous administration, but I recall that it was mentioned in a debate in the House last year that the cost in 1991 was about £1.1 million.
Lord Lipsey: My Lords, I declare an interest as a founder member of the National Union of Special Advisers—a group of men and women, perhaps I may say, liberally represented on all Benches in this House. In that context, does the Minister agree that, given the political burdens on modern Ministers, the fact that they can carry out their political work with the aid of only two or three aides each is a remarkable miracle of productivity, not a source of criticism?
Lord Macdonald of Tradeston: My Lords, I am ready to agree with my noble friend. I also cite the figures that Sir Richard Wilson quoted previously in saying that the 80 or so special advisers among the 3,500 members of the senior Civil Service, who lead 450,000 civil servants, do not constitute a threat to their integrity.
Lord Marsh: My Lords, does the Minister agree that there is growing genuine concern about the extent to which the difference between the interests of the Government as distinct from the party is becoming increasingly blurred? Can the noble Lord provide a definition of where the line is to be drawn?
Lord Macdonald of Tradeston: My Lords, it is argued to the contrary by the Head of the Civil Service, Sir Richard Wilson, that the very existence of special advisers in many ways guarantees the impartiality of the Civil Service and its reputation by making a clear distinction between permanent civil servants and temporary civil servants who come in as special advisers. The latter are subject to the same rules of conduct as other civil servants but they have the ability to represent Ministers on political matters. That is clearly understood and judged by many members of the Civil Service to be to its benefit.
Lord Roper: My Lords, although I accept that there are sufficient former special advisers on various Benches in this House to indicate that they have some value, does the noble Lord accept that some of the proceedings in recent weeks in the Department of Transport, Local Government and the Regions have caused a good deal of concern? Is he satisfied that the revised code of conduct introduced after the general election is operating satisfactorily? Can he tell the House when we are likely to see the Civil Service Act, which we were promised at the election before last?
Lord Macdonald of Tradeston: My Lords, I believe that the code of conduct for special advisers brought

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in by the Government after the election on the recommendation of the Neill committee has, indeed, now been fully applied. A large part of that is to the credit of this House and due to the arguments put forward for such a course of action.
As to the events of recent times in the Department of Transport, Local Government and the Regions, I know that Jo Moore made a statement in the past few minutes in which she said that, no matter how much she would wish to, she cannot take back the terrible error of judgment. However, she hopes that people will accept that her regret is genuine and heartfelt.
In relation to the question of bringing in legislation on the Civil Service, we are committed to such legislation and, as soon as the programme of business allows, we shall take it forward.
Lord Peston: My Lords, speaking as a former special adviser, perhaps I may say that, deplorable although Jo Moore's remarks were, she is not the first person to have got such matters wrong. As a former special adviser, I certainly got many things wrong. However, the advantage that I had in those days compared to now was that such information was not leaked. That difference is not unique to the present Government. Does my noble friend agree that the main point is that special advisers end up doing all the dirty work and speak to Ministers in ways that civil servants cannot? My experience was that special advisers were still working when the rest of the Civil Service had gone home.
Lord Macdonald of Tradeston: My Lords, I agree with the first of my noble friend's comments. I believe that I speak for Ministers and former Ministers on both sides of the House when I say how valuable special advisers can be, especially in difficult times.
Lord Saatchi: My Lords, is the Minister aware that the right reverend Prelate the Bishop of Oxford has tabled a debate to be held next week on the subject of the ethic of public service? In that context, is he aware that Ms Moore is paid almost as much for a three-day week as the hard-working government Whips in this House are paid for a full-time job? Does he not believe that that is a complete distortion of the ethic of public service? Also in that context, does he share the widespread sense of shame and revulsion at the remarks made by Ms Moore in her memo?
Lord Macdonald of Tradeston: My Lords, as I stated in quoting Ms Moore, there is no doubt that she committed a serious error of judgment. She has accepted full responsibility for her action and has given a very full apology. She has been dealt with under the proper disciplinary procedures. It is the view of the Transport Secretary and the Prime Minister that someone should not lose their job for one such mistake and that it is time to move on. As for the relativities of the salaries involved, I believe that noble Lords will appreciate that many disparities exist within the pay scales of government. However, one consolation is that they are not quite as extreme as they are in the world of private business, from which the noble Lord and myself have come.

Schools: Private Sector Participation
3.7 p.m.
Baroness Blatch Baroness Blatch asked Her Majesty's Government:
Whether, under the proposed reforms for primary and secondary schools, private companies will be allowed to take over the running of a school with control over all staffing matters.
The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland): My Lords, we wish to encourage a diverse range of partners and providers. Private companies could propose to establish a new foundation or voluntary school, could work in partnership with schools to raise standards, could assist LEAs in turning round failing schools or could sponsor city academies. Similar opportunities will be available to community or faith groups, LEAs and other public and voluntary bodies. In all cases, staffing matters will be the responsibility of the governing body.
Baroness Blatch: My Lords, I thank the noble Baroness for that reply. She is saying that the private sector will not have the power to run a school, which must go hand in hand with having control over staffing. Do I read the noble Baroness correctly in that matter?
Baroness Ashton of Upholland: My Lords, having given considerable thought to the matter, it is our view that a school should be run by the governing body. In terms of the different types of school, which, as the noble Baroness will be fully aware, include voluntary aided, voluntary controlled schools and so on, the composition of the governing body is different. However, the relationship with a private organisation will be that of a consultancy more than that of a contractor. Therefore, such an organisation will not be responsible for the running of the school.
Baroness Sharp of Guildford: My Lords, can the Minister clarify a point which is very obscure? Where a private company takes over a school, what role will the governing body have?
Baroness Ashton of Upholland: My Lords, as I pointed out, there are different ways in which private sector organisations can be involved in schools. We have tried to develop that to allow the private sector to play a full participatory role. Perhaps I may take as an example the Abbeylands School, with which the noble Baroness will be familiar, where Nord Anglia is currently working with the local education authority. The maximum number of governors that Nord Anglia would be able to have on that governing body would be six, assuming that it also took the governance of a foundation school. The difference between that and, for example, a city academy is that, as noble Lords will know, the latter allows for a foundation to be made where the private sector puts in 20 per cent of the

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funding. In such cases, it would have a majority of governors on the governing body. That majority would be a small one in all cases, but it would be a majority. That is the difference.
The Earl of Listowel: My Lords, is the Minister aware of the shortage of governors and the difficulty of recruiting them for some primary schools in London? What is being done to enable schools to support governors? It is reported that there is a clear lack of support, which is needed to make the system effective.
Baroness Ashton of Upholland: My Lords, there is indeed a shortage of school governors in all categories. We are concerned to ensure that the right number of governors is available. We estimate that on average each year a school gets 1,000 hours from its governing body. That means that being a governor is a huge commitment for people to make on an entirely voluntary basis. I am sure that noble Lords join me in paying tribute to governors all over the country.
We are considering several measures in this regard. One approach is to examine the ways in which we can support schools that find it particularly difficult to recruit governors in certain categories. We should establish whether local authorities would consider ensuring that governors were put into those schools that are in the greatest need, in the local authority's view, and helping parents to consider becoming governors by showing what kind of role they would play. The system might be moved away from the more traditional meeting format that has perhaps not previously inspired everyone. A raft of measures is available and I should be happy to discuss them further on another occasion.
Baroness Walmsley: My Lords, does the Minister agree that the situation that she has just described in city academies, by which a private company could have a majority on the governing body, would discourage school governors from serving on those bodies, where they could easily be outvoted by vested interests? There is also the matter of the public accountability of such a governing body. How would that be managed?
Baroness Ashton of Upholland: My Lords, city academies have a strong relationship with local education authorities. We should not forget that that develops in areas in which LEAs are closely in touch and we should ensure that academies are put together appropriately. Noble Lords will be pleased to know that we have 13 partnerships currently working to establish city academies.
As for the majority of governors, it has never been my experience—the noble Baroness may have a different view—that people are discouraged from becoming a governor because they would be in a minority. Indeed, most categories are in a minority—I refer to a parent governor and an LEA governor, for example. It is important that the ethos and thrust of a school are maintained. As I said earlier, we must
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ensure that with city academies the majority that is obtained is not substantial but that it enables the running of the school to be carried out appropriately.
Lord Elton: My Lords, does the Minister agree that one reason for the shortage of governors is that many people do not feel themselves fitted to be governors? The reason that they do not feel themselves fitted is that they are not fitted. What are the Government doing to fit people to be governors so that they can be effective?
Baroness Ashton of Upholland: My Lords, many noble Lords are definitely fit to be governors. If I were allowed to do so, I should take a straw poll to see how many of us are in fact governors. I believe that the question is, in a sense, the other way up—many people are fit to be a governor but they do not feel that it is a role for them. They may feel that way because they have a misunderstanding about what is required, because they believe that being a governor will take up a huge amount of their time or because they find the process and procedures very difficult to understand. Most people—certainly many parents, many of those who are involved in community life and many business people—should and will be encouraged to become governors, but it should be done on the basis that they understand what the role involves.

Provisional IRA and Terrorism
3.13 p.m.
Viscount Bridgeman Viscount Bridgeman asked Her Majesty's Government:
In the light of the war against terrorism, whether they consider the Provisional IRA to be part of the international terrorist network.
The Minister of State, Home Office (Lord Rooker): The Provisional IRA remains proscribed in this country as an illegal terrorist organisation even though it has been on ceasefire since 1997. The links that it is known to have had at various points over the past 30 years with overseas terrorist groups have always been a matter of concern. However, that does not alter the fact that the present peace process offers the best chance for generations finally to rid Northern Ireland of the scourge of politically motivated violence.
Viscount Bridgeman: My Lords, I thank the Minister for his Answer. Does he agree with the recent remarks of Mr Gerry Adams, who said that the IRA contains not terrorists but freedom fighters?
Lord Rooker: My Lords, at the risk of upsetting the noble Viscount, I have to say that, frankly, I have nothing to add to my Answer.
Lord Dixon-Smith: My Lords, I hope that the Minister agrees that the concept of a freedom fighter who is fighting in a free society is a contradiction in terms. Will he tell the House what pressures he is

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exerting on the Government of the United States, with whom we are very closely and properly allied in the war against terrorism, to persuade them that they really should take some action to restrict the flow of funds that have come steadily from that country through NORAID to the IRA or Sinn Fein in Ireland?
Lord Rooker: My Lords, I say with the best will in the world that we are doing everything that we can to bring the peace process to a successful conclusion. Frankly, unwise words and comments will disturb that and I am not going to fall into the trap. We are determined to bring this to a successful conclusion. We have the best chance for a generation to get peace in Northern Ireland, and that is what we are working towards.
Lord Strathclyde: My Lords, I cannot see how by any stretch of the imagination public debate in this House could offend the efforts of the peace process. Is it not right for the Government to have declared war on terrorism? Are we now seeing the Government deciding that there is good terrorism and bad terrorism?
Lord Rooker: No, my Lords. Every noble Lord will understand that a peace process is under way in Northern Ireland. Asking me to comment on a particular phrase that has been gleaned from whatever part of the media and which was made by a particular person and expecting a substantive answer means, frankly, that one is not taking the peace process seriously. We are serious about getting a successful conclusion to this peace process; that remains the position. There is no stifling of open debate in this regard. Unlike other parts of the world, we have a peace process under way; that is the difference.
The Lord Bishop of Oxford: My Lords, does the Minister agree that we are grateful to a Conservative Prime Minister for initiating the peace process?
Lord Rooker: My Lords, this is not a one-party peace process. Of course it started under John Major. All credit is due to him and to all former Northern Ireland Secretaries of State, some of whom sit on different sides of this House, and to former Prime Ministers on both sides of the political divide in the United Kingdom. They tried their level best at that time to get peace in Northern Ireland. We are continuing that process.
Lord Campbell of Alloway: My Lords, I ask the Minister not to comment on that but to answer the question. What is being done to stop America providing funds to the terrorists? Will he please answer that question on behalf of the Government?
Lord Rooker: My Lords, I return to the Question, which asks,
"In the light of the war against terrorism, whether they"—
that is, the Government—
"consider the Provisional IRA to be part of the international terrorist network".
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I gave a substantive and considered Answer to that Question. The other matters are being dealt with through the normal machinery of government and with our allies and friends. We and our international friends are doing what we can to bring the peace process in Northern Ireland to a successful conclusion. I am very sorry if the noble Lord does not like my Answer but it is the best that I can give this afternoon.
Lord Shutt of Greetland: My Lords, what is the present position regarding the declaration that the loyalist paramilitaries have broken the ceasefire? What is the purpose of this declaration in terms of upholding the peace process?
Lord Rooker: My Lords, as my right honourable friend the Secretary of State, John Reid, said last week, the organisations have been specified in the legislation. It so happens that no members of those organisations are currently being held. If there had been, their release would have been stopped. The provisions do not mean, as many mistakenly thought, that those who had been released and who were members of those organisations would automatically go back to prison. That will happen only if such people break the terms of their release agreement. That is the consequence of specifying those organisations. They are now out of the ceasefire process.
Baroness Park of Monmouth: My Lords, I stress to the Minister that we are asking only for a statement of fact. Two Ministers in the Northern Ireland Assembly are members of Sinn Fein/IRA, and one of them has at last just become a public member of the provisional council of the IRA. The Sinn Fein conference entertained ETA, a Basque terrorist organisation, at its previous conference. It has raised money and sought arms in Libya and Bosnia, and it has sent people to help to train terrorists in Colombia. We would look foolish in the eyes of the world, the eyes of Europe and, most of all, the eyes of the United States if we did not recognise, whatever the importance of the peace process, that this movement is a part of an international terrorist group. Surely those are facts.
The Government, I hope, are prepared to deal in facts. The peace process will not be helped by ignoring those facts and not remembering that the majority of the people of Northern Ireland voted to remain part of the United Kingdom. The people in this movement wish to prevent that. They still have guns under the table and, indeed, above the table. They are still terrorising their own communities and exiling people. I am aware that I have spoken for too long. Can the Minister say whether the Provisional IRA should be regarded as an international terrorist organisation?
Lord Rooker: My Lords, in the middle of her reply, the noble Baroness used the words, "whatever the importance of the peace process", thus qualifying it. I made clear in my Answer that it has overriding importance in trying to bring peace to Northern Ireland. I also made clear that at various points over the past 30 years links with these groups have been a

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matter of concern. However, that does not alter the fact that the importance of the present peace process is overriding. I do not qualify that. It is the best opportunity we have.

Business of the House: Access to Peers' Car Park
3.22 p.m.
Lord Peyton of Yeovil: My Lords, can the noble Lord the Chief Whip offer an explanation for the continued restricted access to these premises?
Lord Carter: My Lords, I thank the noble Lord, Lord Peyton, who, with his customary courtesy, informed me of his intention to ask this Question. I should make clear that the Government have no locus in this matter, but I am happy to respond.
The work that has been carried out on the West Front of the House in the area of the Peers' car park in the Summer Recess is phase 2 of a three-phase project to create Old Palace Yard as a World Heritage square. Next summer will see the roadway restored. This summer's work should have been completed by 8th October 2001. Unannounced and unco-ordinated work to lay a gas pipeline by Transco along the pedestrian side of Old Palace Yard started shortly before the House rose for the Recess.
Accordingly, our contractors asked for and were granted two extra weeks to complete the pavement. The pavement work will be completed by 26th October; that is, at the end of next week. The car park is complete and provides 64 parking spaces, one more than before. I am sure that, had he been with us, Lord Cocks of Hartcliffe would have been the first to congratulate the authorities of the House.
Lord Peyton of Yeovil: My Lords, I make it clear that my Question involved no criticism of the noble Lord. I am grateful to him for his courtesy and for the Answer he has now given. However, does he find it embarrassing to agree on behalf of the Government that the continued mixture of sloppiness and bad manners on the part of those who run large organisations such as Transco is greatly to be regretted? It would be a welcome change and an example if they were to determine from now on to treat the public with greater consideration and rudimentary good manners.
Lord Carter: My Lords, I am not in the least embarrassed to agree, not on behalf of the Government but on behalf of the House.
Lord Peston: My Lords, my noble friend referred to the much lamented Lord Cocks of Hartcliffe. At the risk of my noble friend having a heart attack, perhaps I may ask him to accept that I now realise, having looked at the car park, that when I intervened before
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on this subject I was mistaken. It seems to me that for once the authorities of the House have done something right, which is why I risked the heart attack.
I do not know what message Lord Cocks is sending down to me from Heaven, but I have to confess that the car park looks more attractive and appears to be more efficient in terms of parking. I regard that as miraculous, which is why I felt I should intervene.
Lord Peyton of Yeovil: My Lords, no point is raised about the car park. My point relates to the delay caused by Transco's operation.
Lord Carter: My Lords, as Chief Whip, I cannot respond without referring to the fact that my noble friend voted for reference back to the sub-committee. We then recommended the scheme and the House supported it. Perhaps I may remind my noble friend of the biblical injunction that good works precede redemption.

Commonhold and Leasehold Reform Bill [H.L.]
3.25 p.m.
The Lord Chancellor (Lord Irvine of Lairg): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(The Lord Chancellor.)
On Question, Motion agreed to.
House in Committee accordingly.
[THE CHAIRMAN OF COMMITTEES in the Chair.]
Clauses 1 and 2 agreed to.
Schedule 1 agreed to.
Clause 3 [Consent]
Lord Goodhart Lord Goodhart moved Amendment No. 1:
Page 2, line 18, at beginning insert "Subject to subsection (1A),"
The noble Lord said: It falls to me to conduct the usual brief waffle while Members remove themselves in preference to listening to this most important debate which is of wide public interest. This is the third time we have debated amendments to Part 1 of the Bill. Before the general election we had Committee stage and dealt with Part 1 on Report. We now return, for the third time, to deal with the amendments to Part 1.
However, the fact that we have already debated amendments to the Bill at some length means that it is possible to cut back on the number of amendments that are to be debated. Those which have been raised merely for the point of discussion and have been dealt with will not come back again. We, on these Benches, have cut back on the number of amendments that we have tabled to the Bill as compared to those we moved in debate on its predecessor. We raise only those issues which we regard as significant.
It is now possible for me to become more substantive. In moving Amendment No. 1, I shall speak also to Amendments Nos. 8 and 191. The amendments try to deal with the problem which arises when a majority of leaseholders of an existing property wish to convert that property to commonhold but their wishes are being frustrated by a small minority of leaseholders, which for instance, may be no more than one single leaseholder in a block, however large.
At Second Reading, before the Summer Recess, it was suggested that if we were able to propose something of sufficient interest and workability, the Government might consider it. We have proposed what we believe is a workable solution to the problems, at least in part, although we believe that the problems cannot be solved altogether.
We believe that our amendments provide a way of enabling a majority of leaseholders to enfranchise where at least 80 per cent of the leaseholders of units in an existing building support the conversion to commonhold. Therefore, our proposal, if enacted, would mean that there would be a conversion to commonhold where 80 per cent of the leaseholders support that proposal and that 80 per cent already hold the freehold or can obtain it by collective enfranchisement. The key to our proposals is that the position of the existing leaseholders is, by and large, left untouched. That is important, because a majority of leaseholders should not have the right to force a minority to find the money to buy into the freehold themselves or else have to surrender the flat in exchange.
There are three different formulae in our amendments and the other amendments that are grouped with them. One is ours; one is that of the noble Lord, Lord Kingsland; and one is that of the noble Lord, Lord Williams of Elvel, and the noble Earl, Lord Caithness.
We have some difficulty with Amendments Nos. 7, 19 and 33, tabled by the noble Lord, Lord Kingsland. That is because they would result in a leaseholder who, against the wishes of the majority, did not support conversion having his or her lease extinguished; and though he or she would be entitled to compensation, we do not regard that as an acceptable solution.
The Williams/Caithness amendments, if I may call them that, operate in a similar way to ours. I therefore hope that at Report stage we may be able to arrive at a joint formula, because I believe that there is very little difference between us.
However, there is one difference between our amendments and the Williams/Caithness amendments. Our Amendment No. 191 gives a leaseholder a right to buy into the commonhold at any time. In order to encourage the leaseholder to do that, we propose that the leaseholder would lose the alternative right, which he or she now enjoys, to an extended lease. We accept that that form of conversion creates some problems, because about 80 per cent of leaseholders who wish to convert will have to buy 100 per cent of the freehold, if they do not already own it. To some extent, that may make conversion on an 80 per cent majority basis more
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expensive and less attractive. But we can see no way round that, without requiring the minority leaseholders to convert to commonhold against their will or lose their flats.
Our amendments are relatively simple. We believe that they are workable. I do not suggest that their drafting is perfect. However, they form the basis of a workable and effective draft. In our view, they will do no harm; they will not force anyone out of his or her existing flat; they will not require anyone to pay more money without consent; and they will do good in a number of cases, particularly in the case of relatively small units—perhaps a single house containing five different flats, perhaps a small block containing between five and 10 flats. Where the great majority of leaseholders in those cases wish to convert, it will then be possible for them to do so.
Ours is not a very complicated proposal. I hope that the Government will feel able to accept it in principle. I am sure that they will wish to redraft it. I would not expect them to do so before the Bill finishes its passage through your Lordships' House, but there is no urgency to introduce it in the other place, and a delay before it moves to the other place could allow the Government time to do the necessary drafting. I beg to move.
Lord Williams of Elvel: I am grateful to the noble Lord, Lord Goodhart, for recognising that there is little difference between his amendment and that tabled by me and the noble Earl, Lord Caithness.
Those of us who sat through the five thrilling days of Grand Committee discussions—and I welcome new colleagues on the Front Bench, as well as old colleagues, including the noble Lord, Lord McIntosh—will recognise that there was a general feeling in that Committee, and I hope also in this Committee, that we are trying to encourage commonhold to become something other than a formula for new builds. That is the principle from which we start.
The noble Lord, Lord Goodhart, has quite rightly said that our amendment is very similar to his. I think my noble and learned friend the Lord Chancellor gave us a little chink of light at Second Reading that if we could find a formula that will not infringe the human rights of leaseholders who might remain under commonhold, and yet will allow a decision to go to commonhold on less than 100 per cent of the vote of leaseholders, the Government might be prepared to consider it. I submit that that would be achieved by our amendment.
I echo what the noble Lord, Lord Goodhart, has said. We argued many of these points in Grand Committee during the passage of the previous Bill. I apologise to my noble friends on the Government Front Bench for the fact that a number of my amendments were tabled during the Recess and were a rerun of some that we had discussed in Grand Committee. I shall therefore not speak about them at great length. Nevertheless, this particular argument is not likely to go away.

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If the noble Lord, Lord Goodhart, the noble Earl, Lord Caithness, and I can get together on Report—and I apologise for the noble Earl's absence; he is in the United States of America but will be back at Report stage and find what I think my noble and learned friend the Lord Chancellor referred to as an all-party agreement that may satisfy this Committee and the other place, I hope that the Government will consider it. That is the intention of all those who will speak to this group of amendments. I sincerely hope that my noble friend Lady Scotland, whom I welcome to these arcane discussions, will feel able to offer us some reasonable encouragement.
Lord Kingsland: As the noble Lord, Lord Goodhart, indicated, I have four amendments in this group, of a somewhat more technical nature than his, and I crave the indulgence of the Committee to allow me to devote a little time to each of them. I accept that there are incompatibilities between my amendments and the amendment tabled by the noble Lord. I also accept that should he win the day and I lose it, I shall, of course, have to accept that. The fact that my amendments are incompatible with his amendment does not mean to say that I think his has no merit.
I speak first to Amendment No. 7. As printed on 20th December 2000, Clause 3(1) of the Bill required, in addition to the consents of those mentioned in paragraphs (a) to (d), the consent of,
"the registered proprietor of an interest in the whole or any part of the land".
That provision was removed as a result of an amendment tabled by the noble Lord, Lord Goodhart. In Grand Committee, the noble Lord asked:
"why on earth is it necessary to get the consent of a registered proprietor of an interest over the land if that interest is not affected?".—[Official Report, 20/2/01; col. CWH 4.]
He gave the example of a neighbour's easement of drainage over commonhold land.
However, there may be interests in relation to land, the subject of an application to register as commonhold, which should not be ignored, even if they are not protected by registration—such as rights of persons in actual occupation of land, which are overriding interests under Section 70(1)(g) of the Land Registration Act 1925. They may include, for example, the claim of an occupier to a beneficial interest in the land by reason of a contribution to the purchase price; or the right of the wife, prevailed upon perhaps by her improvident husband to convey or charge her interest in the matrimonial home, to set aside the conveyance or charge because of his undue influence.
It seems only right to take steps to see that such cases, which often arise in practice, are not overlooked before an application is made under Clause 2. That would seem to be especially important if Clause 6, which deals with registration in error, becomes law in its present form. Under Clause 6, the power to correct errors in registration is limited to the cases mentioned in subsection (1) and the general power to rectify under Section 82(1) of the Land Registration Act 1925 is
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excluded by Clause 6(2). At the same time, I entirely accept that one does not wish it to be easy for trivial or spurious claims to block applications. I suggest that the proposed new subsection (1)(e) strikes a reasonable balance between these two considerations.
The second part of the amendment adds a proviso to Clause 3(1) of the Bill. During the Second Reading of the Bill in January, and in Grand Committee on 29th February 2001, the noble Lords, Lord Goodhart, Lord Richard and Lord Williams of Elvel, the noble Baroness, Lady Hanham, and the noble Earl, Lord Courtown, expressed doubts about the requirement for 100 per cent to convert to commonhold. However, the noble Lord, Lord Bach, sought to justify it on the ground that otherwise one would have "anomalous leaseholders remaining".
Clause 3 as drafted is somewhat Delphic about that point. Subsection (1) lays down the 100 per cent requirement and subsection (2) provides that regulations may provide inter alia,
"(e) for consent to be deemed to have been given in specified circumstances".
and,
"(f) enabling a court to dispense with a requirement for consent in specified circumstances".
These provisions are clearly intended—clearly intended—to allow the 100 per cent requirement to be "got round" in certain circumstances. But those circumstances are nowhere specified in the Bill; nor are they dealt with in the Explanatory Notes.
In my submission, one should take account of the criticism of the 100 per cent requirement and in clear terms reduce it in the text of the Bill to, say, 80 per cent. But 80 per cent of what? It is suggested that the total floor or surface area may be an easier-to-use and a fairer yardstick than the number of units or parcels. The latter may vary widely in size and the assortment of estates, interests, claims and rights, mentioned in Clause 3(1), may not coincide with units of accommodation. For example, they could include rights over part of a unit, or part of several units, or the common parts of a building.
I know that the noble Lord, Lord Goodhart, was concerned about the dimension of expropriation. But it is true that, for example, in the world of takeover an acquisition of 90 per cent of a shareholding is sufficient to require the other 10 per cent to yield. Has the noble Lord, Lord Goodhart, reflected carefully on that and come to the conclusion that the parallel is not an exact one in the case of leasehold property?
Lord Goodhart: Does the noble Lord agree that there is a real difference between giving up a small shareholding where 90 per cent concurred in the takeover, which has no substantial effect on the share owner, apart from converting those shares into cash, and on the other hand being forced to give up the right to a leasehold property which may well be that person's home?
Lord Kingsland: I accept that there are differences in character but I am not sure that I accept that there is a fundamental difference, provided that compensation is prompt and full.
I turn to Amendment No. 10 and I can be extremely telegraphic—to use a favourite expression of the noble Lord, Lord McIntosh. These changes supplement those proposed for subsection (1). The proposed subsection (2)(g) is intended to ensure that notice of an application comes to the attention of persons in actual occupation of land who otherwise might not find out about it. Paragraph (h) supplements the proviso to subsection (1). The power to dispense with a consent under the proviso could be exercised under subsection (2)(f).
As regards Amendment No. 19, for reasons similar to those put forward in relation to the extinguishment of charges under Clause 27, the provisions for compensation should be extended to cover any landlord, not just the landlord of an inferior lease, whose lease is extinguished on registration of a freehold estate in commonhold land.
3.45 p.m.
The Parliamentary Secretary, Lord Chancellor's Department (Baroness Scotland of Asthal): Many Members of the Committee who are present today will carry a distinct feeling of déjà vu. As my noble friend Lord Williams noted, with the exception of my noble friend Lord McIntosh, who has already been through the valley of the shadow with Members during Committee and Report stages on the previous Bill, my colleagues and I on the Government Front Bench come to this topic fresh and full of what I hope will be infectious enthusiasm.
We in the government team who have been developing the Bill have come to think of a number of the amendments on the Marshalled List as old friends. I suspect that the answers which the Government give to many of them will fall into a similar category. That is not because we are being obdurate for the sake of obduracy. On the whole, we believe that the Bill as it appears is in good order and we have got it about right. That has been achieved with a great deal of help and work from all Members present through the Grand Committee and we thank them for that hard and industrious work.
It would be foolish to suggest that there is no room at all for improvement and it may be that we will be able to react positively to appropriate amendments on this occasion as we did previously. However, having accepted a number of amendments last time, the scope for further amendment now is rather more limited. The first group of amendments is a particular case in point.
We empathise with the purpose behind the amendments and the concerns of the Committee in relation to it. This issue is one over which we have struggled long and hard. The group brings together all those amendments which set out to amend the rule that the Government have developed which requires that 100 per cent of those with a substantial interest in land
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to be registered as commonhold land should be required to express their consent to the registration. These would include the freeholder, who must either give consent or have his interest bought out, anyone who holds a lease granted for a period of 21 years or more and others such as those holding certain charges over all or part of the land. That is laudable, but the question for us is whether it is achievable. Our intention in imposing the rule was to ensure that the process of converting to commonhold should be as straightforward as possible and that the management of newly-established commonholds should not be complicated by the existence of more than one class of interest in the units comprising the commonhold.
As I am aware that I am about to disappoint a number of noble Lords, with the indulgence of the Committee I should like to explain in some detail our thinking on this matter. We believe that we may not have articulated as clearly as we might why we are so keen to implement the 100 per cent rule and neither have we exposed our rationale in sufficient detail. This is a difficult area. We have never believed that it would be impossible to devise a system to provide for the conversion of a leasehold to commonhold with fewer than 100 per cent consents of the classes that we have specified. Indeed, the Bill developed by noble Lords opposite in 1996 when they were in government proposed just such a scheme. Today, Members of the Committee have, in varying degrees of detail, suggested ways toward that end. However, our view is that, although it is perhaps possible, such a scheme would be very complex and thoroughly undesirable, and at Second Reading my noble and learned friend the Lord Chancellor signalled as much.
I set out our reasoning We recognise only too well that to obtain 100 per cent of the necessary consents will be difficult, notwithstanding that the courts will be able to dispense with consents where obtaining them proves to be impossible, for example where a leaseholder cannot be traced. That was the example we had in mind in relation to Clause 3(2)(f) to which the noble Lord, Lord Kingsland, referred. However, we believe that the difficulties which would follow from the alternative of allowing conversion with a margin of non-participants of whatever size would far outweigh any conceivable advantages, and that, given the content of Part 2 of the Bill, it is unnecessary.
Both this and previous governments have undertaken to provide for conversion from leasehold to commonhold, but the circumstances are now very different from those which obtained in 1996. Part 2 of the Bill makes available a much more straightforward way to achieve collective enfranchisement for those who are eager to own the freehold of their development than was available when the opposition's Bill was developed and conversion to commonhold was seen by many as the only viable alternative to being caught in the long leasehold trap.
We have given a good deal of consideration to the process of conversion to commonhold. How will it work? We believe that the urge to convert is most likely to occur among those who have not yet taken advantage of the right to enfranchise. If it proves

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impossible to persuade 100 per cent of the occupants of the existing development to come on board it will be necessary for those who do consent to find the extra money needed to buy out the freeholder's interest in the non-converting units. It will then be necessary either to set up a separate company to hold the freehold of the continuing leasehold flats or, perhaps more likely, make it possible for the commonhold association to do so. The extra work and costs, including legal costs, could be considerable.
Consideration would have to be given to possible amendment of the remaining leases. The memorandum and articles of association of the commonhold association would have to be altered to take account of the ownership and management of the freehold of those units and direct relations with the leaseholders thereof. The commonhold community statement would have to take into account the distinction between commonhold units and non-consenting units and the differential management tasks. To tailor-make the documents and structures that they reflected would not only add considerably to the costs of the conversion process but fly in the face of the thinking behind commonhold, which the Committee recalls is based firmly on parity of interest and uniformity of structure and standardisation, so far as possible, of the documentation.
I was much relieved and reassured that when the noble Lord, Lord Goodhart, outlined his arguments in support of the amendment he acknowledged that problems and difficulties remained to be dealt with. It should also be noted that the original consenters will no doubt expect to recoup the extra costs arising from the conversion process and that will tend to mean either that the selling price per unit is higher than is otherwise justifiable, rendering the units relatively poor value for money, or that the extra costs just cannot be recouped in the short or even medium term.
But the difficulties that arise on conversion are just the start of the potential problems. The management of the resulting organisation, which we expect to be carried out by volunteers as the Committee will recall, will become a great deal more difficult. In addition to running the commonhold association, which despite the efforts we have made to keep it simple will still be a responsible job that requires a mix of skills, including a fair degree of diplomacy, the directors will become landlords. Their leaseholders will be the continuing leaseholders who may already be disgruntled by the conversion process in which they did not take part, for whatever reason, and through which they have been dragged against their will. They may also have had to undergo amendment to their leases or entered into disputes about the value of their remaining interest, particularly if they are not allowed to apply for lease extensions at the end of the lease period.
Inevitably, they will now be in a less favourable position than the unit-holders who are part of the commonhold in terms of both the day-to-day running of the development and the sale of the unexpired portion of their leases in due course. The full members of the commonhold may well find that their own units
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are worth less than those in a comparable development which does not include continuing leaseholders, and all this before the all-too-common disputes arise between landlord and tenant. Therefore, that arises even before one encounters the normal difficulties in human relationships that those of us who travel down this road know only too well. Those matters will be settled by the machinery provided for the purpose in existing leasehold law rather than the streamlined processes that we hope will apply to commonhold.
Lord Williams of Elvel: I apologise for interrupting my noble friend. It is very important to get the language right. In Grand Committee Members were told that it was impossible to have less than 100 per cent for commonhold except under extraordinary circumstances. Am I right in understanding my noble friend to say that it is perfectly possible to have existing leaseholders under a commonhold association and the problem is one of expense, complication and difficulty?
4 p.m.
Baroness Scotland of Asthal: The issue is not whether it is possible, but whether, bearing in mind all the abreactions which will flow from it, it is desirable and preserves the essence of what commonhold is supposed to be. We considered fully if we could preserve the essence of what we all want from commonhold and retain that as well as having less than 80 per cent and whether there was any other way that that could be done. We reluctantly concluded that even if technically it was possible to construct something that was less than 100 per cent, it would not, because of the consequences, the complexities and the difficulties, be practical to do so because we would not have commonhold occurring as we all want it to; that is, with parity, equality and people working together in a scheme in which they all share an equal part.
The unit holders have their rights under the Act arising, as I said earlier, from their obligation to belong to the commonhold association as members and thus participate in all the important decisions relating to the management of the development, as well as having a freehold interest in their commonhold unit. Leaseholders will not have those rights. Their interest will continue to be time limited by the term of their lease, and it will almost certainly be necessary to curtail their rights to apply for lease extensions. That was mentioned by the noble Lord, Lord Goodhart.
Lord Goodhart: I am most grateful to the Minister for giving way. We recognised that. We suggested that there would be a curtailment of rights for an extended lease but that the conversion of the whole block into commonhold would be accelerated because there would be a right to buy into the commonhold at any time until the unextended end of the lease.
Baroness Scotland of Asthal: We understand that that is what the noble Lord intended. As I said earlier, we would then be left in a situation where the leaseholders would have a less advantageous position

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in being a leasehold part of a commonhold than they would have in an ordinary leasehold situation. There they would be entitled to become an enfranchised leaseholder under Part 2 of the Bill. That is why we say that one has commonhold on one hand and then the opportunities that are available to become an enfranchised leaseholder on the other, so that where one cannot get 100 per cent agreement there are still opportunities for enfranchisement under Part 2. One has to see both parts of the Bill acting together.
The previous difficulty was that the route to enfranchising leaseholders was seen only to be commonhold. Now we have an alternative. That is why we should like to preserve the purity of the commonhold. It will not just be available for new builds; it will be available to meet the needs of current properties where the occupiers are in agreement.
The commonhold association will be required to manage the common parts under the terms of the commonhold community statement and the memorandum and articles of association, and to set budgets and collect assessments from the unit holders. In circumstances where there are continuing leaseholders, it will also have to set levels of service charges for the leaseholders who will not, because of their minority position, be able to take advantage of the provisions relating to service charges and management stemming from Part 2 of the Bill.
There will be two different classes of occupant with two streams of management under two different statutory regimes. There will be two different sets of moneys to collect with two sets of accounts to produce and potentially almost an infinity of different tailor-made schemes to design and operate. They will bring with them the potential for the kind of drafting problems which have helped to bring leases into disrepute. Perhaps most importantly, there will be the medium to long-term preservation of long leasehold properties. I should not like Members of the Committee to think that that would be seen as a cunning plan to keep even more of we lawyers in good, robust, long-term employment
I hope that I have illustrated why, despite the difficulties inherent in obtaining 100 per cent of the relevant consents, the Government hold to their view that it is the right way to proceed. I am sure I shall be corrected if I am wrong, but I do not recall from looking at any of the documents or from what was said in Grand Committee that the Government have ever said that it was impossible to do. I think that the Government made clear that it was undesirable.
Lord Williams of Elvel: I thank the Minister for giving way. My recollection is that my noble friend Lord Bach said that it was not wholly impossible, but most unlikely that existing builds would convert to commonhold.
Baroness Scotland of Asthal: I obviously take that from my noble friend. I do not think that I have said anything inconsistent today. It is possible. Whether it is practical or desirable is another matter.
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As I said earlier, none of the difficulties that I have mentioned is insuperable. As my noble and learned friend the Lord Chancellor indicated at Second Reading, the Government, although sceptical about the prospects, would be prepared to consider well judged amendments that successfully addressed the many difficulties that I have outlined. I am afraid that none of the amendments before us today meets my noble and learned friend's test. Perhaps I may explain why in more detail.
The amendments put down on this topic provide us, as noble Lords have indicated, with four schemes to displace the 100 per cent rule. Those put down by the noble Lord, Lord Goodhart, and the noble Baroness, Lady Hamwee, outline the kernel of a workable scheme to provide for conversion with less than 100 per cent consent. Unfortunately, though it goes some way to setting up the machinery to do it, the proposal does not overcome the serious problems that I have outlined. The commonhold association would be the owner of the freehold and thus the landlord of the continuing leaseholders, with what we believe to be the almost inescapable problems that that would bring. Leases could be exchanged for commonhold unit status at any time subject to payment of a price and to other terms which would almost certainly lead to friction between the leaseholder and the commonhold association. The lease could not be extended, and at the end of its term would revert to the commonhold association who would sell it and retain the proceeds of sale for its own benefit. The extent to which these funds would benefit the recently converted leaseholders might be a cause of friction with those who paid for their commonhold status upfront. The amendments represent the beginning of a journey to a destination which we truly believe that no one, on mature consideration, would want to reach.
The amendments put down by the noble Earl, Lord Caithness, and my noble friend Lord Williams give us the same difficulties as they did previously. The first of their amendments seeks to insert the words,
"at least 80 per cent of the following classes of person".
As we noted on the last occasion when we debated the matter, there are five such classes of persons set out in Clause 3(1), and the wording of the amendment is ambiguous as to what is actually intended. The intention is, of course, to overcome the 100 per cent rule, but the detail is lacking. It makes it very difficult to discern more than the very bare outline of a scheme. I absolutely empathise and understand why that is so, but it creates an insurmountable difficulty. Certainly there is nothing to suggest how the difficulties that I have previously outlined might be addressed. We are also confronted again with the proposition that the votes of the 20 per cent who either did not vote or who voted against the conversion shall be overturned by tribunal decision. As my noble friend Lord Bach then said, we can think of no tribunal or court in this jurisdiction which would welcome legislation directing it to come to a particular decision, presumably regardless of any pertinent evidence. I am afraid that these amendments would not result in a workable scheme for conversion with less than 100 per cent

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consents. Nor would they provide a way of managing the resultant organisation in a way that would provide the occupants with a stable and reliable home environment.
Perhaps I may turn to the amendments tabled by the noble Lord, Lord Kingsland. With his usual style, the noble Lord has provided us with no fewer than two schemes to overcome the 100 per cent rule. The first we saw last time and is based on an exemption for owners of up to 20 per cent of the total surface area of the land in relation to which the application is being made. I am afraid that it suffers from the same inability to overcome the problems that we foresee for the converters and for the subsequent management of the development.
The noble Lord's second scheme would allow conversion without a majority in favour. I suppose that it is just conceivable that half of the long leaseholders might want to buy out the landlord's interest in all the flats in a development. However, the scheme proposed would give any number of objectors amounting to over 10 per cent of the total an effective veto by allowing them to take their objections to court. Even if they were not successful in their challenge, there would be inevitable costs to be met for both sides. The scheme seems to us to set up the largest potential for difficulty both in terms of the conversion process and for future management.
I turn now to Amendments Nos. 19 and 33 in the grouping. The noble Lord, Lord Kingsland, may accept that he has tabled amendments which appear to contradict his obvious earlier intention to make conversion easier than it might be if the 100 per cent rule were to prevail. The first amendment provides that where leases are to be extinguished under Clause 7(3)(d) or 9(3)(f), all leaseholders should have an opportunity to consent or to be fairly compensated. The county court is given jurisdiction to decide in disputed matters regardless of quantum. The Bill at present requires a registered leaseholder to consent and to be liable to an inferior leaseholder for any loss suffered. It is not by any means clear what the amendments would add other than, I respectfully suggest, a degree of duplication and additional complexity.
To give inferior leaseholders, who in our scheme are entitled to be compensated for their loss but whose consent is not required and thus cannot hold up conversion by withholding it, the right to give or withhold consent would add tremendously to the difficulties in practice of achieving conversion. Nor is it clear how the decision would be made as to whether any particular leaseholder was to be given the right to consent or merely to be compensated.
Amendment No. 33 provides for chargees to consent to the extinguishment of charges over land which is to become part of the common parts. The Bill already provides for such consent by registered chargees in Clause 3. The arrangements made between the applicant for registration and the chargees as to compensation or the substitution of security appear to be matters that should be sorted out between them.
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I am afraid that, in our view, these amendments are also defective in almost every respect, achieving, if they would in fact achieve anything, the basis of schemes which would be expensive and unwieldy to achieve and next to impossible to manage.
Perhaps I may finish by suggesting that the obvious and preferable alternative for those, where they comprise the majority, who wish to take control of their own developments on the basis of unequal interests where some are unwilling or unable to participate on the commonhold basis of parity of interest, is to take advantage of the new and much improved scheme for collective enfranchisement provided by Part 2 of the Bill, to which I referred earlier. I know that my noble friend who sits on the Front Bench will be only too anxious to delight noble Lords with the detail of those provisions later this evening.
Although the end result will not be commonhold, the practical application of the new scheme will allow participating leaseholders to come as close to a freehold interest as is possible by giving them the opportunity to take control of their freehold via a holding company, to grant themselves very long leases, and to have the final say in the management of their developments. I respectfully suggest that the enfranchisement scheme is itself tailor-made for circumstances in which fewer than 100 per cent of the occupants of the development consent. Furthermore, the scheme takes the interests of the minority fully into account.
We believe that collective enfranchisement is the route for those unable to achieve the 100 per cent consents required to convert to "pure" commonhold. I hope that I have now said enough, and at great length, to convince noble Lords that the hybrid of commonhold with non-consenting leaseholders would be a vitiated scheme, having neither the advantages of commonhold for the unit holders nor the advantages of enfranchisement for the leaseholders.
I hope that noble Lords will be prepared to withdraw their amendments, although it is with a degree of sadness that I have to impart such news to Members of the Committee.
4.15 p.m.
Lord Selsdon: I lack the erudition of many other speakers in our debate, but I now have the honour of being, while still confused, confused at a much higher level. On the one hand, we have a government who have universal support for the introduction of commonhold for new and existing developments. Amendments have been tabled from all sides of the Committee which seek to encourage the conversion to commonhold of existing buildings. The Government have said in response, "Yes, we like the principle, but we shall make it rather difficult, if not impossible, so to do". So the leasehold situation with existing buildings will run for 125 or perhaps even 149 years.
I had thought of tabling a series of amendments at this stage, but I have decided to do that only when we reach Report stage. That is because I believe that there

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are solutions to the basic fault here. As drafted, the legislation assumes that there will be parties who will not approve of the concept of commonhold. Those parties could comprise existing tenants with either short or long leases, head lessors, banks with mortgages on buildings or the freeholder himself.
The properties involved fall into two groups. In general most of the properties comprise semi-detached or terraced buildings in London, Brighton or Hove, often containing no more than 10 flats or perhaps as few as six flats. The other group is made up of newer developments which may hold as many as 50 or more separate flats. Over the past two years, it has become apparent that, when most proposals are considered, there will be at least one in five who will object; namely, a 20 per cent objection rate. For that reason, I support the proposal put forward by the noble Lord, Lord Goodhart.
However, let us consider what would take place were the following situation to emerge. In a building comprising five flats, two-thirds wish to enfranchise and qualify under the existing legislation, half wishing to go ahead. Those who do not wish to go ahead will probably say something like, "We do not wish to go ahead". However, the underlying reason for that decision may be that they wish to leave their properties to their estates without creating increased value, or that they cannot afford it and do not want to court the shame of admitting that they cannot produce the large amounts of money required. The remaining four flats find that they cannot easily finance the purchase of the last property. The reason that they cannot do so is partly because banks will not lend mortgage money on such properties to a company; they will lend only to an individual. Thus the cost and the difficulties of securing long-term funds are increased. However, let us suppose that into the breach comes the freeholder who owns the freehold and is willing to permit enfranchisement and the conversion to commonhold. Why should it not be possible for that freeholder to retain one commonhold interest with a sub-tenant for a while, if he wishes to do that voluntarily? As I have said, many solutions can be put forward to this problem.
I am afraid that I have made a mistake. Following the new Williams code, I should have declared my interests at the start of my remarks. When I last spoke on this subject, I had already helped on enfranchisement and had no interest. Now, in consultation with members of my family and friends, I believe that I may have as many as 200 or 300 interests to disclose concerning friends who may be involved. Furthermore, I am a director of a publicly quoted construction company that has consulted with the Lord Chancellor on commonhold. I am somewhat over advised, but I am advised by practical people. Indeed, my current advice to those who may wish to become involved in all this is as follows: please do not consult with your lawyers until 24 hours before you intend to complete, because by doing so you may not be charged for more than 24 hours of expensive time.
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If the noble Baroness would be willing to say that she has not got it right, my noble friend has not got it right and that the noble Lord, Lord Williams, has not got it right, but that altogether and collectively noble Lords have got it wrong, amendments tabled on Report may put forward a number of voluntary proposals to which it would be worth listening.
Lord Richard: I start by declaring an interest as chairman of LEASE, the leasehold advisory service.
I am disappointed by the reply of my noble friend the Minister. She said that she came fresh to it. I am sure that is true. When she said that, I was reminded of the story of the late Lord Hailsham, who once came back from a weekend to his ministerial office with his red boxes. He passed them to civil servants, who opened them and discovered that they had remained for the whole weekend in the same state as they had been when he had left on Friday evening. When his private secretary remonstrated with him, he said, "No, no. Better fresh than briefed". It occurred to me that my noble friend may be fresh, but I am not quite sure how well briefed she has been on this particular point.
I want to look at the practicalities of the issue. Everyone seems to be agreed that the chances of getting 100 per cent in virtually any given set of circumstances is extremely small. Indeed, in Grand Committee, as my noble friend Lord Williams of Elvel said, the government view then was that it was almost impossible. If that is so, then the structure of the Bill seems to me to be quite wrong.
On a number of occasions today, my noble friend was selling collective enfranchisement as the alternative to commonhold. It may be in certain circumstances, in which case I am surprised that the Government have not produced a Bill in which commonhold is confined to new builds—because that will be its practical effect—and leasehold and collective enfranchisement are available for other blocks of flats which are already standing.
Secondly, my noble friend has moved the Government's position slightly. It is no longer impossible to do it at 80 per cent, but it is now undesirable and very complicated. Both of those seem to me to be matters of judgment. It would be complicated certainly, but the question surely is whether the complications that would arise are worth putting up with in order to achieve an extension of the commonhold principle. I would have thought that it is not beyond the wit of man—and certainly not beyond the wit of the Lord Chancellor and his advisers—to produce something, which could come to the House on Report, that took account of that particular principle. I am not in favour of confining commonhold to 100 per cent. Frankly, it makes nonsense of the whole concept.
Finally, I say to my noble friend that if the Bill works out in a way whereby commonhold will be confined to new builds and collective enfranchisement will be available for anyone else, then it has been grossly

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oversold. That is not the view of the general public and it is not the view of a number of tenants who ring up or write in to LEASE, and that is a great pity.
Lord Goodhart: The disarming manner of the Minister has sugared what is, I am afraid, in all other respects, a disappointingly bitter pill. I am very sorry that the Government have not found themselves able to move on this issue. That view is shared by all of those who have spoken on the amendment from all sides of the House.
The main argument on which the noble Baroness relied is that you do not need to have commonhold in these situations because you can get almost all the benefits you need from collective enfranchisement. I do not regard that as true.
In the first place, many—indeed, most—of the problems outlined by the noble Baroness as applying to commonholds where some of the units were held on leasehold also apply to cases of collective enfranchisement. There are exactly the same difficulties and possible conflicts of interest in the case of collective enfranchisement where you have some of the leaseholders who are also owners through being members of the RTE company on the one hand, and the remaining leaseholders who are not members of the RTE company on the other. As I see it, that is exactly the same as the problems that would arise—I accept that they would arise—if you went one step further and converted the RTE company into a commonhold.
Indeed, there is one serious problem with RTE companies which would be avoided by taking the further step and moving on to commonhold. Unless the Government are minded to accept an amendment which we have tabled for a later stage of the Bill, there will be no necessary and automatic link between holding a lease on a building which is owned by an RTE company and being a member of that company. In other words, if a leaseholder takes part in collective enfranchisement, as the Bill now stands that leaseholder can assign the lease but it does not automatically follow that the assignee will become a member of the RTE company; the assignor may remain a member of the RTE company. The effect of that is that there will be, potentially, an increasing severance between ownership of a property and residence there, or the ownership of a lease there. That is something which, in the longer run, will cause serious difficulties. It is something we shall have to go into when we get to our amendment in due course; it is not part of this group.
There is a considerable advantage in having the indissoluble link between ownership of the unit and membership of the commonhold association in the case of commonhold. That is one reason why it is desirable that it should be made possible to move on from collective enfranchisement—which will often be necessary as the first step in the process—to converting the property into a commonhold.
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As we recognise, there are arguments of expense because you will have less than 100 per cent of the leaseholders buying the freehold. But exactly the same situation arises on collective enfranchisement as arises on conversion into a commonhold. Although collective enfranchisement will certainly be helpful, we see no reason why it should not be made possible to move on to commonhold status without 100 per cent participation.
It is likely—we hope that it will be the case—that commonholds will become a very popular form of property holding. If that turns out to be the case, then the 80 per cent, 90 per cent or even 95 per cent of people who want to convert will be deprived of the possibility of converting into what is a more popular—and therefore a more valuable—form of property holding in a way which will cause no damage to the interests of those who do not wish to proceed with the conversion.
The only real difficulty we see in conversion is that an extra set of regulations will be needed to specify how a commonhold which includes leases is to be dealt with. That does not seem to us to be a serious disadvantage. It is therefore inevitable that some of us will wish to return on Report with a revised, and possibly co-ordinated, version of the amendments. I hope that in the interim the Government will be prepared to reconsider these issues. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 2 to 10 not moved.]
Clause 3 agreed to.
4.30 p.m.
Lord Kingsland Lord Kingsland moved Amendment No. 11:
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 if the covenant so provides."
The noble Lord said: The noble Lord, Lord Goodhart, will recognise immediately that Amendment No. 11 has been shamelessly purloined from the proceedings that took place in the previous Parliament. I apologise in advance for so doing. I hope, however, that the noble Lord will be able to support the substantive amendment and some of the points that I shall make in relation to it.
I had the honour of speaking to the amendment moved by the noble Lord, Lord Goodhart, on 20th February 2001 in Grand Committee (Official Report, col. CWH18). I have no intention whatsoever of repeating my remarks. I shall simply say, telegraphically, that, as I understand it, a central feature of the Government's plans for urban society in the 21st century is the harmonious blending of residential homes with working offices—in other words, mixed developments.
It seems to me a great shame that the Government are not prepared to contemplate the concept of flying commonholds. We already have a severe restriction, as we learnt earlier in today's debate, on the ability to convert to commonhold with less than 100 per cent. Here we have a further restriction: unless the commonhold is from the ground floor up, it will not be possible for residential buildings either to convert to commonhold or to be commonhold new build.
I suggest that the amendment so ingeniously drafted by the noble Lord, Lord Goodhart, provides the Government with the perfect "let out". It not only furnishes an elegant legal solution to the difficulties of positive covenants; it also ensures that the department of the noble and learned Lord the Lord Chancellor and the Minister responsible for these matters in the House of Commons can look in the same direction, at the same time, together. I hope that the Government will greet the amendment with a great deal more warmth and humanity than they greeted that proposed by the noble Lord, Lord Goodhart, last February.
Amendment No. 13 is in a sense consequential on Amendment No. 11 and I do not think that I need to say any more about it.
Amendment No. 38 seems unassuming enough in its reference,
"Page 14, line 3, leave out 'not'".
In fact, it relates to forfeiture. It is not clear to me why there should be no power of forfeiture in the arrangements for managing commonhold properties. Surely the most effective sanction against a unit-holder failing to discharge his financial (or other) obligations to the association is to charge the unit as security for due performance. Unless the association has such security, its only ultimate remedy is to prove in the defaulting unit-holder's bankruptcy, in which it may recover only a small dividend.
One of the provisions which might properly be contained in the CCS is one prohibiting any new charge being created over the unit unless any debts due to the association shall first have been discharged (or will be discharged simultaneously with the execution of the charge). Absence of such a sanction might make it difficult to "sell" a commonhold scheme. I beg to move.
Lord Williams of Elvel: Some amendments tabled by myself and by the noble Earl, Lord Caithness, which are grouped with those of the noble Lord, Lord Kingsland, cover a slightly similar subject although it is not totally relevant. Having accepted the grouping, perhaps I may speak to Amendments Nos. 29 to 32 and to the paving amendments.
The amendments relate to the structure and common areas. It is absolutely necessary for these to be maintained and insured by the commonhold association. The existing provisions, as I understand them, make the balance of a structure which is not maintained or insured by the unit-holder the responsibility of a commonhold association. This could place too much responsibility with unit-holders, to the risk of the community as a whole.
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This subject was debated in Grand Committee, so I shall pass over it quickly in the hope of a helpful response from the Government.
Lord McIntosh of Haringey: I begin by responding to Amendments Nos. 11 and 13 in the name of the noble Lord, Lord Kingsland. Under our law, positive covenants do not run with freehold land after the first purchaser has sold on his interest. Amendments Nos. 11 and 13 would allow a commonhold to be developed above non-commonhold land. That brings into play exactly the problem of positive covenants. The second subsection of the proposed new clause in Amendment No. 11 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 in title of both the commonhold association and the supporting land—although, perhaps a little oddly, they would be enforceable if the covenant so provided. That was a defect when the noble Lord, Lord Good hart, put forward the same amendment and we commented at it at the time.
It seems to me that the amendment would allow a flying commonhold to be built, even if the protection sought to be provided by the amendment were not available. However, let that pass; it is not critical to the argument. The argument goes back a long time. When we debated the matter previously, we had the pleasure of the company of the noble and learned Lord, Lord Wilberforce. I hope that he is well. Thirty-six years ago, the noble and learned Lord chaired a committee on positive covenants affecting land. He reported to Parliament in 1965.
The noble and learned Lord the Lord Chancellor and I are open-minded a s regards the extent to which it would be appropriate to impose positive covenants more widely on freehold land than is provided for in the Bill. However, the amendments are not the way to achieve that end. My noble and learned friend the Lord Chancellor said recently that it is our intention to leave open the wider question of whether and to what extent it should be possible to make the burden of positive covenants binding on buyers of freehold land more generally—and he referred to the committee of the noble and learned Lord, Lord Wilberforce.
The Law Commission is considering the matter. Your Lordships may think that 36 years is a long time but it has not been continuous consideration. The House will acknowledge that the Lord Chancellor is a doughty champion of the commission when legislative programmes are being prepared. He certainly wants them brought forward as fast as possible. The recommendations that are produced by the commission in due course will be consulted on widely and will be treated with the utmost seriousness by government when they are formally presented. We acknowledge that the amendment has raised an important problem but it is not one that can resolved in the Bill, so I invite the noble Lord to withdraw the amendment.

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The noble Lord, Lord Williams, referred to Amendments Nos. 29 and 32 and described others in the group as paving amendments. I shall say something about them because we must take them together. Amendments Nos. 20 to 23 would make it compulsory for the commonhold community statement to refer to areas subject to the exclusion of specified structures; exclude from the definition of a unit the structures that delineate an area; refer to two or more areas of land as comprising a commonhold; and have regard to Clause 24(2), which deals with limited use areas.
Often, none of those circumstances will arise in a particular commonhold or part of it. The Bill makes it possible to do those things where it is appropriate. The amendments would make them mandatory, whether or not they would be appropriate. In the case of a detached house in a commonhold development, there is no reason to exclude structures, fittings, apparatus and appurtenances from the definition of the unit—any more than it would be necessary to exclude the garden fence that delineates the boundary of the property from the definition or to refer to two or more areas where only one area comprises the unit. Our approach is more flexible and effective.
Amendment No. 24 requires the commonhold association to insure and repair the structures of buildings in all commonholds. That would be the appropriate course for blocks of flats but that is not the only situation. There could be no justification for making the commonhold association responsible for the insurance and maintenance of detached, semi-detached or even terraced houses. The current draft of the commonhold community statement, at rules 22 and 25 of Part 4, requires the commonhold association to be responsible for those matters where blocks of flats are involved. I do not imagine that the noble Lord, Lord Williams, intended the amendment to go so wide but we have included in the commonhold community statement the requirements in question.
Amendments Nos. 29 and 30 attempt to define all structural parts of a commonhold as common parts, then define what they mean to include in the term "structure". It would be inappropriate to define all structural members as common parts and thus the responsibility of the commonhold association. Our definition, which makes everything within the commonhold that is not defined as a unit common parts, achieves the proper end. What is and what is not structural for the purposes of insurance and maintenance of blocks of flats will be for the developer to define in the first instance. If it turns out, in light of experience in a particular commonhold, that the definitions do not work, the commonhold association—which is, after all, made up of individual unit holders—can amend the commonhold community statement.
I make the same point in respect of Amendments Nos. 31 and 32. If the structure is common parts, as it will be in a block of flats, the commonhold association must insure and maintain it. Where the structure is not, as in a house, the association should not do so.
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Amendment No. 38 would lift the ban on the commonhold community statement, providing for the transfer or loss of interest in land within the commonhold on the basis of some occurrence or non-occurrence in the future. Our objection to that proposal, as we understood it, was that it would depart from the provision that a commonhold should not be established in circumstances in which it might be deprived of all or some of its land other than with the agreement of the association's members. The noble Lord, Lord Kingsland, argued the amendment on the basis of forfeiture in case of default. I confess that my original understanding of the amendment's meaning was not that argued by the noble Lord.
Forfeiture is not something that we want to import into the commonhold. It is widely hated by leaseholders. We will explain further when we reach the group headed by Amendment No. 25. For the present, I hope that the noble Lord, Lord Kingsland, will not press Amendment No. 38 in particular.
4.45 p.m.
Lord Goodhart: Before the noble Lord, Lord Kingsland, replies, I apologise for not having spoken before because my attention was briefly distracted. The fact that we did not table Amendments Nos. 11 and 13 in particular does not indicate any disagreement with them. We did not table those amendments because they had an outing and that is as far as we proposed to take them. We entirely support the amendments in principle and I am happy to endorse the remarks made by the noble Lord, Lord Kingsland, on flying commonholds.
Lord Selsdon: I, too, support my noble friend, but having heard the Minister, I do not understand why there cannot be flying commonholds when there are flying freeholds—even if the positive covenant issue cannot be overcome. Throughout London where terraced houses are being broken up through enfranchisement, often there is a flying freehold—such as a garage at the rear. I am referring not to mixed developments but to residential developments. If a terraced house is redeveloped where commonhold is proposed, if there cannot be a flying commonhold where there is some cut-in above or at first-floor level, the whole principle of commonhold is frustrated. If the Government are not willing to consider such amendments, they are effectively frustrating the introduction of commonhold.
Lord Kingsland: I agree entirely with the Minister that 36 years is a long time to respond to the brilliant report that the noble and learned Lord, Lord Wilberforce, drafted as long ago as 1965. However, it is not necessary to enter into all the complexities into which the noble and learned Lord was compelled to enter. Here, we are simply looking at the kind of neutral covenants between landlord and leaseholder that are found generally in the leaseholds of properties on different floors and which raise limited problems in relation to positive covenants.

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The Government constantly tell us that they have achieved great things in the four and a half years that they have been in office. Are the Government saying that finding a solution to positive covenants in relation to mixed properties, where the lower floor does not involve commonhold, is beyond their ingenuity and invention? I cannot believe that.
Lord McIntosh of Haringey: I was merely acknowledging that the matter did not have as high a priority as some noble Lords might wish. While I am responding to the noble Lord, Lord Kingsland, perhaps I may answer the noble Lord, Lord Selsdon, who drew an analogy with flying freeholds. I believe he would agree that flying freeholds are not particularly successful. Lawyers and mortgage companies do not like them. I would not wish to introduce an analogy with flying freeholds too readily.
Lord Selsdon: I apologise to the Committee. I should have declared an interest when I spoke earlier. I have just managed to complete an agreement on a flying freehold without the help of the best minds in the land. However, it was accepted in the end because it was a voluntary agreement between two parties.
Lord Kingsland: I have now completely forgotten what I was saying.
Lord McIntosh of Haringey: I believe that the noble Lord was making fun of the tardiness of the Government in acting on positive covenants—a legitimate point.
Lord Kingsland: I think that that is a good note upon which to conclude discussion on this grouping. I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
[Amendment No. 12 not moved.]
Clause 4 agreed to
Schedule 2 [Land which may not be commonhold land]:
[Amendment No. 13 not moved.]
Schedule 2 agreed to.
Clauses 5, 6 and 7 agreed to.
Clause 8 [Transitional period]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 14:
Page 4, line 31, after "Part" insert ""the first"
The noble Lord said: In moving this amendment which stands in my name and that of the noble Earl, Lord Caithness, perhaps I may, for the convenience of the Committee, speak also to Amendments Nos. 15, 16, 17 and 18. These are very technical and minor amendments, if I may put it that way. As I understand it, Clause 8 provides for a "transitional period" between registration of the estate as commonhold and registration of a first unit-holder as proprietor. During this period, the Bill provides that commonhold regulations may be disapplied or modified. However, the Bill makes no mention of who the members of the commonhold association will be during the time from
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the sale of the first unit and the end of the construction and selling period. We also need clarification concerning respective responsibilities during this time. These amendments attempt to address those issues. I beg to move.
Lord McIntosh of Haringey: These amendments would add to the Bill a new concept of a second transitional period, during which further regulations would introduce a special regime to govern the actions and responsibilities of the commonhold association between the sale of the first unit and the sale of the last. The matter was debated, although not at great length, in Grand Committee. I understand the point that the noble Lord, Lord Williams, is trying to make, but our intention is that the commonhold community statement should come into force as soon as the first unit is sold and that it should govern the management of the commonhold from that time.
Therefore, the responsibility for paying commonhold assessments will apply to all unit-holders in the proportion laid down in the statement, and based on a budget. The purpose of this is that it should act as a real incentive to a developer to move quickly to sell units and fully establish the commonhold, as the responsibility for maintaining the unsold units will become more onerous on the developer as time passes. We believe that an extra layer of regulation is unnecessary and, therefore, do not support these amendments.
Lord Williams of Elvel: I am grateful to the noble Lord, Lord McIntosh—apparently, I have to call him that rather than referring to him as "my noble friend". However, I am grateful to my noble friend for his comments. We did discuss the matter in Grand Committee. I shall have to refer to my noble advisers regarding what course or action I take on Report. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 15 lo 18 not moved.]
Clause 8 agreed to.
Clause 9 agreed to.
Clause 10 [Extinguished lease: liability]:
[Amendment No. 19 not moved.]
Clause 10 agreed to.
Clause 11 [Definition]:
[Amendments Nos. 20 to 23 not moved.]
Clause 11 agreed to.
Clauses 12 and 13 agreed to.
Clause 14 [Use and maintenance]:
[Amendment No. 24 not moved.]
Clause 14 agreed to.
Clause 15 [Transfer]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 25:
Page 7, line 37, at end insert—
"(5) Outstanding debts and arrears due to the commonhold association must be paid upon transfer of the unit."
The noble Lord said: This amendment stands in my name and that of the noble Earl, Lord Caithness. Again, this is a technical amendment that forms part of a rather extensive group, to which no doubt one of my noble friends on the Front Bench will respond.
The amendment is designed to enable the commonhold association to resolve any disputes involving the unit on the transfer of the unit as clearly and cheaply as possible. The whole issue of transfers of units seems to me to be a matter that needs to be clarified. There are other amendments in this group, but this is the essential one that I wish to address in order to save time. I beg to move.
Lord Goodhart: I shall speak to Amendment No. 37, which is included in this grouping. This amendment, like others in the group, is intended to deal with the potentially very serious problems that arise from non-payment, or late payment, of contributions to a commonhold association. The problem is that persistent non-payers or late payers—perhaps late payers are, in a sense, even worse because it is more difficult to take measures against them ultimately—may impose serious hardships on other members of the commonhold association. For example, the commonhold association may be unable to carry out maintenance or repairs because it does not have enough money in hand; it may have difficulty in paying its bills; and it may need to call on the other members of the association to pay more.
At present, where you have landlords and tenants, the former can use the threat of forfeiture. In practice, forfeiture is very rarely enforced because the landlord has to serve a notice calling for any defects to be remedied and give time for compliance under Section 146 of the Law of Property Act. Again, where the failure is in the payment of rent, similar provisions apply enabling a tenant to obtain relief, but such relief can only be obtained on payment of what is due. Therefore, that is a powerful and effective weapon.
Of course, that weapon could be too effective. In the hands of aggressive landlords it can be used too soon, or too frequently, and can be a cause of serious concern to tenants who are faced with inappropriate use of forfeiture proceedings. Any equivalent in the case of a commonhold association is far less likely to happen because the association is also made up of the various members. They know that any threat that they use against a recalcitrant member of the association is one that can also be used against them. Quite frankly, abuse of any power equivalent to forfeiture in the case of a commonhold association is a very remote danger.
Without the threat of forfeiture or its equivalent, it is far more difficult to enforce timely payment of the necessary contributions to the commonhold association. It is not right that non-payers or late payers should be able to force the other members of the association to pay for the maintenance costs of common parts, repairs, and so on, which can only be recovered much later.
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It is, of course, true that a commonhold association can bring a claim against a unit-holder for non-payment. It can get judgment and in due course ask the court for a charging order over the unit. But that is a slow and expensive procedure that gives the charges due to the commonhold association no priority over any other charges.
We therefore believe that a fairly draconian remedy is needed. We would go further than the proposals of the noble Earl, Lord Caithness, and the noble Lord, Lord Williams of Elvel, and say that it is not enough to wait until there is a sale by a unit-holder and then recover debts out of the proceeds of sale. That may well be too late. In the great majority of cases, one would be dealing with a unit-holder who remains in occupation. Amendment No. 37 proposes that a commonhold community statement should contain a right for the commonhold association to sell the property in the event of a default, and to recover the money due out of the proceeds in priority to all other interests. In practice, it is most unlikely that the power to sell would have to be exercised in any but the most extreme cases because the threat of it would be sufficient to ensure that the money was found by the unit-holder, or possibly by a unit-holder's chargee who wants to preserve his or her security.
Our amendment does not spell out the necessary provisions of the commonhold community statement in detail. That statement would need to include, for example, provisions for giving notice of an intention to exercise the power to a unit-holder and other interested parties, and to give time for payment. We believe that such an amendment is essential if commonholds are to work properly. The absence of anything giving priority and an effective weapon for enforcement of charges is a serious defect in the current proposals.
5 p.m.
Lord Kingsland: I rise to speak to several amendments in this group. First, I shall speak to Amendments Nos. 59, 60, 61, 62 and 63.
It is an important principle that, in Clause 36, enforcement should only be between unit-holders and the association. Tenants will not be directly liable to the association, so they should not have rights except against their landlord. Tenants of a freehold would not have rights, except in the law of tort, against neighbouring freeholders, and the same should apply to commonhold.
Secondly, paragraph (i) should be left out of Clause 36 as compulsory ADR will lead not only to delay but possible prejudice. Amendment No. 62 would add new paragraph:
"(j) enabling a tenant to offset any payments made to the association against any monies owning to the unit-holder as landlord".
Although Clause 19(3)(a) states that regulations "may" make a similar provision, there is no reason for that provision not to be on the face of the Bill.

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It is self-evident that compensation involves property rights, and it is my firm view that the courts are the proper forum to determine those. Indeed, not allowing the court to determine such rights could have important implications under the Human Rights Act.
I turn to Amendment No. 63 and the two insertions that are proposed by paragraphs (c) and (d), referring to
"charging the interest of a unit-holder",
which is an essential provision for preventing default. Otherwise the association has no effective sanction. Relying on obtaining a judgment and subsequently enforcing it by charging order is too slow, costly and cumbersome. There may be no equity left in the property by that stage. An express costs sanction is an essential deterrent to prevent unit-holders from defaulting, and it is a way in which to avoid prejudice to the other unit-holders, particularly when the amounts involved may be under the small claims limit.
I dealt with the matters involved in Amendments Nos. 65, 67, 72, 81 and 83 at length in the Grand Committee debates on the Bill last winter, and I shall not trouble your Lordships again. However, there is a new clause—Clause 41—which introduces an ombudsman, and I should like to say something about that.
Ombudsmen are very fashionable, and one always exposes oneself to a certain amount of political danger if one questions their relevance. Nevertheless, I shall take that risk by saying that I wonder whether an ombudsman is an appropriate addition to the rich tapestry of remedies that the Government have already provided in the Bill.
The proposal is for regulations that could make it compulsory for a commonhold association to be a member of such a scheme. They could require the commonhold association, but not the unit-holders, to co-operate with the ombudsman. Finally, they could require a commonhold association, but not the unit-holders, to comply with the ombudsman's decision. I believe that the proposal is both unnecessary and ill thought out.
If disputes are to be determined in accordance with legal principles, the court or an arbitrator is the appropriate forum and there is no need for an ombudsman. If ADR mediation, or something similar is required, a voluntary ADR scheme would be sufficient. Commonhold associations could even choose to include references to such a scheme in the commonhold community statement.
If the ombudsman will not apply strict legal principles, it is a breach of the rights of the commonhold association—and potentially unfairly prejudicial to the rights of all the other unit-holders not involved in the dispute—for, first, a reference to the ombudsman to be compulsory and, secondly, for the ombudsman's decision to be binding on the commonhold association—particularly if the unit-holder involved in the dispute is not bound by the decision. It is a possible human rights breach for a unit-holder potentially to be jointly liable on such a judgment debt when the unit was not a party to the proceedings in which the judgment arose.
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A further criticism is that, when the identity of the unit holder changes on the sale of a unit, there will be difficulties in determining whether the old or the new unit holder is liable to a creditor. Would the relevant date be when the creditor obtained judgment, when the money became due, when the work commenced, when the work was completed or when the work was requested? Potentially a person may sell his home and face a claim many years later of which he had no previous notice.
Lastly, the potential for unlimited personal liability in respect of contracts to which unit holders are not a party, and over which they may have little control, can only act as a deterrent to the purchase of commonhold properties. The problem which the proposed amendment is designed to cure that—is, that contractors are likely to be cautious about dealing with commonhold associations if limited liability may make it impossible to collect sums owing—is unlikely to arise in practice. Contractors are, after all, used to dealing with limited liability companies and any contractor who is concerned can demand payment in advance of, or, for substantial sums, payment to be held for his account.
Baroness Scotland of Asthal: I shall deal with the amendments, if I may, in order, although Amendment No. 37 spoken to by the noble Lord, Lord Good hart, would introduce into commonhold a right afforded to the commonhold association to sell units upon the non-payment of money owed to the association by unit holders. In the leasehold context that right is known as forfeiture, as the noble Lord rightly said. Amendment No. 25, proposed by my noble friend Lord Williams, provides that debts due to the commonhold association by a unit holder must be paid on transfer of a unit.
Although the noble Lord, Lord Goodhart, made it clear at the Second Reading of the Bill's predecessor that the recovery of debts owing to the commonhold association by unit holders is foremost in his mind—I should imagine that it still is—we are a little surprised that he has chosen this route to address his concerns. We remain firmly of the opinion that forfeiture, or any similar provision by whatever other name, is quite inappropriate for commonhold. The Committee will recall that at Second Reading the noble Lord indicated that, as is often the case in leasehold, the threat of forfeiture would be enough to secure payment of debts to the commonhold association, and, indeed, he repeated that this afternoon. This may be the case, but behind every threat there must lie the possibility of action, and the possibility of a right to forfeiture being realised in the commonhold context remains for us anathema.
We are apprehensive about importing a means of prematurely terminating a lease into commonhold because one of the fundamental precepts of commonhold is freehold ownership of units by unit holders. We cannot conceive the merit of marrying together two concepts that are on the face of it so incompatible.
Lord Goodhart: I am grateful to the noble Baroness for giving way. Does she accept that in the case of freeholds where there is a charge over the freehold, the chargee or mortgagee does have a right to sell and therefore this is simply importing into the commonhold system something which is already entirely familiar within the freehold system?
5.15 p.m.
Baroness Scotland of Asthal: I accept that the concept of a charge is an appropriate one for freehold and, of course, with commonhold it would be possible, if someone secured judgment in relation to a debt, to secure the return of their money if secured by way of a charge. That is precisely what we say would be the appropriate course. Forfeiture, as the noble Lord will know well, having trammelled along these lines for many years—and, I hesitate to say, many more years than I—has been a sword of Damocles used to great disadvantage to leaseholders and has as a result fallen almost into disrepute.
As I say, we are apprehensive, therefore, about importing a means of prematurely terminating a lease into commonhold because one of the fundamental precepts of commonhold is freehold ownership. That is a kernel that we believe cannot be over-emphasised.
A commonhold unit is a freehold estate in commonhold land. Forfeiture is a process used by the holder of a superior interest to prematurely terminate an inferior interest in his property. Termination of the interest by the holder of the superior interest occurs because of the failure of the holder of the inferior interest to fulfil an obligation owed to the holder of the superior interest. Such a relationship simply does not exist, and is not intended to exist, within commonhold. We are talking about unit holders who have a parity of position without superiority or inferiority. There is no one with an interest in a commonhold unit superior to that of the unit holder. The commonhold association is the registered proprietor of the freehold estate in the common parts but has no claim to the units, nor should it, we believe.
Apart from the innate unsuitability of forfeiture as a vehicle for debt recovery in commonholds, we have stressed previously—I repeat this today—that forfeiture is widely abused and hated in the leasehold context. I do not think that that is putting it too high. In recognition of the problems with forfeiture, provisions in Part 2 of the Bill will curb the ability of landlords to serve forfeiture notices without a determination by a leasehold valuation tribunal or LVT. I am sure that the Committee does not want to import into commonhold a process that has been widely condemned in its application to leasehold tenure and which we are currently seeking to rein in.
As far as this amendment and Amendment No. 25 are concerned, we have stated before that there is a wide range of debt collecting machinery available to the commonhold association. By not accepting these amendments for commonhold forfeiture nor, as was previously suggested, imposing a statutory first charge in favour of the commonhold association, nor
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introducing any particular mechanism for recovering debt exclusively within commonhold, we are not in any way preventing the commonhold association from recouping debts owed to it by unit holders. We are simply reluctant to set up a special debt collection process which would apply in the commonhold context alone.
Amendment No. 37 goes rather further as it would allow a power of sale immediately in the event of any default of payment. The noble Lord, Lord Goodhart, seeks to introduce an even more draconian provision than one has to date seen.
Lord Goodhart: I am grateful to the noble Baroness for giving way. That was not my intention. What I said, and what the amendment is intended to do, is simply to state the general principle and leave the details to be contained in the commonhold community statement. That will be contained in regulations. It is intended that those regulations could contain all the necessary provisions about the giving of notice, the time for compliance with payment of the debt and so on. It is not as stark as the noble Baroness believes.
Baroness Scotland of Asthal: I am comforted to hear that but it just returns us to our former position in terms of the superior and inferior matter. We believe that it would be inappropriate to introduce forfeiture at this point.
I turn to the amendments spoken to by the noble Lord, Lord Kingsland. I may have some happier news for him in relation to a couple of his amendments although generally I am afraid that we are not with him. Amendment No. 59 would make the contents of the regulations governing the operation of commonhold mandatory. We are not able to see any advantage to replacing "may" with "shall" and the disadvantage might be later arguments about the vires of any action by the commonhold association.
I shall try to deal with the other amendments briefly, as the noble Lord did. Amendment No. 60 would omit the paragraph that gives a tenant of a unit holder the right to enforce a duty imposed on another tenant, unit holder or the commonhold association. As a result, the tenant, whose lease already in effect contains the commonhold community statement and memorandum and articles of association to which he is committed as a full unit holder, would none the less be in a much worse position than the unit holder from whom he holds his lease. Presumably the noble Lord, Lord Kingsland, expects that a tenant in that position would rely on his unit holder to carry out any enforcement on his behalf. That, I respectfully suggest, is not a feasible proposition and is inconsistent with other areas of the Bill where reference to the term "unit holder" is specifically taken to include reference to a tenant of a unit holder.
Amendment No. 61 would omit the paragraph that allows the regulation to specify a particular alternative dispute resolution scheme in advance of bringing legal proceedings. Clause 41 stand part is also in this group. As I understand it, deleting that clause would remove the ombudsman scheme, leaving no standardised scheme for dispute resolution.

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The Government will consult widely about what should go into the regulations to ensure that those who have expertise in the various areas to be covered have had ample opportunity to advise us. There is expertise within and outside the Lord Chancellor's Department to assist us. If we were left in the position to which the noble Lord's amendments are leading us, the risk is that there would be no expert guidance to those who found themselves living in and operating commonhold. We have to maintain our proposition that standardisation of procedures is a considerable potential advantage to come out of the commonhold scheme and we wish to retain the power to prescribe where it seems to us good to do so, always bearing in mind that, if the balance of advantage in due course seems to suggest other ways to achieve our aims, regulations can be amended quickly and efficiently.
Amendment No. 62 provides, though less completely than the Bill does at present, for a tenant to offset any moneys paid to the commonhold association against what he owes to the unit holder. Clause 19(3) makes fuller and better provision for that, we respectfully suggest, so the amendment would provide less protection for tenants. I am sure that that is not the noble Lord's intention.
Amendment No. 63 would provide for charging a defaulter's interest in his unit to secure payment of compensation, costs and interest. As I have said, that would narrow the possibilities open to a commonhold association when pursuing debts. A charging order is one possibility, but only one among 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 at which the defaulter owes compensation, costs and interest to the commonhold association, it is surely time for the courts to be involved. Armed with an appropriate order, the whole range of debt collecting machinery will be open to the commonhold association. In parenthesis, the noble Lord has presented forfeiture as an easier route—faster and cheaper—but I do not think that that is the universal experience of those who have sought it as a solution.
Amendment No. 65 would put beyond doubt that the directors of a commonhold association could include in their annual estimate a sum up to the value of an amount owed by a defaulter, provided they had taken reasonable steps to recover the loss from the defaulter. In practice, that would mean inviting the members of the commonhold association to cover the outstanding sum between them. That will sometimes be a more attractive proposition than, say, putting off the necessary and programmed repairs to the roof or the lift until the balance of the account has built up to where it would have been if the defaulter had paid up.
No doubt the members will want to hear what steps were taken to recover the debt. Equally beyond doubt is their absolute discretion as to whether to accept the explanation and the sum in the estimate. We will consider the noble Lord's amendment and come back to the matter on Report. As Amendment No. 67 is
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closely connected, we shall also have a further think about that as well. We are not quite so persuaded about the need for that one, but we shall give it active consideration.
Amendment No. 72 is a further attempt to introduce a special debt collection process for commonhold, securing all moneys due to be paid as commonhold assessments by way of statutory first charge. We are still of the view that hedging the freehold nature of the commonhold units around with special arrangements will make them less attractive purchases than might be the case and we shall continue to resist the suggestion.
As we noted last time, we are unable to see what the noble Lord expects to achieve with Amendment No. 81, to which he has not spoken specifically today. If the commonhold association finds that documents are non-compliant, it can arrange for them to be amended and revisited. It does not need a declaration from a court to tell it so. The clause is designed to give unit holders whose lives are, to a great extent, governed by those documents, an opportunity to force an unwilling commonhold association to act if the documents are non-compliant. Amendments Nos. 82 and 83 would extend the period in which an application to the court is to be made from three months to six months. We see no advantage in that proposed extension, particularly as the court can grant permission for an application to be made at any time by virtue of sub section(4)(c).
Finally, the noble Lord expressed some doubts about the ombudsman clause. I noted the hesitance and reluctance with which he ventured those comments. I share the wisdom of that hesitance. Clause 41 introduces an ombudsman scheme into the Bill. Your Lordships may well be aware that the Government take the view that it should be closely modelled on the independent housing ombudsman scheme. We believe that there is real merit in keeping disputes arising in commonholds away from the courts and tribunals in so far as it is proper to do so, always with the proviso that the courts will be there in the last resort. Clause 34(3)(b) requires the directors of the commonhold association to consider alternative dispute resolution before resorting to the courts. The independent housing ombudsman scheme is inexpensive, quick and flexible and has a good reputation. An ombudsman scheme seems to us to be a perfectly good model to adopt as one approach to dispute resolution. As the noble Lord, Lord Kingsland, said, nothing else is in place, so we would be sorry to lose this opportunity and we would rather keep it.
Lord Williams of Elvel: My noble friend has given the Committee a great deal to think about in what I appreciate was a rather long and complicated legal exposition to which those with greater training than I have will no doubt pay a great deal of attention. In the meantime, I beg leave to withdraw my very simple amendment.
Amendment, by leave, withdrawn.
Clause 15 agreed to.
Clause 16 agreed to.
Clause 17 [Leasing: residential]:
5.30 p.m.
Lord Goodhart Lord Goodhart moved Amendment No. 26:
Page 8, line 18, 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 consideration of the payment of a premium or other lump sum:

(c) which does not comply with such other considerations as may be prescribed."

The noble Lord said: This grouping appears to me to be a little odd. Amendment No. 26 and the Question whether Clause 17 stand part are certainly grouped together appropriately, but the remaining amendments seem to deal with entirely different subject matters. I do not know whether the noble Lord, Lord Kingsland, wishes to degroup them.
Amendment No. 26 specifies on the face of the Bill a maximum length of seven years on the lease of a unit and bans the taking of premiums for any lease of a unit. The amendment raises the question of the philosophy behind commonhold. We believe in principle that commonhold should be a form of collective or co-operative ownership, whichever term one wishes to use, for those who live in the property.
We all know about the problems which have led to the proposals for commonhold, but those problems apply only to the people who live in the property. From the point of view of investors, it simply represents a different form of investment, and there is no difference in principle between buying leasehold and freehold properties as an investor. They may involve different rates of return and there may be different tax advantages one way or the other, but there is no question of any hardship.
Therefore, in the creation of commonhold one is considering the interests of the people who live in the property and who suffer from problems facing those who live in leasehold properties. We accept that unit-holders cannot always be resident in the property. Some people may want to buy a commonhold unit for their retirement, which is not due for a while. Unit-holders may be posted abroad and may wish to retain their property as a place to which they can return when their posting ends. Of course, there may be other reasons why people want to let their units rather than live in them themselves. Therefore, there can be no question of banning a letting.
However, we believe that it is important that we do not recreate the existing problems by allowing unit-holders to grant long leases of units, thereby making unit-holders long-term investors rather than occupiers of a property who may have to be away for limited periods of time.
The seven-year maximum appears to us to be an appropriate limit. Nowadays, seven years seems to be regarded as the boundary line between shorter and longer-term leases; for example, under the Land Registration Act leases for seven years or less will not be registrable, while leases for more than seven years
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will be. It is certainly now unusual to find a rack-rent lease of a residential property given for a term longer than seven years.
Therefore, we believe that it is important for there to be a fairly strict limit on the type of lease of units that can be granted. We do not believe that restricting the period to seven years will reduce the value of units; we believe that it will preserve the reasons for which commonhold is being introduced. We consider this to be a sufficiently important issue for the limit to be on the face of the Bill rather than in regulations. I beg to move.
Lord Kingsland: I respectfully agree with the noble Lord, Lord Goodhart, about this particular grouping. I should have drawn it to the attention of the Government Whips before the debate. I believe that, apart from the Question whether Clause 17 stand part, it would be more felicitous for the remaining headings to be considered when we reach the grouping beginning with Amendments Nos. 35 and 36. However, I know that the noble Baroness will have—
Lord McIntosh of Haringey: No one told us that this matter had been drawn to the attention of the Whips' Office. However, if the noble Lord, Lord Kingsland, wishes to debate it in a different form, we shall try to accommodate ourselves to it.
Lord Kingsland: It is entirely my fault that the matter was not drawn to the attention of the Whips. I do not for one minute suggest that in this particular instance the Government have in any way fallen below the high standards that one would expect them to meet.
I shall simply address the Question of Clause 17 stand part. This proved to be a controversial matter in the debate that took place last February. In a way, I am quite surprised that it has not injected greater enthusiasm among Members of the Committee this afternoon.
Clause 17 imposes restrictions on a residential unit-holder's right to create a lease of his unit. According to the Explanatory Notes, the intention is that regulations made under Clause 17(1) should set down both that no premium should be payable for a lease, which should be at rack-rent, and that the maximum period for a single-term lease should be restricted to seven years.
Criticism was made of this clause at Second Reading. The noble Lords, Lord Goodhart and Lord Richard, considered that some restriction would be appropriate, although I do not believe that they said—at least, on that occasion—what the restriction should be. However, in all events, they believed that the present proposals were too restrictive. My noble friend Lady Gardner of Parkes, drawing on her great experience of company law and strata titles in New South Wales, opposed any restrictions on lettings. The noble Baroness, Lady Hamwee, suggested that tight restrictions would hamper reinvigoration of the rental market.

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As the principal intent behind the proposals for commonhold is to place unit-holders into as nearly as possible the same position as if they were outright freeholders—that is, with as few restrictions as possible on their powers of dispossession and alienation—the presumption should be against any restriction unless clearly justified.
If the concern is that problems may arise if some unit-holders are, in effect, absentee landlords, those problems are more properly to be treated as problems of management. They should be dealt with in accordance with the CCS and/or the memorandum of association rather than by regulation. For example, if a person in occupation of a unit has a sufficiently substantial interest in possession—say, a lease for seven years or more with at least two years unexpired—there may be a provision that he, as a person more likely to be interested M the day-to-day affairs of the commonhold than his absentee landlord, should be able to exercise certain rights of the unit-holder, such as voting at association meetings, either generally or on certain specific issues. In any event, the proposed restrictions are far more restrictive than those imposed by, say, Section 41 of the Settled Land Act 1925.
The Bill does not deal with the leasing powers of trustees of land; nor does it spell out the consequences of granting an invalid lease for an innocent purchaser. If it had been intended that such matters should be dealt with by regulation to be made under Clause 19, then they are all matters of fundamental importance. They should be debated and form part of the primary legislation and should not be left to delegated legislation.
Lord Selsdon: I do not understand why there is any need for restrictions. I should like to draw the attention of Members of the Committee to certain changes within this environment.
Increasing numbers of banks are introducing mortgages under the heading, "Buy to rent". That is partly due to falling interest rates and the desperately low return that retired people get from their pension. In many countries in which there have been low interest rates there has been a tendency for those who are semi-retired or retired to buy a property that they let to supplement their pension, which is often very small. In many cases they might let something for the rest of their life. They are seeking not to be Rachman-type landlords but to get a good return on their income and to increase their pension.
That attitude should be encouraged. If there are restrictions, we may end up—we currently do so—with a large part of the housing stock being empty. Rooms that are available to let are not let. Someone who buys a commonhold unit may face restrictions although he has no intention of living there; factors that are beyond his control—he may be sent overseas—may also operate.
For those reasons, I am all for minimum restrictions. I take the point that was made by the noble Lord, Lord Goodhart, who said that we do not want to replicate the leasehold system by the backdoor. The matter needs to be thought through.
Lord McIntosh of Haringey: When the noble Lord, Lord Goodhart, spoke to Amendment No. 26, he said that it was part of the philosophy that lies behind commonhold. I hope that I can persuade him that the matter is nowhere near as fundamental as that. We are talking about the way in which to draft a Bill that reflects a matter about which I believe we both agree. The amendments have been placed in this group because they concern the content of the commonhold community statement, the memorandum and the articles of association. I am prepared to agree that on reflection some of the later amendments in this group would have been better placed in the group that contains the amendments through which the noble Lord, Lord Kingsland., seeks to place the entire memorandum, articles and CCS in the Bill. That may be partly because I incited him to do just that. However, I shall come to the issue of why I may have done so in due course.
I turn first to Amendment No. 26. The wording used by the noble Lord, Lord Goodhart, reflects the Government's intentions. That is why I said that there is no disagreement in purpose between us. Those are indeed the terms on which the Government intend to allow letting.
The noble Lord, Lord Kingsland, proposes to remove the entirety of Clause 17, which deals with residential leasing, from the Bill. I listened to him very carefully but I am still not clear whether that means that he would put the information in the CCS or another document, or whether he would remove the restrictions altogether.
Lord Kingsland: I am grateful to the Minister for giving me an opportunity to respond—I will not have to deal with this matter again at a later stage. He will be aware that he will soon respond to my suggestion that the regulations dealing with the substance of the memorandum of association and the CCS should appear in the Bill in a schedule. On the assumption—the generous assumption—that the Minister thinks that that is a good idea, it would be my intention to introduce on Report amendments to the schedules to deal with those matters.
5.45 p.m.
Lord McIntosh of Haringey: I think that I better understand the noble Lord's point—it is that if the CCS, the memorandum and the articles are in the Bill, one does not need Clause 17. Well, as he said, we shall argue about that when we reach the appropriate point in the Bill. His proposal would be very damaging because it would resurrect many of the problems that are inherent in long leasehold and which we are seeking to remove with the Bill.
We think that it is better—this is why I say that a matter not of principle but of procedure is involved—for leasing restrictions to be set out in regulations. We have already heard—we shall later hear more—about the flexibility that would be available if certain matters were dealt with by regulation. We believe that this is a good example of that. Our original intention was to impose very tight controls on the letting of residential

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units. Much pressure was put on us in that regard. It was pointed out that tight regulation would tend to make commonhold developments unpopular because buy-to-let would be next to impossible. The noble Lord, Lord Selsdon, reiterated that point. We were told that a significant part of the market in flatted properties, particularly in London, was for investment and that that was a legitimate use of commonhold procedures. We considered that advice and decided to take it. Amendment No. 26 sets out the terms at which we have arrived.
This proposal is about the ability to react to the market. We want to be able to adapt to the market in due course if it appears that a different term of years proves to be more attractive to developers and purchasers. For that reason we think that the mechanism of setting the terms by regulation is the right mechanism and, although we are grateful for the acceptance of our reasoning and the conclusions to which we have come, we do not think that it is appropriate for the provisions to be in the Bill. Further primary legislation is required to change the situation.
Amendment No. 39, which appears in the name of the noble Lord, Lord Kingsland, would entail specifying in the commonhold community statement the voting rights of members at meetings of the commonhold association. We believe that that degree of detail is more appropriate in the statement itself; we do not need to go into that in detail—the degree of flexibility is sufficient.
Article 23 of the current articles of association provides that a resolution shall be decided by a show of hands. Article 31 provides that a show of hands will be decided on the basis of one member one vote. However, if the chairman, a group of five members at the meeting or one-tenth of the members at the meeting demand a poll, members will have one vote for every unit that they own. The poll may be taken in such a manner as the chairman directs. We believe that that is a straightforward means—so far as any of these matters can be called straightforward—of allocating votes in a commonhold and that it strikes the right balance of equality between members and the recognition that those with a larger property investment in the commonhold may have a greater interest in the outcome of a resolution.
The noble Lord also tabled Amendment No. 40 and proposes to remove Clause 32. That clause specifies that regulations about the commonhold community statement will require the statement to state how it can be amended. That follows on from the amendment to place the commonhold community statement in the Bill. He must recognise in advance, I am afraid, that we are going to resist that proposal.
Amendment No. 40 would insert a new clause stating that regulations should require a commonhold community statement to state how it can be amended. If the noble Lord had not attempted to remove the entirety of Clause 32 that amendment would not be necessary.
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I do not know whether the noble Lord wants me to comment on Amendments Nos. 48 and 49, which he did not discuss.
Lord Kingsland: I sought to indicate earlier that I want to deal with those matters when we come to the group of amendments containing the proposal to introduce the memorandum of association and the CCS into the Bill in schedules.
Lord McIntosh of Haringey: In that case I shall reserve my comments for later.
On the substantive issue with which the Committee is concerned, I hope that the noble Lord, Lord Goodhart, will not press Amendment No. 26.
Baroness Hamwee: Before my noble friend responds, I ask the Minister to say a little more about the flexibility that he suggested is appropriate in this situation. That seems to indicate that the Government may from time to time take a different view of, for example, what is an appropriate length of term of a lease. I wonder whether that involves flexibility that borders a little on being unfair to successive generations of unit holders. They may not know when they acquire the units what they can expect in terms of the Government's prescribed conditions. Therefore, the flexibility may be on the part of the Government. I take the Minister's point. There is a need to be able to respond to market conditions. Equally, I believe that that contains some unfairness and uncertainty for unit-holders, with which at present I do not feel comfortable.
Lord McIntosh of Haringey: I believe the answer is that the memorandum and articles and the commonhold community associations contain substantial elements which cannot be changed by individual commonhold associations. There is certain scope for flexibility at the margin, but the whole point of the way in which this has been drafted is that these are requirements of Government laid down by regulation. That means that they can be changed only with the approval of Parliament, either tacit or explicit.
Lord Goodhart: I refer to the point raised by the noble Lord, Lord Selsdon, on Amendment No. 26. There is nothing to stop unit-holders buying a unit in order to rent. They would be perfectly entitled to rent at a rack-rent for seven years and at the end of the seven years re-let again. I believe that that is even potentially a problem. This issue is important and I would prefer to see the restrictions on the face of the Bill. Nevertheless, our intention and that of the Government are the same. I shall consider with my noble friends whether we need to raise the matter again. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 17 agreed to.
Clauses 18 and 19 agreed to.
Clause 20 [Other transactions]:
Lord Kingsland Lord Kingsland moved Amendment No. 27:
Page 9, line 34, leave out subsections (3) to (6).
The noble Lord said: Here, we have yet more restrictions on the right of a unit-holder to deal with his or her unit. No explanation or justification for them has been given in the Explanatory Notes. They will tend to inhibit many common and often informal arrangements made in good faith and beneficial to everyone. What of the case where a unit-holder's aged mother agrees to contribute to the purchase of a unit in the unit-holder's name on terms that she has a beneficial interest in the unit and/or the right to live there?
Such arrangements often enable the younger generation to get on to the property ladder. Surely the new law on commonhold should encourage that? The restrictions in Clause 20(3) to (6) would have the reverse effect. Any such restrictions as may be justified are more properly to be imposed by the CCS; so that in the case of new development a unit-holder will know and accept the proposed restrictions before he contracts to purchase the unit and, in the case of a conversion from leasehold, a unit-holder will have been able to consider and discuss them before giving his consent to the application to register commonhold.
As regards Amendment No. 28, Clause 21 imposes yet another restriction on unit-holders. The intention, as stated in the Explanatory Notes, is,
"to preserve the integrity of the unit, and also to ensure that no event takes place that would require a change to the commonhold community statement (CCS) which is not in the control of the commonhold association".
There may be circumstances when it is convenient or financially necessary for a unit-holder to deal with part only of his unit; for example, again, if he wishes to accommodate his aged mother in a flat for which she has contributed her own money. For the same reasons as already given, any such restriction that may be justified is more appropriately imposed by the CCS.
I beg to move.
Baroness Scotland of Asthal: When we last saw Amendments Nos. 27 and 28 we were able to say to the noble Lord that the Government were tabling amendments which we believed went some way to achieving what he seemed to want. We, too, had recognised that the restrictions on the creation of interests in commonhold units seemed unnecessarily stringent and we tabled amendments to lift them.
As we noted at that time, we presumed that what is now Amendment No. 28, which would allow the creation of interest in part-units, subject to the provisions of the commonhold community statement, is intended to relax the absolute prohibition on interests and charges on part-units. We believe we have done that. We will now allow 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 and that is for reasons which noble Lords have already heard.
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A charge over a part unit, should it prove necessary in due course to enforce, would result in a change being required to the commonhold community statement, which would not be under the control of the commonhold association. We believed that we went more than half way to meet the noble Lord on the previous occasion. I am sorry to see that these amendments have come back.
The provisions of Clause 20, as they presently stand, represent a considerable relaxation to the restrictions in the previous version of the Bill prior to Report. In the circumstances, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Kingsland: I am sorry to have sounded churlish in the remarks I uttered. My reading of the modest changes made by the Government is somewhat different from that of the noble Baroness. Nevertheless, I shall take her comments into account and reflect on the matter before Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 20 agreed to.
Clause 21 [Part-units]:
[Amendment No. 28 not moved.]
Clause 21 agreed to.
Clauses 22 and 23 agreed to.
Clause 24 [Definition]:
[Amendments Nos. 29 and 30 not moved.]
Clause 24 agreed to.
Clause 25 [Use and maintenance]:
[Amendments Nos. 31 and 32 not moved.]
Clause 25 agreed to.
Clause 26 agreed to.
Clause 27 [Charges: general prohibition]:
Lord Kingsland Lord Kingsland moved Amendment No. 33:
Page 12, line 23, at end insert—
"(6) A charge shall not be extinguished under subsection (3) or (4) unless either—

(a) the chargee first consents in writing,

(b) fair compensation is paid to the chargee for such extinguishment, or

(c) adequate substituted security is provided for the chargee by way of a charge, or charges, on one or more of the commonhold units in the commonhold.

(7) The county court shall have jurisdiction to determine any matter arising under subsection (6) whatever the amount or value of the compensation or security involved."
The noble Lord said: 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 parts. 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. In that context I refer to Clause 3(1)(c).
Such a provision seems 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 with under Clause 3(2)(f) or if a charge is not protected by registration or a caution against dealing.
Lord McIntosh of Haringey: In the grouping that was agreed, Amendment No. 33 was included in the group with Amendment No. 1. We shall, of course, try to answer it, but if the noble Lord had wished us to take it out, it would have been helpful to know in advance.
Lord Kingsland: I am most grateful to the Minister. It seems only just and consistent with Article 1 of the first protocol of the European Convention on Human Rights, which, as the Minister knows, refers to the peaceful enjoyment of property, that a chargee can get fair compensation or adequate substituted security before his charge over common parts is extinguished. I beg to move.
Baroness Scotland of Asthal: I am more than happy to repeat what I said when I spoke to this matter earlier today. The noble Lord will remember that I answered this issue in relation to Amendment No. 33 when I commented on Amendment No. 19. I said at that stage in relation to Amendment No. 33 that it provides for chargees to consent to the extinguishing of charges over land that is to become part of the common parts. The Bill already provides for such consents by registered chargees in Clause 3. The arrangements made between the applicant for registration and the chargees as to compensation or the substitution of security seem to us to be a matter to be sorted out between them.
I am afraid that these amendments, as we have already respectfully suggested—and I am happy to repeat it—are defective in almost every respect. They would achieve only the basis for a scheme that would be expensive and unwieldy and, in our view, next to impossible to manage. I think that was the penultimate matter that I dealt with.
Lord Kingsland: I am aware that the Minister had responded to my Amendment No. 33, before I had spoken to it. I hoped that, having heard me speak to it, she would on reflection change her mind. Plainly, she has not done so. In those circumstances, I shall further reflect on the matter. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 27 agreed to.
Clause 28 [New legal mortgages]:
[Amendment No. 34 not moved.]
Clause 28 agreed to.
Clause 29 agreed to.
6 p.m.
Clause 30 [Form and content: general]:
Lord Kingsland Lord Kingsland moved Amendment No. 35:
Page 13, line 15, leave out "prescribed"
The noble Lord said: There is a large number of amendments in this group, and also some amendments in the group beginning with Amendment No. 26, to which I draw the attention of the Committee.
I shall not deal with each amendment. It will suffice to draw the Committee's attention to the purpose behind this group of amendments. The purpose is to insert on the face of the Bill the details that would be required to establish a commonhold community statement and the provisions for the memorandum and articles of association of the commonhold association.
I had given notice to the Minister, the noble Lord, Lord McIntosh of Haringey, of my intention to do this; and my intention was formilated in an earlier debate that took place in the Grand Committee last winter. I had hoped that the Government would be prepared to accept that these two documents, or at least the framework for them, would form part of schedules to the Bill, in the best traditions of the 1925 property legislation. However, having heard the noble Lord, Lord McIntosh, speak on several occasions on this issue, I despaired of that occurring.
Therefore, the real motive for my amendments today is to get the draft regulations that the Government have kindly published—in both the CCS and the memorandum of association—on to the face of the Bill today, so that at a later stage I shall be in a position to table amendments. The direction in which I wish to take both those schedules is, to some extent, indicated by the other amendments in the group.
The noble Lord, Lord McIntosh, rightly admonished me at Report stage earlier this year for having tabled what I thought the schedules ought to be, rather than what the Government thought the schedules ought to be. I hope I have learned from that experience. I have therefore taken the Government's drafts and tabled them as schedules. If the Government accept that, it would be my intention to amend them on Report and for the matter to be resolved at Third Reading. If, of course, the Government do not accept that approach, I shall have to consider very carefully whether to re-table these amendments at Report stage, seek the support of the House to defeat the Government and then amend the schedules at Third Reading.
I hope that I have said enough to enable the noble Lord, Lord McIntosh, or the noble Baroness, Lady Scotland, to respond to this group of amendments.
Lord Monson: Perhaps I may seek clarification of Amendment No. 192, to which Amendments Nos. 35 and 36 are paving amendments. It is true that Amendment No. 192 is tabled in the name of the noble Lord, Lord Kingsland. It is not a government amendment. However, I believe that in its entirety it replicates the most recent draft commonhold

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community statement, helpfully sent to me and no doubt to many other noble Lords by the Lord Chancellor's Department on 8th October. I admit that I had not previously studied it, but it contains a couple of matters that puzzle me. If for technical reasons, because the amendment is not in their name, the Government feel that they cannot answer, perhaps the noble Lord, Lord Kingsland, can.
Why in paragraph 22 is it made obligatory for each unit-holder to insure his or her contents? It is a sensible thing to insure one's contents, but surely it is nobody else's business if one fails to do so. If your contents are stolen or burned, you are the only loser. It does not affect the other unit-holders at all. Of course, paragraph 23 puts teeth into the provisions of paragraph 22. Similarly, paragraph 25 provides that each unit-holder shall maintain the interior of his property, and paragraph 26 gives the teeth to that.
It is clearly right that each unit-holder should ensure that nothing that happens in his unit adversely affects others, such as allowing taps to drip and baths to overflow, but that is covered by paragraph 61. If, for example, a unit-holder demolishes an interior, non-load-bearing partition and fails to re-erect it, why should that be any business of the other unit-holders? It does not affect them in any way. I should be grateful for an explanation of why those two rather onerous provisions are included in the draft.
Lord Kingsland: It would be entirely appropriate for the Government to respond to the noble Lord. It is the Government's draft.
Lord McIntosh of Haringey: We have already debated that specific issue in the absence of the noble Lord, Lord Monson, on an amendment moved by the noble Lord, Lord Williams of Elvel. I refer the noble Lord to Hansard when it is produced.
I have made a rod for my own back. It has been my principle in business all my life that if I have failed to communicate something, that is my fault and not the fault of the person to whom I have failed to make the communication. I was seeking to persuade the noble Lord, Lord Kingsland, to do what I did in opposition on a number of occasions when I thought that the substance of the legislation was contained in various secondary documents, whether codes of conduct, draft memorandum and articles or whatever, and that we could not debate the substance of the Bill effectively unless we had them on its face for the purposes of debate.
It was never my argument that codes of conduct, guidance principles, memorandum and articles, community statements or any such document should stay on the face of the Bill and I do not believe that that is the point the noble Lord is trying to make. I am merely setting the scene because the noble Lord is suggesting that we should leave the matter before the Committee now, debate it at the Report stage and take it off again at Third Reading.
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What I did in opposition was rather different. I tried to concentrate the minds of the then government by putting the code of conduct in an amendment and immediately proposing a huge number of amendments to my own. The noble Earl, Lord Caithness, the noble Baroness, Lady Blatch, and other distinguished Ministers thought that that was outrageous, that I was doing things which had never been done before and was abusing the procedures of the House. Generally speaking, I got a lot of stick for it.
However, I believe that I was right and that what the noble Lord, Lord Kingsland, is trying to do is defensible. I just do not believe that he is doing in the right way. It would have been clearer for all of us if instead of having a number of amendments in this and previous groups he had tabled as the two schedules what are now Amendments Nos. 192 and 193. By the way, they are in the wrong place—of course, they should have appeared in the Marshalled List after Schedule 2. That is the fault of the Public Bill Office and not my fault.
Lord Kingsland: I am grateful to the noble Lord for giving way. I must defend the Public Bill Office, which has shown enormous courage in the face of adversity in having to cope with two such enormous amendments. It has been stoic and splendid. The Public Bill Office took this step because it correctly recognised that huge amendments in the middle of the Marshalled List would distort the picture. Therefore, as the substance of the two amendments would not be debated today, merely the Question of whether they should be part of the Bill, it was regarded as appropriate to place them at the end of the Marshalled List. I say most humbly to the Minister that on this occasion the Public Bill Office got it absolutely right.
Lord McIntosh of Haringey: If the noble Lord, Lord Kingsland, persuaded the Public Bill Office of that conclusion, I accept what he says. However, I believe that it is wrong. I believe that the correct procedure would have been to place the amendments after Schedule 2, which is paved by Clause 5, and we could have debated all the matters at the same time.
However, we have passed by a number of amendments which would change the memorandum and articles and the commonhold community statement and there are more to which the noble Lord, Lord Kingsland, has not spoken. Perhaps I may make a suggestion to him. I believe that rather than put the provision on the face of the Bill at great expense and at the risk of considerable confusion, the best course would be if he and I, Ministers from the Lord Chancellor's Department and other Members of the Committee who are interested met between now and the Report stage. We should take the matter offline and undertake to return to it at Report in whatever form could be agreed. However, I do not believe that we can deal with the matter in the way that is being proposed. It would not be fair to include another 36 pages in the Bill with the intention of removing them.
6.15 p.m.
Lord Monson: In order that I may locate the answers to my questions, will the Minister be kind enough to say whether the noble Lord, Lord Williams of Elvel, raised the points earlier today or during the Grand Committee?
Lord McIntosh of Haringey: It was today and it was not necessarily the noble Lord, Lord Williams, who raised them. I believe that I raised them in response to the noble Lord.
Lord Kingsland: I hear what the Minister says and I feel that I am condemned if I do and condemned if I do not. During the Bill's previous passage through your Lordships' House, I tabled not the Government's text but the text I thought the Government ought to have drafted. And what did the noble Lord, Lord McIntosh of Haringey, say? He said that I was wrong to provide my own solution. He said that first I should set out as amendments the text of the Government's solution and then table amendments to that.
Lord McIntosh of Haringey: I was saying that that was wrong because if it were agreed it would have meant that some parts of the memorandum and articles would be statutory and some parts would not. The noble Lord, Lord Kingsland, has nothing to lose. If he agrees to withdraw the amendment now and to discuss the matter in as formal a manner as he wishes between now and the Report stage, it can still be dealt with in the way he wishes then. In other words, he can table the schedules and propose to amend them as he wishes at the Report stage.
Lord Jacobs: Is it proposed that the regulations be debated privately outside the Chamber after which amendments can be tabled, or is it proposed, as suggested by the noble Lord, Lord Kingsland, that we should be able to debate the regulations in the House even though the final result is not included on the face of the Bill?
Lord McIntosh of Haringey: It is proposed that the draft documents should be debated privately and that there should then be an opportunity for them to be debated on the Floor of the House. Any regulations which follow legislation will be considered by the House in the usual way and nothing would derogate from that.
Lord Kingsland: The noble Lord, Lord Goodhart, has not intervened in the debate and therefore I do not know what position the Liberal Democrat Party is likely to take on the matter. In all the circumstances, the best course is for me to accept the offer of the noble Lord, Lord McIntosh, to have a meeting between now and the Report stage. I am most grateful to him for making it and I know that it was made in a constructive spirit. Let us go ahead with the meeting and see where we go from there. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 36 to 39 not moved.]
Clause 30 agreed to.
[Amendment No. 40 not moved.]
Clauses 31 and 32 agreed to.
Clause 33 [Constitution]:
Lord Goodhart Lord Goodhart moved Amendment No. 41:
Page 15, line 24, at beginning insert "Subject to section "Limited liability partnerships",".
The noble Lord said: In moving Amendment No. 41, I should like to speak also to Amendments Nos. 50, 89, 94, 142 and 144. I believe that about two years ago the noble Lord, Lord McIntosh, piloted through this House the Limited Liability Partnerships Act 2000. That Act introduced a new form of body corporate which is particularly suitable for small businesses, small companies and simple organisations consisting of only a few people where one wants a corporate structure with limited liability without complicated memorandum and articles, boards of directors and so on. That appears to be an eminently suitable structure for a commonhold which has, say, fewer than 10 members, all of whom expect to be able to participate, broadly speaking, in the management of the property. Certainly, if one is looking at a small property—for example, a converted house which has five or six flats—that appears to be the absolutely obvious way to do it. It is simpler and involves a good deal less formality.
The purpose of these amendments is to provide an opportunity to use the limited liability partnership structure instead of the considerably more formal structure of a company limited by guarantee in the case of commonhold associations and right-to-manage and right-to-enfranchise companies. One has no board of directors, but a simple agreement between the members rather than the full memorandum and articles. That is plainly an appropriate form—in many cases it will be the most appropriate form—which should be included as an option, leaving the choice to the members when forming a commonhold association, RTM or RTE company. I believe that it is a pity if the Government, having invented this new form of corporate body, refuse to allow it to be used for a purpose for which it is particularly well suited. I beg to move.
Lord Kingsland: I believe that I am right in saying that when the noble and learned Lord, Lord Mackay of Clashfern, contemplated the introduction of a similar Bill in 1996 he had in mind a sui generis structure for the commonhold association. The noble Lord, Lord Goodhart, has suggested that a limited liability partnership is an appropriate form. As the noble Lord, Lord McIntosh of Haringey, is well aware, we suggested last February that it should be a company limited by shares on the grounds that it is a myth to believe that all unit-holders will be the same in terms of their financial interest in a commonhold and their financial outgoings. Earlier, I spoke at great length on that matter, and I have no intention whatever of repeating the long speech that I then

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made. I simply repeat that I need some convincing that a company limited by guarantee is the appropriate vehicle for a commonhold association.
Lord McIntosh of Haringey: I hope that on this occasion the grouping that we have proposed is acceptable. Here we have done two things. First, we have included with Amendments Nos. 41 and 50 in Part 1 dealing with commonhold in the name of the noble Lord, Lord Goodhart, the comparable amendments in Part 2 which deal with leasehold. I am glad the noble Lord agrees that that is the right course to take. Secondly, for a reason which I believe that the noble Lord, Lord Kingsland, understands, we have also included Amendments Nos. 42 to 45 which would make the corporate vehicle for a commonhold association a company limited by shares rather than by guarantee. The reason for our objection to both proposals is very similar.
I start by turning to the amendments relating to limited liability partnerships. When the matter was raised earlier we took the easy way out because limited liability partnerships came into force only on 6th April of this year. The easy argument was that we did not know what would happen to them and possibly we should not place on the face of a Bill an untried piece of legislation. I cannot use that argument with the same force now because the process has been going since 6th April. I must tell the Committee that about 850 firms have registered as limited liability partnerships since the legislation came into force. As we originally expected, a good number of them are professions and include, for example, accountants, solicitors and architects, but they also include couriers, electrical contractors, design consultants and a Conservative club. (I do not know how that works.) Although that process continues, neither the number of inquiries nor actual registrations is as high as originally intended, and Companies House is considering reducing its limited liability partnership team in the light of experience over the past few months.
I turn to the more substantive point rather than the premature argument. The amendments would give the Secretary of State the power to make an order and regulations at an unspecified point in the future to provide that commonhold associations, right-to-manage and right-to-enfranchise companies may be set up as limited liability partnerships as an alternative to the present structure of a company limited by guarantee.
It is probably easier if I talk simply in terms of the commonhold association, although the arguments apply to all three vehicles. I am glad that the Committee has had the opportunity to look at this again. There remains an element of unknown quantity about limited liability partnerships. Although 850 are registered, they have hardly started work. The main catalyst for the 2000 Act was concern expressed by professional partnerships about the increasingly high levels of damages awarded against them in professional negligence actions. However, they are not moving from a company limited by guarantee but
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from a partnership of the more traditional form. Clearly, the conceptual foundations of the 2000 Act do not apply to commonhold associations.
Section 2(1)(a) of the Limited Liability Partnerships Act 2000 provides that in order to establish a company as a limited liability partnership, it must be a lawful business carried out with a view to profit. As the Bill proceeded I explained that there was no intention in the genesis and evolution of limited liability partnerships that they should be used by organisations not operating with a view to profit. That is really the nub of the issue as far as we are concerned. A commonhold association may make a profit, but that is not the object of the company; the object is to carry out the functions of a commonhold association in relation to the body named in the memorandum and articles of association.
In residential commonhold, the commonhold association's main concern will be to facilitate the growth and development of a thriving community of unit-holders and to enable them to play an active role in determining the future of that community. We can make similar points about the right-to-manage and right-to-enfranchise companies. That is the fundamental difference and why we would oppose the limited liability partnership route.
So far as concerns Amendment No. 44 tabled by the noble Lord, Lord Kingsland, we cannot accept the idea of a commonhold association having objects other than those specified in the Bill and memorandum and articles. The objects stated in the memorandum and articles give a fuller exposition of the object of the commonhold association in Clause 33 of the Bill.
The noble Lord, Lord Goodhart, may argue that Section 2(1)(a) of the 2000 Act could be disapplied in order to establish any or each of our three companies as limited liability partnerships. However, that is a fundamental clause in the Limited Liability Partnerships Act. It appears second in order only to a provision establishing that a new form of body corporate called the limited liability partnership is to be made available and as such is prescriptive of one of the keystones of the limited liability partnership. Therefore, I must respond to the noble Lord by asking a question: why use the limited liability partnership format for a commonhold association if it will be necessary to tamper with one of the underlying premises on which it is based? It seems slightly perverse to choose as the format for a commonhold association a corporate body that will require fairly extensive surgery on its conceptual basis in order to integrate with commonhold.
We have previously debated these issues. Therefore, on the basis of the updated and revised—in the light of experience—responses which I am now able to give I hope that the noble Lord, Lord Goodhart, will not pursue his amendments.
6.30 p.m.
Lord Goodhart: I am grateful to the Minister for his response. I am rather sorry about it because it seems to me that if limited liability partnerships are being

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incorporated at a lower level than expected, the Government might rather welcome something which may lead to the incorporation of a few hundred more of them and make the whole operation more successful.
Lord McIntosh of Haringey: The object of the exercise is not to please government but to provide a corporate vehicle which corporate bodies want.
Lord Goodhart: Indeed. The Limited Liability Partnerships Act refers to the need for a business to be carried on at a profit. That dates back to the definition of partnership in the partnership Act because unincorporated partnerships do and, for a very long time, have had to carry on business at a profit. On the other hand, I am not convinced that that restriction is fundamental. The limited liability partnership seems to me a suitable form of incorporation for a body which is small enough so that all its members are involved in the conduct of its business or activities, whether or not those are carried on with a view to profit. Of course there would be no drafting problem with disapplying that particular provision in the Limited Liability Partnerships Act. However, this is by no means the most important amendment to the Bill. In the circumstances it is unlikely that we will have any strong desire to return to it. Certainly for the time being, therefore, I ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 42 to 46 not moved.]
The Deputy Chairman of Committees (Lord Murton of Lindisfarne): The next two amendments are improperly marshalled. Amendment No. 48 comes before Amendment No. 47.
[Amendment No. 48 not moved.]
[Amendment No. 47 not moved.]
Clause 33 agreed to.
[Amendments Nos. 49 and 50 not moved.]
Schedule 3 [Commonhold association]:
[Amendment No. 51 not moved.]
Schedule 3 agreed to.
Clause 34 [Duty to manage]:
[Amendments Nos. 52 to 56 not moved.]
Clause 34 agreed to.
Clause 35 [Voting]:
[Amendments Nos. 57 and 58 not moved.]
Clause 35 agreed to.
Clause 36 [Enforcement and compensation]:
[Amendments Nos. 59 to 63 not moved.]
Clause 36 agreed to.
Clause 37 [Commonhold assessment]:
[Amendments Nos. 64 to 72 not moved.]
Clause 37 agreed to.
Clause 38 [Reserve fund]:
[Amendments Nos. 73 to 79 not moved.]
Lord Kingsland Lord Kingsland moved Amendment No. 80:
Page 18, line 18, at end insert—
"(3A) The assets of a fund established and maintained by virtue of this section shall be treated as monies reserved for future expenditure.
(3B) Any sums paid into a fund established and maintained by virtue of this section by a unit-holder, and any investments representing those sums, shall (together with any income accruing thereon) be held by the commonhold association on trust either as a single fund, or, if the commonhold association deems appropriate, as two or more separate funds.
(3C) The commonhold association shall hold any trust fund—

(a) on trust to defray costs incurred in connection with the matters for which the relevant contributions were payable (whether incurred by the commonhold association itself or by another person), and

(b) subject to that, on trust for the persons who are the contributing unit-holders for the time being.

(3D) Subject to subsections (3F) and (3G), the contributing unit-holders shall be treated as entitled by virtue of subsection (3C)(b) to such shares in the residue of any such fund as are proportionate to their respective liabilities to pay a proportion of the levy set under subsection (2).
(3E) If the Secretary of State by order so provides, any sums standing to the credit of any trust fund may, instead of being invested in any other manner authorised by law, be invested in such manner as may be specified in the order; and any such order may contain such incidental, supplemental or transitional provisions as the Secretary of State considers appropriate in connection with the order.
(3F) On the transfer of a commonhold unit, the unit-holder shall not be entitled to any part of any trust fund, and any part of such trust fund which is attributable to relevant contributions paid in accordance with this section shall accordingly continue to be held on the trusts referred to in subsection (3C).
(3G) Any trust fund established under this section shall be exempt from any tax in respect of contributions made to it by the unit holders, whether (apart from this provision) a liability to tax may be imposed on the commonhold association or the contributing unit holder."
The noble Lord said: In moving Amendment No. 80, I draw the attention of the noble Lord, Lord McIntosh of Haringey, to the fact that this was a matter that we debated at some length on a previous occasion. I have tabled the amendment today because I believe strongly that the Government's judgment on this matter is plainly wrong. In my submission, it is not only right but logical that the reserve fund of an association should be held as a tax exempt trust fund and that the interest accrued only on the sum should be vulnerable to taxation. I beg to move.
Baroness Scotland of Asthal: I hope I do not disappoint the noble Lord in that it is I who is to respond and not my noble friend Lord McIntosh with whom he tangled on the last occasion.
Lord Kingsland: I shall certainly get a different, if not a better, answer.
Baroness Scotland of Asthal: The amendment seeks to introduce into commonhold a form of fund holding developed for leasehold funds by Section 42 of the Landlord and Tenant Act 1987. As Members of the Committee will know, the principal purpose of

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Section 42 was to establish a rule that funds held by the landlord or his agent for future works should be held in trust for the lessees.
Section 42 was not designed to exempt service charges from taxation, though it was suggested at the time that it would have the useful effect of ensuring that tax treatment of such funds was more equitable and less capricious than appears to have been the case then.
The provision that service charges be held on trust by the payee for the tenants as beneficiaries was introduced to improve and standardise the manner in which service charges and sinking funds are managed while they remain in the hands of the landlord. Section 42 implements the recommendation made in paragraph 7.3.5 of the report of the Committee of Inquiry on the Management of Privately Owned Blocks of Flats, the Nugee Report of 1985, which stated that:
"Where the money has not yet been expended it is important that funds are safeguarded against the risk that the landlord becomes insolvent or misappropriates funds. We therefore recommend that it should be held in a trust fund".
It is clear that the primary benefits of the statutory trust fund for leasehold service charges in Section 42 of the 1987 Act are twofold. First, money paid by tenants to the payee, as defined in Section 42(1) is safe from creditors in the event of the payee's bankruptcy or liquidation. This is particularly important because in the majority of cases the payee will be the landlord. It is evident that any wrongdoing or mismanagement of funds by him should not result in financial hardship to tenants. Secondly, Section 42 ensures that the payee is subject to the duties of trustees and will therefore be liable for a breach of trust if the money is misappropriated or not adequately safeguarded or invested. The trust set-up also enables the tracing of service charge funds under the arrangements for trust funds.
These considerations, important as they are, do not apply within commonhold. The commonhold association is a company whose members are those who pay the money into the funds. They appoint and dismiss the directors of the company, they approve the objects of expenditure and the setting of budgets and have absolute control over all aspects of the company under company law.
The directors who act on their behalf are bound by their fiduciary duty to act honestly and bona fide in the interests of the company and are also subject to the sanctions available both under the Companies Act and the general criminal law. They must produce accounts and answer for their contents. Commonhold association funds are funds of the company, not of the directors. With respect, we believe that that is a significant distinction.
Clearly, the purposes for which Section 42 was included in the 1987 Act do not apply in commonhold and it is not necessary for the directors of the commonhold association to be placed under trustee duties in relation to reserve fund moneys.
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I hope that that explanation is sufficiently clear to persuade the noble Lord on this occasion and that he will see some merit in the way in which we have advanced this matter.
Lord Kingsland: I think that the noble Baroness has approached the solution at which she finally arrived from a different angle from that of the noble Lord, Lord McIntosh of Haringey.
Lord McIntosh of Haringey: The idea that this Government should not be seamless is utterly unacceptable. I agree with every word spoken by my noble friend Lady Scotland. I would have said the same myself.
Lord Kingsland: I do not say that the noble Lord does not agree with his noble friend Lady Scotland. I wish merely to point out that when this matter was discussed on the last occasion, the argument used by the noble Lord in support of this conclusion was entirely different.
I am not surprised at the words of the noble Baroness. I shall reflect on her answer and consider whether this matter might be brought back on Report with the possibility of putting it to your Lordships' House. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 38 agreed to.
Clause 39 [Rectification of documents]:
[Amendments Nos. 81 to 83 not moved.]
Clause 39 agreed to.
Clause 40 [Enlargement]:
[Amendment No. 84 not moved.]
Clause 40 agreed to.
Clause 41 agreed to.
Clauses 42 to 57 agreed to.
Schedule 4 agreed to.
Clauses 58 to 64 agreed to.
6.45 p.m.
Baroness Gardner of Parkes Baroness Gardner of Parkes moved Amendment No. 84A:
After Clause 64, insert the following new clause—
"COMMONHOLD COMMISSIONER AND REGIONAL BOARDS
(1) The Secretary of State may by regulations establish the post of Commonhold Commissioner.
(2) The Commonhold Commissioner may determine such disputes and complaints arising within a commonhold association as the Secretary of State may by regulations prescribe.
(3) Regulations may provide for the establishment of Commonhold Regional Boards which may act on behalf of the Commonhold Commissioner.

533
(4) The Commonhold Commissioner shall, on receipt of an application for an order under subsection (2) above—

(a) determine the application himself, or

(b) remit the application to the appropriate regional board for determination, as he considers appropriate.

(5) The power to confer jurisdiction on a tribunal under section 64(3) above shall include the power to confer jurisdiction on the Commonhold Commissioner."
The noble Baroness said: I tabled the amendment after having spent most of the summer Recess in Australia. I lived in a strata title unit in New South Wales, an arrangement which is the equivalent of commonhold. That experience taught me a great deal about the difficulties that people encounter in such apartment blocks. It also made me curious to learn as much as I could about the legalities of the New South Wales system.
I invested in a definitive volume on the subject, Strata Title Units in New South Wales, although I should tell noble Lords that it was horribly expensive. It provides all the information required to respond to many commonly asked questions and is written in such a way that ordinary people can understand it. I was interested to learn that the author of the book had been the commissioner for strata title. I wondered why a commissioner had been appointed. I learned from the book the reasons why the position was created. My proposal for the establishment of a commonhold commissioner and regional boards seeks to create a parallel with the strata title commissioner.
Perhaps I may draw the attention of Members of the Committee to the text of this book. However, first I should point out that many people lived in strata title accommodation before any specific law had been enacted to control such accommodation. Until a law was passed in July 1973 and enacted in 1974, any dispute between individuals or bodies corporate,
"could only be remedied by instituting proceedings in the Supreme Court. In many instances the nature of the dispute neither warranted the attention of that Court nor was it practicable to institute those proceedings. It was for this reason that once a dispute arose, whether between residents in the scheme or between a resident and the body corporate, it lingered on until such time as common sense prevailed or the disputants found some other means by which it might be resolved".
People became extremely frustrated when they found that their problems could not be dealt with in a simple and straightforward manner. The book goes on to explain that:
"The Act creates the position of Strata Titles Commissioner"
—whose equivalent would be a commonhold commissioner—
"and invests in the holder of that position the power to determine a wide range of disputes or complaints capable of arising within a strata scheme. It further provides that within a prescribed area, there shall be a Strata Titles Board".
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I shall not go into the detail at this point because later I can give the book to the Minister, who might be interested to read it. However, I shall cover one or two further points:
"[The board] is invested with exclusive jurisdiction to hear certain types of dispute which, through the nature of those disputes, merit judicial determination. In the case of any dispute capable of being determined by the Commissioner, there is no right of appearance of the parties before the Commissioner".
The text covers the details of application and so forth. It then states that:
"It should be appreciated … that only disputes arising within a strata scheme, are capable of being settled by either the Commissioner or a Board. Disputes arising under any other form of property ownership".
are not covered by this jurisdiction.
"Furthermore, any dispute arising between the participants of two different strata schemes or between a participant in a strata scheme and an occupier of adjoining premises unrelated to the scheme, are equally incapable of being determined under this legislation".
The book contains a great list of the kinds of cases that can be determined. I was particularly interested in one example—there are a number of examples given—which is exactly the kind of thing that occurs even now in other types of properties. Example No 1 states:
"The body corporate has resolved to invest the moneys which it holds in its sinking fund for a period of five years. A number of proprietors in the scheme are of the opinion that the bulk of moneys will be required within the next two years to pay for repainting of the common property. Those proprietors would be entitled to seek an order",
from the commissioner requiring that this be taken into account and a decision made.
The essence of it is that it would be an inexpensive way of operating the system. If, as the Government claim, they really want to see commonhold come in, it is important to place a provision such as this into the Bill at this stage so that if at a later time it was found that such a commissioner was needed, one could be appointed quite simply. It will be no good at all if we have to come back with further primary legislation to do this. That is the kind of thing that never happens soon enough. If we consider how leasehold and commonhold have taken years to reach this point, it would certainly be a long time before there was enough parliamentary time to come back again on this.
I do not think that it is at all parallel to the ombudsman scheme referred to in Clause 41. It is quite different from that. The idea is to make it easy for people to handle disputes and to reduce the very high cost of the legal fees involved. I was impressed in New South Wales by how simple all kinds of tenancy matters are and how minimal are the costs for both landlord and tenant compared to this country in terms of letting or sale of a lease. It was quite enlightening for me to see the difference.
It is a simple idea. I am putting it forward today in order that the Government may give thought to the matter. I obviously do not expect the amendment to be accepted without thorough investigation, but it deserves thorough investigation as it may prove to

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work very well. It would show that the Government are really serious about wanting to see more commonhold in this country. I beg to move.
Lord Monson: In rising to support the noble Baroness, Lady Gardner, perhaps I may clear up a misconception on the part of the Government. At Second Reading, I ventured to suggest that, for all the Government's good intentions, the commonhold system would not automatically lead to sweetness and light all round. In his reply, the noble and learned Lord, Lord Falconer of Thoroton, said:
"We would be grateful to hear from the noble Lord"—
that is myself—
"on any detailed points of concern so that we can work with him to try to reduce as much as possible any problems in the working of commonhold".—[Official Report, 5/7/01; col. 919.]
I am afraid that I have no suggestions to make.
I am not blaming the Government for anything; I think that they have done as good a job as they can. The problem lies with human nature. It is in the nature of neighbours to quarrel sooner or later. Those in semi-detached or terraced houses will quarrel more frequently than those in detached houses; those in flats will quarrel more frequently than those in semidetached or terraced houses. In flats, noise comes not only laterally but from above and below, and there is the added problem of the eventual use or misuse of common parts.
This applies equally of course to leasehold flats where the lessees have the right to manage, as I know from personal experience, albeit at one remove, as I have mentioned two or three times before. I do not think anything can be done about it. You can draw up a very rigid legal framework, but there still has to be give and take between occupants of flats which cannot be encompassed within a legal framework. There are bound to be disputes and the proposal of the noble Baroness seems as good a way as any of resolving them.
Baroness Scotland of Asthal: May I say straightaway to the noble Baroness, Lady Gardner, how pleased we are that she is involving herself with such energy in this regard. I shall be very pleased indeed to see the results of her investigations. I can reassure her that we are committed to the development of commonhold and want to see it thrive.
The noble Baroness, Lady Gardner, is widely experienced in the ways of commonhold in other jurisdictions. As she is aware, while developing this Bill we have quite shamelessly borrowed good ideas from a number of other jurisdictions. We make no apologies for that. We are aware of the good work done by the strata title commissioners and their counterparts around the world, but we wonder whether the dispute resolution function is not better carried out in the way that we are proposing.
To arrive at the noble Baroness's model, particularly in the early stages of commonhold, would be prohibitively expensive. Of course there will be disputes within commonhold, and of course they will
536
need to be settled—preferably by a body with relevant expertise—but a specifically appointed commissioner, with supporting staff and suitable accommodation, is not the only way to approach the problem. As I say, in the early stages of commonhold development it is perhaps not justifiable.
As the noble Baroness will be aware, we are keen to promote alternative dispute resolution processes in the commonhold context. As the noble Baroness mentioned, Clause 41 provides for the approval of an ombudsman scheme. Our thinking at the moment is that the commonhold ombudsman scheme should be very closely modelled on that of the Independent Housing Ombudsman, whose input into our planning process has been most welcome and has been viewed by many as a great success.
One of the possibilities open to us would be to appoint the Independent Housing Ombudsman as the commonhold ombudsman in the first instance. This would bring us expertise, a wide range of alternative dispute resolution processes, excellent value for money and a system well used to dealing with disputes from all around the country which works well and is well respected.
In other jurisdictions, as the noble Baroness said, the equivalent of the proposed commissioner has other duties such as the maintaining of registers, zoning and planning regulation and the collection and scrutiny of accounts. All of these functions are carried out by other distinct bodies in England and Wales, and the noble Baroness has recognised this in proposing only that the commissioner should deal with disputes.
I hope that I have said enough to persuade the noble Baroness that we are taking dispute resolution seriously and intend to see that it is in good hands from the outset. An appropriate mixture of locally served notices, an ombudsman, tribunals and courts ought to provide all that we need to resolve any dispute arising in commonhold.
We shall look at this matter because it is our intention to have a system which will give effective resolution, speedily and in a cost-efficient way, for those who engage in commonhold. We gratefully take into account everything that the noble Baroness said in relation to this matter. We thank her for the interest and the energy with which she has raised these matters in the past. It has given us great pause for thought.
Baroness Gardner of Parkes: I thank the Minister for her reply. I would draw her attention to the fact that the amendment does not insist on the making of an appointment but gives the power to make such an appointment. While I appreciate that at the outset it would be costly, by the time such an appointment was to be made it would represent a great saving on legal costs. That is why I think it is well worth considering. I ask the Minister to look at this in detail between now and the next stage of the Bill.
One example that I did not refer to concerned someone who wished to put a barbecue where it would offend the nostrils of everyone above. That is the kind

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of situation that was resolved. It may not be appropriate in our climate, but it is a typical instance of what can be simply resolved.
Of course, it was not ever done without a fee. The applicant always had to pay a fee, and a separate fee for every separate item in dispute. The intention was that the system should be not exactly self-financing, but inexpensive.
I understand that the setting up of the structures could be expensive, especially if it involved duplication. Nevertheless, I should like to see a provision of this kind on the face of the Bill to permit its introduction at a time when commonhold became common by which time a large number of people would be involved and it might then be an economy. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 65 and 66 agreed to.
Schedule 5 agreed to.
Clauses 67 to 69 agreed to.
Clause 70 [Premises to which Chapter applies]:
7 p.m.
Lord Kingsland Lord Kingsland moved Amendment No. 85:
Page 33, line 8, at end insert ", and
(d) no part of the premises is let on a tenancy to which Part 2 of the Landlord and Tenant Act 1954 (c. 56) (security of tenure for business, professional and other tenants) applies."
The noble Lord said: When this matter was debated previously in Grand Committee there seems to have been agreement on all sides that there is a problem with mixed development buildings—in that it is generally inappropriate for the residential tenants to be managing the commercial parts of the property. Commercial tenants expect commercial management of premises.
A landlord's involvement in the management of the commercial part is generally much more time consuming than in relation to the residential part. The buildings in the residential parts must be kept in repair; but there is not on the whole a large dispute about what needs to be done. Disputes are mostly about timing and cost. Decisions regarding commercial premises, however, have to be taken on a much more proactive basis. The landlord has to decide what works have to be done to make the premises attractive for new tenants. Moreover, commercial tenants, where the landlord has the repairing obligation, will be much more demanding than the residential tenants, who have to bear the repair cost themselves through a service charge.
That problem was recognised on all sides in our earlier debates. So what was the Government's response? The primary argument advanced by the noble Lord, Lord Whitty, was that allowing the amendment would mean that landlords could evade the residential tenant's right to manage by converting small parts of the development into business premises.
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The noble Lord gave the example of a landlord converting a broom cupboard into an office and an attic into a factory.
If that is as good an argument as the Government can produce, there should be little opposition to my amendment. It is obvious that, in order to convert a broom cupboard into an office, there must be planning permission. I should like to see an attempt to install a steam hammer for metal pressing in the attic of the average British flat! No doubt there might be a risk of a landlord seeking to convert part of a block of flats into commercial premises; but the reality is that this will not occur in any but a very few instances. Residential blocks are, by and large, simply not suitable for conversion into commercial premises.
The noble Lord, Lord Whitty, also drew attention to what is now Clause 94(6)(a) of the Bill. This, he said, meant that commercial parts would not be subject to the right to manage. Let me say at once that the clause is uncharacteristically opaquely drafted. If the intention is that the responsibility for the commercial parts should rest with the landlord, it does not say so. Moreover, it leaves almost unworkable demarcation disputes. Just what are,
"functions with respect to a matter concerning only a part of the premises consisting of",
in the case under discussion; namely, a commercial unit?
A fairly standard matter that arises in the case of shops on the ground floor of mixed developments relates to the frontage of the shop and the type of advertisements that may be displayed. After the right to manage has been exercised, is that a landlord's responsibility, or an RTM company's responsibility?
The noble Lord, Lord Jacobs, suggested in Grand Committee that landlords should be given 999-year leases on the commercial part. I for my part can see that this could be a most productive way forward, although it is noticeable—although not necessarily significant—that the noble Lord, Lord Whitty, did not address the suggestion.
It is the view of this side of the Committee that the Government's proposals for mixed developments are, as currently formulated, unhappy. The only practical solution to these problems, for the time being, is to exclude mixed developments from the scope of the automatic right to manage. This would not prejudice residential tenants with bad landlords, because the current rights to manage would still exist. I beg to move.
The Minister of State, Department for Transport, Local Government and the Regions (Lord Falconer of Thoroton): The noble Lord's amendment would have the effect of disapplying the right to manage for all properties where any part of the premises was subject to a business tenancy. As he said in introducing the amendment, the matter was discussed previously in Grand Committee and my department has given it earnest consideration.

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As my noble friend Lord Whitty explained previously, we cannot accept such an amendment. The right to manage is intended to allow leaseholders who have a majority stake in a property to take over the management of that property. The amendment would have precisely the opposite effect; indeed, it would prevent leaseholders who had acquired 99 per cent of a property on long leases being able to manage the block merely because the remaining 1 per cent was subject to a business tenancy. It would open up a serious loophole which an unscrupulous landlord would be eager to seize upon. He could frustrate the right to manage by letting a small part of his property on a business lease. It must be remembered that business leases extend way beyond factories; they extend to professional activity as well. The practical effect of the amendment would thus be to allow landlords to put any property that they wanted outside the scope of the right to manage. I accept that that is not the intention, but that is what would happen.
The noble Lord, Lord Kingsland, suggested in Grand Committee that if the amendment were not acceptable—it is not, because it excludes a significant body of people from the protection afforded—we might wish to consider bringing forward an amendment of our own which had the effect of excluding the commercial element of a mixed-use block from the right to manage. Other Members of the Committee strongly supported his approach. I mention my noble friend Lord Lea. I appreciate that Amendment No. 86 in the name of the noble Lord, Lord Kingsland, is intended to achieve that. But, as I have said, we believe that it would go much further in its effect and that it would also prevent the leaseholders being able to manage the common parts.
Those who have been involved in this area over a long period of time—much longer than I—will know that we have looked long and hard at how best to apply the right to manage to mixed-use properties. They will also have heard us set out the very real problems that would be encountered in any attempt to impose a statutory division of management responsibilities within an interdependent block.
We have reflected hard on these proposals since the Bill received its Second Reading but still find them intractable. The fundamental difficulty is that responsibility for the fabric of a structure as a whole for related matters such as insurance for the structure and for any parts or services which are common to both the domestic and the non-domestic sections of the block could not sensibly or realistically be divided between the two parties. It would leave the landlord responsible for the fabric of the property. Only those responsibilities that relate solely to the interior of the domestic parts and any common parts exclusively associated with them would transfer to the RTM company. In most cases, that would be of little use or benefit to the residential leaseholders. All the major management decisions and most costly aspects of management would remain with the landlord, who would continue to recoup the costs from leaseholders
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through the service charge. The right to manage would in effect be totally emasculated simply because 1 per cent of the property was a business tenancy.
I appreciate that the amendments may stem in part from concern that the RTM company might lack the motivation and expertise to manage the non-domestic part successfully. I stress that under the Bill there would be no question of the RTM company becoming involved in the commercial relationship between the landlord and his business tenants. Clause 93(6)(a) explicitly reserves to the landlord all management functions relating exclusively to units that are not leased to a qualifying tenant. Although the problem is difficult, we remain satisfied that the Bill's approach is the best solution available at this time.
We resist also Amendment No. 87, which would remove the provisions that permit the right to manage to be acquired for mixed-use properties with no more than 25 per cent in non-residential use. I appreciate that, if we were to accept either of the other amendments, that threshold would not be needed, but as we do not accept them, we need to retain the threshold. In those circumstances, I invite the noble Lord to withdraw the amendment.
Lord Kingsland: The noble and learned Lord will not be surprised that I am exceedingly disappointed. Mixed-development buildings form a central part of the Government's thinking for 21st century urban development. It is crucial that the people who inhabit those developments can enjoy the right blend of legal rights and duties to ensure that they have the incentive to maintain the fabric of those buildings properly. If the Government's town and country planning philosophy in relation to mixed development is to succeed, it is vital that the Government find the appropriate legal framework.
I accept entirely the Minister's assurance that much cerebration took place over the summer to find a better balance. I am despondent that—despite the intellectual resources that the department has at its disposal, which are considerable and renowned—-a solution cannot be found. I will reflect on the Minister's response. It is likely that I shall return on Report with a modified proposal. Meanwhile, I beg leave to withdraw the amendment.
Amendment by leave, withdrawn.
[Amendment No. 86 not moved.]
Clause 70 agreed to.
Schedule 6 [Premises excluded from right to manage]:
[Amendment No. 87 not moved.]
On Question, Whether Schedule 6 shall be agreed to?
7.15 p.m.
Baroness Gardner of Parkes: I refer to those tenants who have enfranchised their properties and now find themselves under a management scheme over which they have no control and the terms of which are harsher and more expensive than a leasehold. Will tenants who enfranchise any property under the

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scheme find themselves more adversely affected? I was telephoned on that subject and have been promised chapter and verse. Why does the Bill not help freeholders of houses in a mews or other location? If the landlord applies for and secures a management scheme, that could have a dramatically adverse effect on the former leaseholders.
Apparently, different policies apply to different major estates. With some, as soon as the property has been enfranchised and is freehold, those concerned are told, "You are on your own. It is up to you what to do". Other estates insist on major repair obligations. In one case quoted to me, the tenants have to pay for a warden to patrol the mews. Can anything be done by amending Schedule 6 or could the issue be dealt with at a future stage?
Lord Falconer of Thoroton: I am not sure that this is the appropriate schedule, but the debate gives me the opportunity to acknowledge the problem that the noble Baroness identified. We are reflecting on the correct approach. I cannot guarantee at the moment that the correct approach is to amend the Bill but we will let the noble Baroness know how we intend to deal with the issue.
Schedule 6 agreed to.
Clause 71 [RTM companies]:
Lord Kingsland Lord Kingsland moved Amendment No. 88:
Page 33, line 26, leave out "a" and insert "an"
The noble Lord said: The phrase "a RTM company" is shorthand for "a right-to-manage company" but the Bill does not define an RTM company as a right-to-manage company. In other words, "a RTM company" is, as a matter of statute, simply an RTM company—not shorthand for a right-to-manage company. I beg to move.
Lord Goodhart: This can be described as an Earl Ferrers amendment. Late one evening during the progress of the House of Lords Bill, we had an extensive debate and a Division on whether the reference should be to "a hereditary peer" or "an hereditary peer". On that occasion, I disagreed with the noble Earl but I think that the noble Lord, Lord Kingsland, is right. The Bill ought to be drafted in a way that reads the same as it will be pronounced. I do not imagine that even anybody on the Government Benches would talk about "a RTM company".
Lord Falconer of Thoroton: Everyone had the same thought. Maybe it is a blast from the past. I am told it is simply a matter of drafting convention. I am informed that where a Bill creates a new entity such as the RTM company, the standard practice is to refer to it as "a". That does not take the matter much further forward but clearly parliamentary counsel proceed on the basis of convention. I do not feel remotely confident to intervene. Throughout the progress of the Bill, I will force myself to refer to "a RTM company"—and respectfully ask the noble Lord to withdraw the amendment.
Lord Kingsland: If that is so, drafting conventions are hardly ambassadors for the English language.
It seems to me that this is an opportunity for the Minister to create some constitutional law. He can exploit the opportunity by making a distinction here between abbreviations that are abbreviations of a full statutory definition and abbreviations that are not. In other words, it might be understandable if "RTM company" had been defined somewhere in the Bill as a right-to-manage company in full. But in this case it has not been so defined.
"An RTM company" is, as a matter of statute, simply an RTM company. In those circumstances, to describe it as "an RTM company" is not only an abuse of the English language; it also makes any convention that insists that that be the case seem absurd. I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 89 and 90 not moved.]
Lord Kingsland Lord Kingsland moved Amendment No. 91:
Page 33, line 28, leave out "guarantee" and insert "shares with at least the minimum paid up capital, divided into "A" shares and "B" shares"
The noble Lord said: This grouping includes Amendments Nos. 92 and 93. I shall speak, first, to Amendment No. 92, and then deal with Amendments Nos. 91 and 93. In saying that this amendment is an important one, one has to acknowledge that every amendment is, in a sense, an important amendment when one is addressing a legislative document.
We believe that this amendment is essential in order to make the right to manage workable. The proposal put forward here is a modification of what we proposed when the Bill was last in Committee. The proposal that we made on the previous occasion was that RTM companies should be ordinary limited companies with a share capital. The reason for that proposal is simple: it is important to realise that an RTM company is a small business. Its business is the management of blocks of flats. No business can be run without some working capital.
In Grand Committee, I gave what I thought to be some simple examples in that respect. Let us suppose that a contract for works is let to builders. As not infrequently happens, the works prove more extensive than anticipated and the costs overrun the estimate. Where will the RTM get the money to pay for the overrun? It will only have raised the estimate by way of service charges; and getting in more service charges cannot be done that quickly. No bank will lend money because the RTM company has nothing to offer by way of security. Hence my proposal that RTM companies should have some share capital.
Noble Lords may wonder what response the Government gave to this point in Grand Committee. The noble Lord, Lord Whitty, said:
"I appreciate that the leaseholders' company which takes over the management of the property needs to have access to funds".
So, I respectfully concluded that the Government accept that RTM companies need to have some money. So far, so good. But what did the noble Lord

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propose should be clone to solve the problem? The answer is precisely nothing. The noble Lord, Lord Whitty, went on to say that requiring,
"share capital would price a lot of leaseholders out from the start and create far too great a threshold for them to pass through into the right-to-manage company".—[Official Report, 27/2/01; col. CWH 125]
With the greatest respect to the Minister, that is not an answer. If an RTM company needs money to operate, it needs money to operate. Just saying that it is all too hard for the tenants is simply, with respect, naive. The RTM companies run a great risk of failing unless they have adequate working capital.
On behalf of the Liberal Democrats, the noble Lord, Lord Goodhart, said that even if tenants did raise share capital in order to start an RTM company—I trust that If am not misinterpreting him here, though I am sure that he would be the first to point that out to me if that were the case—the first thing that the new RTM company would do is give all the tenants a year's service charge holiday. The directors of any RTM company that did any such thing might well find themselves the subject of directors' disqualification proceedings if the RTM did, in consequence, fall into financial difficulties.
None the less, we on this side of the Committee sought to modify our proposal in order to make it more attractive to the Government. The proposal put forward in the amendment now before us is that RTM companies remain companies limited by guarantee but with a substantial guarantee given by the tenants. Under the Bill as currently formulated, RTM companies will be formed with each member having to contribute £1 to the company in the event of the RTM company being wound up. On that basis an RTM company is effectively worthless.
Under my proposal, the guarantee given by each tenant would, in broad terms, have to be the equivalent of two years' service charges. The advantage of this proposal is that an RTM company would have a borrowing capacity from the start to enable it to obtain some working capital from a bank. Yet, at the same time, the tenants would not actually have to part with money at the start. As I understand it, that was the main objection to the original proposal. Thus our amendment would lead to RTM companies being much better able to cope with the demands that they are likely to face from the outset. I commend it to the Committee.
I turn now to Amendments Nos. 91 and 93. We believe that these amendments are essential in order to make the right to manage workable. There are two aspects involved: the first is to ensure that RTM companies are adequately capitalised, which I have just discussed; and the second is to recognise the landlord's important interest in the RTM company.
The Bill proposes that landlords should be members of the RTM company with one vote. The landlord would have no right to sit on the board. The extent of the landlord's rights would be to attend general meetings of the company and be out-voted every time by the tenant members of the RTM company.
I understand that the Liberal Democrats propose that the landlord should have no involvement at all in RTM companies. I have to say that I find that position difficult to understand. In any event, I am not sure that it would be compliant with the Human Rights Act because the landlord would be deprived of an involvement in a property in which he has an interest.
The only way properly to recognise the landlord's legitimate interest in the property is to allow him to sit on the board of directors. The technical way in which that can be done is to create two classes of shares—A shares, which are held by the tenant, and B shares, which are held by the landlord. I beg to move.
7.30 p.m.
Lord Goodhart: Our amendment, as the noble Lord, Lord Kingsland, said, would remove the landlord from membership of the RTM company. However, that amendment is the first amendment of the next group, so I shall not speak to it now, although the subject has been raised.
Lord Falconer of Thoroton: I hope that the noble Lord, Lord Kingsland, will not be upset. I know that the noble Lord, Lord Goodhart, will not be upset when I say that I do not intend to reply to that amendment until it has been moved.
The group to which the noble Lord, Lord Kingsland, spoke refers to the constitution of the RTM company. As has been made clear earlier in the Bill, we believe that it should be a company limited by guarantee. The noble Lord proposed that it should be a company limited by shares when we discussed the matter earlier in connection with commonhold. The general proposition of the noble Lord, Lord Goodhart, was that all the companies provided for in the Bill should be capable of being limited liability partnerships. Although the point was only touched on by the noble Lord, Lord Kingsland, I should perhaps deal with it now.
The noble Lord, Lord Kingsland, tabled a similar amendment in the previous Committee proceedings and my noble friend Lord Whitty explained why such changes were not appropriate. I do not think that anything has been said today to change the position fundamentally or to persuade us otherwise.
To remind noble Lords of our reasoning, we considered it important in the first place that the three different companies provided for in the Bill—the RTM company, the RTE company and the commonhold association—should have the same basic structure. That will allow those leaseholders who wish to do so to move with relative ease through the three. Where they have acquired the right to manage, the leaseholders may then wish to use the same company as the vehicle to purchase the freehold. The amendment would prevent that happening. In particular, it would mean that leaseholders would always have to set up separate companies to acquire the right to manage and to purchase the freehold. I appreciate that the noble Lord, Lord Kingsland, has now proposed that the commonhold association, but not, so far at least, the

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RTE company, should be a company limited by shares. He will know from the debate on his earlier amendments that that proposition is not acceptable to the Government.
The noble Lord suggested in the previous Committee that it would be possible for a company limited by shares to mutate into a company limited by guarantee. We sought advice on that interesting view and have been told that that cannot happen. Furthermore, that does not address the fundamental issue of how a single company can be both an RTM company and an RTE company at the same time. If we were to accept the noble Lord's amendments, one would have to be limited by guarantee and the other by share. I cannot see how it is possible for the same company to be limited simultaneously in two different ways.
Our more fundamental objection is to the twin proposition that the RTM company, as a company limited by share, should have a high minimum amount of share capital and that individual members should take on an equally high minimum personal liability. As the noble Lord, Lord Goodhart, rightly noted in the previous Committee, the formulae suggested by the noble Lord, Lord Kingsland, would effectively price many leaseholders out of exercising the right to manage. While I appreciate the good intentions behind the amendment, the practical effect would be to make the right to manage inaccessible to the vast majority of leaseholders. As my noble friend Lord Whitty said in Committee, it will create an incentive for the landlord to make the service charges as high as possible. Indeed, if he can make sure that the leaseholders struggle to pay them once, he can be sure that it will be impossible for them to accumulate enough to pay them effectively for a second and third time. We cannot agree to the opening up of such a glaring opportunity for landlords to undermine the right to manage.
That said, I can well appreciate concerns that the leaseholders who take over the management of a property should have the necessary funds behind them to be able to do the job properly. We agree and strongly encourage them to do so. But, as has been said previously, that is a matter for guidance and not for the face of the Bill. Leaseholders already have to pay for the management of the property and will therefore exercise the right to manage, knowing that they will have to meet the costs that they run up themselves. The additional requirement is unnecessary and would be a very heavy burden.
The objection remains the same whether the sums have to be paid up front as share capital or guaranteed in cases of future liability, which is the twist that the noble Lord, Lord Kingsland, has brought to the debate this evening. The suggested requirement to pay two years' service charge is too high. It is a loophole for landlords to push up charges, to try to frustrate the right to manage and generally to price leaseholders out of exercising the right to manage. Whether they do it
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by having to give a guarantee to that effect, or whether they have to put it up front in the form of share capital, the barrier is the same.
The noble Lord also proposed that either the freeholder, under Amendment No. 98, or the landlords together, under Amendment No. 95, should have the right to appoint a minimum number of directors of the RTM company. We do not see why that is necessary and certainly do not think it appropriate. As has been said many times, the right to manage will give everyone with a significant stake in a property a balanced and proportionate say in its management. I cannot see why we should unbalance that by giving landlords the right to insist on their own directors.
Those proposals seem to be based on the unhelpful assumption that leaseholders cannot be trusted to manage the property in which they have acquired the majority stake and that landlords need some special protection. We disagree. There is nothing to justify the landlord, with his minority stake in the property, having a disproportionate degree of protection. We agree, of course, that everyone with a stake in the property should be able to take action to promote their interest when the RTM company fails to do its job. The Bill already provides for that, but our view remains that such rights should be granted on a fair and equitable basis.
We have no objection in principle to the appointment of a director nominated by the landlord. Indeed, we would see nothing wrong in the landlord himself becoming a director. But we feel that that should be a matter for the members to decide for themselves collectively.
The amendment of the noble Lord, Lord Kingsland, addresses how the Government should set about prescribing the constitution of the RTM company. Your Lordships have already seen an outline draft of the RTM constitution. If the noble Lord, or any other Peer, has concerns about that draft, he is more than welcome to let me know what those are. There will be further drafts—we hope to make a further version available before too long. In addition, there will be full public consultation before the text is finally decided.
In view of the openness on our part, I am disappointed by the amendment tabled by the noble Lord, Lord Kingsland, his suspicions of our intentions and his wish that we make regulations subject to affirmative resolution. He is shaking his head to indicate that my fears are completely misplaced, for which I am grateful. In the light of my remarks, I hope that the noble Lord will withdraw his amendment.
Lord Kingsland: I thank the noble and learned Lord, Lord Falconer, for his full response to my amendment, but I am rather disappointed at what he said—by his tone rather than the content. He seemed to be extremely hurt by the fact that I tabled an amendment on the topic at all. I apologise, but what matters is finding a solution to the problem. RTM companies need adequate resources to ensure that the fabric of the building that they manage is properly maintained. In

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my submission, the provision in the Bill for the protection of RTM companies and the fabric of the buildings is inadequate.
The noble and learned Lord's response is, "Ah, wait until you see the regulations". Perhaps I have misunderstood and that they are matters that should be covered by regulations and guidance. Is it not reasonable to assume that when these documents become a reality and I glance at them, I shall see the solution to my problem? Is that a reasonable supposition? The noble and learned Lord shakes his head.
Lord Falconer of Thoroton: I shall not respond. I have indicated that making sure that there are sufficient funds is a matter for guidance, not for imposing hurdles of a statutory kind which we believe will debar in practice many leaseholders from exercising the right to manage. What we intend to do in guidance is indicate the kinds of step that the appropriate and prudent leaseholder should take in ensuring that the RTM is sufficiently funded. But it will be guidance; it will not be the kind of statutory requirement that the noble Lord envisages by way of a hurdle before one can set up an RTM, as these amendments propose.
Lord Kingsland: I am most grateful to the Minister for that clarification. Of course I shall return to the matter on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringey: I beg to move that the House do now resume. I suggest that further consideration in Committee be resumed not before 8.40 p.m.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Employment of the Disabled
7.41 p.m.
Baroness Anelay of St Johns Baroness Anelay of St Johns rose to ask Her Majesty's Government what measures they are taking to encourage people with disabilities to consider working in the hospitality and tourism industry.
The noble Baroness said: My Lords, I thank in advance those noble Lords who are speaking tonight for their participation in the debate. I very much look forward to learning from their speeches. As ever I remind your Lordships of my interests in these matters, all of which are unpaid. I am patron of the Tourism for All Consortium and of the Restaurant Association of Great Britain. I have been a member of the funding council of the Disability Partnership.
It is obvious to all that there is a crisis in tourism at present due to the cumulative effects of foot and mouth disease since March and the terrorist attacks last month in the United States. The English Tourism
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Council has estimated that at least 150,000 jobs are at risk. Therefore, it might seem a strange time for me to ask for this short debate to discuss the need to encourage people with disabilities to look to the tourism and hospitality industry as their career of first choice. However, I still think that it is the right time for this debate. Hospitality and tourism is a vital industry to the UK economy. It employs more than 1.75 million people, accounting for one in six of all new jobs created over the past 10 years.
Those who run hospitality businesses still need to plan for the better years which must lie ahead. Schoolchildren and students always need to plan ahead and so, of course, do the Government. It is vital that the Government have a clear strategy. I invite the Minister tonight to give the House an insight into that strategy.
This is a special week for planning ahead; it is Springboard Careers Festival Week. Springboard is an independent not for profit organisation set up to promote and encourage career opportunities in hospitality and tourism. As the Springboard website declares, this week,
"provides a powerful opportunity to address the biggest industry issue—attracting enough of the right people into jobs and careers across hospitality, leisure, travel and tourism".
My argument tonight is quite simply that people with disabilities can be the right people and that it is important to bring that point home to potential employees, employers, teachers and customers such as we all are.
Today is Bus Tours of Discovery Day when potential recruits, careers advisers and teachers get on a bus to make a voyage of discovery around the tourism industry learning what goes on behind the scenes. Let us hope that they still want to enter the industry after that.
It is important to attract people wit h disabilities to employment in tourism for three reasons. First, it is quite simply and self-evidently the right thing to do. Secondly, it has the statutory backing of the Disability Discrimination Act passed by the previous Conservative government in 1995. That makes it unlawful to discriminate against disabled people in terms of employment and disability. Its provisions will be fully implemented by 1st October 2004. Organisations such as the Restaurant Association have taken care to publish guidance notes for their members outlining their obligations with regard to the Disability Discrimination Act and highlighting practical points which are, of course, in essence good practice.
The Act may be the stick but the carrot is quite simple; it makes good business sense to employ people with disabilities in the tourism industry. The industry has a notoriously high turnover of staff. It often seems that no sooner are people trained than they are off. The vast range of employment and career opportunities in large and small businesses, the rapidly changing development of technology in the workplace, the coverage of the industry across the United Kingdom and the flexibility of much of the work all offer a

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unique opportunity to promote careers in tourism to a comparatively new market, that of disabled people, and in turn help to deal with the chronic skills shortages in the UK.
It has been shown that by employing people with disabilities one can gain a competitive edge in providing services for disabled customers and give staff the confidence to serve disabled customers to a high standard. It is surely likely that a greater percentage of people with disabilities would want to travel on holiday or business if more services and facilities were made accessible and they were made welcome with those facilities.
Disabled people tend to remain employed with the same business for longer and they have a strong commitment to the job with good punctuality records and low absenteeism rates. It has also been shown that by employing disabled people we can improve an employee's view of the company and increase general staff retention.
I believe the direct questions which should be tackled tonight are: what progress has been made by both the Government and the industry and what are the plans for the future? First, I turn to the Government. Employers who want to employ staff with disabilities who have the skills they need face one insuperable problem in finding them. How do they get hold of them from the databank of unemployed people who are registered as disabled? What steps will the Government take to ensure that the information collected at jobcentres spells out what disabled people can do in the hospitality and tourism sector? Will they ensure that the information is kept in such a way that it can be accessed locally, regionally and nationally?
The Government's strategy, Tomorrow's Tourism, published in early 1999 stated that they were committed to improving access to employment in tourism. They said they would take three steps. First, they would encourage trade associations to work with disability groups to develop training and information programmes which raise awareness of the potential of those groups, identify their specific needs as employees and seek to overcome prejudice. Secondly, they would encourage tourism employers to adopt equal opportunities policies and practices to recruit from the widest possible range of employees, including disabled people. Thirdly, they would encourage larger companies in particular to provide transport for employees when they are located in areas which are inaccessible to public transport. Can the Minister give examples of progress the Government have made so far, their plans for the future and within what timescale?
The industry itself has already taken some positive action to ensure that the skills of disabled people are used for the benefit of the tourism and hospitality industry. However, it recognises that it has a long way to go yet. I commend two examples of good practice tonight. The Disability Partnership brought together a group of senior hoteliers and industry specialists to form what they called an hoteliers' forum. They have worked through the IndividuALL project to show
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their commitment to disability equality, accessible premises and fair employment practices. The practical side of all this is simple. They have developed a distance learning package for hoteliers. It provides the necessary information to help staff learn about the implications of the Disability Discrimination Act. It enables hoteliers to capitalise on the business opportunities presented by disabled customers and ensure that staff possess sufficient knowledge to feel confident when serving disabled guests. The good news is that in November that project will be opened up to the whole hospitality sector, providing a one-stop shop on disability needs for the industry, using a business solution approach.
I also draw your Lordships' attention to Access 21—a three-year project funded by the English Tourism Council at the encouragement of the Government to improve the provision of visitors' facilities for disabled people. The lead regional tourist board is the Heart of England, which will focus on employment and training issues for the next year and a half to two years.
What is the Government's view of those initiatives and the progress that they have made so far? What assistance or encouragement do the Government believe that they can usefully provide?
To conclude on a personal note, I believe that it is important to unlock the potential of people with disabilities and bring their skills to the tourism industry, because we would all benefit from them.
7.51 p.m.
Lord Harrison: My Lords, I thank the noble Baroness, Lady Anelay of St Johns, for promoting tourism jobs for all in this debate. I wish her and her colleagues well for the Springboard festival this week, promoting awareness of the problems and opportunities for increasing the number of disabled people in the tourism and hospitality industries.
I asked friends in Chester at the weekend to furnish me with examples of disabled employees in such industries. They told me of the disabled cleaners and helpers working successfully at a holiday caravan park in nearby North Wales. A second example was a trout farm at Bodelwyddan, where the employers had gone out of their way to adapt for and adopt disabled workers. They had been repaid a thousandfold in the loyalty, zeal and commitment shown by their disabled recruits. In addition, I was told of the joy on the faces of the recruits' parents as a result of their disabled sons and daughters being in productive employment. That in turn melted the hard-headed souls running the business. It is truly a win-win situation all round because someone had bothered to take a chance.
Another example of good practice was told to me by a theatre chief executive, who pointed to Jackson's Lane theatre in Highgate, which has had its electrics deliberately and conveniently positioned in a fashion that leaves them accessible to repair by wheelchair-bound electricians. Theatres are an important component of the tourism industry, but not all of them have seen the light. Too often too little has been done

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behind the scenes to make the environment friendly for the wheelchair-bound, many of whom want to work, whether as actors or electricians, in the stimulating and rewarding industry of tourism and hospitality, where personal skills are held at such a premium.
The moral of the story is that the needs of Britain's 320,000 wheelchair-bound should be scheduled into any new buildings to ensure that they are wheelchair-compatible. We are hoping to do that in Chester when the Gateway theatre moves into a new building to become the Performing Arts Centre.
I shall highlight the three Es on which we need action and on which the Government can help—educators, employers and employees. Accessing Merseyside is an organisation that promotes distance learning packages for targeted disabled workers in tourism. In addition, it brings local college staff together with local disability groups, the better to understand each other and hence dispel the prejudices that sometimes divide those potential partners. I also ask the Minister to look at the excellent work being done by the Cheshire tourism for all forum, especially in respect of its Cheshire tourism skills initiative.
I ask the Minister to rescue the ETC's promising partnership with the Hoteliers' Forum, already alluded to by the noble Baroness, Lady Anelay. Its ambition to open the minds of employers to see disabled workers as providing added value for their industry is currently thwarted from being brought to fruition by a lack of resources.
Separately, colleagues from the North-West Tourist Board tell me that employers have been slow to respond to the Disability Discrimination Act 1995. Many employers seem to be unaware that 50 per cent of adaptations to help accommodate a disabled worker cost less than £50 a throw. Far too many employers still lack the imagination to grasp that adapting the working environment for the disabled is usually of benefit for all. After all, we are all to a greater or lesser degree able bodied or disabled. It does not require a Darwin to appreciate that environmental change for one may be beneficial for all.
Disabled people must be encouraged—and must encourage themselves—to believe that they can do jobs in hospitality and tourism. I was struck by the absence of any article or report in this month's edition of the excellent Disability Times on disabled workers in general or those in the tourism and hospitality industries in particular. There must be good news stories aplenty of the courage of disabled workers facing new work challenges that could inspire the disabled community as a whole. Perhaps a reciprocal column could appear in that equally excellent publication, GBI Travel, which might depict the contribution of disabled workers to the wellbeing of those important industries.
My own disability for keeping to my allotted time prevents me from saying more. Once again, I thank the noble Baroness, Lady Anelay, for raising this hugely important issue.
7.57 p.m.
Lord Ashley of Stoke: My Lords, I warmly congratulate the noble Baroness, Lady Anelay, on securing a debate on this important subject—important for disabled people and for the hospitality and tourism industry. She made a very good and thoughtful speech. I hope that my noble friend the Minister will be able to respond to the many legitimate questions that were put to her.
The relationship between disabled people and those industries is very important. It is a twofold relationship—disabled people can be customers or employees. The Disability Discrimination Act will affect both relationships. Because the industry will have to cater for disabled customers, it could have a special potential for employing a disabled worker. For example, a ramp required for a customer could also be available to a worker. There is a duality all the time, each aspect intermingling with the other.
These industries play an important role in Britain. They are growth industries that are expected to provide 300,000 more jobs by 2009. In the short term, their prosperity will obviously be affected, as the noble Baroness, Lady Anelay, said, by the tragedy in the United States as well as by foot and mouth. It follows that the opportunities for disabled people will be more restricted than they might have been, but we hope that international tension will ease, foot and mouth will become history and the industries will go back to normal.
It is essential that the industries step up their efforts to create facilities for the employment of disabled people. Some 90 per cent of the 290,000 establishments have 10 or fewer workers. But the 15-employee threshold of the DDA will be removed at the latest by, and hopefully much earlier than, 2004. The industries will need to be able to meet then- legal obligations, so they had better get on with it.
I hope that all employers will be aware of the importance of good staff training in disability awareness. Despite the advances in understanding which are propelled by the DDA and the Disability Rights Commission, there still lingers a sense that employing disabled people is a problem. However, that is far from the case. Many employers have spoken of the skills, ability and application of disabled workers. I was pleased that the noble Baroness, Lady Anelay, referred to that very important point. Often, only very small adjustments are required and, in return, the employer gets a dedicated, conscientious worker.
I know that industries want to develop training in general but funding is scarce, as we all know only too well. That hits disabled people very hard. Invariably they are at the end of the queue, in part perhaps because their education tends to have been less effective than they would have hoped due to their disability. They need some special consideration if they are to have near equal opportunities.

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I believe that more attention should be paid to the fact that disabled people want not only jobs but a choice of jobs. That is absolutely crucial. If disabled people are required to do only menial tasks, that will maintain the old-style segregation and deprive them of full participation, which society now wishes to see. Image matters. Disabled people need to see those industries as providing opportunities and not as being a last resort ghetto.
I was pleased to hear my noble friend Lord Harrison speak as he did. He made a good speech. He referred to the wheelchair-bound, by which he meant people who use wheelchairs. We all want to help wheelchair users and I have spent 30 years trying to do just that. But I do not believe that we should be obsessed with them because only a small minority of disabled people are wheelchair users. I believe that they number some 5 per cent, but I do not have the figures in front of me.
There is a vast range of disabilities. These industries, as well as others, must take account of mentally handicapped people and those with cerebral palsy, deafness and blindness. A vast range of people—not only wheelchair users—have disabilities. I believe that these industries need to be seen as good employers for all disabled people and as a source of an interesting and secure career.
However—this is a very important point—I understand that no one body is responsible for disseminating relevant information and informing potentially interested disabled people. That is ridiculous. Why cannot one body or organisation be responsible for ensuring that industries are willing to take on disabled workers? Why cannot we inform them in an organised way rather than have the ridiculous situation whereby no one is responsible?
The increasingly close co-operation between these industries and the disability organisations is welcome and important. I congratulate the industries on their initiatives. They form an essential part of breaking down the barriers. In particular, the Tourism for All Consortium's one-day Springboard Conference will focus on the opportunities for people with disabilities who wish to work in the hospitality and tourism industry. It is an important event, deserving support and great success.
I conclude by saying that disability organisations are working vigorously in this area. Other bodies are responding, but, if I may say so to the noble Baroness, Lady Anelay, and her friends in these industries, we have yet to be sure that their commitment is genuine and that they are not merely paying lip service. I hope that they will all be able to display to Members of this House, to disabled people and to the public that they mean what they say about attracting disabled people and providing proper opportunities for them.
The Government's initiatives—the New Deal for Disabled People and the Access to Work programme—are most welcome. I hope that the Government will do what they can to facilitate such activities. They will benefit not only the industries but disabled people as well.
8.5 p.m.
Lord Swinfen: My Lords, I welcome this short debate. We should not forget that disabled people have worked in the hospitality and tourism industries for a very long time—certainly since the founding of the Corps of Commissionaires shortly after the First World War specifically to provide employment for those disabled in the service of their country. However, over recent years the number of disabled employees in the industry appears to have reduced. But I suspect that, with increasing enlightenment among employers, that number may rise again.
The Disability Discrimination Act requires employers to make reasonable adjustment to help disabled employees. However, so far there has been little in the way of case law on this matter. I wonder whether the Minister is satisfied that employers are receiving satisfactory guidance on this matter.
The DDA does not apply to employers with fewer than 15 staff. As the noble Lord, Lord Ashley, has already said, that excludes a very large number of organisations in this industry. He mentioned a figure of 90 per cent. My figure is 87 per cent, but the numbers are so large that something needs to be done about it. I hope that the small employers threshold will soon be reduced from 15 to two. I may be mistaken but, if I remember correctly, when the Disability Discrimination Act went through this House under a previous administration, I believe that the noble Baroness was greatly in favour of the number being a good deal lower than 15. I do not remember whether the figure mentioned was as low as two, but I hope that she can give an indication of when we shall reach that more reasonable figure. A reduction in the number will, of course, increase openings for employees with disabilities.
What are the Government doing to promote employment initiatives in the tourism and hospitality industry for disabled people through the Access to Work programme and the New Deal for Disabled People?
Turning to another matter, public transport is slowly being made accessible, but that needs to be speeded up. At the same time, public transport in rural areas needs to be both increased in volume and improved in quality. I suspect that in rural areas it will be a long time before accessible buses are available. Those areas normally use second-hand buses because their routes are less profitable. However, very often they are areas that rely heavily on tourism, particularly following the problems caused by both BSE and foot and mouth disease.
The New Deal for Disabled People helps disabled people who have been unemployed for some time to return to work. The scheme provides personal advisers with some additional awareness training. But what is being done to improve their general training? In particular, are they being properly trained in areas such as the effects of illness and impairment, benefit advice to disabled people and working with disabled people of different ethnic, religious or cultural backgrounds?

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There are 3.3 million deaf or hard-of-hearing people of working age. As I have experienced myself, having worn a hearing aid for well over 25 years, very many of the training opportunities, and therefore opportunities for eventual promotion, are closed to people with a hearing loss. Provision is simply not made for them on courses or demonstrations or at seminars.
What are the Government doing to improve that? Of those surveyed by the Royal National Institute for Deaf People, some 61 per cent—many more than half—reported that they were unable to communicate with staff at jobcentres or in the Careers Service. That is a disgrace. What are the Government doing to improve the situation?
As my noble friend Lady Anelay has already mentioned, there is a large market among disabled people for the industry to tap. Making it easier for disabled people to work in the hospitality and tourism industry will show that industry how to cater for its disabled customers. There are, I understand, some 8.6 million disabled people in the UK and many more visit from overseas. It must make sense to tap into that valuable market.
8.11 p.m.
Baroness Wilkins: My Lords, I, too, would like to thank the noble Baroness, Lady Anelay of St Johns, for introducing this important debate, which has particular resonance for me at the moment.
In the time that is available I want to concentrate on just one issue; that is, the importance of involving disabled people at the centre with regard to advising the hospitality and tourism industry about how to fulfil its obligations under the Disability Discrimination Act. That involves the personal inspection of venues, not simply paper guidance, however excellent that may be. If the Government could do all in their power to persuade the industry properly to consult with users in advance it would save an enormous amount of money—and good will—in the long run and it would create an accessible environment that would truly meet our needs.
As disabled people know to our cost, through uncomfortable, spoiled or even cancelled holidays, making access provision that meets the needs of the wide range of impairment—that includes people who are blind or deaf, wheelchair users and those with walking or learning difficulties—is a subtle and complicated business. Unless users are involved at the centre of such a decision-making process, it can go badly wrong.
I have been prompted to concentrate on this issue by an excellent initiative that was undertaken by Centrica during the launch of the AA's "Accessible Hotel of the Year" award. I declare an interest, having been involved as the "mystery shopper" over the past few weeks to help decide the final winner. The first award will be presented this November. It is planned as an ongoing initiative to encourage the 8,000 hotel and bed-and-breakfast proprietors who use the AA's ratings system to hasten their compliance with Part III of the DDA.
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I applaud that initiative because, like every other wheelchair user, I have learnt to have extreme scepticism about any hotel's claim to be accessible. My most recent holiday abroad—to Seville—was nearly ruined by the assurance of a well-known holiday chain that the hotel was accessible and that its representative had checked it in person. We arrived at 8 p.m. to find that the accessible room indeed had a large bathroom but that the loo was discreetly tucked away deep behind a solid and impenetrable concrete wall. The grim prospect was to spend the night at the airport (where there was a loo) and to get the next flight home. Finally, discovering that there was no other accessible room in the city, the hotel manager realised that the situation was serious and drove 20 miles to borrow a friend's portable camping loo. That was all right but it hardly represented a restful, luxurious holiday—especially for my companion!
There are exceptions. For instance, the Travelodge chain has earned the trust of wheelchair users with regard to its accessible provision. Otherwise, it is only word of mouth and the tried and tested experience of other disabled people that allows one to go on holiday with any confidence that one will have a pleasant experience.
That has led to a mini-industry among disabled people, who convert and let out self-catering accommodation that meets our needs. However, Accessible UK is a much more ambitious commercial venture, which is just being launched and which could potentially provide employment for many disabled people. Its founders, Richard Thompson and Paul Derbyshire, are both spinally injured. During the past five years their two travel companies—TravelAbility and the Accessible Travel and Leisure Company—have offered a wider range of accessible holidays than any other company in the UK. Their policy is to verify personally every venue. With their new project, Accessible UK, they are developing a network of websites covering all of the United Kingdom, county by county, which will provide an expanding encyclopaedia of information on verified accessible facilities and services. The project will give employment to well over 100 disabled people as self-employed licensees who take responsibility for each county or large conurbation. The licensees will verify the establishments within their territory, sell advertising space on the website and provide photographs promoting the accessibility. The project has huge potential. Would the Minister consider encouraging national tourist boards to ensure that each county website contained links to Accessible UK?
Apart from through such ventures, where will the travel and hospitality industry find disabled users with the knowledge and experience to advise it? Moreover, training is essential to give proper advice. Although disabled people are the experts on their own needs, few of us properly understand the needs of people with other impairments unless we have been well trained.
A framework of access groups exists throughout the country but it is fragmented and very poorly resourced. The Government could do much to improve the current situation in that area. According

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to Peter Lainson, chair of RADAR's access advisory committee, there are now about 200 access groups in England. Some of them run on pure enthusiasm—they have no funding at all—and it is rare for a group to receive more than £200 a year. As he said, "If you get involved in this, you have to see it as a hobby that will swallow money". Over the past two or three years many groups have found it difficult to maintain their enthusiasm.
The new Built Environment Working Group, which, following a recommendation from the Disability Rights Task Force, was set up by the Disabled Persons Transport Advisory Committee at the Government's request, recognises the potential of access groups as an underdeveloped resource. Its chair, Peter Barker, says that the issue of funding must be addressed. It is to that end that I ask the Minister whether she would consider: first, giving sufficient funding to the national network so that it can provide good support to those 200 struggling groups; and, secondly, setting up a project to examine the costs and benefits of providing proper funding to access groups. That would provide potential employment opportunities for disabled people and the framework for ensuring that the vast amount of work that needs to be done to make the hospitality and tourism industries accessible to disabled people is done to good effect and ensure that it truly fulfils the spirit and not just the letter of the Disability Discrimination Act. I look forward to the Minister's response.
8.18 p.m.
Lord Addington: My Lords, this is one of those debates that it is rather difficult to sum up. One might be restricted to saying that one agrees with proposals X, Y and Z, which were said previously. I could go through the entire debate doing that.
We have come to one conclusion; that is, that in this context there is a real problem and real opportunities. The noble Baroness, Lady Anelay, put her finger on something very important when she said that although things may be going badly in the industry at the moment the way in which our economy is switched and geared means that the service and hospitality industry is an important and growing sector.
There is a danger when we make speeches that we think that the present is permanent. We all make that mistake from time to time but governments tend to make it more often than most. We assume that everything will carry on as it currently does. This sector of the economy is bound to grow.
Virtually every noble Lord who has spoken referred to the fact that it will probably be easier to deal with those people who are one's potential marketplace—I refer to those with disabilities—if one employs those who are disabled. An excellent briefing that I received from the English Tourism Council pointed that out and said that the disabled are not an homogenous group.
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A number of different types of disability have been mentioned. That suggests that we must look everywhere. The problems of a wheelchair user are not the same as those of a person with hearing loss or sight deficiency. We must remember that some people use wheelchairs because they become tired and their legs are weak; others are totally dependent upon wheelchairs. The same principle is true of other types of disability. We have a difficult exercise to perform in lateral and cross-thinking.
The Government's role is thus doubly difficult. I have every sympathy with them, but I shall keep pushing for them to take action. I am trying to think of debates in this Chamber in which aspects of disability have not been mentioned. Apart from Treasury debates, I cannot think of one. However, I believe that that has more to do with constitutional arrangements. Every aspect of government policy contains a disability issue. That has become clearer over time. We may sort out the "great dragons" and have our great achievements, but it is only when we look at the fine detail that matters become apparent.
I shall try to drag myself away from the wider sphere back to the matter before us. We must encourage the industry to take on board and employ disabled people. If not, we shall take away the most natural way into the workforce for many such people. For better or worse, there is a degree of low status attached to comparatively easy-access jobs. That may be due to our cultural attitude towards service jobs. Indeed, English waiters have ruined more meals for me than I care to mention.
However, it is the case that we do not take these issues properly on board. All noble Lords who have been to party conferences will be familiar with the small, quaintly-organised hotels in which we have stayed. Such hotels often have umpteen stairs and incredibly small rooms. That leads us to believe that the tourism and hospitality industry has major problems at the smaller end of the scale. That must be addressed. The Government must give information to businesses on how to deal with such problems. We always knew that the structure and nature of the Government approach, taken way back in connection with DDA and case law, would be difficult. This will all take time.
The long run-in period has led to complacency in certain areas. However, I shall defer my remarks until next year. I would bet that there are people who will say, "Our budgets are tight. We shall put off making decisions about finance". The Government have to be seen to move forward.
I shall ask the noble Baroness what the Government will do. The noble Baroness will then be perfectly justified in listing a series of initiatives, often from her department or perhaps from other departments. I should like the noble Baroness to give me an idea of the Government's overall philosophy on this issue, because that is ultimately more important. Initiatives come and go; some work and some do not. All are stepping stones towards something else. If the noble Baroness is able to give us an idea of the overall

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philosophy, we shall have taken another step forward. That is not an easy task. I hope that the noble Baroness will not curse me too harshly as I sit down. Unless we get right the philosophy, the issues surrounding disability will not be properly addressed. We have to get our lateral vision working strongly on this matter.
8.24 p.m.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): My Lords, perhaps I may open by taking issue with a comment made by the noble Lord, Lord Addington, in the last part of his speech. He said that what he really wanted from us was a philosophy. Listening to the speeches tonight, I do not believe that there is a philosophical divide between any of us. We all seem to share a common concern to ensure that disabled people are recognised as a fruitful area of customers and clients for the tourism and hospitality industry as well as being valued employees of that industry. Far from me talking about philosophy, which we have done in many general debates on disability issues, it seems to me to be important to talk about the practical steps and aspects of funding which have been raised tonight. Some of the questions raised, which are new to me, will be followed up in correspondence.
However, I agree with the noble Lord, Lord, Addington, that we must continue to help to challenge the stereotypical thinking about disabled people. As my noble friend Lord Ashley stated, we should not assume that they are marked by white sticks and wheelchairs. Learning disability, mental health disability, depression and some orthopaedic and angina problems are not easily visible or recognised. Very often in helping one group we may add to the problems faced by another. We may, for example, seek to lower cambers on roads for wheelchair users, thus making it difficult for people using white sticks always to be able to manage the inclines. The problems are not always straightforward, as was recognised by my noble friend Lord Ashley.
My noble friend Lady Wilkins made the point that we shall be successful only if we act in partnership with interested groups ranging from the Disability Rights Commission to disabled people, their representative organisations and the business sector. Employers have to consider making changes to working practices or premises which place disabled people at a substantial disadvantage. As your Lordships have said, and as we know, though it bears repeating, that can be something as simple as being flexible about working hours or holding a meeting in an accessible room. Many disabled people need no adjustments to be made at work. Many adjustments, when necessary, are made at little or no extra cost.
The noble Lord, Lord Swinfen, pressed me on the reduction of the small employers' threshold. He is right; we did fight shoulder to shoulder on this issue in your Lordships' House. I am delighted to reinforce the comments of my noble friend Lord Ashley. The small business exemption is due to end in October 2004. It will not be reduced to two people but will simply be
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abolished. As a result, 7 million additional jobs and around 600,000 disabled employees will come within its scope. As your Lordships recognise, the hospitality and tourism industry is very much one of small companies and small firms.
I turn to what we are doing to help disabled people to enter the tourism and hospitality industry so that they come equipped with real skills. There are around 600 specialist disability employment advisers based in jobcentres who should understand the needs of disabled people. They know their local labour markets and are able to work with employers to find appropriate jobs.
My noble friend Lord Harrison produced fascinating examples, with which I was much taken. Perhaps I may also give an example. In Cumbria, disability employment advisers arranged for a man with a visual impairment to attend a tourism job fair, at which he met a local employer with vacancies. The adviser was able to follow up the initial contact and arrange a package of support for that individual. At the beginning of October this year, that person started work as a hotel administrator.
Some disabled people with more complex needs may not be immediately ready for independent work and will require sustained support. That is why for many years we have had a programme of supported employment. That programme has been modernised and became Workstep from April this year. Workstep is a £161 million programme to which in June was added a further £37 million over three years to pay for an additional 2,000 places.
Equally, I am sure noble Lords will be familiar with the name Remploy, which is the largest employer of disabled people in the UK and the largest single provider within the Workstep programme. Remploy operates as a commercial company and receives an annual grant of £94 million from Government to provide jobs and training for disabled people. Remploy trains and employs between 80 and 100 people in the Manchester area in its managed services division working at some of the top hotel chains; namely, Quality Hotels, Marriott, Renaissance, Copthorne and Titsa, mainly in behind-the-scenes jobs as cleaners and chambermaids, and so forth. It is worth adding that Remploy, I am pleased to say, pays well above the minimum wage.
The Government also fund residential training provision for disabled adults. A number of places are specifically aimed at training for the tourism and leisure industry. Not all the places on offer are currently filled. Therefore, there is a real opportunity for unemployed disabled to move into training and work. If those places remain unfilled, either through a lack of adequate publicity or possibly inappropriate training packages, I should be very grateful to hear from your Lordships who may have first-hand experience of it, so that we can tailor them more effectively.
The noble Lord, Lord Swinfen, asked what provision is made in jobcentres for hard of hearing potential employees. It is again worth emphasising

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that disability employment advisers can arrange for British sign language interpreters or communicators to attend adviser appointments with hard of hearing clients; and it would help to know in advance whether that service would need to be used.
I was asked whether employers were receiving good advice on reasonable adjustment. There is a code of practice in existence, and many information leaflets are available. The DRC has a helpline that provides advice to employers and others, and Bert Massey emphasised how well it is used by employers. Employers increasingly understand that adjustments are not expensive and are a matter of common sense. As the noble Baroness, Lady Wilkins, said, if adjustments draw on the skills of disabled people for access to physical space, for example, they in turn make adjustments that are used not only by disabled people but by parents with small children in tow and in buggies, older people struggling with shopping bags, and the like.
Twenty years ago I was involved in drawing up brochures for my city of Norwich, which has a wealth of heritage buildings, to create access to 18th century nonconformist octagon chapels and 19th century listed bank buildings in ways that provided enhanced access to, but did not distract from, the importance and quality of those buildings. A large swathe of the city's people was then able to enjoy those buildings.
It is clear that, with the right sort of support and encouragement, disabled people can work as effectively as non-disabled people in the tourism industry. We look to employers to recognise that if someone has a physical, mental or sensory impairment, it does not prevent them from making a real contribution to work. The tourism industry, which is a major employer—there are 1.8 million people working in hotels, restaurants, caravan parks, tourist attractions, resort towns and heritage sites, and at arts events and festivals—has regularly suffered severe skill shortages. That, as the noble Baroness, Lady Anelay, rightly said, is partly due to its reputation for low skills and low pay.
The tourist industry, as it goes upmarket, will need to invest in people with the skills that it requires. That investment combined with the flexible hours that the tourism and hospitality industry can offer may well make such jobs particularly attractive to disabled people, who in turn repay in spades in terms of loyalty and commitment. These can be high quality jobs in terms of the skills required—management and supervisory posts, or telephony—as well as more modest jobs ranging from catering to ground maintenance, which can be valuable for people who have been away from work for a long time and who, as my noble friend Lord Ashley said, may have had an interrupted educational background on their way to adulthood.
I echo what the noble Baroness, Lady Wilkins, said about widening access to tourism, which was the theme of an earlier debate tabled by the noble
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Baroness, Lady Anelay, in February 1999, in which many of your Lordships participated, in talking about Tomorrow's Tourism and access for all.
My noble friend Lady Wilkins asked whether Ministers would encourage regional tourist boards to make links to accessible UK websites. The ETC has an excellent accessible website, and we will consider adding to that website if it proves to meet the required standard for accessible accommodation. I shall take away and follow up the noble Baroness's other point about access groups.
Increasing access is an important aspect of the English Tourism Council, recognising that disabled people who are customers as well as employees are a valuable resource. The council has reviewed, in partnership with IndividuALL, which is the renamed Hoteliers Forum, the ways in which people with disabilities can obtain work and how to improve their findings and how to make the industry more accessible to disabled people. The noble Baroness also mentioned that the Heart of England Tourist Board has been running the Access 21 three-year project with five local pilots, leading to a national guidance document at the end of the project term.
More needs to be done. That is why we are establishing Jobcentre Plus and why we are helping disabled people to return to work through the New Deal for Disabled People, as well as providing all the support services of the new deal and the disabled persons' working tax credit. All that can only be of benefit to the tourism industry, disabled people and the country as a whole. Disabled people not only have rights but also a huge practical gain to offer us all both as employees and as users of the tourism industry.
I am confident that in 2003, the European year of disabled people, we shall have a story to celebrate. I thank the noble Baroness, Lady Anelay, for introducing this debate today.
Lord Grocott: My Lords, I beg to move that the House do now adjourn during pleasure until 8.40 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 8.37 to 8.40 p.m.]

Commonhold and Leasehold Reform Bill [H.L.]
House again in Committee on Clause 71.
[Amendments Nos. 92 and 93 not moved.]
Clause 71 agreed to.
[Amendment No. 94 not moved.]
Clause 72 [RTM companies: membership and regulations]:
[Amendment No. 95 not moved.]
Lord Goodhart Lord Goodhart moved Amendment No. 96:
Page 34, line 5, leave out paragraph (b).
The noble Lord said: The purpose of the amendment is to remove paragraph (b) from Clause 72(1) of the Bill. That provision defines the membership of an RTM company which consists under paragraph (a) of,
"qualifying tenants of flats",
and under paragraph (b) of,
"landlords under leases of the whole or any part of the premises".
The purpose of the amendment, which runs contrary to those moved by the noble Lord, Lord Kingsland, prior to the adjournment, is to remove landlords from membership of RTM companies except in cases where they are lessees of flats as well as freeholders. In that case they are entitled to remain in their capacity as lessees.
We strongly believe that it is inappropriate for a landlord to be a member of an RTM company. In many cases the RTM company will have been formed because of dissatisfaction with the landlord. Under the existing legislation where tenants are entitled to take over management on the proof of the improper behaviour or defects of the landlord, the landlord does not participate in the management. However, that is because the landlord has clearly been behaving improperly in the conduct of the management.
In the case of an RTM company, it is possible that the landlord has not been behaving improperly because proof of any such misconduct is in no way necessary for the formation of an RTM company. None the less, it is likely that in a high proportion of cases the RTM company will have been formed because of a degree of dissatisfaction with the way in which the landlord has managed the property.
If the landlord has managed it well and at a fair cost, the chances are that the tenants will be happy to spare themselves the burden of management and will allow the landlord to continue. If the landlord has caused dissatisfaction, there almost certainly would be a desire to use the new route of forming an RTM company rather than using the existing legislation in order to avoid the need to have to prove misconduct on the part of the landlord.
In many cases, because the whole desire to move to an RTM company has been instigated by the landlord's misconduct, it would seem to be wholly inappropriate for a landlord to be a member of the RTM company. Furthermore, in cases where the landlord has not misconducted himself in the management, his interests and those of the leaseholders are likely to be at arm's length. We believe that in that case it is inappropriate for the landlord not only to be representing his own position but also to have a position in the management company.
We believe that there should be an arm's-length relationship between the RTM company and the landlord. Of course the landlord would be, and under the legislation is, entitled to require the RTM company to carry out its obligations to him as well as to the leaseholders. We do not therefore see that there is any unnecessary suffering on the part of the landlord by his being excluded from the RTM company. We believe that allowing the landlord as of right to be a member
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of the RTM company is a recipe for confusion and for mixed signals. We believe that if the landlord is always there making his points in company meetings as well as in arm's-length negotiations with the company as manager of the properly, the RTM company will be more difficult to run adequately.
We believe that if the RTM system is to work, it is a matter of considerable importance that the landlord should not be a member of it and should deal with it at arm's length in the protection of his own interest as landlord. Furthermore, we do not envisage any likelihood of any such rule being held inconsistent with Article 1 of the first protocol to the European Convention on Human Rights. I beg to move.
8.45 p.m.
Lord Kingsland: My Amendments Nos. 97 and 100 are part of this group. Earlier I spoke in substance to Amendment No. 97 and shall therefore address my remarks to Amendment No. 100. The whole rhetoric of the Bill is to give individuals who live in their blocks of flats a right to manage them. The amendment gives effect to that principle. There is no reason to give the right to manage to individuals who have bought flats for investment purposes only.
The objection made to the amendment in Committee by the noble Lord, Lord Whitty, was that "resident" is extremely difficult to define. The noble Lord did not suggest that my proposition about limiting the rights to residents was wrong in principle. With respect to the noble Lord, Lord Whitty, similar tests apply to vast swathes of housing law. It is, for example, a test as to whether a dwelling house is subject to a Rent Act controlled tenancy or to an assured tenancy under the Housing Act 1988.
The noble Lord, Lord Whitty, went on to suggest that landlords might start detailed investigations into tenants' private lives in order to discover whether or not they were resident. I suggest that that approach tilts at windmills. Normally, it is very easy to say whether or not someone is living in a property. The idea of a landlord setting up 24-hour surveillance of a flat to establish how often the particular tenant occupies it is, frankly, absurd. Therefore, I believe that the issue is not the practicality of the residence test—because such difficulties as there may be can be met—but whether the principle is correct. I draw comfort from the words of the noble Lord, Lord Whitty.
However, I recall that the noble Lord, Lord Goodhart, having tabled amendments similar to this one, resiled from that position—I say that in the nicest possible way—and gave a very compelling explanation of why in Grand Committee. Having tabled this amendment, I nevertheless understand the point of view expressed by the noble Lord, Lord Goodhart. I wonder whether tonight the noble Lord is inclined to go in to bat again or is content to leave it to the noble and learned Lord to bat on his behalf.
Lord Falconer of Thoroton: I am only sorry that I did not hear the argument of which I am to be deprived. I deal first with the suggestion of the noble Lord,

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Lord Goodhart, that the landlord should not have the right to be a member of the RTM company. Our proposed right for landlords to become members of the RTM company was the subject of some dispute when this Bill was previously before the House. Leaseholder representatives have expressed considerable concerns about it, and I appreciate that many of them are genuine. However, correspondence received by my officials on this issue suggests that a good many of those concerns are based on a misunderstanding of what is being done in this Bill. I believe that it is important, therefore, to make our intentions clear.
It is true that, put in simple terms, the right to manage is a right to allow leaseholders of flats to gain management control of their block. What it is not, however, is a right to kick out the landlord. Many Members of the Committee who recall the previous Committee stage of this Bill will remember my noble friend Lord Whitty emphasising on a number of occasions that this was a "no fault" right to manage. That point has been acknowledged by the noble Lord, Lord Goodhart, in moving the amendment. That remains a key point which will continue to be stressed on our side throughout the passage of the Bill. Our emphasis on no fault is not intended to be a convenient smokescreen behind which to hide. The landlord will continue to have a legitimate property interest in the building once RTM is acquired. By the same token, the landlord will have an ongoing interest in its management.
Furthermore, because the acquisition of the right is not linked to any process of proving that the landlord has been a bad or negligent manager—hence "no fault"—there is nothing which justifies our ignoring that interest and cutting the landlord entirely out of the management process. The noble Lord, Lord Goodhart, seeks to circumvent that point by saying that frequently bad management will provoke the process by which RTM is instituted. With the greatest respect to the noble Lord, that is not a sufficient answer. There is a no-fault process here. The landlord retains an interest in the property and, as a member of the RTM company, he is entitled to have that retained property right respected.
I believe that there is much common ground between ourselves and the noble Lord. We disagree over how best to ensure that the landlord's legitimate interests are safeguarded. Our view is that the best way to provide for this is to allow the landlord to be a member of the RTM company. That will put him or her on a similar footing to any one of the qualifying leaseholders, with the same rights to receive information and to suggest the best way forward for the management of the property. I suspect that this may be seen as somewhat heretical, but it would even allow the landlord and leaseholders to work together in managing the block in which they all have a property interest.
At Second Reading—or, as the noble Lord, Lord Goodhart, labelled it, Fourth Reading—the noble Lord suggested that the RTM company should deal
566
with the landlord at arm's length. The noble Lord has repeated that suggestion tonight. Our view is that that would be a more complicated and, in many ways, less satisfactory way to address the problem. As the Bill stands, it is his membership rights which provide for a proper relationship between the landlord and the RTM company. There is certainly nothing in the Bill as it stands which would properly provide for an arm's length approach. If the noble Lord's amendment were accepted, therefore, under the Bill there would not be any structured relationship between the landlord and the RTM company. In effect, he would be excluded from the process. The question of how he became involved in the process would be a matter to be determined ad hoc in the particular case. Our view remains that the Bill is right as it stands.
I move to the amendment in the name of the noble Lord, Lord Kingsland. As the noble Lord pointed out, the noble Lord, Lord Goodhart, had suggested at Second Reading that it would be wrong to allow a nonresident landlord to be a member of the company. I understand from the noble Lord's closing remarks that the noble Lord, Lord Goodhart, resiled from that position for reasons very persuasively put but not set out by either noble Lord. I hope that the noble Lord, Lord Kingsland, will not mind my noting that in Amendment No. 100 he proposes that a leaseholder who is not resident in the property should not enjoy any membership rights. The two noble Lords have taken the same principle, albeit at different times, and each has applied it to one of the groups that the Bill permits to be a member of the company.
I believe it is clear from what has been said that the noble Lord, Lord Goodhart, would not support the noble Lord, Lord Kingsland, in his amendment, and I assume that the noble Lord, Lord Kingsland, would not support the current position of the noble Lord, Lord Goodhart, although he might have supported the noble Lord's previous position. The noble Lord nods his head.
Our view on this matter is governed by two principles. First, we cannot agree that different eligibility rules should apply to different people. I believe that both noble Lords agree with that. We believe that there should be one governing criterion, namely whether a person has a significant stake in the property in question. The Bill already enshrines that principle. We believe that that is the principle, not residence. Secondly, we are generally of the view that any form of residence test is undesirable. It exists in other housing legislation but, as the noble Lord, Lord Kingsland, is aware, experience has shown that tests of this nature are open to abuse and confusion. There is contention about what constitutes residence. It is for such reasons that our Bill generally takes the approach of removing or replacing residence tests. That is also the reason why we do not favour the creation of another one here. That is the problem in applying the residence test.
But I make clear that the principle on which membership rests is whether or not the person has a significant stake in the property in question. We remain of the view that that is the correct approach

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and, therefore, we cannot agree that the approach in Amendments Nos. 96, 100 and 145 is correct. The right to manage is neither pro-landlord nor anti-landlord; rather, it is a measure to ensure that management rights balance property interests. As a holder of a stake in the property, the landlord is a part of that balance.
Perhaps I may deal very briefly with Amendment No. 97 to which the noble Lord, Lord Kingsland, referred in the debate on the previous group of amendments but did not repeat in relation to this matter. The right granted to landlords to be a member of the RTM is a qualified one. A landlord may become a member of an RTM company only after the date on which that company acquires the right to manage that property, whereas the amendment would allow him to become a member at any time. The qualification that he gets that right only after the company acquires the right to manage is there for a sensible, practical reason. Before it can acquire the right to manage the RTM company is required to serve a claim notice on a range of existing management parties, including all of the landlords. That allows the recipients to satisfy themselves that the leaseholders are properly entitled to the right to manage.
If any of the landlords were to be a member of the company at that stage they would be both the people being notified of a claim and a part of the body which notified them. To our minds, that would not make sense. It would also give unscrupulous landlords a double opportunity to cause problems and delay. Not only would they be able to dispute the entitlement of the RTM company; they would also be able to try to slow down the process from within the company. We do not want to open up that eventuality. For that reason, we cannot allow any of the landlords, including the freeholder, to become members of the RTM company before it acquires the right to manage.
As I have said, our Bill already strikes a sensible balance. It allows the landlords to protect their legitimate interests once the right is acquired but prevents them interfering before that date. We believe that that is the right solution.
In the light of the remarks that I have made, I hope that the noble Lord, Lord Goodhart, will withdraw his amendment and that the noble Lord, Lord Kingsland, will not move his.
9 p.m.
Lord Kingsland: Before the noble and learned Lord sits down, my view has always been that the right ought to belong to residents who can be proved to be residents. I had thought that the noble Lord, Lord Whitty, agreed with me when the matter was discussed in Grand Committee but said that it will not work because defining in the Bill exactly who is a resident is too difficult. I think now that the Government are saying that the real test is not the residence test but—I might almost say a stakeholder test—it is whether or not one has a stake in the property.
568
All my instincts have been against that. However, by far and away the greater number of leaseholders who have lobbied me during the passage of the Bill have taken the Government's view and not mine. So I shall not be tabling the amendment on Report.
Lord Goodhart: When I moved Amendment No. 96 I failed to say that I was speaking also to Amendment No. 145. That raises exactly the same point in relation to RTE companies in the period between their formation and before they actually acquire a conveyance of the property. Therefore, the same arguments are relevant.
I regret to say that I am disappointed. This is one of the three or four most important issues in the Bill. The noble and learned Lord, Lord Falconer, said that it was important that the various stakeholders in the house, the leaseholders and the freeholders, should work together. There is nothing in my amendment that prevents that.
If the members of the RTM company and the freeholder are on good terms with each other there is no reason why the freeholder should not be invited to attend meetings of the RTM company and express his views. It is where relations are not that good that problems potentially arise. In that case it is important that the RTM company should be reserved to the leaseholders so they can decide their own issues.
Of course the physical presence of the landlord at the meeting may have a disturbing effect on the leaseholders who are there as other members. Therefore, we think that it would be an important protection to leaseholders to be able to say, "No, we do not want the freeholder to be present at our meeting. We think that in our interests it is best that the freeholder should not be there".
I shall withdraw the amendment today, but it is very probably one which we shall bring back on Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 97 and 98 not moved.]
Clause 72 agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 99:
After Clause 72, insert the fallowing new clause—
"MANAGING AGENT
(1) A person who wishes to practise as a managing agent and hold the service charge trust fund shall be required to—

(a) be subject to a code of practice,

(b) undergo yearly auditing of accounts,

(c) be covered by professional indemnity and fidelity insurance, and

(d) undergo a minimum quota of annual management training.

(2) Regulations under this section shall make provision about the form and content of the above and make such other rules, requirements and restrictions as may be appropriate to ensure proper standards are maintained and the interests of landlords, RTM companies and leaseholders are safeguarded."
The noble Lord said: My noble and learned friend Lord Falconer is aware of the issues, because we went through them all at a previous stage in Grand

569
Committee. I do not propose therefore to spend long on this matter. Nevertheless, it is of intense importance. I wish to stress that. One cannot have people taking over the management of properties who are not properly qualified and registered. In particular, one cannot have anyone who is entitled to hold the service charge trust fund managing properties of that nature.
Therefore, there must be a code of practice. There must be yearly audited accounts of people who want to become managing agents. They should be covered properly by professional indemnity and fidelity insurance and undergo the minimum quota of annual management training. All that must be subject to the regulations which no doubt the Government—if the Government accept the amendment—will produce.
Many of my colleagues and others feel strongly about this matter. We have heard that the Government are not ready to introduce such regulations and that time has to go by. Nevertheless, if RTM is to come into proper—I mean proper—recognition and if it is to be a proper safeguard for leaseholders, I believe that the managing agent has to be properly regulated. I beg to move.
Lord Lea of Crondall: I rise briefly to add my support to the thrust of the amendment moved by my noble friend Lord Williams of Elvel. The proposal it puts forward is one of a number of ideas that touch on the reality of life for people living in most blocks of flats. To that end, I should like to take the opportunity to make a wider point as regards RTM and the rather restrictive circumstances under which it can be introduced unless we amend the Bill in some fashion.
I shall illustrate that comment by citing two representative examples. In so doing, I declare an interest as chair of the residents' association for my block of flats in WC1. First, in a mixed commercial and residential block the Bill as presently drafted will not confer on the residents the right to manage. Their main concern will lie exactly in the area identified by my noble friend Lord Williams; namely, the often somewhat anarchic relationship between the landlord, the managing agent and the people living in the block.
In the extensive discussions held during the course of the previous Bill, my noble friend Lord Williams pointed out that many cases arise where, because of the nature of the problems associated with management, many of the residents do not want to face up to those responsibilities. I believe that that will affect very many blocks of flats. Already the agendas for meetings of residents' associations are long. Consider the extra items to be added to them, along with the difficulty of persuading people to meet the new legal responsibilities. In those circumstances, it is important to ensure that some improvements are made to the quality and accountability of managing agents. I appreciate that I have made two separate points, but they can be addressed together in this contribution. We need to see a radical improvement made to the present law, where the standards of managing agents are not underpinned in any way.
570
Secondly, I think that the argument will be put later in our debates as regards who has the right of appointment and dismissal of a managing agent. At present, the landlord has the exclusive right to appoint a managing agent. Given that, no incentive is put on the managing agent to improve the quality of his services. Why is that? As soon as the managing agent provides a good quality service to the tenants or leaseholders, the landlord decides that the agent is spending too much money on the residents. He dismisses the agent in short order and appoints a different managing agent. That is totally unsatisfactory.
In many discussions held on the provisions of the Bill, people have expressed their surprise to me that, although the legislation goes into great detail, it does not address this typical, day-to-day worry. The problem has been raised before and many of us have been considering different approaches to address it. Perhaps at this stage we should try to disentangle to some degree the absolute symmetry established between RTM and RTE. Noble Lords know that, within the architecture of the Bill, every semi-colon covering the rules governing the establishment of RTMs is identical to that in the rules governing the establishment of RTEs. Take, for example, the famous 25 per cent threshold vis-à-vis a mixed block. Why should there be perfect symmetry between an RTM company and an RTE company?
I hope that the Ministers sitting on the Front Bench will be able to say that they will be inclined to look at the problems which have been outlined. Perhaps we need to establish a third route that will address the responsibility and accountability of managing agents. This should be done because for the overwhelming number of leasehold residents in this country that is the reality of their difficulties, whether or not the Bill is passed.
Lord Goodhart: The noble Lord, Lord Williams of Elvel, is right to pursue this matter. It is an extremely important point. Those who act on behalf of RTM companies as managing agents should be subject to the degree of control and regulation that has been proposed in his amendment.
Blocks of flats vary enormously. Certain upmarket blocks located in central London are full of people who know perfectly well how to run businesses and choose capable agents to act for them. However, many other residents are not capable of doing that and could easily be taken for a ride by a dishonest or incompetent managing agent.
I understand that, because this amendment has been proposed under Clause 72, it is intended to deal only with managing agents appointed on behalf of RTM companies, because if it were to have the wider application sought by the noble Lord, Lord Lea of Crondall, then I believe that the amendment would have to apply to Chapter 5 of this part of the Bill. However, in principle, we strongly support the amendment.
Lord McIntosh of Haringey: I think we are all—
Lord Williams of Elvel: Perhaps we could hear a view from the Opposition Front Bench.
Lord Kingsland: We entirely endorse the amendment of the noble Lord, Lord Williams, and support everything that has been said in Committee in relation to it.
9.15 p.m.
Lord McIntosh of Haringey: That was a worthwhile inquiry from my noble friend's point of view.
Of course we all agree that it is important to ensure that there is a good standard of management, and we all agree that the role of a managing agent should not be undertaken on a cowboy basis. I do not have any objection to any of the provisions of the amendment in regard to the code of practice, the yearly auditing of accounts, professional indemnity and fidelity insurance, or, indeed, to a minimum quota of annual management training, although that seems to be a little more vague.
We have two difficulties with the amendment. The first difficulty was identified by the noble Lord, Lord Goodhart, and that is that the amendment is tabled under Chapter 1 of Part 2 of the Bill. It relates to the leaseholders' right to manage and therefore is intended to apply only to the appointment of a manager by a right-to-manage company and not to the appointment of a manager in general. If anything is going to be done, surely it should be done for the whole of the business of management rather than only for RTM companies.
Of course there are strong arguments in favour of ensuring that people who are appointed managers of RTM property, like any other property, are of an appropriate standard and are properly equipped to assist the leaseholders in exercising their newly-acquired responsibilities. But there are counter arguments. Despite the support that my noble friend Lord Lea has given to the amendment today, I recall that, when the matter was discussed in Committee in the previous Parliament, he pointed out that it would make it more difficult for leaseholders to manage under RTM if they were only able to appoint managers who meet a specified threshold. This would limit the pool of talent available to them. That was a valid point when he made it then, and it would be a valid point if he were to make it now.
There is also the problem of ensuring fairness. The right to manage is being granted on the basis that leaseholders will have acquired the majority interest in the block and should therefore have a proportionate say in its management. In essence, we are giving homeowners the ability to manage their own homes. We cannot see why that right should be given on any different basis to that which would apply to any other group of homeowners—for example, a group of enfranchised leaseholders. We cannot see why more onerous requirements should be placed upon such
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homeowners than would apply to someone who was the manager of someone else's home—for example, a non-resident landlord.
I appreciate that that is a negative point of view. It is based on the fact that the amendment has been tabled under Chapter 1 of Part 2 of the Bill and not applied more widely. It would not be legitimate for me to rely only on that defect in the amendment. Our objection is not to the idea that RTM companies should provide good standards of leasehold management—we wish them to do so and we have put on record our firm intention to issue guidance to help them to achieve that—but the question of statutory controls should be addressed as part of the wider work we are carrying out on leasehold management standards.
We are working on this. We are looking closely at the wide range of options which are open to us, including measures along the lines proposed in the amendment. We shall be issuing a consultation paper. If I am forced to, I shall no doubt be able to say how quickly we shall be pursuing a consultation paper. I can assure the Committee that anything which is done in the wider context—which, as the noble Lord, Lord Goodhart, reminded us, it is necessary to cover—will apply also to the provisions for RTM companies. On that basis, I hope that my noble friend will not pursue the amendment.
Lord Williams of Elvel: I am grateful to my noble friend for his reply. He now recognises that the Liberal Democrat Benches, the Conservative Benches, a number of his supporters behind him and, I have no doubt, a large majority of the Cross Benches, were it to come to shove, would support the amendment. The Cross Benches are, of course, empty at the moment.
But let us wait for the report. I am perfectly happy to accept that my noble friend is about to produce some kind of document which will say something or other. I shall press him, as he invited me to, on the date.
Lord McIntosh of Haringey: I am happy to respond to that question. I do not know whether the noble Lord will find my response satisfactory. My understanding is that we intend to produce a consultation paper on the matter early next year, subject to Cabinet clearance.
Lord Williams of Elvel: "Early next year" is a long way away. We imagine that by that time the Bill will have left this House.
I shall withdraw the amendment. However, I warn my noble friend that, unless the Government can come up with a reasonable proposal, I shall invite those who supported my amendment to do so again. I am sure that the noble Earl, Lord Caithness, will be in action on the Conservative Benches, and the Government may find themselves in difficulty. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 73 [Qualifying tenants]:
[Amendment No. 100 not moved.]
Clause 73 agreed to.
Clause 74 [Long leases]:
Lord Goodhart Lord Goodhart moved Amendment No. 101:
Page 35, line 5, leave out "21" and insert "7"
The noble Lord said: In moving the amendment, I shall speak also to Amendments Nos. 102 to 104, which all raise the same point.
The problem arises because, in leasehold property, a number of people may have different leasehold interests, but only one of them can be entitled to be a member of the RTM company. Let us assume that the head leaseholder has a lease for 99 years, that he has created a sub-lease for a term of 21 years and that the sub-lessee has, in turn, granted a "sub-sub-lease" for a term of seven years. The question is: which of those three people is to be the member of the RTM company?
Under the Bill as it stands, the member of the RTM company will be the head lessee who holds the 99-year lease. That is because the only term which counts as a long lease is a term of more than 21 years; therefore, someone who holds a lease simply for 21 years and for no longer is not the holder of a long lease and cannot, therefore, be a member of the RTM company.
Our suggestion—which moves some way towards the suggestion put forward by the noble Lord, Lord Kingsland, in terms of residence—is not that there should be a test of residence, but that the member of the RTM company should be someone who has a reasonably present and direct interest in the state of the premises. A leaseholder who has no right to possession for a period of, say, 20 or 21 years has no real current interest in the state of the premises and is not, therefore, appropriate to be the RTM member. That applies equally at the other end of the scale. It is inappropriate for someone who is interested only as a short-term lessee—someone who possibly has a rack-rent lease for a term of not more than seven years—to be a member of the RTM company. While he may be interested in certain aspects of the maintenance of the premises, he will not be interested in their longer-term stability.
We believe, therefore, that the Government have drawn the boundary line in the wrong place. For the purposes of the RTM company, the long lease definition ought to be reduced from 21 years to seven years. The person lowest down the tree with a lease of more than seven years should be the member of the RTM company. That achieves the right balance between somebody whose interest in the premises is remote rather than immediate and somebody whose interest is for such a limited time that they are not concerned about the maintenance of the premises over the longer term. The right boundary is not 21 years but seven. I beg to move.
Lord McIntosh of Haringey: The noble Lord, Lord Goodhart, will remember our reasons for not supporting the proposed change in Grand Committee but we do not differ much in our intention. I do not dissent from the noble Lord's description of a reasonably present and direct interest. We tend to
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describe it as a substantial long-term stake by people who tend to think of themselves as owner-occupiers rather than renting tenants—and who aspire to something approaching the degree of control over and responsibility for their homes enjoyed by the freeholder of a house. Such people would not have chosen to buy leasehold if, under English property law, buying a freehold flat had been a practicable and sensible option.
There is no perfectly right answer. I do not imagine that the noble Lord would argue for the sanctity of seven years, any more than I would argue for the sanctity of 21 years. All leaseholders are technically tenants. It is impossible to draw a hard and fast line that neatly segregates would-be owner-occupiers from would-be renters.
It is well established and widely accepted that 21 years is a fair and accurate dividing line. It broadly reflects the point at which the value of the leaseholder's interest in the property is equal to that of the landlord. Where the leaseholder buys a lease granted for more than 21 years, he holds a greater stake in the building than the landlord. Where a lease of less than 21 years is bought, the landlord has a greater stake than the leaseholder.
I am sure that that dividing line—like any that could be devised—is open to criticism but it seems the right basis on which to strike the balance. We certainly think that seven years is too short for the purpose.
Lord Goodhart: I am grateful for the Minister's explanation and we will consider his response. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 74 agreed to.
Clause 75 [Long leases: farther provisions]:
[Amendment 5 Nos. 102 to 104 not moved.]
Clause 75 agreed to.
Clause 76 [Notice inviting participation]
Lord Kingsland Lord Kingsland moved Amendment No. 105:
Page 36, line 32, at end insert—
"() set out the principal responsibilities and obligations which the company will assume as the manager of the premises, by referring to the relevant provisions of the Royal Institution of Chartered Surveyors service charge residential management code, or any other code relevant to the management of residential properties subject to a service charge which has been approved by the Secretary of State under the terms of section 87 of the Leasehold Reform. Housing and Urban Development Act 1993 (c. 28)."
The noble Lord said: I shall speak first to Amendment No. 106, then to Amendments Nos. 105 and 107.
In Grand Committee, I unwisely suggested that the proposed amendment was unlikely to prove controversial. I was completely wrong. The principle is simple enough. Tenants in a block of flats should all have the right to participate in the RTM company. At present, the Bill proposes no sanction if the promoters

575
of an RTM company fail to send invitations to participate to all the tenants. That seems to us to be a technical defect in the Bill.
As noble Lords will know, there will, inevitably, be some tenants in a block of flats who are more enthusiastic for replacing the landlord than others. There is a danger that the enthusiasts will attempt to override the wishes of the less enthusiastic tenants. At present there is nothing whatever to stop the enthusiastic tenants from deliberately failing to send out the relevant notices to those whom they believe to be opponents of the proposal. We believe that that is a serious defect in the Bill.
The Government's response is to say, first, that a failure to send out notices to tenants who are entitled to participate would invalidate the notices that the RTM company must serve on the landlord in order to trigger the right to manage. However, that seems doubtful. If it were correct, it would mean that a failure properly to serve even one tenant in a block with hundreds of flats would invalidate the notice to the landlord. The Government's second response is that there is no prejudice to a tenant who has not been served because he or she can always join later. But leaving that aside, this argument still ignores the fact that all the tenants should be entitled to take part in the momentous decision as to whether or not to exercise the right to manage.
As far as concerns Amendments Nos. 105 and 107, I hope that there is agreement among noble Lords that the right to manage is an important right and one that puts potentially onerous burdens on tenants who choose to exercise it. Therefore, it is only right that tenants should know what they are letting themselves in for. The management code made by the Royal Institution of Chartered Surveyors sets out very clearly what managers of premises should do.
We on this side of the Committee take the view that the standard of management of blocks of flats can, and should, be improved. The right to manage will be a wholly illusionary right if the exercise of that right by tenants does not lead to the improvement in the quality of their property. At present, there is absolutely nothing in the Bill to ensure that the right to manage does improve the management of blocks of flats.
The Government appear to have set their face against any form of regulation of managing agents in this Bill. However, it is difficult to see what objections there can be to a modest measure to ensure that tenants at the very least know what good management of a block of flats involves; for example, tenants should know what they need to do and what they are letting themselves in for. It would increase knowledge and, therefore, in a favourite word of the Government these days, it would "empower" tenants.
I ask the Government to accept that this is a modest but, nevertheless, creative measure designed to improve the management of blocks of flats. I commend the proposal to the Committee. I beg to move.
9.30 p.m.
Lord McIntosh of Haringey: Perhaps I may deal with these amendments in the order suggested by the noble Lord, Lord Kingsland. I shall begin with Amendments Nos. 106 and 108. The noble Lord is suggesting that the directors and officers of an RTM company should be liable to prosecution for a failure properly to serve their invitations to participate. That seems to us to be somewhat draconian. Indeed, it appears to be in conflict with a further amendment of the noble Lord; namely, Amendment No. 122. Under Clause 80, that amendment suggests that,
"a failure to serve any qualifying tenant or tenants with a notice of invitation to participate".
should not invalidate the claim notice. I wonder whether the noble Lord is on the same side as regards Clause 80 as he appears to be on Clause 76. As I say, there seems to be some conflict here.
We do not see any advantage in prosecution. The interest of a leaseholder is not prejudiced by a failure to receive a notice of invitation to participate. The right to manage can only be acquired if a sufficient number of the leaseholders become members of the RTM company. Provided that enough of the others had signed up, anyone who does not become aware of the proposed acquisition would not be in a position to prevent it going ahead but will in any event have the right to become a member of the RTM company at any time. I believe that to be a failsafe position.
On Amendments Nos. 105 and 107, the noble Lord, Lord Kingsland, with his usual generosity has given us two different versions of what he wants—one that he used before in the previous Parliament, and one that refers to a "prescribed statement" rather than setting out the principal responsibilities and obligations. I see that they mean the same thing. Amendment No. 116 requires the claim notice to state that the information was provided with the invitation.
We intend to consider what might be included on management responsibilities in the invitation to participate. However, the requirements suggested in the amendments do not strike the correct balance. They are wide ranging and vague. What is meant by "principal" in this context? How much of the code of practice is the RTM company supposed to repeat in the invitation? Without that being properly set out, there would be enormous scope for argument about whether the provision had been complied with.
In any case, it is wrong to make an explicit link between the responsibilities of the RTM company and the approved codes of practice. The responsibilities of the RTM company will derive from the Bill and from the terms of all relevant leases. The codes will supplement that by making clear the standard and degree of management that we would expect to see provided within that framework. They will not impose any new obligations in themselves. The proposed requirement to refer to the codes of practice is otiose. I am sorry; that is the word used by the noble Lord, Lord Kingsland, and I should not be trespassing on it.
There is a difficult balance to be struck. We want the leaseholders to be aware of what they are taking on, but we do not want to overburden them with

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requirements that have to be met before they can acquire the right. We certainly do not want to put in place subjective requirements which will open up scope for dispute.
We continue to believe that this is best dealt with in the flexible way provided for in the Bill. We have the power to prescribe the form and content of the invitation to participate using regulations. We propose to use that power to include something in the notice on that front. That would allow us both to ensure that the requirements are properly clear and unambiguous and that they could not be changed if it proved that the correct balance had not been struck.
I hope that the noble Lord, Lord Kingsland, will not pursue the amendments.
Lord Kingsland: I agree that the remedy of prosecution in the context of Amendment No. 106 may be somewhat draconian and I shall reflect on that when drafting a similar amendment on Report. The principle of making sure that every tenant receives proper notice is important and should not be derided. When I re-emerge, rather bloodied, from this Committee stage and table an amendment with a softer sanction at Report stage, I hope that the noble Lord, Lord McIntosh of Haringey, will be prepared, in the even-handed way in which he approaches all opposition amendments, to look at the matter afresh.
I think that he said that some thought would be given in the detailed regulations to the principle that lay behind Amendments Nos. 105 and 107. It is important that tenants who are about to embark on establishing an RTM are aware of the responsibilities, obligations and dangers—as well as the benefits—that will necessarily flow from that. The Bill needs to provide a way to ensure that the information arrives on the doorstep of each tenant, together with the formal notices that are mentioned in the Bill. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 106 to 108 not moved.]
Clause 76 agreed to.
[Amendments Nos. 109 and 110 not moved.]
Clause 77 [Right to obtain information]
Lord Kingsland Lord Kingsland moved Amendment No. 111:
Page 37, line 19, after "person" insert "who has a right to manage the premises, or any part thereof,"
The noble Lord said: It seems to the Opposition that, as presently drafted, Clause 77 is both too wide and too vague. As I understand it, the purpose of the clause is to ensure that RTM companies have the necessary knowledge to invoke the participation procedure. That is perfectly sensible. However, what an RTM company really needs to start the procedure for exercising the right to manage is the information which must be put in the claim notice. This is essentially the names of the qualifying tenants and the details of their leases.
The Bill, by requiring information,
"which the company reasonably requires in connection with the making of a claim to acquire the right to manage the premises",
invites disputes to arise. Just what is reasonably required? Is it just names and addresses or does it extend, for example, to details of the financial arrangements which the landlord has made with managing agents, with caretakers, with builders, with oddjob men and so forth? An RTM company might well be able to say that it reasonably required that information in order to make an attractive proposal to the qualifying tenants so that it could show in detail how the tenants would benefit from the RTM company taking over the management.
But it is anything but clear whether the clause covers such things. The general rule of drafting is that it is better to say as accurately as possible what one means. Equally, at present the clause allows an RTM company to demand information from absolutely anyone. This seems to be far too wide. The information it will want will be information held by the landlord. In my submission the duty to give information should be confined to him.
Lastly, the clause at present has no sensible enforcement mechanism. An RTM company would have to start an action in either the county court or the High Court seeking an injunction. Except in an obvious case an interlocutory injunction—I believe that it is now renamed an interim injunction—would probably not be granted because it would be the equivalent of granting final relief. So the action would probably have to go to trial at disproportionate expense.
A more narrowly drafted and clearer clause would allow enforcement to take place swiftly in the magistrates' court with a fine for infringement. This must, we think, be preferable to ordinary civil proceedings being necessary. I beg to move.
Lord Bassam of Brighton: These amendments, which I understand are similar to ones tabled in Committee in the Bill's earlier incarnation, are intended to restrict the power for RTM companies to obtain information.
As I believe the noble Lord, Lord McIntosh, explained during the previous proceedings, the power granted in Clause 77 can only be used to obtain information relating to certain matters which are required to be included in the claim notice required by Clause 79. While the main purpose of Clause 77 is to ensure that an RTM company can obtain that information, the company may have a legitimate reason to obtain other information which is pertinent to its claim. That is why the clause provides the general power to obtain other information that the company reasonably requires.
As was said in Committee previously, the word "reasonably" should in most circumstances prevent landlords or other managers being faced with unnecessary or unjustified demands. We continue to believe that that strikes the right balance.

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The noble Lord also proposes a criminal sanction for failure to comply. As was explained in Committee earlier in the year, Clause 105 provides a power to apply to a court for an order to provide information requested under the clause. We consider that to be sufficient and have heard nothing this evening to persuade us otherwise. We think that that would be a criminal sanction too far.
On the contents of the claim notice, perhaps I do the noble Lord a disservice, but I think that he may have failed to pick up that the RTM company may need information to put in the notice, not only under Section 79(3) and (4), but also under Section 79(8) and (9). We may also encourage them to provide information through guidance and there may well be a need to get information not just from the landlord but from any manager appointed under or outside the terms of the lease. I hope that with that explanation the noble Lord will feel able to withdraw his amendment.
9.45 p.m.
Lord Kingsland: I may have tabled the amendments on a previous occasion, but I have furnished the Committee with a fresh speech today. However, the Government's reaction is exactly the same as it was last time. Although my speech has changed, it has clearly proved ineffectual. I accept what the Minister says about the criminal sanction, but apart from that, I suggest that what I have said is inoffensive and constructive and would improve the Bill. I do not intend to press the amendment to a vote today. I shall reflect on what we should do on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 112 to 114 not moved.]
Clause 77 agreed to.
Clause 78 [Notice of claim to acquire right]:
Lord Kingsland Lord Kingsland moved Amendment No. 115:
Page 37, line 42, leave out "14" and insert "28"
The noble Lord said: As the Bill is drafted, an RTM company has to serve a notice inviting participation on every qualifying tenant. The qualifying tenant then has 14 days to decide whether to participate. As the Government are already aware, we think that that period is too short.
In some cases, the question of forming an RTM company will have been in the air for a long time and lessees will have had extensive discussions among themselves about whether to proceed with such a scheme. However, in other cases the idea of an RTM company will have originated with a small group. That is particularly likely to be the case in large blocks. In such a case, the first that many lessees will hear of the proposal is when they receive the notice inviting participation.
A lessee who first learns of the proposal through the notice inviting participation should have a reasonable time to consider the notice. In particular, he or she may want to obtain advice from a solicitor, surveyor or other professional. The lessees may well also want to hold an open meeting for all tenants in the block to
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discuss the pros and cons of going ahead with an RTM company. To do all that realistically will require more than 14 days. We suggest that 21 days is a. more reasonable period.
I now turn to the other amendments in the group—Amendments Nos. 118, 119 and 121. These amendments deal with one aspect of an important element of the RTM scheme—the handover provisions. It appears to us that the Government have not properly thought through what will occur in terms of the practical, day-to-day management of blocks.
Let us take a straightforward case. A landlord has instructed builders, who are doing repair work on the premises which will take approximately a couple of months. The RTM company serves a claim notice on the landlord to take effect in one month, right in the middle of the works being carried out by the builder. What is the effect of the service of the claim notice on the landlord's contract with the builders? The Bill makes detailed provisions in Clauses 89 and 90 for management contracts and, for that matter, management subcontracts, but says nothing about other contracts, such as a contract with a builder.
There are two possibilities: the RTM company takes over the contract with the builder or the landlord retains responsibility for the existing contract with the builder. The first possibility involves the builder having a different contracting partner being thrust on him. As RTM companies will have no share capital, builders may well be unwilling to allow the contract to be moved. Moreover, the RTM will come completely fresh to any project which is in progress. Admittedly, there are provisions in the Bill for information to be transferred between the landlord and the RTM company. But, as anyone who has ever had involvement in building work knows, it is almost impossible to take over the supervision of building work in mid-flow.
The second possibility involves the landlord remaining a contracting party to all existing contracts. That, I suggest, is contrary to the whole idea of right to manage. Theoretically it would he possible for a landlord to remain liable to the builder while the management function was transferred to the RTM company. In that connection, Clause 92 provides for the landlord to pay over "crude uncommitted service charges". Therefore, it may be considered that the landlord would be able to retain service charges to pay the contract that he had already entered into. However, realistically, that type of split responsibility is likely to prove a recipe for disaster. Who, for example, would be responsible for any cost over-runs?
When the Bill was previously in Committee, the noble Lord, Lord Whitty, indicated that he would seek what he described as "greater clarification" (Official Report, 1/3/2001; col. CWH 177) during debate on the question of transitional arrangements for the handover of contracts. The Bill in its current form does not appear to have taken matters any further than in the Bill as put before your Lordships' House before the general election.
As the Government do not appear to be willing to entertain detailed provisions as to how and when existing contracts should be transferred or otherwise dealt with, it seems to me that the only practical solution is to allow a reasonable time for existing contracts to be run off and for sensible handover arrangements to be made. In my view, the six-month period would, in the ordinary case, be suitable. One month is, with the greatest respect to the Government, simply absurd.
None the less, I accept that there may be cases in which a shorter period would be appropriate; for example, where urgent works need to be done and it is sensible that the RTM company rather than the landlord carries out the works. Therefore, the amendment that I have put forward gives the RTM company an option to ask for an earlier handover date, with the leasehold valuation tribunal to decide in cases of dispute.
I appreciate that leasehold valuation tribunals are currently overworked and that steps would have to be taken to ensure that tribunals decided the issue of a handover date quickly. None the less, steps are currently being taken to appoint further chairmen. In any event, it should not be difficult to devise a fast-track system for the determination of this issue. Accordingly, I commend to the Committee the amendment that I have tabled and beg to move.
Lord Bassam of Brighton: I hope that the noble Lord, Lord Kingsland, will not think me discourteous if I deal with the amendments quickly and simply. In essence, they have one common feature; that is, to introduce delay into the process of acquiring the right to manage. We see no justification for that. We insist that the timetable that is set out in the Bill has been carefully constructed and thought through. We believe that 14 days is a sufficient gap between invitation to participate and claim notice, and that one month is the correct minimum gap between establishing that the company will take over management and the acquisition date itself.
The amendments were tabled in Committee earlier this year. We have heard nothing this evening to persuade us that we have got the balance wrong. We think that all the amendments lean too far towards the convenience of the landlord. We believe that the balance is right and we therefore see no reason to change the arrangement.
The noble Lord properly raised the issue of contracts but it would be better to discuss the issue in relation to Amendment No. 128. I hope that the noble Lord feels able to wait until we reach the relevant group of amendments so that there can be a more substantive debate on and response to this issue.
I can tell that the noble Lord will be disappointed by our response. However, we feel that we have struck the right balance and that we are right to insist on our approach. I hope that he feels able to withdraw the amendment.
Lord Kingsland: I am extremely disappointed by the noble Lord's response and vastly unimpressed by the logic that apparently lies behind it. It is not the Liberal Party's practice to vote in Committee; if it were I am sure that I should be backed to the hilt. I shall reflect on what the Government have said and return to the matter on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 78 agreed to.
Clause 79 [Contents of claim notice]
[Amendments Nos. 116 to 121 not moved.]
Clause 79 agreed to.
Clause 80 [Claim notice: supplementary]
Lord Kingsland Lord Kingsland moved Amendment No. 122:
Page 39, line 15, at end insert—
"() Nor shall a failure to serve any qualifying tenant or tenants with a notice of invitation to participate invalidate the claim notice, so long as a sufficient number of qualifying tenants were members of the company on the relevant date."
The noble Lord said: I am extremely weary of suggesting that this might prove to be an uncontroversial amendment. All the technical improvements that I have so far proposed have been met with the welcome that Scrooge gave to the Christmas carol singers. None the less, it seems to me that there is a technical lacuna in the clause.
Members of the Committee will have noticed that Clause 80(2) is an anti-technicality measure. In other words, the fact that a claim that purports to be given by some people who are not in fact qualifying tenants will not render the claim notice invalid so long as there is a sufficient number of qualifying tenants. So far so good. However, the clause still leaves the problem that some qualifying tenants may not have been served with notices inviting participation.
In a block of 100 flats or more, there is every chance that one or two tenants have not, by some accident or misadventure, been served with a notice inviting participation. So long as the number of qualifying tenants wanting to exercise the right to manage is sufficient, there seems no reason why that accident or misadventure should invalidate the notice. None the less, difficult though it is to believe, that is the Government's intention.
I raised this issue when we were previously in Committee. The noble Lord, Lord Whitty, stated:
"Any failure to serve notices properly would in itself invalidate any attempt to exercise the right to manage and therefore they would have to start all over again".—[Official Report, 1/3/01; CWH 153.]
In other words, if one tenant out of 100 is not served, the whole exercise is vitiated.
That does not seem sensible. It would be better to have a modest criminal sanction and directors who do not serve all the qualifying tenants with notices inviting participation, thus leaving it to the discretion of the prosecuting authorities or aggrieved tenants to prosecute rather than have the entire "right to

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manage" procedure rendered a nullity due to a minor and possibly excusable mistake in the service of the notices inviting participation. I beg to move.
Lord McIntosh of Haringey: The noble Lord, Lord Kingsland, should hold on to his seat: we think that this is an excellent amendment. At the moment, a claim notice might be invalid or at least be open to challenge if the RTM company has, for whatever reason, failed to serve notices of invitation to participate on all of the qualifying tenants. Having commented on the quality of the amendment, I hope that the noble Lord will not mind if I refer to the exact opposite thrust of his earlier amendments, which I had to refer forward in an earlier debate.
On reflection, the present position is not entirely sensible. It could open the door to frivolous challenges by unscrupulous landlords. Amendment No. 122 seems to strike a better balance. A failure to serve the invitation to participate on everybody would not invalidate the claim notice, provided that the right number of qualifying tenants had signed up as members of the RTM company.
No one's interests would be harmed by such an approach. The acquisition of the right to manage would still need majority support. Any person who had not been sent an invitation to participate would be in the minority and would be unable to prevent the
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RTM from going forward. At the same time, such a person would still have the right to become a member of the RTM company at any time.
We support the amendment but think that it might have to go wider. It might be prudent, for example, to say that minor inaccuracies do not invalidate the notice, as we have provided in the claim notice in Clause 80(1). We should also like to check that consequential amendments will not be required. I hope that the noble Lord will allow us to take away this matter and consider an appropriate amendment to be brought forward at a later stage.
Lord Kingsland: My enthusiasm for the amendment is now somewhat tempered by the fact that the Government have accepted it. I wonder whether I was right after all. In any case, I think I am correct in withdrawing the amendment. I shall be interested and, indeed, intrigued, to see what the Government make of it on Report. Meanwhile I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 80 agreed to.
Clause 81 agreed to.
House resumed.
House adjourned at four minutes past ten o'clock.