Commonhold and Leasehold Reform Bill [H.L.]

HL Deb 22 October 2001 vol 627 cc840-94

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 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.

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, 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.

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). 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 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. 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 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 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 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. (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—

1. (a) the extent of cover procured, and
2. (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". 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. 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.

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 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 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 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 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—

1. (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
2. (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.

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 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 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 moved Amendment No. 148: Page 60, line 17, at end insert— 4BA Relevant conveyance to RTE companies (1) In this section—

1. (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
2. (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—

1. (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
2. (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 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 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.

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 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 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 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 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 moved Amendment No. 151: After Clause 123, insert the following new clause— "ABOLITION OF MARRIAGE VALUES In Schedule 6 to the 1993 Act, omit—

1. (a) paragraph 2(1)(b);
2. (b) paragraph 4;
3. (c) paragraph 5A(2)(b);
4. (d) paragraph 5C;
868
5. (e)paragraphs 9 and 9A;
6. (f) paragraph 10(1)(b);
7. (g) paragraph 12;
8. (h) paragraphs 15 and 16; and
9. (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 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 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 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 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.

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.

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 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 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 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 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 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 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 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 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 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 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.

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 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.

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: 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 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 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 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.

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.

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 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 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.

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 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.