Lords Sitting of 22 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 Lichfield.

Baroness Golding
Llinos Golding, having been created Baroness Golding, of Newcastle-under-Lyme in the County of Staffordshire, for life—Was, in her robes, introduced between the Lord Mason of Barnsley and the Baroness Dean of Thornton-le-Fylde.

Lord Brooke of Sutton Mandeville
The Right Honourable Peter Leonard Brooke, CH, having been created Baron Brooke of Sutton Mandeville, of Sutton Mandeville in the County of Wiltshire, for life—Was, in his robes, introduced between the Lord Stewartby and the Lord Jopling.
Lord Hardie Lord Hardie—Took the Oath.

Personal Statement: The Lord Macdonald of Tradeston
2.49 p.m.
The Minister for the Cabinet Office and Chancellor of the Duchy of Lancaster (Lord Macdonald of Tradeston): My Lords, with the leave of the House I should like to make a brief personal Statement to dispel any confusion caused by an Answer given to the Starred Question of the noble Lord, Lord Campbell of Croy, on special advisers on 16th October.
My answer to the noble Lord, Lord Boardman, was unclear, and for that I apologise. The noble Lord asked for the cost of special advisers over the last 12 months compared to the cost under the previous Conservative administration. The term "administration" has a specific meaning for special advisers, as under the terms of their model contract all appointments are terminated at the end of an administration. Therefore, in this context, "administration" is synonymous with "Parliament".
I gave a cost of £4.4 million for the current figure of 81 special advisers, as compared with 79 under the last administration. My intention in offering those numbers was to counter any suggestion of a large increase in the total number of special advisers between this current administration and the last administration—both Labour, of course.
I then told the House that I had no figures for costs under the previous administration, as was requested by the noble Lord, Lord Boardman; namely, the Conservative administration of 1992–97, as I should have said explicitly. But, in an attempt to be helpful, I recalled the cost of£1.1 million for 1991. In fact, the cost
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for the last year of the previous Conservative administration was £1.8 million. That paid for 38 special advisers, as I now readily make clear.
Using the words "last administration" and "previous administration", while not making a clear distinction between Labour and Conservative administrations, meant that the confusion was entirely of my making. The Hansard editor and the civil servant who routinely checks the speeches of Cabinet Office Ministers sought to clarify matters by changing "previous administration" to "previous Parliament" in the final record.
For the avoidance of doubt, let me say that there was certainly no pressure brought to bear on Hansard to make such a change. However, in my view the confusion remains and, in order to dispel it, I have made this personal Statement at the earliest opportunity.

Libel
2.51 p.m.
Lord Beaumont of Whitley Lord Beaumont of Whitley asked Her Majesty's Government:
Whether they have any plans to change the law of libel so that the burden of proof rests on the claimant.
The Parliamentary Secretary, Lord Chancellor's Department (Baroness Scotland of Asthal): My Lords, the noble Lord's Question seems to be based on a misconception—there is no single "burden of proof" in a libel case. Generally in English law, the party who asserts a fact—either in his claim or in his defence—has to demonstrate the truth of what he says. The other party does not have to prove that it is false.
Our law strikes a fair balance between the interests of the claimant and those of the defendant, and the allocation of the burden of proof is part of that.
Lord Beaumont of Whitley: My Lords, why is it then that the American courts refuse to enforce English libel awards? Is it not true that that is because of the present state of affairs—that the misdeeds of Robert Maxwell and Jeffrey Archer, to name but two, were not exposed before they were?
Baroness Scotland of Asthal: My Lords, of course the American position is different from ours. Perhaps I should amplify my Answer. I assure noble Lords that this country's law is in robust good order. I appreciate the strength of the noble Lord's concern.
As I said earlier, in any civil action the primary burden of proof rests on the claimant to make out his case. If he fails to do that, the defendant is not required to prove anything. In a defamation case, therefore, the

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primary burden of proof rests on the claimant. He must prove four things: that there was a defamatory statement; that it referred to him; that it was published; and that the defendant was responsible. Only then does the defendant have to prove any element of his defence. It is of course true that if the defendant pleads justification—that is, truth—as his defence, he must prove the truth of what is said. That is simply an application of the rule that I outlined in my Answer.
I should also make it clear that, first, the defendant does not need to prove the truth of every detail and every nuance of what he has said. It is sufficient that what he said was substantially true. Secondly, he does not need to prove conclusively and beyond all reasonable doubt that what he said was true; he needs to prove it only on the balance of probabilities. Similarly, the defendant may plead the defence of fair comment.
Much has happened to extend the position through the Defamation Act 1996. I assure noble Lords that the balance between defendant and claimant is well understood and maintained in all of the courts in England and Wales.
Lord Archer of Sandwell: My Lords, while anyone who makes a derogatory statement about another should be prepared to prove it—otherwise the victim would be in the position of having to prove a negative—does my noble friend agree that the Human Rights Act may impinge on certain aspects of our libel law; for example, the right of free expression? Have the Government considered the implications?
Baroness Scotland of Asthal: My Lords, the Government have considered the implications of the Human Rights Act. The relevant articles are Article 6, the right to a fair trial, and Article 10, the right to freedom of expression. It is for the courts to apply and to develop the law of libel in a manner consistent with the convention rights. The courts are also under a duty to act compatibly with those rights as public authorities under the Human Rights Act 1998, which was introduced by this Government. Additionally, under Section 12 of the Act, they are under a duty to have particular regard to the importance of the convention right of freedom of expression when considering whether to grant any relief that would affect the exercise of that right.
Lord McNally: My Lords, does the Minister agree that our libel laws are still too prone to what may be called speculative litigation? Should not part of a defence be that a statement was made in reasonable good faith with a proper attempt to try to check the facts? Surely we should remove from our system such a tendency to litigation. Does the Minister agree that that could best be accomplished by a proper Press Complaints Commission that had teeth and was respected?
Baroness Scotland of Asthal: My Lords, I hear what the noble Lord says in relation to the Press Complaints Commission's procedure. That matter has been debated long and hard and no doubt will continue to be debated. We must see whether the present system, which in recent years has changed, has teeth. The law in relation to defamation is difficult. There is a balance between the claimant and the defendant and striking the right balance is always problematic. We believe that at the moment the balance is right but, as noble Lords know, this matter will continue to be scrutinised from time to time.
Lord Lipsey: My Lords, does my noble friend agree that the real problem with our current libel laws and the absence of legal aid is that they prevent newspapers from telling the truth about the rich, while enabling them to tell whatever lies they like about the poor with total impunity?
Baroness Scotland of Asthal: My Lords, attractive as it may be to agree with the noble Lord, I cannot, not least because that is not true. Of course, legal aid has not been extended to defamation and it never has since its inception in 1949. However, conditional fee agreements are now available and have been used successfully. The Government have also taken steps to enable successful litigants to reclaim the cost of any insurance premiums from their opponent, which should scotch the widely-held perception that defamation laws benefit only the rich and powerful. If noble Lords cast their eyes over recent decisions in which applicants have been successful, they will see that a number used conditional fee agreements.
Lord Tebbit: My Lords, while I am aware that the Minster has no responsibility for American law, is she able to answer the query in the supplementary question asked by the noble Lord, Lord Beaumont of Whitley, as to why American courts will not enforce British judgment in this respect?
Baroness Scotland of Asthal: My Lords, I cannot give the noble Lord a specific answer. We are not able to dictate what the American courts should or should not enforce and, as a sovereign nation, they cannot dictate to us. I know that many noble Lords labour under the misapprehension that America and ourselves are the same; in fact, we are two sovereign states subject to our own rules.
Lord Tomlinson: My Lords, can my noble friend advise the House whether the Government have given any consideration to the role of juries in libel trials?
Baroness Scotland of Asthal: My Lords, we have considered the matter of juries, which I know concerns a number of noble Lords. In 1999 the Law Commission recommended that juries in libel trials retain both the task of determining liability and the task of setting damages. I can reassure your Lordships that Her Majesty's Government are not considering any change to that role.

UK Airlines: Finance
3 p.m.
Lord Berkeley Lord Berkeley asked Her Majesty's Government:
Whether government support offered to United Kingdom registered airlines following the hijacks in the United States on 11th September complies with European and United Kingdom competition policy.
The Minister of State, Department for Transport, Local Government and the Regions (Lord Falconer of Thoroton): My Lords, the Government have made no decisions about financial support for UK airlines, apart from underwriting on a temporary basis third party war risk insurance. Control of state aid falls to the European Commission, which would determine the compatibility with the treaty of any assistance offered. The Commission set out guidelines on emergency aid in its 16th October communication to the Transport Council on the repercussions of atrocities in the United States on the air transport industry.
Lord Berkeley: My Lords, I am grateful to my noble and learned friend for that full Answer. Does he agree that market forces caused British Airways to cancel its Belfast flights when it was charging £162 per person compared with the low cost airlines which charge about £27? Does he further agree that that should be replicated throughout Europe and that he should therefore encourage a rationalisation of the airlines in Europe and possibly the removal of ownership restrictions both in Europe and in the United States?
Lord Falconer of Thoroton: My Lords, I cannot comment on the reason for the cancellation of a particular flight. There is plainly scope for a rationalisation of airlines throughout Europe and that should be done on a sensible market basis. At the Transport Council meeting on 16th October, to which I referred in my Answer, my right honourable friend the Secretary of State put before it a paper about rationalisation. It is a proposal which we support, but on a sensible basis.
Lord Razzall: My Lords, will the noble and learned Lord accept that even if direct financial subsidy to our UK airlines proves not to be possible, other actions might be appropriate? Does he agree that it has long been a scandal that UK planes run by British Airways, Virgin and the other carriers cannot land in one American city and pick up passengers to take them to another? Does he accept that if we are making the SAS available to fly to Afghanistan via Pakistan, Uzbekistan or other places, now is the moment for the Government to press President Bush to allow British Airways to land at New York and take passengers on to Chicago?
Lord Falconer of Thoroton: My Lords, we are actively pursuing bilateral negotiations with the
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United States. A balanced liberal agreement with the US would be good for passengers in the UK and in the European Union more widely.
Lord Clinton-Davis: My Lords, I begin by declaring my interest as president of BALPA. Will the noble and learned Lord tell the House why a clear advantage is enjoyed by the United States' airlines which none of the European airlines can emulate? Is not the matter being taken before the European Commission and how are the British Government assisting in that?
Lord Falconer of Thoroton: My Lords, the British Government are engaged in bilateral discussions with the United States in relation to these airline issues. There are issues which also have a European dimension but at the present time the right course is for Britain to continue those discussions with the US.
Lord Skelmersdale: My Lords, is it true that as reported in the press the European Commission is breaking its own rules and is in the process of allowing national subsidies for other national airlines within Europe?
Lord Falconer of Thoroton: My Lords, I am not sure to what the question was directed. It is for the European Union, in particular the Commission, to state the provisions in relation to state aid in the current situation. That is what it has done. They apply to all EU countries and I understand that they are being applied in all EU countries.
Viscount Astor: My Lords, does the Minister agree that the UK airlines have not asked for any state handouts? Does he also agree that it is important to negotiate a bilateral air services agreement with the United States because next year the UK will lose its mandate for bilateral air service agreements to the European Commission?
Lord Falconer of Thoroton: My Lords, it is right that we continue the negotiations with the United States because we need to sort out many of the problems which have been mentioned. As regards the UK airlines' approach to handouts, there have been constructive and sensible discussions between them and the Government.
Lord Elton: My Lords, the noble and learned Lord did not answer the final part of my noble friend's question, which relates to the right to bilateral negotiations. Will he address that?
Lord Falconer of Thoroton: My Lords, they are presently with the UK and the US. At the end of the year a decision must be made about how they are proceeded with.
Lord Garel-Jones: My Lords, does the noble and learned Lord agree that the reason it has been so easy

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for the United States to pick off and cherry-pick European nation states is because we have not yet been able to negotiate on a European basis?
Lord Falconer of Thoroton: My Lords, in some respects, we have in our hand particular cards which make our position strong in those negotiations.

Energy Supplies: Security
3.5 p.m.
Lord Ezra Lord Ezra asked Her Majesty's Government:
What measures they are taking to provide security for energy supplies.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, this Government are taking both short and long-term measures to secure UK energy supplies. We and our energy companies are working with the security services to ensure that the risk of terrorist attack is properly assessed and that appropriate measures are in place to reduce the risk of disruption.
For the long term, the Department of Trade and Industry and Ofgem have established a joint working group to monitor security of supply and assess any risks, looking at least seven years ahead. In addition, the current Performance and Innovation Unit review of energy policy will identify longer-term strategic objectives of UK energy policy and will consider security issues.
Lord Ezra: My Lords, I thank the noble Lord for that informative Answer. As regards the short term, will he indicate the Government's policy on the level of stocks, particularly oil and gas? In the case of oil, there are IEA regulations and, in the case of gas, stocks are fairly low.
As regards the long term, will he assure us that the PIU energy review study will put increased emphasis on reducing import dependence and in particular pay regard to the contribution of the coal industry and the part which clean-coal technologies could play; to renewables, in respect of which there are still some obstacles; and to a greater drive for energy efficiency and new technologies?
Lord Sainsbury of Turville: My Lords, in accordance with the EC oil stocking directive and the International Energy Agency emergency plans, the UK holds strategic oil stocks to guard against the disruption of international oil flows. During the past 25 years, including during the Iran/Iraq war and the Gulf war, world oil supplies have not fallen by more than 6 per cent. The UK has sufficient stocks such that if the supply of crude oil should decline by, say, 10 per cent, we could cover that shortfall for almost two years. In that regard, therefore, we are well positioned.
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Furthermore, the new gas trading arrangements have provided market-related incentives to construct new storage. The issue of gas storage will be a matter for the PIU report and the DTI/Ofgem working group.
As regards the long-term future, we are taking a range of measures, including most of those mentioned by the noble Lord. In particular, we are promoting properly functioning and competitive energy markets, maximising existing energy resources, encouraging energy renewables and combined heat and power, also promoting and rewarding energy efficiency.
Lord Campbell of Croy: My Lords, given the present threat of terrorism, are the Government satisfied with the precautions being taken against possible sabotage in the UK of installations and of our network of pipes and powerlines?
Lord Sainsbury of Turville: My Lords, as the Prime Minister said on 4th October, we have ensured as far as possible that every reasonable measure of internal security is being undertaken. The Civil Contingencies Committee, which is chaired by the Home Secretary, is working to ensure the protection of key facilities and utilities, not only high-profile targets but also essential services. However, as I am sure your Lordships will appreciate, we do not want to comment on operational security matters in detail.
Lord Corbett of Castle Vale: My Lords, does the noble Lord agree that the best way to ensure the security of our long-term energy supplies is rapidly to expand the development of renewable energy which can, at the same time, provide thousands of extra jobs and technology to help us earn a living around the world?
Lord Sainsbury of Turville: My Lords, I believe that the best way to ensure security of energy supplies is to take the whole of the measures that I have set out. It is important to ensure that we have competitive markets, encourage renewables and CHP and take action on energy efficiency. All these measures should be taken and we should not rely on just one, important as renewables are.
Lord Roberts of Conwy: My Lords, in view of the very long-term nature of the terrorist threat, is there not a case for reviewing the potentialities of nuclear energy?
Lord Sainsbury of Turville: My Lords, I believe that the most critical factor is not the possibility of terrorist attack, important though that is, but that around 2005 the UK will again become a net importer of natural gas. Further, around 2006 the UK is again likely to become a net importer of energy for the first time since 1981 and North Sea oil. In view of that I believe that it is a very good moment to review the whole question of energy security over the whole breadth of the technologies involved. For that reason, I very much welcome the inquiry by the House of Commons Select Committee on Trade and Industry into the security of

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energy supply and the inquiry by a Select Committee of the House of Lords into the European Commission's Green Paper on the security of energy supplies.
The Earl of Selborne: My Lords, while one is concerned about the UK's energy security, can the Minister confirm that there are approximately 1 billion people in the world who have no access to energy sources of any kind and that perhaps our long-term security would best be achieved by also addressing that issue?
Lord Sainsbury of Turville: My Lords, as far as concerns terrorism, clearly the sense of injustice felt by the poor of the world is a long-term matter which must also be addressed, but I do not believe that that should distract us from the short-term issue of security against terrorism or the medium-term issue of security of supply.
The Earl of Listowel: My Lords, following on from the previous question, can the Minister say what support the Government are providing to oil extractors who are working with the Government of Angola to ensure that Britain benefits from the immense reserves of oil in that country, which, as the noble Lord will be aware, has very few Muslims in its population?
Lord Sainsbury of Turville: My Lords, the noble Earl asks an extremely interesting question which, if I may, I shall answer in writing.

Sinn Fein: Overseas Funding
3.13 p.m.
Lord Saatchi Lord Saatchi asked Her Majesty's Government:
Whether in light of recent events the foreign sources of funding to Sinn Fein should be identified and made subject to prohibition.
The Lord Privy Seal (Lord Williams of Mostyn): My Lords, Her Majesty's Government have no current plans to require any of the Northern Ireland parties to disclose sources of foreign funding or prohibit it. The sections of the Political Parties, Elections and Referendums Act 2000, which gave effect to these provisions in the rest of the United Kingdom, were disapplied in Northern Ireland because of the particular circumstances there. This is not intended to be a permanent measure, and the Government have given a commitment to review it after two years.
Lord Saatchi: My Lords, I thank the noble and learned Lord for his reply. It is a source of comfort on all sides of your Lordships' House that the noble and learned Lord has taken responsibility for Northern Ireland matters in this House. Does the noble and learned Lord recall that during Question Time last week his noble friend the Home Office Minister was somewhat agitated by the line of questioning on this
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matter of my noble friend Lady Park? Would the noble and learned Lord be too cross with me if I persisted on the same lines? Will the Leader of the House remind noble Lords how much of the £63 million that the Government have frozen in the bank accounts of suspected terrorists is related to Irish terrorism and what plans they have to identify and freeze the finances of Irish terrorist organisations?
Lord Williams of Mostyn: My Lords, I do not believe that in the breakdown of the £63 million that I provided there was any sub-division in respect of Irish terrorism. Speaking from recollection, I believe that in answer to the noble Lord, Lord Strathclyde, I referred to six banks, none of which appeared to me (if I may put it this way) to be obviously Irish but were more likely to be Arab institutions. Plainly, this is a continuing struggle. Funding is enormously important to terrorist organisations. The Provisional IRA remains a proscribed organisation. By virtue of United States law it is an offence to raise funds for foreign organisations without having registered under the appropriate legislation.
Lord Wright of Richmond: My Lords, is the noble and learned Lord aware that when I retired from the Diplomatic Service 10 years ago a great deal of effort was being made by consulates and consulates-general in the United States to discourage American financial assistance to Noraid? Does that effort continue?
Lord Williams of Mostyn: My Lords, I cannot say that it continues visà vis a particular organisation, but I can assure the House, as it would expect, that the United States Government and Her Majesty's Government, particularly at the present time, are working very closely together. These are very delicate times. I do not feel—and I hope that I do not show—any irritation because I have never known the noble Lord, Lord Saatchi, to ask an inappropriate question. I can tell the House that recently Gerry Adams announced that he is to make a statement this afternoon. I do not know what will be in that statement. I simply give the House that news because we are in extremely difficult times.
Lord Smith of Clifton: My Lords, does the noble and learned Lord agree that the exemption of Northern Ireland from the Political Parties, Elections and Referendums Act was done on the advice of the Neill committee? Does he also agree that, in view of the fact that we are at the 11th hour where efforts are being made to salvage the Belfast agreement, it would be quite inappropriate to review it at this particular time?
Lord Williams of Mostyn: My Lords, I believe that, as the noble Lord implies, a proper balance was struck. The order which came into force in, I believe, February of this year runs for four years but with a specific commitment to review it in February 2003. These are extremely delicate areas that are not capable of a perfect intellectually justifiable response; they are

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matters of judgment. I hope the House agrees that the Government are doing their best to come to a proportionate judgment.
Lord Merlyn-Rees: My Lords, is not the difficulty at the heart of the Question as put that, as my noble and learned friend said, the Provisional IRA is a proscribed organisation, with all the implications that that has for the raising of money, but Sinn Fein is not? Indeed, a number of members of Sinn Fein have been elected to the other place, and a large number are Members of the Northern Ireland Assembly. There is all the difference on earth. If it can be proved otherwise then act. But does my noble and learned friend agree that it is much better to deal with the breakaway organisation—the Real IRA—which was involved in the massacre at Omagh and to concentrate on what matters, not on a flight of fancy and properly elected organisations?
Lord Williams of Mostyn: My Lords, my noble friend is right and speaks from vast, honourable experience of these apparently intractable problems. Sinn Fein is a political party which offered itself for election in Northern Ireland and the Republic. It is not the same in legal terms as the Provisional IRA, which remains a proscribed organisation. As to my noble friend's point about the Real IRA—one reverts to the earlier question put by the noble Lord, Lord Wright—the Government, together with the Irish Government, approached the United States administration for the designation of the Real IRA under the provisions of the anti-terrorism legislation in that country, and the US acted against that organisation in May of this year.
Lord Tebbit: My Lords, the noble and learned Lord must have some degree of confusion. Does he agree that either Sinn Fein is a democratic party in the United Kingdom like the rest of our parties, in which case it should be subject to the same rules and prohibited from overseas funding, or it is, as so many Ministers of both this Government and previous ones have said, a part of the IRA/Sinn Fein organisation and it is playing with words to distinguish between the two, particularly when we know that leaders of Sinn Fein are also members of the Army Council?
Lord Williams of Mostyn: No, my Lords, it is the noble Lord who has surprisingly fallen into confusion. Sinn Fein is a political party which offered itself to the democratic mandate in Northern Ireland and was successful in part. It offers itself for election in the Republic of Ireland. The United Kingdom consists of, among other areas, Northern Ireland. Everyone recognises that over many years there have been distinct problems in Northern Ireland. Our legislation has frequently rightly met those. It is not simply Sinn Fein which is the subject of this application; it applies just as powerfully to the SDLP.
Lord Renton: My Lords, has not more than enough already been said this afternoon about this matter? Would it not be best now to enable the United Kingdom and the United States Governments in cooperation to get on with it?
Lord Williams of Mostyn: My Lords, not for the first time, I am grateful for that statesman-like approach. It is right to say that, although these are early days, there have been far-reaching consequences after the crimes of 11th September. We should take maximum advantage—I say that deliberately—of this opportunity which offers itself at this time.

Business
3.21 p.m.
Lord Carter: My Lords, at a convenient moment after 3.30 this afternoon, my noble friend Lord Whitty will, with the leave of the House, repeat a Statement which is being made in another place on research into BSE in sheep.

Business of the House: Debates, 23rd October
Lord Williams of Mostyn: My Lords, I beg leave not to move the Motion relating to Standing Order 40 standing in my name on the Order Paper. An error has been made. The wrong Motion was printed on tomorrow's Order Paper, as your Lordships will undoubtedly have noticed. If my positive Motion were therefore to have been upheld it would have been compounded by a further error tomorrow. The error having been made, for which of course I take total responsibility, looking only to my right at the Chief Whip, we shall make sure, with great apologies, that the Order Paper tomorrow is in proper order. I shall then move my Motion, which I hope will be carried unanimously. We shall then proceed to the substantive Motion of the noble Lord, Lord Kingsland, which is incorrectly described at present.

Select Committees
The Chairman of Committees (Lord Tordoff): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the Lord Cope of Berkeley be appointed a member of the following committees, in the place of the Lord Henley: Selection, House of Lords' Offices, Privileges and Procedure of the House.—(The Chairman of Committees.)
On Question, Motion agreed to.

Commonhold and Leasehold Reform Bill [H.L.]
3.23 p.m.
The Lord Chancellor (Lord Irvine of Lairg): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Irvine of Lairg.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN of COMMITTEES in the Chair.]
Clause 82 [Counter-notices]:
Lord Kingsland Lord Kingsland moved Amendment No. 123:
Page 40, line 12, at end insert ", or
(c) claiming that there are special reasons why the RTM company should not acquire the right to manage,"
The noble Lord said: The ultimate purpose of all legislation in the field of residential landlord and tenant must be to improve the quality of housing stock in the country. In many cases, giving residents the right to manage their own blocks will contribute to this aim because who more than the residents will have an interest in improving the place in which they live.
None the less, there will be cases where residents will not be interested in improving their own housing. A particular example will be where a block requires extensive works of repair, but the lessees' leases have only a comparatively short time to run. In these circumstances, there is a grave risk that lessees will seek to exercise the right to manage, not to improve the building, but in order to let it be run down. It is to be hoped that only rarely will lessees seek to exercise the right to manage in bad faith for such reasons. None the less, it must be right that landlords in this type of case can oppose giving the right to manage to people who are improperly motivated.
When the matter was previously debated in Committee earlier in the year, I laid emphasis on the human rights issues. That point was never satisfactorily answered. Of course a member state has a margin of appreciation which can be exercised to deny landlords their property rights, including the right to manage. However, there are cases, such as those I have just outlined, where it is irrational to treat landlords in the way the Bill seeks to treat them when they are taking steps to keep a building in repair as they are obliged to do under their leases.
When the matter was previously debated in Committee, I put forward a proposal that would have given the leasehold valuation tribunal a broad discretion to do what was right, in any particular case. That proposal did not find favour. Therefore, I return with a more circumscribed one. The effect of it is to allow a landlord to oppose an application if he can show severe prejudice. The prime example is the short lease where the lessees intend to avoid carrying out necessary repairs.
The proper course is to leave to the leasehold valuation tribunal the determination of whether the prejudice to the landlord is sufficient to outweigh the prima facie right of tenants to manage. I beg to move.
Lord Goodhart: I rise to speak to Amendment No. 140A in the group. I should perhaps explain to Members of the Committee that we have tabled a number of additional amendments since the first day of the Committee stage. All our amendments have been proposed and drafted by the Law Society as a result of its consideration of the terms of the Bill. Many of them are matters of drafting rather than of substance. Those which are of substance are not of fundamental substance. Nevertheless, I believe that they are useful.
The amendments reached me only at a late stage. A number of them relate to the parts of the Bill considered by the Committee last Tuesday. We were not able to table them at that stage because we had not received them. They will therefore have to be tabled for the Report stage.
Lord Williams of Elvel: I am grateful to the noble Lord for giving way. Why was the Law Society so slow in considering the Bill that it produced these amendments at a late stage—indeed between the interval of the two days in Committee?
Lord Goodhart: I cannot speak for the speed of operations of the Law Society. I agree that it would have been better if the amendments had been produced at an earlier stage. Of course this is a highly technical Bill. No doubt it took some time to establish a committee to consider it. At any rate, I have received the amendments at a late, but perhaps not too late, stage from the Law Society.
Amendment No. 140A gives partial but not complete support to the amendment moved by the noble Lord, Lord Kingsland. In particular, it covers the last of his proposals; that is, new subsection (5A)(c) where it states,
"that in all the circumstances it is just and convenient that the RTM company should not acquire the right to manage".
Perhaps it goes rather wider than that because the amendment tabled by the noble Lord, Lord Kingsland, would mean that all three of those conditions would have to be satisfied, whereas under the amendment proposed by the Law Society the right arises only if there are substantial breaches of obligation on the part of the RTM company and thus the tribunal considers it just and convenient to make the order.
In the circumstances, I believe that a strong case can be made for accepting art amendment in one or other of these forms. I submit that probably the more appropriate form would be that put forward by the Law Society. Otherwise, what is intended to be a cure in favour of RTM companies where landlords have abused their powers could be turned around, creating the possibility of abuse of landlords by RTM companies.
3.30 p.m.
Lord Kingsland: I negligently failed to spot that Amendment No. 127 has been included in the first grouping. Perhaps I may crave the Minister's indulgence to say a few words in support of it. I am much obliged.
When this matter was last raised in Committee, I described as astonishing the omission from the Bill of any means of getting rid of an RTM company, once it had taken over the task of management. With any form of human activity, there is a risk that things can go wrong. There is a risk that something may go wrong with an RTM company. Perhaps the lessees fall out among themselves; perhaps the managing agent appointed by the company proves not equal to the task, but the tenants, for whatever reason, do not replace him. Still worse, lessees may deliberately decide not to carry out critical structural work. A number of reasons may explain why an RTM company might not carry out its primary function of managing a block of flats in a proper manner.
Equally, the lessees may decide that they simply do not want to carry on exercising their right to manage and would prefer to hand back the management function to the landlord. After all, nowadays property management is a professional activity which requires a great deal of skill and care. Tenants who, as amateurs, try their hand at property management may decide that they have made a mistake and that leaving the management to a professional would be preferable.
The Bill makes no provision for the right to manage to go back to the landlord. We feel that this is an error. Cases may be rare, but in appropriate instances some provision is necessary to bring to an end the right of RTM companies to manage. Where an RTM company ceases to have the support of the qualifying tenants or is manifestly mismanaging the block, I believe that it is right that the interested parties should be able to apply to have the right to manage taken away from the RTM company. Amendment No. 127 seeks to achieve that purpose.
Lord Williams of Elvel: I have little sympathy for the first amendment moved by the noble Lord, Lord Kingsland, but a fair amount of sympathy for the Law Society amendment proposed by the noble Lord, Lord Goodhart. However, I have a great deal of sympathy for Amendment No. 127, just spoken to by the noble Lord, Lord Kingsland. I believe that it is extremely important to ensure that a form of exit strategy—to use military terms—is put in place in case everything goes wrong. As sure as eggs is eggs, sooner or later things will go wrong. I hope that my noble friend will agree that a case has been made by the noble Lord, Lord Kingsland, for Amendment No. 127.
Lord McIntosh of Haringey: Perhaps I may first respond to what the noble Lord, Lord Goodhart, said before introducing his amendment in this grouping. We find the amendments proposed by the Law Society and included, at least in part, on today's Marshalled List quite helpful. Perhaps I may suggest to the noble Lord that, in order not to distort the Report stage of
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the Bill by swelling the list of amendments with proposals which were not considered in Committee, he should consider asking representatives of the Law Society to come in to speak to officials and Ministers. If he so wishes, the noble Lord could accompany them. The society should send in a note covering the proposed amendments so that, if possible, we can by agreement deal with those matters as expeditiously as possible. Taking them "offline'', as it were, would avoid the risk of swelling the Marshalled List on Report with matters that rightly should have been considered in Committee.
Two different themes are pursued within this group of amendments. I should like to deal with them separately. The first is covered by Amendments Nos. 123, 124 and 125. I am afraid it is clear that the noble Lord, Lord Kingsland, has a different view of the right to manage from our own. The amendments introduce the idea that the acquisition of the right to manage could be resisted if it would seriously prejudice the interests of any recipient of a claim notice; that is, a landlord or a manager. No indication is given of what is meant by "serious prejudice". This means that it would be entirely open to a landlord to make all kinds of spurious claims and thus force the RTM company to seek a determination from the leasehold valuation tribunal on whether the prejudice was serious enough.
Our view is that the right to manage is necessary to redress the existing imbalances in the leasehold system. Where a block of flats is predominantly leasehold, the leaseholders will hold the majority stake in the block. The landlord, with his minority stake, will often control the management and, too often, will do so without adequate regard to the interests of the leaseholders. We do not think that that is right. We intend that leaseholders holding the majority stake in a block should be able to take over its management. The qualifying rules in the Bill will reflect this, setting a number of simple, factual criteria and thresholds which must be met.
The amendment would move significantly away from the philosophy which underlines the right to manage. Once again, the noble Lord, Lord Kingsland, is seeking to give the minority interests of the landlord unfair and unmerited protection at the expense of the majority interests of the leaseholders by introducing subjective criteria which would necessarily lead to delay, dispute and uncertainty within the acquisition process. I am afraid that we cannot support the amendments.
Our attitude towards Amendments Nos. 127 and 140A is rather different. I believe that both seek to achieve the same end. Each wishes to ensure that the right-to-manage company can be removed if it fails to do its job properly. This would be done by making an application to the leasehold valuation tribunal for an order that the right to manage should cease.
Given that the amendments do not say anything to the contrary, I assume that if the leasehold valuation tribunal agreed to cessation, it would be on the basis that the management reverted to where it was before the acquisition of the right to manage. We entirely

823
agree that it should be possible for the right to manage to be taken away where the right to manage company persistently fails to do its job properly. However, the Bill already provides for that. By virtue of paragraph 8 of Schedule 7, any affected party, including a landlord, can apply to the leasehold valuation tribunal for replacement of the RTM company under Part II of the Landlord and Tenant Act 1987. Replacement under Part II of that Act can take place on a number of grounds. The first is a failure properly to carry out management obligations. In that respect, the approach taken in this legislation duplicates that proposed in the amendments. Part II goes further and also allows replacement on the basis of unreasonable service charges and on the basis of failure to comply with standards set down in the approved codes of practice. I should add that Part 2 of Schedule 11 to this Bill would add the further ground of the levying of unreasonable administration charges.
The grounds on which replacement of the RTM company can take place under the Bill as it stands are broader than those proposed in the amendments. We think that that is right. It will ensure that the RTM company, as manager, is treated in the same way as landlords who will be outside of the right to manage.
The noble Lord, Lord Kingsland, referred to the voluntary handback of management. That is already provided for in Clause 103(2). Handback will be made in accordance with the terms of the agreement made under that provision.
However, we see some merit in a procedure which would incorporate some aspects of what is proposed. If we understand the amendments correctly, it is suggested that it should be possible for the leasehold valuation tribunal to order that the right to manage ceases. Management arrangements would then automatically revert to the arrangements provided for under the leases. Under the Bill as it stands, on the other hand, the leasehold valuation tribunal can order that management reverts to the landlord but only on the basis of an order made under Part II of the 1987 Act and not on the basis of the normal lease arrangements.
I should like to reflect on the possibility of some kind of synthesis of the two approaches. It will still need to be possible for the LVT to be able to appoint a new manager to replace a deficient RTM company, and we believe that this is best done on the broader grounds provided in the 1987 Act. But there is some merit in the leasehold valuation tribunal having the option to order that the right to manage should cease and that management should revert to the landlord if that is the best option in the circumstances of the case. This could lead to a shorter and simpler order.
I cannot commit the Government to the outcome, but we are prepared to consider that possibility seriously and to bring forward an appropriate amendment at a later stage if possible.
Lord Williams of Elvel: My noble friend has not committed the Government—he said "if possible"—to bringing forward an amendment at a later stage. Does my noble friend accept the principle of the amendment
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of the noble Lord, Lord Kingsland? If he does accept the principle, then clearly an amendment will be forthcoming.
Lord McIntosh of Haringey: I said that the Bill already provides for what the amendments of the noble Lords, Lord Kingsland and Lord Goodhart, seek to achieve. I have acknowledged that there may be a way of providing a synthesis between what the Bill achieves—and the Bill will work as it is, let me make that clear—and what the amendments seek to achieve, which could cut some corners and provide for a shorter and simpler procedure. That is what we are willing to explore. There is no concession in saying that we agree with what the amendments seek to achieve because the Bill already provides very largely for that.
Lord Kingsland: The Minister appears to be in an uncharacteristically emollient mood, from which I am delighted to be the beneficiary. I look forward with keen anticipation to the Report stage, when I expect the Minister will table his compromise.
Lord McIntosh of Haringey: I hope that we will be discussing matters before that.
Lord Kingsland: Even better. So far as concerns Amendments Nos. 123, 124 and so on, I was sad to hear what the Minister said, but not at all surprised. This issue is a re-run of what was quite fully discussed in the Grand Committee and at the Report stage of the previous Bill. I shall reflect on the need to bring the matter back at the Report stage of this Bill and on whether to divide the House. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 124 to 126 not moved.]
Clause 82 agreed to.
Clauses 83 and 84 agreed to.
3.45 p.m.
Clause 85 [Deemed withdrawal]:
Lord Goodhart Lord Goodhart moved Amendment No. 126A:
Page 42, line 16, leave out "claim notice is deemed to be withdrawn" and insert "tribunal may, on the application of any person specified in section 84(2)(a) above, make an order declaring the application to have ceased to have effect on such dates as may be specified by the tribunal"
The noble Lord said: This is the next instalment of the Law Society group of amendments. The effect of the Bill as it now stands in. Clause 85 is that if the RTM company has given notice that it wishes to take over management but then receives a counter-notice under Clause 82(2) alleging that, by reason of a specified provision under this chapter, it was not entitled to take over the management, then, if no application is made within a period—
Lord Williams of Elvel: I am grateful to the noble Lord for giving way. As I understand it, my noble friend Lord McIntosh made an offer to the noble Lord, Lord Goodhart, and to the Law Society to have

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a meeting between now and Report stage to discuss many valuable amendments. No doubt, the amendments may or may not be accepted, but at least there could be discussion other than in Committee, which is rather difficult. I hope that the noble Lord, Lord Goodhart, has taken the offer of my noble friend Lord McIntosh in good heart—I mean no pun—and will accept that amendments which are tabled late are best discussed off the floor of the Committee.
Lord Goodhart: I am grateful to the noble Lord. My understanding was that the noble Lord, Lord McIntosh, was suggesting that the discussion should apply to the amendments to the parts of the Bill that were discussed last week in order to avoid bringing them back at Report stage. I did not realise that he was suggesting that these amendments tabled for the Committee stage should not be dealt with. I hope that it will be possible to deal with them very shortly. It would be helpful, among other matters, to get the reaction of the Minister.
The effect of Clause 85 as it now stands is that if no application is made within two months of receiving the counter-notice, or if an application is made but withdrawn, then the claim notice is deemed to be withdrawn. The view expressed by the Law Society—which, in my experience, is correct—is that "deemed withdrawal" provisions of this kind are counter productive because they do not protect tenants. In effect, they tend simply to frustrate otherwise valid claims, which can lead to a proliferation of what might be called "satellite" litigation. RTM companies may come forward and say, "We should not have been struck out" or "There is some defect in this clause".
The Law Society compares these provisions particularly to the automatic strike out provisions which were a part of the old county court rules. Those provisions had to be abolished because of the hardships they caused to claimants. I beg to move.
Lord McIntosh of Haringey: I am grateful for that explanation. I confess that we did not fully understand what the amendments were about until we heard what the noble Lord, Lord Goodhart, said.
I should perhaps outline why we have the provisions in Clause 85 and why we consider them to be necessary. Clearly the noble Lord, Lord Goodhart, is doubtful about the benefits of deemed withdrawal provisions.
Clause 85 sets out the circumstances in which a claim notice to acquire the right to manage is deemed to have been withdrawn. The first circumstance is that the landlord has alleged that the RTM company is not entitled to acquire the right to manage, but the RTM company then either fails to apply to a leasehold valuation tribunal for a determination on the matter within two months, or makes such an application and then withdraws it. The other circumstance is that the company ceases to function—for example, where it is wound up.
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We believe that it is important to have deemed withdrawal provisions. If they were not there, a claim notice could continue in force indefinitely. Let us say, for example, that the RTM company receives a counter-notice which rightly states that it is not entitled to acquire the right to manage. The RTM company then decides, as it knows it will lose, that there is no point going to the leasehold valuation tribunal for a determination and just walks away, but without withdrawing the claim notice. Alternatively, let us say that the right-to-manage company is wound up. In that circumstance, there is no company left to pursue the claim and there is no company left to withdraw the claim.
Let us now assume that, following either scenario, a new group of leaseholders, a few years down the line, wish to acquire the right to manage. They serve a claim notice on the landlord but are told that there is already an existing claim notice in force and therefore, by virtue of Clause 80(3), their new notice is not valid. If we understand the amendments correctly, leaseholders would have to go through the bureaucracy and delay of applying to a leasehold valuation tribunal to have the old notice cancelled. The deemed withdrawal provisions are complemented by Clause 84, which provides for voluntary withdrawal. I believe that both provisions are necessary.
We recognise the good intentions behind the amendments, but in practice they would complicate matters. We should prefer to retain Clause 85 as it stands. However, we shall reflect on the comments made by the noble Lord, Lord Goodhart, and consider whether there is a better balance to be struck. I hope that on that basis the noble Lord will feel able to withdraw his amendment.
Lord Goodhart: On that basis, no doubt the Law Society, if it discusses these matters with the Minister, can use its persuasive powers if it believes that the matter should be taken further. In that case I am happy and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 126B not moved.]
Clause 85 agreed to.
Lord McIntosh of Haringey: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Sheep and BSE
3.51 p.m.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty): My Lords, with the leave of the House, I shall now repeat a Statement made by my right

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honourable friend the Secretary of State for Environment, Food and Rural Affairs in another place. The Statement is as follows:
"I am grateful to have been given the opportunity to put Members in the picture about research into scrapie and the theoretical possibility that scrapie might mask BSE in sheep. This work is being undertaken through a variety of different research projects at different institutes of excellence. I would also like to address the significance of the experiment undertaken at the Institute of Animal Health (IAH) on the so-called 1990 scrapie brain pool, which was due to be reported to the Spongiform Encephalopathy Advisory Committee (SEAC) last Friday.
"The UK and my department are in the forefront of European research to understand the incidence of scrapie in the national sheep flock, and whether the theoretical risk of BSE in sheep is a real one. The IAH research is merely one of a number of projects. Those on more recent brains are more important, and so far BSE has not been found. But more work needs to be done, and that is why a couple of weeks ago we took steps to ensure that more brains are offered for testing. We need to keep this issue in its proper perspective.
"We have known since the experiments began that there were some doubts about whether the brains—which were collected a long time ago for a completely different experiment—were cross-contaminated with bovine BSE material. As results began to emerge from the experiments, it became critical that we resolved the issue of cross-contamination with as much clarity as possible. That is why DEFRA—in consultation with SEAC and others—commissioned the DNA testing work at the Laboratory of the Government Chemist (LGC).
"The DNA results were presented to DEFRA by the LGC last Wednesday afternoon. The finding that there was no sheep material in the sample sent to the DNA lab was a totally unforeseen development. Government's responsibility in these circumstances is two-fold: first, to establish the facts as quickly as possible. The most obvious question which sprang to mind was whether the material analysed by the LGC was actually the same as that used in the experiment. To put it somewhat brutally, would the sample which should have been sent to the LGC be discovered at the back of the fridge in some dark corner of the Institute for Animal Health? We needed to establish the facts.
"I immediately asked for an independent risk assessment company to perform a detailed audit of the IAH experiment including how these homogenised samples were stored and handled. As the company is already familiar with the IAH project, it is aiming to report its findings within a week or so. We have also asked the UK Accreditation Service (UKAS) to undertake to a longer time-scale a vigorous assessment of the chain of custody arrangements for the IAH experiment.
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Only at around 6 p.m. on the Wednesday evening did we receive information suggesting that the sample sent to the DNA lab was indeed representative of that brain pool. But we still do not know this for certain. We will not know the full facts until the audit team has reported.
"Second, to share these emerging findings with the public, let me emphasise that at that stage the only question was not whether we should make this public, but how and when. It was already clear that the SEAC meeting planned for Friday could not now take place, since this was the only item on the agenda. Accordingly, the chairman took the decision to cancel it.
"I took the decision, against the advice of my press office, that rather than wait to have a properly staged press briefing the following morning, we should make a statement as soon as possible about what we knew for certain. I will tell the House bluntly that I was convinced the information would leak, and I did not want the slightest hint of a cover-up. In fact, I looked unsuccessfully for the chair of the EFRA Select Committee that evening in order to update him and correct information I had given him, in good faith, earlier that day.
"A press notice was duly sent to PA after we had observed the ordinary courtesies of consulting those involved and who might be asked to comment on it, including SEAC and the Food Standards Agency. In other words, a statement was made the same day and within a few hours of Ministers being t old what was thought to have occurred.
"Let me say one other thing about the suggestion that we were seeking to suppress this information. We are all mature politicians. I invite the House to consider what in fact I had to suppress. This research was commissioned by MAFF. It was not carried out by the department. The cross-check which revealed these problems was also commissioned by my department as a 'belt and braces' measure. Of course there was embarrassment and delay among those involved with this work, but there was no embarrassment or dismay for the Government—only a very real concern as to where we would go from here, and a real anxiety to treat carefully and seriously an issue which is of great sensitivity.
"I understand the phraseology of one part of the press release—which I wrote—is thought to have been obscure. But of course, at the time it was drafted we knew the results of the cross-contamination check and we had been told it was thought that this came from the same material as that used in the experiment; but I could not feel confident of what weight I should give to each piece of advice given the very short time for checks to be made. This entire issue rests on the handling of samples and the keeping of records. In consequence, it seemed to me right to say, as we did, simply that the validity of the sample had been called into question. There was absolutely no intention to conceal or to mislead. There was little press interest

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or follow-up afterwards, but then being told that an experiment may be inconclusive does not always excite the media.
"What is important is what this experiment could mean or have meant. It is not going to give us a definite answer as to whether or not BSE is in sheep today. Indeed, there are other scientists who are not yet convinced that it would have told us even whether BSE was present in sheep in the early 1990s. All that this work could have done was to reduce some of the uncertainties and add to the little we currently know.
"On scrapie generally, my department is working closely with the FSA to introduce, early next year, an abattoir survey to test for scrapie approximately 20,000 sheep annually aged over 18 months. This will cost the UK around £5 million and be part of an EU-wide programme designed to give information on the incidence of scrapie in the EU. This week's Agriculture Council in Brussels will be reviewing this programme which, for both cattle and sheep testing, will cost the UK over £50 million next year.
"Although useful, I must warn this House that the results of the sheep abattoir survey may not prove conclusive. A similar survey commissioned by the Government two to three years ago on nearly 3,000 abattoir sheep brains identified no scrapie cases at all. I would certainly be prepared to examine carefully the case for doing an even larger survey. However, my department's BSE in Sheep Contingency Plan, published on 28th September, estimated that testing all 20 million or so lambs entering the food chain could cost £400 million annually, and questioned whether even such a huge survey would detect scrapie in lambs even if it was there. Testing all older cull sheep would also cost a huge amount. I do urge Members to study that contingency plan document if they have not already done so. We would welcome comments.
"Around 500 to 600 scrapie cases are reported in Great Britain each year. My department is funding a great deal of work to look for BSE in these cases. It is difficult work, at the forefront of science, and scientists do not always agree on particular aspects. The two methods for distinguishing BSE from scrapie are, however, through passage of sheep brain into genetically selected mice, and through molecular means.
"I must emphasise that all of this work is at the very forefront of science. We are talking about research being conducted at the leading edge of scientific experimentation. We are not talking about research that gives simple 'yes' and 'no' answers. I have asked for the most thorough review of the range of scientific studies presently being undertaken into this complex and difficult area, and I will make this available to the House.
"I would also like to inform the House that, for several months, we have been working on proposals to take the necessary powers to introduce compulsory genotyping of sheep. Although the
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current voluntary scheme has made a positive start, it would take 15 years or more to achieve a scrapie-resistant breeding flock, and we cannot wait that long. We have always envisaged that we would eventually need to make the scheme compulsory. So I can today inform the House that we will shortly be introducing legislation to enable us to ensure that all sheep are genotyped and that we have powers to slaughter or castrate those found not to have an acceptable genotype. We would of course fully consult with industry and other interested parties before introducing detailed arrangements for compulsory genotyping.
"The legislation will go even further than this. As well as enabling us to accelerate the programme of breeding resistance, it will give us the powers we need if it were ever to be established that there was BSE in sheep, in particular slaughter powers to deal with disposal in an orderly way. Of course the House will want to give this proper scrutiny. I hope it will have an opportunity to do so in the very near future.
"We have been open and transparent in all our research into BSE, overseen by the independent Food Standards Agency and our advisory committee, SEAC. FSA advice remains unchanged. There is no reason why consumers should not eat sheepmeat. We will continue actively to promote research to reduce risk, theoretical or not, and to put all our research in the public domain."
My Lords, that concludes the Statement.
4.2 p.m.
Baroness Byford: My Lords, I thank the noble Lord for repeating the Statement made in another place a few minutes ago. I would first ask the Minister why the Statement was not made last week. There was an opportunity to make the Statement on Thursday but it was not made then. Indeed, we had a mini Statement, which was made in response to the report of the noble Lord, Lord Haskins. That in itself is important, but this is obviously of major importance. Why was the Statement not made at the first opportunity, which would have been last Thursday?
Secondly, I understand that the press release announcing this problem was made at 10.30 on Wednesday evening. How could the Secretary of State, as I understand she did, have written to my honourable friend Peter Ainsworth days before, if in fact the news was not known until just before she announced it at 10.30 on Wednesday evening? Can the noble Lord also explain what difference the Government consider there to be between a Statement and a mini Statement? Last Thursday a mini Statement was made on the report of the noble Lord, Lord Haskins, to which we did not have a chance to respond in this House. There is a matter of protocol in relation to our knowing what will happen in the future regarding Statements and mini Statements. It is something that we should clarify today if possible.
I turn to the Statement itself. It has been said that we have known for some time that there was doubt as to whether the right brains were being used. If there was

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some doubt that there might be cross-contamination, when did the Government know about that? What action was taken? Why did DEFRA, in consultation with SEAC, not go to the core of the matter and find out exactly when the problem arose?
I gather that it was at about six o'clock on Wednesday evening that information was received suggesting that that which had been sent to the DNA laboratory was a representative sample of the brain pool, but DEFRA still did not know for certain when that was. 'When will it report? I understand that the matter is to be the subject of audit. When will that take place?
I understand from the Statement that it was decided that the announcement would be left and that there was not a cover-up. Many of us are very concerned that, by not making a Statement, a cover-up has in fact happened. The Statement itself goes on to say that there was little press interest following the announcement by Margaret Beckett. We are then told that the experiment may not be conclusive and that it does not always excite the media. Do the Government read the news? Certainly in the past few days the press reports have highlighted this problem, and it does indeed look as though there has been a cover-up.
We acknowledge the fact and are pleased that many of the 3,000 abattoir sheep brains have indicated no scrapie cases at all. Contingency plans published on 28th September estimate that the testing of the some 20 million lambs or so entering the food chain might cost £400 million annually and question whether that would be feasible. The date of 28th September brought to mind the fact that Elliot Morley made an announcement that day, saying that in all matters relating to BSE and animal health the Government's handling had been open and transparent. I question that. On the same day Mr Morley also announced that it was a possibility that all the sheep in the country might have to be culled. Does it not seem very strange that various announcements and suggestions have been made, and yet there has been no open statement until today?
I accept that it is too early for us to have firm conclusions from the experiments that are going on. However, does the noble Lord agree that Professor Bostock said almost a year ago that he was concerned that there might be a mix-up between the brains being tested? If there was concern, why did nothing happen until just recently? Either there was concern and the Government took action, or the Government were not aware of the need for action; in which case it begs the question as to how MAFF was running its department.
Another statement was made that British baby food did not contain British lamb. I should be grateful if the Minister would offer clarification on that point. My understanding is that on one day it was said that baby food did not contain any British lamb and the next day the manufacturers said that it did. Can the noble Lord clarify for us whether it is safe for British babies to eat British lamb?
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The noble Lord missed out part of the Statement. It may have been an oversight, but paragraph 12 reads:
"Mouse passage was of course the method being used by the IAH. The mouse passage method has also been used on individual scrapie brains selected over the last 2–3 years. In about 180 cases, the experiments have reached the first point at which, if any of these scrapie cases was BSE, this might have become evident. It has not done so. However, it is too soon to draw firm conclusions from these ongoing experiments that can last several years".
Can the Minister offer clarification? Was it an oversight that he did not raise the matter with us? The plans in hand for breeding gene-resistant flocks are very important. Next year, as we have heard today, there will also be work on extending the scheme to rams of all flocks.
We are grateful for this Statement today. However, it raises many questions and we shall need to look at those questions more carefully later. The most important point to establish is that when costly tests are carried out, they are carried out on the right material. There has been a suggestion that the labelling of the material was at fault, not the tests themselves. Can the Minister elaborate on who is responsible; and how does it work? Is it true that the material being tested by the Institute of Animal Health was supplied by MAFF as the body controlling the handling of all BSE material and the scientific infected material? If the Minister could respond to those points, it would be enormously helpful.
As I say, it was a shame that the Statement was not made last Thursday. I again press the Minister to explain to the House the whole question of Statements, mini-Statements and PNQs as we on these Benches are concerned that announcements are being made outside Parliament rather than to the House.
4.10 p.m.
Lord Hooson: My Lords, I also thank the Minister for repeating the Statement. He said that we are talking about research being conducted at the leading edge of scientific experimentation. That must be true but it is also at the leading edge of public concern about health in this country. Does he not realise that the Statement discloses a case of monumental negligence if not on the part of an individual, on the part of a group? The Statement states that the Government had doubts whether the brains in question had been cross-contaminated with bovine material. When did those thoughts occur, who had them and why?
The Minister said that finding no sheep material whatsoever in the sample was a totally unforeseen development. How long a period transpired between the Government's doubts and the discovery that there was no sheep material whatsoever in the sample? The public are rightly concerned about this whole sorry episode as it undermines our belief and our confidence in the agricultural scientific establishment on the one hand and/or it undermines our confidence in the civil servants who dealt with these matters. This is a serious episode in recent history. At one stage I farmed and I had responsibility for agriculture within my party. I think I am right in saying that at no stage has there

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ever been a case of BSE found in sheep. That is an important point. Although there is some similarity with the old established disease of scrapie which is found in certain parts of the country, in particular in Scotland, no sign of BSE has ever been associated with it.
As I say, that is an important point. But, had this mistake not been discovered, does not the Minister realise that we might have been faced with getting rid of the whole of our sheep population? That could have constituted an enormous loss to agriculture and done enormous damage to the British economy and to the hopes of the Chancellor of the Exchequer, to put it mildly. A bland Statement of this kind—I do not blame the Minister for the nature of the Statement—does not begin to get to the root of the problem, the public concern and the scientific and agricultural concern about this whole episode.
4.14 p.m.
Lord Whitty: My Lords, as regards the final comment of the noble Lord, Lord Hooson, this was not intended to be, and I hope did not come across as, a bland Statement. It was an attempt to move the discussion away from one of tittle tattle about cover-ups to explaining the full scientific facts. I agree with what the noble Lord and the noble Baroness, Lady Byford, said; namely, that this is not a happy episode as regards the accuracy of some aspects of the recording of the scientific information. However, it also indicates my department's concern that we investigate the possibility of BSE occurring in sheep which, as the noble Lord, Lord Hooson, said, is still a theoretical possibility. There has not been a case of BSE naturally occurring in sheep. Nevertheless, we should investigate that thoroughly. It also shows that if information indicating either outcome comes to light, we should put it in the public arena as rapidly as possible.
The noble Baroness asked why the Statement was not made last week. The timing of the information reaching us has been explained. A SEAC meeting was due to take place on Friday and a Food Standards Agency meeting today before we were in full possession of what the changed advice might be were the experiment to indicate what at one time it looked as if it was going to indicate. The SEAC meeting was cancelled but the FSA meeting was not; it took place this morning. We believed that it was helpful for the House to be given the views of the FSA on the matter—I mentioned that at the end of the Statement—before we went much further. It was therefore important that we completed that process before a formal report was made to the House. My colleague, Elliot Morley, was asked a supplementary oral Question on this issue during Question Time on Thursday. It did not comprise a mini Statement. As far as I am concerned, there is no such thing as a mini Statement; there is either a Statement or a reply to a Question.
Baroness Byford: My Lords, I may have misled the Minister. I refer to the mini Statement made on the
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report of the noble Lord, Lord Haskins. That was the mini Statement to which I referred, not the comments of Elliot Morley.
Lord Whitty: My Lords, coincidentally, the report of the noble Lord, Lord Haskins, on rural recovery was announced that morning and the journalists present at the press conference were given the opportunity to ask questions on the matter we are discussing as by that time it was in the public arena. However, no mini Statement was made either to the House or to the press; it was a clarification of the implications of the Statement that had been made the previous night. We make today's Statement with the full benefit—if "benefit" is the appropriate word—both of having considered what happened and of having had the FSA's opinion on that.
I was unclear about the noble Baroness's comments with regard to the letter to Peter Ainsworth as that was sent on Saturday after the events that I described took place. Therefore, I do not think there is any contradiction there. The noble Baroness also asked when the concern about cross-contamination became apparent to the Government. Clearly, we have always been concerned that the research should have a proper basis. We expected the IAH to check that throughout the experiment. When it became clear that the outcome of the research could have profound effects on our sheep industry and that of the whole of Europe, we wanted to be absolutely sure about that and we therefore commissioned the DNA research in July that was reported on last week.
The noble Baroness also asked how long it would take before the full audit was completed. As I indicated, we hope that it will occur within a week or two but it is a complicated matter that goes back to the beginning of the research and includes labelling and how samples were dealt with right up until last week. However, knowing the capabilities of the firms involved, we hope that the audit will be completed by the date I have indicated.
The noble Baroness also referred to Professor Bostock's comments. At some earlier point during the experiment he sought to check the potential contamination of the sample. The story that emerged this morning is more complicated than it appeared. We shall have to await the results of the full audit to discover the nature of the testing that the Veterinary Laboratories Agency undertook on samples at that point.
As regards baby food, the Food Standards Agency corrected the error made on the "Today" programme by Sir John Krebs; in fact, he corrected himself. The original statement indicated that all British baby food was sourced from outside the United Kingdom. In fact, much of it but not all, is sourced from outside, but some baby food is sourced in the UK and comes from scrapie free flocks.
I should underline that these facts are reassuring to consumers who wish to exercise choice, but as the FSA has said consistently it is not a safety requirement that baby food should be sourced from outside the UK.

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Nothing that the experiment has thrown up changes that advice or any other advice from the FSA, which reiterated at this morning's meeting that there is no need to change it. No advice has been given to consumers to avoid eating sheepmeat.
For the record and for clarification to the House—and with apologies to the two Front Benches—the Statement, which was provided in advance, included two or three paragraphs which the Secretary of State did not use in the final version. The information in those paragraphs is accurate. On the point raised by the noble Baroness, Lady Byford, about the 180 samples of sheep brains that have been analysed using the molecular method, there has been no sign of scrapie at this time. She is therefore correct that the previous draft of the statement is accurate.
Lord Hooson: My Lords, before the Minister sits down, will he say what period of time elapsed between the fears that there had been cross-contamination and the discovery that there were no sheep brains in the sample?
Lord Whitty: My Lords, I said earlier that the department had tried to check the scientists' views, as indicated by Professor Bostock's statement this morning. The department commissioned the research in July, which was reported last week. It is in that period when the testing of our doubts as to whether there was contamination ran.
4.22 p.m.
Lord Hughes of Woodside: My Lords, is it not a fact that concentrating on when and how the announcement was made is trivial compared with the enormity of the grotesque incompetence of at least one, if not two, research establishments? How could a research establishment continue for four years without even knowing what material it was testing? It is absolutely disgraceful. After the Audit Commission report, I hope that we shall not see some poor secretary who did the labelling being reprimanded. I hope that people in the most senior positions in these establishments will be dealt with. There has been enormous damage to our belief in the scientific competence of such research establishments in the food industry. Confidence has been totally destroyed and we can no longer believe them.
Does the Minister not realise the damage done by the scaremongers who now say that we must go through all that process again and that there are still grave doubts about BSE in sheep? Words fail me. There are no decent words in the English language to describe how the matter has been dealt with by the researchers. What are the Government doing to get their money back from these establishments? Or shall we he giving them even more money to repeat their incompetence? I hope that the Minister will understand that the public are thoroughly fed up with the 'way in which these matters have been handled. Firm action needs to be taken by the department against those institutions who are responsible.
Lord Whitty: My Lords, I accept that the credibility of research in general is a major concern, but it is unwarranted. The establishments are centres of excellence in animal research and it is deeply unfortunate that these mistakes have been made. It is also important that the Government try to find out as rapidly and in as much detail as possible how such mistakes were made, why they were made, by whom and who was responsible for them. When we have received the audit report, I assure the House that the Government will take the appropriate action.
It is important to note that had the checking not taken place and the experiment had proceeded, with the apparent result being accepted by the FS.A and ourselves, the position of the sheep industry in the UK and Europe would have been catastrophic. By conducting that check, the Government have at least saved us from that disaster. It is now important that we take measures to ensure that such mistakes do not happen again.
The Earl of Shrewsbury: My Lords, on a slightly happier note, may I assure the noble Lord, Lord Whitty, that as a pedigree sheep fanner, I, like many others, will very much welcome compulsory testing of the national flock for the scrapie gene. I wonder whether the noble Lord can say what kind of time scale is envisaged for the completion of the testing of the national flock, and at what cost. Will compulsory compensation be made available for the genetically at risk sheep that will have to be culled under such rules?
Lord Whitty: My Lords, the plans for the national scrapie scheme were announced in July. It was our intention to move as rapidly as possible, but it takes many years to breed the scrapie propensity out of a sheep flock. There will be compensation for compulsory destruction of animals, which is a necessary part of the plan. Otherwise, the situation that is already partly the case will continue, where there is under-reporting of scrapie. The genotyping of all sheep is beginning. The ultimate means of getting away from the suspicion that scrapie hides susceptibility to BSE is to create a national flock that is completely free of scrapie.
Lord Campbell-Savours: My Lords, should we not concentrate our minds on the question of confidence and the national market for meat within the United Kingdom? In so far as the introduction of a traceability scheme for beef had a major effect on confidence in the beef market, will my noble friend say what developments have taken place in that respect for sheep and sheep flocks?
Lord Whitty: My Lords, in advance of the national scrapie plan, and in response to both this situation and that arising from the need to control movements as a result of foot and mouth, we shall be introducing a traceability scheme for sheep within the UK flock. We shall do that in stages, which the technology dictates. It is our intention to ensure confidence that the animal is what it is said to be, and that the susceptibility to

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disease can be traced back. We need to re-establish the pre-eminence of British sheep and British meat in general throughout the world.
The time-scale on that is much faster than the introduction of the full national scrapie plan, which obviously depends on the pace of breeding.
Lord Soulsby of Swaffham Prior: My Lords, the House will be grateful to the noble Lord for giving his Statement today. We all admit that the mistake represents a waste of effort and time, but every cloud has a silver lining. It came to light before horrendous decisions had to be taken as to whether to cull the whole of the sheep flock of this nation.
The other silver lining is that no doubt the study has contributed to the epidemiology by surveillance of prion disease in cattle, even though we thought that it was for sheep. Are Her Majesty's Government intent on repeating the study with greater safeguards to ensure the correct source of brains? I concur with the Minister that it is not the technology of detecting prions that is faulty. We are world leaders in our ability to detect prions in brain material. The problem is the adequacy of records of the material.
On a wider basis, the Veterinary Laboratories Agency is under one authority and the Institute for Animal Health is under another. Reports and studies in the past have recommended that the two bodies be brought together under a single authority so that such problems do not arise. Is it time for the Government to reconsider whether bodies doing work of such national importance should work under a common authority?
Lord Whitty: My Lords, on the first part of the noble Lord's question, my department and the chief scientists are urgently looking at what further research is needed in addition to the ongoing research that has already been commissioned, which, as I said, has shown no scrapie in the 180 brains tested in the more recent period. It is true that we are at the forefront of developing testing techniques, but the testing needs to be fully validated by independent external means, so we cannot totally rely on molecular testing. All avenues of research need to be considered.
As to the institutional point, the VLA is an agency of my department, whereas the IAH is an independent institute. I do not immediately draw the conclusion that they should be merged or brought under the same authority. Some form of arm's length relationship is normally quite helpful. Unfortunately, in this case it appears not totally to have worked, but I am not sure that that undermines the general view that we have to have different sources of expertise, not necessarily under the same managerial or political control. However, the Government will have to examine that issue and many others as a result of this unfortunate case.
Baroness Gibson of Market Rasen: My Lords, how many examinations of sheeps' brains have taken place using molecular methods?
Lord Whitty: My Lords, since November last year, the VLA has screened a total of 465 scrapie-infected
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brains and none has given results indicative of BSE. As I have just said, that needs to be validated externally, but it is an encouraging result.
Baroness Carnegy of Lour: My Lords, one of the points that the House is concerned about is why farmers were very nearly subjected to a cataclysmic culling of all sheep on false grounds. The third paragraph of the Statement says:
"We have known since the experiments began that there were some doubts about whether the brains—which were collected a long time ago for a completely different experiment—were cross-contaminated with bovine BSE material".
As the noble Lord, Lord Hooson, asked, at what point did the Government become aware of that fact and why did they not stop the experiments at that time? If there was any bovine material in the brain, the experiments were clearly pointless. Did the Government know from the beginning but still tolerate those clearly pointless experiments?
Lord Whitty: My Lords, because those samples of brain—had they been the ones they were thought to be—were collected for an entirely different purpose, it was never absolutely clear that they would be 100 per cent uncontaminated. Nevertheless, the assumption must be that were they to show a serious increase in the probability of BSE, some change in the risk assessment of the BSE position would have to be made. As it became clear earlier this year that the likely outcome of those experiments would be that there was some increased probability—that was in part put in the public arena back in August—the Government were very insistent that we needed to be absolutely clear that that contamination was not significant enough to change those results. That is why back in July we commissioned the cross-checking to which I referred.
Lord Lea of Crondall: My Lords, on the procedures involved, can my noble friend say something more, even at this early stage, about the steps being taken to make sure that such a mix-up cannot happen again?
Lord Whitty: My Lords, there are two aspects. First, there will be a thorough and rigorous audit. It needs to be absolutely clear how samples are checked when they come in, how they are labelled, how they are handled, who handles them and what is the record process of any institute that deals with them. If that is shown to be wanting and the main problem is administrative, procedures will have to be put in place in every laboratory used by the Government, or anybody else, for such experiments.
However, it may also become apparent that the nature of the experiments is not the most appropriate to establish whether there are TSEs in sheep or other species and that another scientific base is needed. My department, the Chief Scientist and people across Whitehall are addressing what other experiments will be needed to establish the facts in this case.
Lord Palmer: My Lords, will the Minister give the House a rough idea of when we might expect the audit report?
Lord Whitty: My Lords, I have said that the first stage of the audit report, which should indicate the main administrative issues, should be with us in a couple of weeks. The more detailed report will take somewhat longer.
Baroness Mallalieu: My Lords, I wonder whether the Minister can tell me whether I have correctly understood the time-scale and sequence that he has described. As I understand it, there was some doubt from the outset as to whether the samples might have some contamination, but only in July was it decided that some cross-checks were necessary. They were then commissioned and the results given last week. If that is right, why did Mr Elliot Morley from the department make an announcement in September, putting forward the possibility of the slaughter of the whole national flock? Given the state of livestock farming at the moment, the lack of confidence in the industry and among farmers and the widespread belief that it is the Government's unstated intention to bring about a drastic reduction in the national flock and given that that Minister must have known that there was a doubt underlying the whole experiment, that seems to have been an unwise course. Have I correctly understood the sequence?
Lord Whitty: My Lords, my noble friend has understood the dates but not the channels whereby we came to these issues. The announcement on 28th September related to our response to the Phillips inquiry on BSE. One of the inquiry's main recommendations for the future was that the Government should prepare a contingency plan should BSE emerge in sheep or other species as it did in cattle. We therefore included in our response to the Phillips inquiry the details of our contingency plan to cover such an eventuality. Various gradations were included in the contingency plan, as they would have been in response to any authenticated evidence that emerged from the experiment. It would not necessarily have meant the slaughter of the whole flock. That is the extreme example covered by the contingency plan. Clearly, the kind of contingency plan that Phillips envisaged would need to cover all such contingencies. That is what it did.
The Government have no hidden plan to destroy the UK sheep flock. In the wake of foot and mouth and market developments, an assessment clearly needs to be made of the future viability of the sheep flock by commercial decisions and by Government and EU policy. No doubt those will have an influence. However, that has nothing to do with the contingency plan to deal with what would be the horrendous impact of BSE being found in sheep. As the House required when we discussed the outcome of the Phillips report, such a contingency plan forms part of the fulfilment of our commitment to that report.
Baroness Noakes: My Lords, perhaps I may ask further questions about the audit that has been commissioned. A moment ago we heard about the time-scale within which it is being reported. Cart the
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noble Lord confirm the terms of reference of the report? Will it be confined simply to administrative matters or to the scientific basis on which the organisations were operating? Can he say precisely which organisations are to be covered by the audit? And can he confirm that the reports—both the short-term and the long-term ones to which he referred a few moments ago—by the auditors will be made public immediately they are available?
Lord Whitty: My Lords, the risk assessment audit will look immediately at what we can say about the sequence of events and the administrative procedures. In addition, we have asked the United Kingdom Accreditation Service to look, over a longer time-scale, at the issues which lie behind those events and procedures. In both cases, the audit trail will cover all institutions involved in the sequence.
As to whether the reports will be made public, as I said in answer to my noble friend Lord Hughes, clearly, the Government may need to take action following receipt of the reports, and that will be reported to the House.
Lord Bruce of Donington: My Lords, is my noble friend aware that the term "audit" is a very wide one and covers a variety of matters? Will he give the House an assurance that the precise details of the matters to be covered by the audit will be made available? In that way, its scope may be perceived as being particular and accurate and not as containing, as some audit reports do, a lot of wild generalities under which a number of people can shelter.
Lord Whitty: My Lords, I cannot imagine to which audit reports my noble friend refers. However, the institutions which report to the UK Government are very thorough and are clearly described in remit. Discussions with the two organisations which are conducting these audits have yet to be completed and, therefore, the precise terms of reference have yet to be finalised. They will address the issues to which I have referred. Should my noble friend be interested, I can write to him and to other noble Lords about the final terms of reference.
Lord Chalfont: My Lords—
Baroness Farrington of Ribbleton: My Lords, the 20 minutes for questions are now complete.

Commonhold and Leasehold Reform Bill [H.L.]
4.43 p.m.
House again in Committee.
Clauses 86 and 87 agreed to.
[Amendment No. 127 not moved.]
Clause 89 agreed to.
Clause 90 [Duties to give notice of contracts]:
Lord Kingsland Lord Kingsland moved Amendment No. 128:
Page 46, line 8, at end insert—
"(8) Unless the contractor party and the RTM otherwise agree in writing within a period of 28 days after service of a contract notice, the management contract shall continue in full force and effect from the acquisition date as if it had been made between the contractor party and the RTM and not with the manager party, save that the RTM shall have no liability under it for breaches on the part of the manager party occurring prior to the acquisition date."
The noble Lord said: In my submission, if this amendment does not become part of the Bill, there will be potential for injustice to the contractor party. Contracts will have to be renegotiated, and the landlord or contractor may be left with substantial claims or onerous liabilities as a result of nonperformance or breach arising out of the actions or inactions of the RTM. For example, let us consider a cleaning contract which provides continuing services over a fixed period. The contractor has priced it on the expectation that the contract will continue for that period. The RTM may have other ideas but would be able simply to refuse to allow the contractor to continue and refuse to pay for services already rendered. As a consequence, the contractor may well suffer serious losses. He would seek to recoup those losses by suing the landlord management company, which is bound—
Lord Williams of Elvel: I apologise for interrupting the noble Lord, Lord Kingsland. Is he also speaking to the other amendments in the group, including his opposition to the Question whether Clause 90 stand part, or is he degrouping the amendments?
Lord Kingsland: At the moment, I am speaking to Amendment No. 128.
Lord Falconer of Thoroton: The group includes Amendments Nos. 128,129 and 130 and the Questions whether Clauses 89 and 90 stand part. I assume that that is the area that we shall now debate.
Lord Kingsland: Is the noble and learned Lord suggesting that I am not addressing myself to Amendment No. 128?
Lord Falconer of Thoroton: No, I was simply indicating the contents of the grouping. The noble Lord appears to be saying that he is addressing only Amendment No. 128. If he will indicate what group he believes that he is addressing, that will clarify the issue.
Lord Williams of Elvel: The grouping starts with the Question whether Clause 89 stand part.
Lord Kingsland: I continue. I say again that the contractor may well suffer serious losses. He would seek to recoup those losses by suing the landlord management company, which is bound by the contract but has been statutorily deprived of the means to perform.
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The other side of the coin concerns the contractor who takes the opportunity of the appearance of an RTM to break a contract which may have been entered into following approval by the LVT on the application of the tenant on the basis that, as the RTM is not a party to the contract, it cannot enforce it. The Contracts (Rights of Third Parties) Act 1999 is unlikely to be of any assistance as the RTM did not exist at the date that the contract was entered into. Such a contractor would hike his prices accordingly. Clearly there must be an opportunity to agree a parting of the ways or suitable variations while enabling and compelling the RTM to step into the shoes of the previous manager if no agreement can be reached.
Members of the Committee will recall that this and connected matters were debated at great length in the Grand Committee and, I believe, to a lesser extent on Report. The noble Lord, Lord Whitty, who spoke for the Government at the time, freely and honestly admitted perplexity in the face of the problem. If my memory serves me correctly, he said that he would reflect on the matter and perhaps return with some further thoughts on it. I do not know to what extent the Government have had such thoughts over the summer break. However, I hope that at least they will accept that there is a real problem here which requires more specific confrontation than exists on the face of the Bill. I beg to move.
Lord Goodhart: We and the noble Lord, Lord Kingsland, take very broadly the same view on this matter. It became apparent in earlier debates that there was a good deal of uncertainty about the effect on management contracts of the takeover of management by an RTM company. It appears that the Government assume that all management contracts will be terminated by frustration. It will of course then be open to an RTM company to enter into a new contract with the same supplier of services, but the RTM company may have to renegotiate the terms and the supplier may wish to discontinue the supply.
We believe that such an outcome is neither necessary nor desirable and that the correct principle to apply is that management contracts should be novated. That means that the RTM company should step into the shoes of the landlord. It is entitled to the services of the contractor party under the contract and it is bound by the obligations of the landlord under the management contract. Under the law, contracts cannot be novated without either the consent of the parties on the one hand or a special statutory provision on the other.
Our amendment and that of the noble Lord, Lord Kingsland, propose that there should be such a statutory novation. We see no reason why a contract to, for example, service a boiler in a block of flats, clean the common parts or maintain a garden, should be terminated by the switch in management from the landlord to the RTM company. That is potentially unfair to both sides. A porter or gardener who provided perfectly proper services, whether as an employee or an independent contractor, should not have his contract discharged by frustration. Equally,

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the RTM company should not lose the right to the benefit of the contract for services if the provider of those services thinks that it could get better terms by renegotiating the contract. We therefore suggest that the RTM company should become the successor to the landlord.
However, we recognise—in this respect, our amendment may be preferable to that of the noble Lord, Lord Kingsland—that the landlord may have entered into what Americans describe as a "sweetheart contract", pending the transfer of management. For that reason, we believe that a limited right for the RTM company to cancel the contract is needed. We propose that that should be capable of being exercised where the contractual charges under the contract are excessive, where the services that are provided are not required or where the provider is not a fit person to provide those services, either because he lacks qualifications or perhaps because he may be too close an associate of the landlord.
Lord Williams of Elvel: I shall speak to Amendment No. 130, which is, so far as I am aware, part of the group that is before us. It touches on the same subject that the noble Lords, Lord Kingsland and Lord Goodhart, raised. We are concerned that the Bill's current wording does not make it entirely clear what would happen to existing contracts at the handover of management. The amendment is designed to state, to be frank, what I believe are the Bill's intentions.
Further clarification is also necessary in the case of frustrated contracts. We assume that the law of contract will enable contractors to recover frustrated commitments against capital expenditure. When the unexpired term of the contract includes recovery of the capital already expended, they will be able to do the same. I hope that my noble and learned friend will be able to respond positively.
Lord Falconer of Thoroton: This is an important issue, in relation to which three points of view are possible. The first, which is in the Bill, is that the normal law should take its course. The second view is espoused by the noble Lords, Lord Kingsland and Lord Goodhart, who, in slightly different ways, want to force the old contract on to the RTM. The third view is that of my noble friend Lord Williams of Elvel, who states that the arrangement should be null and void in every case once RTM has been passed or accepted as the way forward. I shall set out what I submit is the current position under the Bill and then deal with the conflicting propositions.
There was some confusion about this issue when it was discussed during the Committee stage of the previous Bill. Where a party to a contract is placed by events that are outside his control in the position of no longer being able to fulfil his obligations or role under that contract, the normal effect of contract law will be that that contract falls as frustrated. That is effectively what the noble Lord, Lord Goodhart, said. One such case is that in which the operation of law intervenes to prevent someone from being able to fulfil his part of a contract. Whether that will happen with RTM companies will depend on the facts of each case.
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Leaseholders have the right to take over management, subject to having met the qualifying rules. A landlord will not be able to prevent a qualifying group from doing so. Acquisition of RTM is therefore a compulsory, not a voluntary, transaction. Furthermore, Clause 95(2) provides that, following the acquisition of the right, the landlord cannot continue to exercise any of the duties that have become "management functions" of the RTM company. Operation of law will therefore mean, for example, that the landlord will no longer be responsible for the maintenance of the property. Frustration may be the outcome. I do not of course suggest that that would necessarily be the position in each and every case. The application of the law of frustration and the law of contract generally will of course depend on the circumstances of the case.
Where a contract is frustrated in the circumstances that I have described, each party to that contract will have the right to recover moneys due to them under it for what has been done up to the point of frustration. The contractor will be able to recover from the other party all sums due for the work that has been done up to the point of frustration. The other party will in turn be able to recover from the contractor any sums advanced prior to that point for works that will not now be carried out. Neither party will have any right to seek compensation for any profits foregone or other such matters as a result of the frustration of the contract. We think that that is both right and fair.
The noble Lord, Lord Goodhart, suggested, during this Bill's Committee stage and during the previous Bill's proceedings, that there would be circumstances in which the employment of a particular contractor, such as a gardener, would transfer to the R.TM company. We agree that that will be the result of employment law, and particularly of the rules that relate to the protection of employment following the transfer of an undertaking—TUPE—rather than of general contract law. As my noble friend Lord Whiny said during the Committee stage of the previous Bill, nothing in the Bill overrides such employment rights; nor would we wish it to do so.
Whether a particular employee or contractor would pass to the RTM company depends on whether the acquisition of the right to manage constitutes a transfer of undertaking for those purposes. As noble Lords know, this is a complex area and the application or otherwise of TUPE will depend on the individual circumstances of the case. However, we are perfectly content that, when it does apply, the employment of the individual in question should be part of the right to manage the company.
The noble Lord, Lord Kingsland, asked today and during our debate on Tuesday what would happen to contractors, such as builders, who repair the property. Clause 94(5) makes it clear that repairs will be one of the management functions of the RTM company where the right to manage is acquired. That will be another function that the landlord will be debarred from continuing to carry out by virtue of Clause 95(2).

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As for maintenance, contracts by which the landlord delegated his responsibilities for repairs would normally be frustrated. I also make it clear to the noble Lord that because repairs will be a matter for the RTM company once the right to manage is acquired, a repair contract of the kind that he described would be a management contract, as defined by Clause 89(2).
I have set out at some length what the Bill's current effect would be—it is important to do so. In effect, its current effect is that the normal law will apply to determine what happens to the contracts after the RTM company takes over.
I now turn to the individual amendments and shall begin with Amendment No. 129, which was spoken to by the noble Lord, Lord Goodhart. He took the view that all contracts should be novated, but without necessarily having the consent of all parties. Such an approach would, on the face of it, have some merits. It would ensure that the RTM company was supported from day one by a network of existing contractors, such as cleaners, gardeners, lift maintenance companies and so forth. At the same time, it would give existing contractors certainty that their services will continue to be required, at least, initially after the management of the block changes hands.
We also recognise that the RTM company will sometimes be perfectly happy to work with the landlord's contractor, and vice versa. Where that is the case, our Bill provides an opportunity for that to happen. Clauses 89 and 90 together make provision for notices to be served to ensure that contractors know that the right to manage is to be acquired and that the RTM company knows who those contractors are. Either side will then be able to initiate negotiations for the RTM company to take over the responsibilities and obligations of the landlord under the contract, thereby allowing it to carry on after the acquisition of the right.
However, this is where we part company with the noble Lord. We do not want to force the RTM company and the contractors into a contractual relationship against their will, and that is the effect of the amendment. Amendment No. 128 in the name of the noble Lord, Lord Kingsland, similarly would require a contractor to carry on a contract if the RTM company will not agree to release him from it, as well as tying in an RTM company if the contractor will not release it. Again, we do not believe that that is the right approach.
There has been some discussion of what is right for the RTM company. We also have to consider what is right for the contractor. He will have contracted with the landlord, and may not want to carry that on, or at least not on the same terms, with the RTM company. We have to allow for that possibility, and to recognise that contractors also need to have rights in this situation to decide what is in their own best interests.
We believe that our approach strikes a fair balance in this respect. The machinery set up by Clauses 89 and 90 allows the contractors and the company to decide in advance of the RTM being acquired whether they
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want to continue a particular contract. It is only where they cannot come to an agreement that contracts may be frustrated by default. We have given careful thought to this, and are satisfied that that is the right approach.
I should also add that to our minds the approach proposed by the noble Lords, Lord Goodhart and Lord Kingsland, would have one further disadvantage in practice. Under the right to manage, a third party appointed manager by the lease would lose the management responsibilities to the RTM company. As noble Lords will appreciate, that is essential in order for the right to manage to work. A third party may also, however, be appointed manager outside the lease as an agent of the landlord. The amendment would automatically preserve the contract of that manager, but not one appointed under the lease. That does not appear to us to be right. Therefore, we do not support Amendment No. 129 in the name of the noble Lord, Lord Goodhart, or Amendment No. 128 in the name of the noble Lord, Lord Kingsland. We also do not support any notion that Clauses 89 or 90 should not stand part of the Bill.
I turn to the amendment tabled by the noble Lord, Lord Williams.
5 p.m.
Lord Williams of Elvel: Unless my noble and learned friend has resigned from the Labour Party, I am his noble friend and he is my noble friend, as the Companion states.
Lord Falconer of Thoroton: I thought I said that the noble Lord, Lord Williams, was my noble friend. If I did not, I profoundly regret not saying so because he certainly is my noble friend.
I turn to the amendment that is tabled not only by my noble friend but also by the noble Earl, Lord Caithness, who is sadly, and surprisingly, not with us. He has shown such commitment to this Bill over many months.
Lord Kingsland: I understand that the noble Earl is in the United States and, therefore, unable to be with us. His absence is not due to any act of forgetfulness on his part.
Lord Falconer of Thoroton: I was genuinely expressing regret because the noble Earl has made significant contributions to the debates on this Bill and the fact that he is not present is our loss.
Amendment No. 130 broadly supports our intentions but the noble Lord and the noble Earl want to see them set out on the face of the Bill. The amendment is fairly stark in that it says that every single contract would be null and void. I am not sure whether that would be correct, although the amendment has clarity on its side. Our policy is that normal contract law will apply. Because it does not say otherwise, the effect of the Bill will be just that. It is not necessary for the Bill to say any more. Indeed, to say any more the Bill would need to say a great deal more.

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Contract law is complex and its effect will depend on the circumstances of the individual case. We cannot say, as the noble Lord and the noble Earl would like, that,
"the rules relating to frustrated contacts shall apply".
We would need to replicate the whole corpus of contract law on the face of the Bill and even my noble friend would consider that to be a problem. Therefore there is no half-way house.
Although we understand and sympathise with the spirit of the amendment, we do not believe that it would be sensible to agree to it. Therefore, I invite the noble Lord, Lord Kingsland, to withdraw his amendment and other noble Lords not to move theirs.
Lord Kingsland: As the Minister has indicated, Clauses 89 and 90 deal with the service of notices relating to management contracts, but do not make it clear what happens to those contracts once a notice has been served. As the Minister knows well from his distinguished practice at the commercial Bar, contracts are about the allocation of risk between the contracting parties. Particularly in the case of long-term contracts, careful consideration has to be given by the contractors to binding themselves over a considerable period of time. If a long-term contract is made with a landlord or with a managing agent and in its early stages is frustrated as a result of the RTM refusing to take it on, that could have severe consequences for the contractor through no fault of his own.
I hear what the Minister says about the normal course of the law, but in this area the normal course of the law of contract is highly unpredictable and often not favourable to the contractor party. Perhaps between this stage and the next the Minister may want to reflect on introducing a longer period of notice than that suggested in the Bill so that at least parties will have an opportunity to consider a whole range of options in the knowledge that the RTM company may not be prepared to take on the obligations of the landlord or the landlord through the managing agent.
A final reflection is that, given that this is now to be the law, it may have an adverse effect on the willingness of contractors to enter into long-term contracts with existing blocks of flats that are not yet managed by an RTM company. Because contractors are faced with the possibility of an RTM company replacing a management agent, they may be chary of entering into long-term arrangements.
In using my right to respond, I have dilated on the subject, but I know that the Minister will continue to cerebrate on the issue between now and Report stage. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 90 agreed to.
[Amendments Nos. 129 and 130 not moved.]
Clause 91 [Duty to provide information]:
Lord Goodhart Lord Goodhart moved Amendment No. 130A:
Page 46, line 17, after "him" insert "in writing"
The noble Lord said: Amendment No. 130A has been grouped with Amendment No. 134A. The amendments deal with entirely different subjects, but as both issues are fairly short it is perhaps convenient to deal with them together.
The present position is that under Clause 91 various people are required, if requested to do so, to give information to the RTM company. The purpose of this amendment is to ensure that the request must be made in writing. It may be that if relations are perfectly good a request can be made orally and will be complied with. In the case of a landlord who is being difficult there is considerable scope for delay and the sowing of confusion by the landlord when told he has not provided information, saying "You did not ask me for that". That is something that will not arise if the request under Clause 91(1) must be in writing. We believe that this should make that clause clearer and more effective.
Lord Falconer of Thoroton: We can cut short the debate. Perhaps the noble Lord will let us bring back an amendment at Report stage that makes it consistent with the other provisions relating to "in writing"?
Lord Goodhart: I am pleased to hear what the Minister has said. Amendment No. 134A deals with the extension of the provisions in Clause 92, the payment of uncommitted service charges to similar payments in relation to collective enfranchise provisions contained in the relevant parts of the 1987 and 1993 Acts. Certainly, we welcome Clause 92 strongly. It is such a good clause that we think it ought to be extended to other fields of operations where it does not yet apply. I beg to move.
Lord Williams of Elvel: Did I understand my noble and learned friend to say that he would be bringing forward amendments at Report stage on the substance of what the noble Lord, Lord Goodhart, has indicated about RTM companies and information they are given'? If that is so, I would spare the time of the Committee.
Lord Falconer of Thoroton: I did. Basically, I conceded the point. The only reason that I am not conceding the amendment is to make the form of the amendment consistent with other parts of the Bill. When reference is made to "information in writing", that is about whether it should say an information notice rather than a request in writing, which is a matter of no substance.
Lord Williams of Elvel: I am grateful. I shall not move the amendments in the group.
Lord Falconer of Thoroton: Amendment No. 134A seeks to apply the provisions on handover of moneys upon acquisition of the right to manage to provisions in other statutes. If accepted, this amendment would cause Clause 92 in our Bill to govern the replacement of a manager under the Landlord and Tenant Act 1987 and the acquisition of the freehold under the

849
Leasehold Reform, Housing and Urban Development Act 1993. We see the logic behind the proposed amendment. We are wary of cross-applications.
We are not aware of problems, in practice, with the handover of moneys under these two statutes. Under the 1987 Act the transfer of management responsibilities will take place in accordance with the order made by the Leasehold Valuation Tribunal. Those orders would specify arrangements for the handover of moneys. As to the 1993 Act, we understand that commonsense arrangements for the hand over of moneys have developed without the need for any statutory provisions.
On the basis of those two points, we are not persuaded that there is a need for a change to those two statutes. We are happy to look further into the current situation and to consider whether, in the light of our investigations, there might be a need for specific provisions and the change suggested. We will inform the noble Lord what our conclusions might be as soon as possible.
5.15 p.m.
Lord Goodhart: I am grateful to the noble and learned Lord, Lord Falconer, for his acceptance of the principle in Amendment No. 130A and his undertaking to look again at the reasoning behind Amendment No. 134A. I beg leave to withdraw Amendment No. 130A.
Amendment, by leave, withdrawn.
[Amendment No. 131 not moved.]
Clause 91 agreed to.
[Amendment No. 132 not moved.]
Clause 92 [Duty to pay accrued uncommitted service charges]:
[Amendments Nos. 133 to 134A not moved.]
Clause 92 agreed to.
[Amendment No. 135 not moved.]
Clauses 93 to 95 agreed to.
Lord Kingsland Lord Kingsland moved Amendment No. 136:
After Clause 95, insert the following new clause—
"MANAGEMENT FUNCTIONS: INSURANCE
(1) Notwithstanding the specific terms of any lease of the whole or part of the building, any person responsible for management functions in relation to the premises shall ensure that the entire building is insured under a single insurance policy.
(2) Any person responsible for arranging an insurance policy under subsection (1) shall be under a duty to obtain best value for the service charge payers in procuring a suitable policy.
(3) If, in the opinion of any party to a lease, the insurance policy arranged in accordance with subsection (1) does not represent best value for the service charge payers, they may refer the matter to the leasehold valuation tribunal for determination.
(4) Any reference of an insurance policy to a leasehold valuation tribunal under this section shall be supported by an alternative quotation for insurance cover from a recognised and reputable supplier to support the case; and the leasehold valuation tribunal shall not consider any such reference unless it is supported by such an alternative quotation.
850
(5) The duty to arrange insurance under subsection (1) applies notwithstanding the existence of a dispute which has been referred to the leasehold valuation tribunal.
(6) In determining any dispute referred to it under subsection (3), the leasehold valuation tribunal shall take into account—

(a) the extent of cover procured, and

(b) the level of premium payable by individual service charge payers."

The noble Lord said: Amendment No. 136 requires that a building be covered by a single insurance policy regardless of who arranges it. It requires for whoever arranges that policy to provide best value for the service charge paid. The policy offer may be challenged on the ground that it does not offer best value. There must be a policy in place always even if it is subject to challenge.
I spoke to this amendment at considerable length at Grand Committee stage. I do not intend to repeat what I said. The issue is clear enough. The purpose of the amendment is to go beyond the parallel right of the landlord to challenge the RTM company's choice of insurers by adding a requirement for there to be a single buildings policy in force at all times and to require that this policy should represent best value rather than the cheapest option. The amendment provides a mechanism for the landlord or any other party to the lease to challenge an insurance arrangement on the ground that it does not represent best value to service charge payers and offer an alternative and better deal.
It has been argued that, under the existing provisions of the Bill, if the landlord or any other party does not consider the insurance arrangements made by the RTM company to be adequate they are still free to insure the buildings themselves. Inevitably, should they choose to do so they will be liable to bear the whole cost of the extra insurance.
I am aware that there are freeholders who exploit their right to provide insurance by charging excessive commissions, sometimes outrageously so. It is not the intention of this amendment to endorse such individuals or such practices. It is to guarantee that the buildings are insured properly at the best value. I beg to move.
Baroness Gardner of Parkes: Perhaps someone could clarify for me whether this position would apply in a case where part of the premises were commercial. In Australia the significant difference occurs in the rates of insurance for a commercial part and a noncommercial part. If the insurance cover was for one complete building would it affect those in the residential part? Would residents have to pay more? Is this a case where the right to manage would not cover any property that included a commercial part?
Lord Falconer of Thoroton: The question asked by the noble Baroness, Lady Gardner, is one for the noble Lord, Lord Kingsland. I suggest an answer, and I will be corrected. The amendment reads:
"(1) Notwithstanding the specific terms of any lease of the whole or part of the building, any person responsible for management functions in relation to the premises shall ensure that the entire building is insured under a single insurance policy".

851
If, under the provisions of this Bill, there is a 25 per cent or less commercial element then, as I understand the amendment by the noble Lord, Lord Kingsland, the insurance policy that would apply would have to cover the whole building including the 25 per cent commercial part. Inevitably, that would have a financial consequence depending on the nature of the commercial activity. I stand to be corrected by the noble Lord, Lord Kingsland, but he is nodding enthusiastically.
I was sorry not to be involved in the Bill on the previous occasion, thereby missing what has become the legendary speech of the noble Lord, Lord Kingsland, on the single insurance policy issue. However, I agree that the points are clearly set out and that people know what the issues are. As the noble Lord, Lord Kingsland, will recall from Grand Committee, the Government wholeheartedly agree with the principle which lies behind the amendment, subject to the point raised by the noble Baroness, Lady Gardner, but we continue to differ on how to achieve it.
The amendment is in part concerned with ensuring that a block of flats is subject to a single insurance policy. We agree that that is normally desirable. As we said during the earlier Committee proceedings, a single policy will prevent unnecessary difficulties arising where the leaseholders need to call upon the insurance for reinstatement or repair. It is for that reason that we have brought forward our own provision to make the absence of such a policy a clear ground for application to vary a lease. That appears in the Bill at Clause 156(2).
The amendment is also concerned with ensuring proper value for money. Again, the noble Lord, Lord Kingsland, will know that we entirely support that objective. However, we believe that the right to challenge unreasonable service charges is the right way to deal with the matter. Furthermore, right-to-manage will make the leaseholders responsible for taking out the insurance policy which they then pay for. That in itself should create an incentive for value for money.
Finally, and most importantly, this amendment would impose a requirement on the right-to-manage company which it would not impose on any other manager. So far, nothing has been said to persuade us that such discrimination would be justified. Why, for example, is it appropriate for a "best value" requirement to be imposed on the RTM company but not upon the landlord? As has already been said, we believe that leaseholders should have the right to manage their block and we are firmly opposed to the imposition of requirements which make that right more onerous than normal leasehold management would be outside of that right.
Therefore, although we share in common much that underlies the amendment, we continue to oppose the amendment and I invite the noble Lord to withdraw it.
Lord Kingsland: I am sorry to have disappointed the noble and learned Lord the Minister by not repeating the speech I made on the topic in Grand Committee.
852
If he would prefer me to repeat all the speeches I made on these topics in Grand Committee, I should be delighted to do so. However, I fear that that was not the invitation he intended to extend.
I thank the noble and learned Lord for his response. As he well knows from having carefully analysed my speech in Grand Committee—
Lord McIntosh of Haringey: The noble Lord, Lord Kingsland, should pay credit to the seamless nature of the Government Front Bench. I of course remember everything that he said in Grand Committee and I have communicated it at length to my noble and learned friend.
Lord Falconer of Thoroton: That is why I was so regretful not to have been involved in the previous Bill. The noble Lord's speech is legendary.
Lord Kingsland: I am grateful to the noble Lord, Lord McIntosh of Haringey, but I am somewhat incredulous after hearing what he said. Because I am so disappointed by the Minister's response to my amendment, I should like to test the opinion of the Committee.
5.24 p.m.
On Question, Whether the said amendment (No. 136) shall be agreed to?
Their Lordships divided: Contents, 70; Not-Contents, 130.

Division No. 1

CONTENTS

Alton of Liverpool, L.

Hayhoe, L.

Anelay of St Johns, B.

Henley, L.

Astor of Hever, L.

Howe, E.

Biffen, L.

Howe of Aberavon, L.

Blatch, B.

Howell of Guildford, L.

Brooke of Sutton Mandeville, L.

Jopling, L.

Brougham and Vaux, L.

Kingsland, L.

Buscombe, B.

Lyell, L.

Byford, B.

McColl of Dulwich, L.

Campbell of Alloway, L.

Monson, L.

Carnegy of Lour, B.

Northesk, E.

Cavendish of Furness, L.

O'Cathain, B.

Chadlington, L.

Palmer, L.

Cope of Berkeley, L.[Teller]

Park of Monmouth, B.

Cox, B.

Perry of Southwark, B.

Craigavon, V.

Peyton of Yeovil, L.

Crickhowell, L.

Rees, L.

Cumberlege, B.

Roberts of Conwy, L.

Dean of Harptree, L.

Rotherwick, L.

Denham, L.

Saltoun of Abernethy, Ly.

Dixon-Smith, L.

Seccombe, B. [Teller]

Elliott of Morpeth, L.

Selborne, E.

Elton, L.

Shrewsbury, E.

Flather, B.

Skelmersdale, L.

Fookes, B.

Soulsby of Swaffham Prior, L.

Glentoran, L.

Stewartby, L.

Goschen, V.

Stodart of Leaston, L.

Gray of Contin, L.

Strathclyde, L.

Griffiths of Fforestfach, L.

Taylor of Warwick, L.

Hanham, B.

Tebbit, L.

Hanningfield, L.

Trefgarne, L.

Haslam, L.

Vivian, L.

853

Waddington, L.

Weatherill, L.

Wade of Chorlton, L.

Wilberforce. L.

Warnock, B.

Wilcox, B.

NOT-CONTENTS

Acton, L.

Hunt of Kings Heath, L.

Addington, L.

Irvine of Lairg, L. (Lord Chancellor)

Ahmed, L.

Alli, L.

Janner of Braunstone, L.

Andrews, B.

Jay of Paddington, B.

Archer of Sandwell, L.

Jenkins of Putney, L.

Ashton of Upholland, B.

King of West Bromwich, L.

Bassam of Brighton, L.

Lea of Crondall, L.

Berkeley, L.

Lester of Herne Hill, L.

Bernstein of Craigweil, L.

Lockwood, B.

Blackstone, B.

McIntosh of Haringey, L. [Teller]

Boothroyd, B.

Borrie, L.

McIntosh of Hudnall, B.

Bragg, L.

Mackenzie of Framwellgate, L.

Brett, L.

Maclennan of Rogart, L.

Brooke of Alverthorpe, L.

McNally, L.

Brookman, L.

Maddock, B.

Bruce of Donington, L.

Mallalieu, B.

Burlison, L.

Marsh, L.

Campbell-Savours, L.

Mason of Barnsley, L.

Carter, L.[Teller]

Massey of Darwen, B.

Christopher, L.

Merlyn-Rees, L.

Clark of Windermere, L.

Morgan, L.

Clinton-Davis, L.

Morgan of Huyton, B.

Cohen of Pimlico, B.

Morris of Manchester, L.

Corbett of Castle Vale, L.

Nicholson of Winterbourne, B.

Crawley, B.

Orme, L.

Dahrendorf, L.

Patel, L.

Davies of Coity, L.

Patel of Blackburn, L.

Desai, L.

Paul, L.

Dixon, L.

Pendry, L.

Donoughue, L.

Perry of Walton, L.

Dormand of Easington, L.

Plant of Highfield, L.

Dubs, L.

Prys-Davies, L.

Eatwell, L.

Puttnam, L.

Elder, L.

Ramsay of Cartvale, B.

Evans of Parkside, L.

Rea, L.

Falconer of Thoroton, L.

Rendell of Babergh, B.

Farrington of Ribbleton, B.

Rennard, L.

Faulkner of Worcester, L.

Rooker, L.

Filkin, L.

Scott of Needham Market, B.

Fyfe of Fairfield, L.

Sharp of Guildford, B.

Gale, B.

Shutt of Greetland, L.

Gibson of Market Rasen, B.

Simon, V.

Gladwin of Clee, L.

Slim, V.

Golding, B.

Smith of Clifton, L.

Goldsmith, L.

Stone of Blackheath, L.

Goodhart, L.

Symons of Vernham Dean, B.

Gordon of Strathblane, L.

Taylor of Blackburn, L.

Goudie, B.

Temple-Morris, L.

Gould of Potternewton, B.

Thomas of Walliswood, B.

Graham of Edmonton, L.

Thornton, B.

Greenway, L.

Tomlinson, L.

Grenfell, L.

Uddin, B.

Grocott, L.

Walker of Doncaster, L.

Hamwee, B.

Wallace of Saltaire, L.

Hardy of Wath, L.

Walmsley, B.

Harris of Haringey, L.

Warwick of Undercliffe, B.

Harris of Richmond, B.

Watson of Invergowrie, L.

Haskel, L.

Whitaker, B.

Hayman, B.

Wilkins, B.

Hollis of Heigham, B.

Williams of Crosby, B.

Hooson, L.

Williams of Elvel, L.

Howie of Troon, L.

Williams of Mostyn, L. (Lord Privy Seal)

Hoyle, L.

Hughes of Woodside, L.

Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.
5.35 p.m.
Clause 96 [Functions relating to approvals]:
Lord Kingsland Lord Kingsland moved Amendment No. 137:
Page 48, line 39, at end insert—
"( )The RTM company must not grant an approval in relation to the making of alterations, improvements or change of use."
The noble Lord said: In moving Amendment No. 137 I shall speak also to Amendments Nos. 138 and 139. As to Amendments Nos. 137 and 138, Clauses 96 and 97 govern the ability of the RTM company to grant approval. The landlord is given 30 days' notice to object to certain specific categories of approval and 14 days' notice for all others. My amendments seek to limit the powers of the RTM company to grant approvals. In particular, the RTM company should not be permitted to grant approvals that might have a detrimental effect on the landlord's reversionary interest. The making of alterations or improvements may alter the size or nature of the unit which will have an impact on the landlord's reversion. Similarly, to permit a change of use of the unit would also affect its reversionary value.
As far as concerns Amendment No. 139, the LVT is given the power to determine any dispute over the granting of an approval where the landlord raises an objection. The amendment would ensure that the LVT was unable to override the provisions of the lease. I do not believe that I need say anything more about it. I beg to move.
Lord Goodhart: Amendment No. 139A is part of this group. That amendment merely seeks to make what appears to us to be a drafting correction. Clause 96(4)(a) provides for 30 days' notice,
"in the case of an approval relating to assignment, underletting, charging, parting with possession, the making of improvements or alterations of use".
"Alterations of use" is a very odd expression. We believe that what it really means is the making of improvements or alterations or changes of use. "Change of use" is the normal term used here. We believe that notice should be required both in the case of the making of alterations and proposals for changes of use.
Lord Falconer of Thoroton: I refer first to Amendments Nos. 137, 138 and 139 in the name of the noble Lord, Lord Kingsland. Amendments Nos. 137 and 138 are intended to take away responsibility from the right-to-manage company for granting consents for improvements or alterations of use. Our view is that the RTM company should take on responsibility for all the consents under the leases. The provisions of the Bill already allow the landlord to take action to protect his interest. We consider that those safeguards are sufficient and see no need to change the provisions.
As to Amendment No. 139 to which the noble Lord referred, it is suggested that we prohibit an LVT from overriding the terms of a lease when adjudicating on whether an approval should or should not be granted. As the noble Lord is aware, that is unnecessary. The LVT obviously has no power to disregard the terms of

855
the lease; it is merely asked to adjudicate on whether an approval should be granted in accordance with the terms of the lease. Therefore, that having been made clear, I hope that the noble Lord appreciates that Amendment No. 139 is not appropriate.
The amendment of the noble Lord, Lord Goodhart, changes the classes of amendment for which the landlord is entitled to a longer 30-day notice period where the RTM company proposes to grant approval. The wording and the classes of approval listed in Clause 96(4) are modelled closely, as the noble Lord will no doubt have guessed, on the provisions of Section 19 of the Landlord and Tenant Act 1927, and the related provisions of the Landlord and Tenant Act 1988. Both provide that a landlord may not unreasonably withhold consent where it is required for certain matters under the lease.
We have not adopted consistency for consistency's sake. The 1927 and 1988 Acts already helpfully demarcate what is and what is not a key approval. Our view is that it is only key approvals for which the landlord should enjoy the longer period.
That said, we are grateful to the noble Lord for raising the matter. The matters he raises already fall within the ambit of Clause 96(4)(a). An alteration of use and a change of use are one and the same thing, albeit said differently. Furthermore, our view is that the making of alterations is simply a sub-category of the making of improvements. Therefore, the noble Lord's proposed changes are not needed. In the light of that, I hope that the noble Lord will not move his amendment.
Lord Goodhart: Before the noble and learned Lord sits down, this is a Law Society amendment. I think that it has a good point. Alterations of use may mean changes of use, but alterations of the building as well as improvements to it are matters that should be covered by the 30-day notice period. It is by no means clear that alterations and improvements necessarily cover the same ground.
Lord Falconer of Thoroton: I take the noble Lord's point. It could usefully be discussed at the meeting between the noble Lord, representatives of the Law Society, officials and Ministers. Perhaps we can come back to that on Report. It may well be that the last point made was an important one.
Baroness Hamwee: Perhaps at that meeting officials can assist us as to where else the term "alteration of use" is used because the term "change of use" is certainly one with which most of us are more familiar.
Lord Falconer of Thoroton: Officials will have heard the request. We can deal with that when we meet.
Lord Kingsland: In those circumstances, it is clearly appropriate for me to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 138 and 138A not moved]
Clause 96 agreed to.
Clause 97 [Approvals: supplementary]:
[Amendment No. 139 not moved.]
Clause 97 agreed to.
Clauses 98 to 100 agreed to.
Schedule 7 [Right to manage: statutory provisions]:
Lord Goodhart Lord Goodhart moved Amendment No. 139.A:
Page 98, line 41, at end insert "but this takes effect without prejudice to the operation of section 101 of this Act"
The noble Lord said: Amendment No. 139A is another technical amendment. It clarifies the interaction of Clause 101 of the Bill with Schedule 7(3)(4). Under that paragraph a landlord has the same rights as a tenant against the RTM company in relation to flats let as short tenancies under Section 11 of the Landlord and Tenant Act 1985, regarding communal repairs. The effect of imposing Section 11 rights and obligations is that the RTM company must provide these at no cost to the tenant.
We are concerned that paragraph 3(4) may arguably have the effect that the cost of the works cannot be recovered by the RTM company from the landlord under Clause 101. That would lead to unfairness. It would leave the RTM company with a shortfall while the landlord would be able to receive the rent from a letting at a level reflecting the fact that such repairs have been carried out. We therefore suggest that the amendment should be adopted in order to make it clear that Clause 101 of the Bill prevails. That would clarify the interaction of the different parts of the Bill and obviate any unfairness that would otherwise be caused to the RTM company. I beg to move.
5.45 p.m.
Lord Falconer of Thoroton: The point needs consideration. It had not occurred to us that it had that effect. It is not intended to have that effect. Perhaps we may take the matter away, consider it and come back on Report with a response.
Lord Goodhart: I ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 7 agreed to.
Clause 101 [Landlord contributions to service charges]:
[Amendment No. 140 not moved.]
Clause 101 agreed to.
Clause 102 agreed to.
Clause 103 [Cessation of management]:
[Amendment No. 140A not moved.]
Clause 103 agreed to.
Clauses 104 to 112 agreed to.
Clause 113 [Non-residential premises]:
[Amendment No. 141 not moved.]
Clause 113 agreed to.
Clause 114 agreed to.
Lord Kingsland Lord Kingsland moved Amendment No. 141A:
After Clause 114, insert the following new clause—
"QUALIFYING TENANTS SATISFYING RESIDENCE CONDITION
(1) Section 6 of the 1993 Act (qualifying tenants satisfying residence condition) is amended as follows.
(2) In subsections (2) and (5) for "his only or principal home" substitute "a residence".
(3) In paragraph (b) of subsection (2) and in paragraph (b) of subsection (5), for "three years" substitute "twelve months".
(4) After subsection (6) insert—
"(7) Subsection (1) shall not apply where the lease is vested in a company which does not carry on, and has not at any time since the lease became vested in it carried on, any or any substantial business (other than in relation to its ownership of the lease), and in that case a qualifying tenant of a flat shall for the purposes of this Chapter be treated as satisfying the residence condition at any time when the conditions in subsection (8) are satisfied with respect to an individual.
(8) Those conditions are that the individual is a person who has had control of the company and has occupied the flat as his residence for the last twelve months or for periods amounting to twelve months in the last ten years.
(9) For the purposes of subsection (8), a person is to be taken as having control of a company if—

(a) the directors of the company or of another company which has control of it (or any of them) are accustomed to act in accordance with his directions and instructions, and

(b) he is entitled to exercise or control the exercise of more than 50 per cent. of the voting power at any general meeting of the company or of another company which has control of it.

(10) For the purposes of subsections (7) to (9), "company" includes any body corporate (whether incorporated in Great Britain or elsewhere) and references to directors of a company and to voting power at any general meeting of a company have effect with any necessary modifications.""
The noble Lord said: I shall have to come back to Clause 113 on Report.
Collective enfranchisement is a right which should be given to home owners. It is a right to restrict the ability of absentee lessees to acquire the freehold. Without a residence condition, where all the flats in a block are owned by foreign companies for investment purposes, they could qualify to purchase the freehold.
Sections 5(5) and 5(6) of the 1993 Act did not prevent that. Those provisions prevent a single speculator obtaining the right to enfranchise by acquiring three or more flats. However, without a residence condition, those provisions would not prevent a combination of two or more speculative investors enfranchising against the wishes of the residents. Therefore, Sections 5(5) and 5(6) of the 1993 Act are not adequate anti-speculation measures.
It is important to remember that the residence condition does not have to be satisfied by al] participating tenants. It has only to be satisfied by half of them. If the condition is thought to be too restrictive the better course would be to alter rather than abolish it. The requirement as to length of residence should be reduced to 12 months in order to overcome any difficulties caused by flats changing hands or the problems of expatriate workers.
The requirement that the lessee occupy the flat as his only and principal home should be replaced by a straightforward requirement that the lessee should occupy the flat as a residence. Such a requirement would be satisfied by lessees with two homes and would not be capable of exploitation by landlords.
Landlords would be prevented from resorting to company lets so as to deprive genuine residential occupiers of the right to enfranchise by the suggested amendment. It would allow the residence conditions to be satisfied where the lessee is a company or corporation which owns the flat as, in effect, a nominee for the occupier. The company must be a non-trading company to qualify, but in order to prevent landlords circumventing the enfranchisement provisions the proposed amendment embraces companies that carry on only insubstantial business. After the tenant gains control of the company, it would be in his interests to ensure that it does no business, on pain of losing the right to enfranchise.
The proposed subsection (9) takes into account the possibility of an individual controlling a subsidiary company indirectly through a parent company as well as directly. Accordingly, any legitimate concerns can be met by amending the residence condition in the suggested form. It would be wrong to abolish it. I beg to move.
Lord McIntosh of Haringey: Let me say straightaway that this is a praiseworthy attempt to reform the residence condition rather than to abolish it. I appreciate the care that has gone into the drafting of the amendment. However, we have already debated the residence condition on a number of occasions and I have to confirm that our views have not changed. We discussed the matter most recently last Tuesday in relation to the right to manage. We then explained that our view was governed by two principles.
First, we cannot agree that different eligibility rules should apply to different people. We think that there should be one governing criterion; namely, whether a person has a significant stake in the property in question. The Bill is based on that principle. Secondly, we are generally of the view that any form of residence test is undesirable. Experience has shown that tests of this nature are open to abuse and confusion.
We believe that these principles are equally valid for the right of collective enfranchisement. The residence test has proved to be the greatest barrier to groups of leaseholders who wish to enfranchise. Because enfranchisement of a block of flats is a collective right, the ability of leaseholders to acquire the freehold of their homes is dependent both on their own eligibility and on the eligibility of other leaseholders in the block. They can be prevented from acquiring the freehold if they are unable to secure the support of a sufficient number of qualifying leaseholders. If a significant number of flats happen to be sub-let, or have recently changed hands, leaseholders' legitimate aspirations can be frustrated. The noble Lord's amendment, however carefully thought out, would not overcome that.

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The question of what constitutes residence is invariably contentious and liable to give rise to disputes. We believe that tinkering with the residence test in such a manner is not the way forward. We would prefer to stick with the principles which I have outlined. We are giving rights to leaseholders who hold the greatest—in many cases, by far the greatest—stake in their own properties. I am sorry that I am not able to give a more friendly response to the noble Lord's amendment.
Baroness Gardner of Parkes: I am reluctant to speak on this matter because I would benefit from it. I believe that I have explained on a previous occasion that I have purchased a house for my old age, which I do not live in at the present time.
Can the Minister comment on the remark made by my noble friend Lord Kingsland when he stated that, after the 1993 Act, freeholders have the right to insist that a lease may be assigned only to a company? I have read briefing material stating that that is common practice. Is it correct? If so, will the proposal to abolish the residence test mean that people are no longer able to use that as a loophole to prevent those who would have been able to enfranchise under the residential category from doing so?
Lord McIntosh of Haringey: Since the question of whether the lease is held by a company is no longer an issue, unless I am much mistaken, the answer to the question put by the noble Baroness, Lady Garder, is yes. The Bill as drafted will remove that loophole.
Lord Kingsland: I was curious to note that the noble Lord, Lord Goodhart, did not intervene in this exchange. Perhaps that is because his view as regards residency under the provisions of leasehold enfranchisement is the same as his view as regards the residency test under the provisions of the RTM. I take his silence to be a confirmation that that is the case.
The noble Lord, Lord McIntosh of Haringey, knows that. I feel strongly about this matter. I have tried various schemes in order to move the Minister to some form of pity, if not to intellectual conviction of the strength of my case. But I have also come to recognise that the vast majority of those who represent leasehold interests disagree with me and agree with the Government. I know that the Liberal Democrat Party has thought hard about this. It has also come round to the view of the Government.
I shall reflect long and hard before returning with any further amendment at a later stage of the Bill. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 115 to 118 agreed to.
Clause 119 [RTE companies]:
[Amendment No. 142 not moved.]
Lord Goodhart Lord Goodhart moved Amendment No. 143:
Page 59, line 14, at end insert—
"(4) A company which is a RTM company may not become a RTE company except by a resolution passed with the affirmative vote or written consent of all its members.
(5) In this Part, "RTM company" has the same meaning as in Chapter I of Part 3 of the Commonhold and Leasehold Reform Act 2001."
The noble Lord said: Amendment No. 143 seeks to ensure that it is not possible to convert an RTM company into an RTE company without the consent of all the members. The point of this is that the exercise of enfranchisement rights is likely to require, quite possibly, substantial sums of money where the reversion falls in relatively soon. Some members of an RTM company may not be willing or able to finance the enfranchisement. However, they should not be deprived of the right to participate in management because they cannot or will not join in the enfranchisement. For that reason, we believe that conversion from RTM to RTE should require the consent of all the members of the RTM corn pang. I beg to move.
Lord Bassam of Brighton: Similar amendments to Amendment No. 143 and Amendment No. 146, which is included in the grouping, were debated during the Committee stage of the previous Bill. We appreciate the concern about members of an RIM company who do not participate in a subsequent enfranchisement. However, the Bill provides that any such leaseholders will cease to be members of the company on completion of the enfranchisement. The reason for this is that, after enfranchisement, conflicts of interest might well arise between those leaseholders who, respectively, did and did not participate in the enfranchisement. For example, there might be differences of view between them as to how the proceeds of sales of leases should be used or distributed. If the non-participants were still members of the company, the company directors would then find themselves in a difficult position as a result of their accountability to the entire membership.
However, since the original Bill was introduced, Members of the Committee will note that we have removed the bar on there being separate RTM and RTE companies for the same premises. That will mean that where RTM has been exercised and a proportion of the members wish to proceed to enfranchisement, they would now be able to set up a separate RTE company for the purpose, and non-participants would be able to continue to participate in the management of the building.
Although I understand that Amendment No. 147 will not be moved, it is perhaps worth saying that that amendment seeks to increase from 28 to 56 days the period during which assignees of participating members before enfranchisement takes place may give notice that they wish to become participating members. Following concerns raised during previous debates by the noble Lord, Lord Kingsland, and others that the originally proposed period of 14 days was too short, we took careful account of the

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arguments and decided to increase this period to 28 days. We feel that this is more than enough time for assignees to make up their minds. A longer period is likely to risk delays to the enfranchisement process. We do not believe that that is desirable.
Having heard the arguments in relation to the amendment moved by the noble Lord, Lord Goodhart, and the points I have made in regard to the amendment of the noble Lord, Lord Kingsland, which will not be moved in its current form, I hope that the noble Lord will feel able to withdraw his amendment.
6 p.m.
Lord Goodhart: I welcome the fact that it is now possible to have separate RTM and RTE companies for the same premises. However, it would be appropriate to say that the RTM company should not be capable of conversion without the consent of all its members. If even one member objects, the RTM company should remain in place and the other leaseholders should be required to form an RTE company. Without such a provision, the situation could arise whereby the other shareholders and the RTM company decide to go ahead with the conversion of the RTM company and squeeze out the non-consenting member from management, rather than proceeding by the better course of setting up a separate RTE company. However, in the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 144 to 147 not moved.]
Lord Goodhart Lord Goodhart moved Amendment No. 148:
Page 60, line 17, at end insert—
"4BA Relevant conveyance to RTE companies
(1) In this section—

(a) "relevant tenancy" means the tenancy of a flat contained in premises which were the subject of a relevant conveyance (as defined in section 4B) to a RTE company: and

(b) "relevant tenant" means a person who at the time of the relevant conveyance was a participating member by virtue of holding a relevant tenancy and includes any successor in title of that person.

(2) After the executions of the relevant conveyance to the RTE company, on the assignment of a relevant tenancy by a relevant tenant—

(a) the assignor (unless he is also a relevant tenant under a relevant tenancy of another flat in the same premises) ceases to be a member of the RTE company: and

(b) the assignee (unless he is already a member of the RTE company) shall become a member of the RTE company."

The noble Lord said: Amendment No. 148 seeks to tie the membership of an RTE company to the holding of a particular lease in the building. It is important to link the membership of the RTE company to the leasehold rights in the property. This would bring RTE companies into line with commonhold, where, of course, the unit holders—who, in effect, are the equivalent of the leaseholders in an RTE company—will be automatically members of the commonhold association.
The present situation is that many blocks of flats have management companies made up of the leaseholders. Indeed, I live in such a block, where each leaseholder holds one share in the management company and is required by the terms of the lease to assign that share on assigning the lease. It is desirable that where a group of lessees take over the freehold, the freehold interest should remain linked to the leasehold interest because it makes the lessees, in effect, the equivalent of owner occupiers.
We do not want to recreate the problems of absentee landlords. That will be particularly important if the 100 per cent rule for conversion to commonhold is maintained. Many RTE companies will not be able to convert to commonhold, even if the great majority of leaseholders wish to, where there is only a single objector. It is desirable to ensure that we do not end up once again with the problems of absentee landlords. We should link the assignment of a lease to the assignment of a shareholding in the membership of the RTE company. There should be a positive obligation in the Bill—in practice, no doubt, this will be done more often than not—to link membership of the RTE company with the ownership of a lease in the property. I beg to move.
Lord Bassam of Brighton: Amendment No. 148 seeks to provide that where a lease was assigned by a member of an RTE company the assignee would automatically become a member of the company. We appreciate the concerns expressed by the noble Lord, Lord Goodhart, during our earlier discussions in Committee about the ability of assignees to become members of an RTE company. New Section 4B of the 1993 Act is intended to apply only during the enfranchisement process. Company law does not provide for automatic transfer of membership of a company limited by guarantee.
We are not seeking to regulate membership of an RTE company after completion of the enfranchisement process. We consider that that should be a matter for the enfranchised leaseholders to agree among themselves. We do, however, agree that the RTE company should be able to admit new members after completion. That would include assignees of participating members or leaseholders who did not participate in the original enfranchisement. We accept that the draft of the memorandum and articles which we provided to your Lordships did not provide for this. I can advise the Committee that we will now be including appropriate changes in revised drafts, which we expect to produce during the consideration of the Bill—I hope, before Report stage.
In practice, where a participating member assigns his lease, the premium would reflect the benefits of membership. It is unlikely that the prospective assignee would agree to the purchase without being satisfied that membership of the RTE company was an integral part of the package. This happens now with the existing nominee purchaser arrangements and we

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are not aware of any particular problems. Having heard that explanation, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Goodhart: I am unhappy with the noble Lord's response on this point. Although company law does not provide for an express obligation to transfer membership of a company limited by guarantee, nevertheless I can see no reason why the form of memorandum and articles should not—as clearly it can—provide for this, and the standard form of memorandum and articles for an RTE company should be required to do so. It is, of course, true that in the great majority of cases membership of the RTE company will be assigned with the lease because it increases the value of the lease. However, if anything, the strongest argument for making it obligatory is that it may be overlooked in cases where it is clearly desirable and where the parties would have agreed that it should be the case but did not understand the position. There is every reason for making this provision one of the terms on which one can collectively enfranchise. Once one has enfranchised, the lease and the membership of the RTE company should be umbilically linked with each other.
I am not happy with the position. Even if this is not the most important amendment to have been proposed to the Bill, it is an amendment of some importance. We shall consider whether to bring it back at a later stage. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 119 agreed to.
Clause 120 [Invitation to participate]:
Lord Goodhart Lord Goodhart moved Amendment No. 148A:
Page 61 line 43, after "given" insert ", and if given will be of no effect, until and"
The noble Lord said: The effect of the amendment is to require that a claim notice should not have any effect unless the invitation to participate in an RTE company has been given to each person 14 days earlier.
The reason for the amendment is that, in order to be effective, there should be an appropriate sanction for non-service of the invitation to participate. We believe that the most appropriate sanction would be to provide that the claim notice would not have any effect unless the invitation to participate had been properly distributed. I beg to move.
Lord Bassam of Brighton: I have listened carefully to the noble Lord's comments. However, we are not convinced that the first amendment is necessary or desirable. The Bill already provides that an initial notice under Section 13 of the 1993 Act cannot be given unless the required notice of invitation to participate has been given to all appropriate persons at least 14 days beforehand. If an initial notice is given in contravention of this provision it would be of no effect. This seems to be a straightforward principle that everyone can understand.
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The amendment appears to provide that if an initial notice is given before the requirements relating to the notice of invitation to participate have been met, but those requirements are subsequently met, the initial notice would then become valid. This seems to be a recipe for confusion. We are concerned that all leaseholders should be given the opportunity to participate in the enfranchisement bid. The simplest way of ensuring this is to require that notices of invitation to participate are served on all eligible leaseholders before the initial notice is issued.
I am grateful to the noble Lord for explaining his second amendment. We cannot give a firm answer today, but we are quite interested in it. We shall consider the noble Lord's suggestion carefully before Report stage.
Lord Goodhart: I am grateful to the noble Lord. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 120 agreed to.
Clause 121 agreed to.
Schedule 8 agreed to.
Clause 122 agreed to.
6.15 p.m.
Lord Goodhart Lord Goodhart moved Amendment No. 149:
After Clause 122, insert the following new clause—
"COVENANTS ON CONVEYANCE: OF PART OF BUILDING
After section 34 of the 1993 Act insert—
"34A Covenants on conveyance of part of building
(1) This section applies to a conveyance executed for the purposes of this Chapter of a self-contained part of a building if it does not constitute a vertical division of the building or if the structure of the building is such that it could not be redeveloped independently of the remainders of the building.
(2) A conveyance to which this section applies shill include such covenants (including positive covenants) enforceable by and against the parties to the conveyance and their successors in title as may be prescribed."."
The noble Lord said: I should like to speak briefly to this amendment. It is grouped with Amendment No. 141, which was not moved because the noble Lord, Lord Williams of Elvel, was not present.
The amendment is concerned with the case where a building is of mixed use. It is important that something is done to deal with the problems that arise in such cases. The proposal for the 999-year lease contained in Amendment No. 141 is probably better. It is probably impracticable to sell parts of such a building by freehold. For that reason, it was never my intention to press the amendment. However, I believe that there is some force in the amendment that would have been moved by the noble Lord, Lord Williams of Elvel,
Lord Kingsland: I support the noble Lord, Lord Goodhart. Had the noble Lord, Lord Williams of Elvel, moved his amendment, I should have spoken in relation to Clause 113. The question of mixed properties is important, and we shall no doubt return to it when the noble Lord, Lord Williams, speaks to his

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amendment on Report. I hope that the Minister will pay due heed to the comments of the noble Lord, Lord Goodhart.
Lord Falconer of Thoroton: The noble Lord, Lord Goodhart, has touched on the issue of mixed use, which we all agree is difficult. I hope that the noble Lord will not regard it as disrespectful to say that he moved his own amendment without any degree of enthusiasm. He effectively said that he did not favour his own solution, which involves broader questions of positive covenants and flying freeholds. As my noble friend Lord McIntosh said in Committee on Tuesday, those matters are currently being dealt with by a Law Commission investigation. We should not enter into such questions without knowing its conclusions.
We note the comment of the noble Lord, Lord Goodhart, that the mixed use problem is a difficult one. We all agree. At present, we are still persuaded that our "25 per cent or less" solution is the right one. I do not think that there is much point in my spending more time on an amendment for which the mover has no enthusiasm.
Lord Goodhart: No doubt either the noble Lord, Lord Williams, or the noble Earl, Lord Caithness, will return to this matter on Report. As I have made clear, I do not want to press my own amendment on the matter and beg leave to withdraw it.
Amendment, by leave, withdrawn.
Clause 123 [Valuation date]:
Lord Kingsland Lord Kingsland moved Amendment No. 150:
Page 62, line 9, leave out from "payable)," to end of line 10 and insert "in paragraph 1(1), for the definition of "the valuation date" substitute—
""the valuation date" means the date of service of the reversioner's counter-notice."
The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 152, 160 and 162.
Amendment No. 150 deals with the valuation date for the purchase price. The purpose of the amendment is to fix the valuation date at the date of the landlord's counter-notice, which seems to us to be more appropriate than the date of the service of the claim notice because it is the point at which the second party engages in the process.
Enfranchisement is a form of compulsory purchase. Under standard compulsory purchase procedures, the valuation date is the day on which the purchase is concluded. Whether the market is rising or falling, that is the only date that is fair to both parties. In particular, if the market is rising, the present clause would be unfair to the reversioner, especially if the enfranchisers yielded to the obvious temptation to delay in order to postpone the day on which they would be obliged to find the purchase price.
Amendment No. 152 would incorporate into the purchase price interest at the current bank base rate on the valuation figure.
The Bill has been framed on the assumption that reversioners are more likely to delay than leaseholders. Consequently, there is minimal protection for the reversioner against enfranchisers seeking to work the system. If the valuation date is the date of the claim notice, it will be in the interests of the enfranchisers to delay since the price they pay will not increase however much the market rises and, under the present proposals, no interest is payable no matter how long the delay between the valuation date and the completion of the purchase.
Interest should be payable, therefore, to discourage delay by the enfranchisers after the valuation date, whether that date is the date of the service of the counter-notice, as we think it should be, or the date of the claim notice, as the Government propose.
Moreover, it is always disadvantageous to a seller to be kept out of his money and is in principle wrong, whether the market is rising or falling, since he is thereby prevented for the time being from finding an alternative investment for the money that he is entitled to receive for his compulsorily purchased property.
I turn now to Amendment No. 160. This clause deals with the valuation date for the premium payable by the tenant for the new lease. The same observations apply to this amendment, therefore, as to the amendment which we have proposed earlier to Clause 123.
Amendment No. 162 would incorporate into the premium payable interest at the current bank base rate on the valuation figure. Again, the same observations apply to this amendment as to the amendment which we propose to insert after Clause 123.
Lord Falconer of Thoroton: This is a clear and simple question, to which I think there is a clear answer. What is the right date upon which to value the lease to be enfranchised and, subsidiary to that, should interest be payable if it is the date of the service of the notice?
The current position is that the valuation date for the collective enfranchisement of flats is defined as the date when it is determined, by agreement or by an LVT, what freehold interest is to be acquired by the purchaser or, where there are several determinations relating to different freehold interests in the premises, the date by which all of them have been made. This has led to difficulties about the precise date. We have received many representations asking us to provide for a more certain valuation date. Two possible dates have been adumbrated. The first is the initial notice of claim; the second is the date of the landlord's counter-notice. The noble Lord, Lord Kingsland, argues for the counter-notice date. In ordinary market conditions - that is, when there are not sharp movements in values - the choice between these is of little significance. It will only become significant if property prices are either rising or falling rapidly at the time.
I have to say that the proposal in the Bill received the support of no less than 93 per cent of those who commented on this issue during our consultations last summer - an unusually high proportion. However, in this, as in all matters relating to the Bill, we have been guided by the balance of the substantive arguments

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rather than by mere head-counting. The first consideration is that the date of the initial notice has been used as the valuation date for purposes of the enfranchisement of houses ever since the 1967 Act, apparently without causing any difficulty or controversy. Secondly, the procedure for the enfranchisement of flats often takes longer than it needs to. Indeed, there have been many landlords who have chosen to spin the proceedings out as much as possible, with a view to persuading the leaseholders to give up the enterprise altogether.
Since the market is more often on the rise than falling, aligning the valuation date with the date of the counter-notice would tend, in most cases, to give the landlord a further reason to delay the service of the counter-notice so as to take advantage of market conditions. If, on the other hand, as the Bill provides, the valuation date is fixed as the date of the initial notice, the landlord will be encouraged to proceed with all speed and, as a consequence, any movement of the market in the intervening period is unlikely to be material.
The noble Lord then goes on to deal with interest. I can appreciate his concern that, in a rising property market, landlords could be disadvantaged as a result of the price being determined on the basis of prevailing values at the date of the service of the initial notice, when they do not receive the money until a later date. However, I do not think that it would be fair to provide a right to a payment which would effectively amount to interest on the purchase price between the date used to determine the price and the date of completion. Any disadvantage to landlords would depend on the movement in property prices and, if these were static or declining, there would be no disadvantage at all.
The solution is to ensure that an enfranchisement or lease renewal is as quick as possible. The measures in this Bill are intended to reduce the scope for procedural delays and disputes over the price payable and, where there is disagreement, to speed up the dispute resolution. That is the solution and not the solutions proposed by the noble Lord. In those circumstances, I would invite the noble Lord to withdraw his amendment.
Lord Kingsland: There is absolutely no meeting of minds here. This is an important issue and I intend to return to it with much determination at Report stage. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 123 agreed to.
Lord Goodhart Lord Goodhart moved Amendment No. 151:
After Clause 123, insert the following new clause—
"ABOLITION OF MARRIAGE VALUES
In Schedule 6 to the 1993 Act, omit—

(a) paragraph 2(1)(b);

(b) paragraph 4;

(c) paragraph 5A(2)(b);

(d) paragraph 5C;

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(e)paragraphs 9 and 9A;

(f) paragraph 10(1)(b);

(g) paragraph 12;

(h) paragraphs 15 and 16; and

(i) paragraphs 19 and 20."

The noble Lord said: This is an important series of amendments. With Amendment No. 151, I wish to speak to Clauses 124 and 125 stand part, to Amendment No. 161 and to Clauses 132 and 133 stand part, to Amendment No. 165 and to Clauses 141 and 142 stand part.
The purpose of our amendments is to abolish marriage value as part of the valuation for enfranchisement, for the acquisition of the freehold by the leaseholder of a house which is above the value where the 1967 Act originally applied, and on the grant of a new long lease.
Marriage value arises because the value of a lease and the value of a reversion of residential property, if sold separately, is usually less than the value if those two interests are sold together. The merger of the lease and reversion provides the boost in value which is known as marriage value. A sitting tenant is likely to be willing to pay more for the lease than the investor.
In the past, it is fair to say that a large part of the marriage value was due to the premium for the sale of residential property with vacant possession because such property was a great deal more valuable than property subject to a sitting tenant, whether a long leaseholder or a tenant protected by the Rent Acts. This was partly due to the existence of mortgage relief for home owners and partly due to rent control. Those factors now no longer apply.
Moving house is one of the most stressful experiences of life. I believe that it is ranked by the experts as coming third after bereavement and divorce. A lessee who is faced with having to move out at the end of the lease will be willing to pay a substantial premium over the market price to an investor to avoid this.
The landlord, except in the relatively rare case where he or she wants to occupy the house himself or herself at the end of the lease, has no special incentive. Therefore the marriage value, it has to be said, derives to a large extent from the hardship which will be suffered by a leaseholder if the resident leaseholder has to move out. This means that the leaseholder is what is called a special purchaser. The price, we say, should be fixed on a willing seller-willing buyer basis, but the special position of the leaseholder means that the price is in fact fixed by what could more be described as a willing seller-eager buyer basis. That means that there is not a level playing field.
In the marriage value of lower value houses the fact that the leaseholder is a special purchaser is, under the Leasehold Reform Act 1967, expressly excluded from the calculation of the price which the leaseholder has to pay to enfranchise. We believe that that same principle should also apply to flats and to higher value houses.
Our Amendment No. 151 removes marriage value from the computation of the price of enfranchisement where a right to enfranchise a building in multiple occupation is concerned.
Our Amendment No. 161 removes marriage value from the computation of the price on the grant of a new lease. The payment by a tenant in such a case is calculated by reference to the reduction in the value of the landlord's reversion. So far, so good. We think that is a fair method of calculating the price. But, Schedule 13 then adds the concept of marriage value. That, in relation to the grant of an extended lease, is a wholly unreal concept because not only is there no marriage, but the effect of the grant of the extended lease is, if one can say it, to extend the period of engagement and to delay the marriage for potentially a great many years. The marriage value is based on the assumption that the value of the tenant's interest may be increased by an amount which is greater than the reduction in the value of the landlord's interest. That bonus—if one may call it that—is then, under the existing legislation, split between the landlord and the tenant.
Finally, Amendment No. 165 deals with the marriage value in cases of enfranchisement by leaseholders of houses which, because of their rateable value at the time, were excluded from the original provisions of the Leasehold Reform Act 1967. As I said, in valuing lower value houses, it has to be assumed that the tenant and the family are not special purchasers. Therefore, there is in such cases no marriage value. We believe that the same principle should apply equally to higher value houses. We believe that the imposition of marriage value, and the computation of the price, has been a cause of serious hardship in a number of cases. We have had a number of complaints from some tenants on the de Beauvoir estate in Hackney. Many of them were originally given leases at a very low ground rent, but which provided for an increase in the ground rent to the market value—that is, the market value of the ground rent, not of the entire building—at the end of the 20-year period. In some cases that period has now elapsed and many leaseholders are finding themselves in a position where they cannot afford to pay a very sharply increased ground rent. They cannot afford to buy the reversion which would include, in their case, a liability to pay marriage value.
That is simply an example which has been brought to our attention of the problems which can arise in such circumstances. Although, of course, it is by no means a complete cure to the problems which arise for such leaseholders, we believe that if marriage value was not included in the amount which the leaseholders of such houses had to pay to acquire the freehold of the house, at least it would be made easier for them to do so and would provide a way out of these problems for at least some of these leaseholders.
This is a serious and important issue. We believe that it is appropriate that marriage value should be removed. We do not think that that will cause any problems under the Human Rights Act. Frankly, if the European Court of Human Rights has swallowed the
870
camel of the basic valuation under the Leasehold Reform Act 1967—which was in many ways confiscatory and has not been repeated as regards the other enfranchisement rights which have subsequently been created—we see no reason why it should strain at the gnat of the abolition of marriage value which we consider is, in these circumstances, frankly, an artificial concept which unlevels what should be the level playing field. I beg to move.
6.30 p.m.
Lord Kingsland: The Government find themselves bracketed between the views of the noble Lord, Lord Goodhart, on the one hand, and our own views, on the other, which are expressed in a series of amendments in this group. I shall try to deal with each one as telegraphically as I can.
First, as regards Clause 124 stand part, the purpose of this amendment is to leave paragraph 4(1) of Schedule 6 to the 1993 Act as it is, so that the freeholder's share of marriage value would be (a) such proportion of the marriage value as is determined by agreement between the reversioner and the RTE company or, in default of such an agreement, as is determined by an LVT, or (b) 50 per cent of the marriage value, whichever is the greater. It does not involve depriving the reversioner of any excess over 50 per cent to which he might be entitled on a fair determination under the present law.
Amendment No. 153 would restore the position to that in the draft Bill, to which I urge the Government to return. Marriage value is treated by most LVTs as nil, in the case of leases with 80 years or more unexpired, outside London. In London, however, that is not the case, and property values are such that the sums involved are not insubstantial. I am aware that the evidence on this is not wholly in one direction. When I last dealt with this amendment in February the evidence that I saw was most powerful. Since then, I have seen some which suggests that in some cases it may go in the other direction. Nevertheless, broadly speaking, there is little doubt in my mind that there is a degree of differential between London and the provinces.
Any cut-off point before the point at which marriage value is properly to be taken as nil is both arbitrary and—I say this with due respect to what the noble Lord, Lord Goodhart, has just said—to some extent, confiscatory; and so, although I would be content with 90 years, the more logical, although more radical, alternative amendment would be to delete Clause 125 from the Bill altogether.
I now turn to the Question that Clause 125 stand part of the Bill. This amendment would preserve the present position that there is no arbitrary annulment of marriage value however long the unexpired term of a lease. Clause 125, by requiring marriage value to be taken as nil in the circumstances specified, has the effect of depriving reversioners of part of the value of their property which is being compulsorily acquired.
That is unfair to the reversioners so affected. Moreover, since Clause 125 has effect only in cases where all the enfranchising leaseholders in a block

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have leases with 80 years unexpired, it produces unfairness between the enfranchising leaseholders of such a block and those of an otherwise identical block where even one of the enfranchisers has a lease with less than the specified period unexpired. In the former case, marriage value would be deemed to be nil, whether it was in fact or otherwise. In the latter case, Clause 125 would not apply, and marriage value, which is determined as an aggregate figure for the block as a whole, would be at large and, if not agreed, would fall to be determined by an LVT, notwithstanding that the overwhelming majority of the enfranchisers hold leases with terms unexpired in excess of the specified period.
The purpose of the initiative in Clause 132 stand part is to leave paragraph 4 of Schedule 13 to the 1993 Act as it is, so that the freeholder's share of marriage value would be such proportion of the marriage value as is determined by agreement between the landlord and the tenant or, in default of agreement, as is determined by the LVT, or, alternatively, 50 per cent of the marriage value, whichever is the greater. It does not involve depriving the landlord of any excess over 50 per cent to which he might be entitled on a fair determination under the present law.
I now turn to Amendment No. 163, the object of which is to leave paragraph 4 of Schedule 13 to the 1993 Act as it is. It is a similar objective to that in clause stand part.
On the question that Clause 133 stand part, this amendment would preserve the present position that there is no arbitrary annulment of marriage value however long the unexpired term of a lease. Clause 133, by requiring marriage value to be taken as nil in the circumstances specified, has the effect of depriving landlords of part of the value of their property which is being compulsorily purchased.
The purpose of the initiative in Clause 141 stand part is to leave Section 9 of the 1967 Act as it is, so that the tenant's share of marriage value to be taken into account in determining the price payable would not exceed one half of the marriage value.
The same observations apply to Amendment No. 169 as to the amendment which we propose to Clause 133, and equally to Clause 142.
6.45 p.m.
Lord Falconer of Thoroton: This is one of the most controversial aspects of the current arrangements for the enfranchisement of flats and houses. Leaseholders have been campaigning for a long time to exclude marriage values from the purchase price altogether, which would be the effect of the amendment tabled by the noble Lord, Lord Goodhart. The noble Lord, Lord Kingsland, has a number of other changes that he wishes to make. I shall deal with those issues in due time, but it is sensible to spend a little time putting the matter in context and explaining why we are doing what we are doing.
It is important to put marriage value into its historical context, especially as the arguments of the noble Lord, Lord Goodhart, placed some reliance on
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the terms of the 1967 Act. The story of enfranchisement began with houses. Leaseholders of lower value houses were first given the right to buy their freehold by the Leasehold Reform Act 1967. At that time, the leases of many Victorian houses were approaching their end. This was seen as a particular problem in South Wales, which faced economic difficulties at the time. Coupled with a rather different view of property rights from that which prevails today, this led to an Act giving leaseholders of houses with relatively modest rateable value the right to buy their freehold on extremely favourable terms, as the noble Lord, Lord Goodhart, acknowledged. Later legislation extended the right to leaseholders of higher value houses but on less advantageous valuation terms.
We do not propose to interfere at this late stage with the long-established rights of leaseholders of lower value houses, which no doubt has had an effect on the price that many such leaseholders have paid since 1967. We do not think that it would be right to extend those valuation arrangements to any other categories of leaseholder. Indeed, I did not understand the noble Lord to be suggesting that.
The right to enfranchise is a right of compulsory purchase. To exercise it, the leaseholder does not have to show that the freeholder is at fault in any way. It is only fair that the freeholder should be paid the same price that he would have received from selling the freehold to the leaseholder voluntarily.
When leaseholders buy the freehold of a block of flats, they obtain a benefit that no other purchaser would. They can grant themselves new 999-year leases without having to pay a penny for them. Similarly, a leaseholder who buys the freehold of a house is no longer subject to a lease at all. The value of this extra benefit is the marriage value. If their existing leases still have, say, 80 or more years to run, new longer leases will be worth little more than existing ones, so that any marriage value will be insignificant. However, if the unexpired term is relatively short—say 50 years—the difference will be substantial. The same is true for leasehold houses.
It follows that in a sale between willing parties where the unexpired term of the leases is not very long, the leaseholders will be prepared to pay additional money for this extra benefit. But they would certainly not offer the whole amount of the marriage value. They will be well aware that they represent the freeholder's only chance of getting a higher price than he would receive from an ordinary purchaser. In practice, a sale will be agreed only if the parties agree to split the difference, which would be 50:50. The freeholder will finish up with a rather higher price than he would have received from any other purchaser, but I must emphasise that the leaseholder will still finish up with an asset that is worth more than he paid for it.
The valuation arrangements for lease renewals on flats also include a share of marriage values. People often ask how marriage value can be said to apply in a situation where, unlike with enfranchisement, there is no joining or marriage of two interests. The answer is that the term does not have quite the same meaning in

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the lease renewal context. Marriage value is something of a misnomer. Lease renewal marriage value is quite different in concept from the enfranchisement one. As defined in the Act, it is broadly the difference between the aggregate values of the landlord's and tenant's interests as they were before the new lease was granted and as they will be after it is granted.
However, the notion that in one way or another extra value is created by the transaction is common in both cases. For lease extension, as for enfranchisement, any amount of marriage value will be extremely small if the unexpired term of the existing lease is still very long. Similarly, as under the right to enfranchise, the split of marriage value has been much argued about in individual cases but in most cases the LVT has put it at 50 per cent.
One has to go through, if anything, even more mental gymnastics to grasp how the lease renewal valuation provisions work than for their enfranchisement counterparts, but the broad intention is the same. The leaseholder should be required to pay no more and no less for the compulsory acquisition of a new lease than he would in a similar transaction between the same, and this time equally willing, parties.
That is the principle behind marriage value, which we believe is a sound one. Before discussing the defects of detail in these provisions and the corrective action that we are taking in the Bill, it might be helpful if I were to compare the 1993 Act regime with the arrangements for compulsory acquisition under the Landlord and Tenant Act 1987. Sometimes leaseholders will want to enfranchise mainly because of negligent or exploitative management by the freeholder. There is a separate procedure under the 1987 Act for leaseholders of flats to seek to buy their freehold where the landlord is in serious breach of the lease and is likely to remain so, although it does not seem to be much used.
In those circumstances, the court can make an acquisition order which entitles leaseholders to buy the freehold. They can do this at a price that excludes marriage value. That is because the landlord is clearly at fault and a penal regime is appropriate. If marriage value were removed from the valuation arrangements under the 1993 Act, there would no longer be a distinction between the provisions governing no fault and default enfranchisements. In the Government's view, that would not be defensible.
I now turn to Clauses 124, 125, 132, 133, 141 and 142 mentioned by the noble Lord, Lord Kingsland, in his amendments. The 1993 Act provisions were based on the principles that I have described, but they were defective in two ways. First, they provided that the freeholder's share could never be less than 50 per cent, but could be higher. That was unfair. Why should it be possible for the freeholder, but not the leaseholders, to argue for a higher share? It also led to arguments between the parties, which could be protracted and expensive, about what the shares should be. Secondly, they encouraged the parties into further arguments about what the marriage value was, even when it was pretty clear that it was practically nil.
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The Government wish to retain the principle of the existing provisions but to eliminate the scope for wasteful argument, both about the amount of marriage value in cases in which it will in any event be negligible and about how it should be shared between the parties.
In practice, all but a very few LVT decisions—and those only in highly unusual situations—have always split marriage value equally between the parties, but that has not stopped landlords arguing for a greater share. Therefore, we consider that marriage value should be split 50:50 in all cases. Clause 124 makes such provision for the purposes of collective enfranchisement and Clauses 132 and 141 make equivalent provision for lease renewals and enfranchisement of leasehold houses. Clause 125 provides that where the unexpired term of each of the leases held by participating members of an RTE company exceeds 80 years, no marriage value is payable. Clauses 133 and 142 make equivalent provision for lease renewals and enfranchisement of houses.
We have already heard different views on the principle of the cut-off and the level at which it should be set. Our objective is to prevent costly arguments that are disproportionate to the sums at stake. The principle of a cut-off is consistent with that objective and we are committed to it. Whatever cut-off is chosen, it seems likely that there will be those who will argue that it should be raised or lowered and an element of compromise is needed.
We accept that LVTs have sometimes awarded an element of marriage value when leases have 90 or more years unexpired. However, it would normally be a relatively small amount of money. We also need to consider the point made to us by a number of professionals with long experience in the field that before the 1993 Act came into force, flats with very long leases did not command a measurably higher price than those with unexpired leases of 80 years. That shows that at that time leaseholders would place no additional value on the ability to obtain a new, longer lease.
One key principle of the 1993 Act was that valuations for collective enfranchisement would be on the assumption that the Act did not exist, but in practice the Act's operation has distorted the market so that transactions have taken place including an element of marriage value where the unexpired terms of the existing leases exceeded 80 years. That effect has been assisted by the fact that some very experienced and well resourced landlords, particularly on the great London estates, have brought to bear in these transactions the best professional advice that money can buy, often leaving the leaseholders somewhat outgunned. The Government's proposals would restore the original objective of a "no 1993 Act world" to the valuation process. We believe that the 80-year cut-off achieves that.
That deals in principle with all the arguments advanced by the noble Lord, Lord Kingsland. It also deals with the point of principle advanced by the noble Lord, Lord Goodhart, about why marriage value should be excluded altogether.

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The noble Lord, Lord Goodhart, also referred to the de Beauvoir estate. His point was basically about the effect of rising ground rents. The elimination of marriage value may not help if a major part of the cost relates to buying out the higher ground rent. We are reluctant to cap ground rents. It would be wrong to vary a contract after the event to benefit one party at the expense of another.
In the light of my remarks, I earnestly hope that the noble Lord will withdraw his amendments and not bring them back on Report.
Lord Goodhart: I intend to comply with half of the noble and learned Lord's earnest hope. This is an important issue and the Government are wrong not to accept what seems to us to be the strong validity of the argument that the present right to marriage value does not create a level playing field—or perhaps allows the landlord to take advantage of an irregularity in the playing field. There is no doubt that the pressure of having to move and find a new home puts the occupying leaseholder in a painful position and means that they will be willing to pay over the odds to keep the house that they occupy. We think that it is wrong that the landlord should be entitled to take advantage of the weakness in the position of leaseholders in that way. There is no equivalent to marriage value on the termination of a lease in commercial letting, where the disadvantage of having to move at the end of the lease is far smaller—if anything perhaps the opposite, because it can frequently be a good thing to have a good tenant.
I shall not repeat my arguments, but we regard this as a serious issue and we shall certainly wish to bring it back on Report. Having said that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 152 not moved.]
Clause 124 agreed to.
Clause 125 [Disregard of marriage value in case of very long leases]:
[Amendment No. 153 not moved.]
Clause 125 agreed to.
Clause 126 agreed to.
Clause 127 [Replacement of residence test]:
[Amendment No. 154 not moved.]
Lord Kingsland Lord Kingsland moved Amendment No. 155:
Page 62, line 33, at end insert—
"( )For subsection (2)(b), substitute—
"(b) the tenant or, if the lease by virtue of which the tenant is a qualifying tenant is vested in trustees, an individual having an interest in the trust has occupied the flat as his only or principal residence for at least twelve months at any time, whether or not he has used it also for other purposes.""
The noble Lord said: I have a number of amendments in this group. I shall begin with Amendment No. 156 and then go through the card as briefly as I can.
The underlying principle of Amendment No. 156 is that the residence condition should be retained.
Lord Falconer of Thoroton: I have heard that argument already.
Lord Kingsland: I am afraid that the noble and learned Lord is going to hear it again. I do not think that he has heard it in this context.
The objections to the removal of the residence condition are the same as those relating to Clause 117. Moreover, the so-called anti-speculation measures in Section 5(5) and (6) of the 1993 Act do not apply to the individual right to acquire a new lease—in that respect, see Section 39(3)(a) of the 1993 Act. The proposed introduction of a two-year qualifying ownership period will prevent only short-term speculative gains, whereas a residence condition would prevent all undesirable speculation.
On Amendment No. 157A, Clause 127(3) will abolish the residence condition in relation to the individual right to acquire a new lease. In our view, the residence condition should be retained but modified. The particulars of and arguments for modification are the same as those relating to the proposed new clause after Clause 114. Again, the anti-speculation measures in Sections 5(5) and 5(6) of the 1993 Act do not apply to the individual right to acquire a new lease. That is clear from Section 39(3)(a) of the 1993 Act. The proposed introduction of a two-year qualifying period will prevent only short-term speculative gains.
So far as concerns Amendment No. 159, I have nothing to add to what is already in the amendment.
I turn to Amendments Nos. 167 and 168. Clause 135(1) proposes the abolition of the residence condition in relation to the rights of enfranchisement under the Leasehold Reform Act 1967. That concerns tenants of houses entitled to enfranchisement. The objections to the removal of the residence condition are as stated in relation to Clauses 117 and 127(3). Any difficulties caused by the residence condition could be overcome in the way already suggested. Subsections (3) to (6) simply make consequential amendments to take account of the proposed abolition of the residence condition. They are not required if the residence condition is retained.
Amendments Nos. 168A and 168B are consequential. Amendments Nos. 168C and 1681) do not alter the Government's proposed change in the two-year rule for ownership of a lease. However, they retain the reduced residence period in line with the proposal in the suggested new clause after Clause 114. As before, the residence requirement should be that the lessee should occupy the flat as a residence.
Finally, I turn to Amendment No. 168E. This amendment seeks to introduce a protection from landlords who would resort to company lets so as to provide genuine residential occupiers with the right to enfranchise. The amendment allows the residence condition to be satisfied where the lessee is a company or corporation which owns the flat as, in effect, a

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nominee for the occupier. The same reasoning applies here as it does to the new clause after Clause 114. I beg to move.
7 p.m.
Lord Goodhart: We have two amendments in this group which are, I admit, frankly very minor; at least, one of them is certainly minor. I shall speak to them briefly. Amendment No. 158A deals with Clause 127 on page 63, line 2 of the Bill. The subsection in question has in brackets the words:
"requirement that tenant has occupied flat as only principal home for three years".
That is obviously a drafting error. It should read,
"only or principal home for three years".
No doubt that can be dealt with quickly.
The other and somewhat more substantial amendment is Amendment No. 159A. That amendment seeks to extend from six to 12 months the period during which the personal representatives of a tenant may serve a notice by a qualifying tenant with a claim to exercise a right to enfranchise. We believe that six months is too short a time to enable personal representatives to deal with such issues. I agree that, of course, the six months dates from the grant of probate or legislative administration and not from death. Even so, from the date of the grant of probate it takes a considerable time to gather the estate and to ascertain the debts and assets. It certainly seems to us that 12 months is a more appropriate time limit and that there should be an extension of the period during which personal representatives can claim.
I add a brief word about the substance of what the noble Lord, Lord Kingsland, said. As he has pointed out on a number of other occasions, we were originally rather tempted by the idea of keeping the residence qualification. However, we have accepted that practical difficulties are involved in that. We do not believe that there is a serious risk that speculators will buy the leases of individual houses and then hold them for two years. During that time they will, after all, have to do something to the house to obtain an income from it in order to be able to exercise the right of enfranchisement at a figure which represents the market value of the house. Therefore, we believe that it is reasonable to be satisfied with an obligation to own a lease for two years as opposed to an obligation to be resident in a house.
Lord McIntosh of Haringey: We debated the matter of the residence test earlier this afternoon as well as at earlier stages of the Bill. We appreciate the concern that has been expressed that abolishing the residence test would benefit those who had purchased leases for investment reasons as well as benefiting genuine home owners.
I shall deal, first, with the amendments in the name of the noble Lord, Lord Kingsland, and shall come in a moment to those in the name of the noble Lord, Lord Goodhart. The amendments all proceed from the basis of retaining the residence test but, in their different
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ways and to varying degrees, they adapt it with the aim of avoiding either the exclusion of deserving cases or the inclusion of undeserving cases. I pay tribute to the noble Lord for the zeal with which he has done that.
Perhaps he will forgive me if I do not go through each of the amendments. They are not as complicated as they appear from his speech because many of them are alternatives to each other. Perhaps I may give an example in relation to the enfranchisement of houses. Amendments Nos. 167 and 168 would simply retain the existing residence test. The deletion of Clause 135 would have the same effect and would also reveal the provision covering eligibility where there is more than one leaseholder. Amendments Nos. 167 and 168A to 168E provide a similar relaxation to the residence test as proposed for flats by Amendment No. 157. Clearly, one would not want to put forward all those amendments. The noble Lord simply puts forward alternatives for the consideration of the Committee, and I admire the effort.
However, in the Government's view, it is impossible to devise a fair, workable and unambiguous qualifying test that relies on such a slippery concept as residence. As we have already explained in the context of the right to manage and collective enfranchisement, when considering eligibility for leaseholders' rights we believe that the key principle should be the extent of their stake in the property rather than their length of residence. Residence requirements, however expressed, are open to manipulation and abuse and to endless arguments over interpretation, which we wish to avoid. We are not convinced that tinkering with the residence requirements will overcome those difficulties, and we propose to maintain the position set out in the Bill, which abolishes all residence requirements.
Of course, there is one qualification which I neglected to mention earlier; that is, the need to avoid opportunities for short-term speculative gain. Therefore, instead of the residence test, the Bill provides an alternative requirement of extreme simplicity: the leaseholder must have held a long lease for at least two years before he or she can exercise the individual rights of lease renewal for flats and enfranchisement of houses. We consider that to be a sensible balance.
I turn to the amendments in the name of the noble Lord, Lord Goodhart. The first is, as he said, a minor drafting change. Although the words in brackets are informative and do not have any additional legal effect, we agree that there is a problem with the wording.
In Amendment No. 159A, the noble Lord proposes an extension of the time limit for personal representatives to exercise their right to acquire a new lease from six to 12 months. We shall certainly consider those arguments and those for the equivalent right, which would have to be added to the proposals relating to leasehold houses. In view of the need to reexamine the wording in that context and the associated possible consequential amendments, I hope that the

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noble Lord, Lord Kingsland, will agree to withdraw the amendment so that we can return to the subject on Report.
Lord Kingsland: I thank the Minister for his comprehensive reply. He is right to say that this is, perhaps, 'the third time in the course of our consideration of the Bill that I have raised the principle of the residence test. I have been rebuffed on each occasion not only by the Minister but also by the noble Lord, Lord Goodhart. I also know of many leasehold interests who feel that I am wrong to continue to adhere to the residence test. I shall reflect very carefully before bringing the amendments back on Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 156 to 158A not moved.]
Clause 127 agreed to.
Clause 128 agreed to.
Clause 129 [Personal representatives]:
[Amendments Nos. 159 to 159A not moved.]
Clause 129 agreed to.
Clause 130 agreed to.
Clause 131 [Valuation date]:
[Amendment No. 160 not moved.]
Clause 131 agreed to.
[Amendments Nos. 161 and 162 not moved.]
Clause 132 agreed to.
Clause 133 [Disregard of marriage value in case of very long leases]:
[Amendment No. 163 not moved.]
Clause 133 agreed to.
Clause 134 agreed to.
[Amendment No. 165 not moved.]
7.15 p.m.
Lord Goodhart Lord Goodhart moved Amendment No. 166:
After Clause 134, insert the following new clause—
"EXCLUDED TENANCIES
In section 1AA of the 1967 Act (additional right to enfranchisement where tenancy of house not at low rent), omit—
(a) in subsection (1), the words "and is not an excluded tenancy";
(b) subsection (3); and
(c) subsection (5)."
The noble Lord said: I move this amendment for the purpose of excluding "excluded tenancies" from the right to enfranchise. It is not clear what the purpose of the provisions are.
Section 1AA of the 1967 legislation makes provision for certain cases in which there is no right of enfranchisement in relation to higher value properties. One of those cases involves excluded tenancies. The exclusion applies to houses that are held for a term that is longer than 35 years, that are not at a low rent and that are in certain rural areas that are designated by the Secretary of State; it also applies if the freehold of the house is held together with adjoining land that is not
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occupied for residential purposes. Properties that are let at a low rent are not excluded from enfranchisement, so the provisions apply only to houses that are held for a ground rent that is above the low-rent level.
The purpose of the exclusion is not clear to us. Is it to enable landlords to let off surplus farm cottages on terms that would enable them to get them back if they were leased? There are, I believe, several villages in which a large number of houses are covered by the exclusion. When we debated this matter previously I mentioned the village of Adlestrop. I shall not recite the poem, although it is one of my favourites.
Will the Minister explain the purpose of the exclusion? If the object is to enable landlords to get cottages back, they are not likely to want to let cottages for periods of more than 21 years. We need to consider how the market may affect the way in which the cottages are let for rent or sold off. The exclusion serves no useful purpose that I can see. I await the Minister's explanation with interest. I beg to move.
Lord McIntosh of Haringey: I am grateful to the noble Lord for mentioning Adlestrop. Hansard did not get it right the last time that we debated this matter, when I deliberately quoted Edward Thomas's poem. The first line of the poem is:
"Yes; I remember Adlestrop".
I want that to appear in Hansard and to make it clear that the words are not my own!
I remember Adlestrop and I remember the arguments. The arguments, I am afraid, have not changed since we debated them in Committee during the previous Parliament. The exemption exists to prevent the break-up of country estates. When the right to enfranchise was first extended to leaseholders who could not pass the low-rent test, it caused great concern among rural landowners. They argued that they would not have leased houses that were an integral part of their rural estate if they thought that there was any risk of the house being permanently detached from the estate as a result. We accept that argument and we cannot therefore accept the noble Lord's amendment, which would remove the exemption entirely.
The noble Lord may be arguing that the exemption is too broad. We have some sympathy with the suggestion that the provisions should be more closely targeted. We are willing to look at that in the longer term, although I cannot promise that we shall be able to do so in the context of the Bill.
Just before I leave Adlestrop, I add that we have received representations from leaseholders in that village. Based on that conversation, we are not sure whether Adlestrop leaseholders are caught by the rural exemption. However, they must get their own legal advice on that point.
Lord Goodhart: I am grateful to the Minister. The concern of estates is somewhat far-fetched in this context. When a farmhouse is involved, it would almost always be let on a n agricultural tenancy, and

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there would be no question of an agricultural tenancy being subject to the right of enfranchisement. In this context, we are dealing with houses that were previously farmhouses and the possibility that they might at some future date become a farmhouse again as part of the estate. Frankly, that seems to us to be a far-fetched possibility. It is time to consider removing this particular exclusion. However, it is probably fair to say that this would not affect a large number of properties. On this occasion, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 135 [Abolition of residence test]:
[Amendments Nos. 167 to 168B not moved.]
Clause 135 agreed to.
Clause 136 [Reduction of qualifying period as tenant etc]:
[Amendments Nos. 168C and 168D not moved.]
Clause 136 agreed to.
Clauses 137 and 138 agreed to.
[Amendment No. 168E not moved.]
Clauses 139 to 141 agreed to.
Clause 142 [Disregard of marriage value in case of very long leases]:
[Amendment No. 169 not moved.]
Clause 142 agreed to.
Clause 143 agreed to.
Lord Kingsland Lord Kingsland moved Amendment No. 170:
After Clause 143, insert the following new clause—
"EXPIRATION OF TENANT'S NOTICE
In section 22 of the 1967 Act (validity of tenants' notices), insert—
"(3A) If a tenant has given notice to acquire the freehold under this Part of the Act, and has received a notice from the landlord in response to his claim, but has not applied to the leasehold valuation tribunal to determine any of the matters referred to in section 21(1) within six months of the date of the landlord's notice, the tenant's notice shall be deemed to be withdrawn.""
The noble Lord said: The object of this amendment is to standardise the timings in the procedures for houses and flats facing a claim for enfranchisement. I beg to move.
Lord McIntosh of Haringey: This amendment was tabled in the Committee stage of the previous Bill. I explained then that the amendment would mean that where a leaseholder did not take timely action to resolve any dispute over the price payable, or related matters, their claim would be treated as withdrawn. Given that either party can apply to a leasehold valuation tribunal to resolve such disputes and that, in enfranchisement cases, there is no fee for doing so, we do not see why it is necessary to punish the leaseholder for failing to take the initiative. If the landlord wants matters to proceed, he has only to apply to the LVT himself. We believe that we should be even-handed and we do not consider that it would be appropriate to
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penalise the leaseholder, and only the leaseholder, where both parties have neglected to take any further action.
Lord Kingsland: That is exactly the same answer that the Minister gave me eight months ago in Grand Committee. I shall reflect on the matter and I may return with this amendment on Report and divide the House. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 144 and 145 agreed to.
Lord Goodhart Lord Goodhart moved Amendment No. 171:
Before Clause 146, insert the following new clause—
"TENANT'S RIGHT TO APPLY TO COURT FOR APPOINTMENT OF MANAGER
(1) Section 21 of the 1987 Act (tenant's right to apply to court for appointment of manager) is amended as follows.
(2) In subsection (3)(a) for "or a resident landlord" substitute—
"(aa) the interest of the landlord in the premises is held by a resident landlord and more than half the flats in their premises are held on long leases".
(3) At end insert—
"(8) References in this Part to a landlord (except in subsection (3)) include any person who is responsible under a lease for the management of the premises or any part of the premises.""
The noble Lord said: The purpose of the amendment is to allow tenants to apply to a court for the appointment of a new manager, even in circumstances where there is a resident landlord. The exemption would be restricted to cases where the interest of the landlord is held by a resident landlord and less than half of the flats are held on long leases. In many cases where more than half of the flats are held on long leases the right to collective enfranchisement would be a more appropriate remedy.
The noble Lord, Lord Whitty, when debating such an amendment before the general election, said that there was a need to change the 1987 Act and that the Government were prepared to consider the proposals further to see whether it would be possible to bring forward a proposal at a later stage of the Bill or, as has now happened, on a new Bill to the same effect. Is the Minister in a position to indicate whether there has been any reconsideration of the matter and whether that has led to any action by the Government. I beg to move.
Lord Bassam of Brighton: The amendment tabled by the noble Lord, Lord Goodhart, would make a number of changes to the appointment of a manager regime in Part II of the Landlord and Tenant Act 1987. We fully support his intentions, which are in line with our proposals set out in a consultation paper of August 2000.
I hope that the noble Lord has received and carefully read a letter from the noble and learned Lord, Lord Falconer, of 17th July about this amendment. If so, he will know that we believe that its intended effects are already achieved by Clauses 154 and 155 of the Bill.

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As we understand it, subsection (2) of the new clause proposed by the noble Lord would relax the exemption from Part II of the 1987 Act for properties that are held by a "resident landlord". At present a block of flats and, therefore, its manager, enjoys that exemption if it is a converted property and the landlord both occupies one of the flats as his only or principal residence and has done so for at least the past 12 months. The amendment would qualify that, so that the exemption would not apply if more than half of the flats in the block were held on long leases. Clause 155 is intended to have the same effect, and we believe that it does.
We understand subsection (3) of the amendment to be aimed at ensuring that Part II of the 1987 Act applies against any manager, and not just the landlord. It is, of course, already possible to use the right to seek appointment of a manager against any party. However, the way that the right is currently constructed means that some of the grounds for appointing a new manager can be used only against a landlord. That makes it more difficult to use the right where, say, the existing manager is a third party appointed under the lease. The amendment seeks to put that right. Clause 154 is intended to do the same, and again we believe that it does achieve that objective.
I trust that having heard that explanation the noble Lord will see fit to withdraw his amendment.
Lord Goodhart: In the circumstances I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 146 agreed to.
Schedule 9 agreed to.
Clauses 147 to 152 agreed to.
Schedule 10 [Service charges: minor and consequential amendments]:
Lord Goodhart Lord Goodhart moved Amendment No. 171A:
Page 114, line 13, leave out paragraph 3.
The noble Lord said: This is a probing amendment. Paragraph 3 of Schedule 10 substitutes a new section of the 1985 Act which states:
"The assignment of a tenancy does not affect any duty imposed by or by virtue of any of sections 21 to 23A; but a person is not required to comply with more than a reasonable number of requirements imposed by any one person".
That parliamentary draftsman-speak is not comprehensible to ordinary members of the public.
It is not clear what a reasonable number of requirements from one person would be or why the inclusion of this paragraph is necessary. Can the Minister make clear the purpose of this paragraph? I beg to move.
7.30 p.m.
Lord Bassam of Brighton: We thought this might be a probing amendment. As we understand it, the amendment, if it were to pass into effect, would retain the existing Section 24 of the Landlord and Tenant Act 1985 rather than replace it with the new Section 24 provided for in the Bill.
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Section 24 of the 1985 Act makes it clear that the assignment of a tenancy does not affect the validity of a request made under Sections 21, 22 or 23 of that Act for a summary or for supporting documentation held by a landlord or superior landlord. It needs updating in the light of the changes that the Bill would make to Sections 21 to 23 of the 1985 Act and, in particular, the creation of a new section—Section 23A—to cater for cases where there was a change of landlord.
The new Section 24 would also make slightly different provision where a person received repeated requests for information. The existing rules state that a request to inspect documentation need not be honoured more than once if it relates to the same dwelling and to the same period. The new Section 24 would provide that managers need not comply with more than a reasonable number of requests from the same person.
This reflects the fact that the new rules would allow leaseholders to exercise their right near the beginning of an accounting period with regard to a particular document that they knew their landlord possessed. We would not want them to be prevented from exercising the same right again later in the accounting year with regard to a different document entirely. I am sure that Members of the Committee will agree that a right to inspect documentation only once a year is not a terribly effective safeguard. We wish to ensure that there are effective safeguards. A great deal can happen during the course of a year. We think it proper that the right to inspect should be protected in those circumstances.
That explains our thinking behind this particular operation. I hope that the noble Lord, Lord Goodhart, feels able to withdraw his amendment.
Baroness Hamwee: Before my noble friend responds, I believe that this provision deals with a number of requests for the same requirement made repeatedly rather than different requirements. I am confused by the term "imposed" because that suggests a variety of requirements. It would be helpful if this could be the subject of discussion at the meeting which the noble Lord, Lord McIntosh, has agreed to have following this stage of the Bill. It is less precise language than one normally encounters in such a precise area as landlord and tenant law.
Lord Bassam of Brighton: It would be sensible to ensure that we have precision. We do not want to prevent people from having rights of access to information, but we appreciate the point that some persistent applications can become vexatious. We will discuss that further.
Lord Goodhart: The suggestion of my noble friend Lady Hamwee is a sensible one. While we have no objection to the principle behind this, we need to look at this rather unattractive piece of drafting and to try and clarify it. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 10 agreed to.
Clause 153 agreed to.
Schedule 11 agreed to.
Clauses 154 to 157 agreed to.
Clause 158 [Requirement to notify long leaseholders that rent is due]
[Amendment No. 172 not moved.]
Lord Goodhart Lord Goodhart: moved Amendment No. 172A:
Page 80, line 2, leave out "must be in a prescribed form" and insert "must contain such information as may be prescribed"
The noble Lord said: The amendment is intended to ensure that prescribed information is contained in the notice but the notice does not fail on a technicality. We believe it is desirable to avoid the risk of any notice failing on a technicality, and this would make it considerably less likely. I beg to move.
Lord Bassam of Brighton: I can deal with this amendment in the briefest of terms. The amendment moved by the noble Lord, Lord Goodhart, is entirely unnecessary. Clause 158(2) already provides that the notice shall contain any such further information as may be prescribed. We argue that the provision is already there. I hope that the noble Lord will be satisfied by that, and in the meantime withdraw his amendment.
Lord Goodhart: I beg leave to withdraw the amendment. If the Law Society is not content with what the Minister has said it can mention it in the discussions to be arranged.
Amendment, by leave, withdrawn.
Clause 158 agreed to.
Clause 159 [No forfeiture notice before determination of breach]:
[Amendment No. 173 not moved.]
Clause 159 agreed to.
Clauses 160 to 164 agreed to.
Schedule 12 [Leasehold valuation tribunals: procedure]:
Lord Kingsland Lord Kingsland moved Amendment No. 174:
Page 123, line 31, after "tribunal" insert ", and to any such other party as the leasehold valuation tribunal may direct,"
The noble Lord said: In moving Amendment No. 174 I shall also speak to the numerous amendments in that group. All these amendments are concerned with the operation of the LVTs. I shall look first at Amendments Nos. 174 to 177. At present LVTs have no power to direct disclosure of documents or information relevant to an application. This is anomalous in the context of civil litigation and may lead to parties withholding information or documents harmful to their case without sanction. In short, LVTs need to be given teeth. Their new powers should be exercisable to the benefit and on the application of parties to proceedings before them.
As regards Amendments Nos. 178 to 180, the Explanatory Notes to this part of the Bill state that it provides a power to make regulations enabling LVTs to exclude the whole or parts of cases of parties who
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fail to comply with directions. No such power appears in the Bill as it stands. At present LVTs cannot make directions as to the preparation for, and conduct of, an application and have no sanction except for adjourning, with no power to award costs, if a party does not heed its exhortations to produce reports and documents in good time before a hearing.
As a result, all too often a party arrives on the day of a hearing with an expert's report that has not been disclosed before, leaving the other party with a dilemma; whether to go ahead without having a proper opportunity to verify the contents of the report, or to prepare a cross-examination on it, or whether to ask for an adjournment thereby losing the costs of the day. That practice has gained some notoriety among users of the LVT. It must cease; and it can do so only if the LVT is given the power envisaged by this group of amendments.
Paragraph 8 of Schedule 12, which is addressed by Amendment No. 182, provides for procedure regulations to include provision for the determination of applications or transferred proceedings without an oral hearing and by a single panel member. It is not clear what kind of applications are envisaged to be appropriate for determination in this way. It would be necessary, in order to satisfy the Human Rights Convention right to a fair and public trial, to require that such regulations should include provision entitling an aggrieved party to a hearing before a full tribunal.
In the circumstances, it is to be doubted whether the regulations, foreshadowed by paragraph 8, would have any real use, unless all the parties agreed to dispensing with a hearing and to a determination by a single panel member. That is the purpose of the proposed amendment.
I turn to Amendments Nos. 184 to 187. Paragraph 10 of Schedule 12 would, for the first time, provide the LVT with powers to award costs but only where an application was dismissed on the grounds that it was frivolous, vexatious or an abuse of process; or where the party in question had,
"acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably in connection with the proceedings",
and then the amount payable cannot exceed £500.
It would, perhaps, be wrong, bearing in mind the perception of the LVT as an informal, cheap tribunal, to empower LVTs to award costs following the event in all cases. However, there must be a greater power to impose sanctions where a party has failed to comply with directions, thereby occasioning an adjournment; or where although a party's conduct of the proceedings themselves (in procedural terms) might not have been unreasonable, he acted unreasonably in bringing the proceedings in the first place; or in pursuing them after a reasonable offer made by the other party; or where a party has been forced to take proceedings because of the unreasonable conduct or stance of the other party, thereby potentially throwing the costs of recovery on his fellow tenants through, for example, service charge provisions.
Only when the LVT has the powers envisaged by the amendment will landlords and tenants perhaps be deterred from playing the system as both do at present. Furthermore, a costs limit of £500 is both arbitrary and too low to operate as a sanction in the case of wealthy parties. The LVT should be empowered to award costs at such level as it thinks fit up to the full amount incurred by the innocent party, subject only to an obligation to have regard to the paying party's needs.
Finally, under Clause 86, an RTM would be liable for a landlord's costs before the LVT if the tribunal dismissed its application for a determination that it was entitled to the right to manage premises. As things stand, such a power would be anomalous in the context of the LVT's limited powers as to costs in general and paragraph 10(4) of Schedule 12 would appear to be inconsistent with Clause 86. This group of amendments would reduce the anomaly and remove the inconsistency.
I turn to Amendment No. 189. Members of the Committee will recall that Clause 71(2) of the Bill gives the appropriate national authority the power to make regulations about the content and form of the memorandum and articles of RTM companies. As at present drafted, the regulations are subject to the negative resolution procedure.
The Delegated Powers and Deregulation Committee has already given its view that these kinds of regulations which touch on central points should be the subject of the affirmative approval procedure. We agree. As with the memorandum and articles of commonhold associations, the memorandum and articles of RTM companies are of critical importance to the running of these companies. It is right that Parliament should be entitled to debate and vote on the memorandum and articles.
I turn to Amendment No. 188. At present, an appeal to the Lands Tribunal is by way of a complete rehearing. The parties are forced to call all their evidence again and little or no regard is paid either to the evidence given by the leasehold valuation tribunal or to the reasons given for that tribunal's decision. As a result, an appeal gives a dissatisfied party a second bite of the cherry, and can be used by a wealthier party as an instrument of oppression, notwithstanding the proposed requirement for leave to appeal.
A mandatory appeal by way of rehearing is anomalous in the area of civil litigation, particularly in the light of the Civil Procedure Rules, introduced by the noble and learned Lord, Lord Woolf. Moreover, it suggests a lack of faith in the LVT's decision-making, which hardily accords with the extension of its powers, both in recent years and as proposed elsewhere in the Bill. The proposed amendment would bring appeals to the Lands Tribunal into line with other civil appeals. I beg to move.
7.45 p.m.
Baroness Gardner of Parkes: My Amendment No. 188A appears in this group. In some ways it is
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relevant but in others it is totally contradictory to half of what my noble friend Lord Kingsland said. It is a strange grouping.
I agree with my noble friend's Amendment No. 188. It is right that there should not be a routine right to rehear a case at the Lands Tribunal. A case should be reheard only on the basis of new evidence. I have tabled my amendment because when I took an active part in the passing of the 1993 Act it clearly emerged that it would be expensive for people to use the LVT. When I asked what the costs would be I was told that the cost would cover everything, even the milk for the office cat. Everyone in the your Lordships' House was shocked because we believed that the procedure was to be inexpensive and effective. There was such an uproar that finally a maximum figure of £500 was set. That has worked well.
However, the system has been abused because if it moves on to the next stage—that is, an appeals to the Lands Tribunal—the costs can be unlimited. When we discussed the LVT we suggested that a rich person who wanted to win his case would be able to have expert people and the daily charges would mount up the longer the case continued. Such a problem was dealt with by introducing the £500 maximum.
I have previously asked questions in the House about this matter because we have read in the press of repeated cases of abuse. People are taking cases on appeal to the Lands Tribunal and they are continuing for days and days. The costs can be enormous and the mere threat of a case being taken to the Lands Tribunal can disadvantage the person who cannot meet those financial costs. I believe that the abuse should be stopped. My argument comes from a different direction, although I support Amendment No. 188, tabled by my noble friend Lord Kingsland.
Lord Goodhart: Two of our amendments form part of this group, the first of which is Amendment No. 177A. That amendment is intended to remove the criminal sanction in sub-paragraphs (3) and (4) of paragraph 4 of Schedule 12. We believe that it is inappropriate to introduce a criminal sanction into civil proceedings in this way. There must be a sanction of some kind, but the civil contempt of court provisions as applied in the county court make a more appropriate model rather than criminal sanctions. As to Amendment No. 183A, I am afraid that a mistake has been made, because the "£500" to which reference is made should be the figure in line 22, not in line 1. I do not press that matter. Finally, I certainly support Amendment No. 188A spoken to by the noble Baroness, Lady Gardner of Parkes.
Lord Falconer of Thoroton: I thank the noble Lord, Lord Kingsland, for the clarity with which he moved quite a complicated set of amendments. Amendments Nos. 174 to 177 make the point that one must be able to produce documents; in other words, information. We agree, but we say that paragraph 4 of Schedule 12 already provides that power. We agree with the principle of the amendments but believe that I he point is already covered.

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Amendment No. 177A in the name of the noble Lord, Lord Goodhart, is concerned with penalties for failing to supply information. The noble Lord wants to delete the criminal offence. These provisions are similar to those contained in paragraph 7 of Part 1 of Schedule 22 to the Housing Act 1980, which would be deleted by this Bill. The Committee will be aware that LVTs sometimes find it difficult to deal with parties who refuse to comply with directions or who act abusively at a hearing. We aim to give LVTs greater powers to deal with those who fail to co-operate in proceedings. This amendment would take away the powers. The noble Lord referred to proceedings for contempt of court, which we shall consider between now and Report stage. However, at the moment we remain more attached to criminal proceedings than contempt of court.
The effect of Amendments Nos. 178 to 181 spoken to by the noble Lord, Lord Kingsland, is to give teeth to enforced directions. Amendments Nos. 178, 179 and 180 allow LVTs to issue directions at a directions hearing. We believe that the pre-trial review is sufficient and that it would confuse matters to create the concept of a directions hearing as something different from such a review.
Amendment No. 181 provides that the procedure regulations may include provisions enabling LVTs to enforce their directions by dismissing applications, or excluding the whole or part of a party's case if a party fails to comply with those directions. We agree that the LVTs very much need powers of this kind. The lack of them up until now has been a constant hindrance to their work and a major factor in the disappointingly long time it can take for LVT cases to be dealt with. However, I am advised that, as they stand, the powers in this Bill to make procedure regulations are wide enough to allow us to provide that the LVT may exclude the whole or part of any party's case where that party has failed to comply with directions. Moreover, the introduction of such a provision might lead courts to interpret paragraph 1 of Schedule 12 more narrowly than we would wish. Therefore, we agree with the principle but it is not necessary.
As to Amendments Nos. 182 and 183—the use of written representations—the noble Lord, Lord Kingsland, gave the Committee some legal advice. He said that the Human Rights Act required a party to be heard and it could not be done by written representations. We do not accept that that is right. It can be done by written representations in an appropriate case. The important point is that people have the right to an oral hearing only where natural justice requires it. In certain circumstances, particularly in minor cases, that will not be the case and a written representations hearing is adequate. We envisage that a written representations hearing would be decided upon by the tribunal itself. We welcome views on the appropriate circumstances in which that should occur so that we can deal with it in the regulations that we produce in relation to this matter.
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Amendment No. 183A would, if it had gone forward as drafted, have broken with the habit of a lifetime in relation to the amendments tabled by the noble Lord, Lord Goodhart, and the noble Baroness, Lady Hamwee. However, they were glad to discover that it was a typing error rather than anything else.
Amendments Nos. 184 to 187 in the name of the noble Lord, Lord Kingsland, are concerned with the new power of the LVT to award costs where one party has acted frivolously, vexatiously, abusively, disruptively or otherwise unreasonably, subject to a maximum award of £500. Currently, LVTs sometimes find it difficult to deal with parties who refuse to comply with directions or who act abusively at a hearing. The new power would help them to control the parties more effectively. The maximum sum payable could be increased through regulation, but only with the approval of both Houses.
The grounds on which costs might be awarded are deliberately expressed in very broad terms. In Amendment No. 185 the noble Lord, Lord Kingsland, seeks to particularise the circumstances. These are good examples of the kind of behaviour that we would wish to be subject to a costs penalty, but we believe that the provisions as they stand encompass all the specific grounds that the amendment seeks to introduce. Moreover, the introduction of such detailed grounds might lead courts to interpret paragraph 10 more narrowly than we would wish. We cannot, therefore, agree to this amendment.
The noble Lord, Lord Kingsland, also wants to empower the LVTs to award costs without limit. However, as the noble Baroness, Lady Gardner of Parkes, pointed out graphically, that would disadvantage leaseholders. When service charge disputes were still a matter for the county court, landlords would intimidate leaseholders with the threat of large bills for costs. As landlords were generally able to afford the best legal advice, leaseholders doubted their own ability to win their case, even where they felt that they were clearly justified in their challenge, and often decided not to take their case to court. That is why this Bill provides a cap on the maximum sum payable. If this cap did not apply leaseholders might fear that even an innocent mistake in interpreting directions, or a failure to meet a deadline through some mishap or confusion, could lead to a very large costs bill. These fears would be exaggerated often by their lack of previous experience of LVT proceedings. Unscrupulous landlords would encourage such fears and use them to discourage leaseholders from exercising their rights.
When we debated this matter on a previous occasion, when sadly I was not present, I am told that the noble Lord, Lord Kingsland, suggested that this concern was not justified because he would also require the LVTs to consider the financial resources of the offending party when deciding on the award of costs. We do not agree that such an ambiguous limitation would provide sufficient reassurance. Nor do we believe that it would be right to fetter the discretion of the LVTs in this way. We do not want

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LVTs to feel inhibited from punishing unreasonable behaviour merely because it might cause a little hardship.
Amendment No. 187 is aimed at making it clear that costs can be awarded in accordance with Clause 86 of the Bill. When the noble Lord, Lord Kingsland, tabled a similar amendment in the previous Session we realised that there was the potential for conflict between Clause 86 and paragraph 10 of the schedule. We therefore amended the Bill accordingly. Paragraph 10 now states that costs may be awarded in accordance with specific provisions under any enactment. That would include the provisions in Clause 86 of this Bill. I am grateful to the noble Lord for drawing our attention to this point, but I hope he agrees that we have now dealt with the matter that he raised on a previous occasion.
The effect of Amendments Nos. 188 and 188A tabled by the noble Baroness, Lady Gardner, would be to alter the procedures for appeals to the Lands Tribunal from the LVT. That has some attraction. No doubt the noble Baroness will point out that the argument I have just advanced in relation to LVTs applies equally to the Lands Tribunal. At the moment, one is at a loss to understand how one would distinguish between the two, save to say that there is a "leave" filter before one gets to the Lands Tribunal which to some extent reduces the degree to which tenants may feel at risk in relation to them.
However, having said all that, it is plain that the points raised by these amendments need careful study, in particular with my colleagues in the Lord Chancellors Department. The Lands Tribunal has a complex jurisdiction that comprises cases heard at first instance and appeals from other tribunals. Therefore, it is important that we also consider the implications of any proposed changes in one part of the Lands Tribunal's jurisdiction for the other parts of its work. I undertake to consider it but cannot make any firm commitment at this stage. That deals with all the specific points raised. I hope that in almost every case I have been able to reassure Members of the Committee that the points are already dealt with somewhere in the Bill. In relation to the unlimited costs proposals of the noble Lord, Lord Kingsland, as a matter of principle, we do not think that they are appropriate.
8 p.m.
Lord Kingsland: I seem to have failed in every single case to persuade the Minister of the merits of my amendments. The noble and learned Lord was kind enough to say that I explained them very clearly. With hindsight, perhaps I should have been much more opaque. I shall return to these matters on Report. They are extremely important. The system is defective in many ways. It deserves better than it has received so far. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 175 to 187 not moved.]
Schedule 12 agreed to.
Clause 165 [Appeals]:
[Amendments Nos. 188 and 188A not moved.]
Clause 165 agreed to.
Clause 166 agreed to.
Schedule 13 agreed to.
Clause 167 agreed to.
Clause 168 [Orders and regulations]:
[Amendment No. 189 not moved.]
Lord Kingsland Lord Kingsland moved Amendment No. 190:
Page 85, line 25, at end insert—
"(6) Prior to the Secretary of State or the National Assembly for Wales making any regulations under the powers given herein to the appropriate national authority, the Secretary of State and the National Assembly for Wales (as the case may be) shall consult with the other and, when making regulations, shall take into account the particular desirability of regulations being the same for both England and Wales."
The noble Lord said: 'The Government have taken the view that, because regulations under the Act concern matters of housing, the power to make regulations in Wales should vest in the National Assembly for Wales. This is not the time to debate that issue, but I trust that Members of the Committee will agree that it is desirable, if possible, that the provisions in Wales and in England should be the same.
It may of course be that the National Assembly for Wales would decide to use the regulations approved by the Secretary of State as a model for its own regulations. It is possible to push the virtues of congruency too far. It is said of a statute passed by one of the states in Australia that the Australian parliamentary draftsman was so true to the model provided by this country that the last section of the Act read: "This Act shall not extend to Scotland".
None the less, it is desirable that the Minister and the Assembly—if I may use the expression—should put their heads together to see whether some agreement on the regulations can be reached, The amendment does not force them to agree if they cannot. But it is sensible to see whether some agreement can be reached before the regulations are brought into force. I beg to move.
Lord Falconer of Thoroton: The effect of the amendment is to require a formal consultation process between the Secretary of State and the National Assembly. I can assure the noble Lord, although he hardly needs it, that in the best traditions of the Civil Service—this is written down on my brief—Whitehall officials and those at the National Assembly talk to each other and share information. I am quite sure that the noble Lord would not just accept my assurance in relation to this matter. So I am happy to tell him that indeed they are committed to doing that under a range of concordats. The one between my own department and the National Assembly, for example, commits both sides to inform each other at the earliest opportunity of relevant policy developments, including proposals to bring forward or change secondary legislation and to involve each other in the formulation of policy.

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The arrangements in place under the concordat seem both to ourselves and to the National Assembly to be a sensible and effective way of proceeding. Indeed, we are in the process of reaffirming our commitment to them. We consider that a formal consultation requirement, such as that proposed in the amendment, would be an unnecessary and over-bureaucratic addition. Therefore, we agree with the principle, but we think that it is dealt with by the concordat.
The noble Lord also suggests that it is particularly desirable that regulations are the same for England and for Wales. We do not accept the principle. The National Assembly for Wales has been given general responsibility as a devolved body for making regulations in a wide range of policy areas. That includes leasehold reform. The Assembly already has the power to make such regulations for Wales as it sees fit under existing statutes—for example, regulations under the Leasehold Reform Act 1967. Part 2 of the Bill is merely being consistent with that, rather than establishing any new principles.
We agree that there will often be merit in regulations being the same, or broadly the same, for England and for Wales. Where that is the case, I am sure that that is what will happen. But we do not see any merit in insisting on similarity for its own sake. Nor would it be right, having given the National Assembly the power to make such regulations as it considers to be right for Wales, then to require it formally to consult ourselves in Westminster when it uses them. We are satisfied that the existing relationship is correct. We certainly think that it would be wrong to require the National Assembly to take a more rigid approach where it currently, and properly, has flexibility. In the light of that response, I hope that the noble Lord will withdraw his amendment.
Lord Kingsland: I feel quite exhausted by the noble and learned Lord's peroration. It has left me speechless. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 168 agreed to.
Clauses 169 and 170 agreed to.
Schedule 14 [Repeals]:
[Amendments Nos. 190A and 190B not moved.]
Lord Goodhart Lord Goodhart moved Amendment No. 190C:
Page 130, line 50, at end insert—
"Section 42(2)(c)."
The noble Lord said: Amendment No. 190C seeks to repeal Section 42(2)(c) of the 1993 Act. That section deals with the notices which have to specify an estimate of the premium and other costs to be paid. At such an early stage in the process the figures are really only guesswork and in practice are often misleading. To leave out the information would cause no problems to tenants and would avoid the problem of the sometimes severe underestimate or overestimate of those figures. I beg to move.
Lord Falconer of Thoroton: I am at a loss to know how to deal with the amendment. The note I have received states that Amendment No. 190C attempts to repeal a non-existent provision. I, or, more important, my officials are not entirely sure to what the noble Lord is referring; namely, Section 42(2)(c). If the noble Lord is in the wrong here, perhaps he would like to identify precisely which provision he is referring to. However, if I am in the wrong, then I shall consider the amendment and write to him. Perhaps over the next day or so we can agree which of us is in the wrong and then exchange appropriate letters. I apologise to the noble Lord if it turns out that I am in the wrong.
Lord Goodhart: I shall need to consult with the Law Society on this matter. If it is the fault of the society for passing me incorrect instructions, I shall tell them what I think of them. In the circumstances, I believe that I have little option but to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 190D not moved.]
Schedule 14 agreed to.
Clauses 171 to 173 agreed to.
[Amendments Nos. 191 to 193 not moved.]
House resumed: Bill reported without amendment.

Business
Lord McIntosh of Haringey: My Lords, as consideration in Committee of the Commonhold and Leasehold Reform Bill is now complete, the rules governing the Unstarred Question allow one-and-a-half hours for the debate. However, noble Lords who have prepared shorter speeches in anticipation of a one-hour limit will, I am sure, gain the approbation of the whole House if they maintain their speeches at that length.

Children
8.12 p.m.
Baroness Walmsley Baroness Walmsley rose to ask Her Majesty's Government whether they have any plans to introduce a professional qualification for those involved, or seeking to be involved, in the management of early years' provision.
The noble Baroness said: My Lords, I am grateful for the opportunity to raise with Her Majesty's Government an issue of the utmost importance. All noble Lords believe that education in the early years is probably the most important period of education, the time when the intellect, the emotions, social skills and the physique develop rapidly, and when good foundations can be laid for the future—or not, as the case may be.
The commitment of the Liberal Democrats to high quality and inclusive early years education is well known to the House. I use the words "high quality" and "inclusive" deliberately, because they are at the

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heart of the question I have tabled this evening. If we do not get the quality right for all children in the early years then we risk doing irreparable damage to countless young people.
We believe that the child should be put at the centre of early years' provision and that care, health and education should be integrated, something that is particularly important for children with special needs. That is why some of the Government's initiatives on early years education made over the past four years have been most welcome.
We welcome the National Childcare Strategy as a serious attempt at co-ordination and targeting scarce resources towards those who need them most. If we have a criticism of the strategy, it is that it places too much emphasis on getting parents back to work and does not always put the child at the centre of policy.
We support the replacement of Desirable Learning Outcomes with Early Learning Goals and the establishment of the Foundation Stage, in particular its applicability to all children in the reception year. These changes, of course, have training and resource implications. Many primary school teachers who are still in post and who qualified before 1985 do not have any specialist training in early years development, such as trainee teachers can choose nowadays, so there is much professional development work to do.
I should like to explain the background to my Question. The pre-school sector is expanding rapidly and is probably the most complex in the whole of education in three ways. First, the structure of provision is extremely varied. There are childminders, voluntary and community playgroups, toy libraries, nurseries run by the state, charities, voluntary organisations and for-profit companies. The organisation of these provisions is covered by many bodies, policies and initiatives.
Secondly, the range of skills and knowledge required to deliver quality services in the sector is wide. Knowledge of appropriate teaching techniques and the value of play, childcare and health, child development, psychology, physical education, the recognition of special needs and, most of all, managerial and organisational skills are needed in all early years settings and in the organisations that run them.
Thirdly, there are numerous entry points and the academic backgrounds of practitioners who have ambitions to manage are varied. A wide range of qualifications is currently available. I counted 30 job roles and 25 different qualifications in the matrix available from the Academic Qualifications Council website and I know that the range is still developing.
I understand that three management qualifications are already available: those from BTEC; NVQ level 4 and those covered by the new Council for Awards in Childcare and Education, known as CACHE. Some of the qualifications are aimed at managers of settings and not at senior practitioners. None of them has sufficient mandatory content aimed at increasing the
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confidence of trainees in recognising special needs and managing resources to help children with learning and physical disabilities.
In view of the complexity of the knowledge base and the impossibility of any one person having all the skills needed to work with small children, it is common to find teams made up of several different specialists working in the field. That means that those who hold senior positions in early years' provision desperately need high-level managerial skills to ensure that the teams operate effectively for each child in their care.
Liberal Democrats have welcomed the Early Years Development and Childcare Partnerships. We believe in integration of care and education for children under five and the partnerships are proving to be effective vehicles for movement towards that. Although the principles behind the partnerships are sound and the DIES is enthusiastic about them, there are some problems. Local authorities are not always quite so enthusiastic in their support. Many urgent calls are being made on the available cash and priorities have to be decided. The partnerships sometimes suffer. Management of the partnerships is a very difficult task, requiring in-depth knowledge of the sector and enormous dedication. Lead partnership officers have to cope with over 40 funding streams for the implementation of their plans. There is a great need to raise the standards of managers within the partnerships to help them to meet the enormous demands made of them.
The Government have committed themselves to raising standards as well as to widening the availability of places. We applaud the establishment of the Early Years Directorate in Ofsted, but we are cautious about the level at which standards are set. If standards are too low, damage will be done and some anecdotal evidence suggests that this is currently the case. Our European partners are moving ahead of us already. For example, Spain and Portugal now expect degree level qualifications from those working in early years' provision. I understand that Ofsted is committed to reviewing standards in 2003, but I wonder if the Minister can tell the House whether that review could be brought forward?
If standards really are to be raised, there is a need for new thinking in primary schools. We call for the appointment of supernumerary early years specialist teachers in primary schools to take on the whole early years agenda. Such people could support and train other staff, work with feeder early years settings to raise the standards of provision, and would be the ideal candidates for a management of early years qualification such as we envisage, since they would already come from experienced teaching backgrounds. People working in the excellent Sure Start schemes and the Early Excellence Centres would also benefit from such qualifications. Both of those initiatives are growing, so there is a pressing need for the right people to manage them.
The expansion of early years education and childcare was never going to be easy. If the Government are to meet their goals, they will have to

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provide additional training for existing experienced practitioners and attract into the profession many more men and women of ability and ambition. For some of the people we need to attract, a professional management qualification, age-specific to early years, would be an attractive addition to the range of qualifications now available.
Although the National Professional Qualification for Headship would be relevant to early years settings since it focuses on generic leadership skills, few early years managers have historically undertaken it. There is a view that this may be because of the limited opportunities for career progression and the fact that, historically, graduates of NPQH working in the early years sector would still be remunerated on the main pay scale. If qualified teachers are to undertake further study on accredited courses, there is a need for age-specific leadership courses and further pay and career progression opportunities. There must be parity of opportunity for professionals in early years with their colleagues higher up the age range.
In addition, recent changes to the SEN framework, the new approach to identification and assessment heralded by the forthcoming SEN code of practice and the advent of new duties on all early years settings not to discriminate against disabled children make a review of this area all the more vital since they will mean new challenges for senior managers across early years. Awareness of these new and additional duties should permeate everything in which senior management is involved—planning, reviewing and developing policies, staff management and recruitment, and even the content of job descriptions—as well as the more specialised SENCO role.
The senior management teams of all early years settings will need training and guidance in the new duties, as will cluster SENCOs and registered childminders. All managers should in any case be required to have some level of training in identifying and responding to the needs of children with SEN, including those with low incidence disabilities such as visual impairment and deafblindness and those with complex needs. I would not expect every manager or SENCO to have in-depth knowledge of such low incidence disabilities, but they do need to feel confident about where to turn for further help and information. Modules covering this area need to be prominent and not optional in the qualifications available to those wishing to climb the ladder.
I know the qualification matrix is evolving and I welcome, for example, what the Government have done to open up access to higher education for nursery nurses and others already working in the sector. However, I would encourage the Minister to accept the case that I have made this evening for additional professional managerial qualifications to match the new duties and the expansion of the sector.
8.22 p.m.
Lord Bhatia: My Lords, I am grateful to the noble Baroness, Lady Walmsley, for raising this issue before
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your Lordships' House today. I am grateful because the whole area of early childhood education until very recently has been the Cinderella in our education system. Hitherto, it has been relegated to the margins of our education system, without commitment to invest adequately in the training of professional teachers with credentials and making facilities available for children of three to five years of age.
The good news is that the Government are now making what appears to be a massive investment through the Sure Start programme in 260 of the poorest areas of the country. The emphasis is on the zero to three age group. This needs to be extended to the three to five age group in a more defined manner, with additional commitment to curriculum development and a proper teachers' training programme. The emphasis also has to be on high quality educational intervention.
I wish to declare my interest as a former board member of the High/Scope Education Foundation of the USA and having been, in a very small way, responsible for the establishment of the High/Scope Institute in the United Kingdom. Both these institutions are dedicated to early childhood education.
I firmly believe—I hope that the House believes—that the Government should help to establish programmes that contribute to the development of three to five year-olds, particularly those born in poverty.
The longitudinal research spanning four decades that was carried out by the High/Scope Foundation, known as the Perry Preschool Study, shows interesting results. The study began in 1962 with 123 children, who have been tracked from the age of three to their current age of 40 (except for those who died). Out of those 123 children, 58 children received a high quality early childhood education, with trained teachers, and 65 children received no early childhood intervention.
The research has shown, first, that the group of 58 with the benefit of an early childhood education programme graduated from high school at a greater rate—75 per cent versus 54 per cent; secondly, the girls in the programme group had fewer teenage pregnancies; thirdly, those in the programme group had better jobs with higher earnings, they had less need for welfare payments from the Government and they had fewer children out of wedlock.
An important part of the research showed that the programme group committed significantly fewer crimes—7 per cent versus 35 per cent—but, most significantly, the benefits to society of providing the programme greatly exceeded the cost of not providing it.
It was also found that, at the age of 27, for every US dollar spent in relation to the programme group, society spent 7.15 US dollars on the non-programme group. The statistics were particularly relevant to children from poor families. The evidence was compelling in pointing out that investing in early childhood education saved seven US dollars for every

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one US dollar spent in the early years. As a result, many state governments in the USA have invested heavily in this area of their education systems.
A pound spent today should not be seen as an expenditure but as an investment which will bring back £7 as a saving in the long run. There will be less crime, more jobs and less poverty.
I am not promoting any particular model of early childhood education. What we should be thinking about is high quality early childhood education. This needs investment in a quality teachers' training programme and a well paid profession, properly accredited and appreciated.
The scope of our early childhood education programme should cover all three to five year-olds, backed by a validated curriculum and trained teachers. The growing demand for childcare is an essential consideration in providing early childhood programmes.
The prime purpose of early childhood education is to contribute to children's development. Commitment to children's development differs from, on the one hand, custodial care that seeks only to keep children safe and out of trouble, to good early childhood teaching that promotes children's development by practices that support them at various steps on their developmental path on the other.
Apart from investing in high quality teachers, there should be a partnership with the parents. Parents should be full partners with pre-school teaching staff in contributing to children's development. Mutual respect between parents and teachers is essential. Teachers should respect parents as the experts on the lives of then- children, and the parents should respect the teachers as the experts in early childhood development and education.
Barnado's in the UK has invested substantially in early childhood education in partnership with the High/Scope Institute in the United Kingdom. Over the past six to seven years they have trained and endorsed 140 teachers and an estimated 17,000 practitioners are reaching 250,000 children. No doubt there are other successful programmes. It would be useful for the Government to evaluate such programmes and to invest by replicating them across the country.
Here again, through Sure Start, the Government are committed to carrying out a national evaluation of Sure Start over a period of seven years. It is a longitudinal study until 2007 and is said to be the biggest piece of social research the Government have commissioned in recent years. This is indeed good news as important lessons will be learnt and from that will emerge a coherent early childhood education policy to benefit future generations in the UK.
In conclusion, I hope that the Government will continue to move early childhood education from the margins to the mainstream of our education system, with adequate resources for promoting the right models of early childhood education, coupled with a rigorous accredited teachers' training programme, with adequate recognition and reward policies.
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Otherwise we will be consigning future generations of children, mainly from low income families, to a cycle of unemployment, crime and more poverty.
8.30 p.m.
Baroness Sharp of Guildford: My Lords, l am grateful to my noble friend Lady Walmsley for raising this important Question.
The UK has a poor record in early years provision. Our spending is well below the 13 to 14 per cent of education budget that one finds, for example, in the Scandinavian countries. Indeed, provision generally in this country is well below the kinds of levels that are found across all our partner countries in the European Union. Thanks to the Government, the position is rapidly improving, but it is important to get it right. The noble Lord, Lord Bhatia, rightly referred to the increasing recognition of how crucial the early years of education are in terms of learning experience and later achievement.
It has long been recognised that a mother's educational qualifications are important in terms of defining a child's achievements at school. But it is now recognised that what a mother does with a child in the early years is even more important. The noble Lord, Lord Bhatia, referred to the various programmes in the United States, including the Head Start programme. I remember the Red House programme in the 1960s which was associated with the. Plowden report. It included peripatetic teachers, toy libraries and all kinds of experiences that we are now beginning to replicate in programmes such as Sure Start and the early years centres of excellence. But it is a shame that we have had to wait for 40 years to put into practice some of the lessons that were learnt in the 1960s.
The emphasis resulting from those experiments and from continuing work and research over 40 years is not merely on the importance of education but on the integration of services. We must integrate health services, social care and education in order to provide high-quality early years provision. As the noble Lord, Lord Bhatia, mentioned, there is increasing recognition of the value that this achieves. He put it in terms of dollars in referring to the American experience. In this country, for every £1 spent on effective early years intervention we save £8 later in terms of having to provide for special education needs and the failures of children.
Let us go further. There is now substantial evidence that successful early years intervention helps with the problems of social inclusion, child poverty, educational under-achievement, adult illiteracy, welfare dependency and unemployment. In other words, if we are to break the cycle of deprivation, the early years are the point at which we must intervene.
Why has it taken us so long to recognise that? Two questions are raised in relation to training and qualifications in this sector. The first concerns the general level of qualifications. Why, if the early years in a child's life are so important, do we 'value professionalism in this sector so poorly? Nearly all four year-olds are now taught in a school setting by

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those who have qualified teacher status—although not all of them have specific qualifications in early years teaching. If we look at the under-fours—all the evidence points to the importance of those years—the bulk of the provision is not in the maintained school sector but in the private and voluntary sector, where, although 75 per cent of paid staff have some relevant qualifications, many of these are only at NVQ levels 1 or 2. By no means all settings where early years care and education are provided are led by those with qualified teacher status. Indeed, many are led by people who have no qualifications at all. The many volunteers in this sector play an important part without any qualifications. Many children from nought to three years of age are looked after by childminders, only 30 per cent of whom have any relevant qualifications, and many have relatively low qualifications.
During the House of Commons Select Committee investigation into early years provision which took place two years ago, Barry Sheerman, who chaired the committee, kept raising the question: if you will not employ a plumber who has no qualifications, why do you trust your children to people with no qualifications? It is an important question and one that needs answering.
One answer is that, traditionally, low level qualifications go back to the low level of provision, especially in the education sector. The fact that much care was counted as social care, or childcare—a term that is still used—meant that it was provided within the social services sector. So a dichotomy arises between the caring tradition of the social services sector, with its nursery nurse qualification, and the teaching tradition of classes in nursery schools which demanded some kind of teaching qualification but not necessarily a qualification in early years teaching.
As many reports have pointed out, it is important to link the two traditions. It is important in particular to ensure that those who start by taking one of the lower level NVQ qualifications should have the opportunity, if they are so inclined, to shift across into the higher levels and to be able to take degree courses and achieve qualified teacher status. The new "climbing frame" of qualifications that is being introduced will enable them to do so. But equally important is the need for recognition within the teaching tradition of the importance of early years specialisation. Opportunities must be provided to progress along that route. In other words, we need to see a general raising of standards across the board, but in particular the opening up of opportunities for those in the voluntary and private sectors to improve their skills and capabilities.
That brings me to the key issue of our debate; namely, qualifications not only for practitioners and teachers within the sector, but also for those moving into management positions. As I stressed earlier, there is a need to integrate the health and social and services sectors and the education sector. As the noble Baroness, Lady Walmsley, made clear, many diverse groups are playing a part. We have early education
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centres; Sure Start initiatives; peripatetic teachers attached to primary schools; outreach workers; new regeneration projects; and education action zones—to mention merely a few. There is an enormous diversity of provision.
These are now being brought together at local level in the early years development and childcare partnerships. The initiatives are now pulled together with existing public and private provision. So we are looking for people with wide experience who can work across different sectors, both within the various crosscutting initiatives and within the partnership. As the noble Baroness, Lady Walmsley, indicated, we should be working to develop at least part of this within the climbing frame of qualifications and a set of qualifications aimed at people who can integrate these skills—or perhaps more appropriately at managers of integration.
Early years education in this country has been moving fast over the past few years. From these Benches we applaud and endorse many of the new initiatives introduced by the Government. As I have argued, the early years are a vital stage in education and as a nation we have perhaps undervalued the fact for far too long. New initiatives provide an opportunity to reverse the position, but in order to succeed they require three crucial elements.
First, resources are needed—and it is not yet clear that the Government have realised quite how big the bill is likely to be. The second element is a willingness to overthrow old traditions and bring new joined-up thinking and working into this area. There is now ample evidence that people working in this area are willing to do this, provided the resources are there.
Finally, it needs leadership. Leadership to seize these opportunities and to integrate and build a new, sustainable tradition out of these new opportunities. What we are talking about this evening, therefore, is how we can grow the leaders to fulfil this third function.
I very much look forward to the Minister's response to our questions.
8.40 p.m.
Lord Rotherwick: My Lords, may I congratulate the noble Baroness, Lady Walmsley, on selecting this subject for debate. As the noble Baroness said, the care and the education of our young children are very important.
This is a timely debate. The report on early years education which was published last December and the follow-up report which was published in May this year, together with the response from the Government, were discussed last Thursday in another place.
I noted that the chairman of the Education Sub-Committee, Mr Barry Sheerman, MP, admitted that although the report covered children from the age of nought to eight the committee mainly focused on the years three to five. One could therefore argue that the report is incomplete and the committee will have to

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revisit this subject before too long. Would the Minister be able to say whether there are plans to extend the work of the Select Committee on this issue?
Before addressing the issue of qualifications and training, I must refer to a concern about the distinction between care and education. I know that in some ways for the age group under discussion they are inextricably linked. However, given the way in which Whitehall works and the way in which departmental budgets are arrived at, together with complicated and often burdensome bureaucracy, it is important to know who is responsible for what, in terms of delivery of service and funding.
As so many in another place and in this House have said, there are many people involved with children during their early years. The most significant of these is the mother. The report recognises this by claiming, rightly in my view, that the parents are the first and most enduring educators of their children. There is also, for many children, considerable informal contact with other members of the family, including grandparents and also neighbours and friends, all of whom will have an impact on the development of the child.
As was said by Mr Sheerman in the Westminster Hall debate last Thursday:
"I want basic training, as our report strongly recommends, but I also want a graduate-trained teacher in every setting".—[Official Report, Commons, Westminster Hall, 18/10/01; col. 311.]
Will the Minister agree that such a policy will signal the end of the existence of playgroups? The playgroup and mother and toddler groups have been the mainstay of the provision in rural areas. Can I ask the Minister: is the aim to have a graduate-trained teacher in every setting by a particular date? If so, what is the timescale and what will be the cost?
I agree with my honourable friend Eleanor Laing MP who, in another place, made the point that schools, both primary and secondary, are having financial difficulties. In fact, it is true to say that unprecedented sums of money are being held back by the Government to fund initiative after initiative. "Initiative fatigue" is a much-used reason given by teachers for their discontent, yet more resources are siphoned off at local government level to fund the costs of the additional bureaucracy imposed by central government.
The recommendations from the Select Committee report that have been accepted by the Government will make even greater demands on resources. It goes without saying that, unless new money is provided, every pound that is spent on new policies, however welcome, is a pound less available for the core funding of our primary and secondary schools.
To return to the distinction between care and education in the context of this debate, is the funding for childcare to come from education budgets? If not, what provision for nought to eight-year-olds is to be met from the education budget?
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It would also be helpful to know from the Minister precisely who must have qualifications and what qualifications they must have. For example, will the raft of informal arrangements that are made by so many families be affected by these proposals? To what extent will they be compulsory? Who will fund the training? Who will manage the certification and validation process? In what way will the new arrangements affect the private and voluntary sector? In particular, will the Montessori training and qualifications be accepted without amendment?
Mr Barry Sheerman, when referring in another place to all those involved with the care and education of children having appropriate qualifications, said:
"Most people in this country would not get someone who is unqualified and untrained to fix an appliance such as a washing machine or dishwasher, even if the person were recommended or appeared in the Yellow Pages".—[Official Report, Commons, Westminster Hall, 18/10/01; col. 310.]
The noble Baroness, Lady Sharp of Guildford, alluded earlier to a similar quote.
Most parents, grandparents and friends who have provided that informal childcare have not had formal training, and yet their instincts and natural talents have enabled them to fulfil the childcare role most effectively. For decades, untrained and often very gifted amateurs have assisted teachers in classrooms. They have contributed greatly to the lives of our young children. I do agree, however, that, where appropriate, qualifications should be developed and training should be provided to equip those responsible for the care and education of children.
The Sure Start programme, as mentioned by the noble Lord, Lord Bhatia, has been in place for some time but it has slowed down in recent months. Is it true that there is a substantial underspend on the budget, and what is the reason for the delay in expanding the Sure Start programme? From the evidence given to the Select Committee it is clear that there are some concerns about this.
The role of parents was particularly emphasised in the report as a key factor in the care and education of children. I am pleased that the role of parents is to be strengthened.
My honourable friend Andrew Turner, MP, has said in another place that there is a danger of patronising, undermining or de-skilling parents by treating them as though they know less and have less appropriate instincts than the professionals who are involved in early years development. Clarification on the strengthened role of parents would be most welcome.
It has to be said, however, that all this is taking place against a background of a serious crisis in teacher recruitment. The number of vacancies has been running at a record level. There is frantic recruitment from overseas and poaching of teachers from some countries which can ill afford to lose them. A substantial number of teachers are teaching subjects for which they were not trained, and there remains a lack of core funding for schools. The level of unnecessary and burdensome bureaucracy has not, as

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promised, decreased sufficiently, and the problem of indiscipline in the classroom is growing. Unruly classrooms and lack of protection are being cited by many teachers as the reason for leaving the profession.
There has been a massive reduction in playgroup and nursery places in the private and voluntary sectors and, finally, there is a shortage of childminders. My honourable friend Damian Green, MP, shadow Secretary for Education, has said recently that we need to reverse the trend that has seen 2,000 nurseries closed since 1997 and that protection has to be given to the early years providers, who are under a continuous and growing threat.
It will be essential for the Government to be explicit about who must train and be qualified. How many more graduate-trained teachers will be required? What will be the cost and what will be the timetable?
Finally, I must ask on behalf of the statutory school sector that any additional expenditure required to meet these recommendations should not be at the expense of primary and secondary schools.
Once again I thank the noble Baroness, Lady Walmsley, for the opportunity to discuss the most sensitive and formative years of young children.
8.49 p.m.
The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland): My Lords, I too thank the noble Baroness, Lady Walmsley, for initiating this debate and for providing me with the opportunity to talk about the new senior practitioner qualification which is currently under development and to agree with her on the importance of early years.
I noted the noble Baroness's comments about child-centred education and whether our focus perhaps had been too much on parents returning to work. It is within the Department for Education and Skills that these issues lie, which I think is a reasonable indication of the value that we place upon the child in this context.
I am also grateful to other noble Lords who have spoken. All have focused on how vital it is to attract and retain high quality people who can provide the very best care and education for our children. I wholeheartedly agree with that. This new initiative will play a part in helping the sector to hold on to experience and talent while meeting individuals' desire for better career progression.
I agree with the comments of the noble Lord, Lord Rotherwick, on the role of parents. Parents are, of course, the most important and the first educators of children. We believe strongly in supporting parents to enable them to provide as much as possible for their children.
The noble Lord, Lord Bhatia, mentioned the American experience of High/Scope. That US programme has an evidence based approach to early education. It is highly respectable and I believe we can
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all agree with the noble Lord that it has had a dramatic impact and points to the need to look carefully at the quality as well as the quantity of early years provision.
A number of noble Lords mentioned the Sure Start programmes. I noted that the noble Baroness, Lady Walmsley, described some of them as excellent. I agree entirely with her. The longitudinal study is, of course, extremely valuable in Sure Start.
The noble Lord, Lord Rotherwick, asked about the underspends. It is true that if you take a simplistic view there is money currently in the budget, but all of it is committed. It takes time to develop such unique programmes at a local level, building, as other noble Lords have pointed out, on bringing together in a joined-up manner (if that is not a rather bizarre expression) health, social care and education. Therefore, it is not that we have been slow or have delayed bringing forward the money; it is simply that we need to get these groups working in an effective way to enable them fully to utilise the money.
We can all support—the noble Baroness, Lady Sharp, mentioned this—the integration of services as being the appropriate way forward. I recognise that early years care, education and playwork have a key role in delivering a range of strategic government goals. We are committed to raising children out of poverty, in part by offering opportunities for parents to improve their skills and be able to work to support their families.
For those who work in early years provision we are committed to raising their skills and enhancing their professional reputation, recognising the important role that they play. We are equally committed to ensuring that children enjoy the benefits of high quality care and early years education. I need not remind noble Lords of the importance of those early years of play and discovery.
The noble Lord, Lord Rotherwick, asked about having a qualified teacher in every setting and whether that would mean the end of playgroups. That is certainly not the case. Qualified teachers will help support playgroups to deliver the foundation stage effectively. We work closely with those national organisations involved in that provision.
A key operational objective, therefore, is to secure 230,000 people trained to level 2 or 3 by 2004. We talked about the role of Ofsted. The noble Baroness, Lady Walmsley, asked whether we could bring forward the review of regulation that Ofsted is undertaking. The answer is, no. The reason is that it will take time to embed the standards and complete the first round of inspections. At that point we can review the provision and see how it is progressing. I am sure that noble Lords will debate that at length. We are obviously working closely with the Learning and Skills Council to promote its support for training in the sector, and this is co-ordinated locally with early years partnerships, early years development and child care partnerships.

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A number of noble Lords talked about the need for leadership in those partnerships. We recognise the importance of that. In an early excellence centre it is quite normal to have 40 or 50 people involved and therefore developing leadership skills is crucial and is something to which we pay particular attention.
I believe that the new qualification we are pursuing will be a huge career boost for early years workers and others. That initiative follows our education Green Paper published earlier this year. In that we made clear that we would create a new professional level and career staging post at foundation degree level for those who wish to continue working directly with young children rather than moving into a wholly managerial position. The new qualification will be a sign of professional excellence. And for people who want to progress even further, it can be a springboard to becoming a fully qualified teacher specialising in the early years. I believe that the noble Baroness, Lady Sharp, mentioned that.
The foundation degree is designed to link to a new employment-based route to qualified teacher status involving the achievement of graduate status and completion of initial teacher training requirements. The Government are investing £18 million over the next three years to help create these new qualifications in partnership with universities and employers and to help the first 1,000 people to start studying for them. Noble Lords will be aware that the foundation degree is a new kind of qualification launched in the summer of 2000 to provide a more work-based route to higher education. Thus, the foundation degree in early years enables learners to remain employed and to study through a variety of means including on-line and distance learning.
We are working with the universities and their further education college and employer partners to ensure that learners are well supported in the workplace, including through a mentoring scheme. We wish to ensure they are able to complete the foundation degree successfully despite the demands of work and family life.
The foundation degree is linked to a carefully constructed "statement of requirement" which sets out the content and preferred delivery processes necessary to ensure a consistent approach and maximise every learner's chance of success. More importantly in the long-term, basing the foundation degree on a statement of requirement agreed by employers through the Early Years National Training Organisation and universities will ensure that the content really does represent what is required to be a senior practitioner.
We are also supporting learners financially through course fee waiver and personal bursary schemes to help with the purchase of essential items, such as books and computer consumables. We hope, too, to develop a particularly innovative aspect of support for learners with the loan of a laptop computer and printer for their personal use. They will be able to purchase this equipment on leaving the programme. I answer that question before it is asked.
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We are doing this because we want to pay particular attention to ensuring that learners are not only computer literate themselves, but are able to use information and communications technology to benefit the children in their care. It is a requirement for those wishing to proceed to qualified teacher status.
There is no time limit for completing the foundation degree, although it is anticipated that most learners will require between two and three years. The employment-based route to QTS will take a minimum of two further years, giving an average time from entering the programme to qualified status of around five years. It is certainly a substantial commitment, but the universities believe that it would be difficult to shorten the period for a work-based degree.
Everything possible will be done to ensure that each learner has a personal learning plan and access to learning and tutor support at all reasonable times. We believe that the key to the success of the new route is adequate support for learners, and we are confident that the universities and colleges involved understand this challenge and are ready to rise to it.
A number of noble Lords raised the question of special educational needs. SEN is covered in several of the modules. I, too, accept and recognise the importance of developing special educational needs work within the early years. We know that the greatest advantage is found when children are diagnosed early as requiring a special educational need and the appropriate support can he put in place.
If I may use one of the mantras which those who work with me in the department are used to hearing, it is my view that when a child arrives at school with his or her little rucksack containing pencil case, ruler and lunchbox, it should also contain a special educational needs kit that the child might need. For far too long, far too many resources in primary education have been taken up with identification assessment before providing the necessary and appropriate resources. I believe that we can do more in the early years to establish those requirements for the development of those children.
The QCA framework has provided for the first time clear, comprehensive and integrated information about the skills, competence training and qualifications needed for the wide range of jobs in the early years education, childcare and playwork sectors. It has also provided much needed consistency and clarity, and made it easier for people to know what training and qualifications they need to progress in their careers.
The framework gives the sector information and guidance on which qualifications are appropriate and gives national recognition to the standards that workers have achieved and their level of professionalism. It also provides a clear career structure for early years education, childcare and playwork practitioners by helping them to build on their past experience and qualifications for their own

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professional development and satisfaction. The noble Lord, Lord Rotherwick, asked about the Montessori system. Those qualifications are currently under active consideration for inclusion within this framework.
The new framework will help people to make progress in their careers to move sideways and, if they wish, to move upwards and/or into related sectors. It describes the content and purposes of early years and childcare qualifications.
We have to recognise the contributions of others. Noble Lords—and the noble Lord, Lord Rotherwick, in particular—mentioned the role of volunteers. In setting the level of qualifications, one has to be mindful of the difference and variety in provision. We would not wish to do something that in any way prevented those good volunteers from working within the sector, or indeed involving parents.
At the moment there are 18 qualifications in the framework. Awarding bodies are still developing National Vocational Qualifications at Levels 2 and 3, based on the standards. Those will be added to the framework when QCA accredits them. In addition, the same bodies are reviewing their non-work-based vocationally recognised qualifications relating to the standards. Those will also be incorporated into the
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framework when the QCA accredits them. Those initiatives will help the sector to hold on to experience and talent while meeting the desire for better career progression.
We all recognise how vital it is to attract and retain high quality people who can provide the very best care and education for our children across all education. The noble Lord, Lord Rotherwick, talked about the difficulties within education. Crisis is a very big word, but it is not one that I have learnt to use lightly in your Lordships' House. I do not believe that we have a crisis in education in terms of teacher recruitment, but I recognise that we have a problem. The investment that we have made in early years education is specifically aimed to help children to develop their potential and to arrive at school more able to enjoy and develop in the way that we all wish to see. It is an integrated approach to education that begins at nought and should end at 99, or possibly even older.
I once again pay tribute to the noble Baroness, Lady Walmsley, for initiating the debate and to all noble Lords who have contributed to its quality. As the noble Lord, Lord Bhatia, said, this is about moving from the margins to the mainstream. I echo the noble Lord's sentiments.
House adjourned at two minutes after nine o'clock.