HL Deb 22 October 2001 vol 627 cc819-26

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 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 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 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 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 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 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.

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.

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