Commonhold & Leasehold Reform Bill [Lords]

Public Bill Committee, 15 January 2002.

Standing Committee D

Commonhold & Leasehold Reform Bill [Lords]

Michael Wills (Labour, North Swindon)

I beg to move,

That

(1) during proceedings on the Commonhold and Leasehold Reform Bill [Lords] the Standing Committee do meet on Tuesdays at half-past Ten o'clock and at half-past Four o'clock and on Thursdays at half-past Nine o'clock and at half-past Two o'clock;

(2) the proceedings shall be taken in the following order, namely Clauses 1 and 2, Schedule 1, Clauses 3 and 4, Schedule 2, Clauses 5 to 33, Schedule 3, Clauses 34 to 57, Schedule 4, Clauses 58 to 66, Schedule 5, Clauses 67 and 68, New Clauses and New Schedules relating to Part 1, Clauses 69 and 70, Schedule 6, Clauses 71 to 100, Schedule 7, Clauses 101 to 121, Schedule 8, Clauses 122 to 147, Schedule 9, Clauses 148 to 153, Schedule 10, Clause 154, Schedule 11, Clauses 155 to 165, Schedule 12, Clauses 166 and 167, Schedule 13, Clauses 168 to 170, New Clauses and New Schedules relating to Part 2, Clause 171, Schedule 14, Clauses 172 to 174 and remaining New Clauses and New Schedules;

(3) the proceedings relating to Part 1 of the Bill (so far as not previously concluded) shall be brought to a conclusion at 7 pm on Tuesday 22nd January 2002;

(4) the proceedings on Clauses 69 and 70, Schedule 6, Clauses 71 to 100, Schedule 7 and Clauses 101 to 111 (so far as not previously concluded) shall be brought to a conclusion at 5 pm on Thursday 24th January 2002;

(5) the proceedings on Clauses 112 to 121, Schedule 8 and Clauses 122 to 125 (so far as not previously concluded) shall be brought to a conclusion at 7 pm on Tuesday 29th January 2002;

(6) the remaining proceedings on the Bill (so far as not previously concluded) shall be brought to a conclusion at 5 pm on Thursday 31st January 2002.

I welcome you to the Chair, Mr. Hurst. I am sure that we shall steer the Bill safely to a haven under your sagacious stewardship. As we heard on Second Reading, the Bill is important. Many Committee members have constituents who have suffered greatly under the present system, particularly as it relates to leasehold. As we explained on Second Reading, the Bill will provide answers to problems that have bedevilled people throughout the country for many years. Although it is complex and technical in many respects, it will make a huge difference to such people. Our proceedings are, therefore, important, and I am sure that they will be good-natured and constructive and that we all look forward to them.

Bill Cash (Conservative, Stone)

Given the Bill's complexity, several matters could usefully have been elucidated previously, including the regulations, which I mentioned on Second Reading. Those were made available only last night and consist of 32 pages and 88 provisions on complicated and significant matters such as the commonhold community statement. It goes without saying—the Minister told me this informally—that we cannot be expected to take on board all the issues at such short notice.

Michael Wills (Labour, North Swindon)

I intervene simply to apologise formally. The delay was the result of an administrative oversight, for which I am very sorry. All members of the Committee should now have their own copies of the regulations, but they can have access to copies held by my officials if there are further problems.

Bill Cash (Conservative, Stone)

The most that I can say in those circumstances is that I hear the Minister's apology and I hope that there will be no significant knock-on effect. We may want to discuss issues arising from the regulations later in our proceedings and I hope that you will bear in mind, Mr. Hurst, that we have been put in a difficult situation.

Adrian Sanders (Liberal Democrat, Torbay)

I welcome you to the Chair, Mr. Hurst. At our programming meeting yesterday evening, we discussed at some length whether the timetable would give us enough time and I am happy that it provides some flexibility. We shall see how our proceedings progress, but I hope that we shall draw them to a conclusion by the timetabled date.

John Taylor (Conservative, Solihull)

Having been rightly restored to the Back Benches after a long time on the Front Bench, I am open to your guidance, Mr. Hurst. Members of Standing Committees used to be able to raise a few general points on the sittings motion. I look to you for guidance on whether you will tolerate that practice or whether I should resume my place and discuss issues as they arise. I shall hold the floor while you consult. I would delay the Committee for only three or four minutes with a general observation or two, but I rely on you to tell me whether I am in order.

Alan Hurst (Labour, Braintree)

The hon. Gentleman may take the opportunity to speak, but I am sure that all hon. Members will bear in mind that this part of the proceedings is time limited.

John Taylor (Conservative, Solihull)

Gladly, Mr. Hurst. I shall not delay the Committee for long.

I start by declaring an interest. I practised as a provincial high-street solicitor for 22 years and had a fair amount to do with long residential leases in that time. I declare a further interest: I am a long leaseholder of what is sometimes pompously called an apartment in my constituency in Solihull and of a flat in Westminster.

In the 1960s, in my part of the west midlands, which we might in shorthand call greater Birmingham, 99-year residential leases were common. I bought one as a young man of 25 when 99 years seemed like eternity. It was only when I was close to my 60th birthday and I came to sell the property that I realised that 99 years was not infinity but could pass in little more than a human lifetime.

The Leasehold Reform Act 1967 enabled long leaseholders of houses to buy their freeholds. That was a good mechanism, and I took advantage of it in the early innocence of valuation of freehold. The initial presumption was that to value a freehold, one had to consider the capital sum, which one had prudently invested, as yielding the ground rent as a return. Consequently, I got my freehold inexpensively. It was only later that more sophistry entered into the

valuation considerations, especially when the concept of marriage value between long leasehold and freehold began to influence the Lands Tribunal.

I am near the end of my remarks, but I want to add one more point. I blame no party, but assail the political community of 1967 in general when I say that the 1967 Act fought shy of a price mechanism. That left an awful lot of our constituents needing to go to the Lands Tribunal.

Alan Hurst (Labour, Braintree)

Order. The hon. Gentleman should link his remarks to the programming motion.

John Taylor (Conservative, Solihull)

I am anxious about the limited time available to consider the issues on which I shall now finish commenting.

The 1967 Act fought shy of tackling valuation. When we consider the ability of long leaseholders in concert to acquire their freeholds, I hope that we shall have enough time to consider that matter. Let politicians not be cowardly about valuation but produce an end product that is clear to our constituents and shows them, more or less, what ball-park terms they may be expected to pay, to use an American expression. Let us not commit our constituents to litigation before the Lands Tribunal but steer them and give them guidance on what they may expect to pay.

I am grateful to you for your patience, Mr. Hurst. I shall not delay the Committee further.

Shona McIsaac (Labour, Cleethorpes)

I endorse what the hon. Gentleman said. I, too, hope that the Committee is given sufficient time to consider the specific issue of resold houses and valuations in relation to resold houses.

Bill Cash (Conservative, Stone)

I have already declared my interest on Second Reading, but on the basis that it does not do any harm to repeat such things, I declare that I am a solicitor with a practising certificate. Furthermore, I have a tenancy in a block of flats in London and several other properties that I rent myself.

Question put and agreed to.

Graham Stringer (Labour, Manchester, Blackley)

On a point of order, Mr. Hurst. We have just agreed that we may have 12 sittings over the next three weeks. As there is serious overcrowding on the Labour Benches—I do not think that any of us will be crossing on to Opposition Benches—can anything be done so that we have a little more space?

Alan Hurst (Labour, Braintree)

Yes, I think that we can take that under advisement, as the Americans would say. I shall try to make arrangements.

Clauses 1 and 2 ordered to stand part of the Bill.

Schedule 1 agreed to.

Clause 3 - Consent

Bill Cash (Conservative, Stone)

I beg to move amendment No. 22, in page 2, line 18, at beginning insert 'Subject to subsection (2A)'.

Alan Hurst (Labour, Braintree)

With this it will be convenient to discuss the following amendments:

No. 1, in page 2, leave out lines 22 and 23.

No 2, in page 2, line 27, at end insert—

'(2A) An application under section 2 may not be made in respect of a freehold estate without the consent of a simple majority of the registered proprietors of the leasehold estates in the whole or part of the land granted for a term or more than 21 years.'.

No. 23, in page 2, line 39, at end insert—

'(2A) Where the conditions set out in sections 1 to 10 of the Leasehold Reform, Housing and Urban Development Act 1993 (right to collective enfranchisement) as herein amended are satisfied in respect of any premises to which those sections apply, regulations made under subsection (2) above shall make provision in respect of such premises dispensing with the consent of the persons:

(a) mentioned in subsection (1)(a) hereof;

(b) mentioned in subsection (1)(b) hereof where no more than 25 per cent. of qualifying tenants within the meaning of the said 1993 Act as amended herein refuse to consent;

(c) mentioned in subsections (1)(c) and (d) hereof:

(i) insofar as the charge or the caution (as the case may be) is over the whole or part of the freehold estate in the land; and

(ii) insofar as the charge or the caution (as the case may be) is over flats held by qualifying tenants who constitute no more than 25 per cent. of the qualifying tenants of the premises.

(2B) Regulations under subsections (2) and (2A) hereof shall make provision:

(a) where consent has been dispensed with under subsection (2A)(a) hereof for the compensation of persons mentioned in subsection (1)(a) hereof, including provisions determining who shall be obliged to pay the compensation and how and by whom the compensation is to be determined;

(b) where consent has been dispensed with under subsection (2A)(b) hereof for the continuation of the leases of qualifying tenants who refuse to become unit-holders of a commonhold unit; and

(c) where consent has been dispensed with under subsection (2A)(c) and (d) hereof for the substitution of the charge or caution of persons mentioned under subsection (1)(c) and (d) for a charge or caution over the commonhold unit of the person.

No. 51, in Clause 40, page 19, leave out line 30 and insert—

'(b) by a majority of 75 per cent. of the members of the commonhold community association who cast a vote on resolution.'

New clause 5—Conversion of existing buildings—

'(1) Notwithstanding the provisions of sections 2 and 3, in order to facilitate the creation of commonhold from an existing freehold building, the following provisions shall apply—

(a) existing long leases may continue and comprise part of a commonhold;

(b) where leaseholders do not wish to become unit-owners and have signified this accordingly, existing long leases will continue and the commonhold association shall be regarded as the unit-holder, with the obligation to the leaseholder as the freeholder of the unit;

(c) existing rights applicable to long leases shall continue to be maintained; and

(d) existing rights applicable to mortgages shall be maintained.

(2) Conversion may take place where no less than 50 per cent. of the long leaseholders consent to convert to commonhold.

(3) Where more than 10 per cent. of leaseholders object to this conversion, they may apply to a tribunal court indicating the grounds for their objections; and the tribunal may then confirm or prevent the conversion having regard to the circumstances'.

Bill Cash (Conservative, Stone)

I remind the Committee that, on Second Reading, Labour Members expressed serious reservations about the arrangements in the Bill with

regard to unanimity. I cannot remember the views expressed by each individual, but many of them stated vehemently that the Bill, and especially the provisions on unanimity, should be subject to a more relaxed and flexible arrangement than the prescription of unanimity. I hasten to add that I do not know whether those who expressed that view are present, but I am sure that they will rise to speak if they disagree with me.

Paragraph 12 of the explanatory notes makes the matter abundantly clear, when it states:

''It will be possible to convert from leasehold to commonhold but only if certain criteria are met. Details will be contained in Regulations, but it will be necessary to obtain the consent to conversion of 100% of the existing leaseholders and /or other owners of what would become units in the commonhold.''

I have already made my point about the draft regulations, which were not made available until 7 pm last night, but the Minister was gracious enough to apologise for that.

I recall raising the subject on Second Reading, and I think that I can say that the answer was rather hesitant. It was thought that the regulations had already been published, but I assured the Minister that, so far as I knew, they had not been—that indeed transpired to be the case. We then found that the regulations were made available only last night. The explanatory memorandum says that details will be contained in regulations, but it might have been helpful if the Committee had had more notice of what the regulations would contain, particularly as the criteria to be met are crucial to the conversion from leasehold to commonhold.

It will be observed, however, that many of the matters that we are dealing with today were debated no less than five times in the other place. They were dealt with on Second Reading, in Committee, in Grand Committee and on Report and then, because of the general election, they were revised. So it went on. Many of the matters that are to be discussed today have been extensively considered not only in the other place but by Ministers in that House.

On Second Reading, I alluded to the fact that Lord Irvine, the Lord Chancellor, had attempted to arrive at a solution on displacing the unanimity rules and that if agreement could be achieved, the Government would give it a fair wind. They would consult on it, and if an implicit desire were expressed to move to something less than unanimity, it could be achieved in Committee—or, in the other place. I do not know where the Minister stands on that question, but he has copious notes and he will doubtless deal with it in his reply.

As I said, the amendments moved in the other place were discussed on a number of occasions, but it seems to me that we should try another amendment, which is what we are debating now, that ties the provisions to the regulations. I hope that we might arrive at a point where the template would be the principle that unanimity should not apply but that it would be left

to the Government to make arrangements in the regulations—hence our concern about the regulations being somewhat late. None the less, if it is possible for the principle to be conceded that unanimity is not in the interests of the public as a whole, I hope that the Minister will give us that assurance.

As I pointed out on Second Reading, this is not a minor question. It is has been estimated that as many as 4 million people will be affected by these arrangements. For instance, it seems highly unlikely that unanimity could be achieved in a block of flats in any part of the country. Many people would be involved, some of whom would be mortgagees, while others would have cautions or overriding interests. Questions could arise about disputes between neighbours. Dare one suggest that some people might even say they did not want a conversion just to be awkward? Such things do happen.

The questions that arise about the principle of displacing the unanimity rule are immensely important. I put the test as high as this: the Government have produced a Bill, which we support in principle, which has received enthusiastic support outside the House and which would affect a huge number of people. If the only obstacle is the fact that the Government are being obstinate or opaque and unprepared to displace the unanimity rule, and if, once enacted, the Bill collapsed for lack of take-up, would not that be a tragedy?

It might be argued that there would be new developments and that in that respect the unanimity rule would not be so important. However, a huge number of people who hold leases want to convert. The points that I have identified are critical. Under the Government's proposals, it would be possible to convert an existing block of flats into a commonhold only if everyone with an interest in the property consented. The stringency of that provision must be recognised. One lessee could veto a conversion—not only a lessee, as a mortgagee and a freeholder would also have a veto.

Julian Lewis (Conservative, New Forest East)

I declare an interest as someone who lives in a leasehold flat and owns a lease on a leasehold flat that is let.

In addition to allowing landlords to prevent conversion if they own a lease in the block, will not the unanimity rule create an incentive for future landlords to retain such an interest in any block of flats where they own the freehold as an insurance, so that they can never be forced by the Bill to allow a conversion? Will not the numbers affected increase even above my hon. Friend's estimates?

Bill Cash (Conservative, Stone)

Indeed. I know the Minister to be a reasonable man and I shall listen with interest to his answer, because it seems extraordinary that the Government should have taken such a restricted view. In the other place, the Government accepted that the veto would make a conversion of an existing block virtually impossible. The Government were alone in the other place in thinking that their approach was the best. I am not aware of their having had support from any other quarter, including law lords or other political parties.

Judging from the Second Reading remarks of hon. Members who are absent but who one might have hoped would be on this Committee, the same applies to this House. It remains to be seen whether there is enough enthusiasm for the requirements of the Whip to ensure support for the Minister, if he proposes—I have not yet heard whether he does—to stand by the unanimity rule in all circumstances. I shall be fascinated to see whether the common sense of Labour Members, which I take for granted, can prevail against the unanimity rule. Peers from all parties, including those on the Government Benches, were united in their view that the 100 per cent. requirement was an unnecessary fetter on the availability of this new form of tenure. The provision is very important, so let us try to make it work. I appeal to the Minister to abandon the resolution so far shown by the Government and to show a degree of flexibility along the lines that I am about to suggest.

I was pleased to see that the same position as applied in the other place obtained in this House on Second Reading. The Opposition very much agreed with remarks made by Labour Members then. The object of the legislation is to provide a vibrant alternative to the current much-disliked leasehold system. However, to limit commonhold to new developments will be to stultify it. The effect would be to stymie the wishes of the many lessees who want to escape leasehold tenure. Such people should have the freedom to choose a modern, commonhold system for their homes without giving single individuals veto rights.

Why do the Government insist on unanimity? The most comprehensive explanation of the Government's thinking is in a long speech given by the Baroness Scotland of Asthal in Committee in the other place on 16 October 2001. The noble and learned Lady said:

''We recognise only too well that to obtain 100 per cent of the necessary consents will be difficult . . . However, we believe that the difficulties which would follow from the alternative of allowing conversion with a margin of non-participants of whatever size would far outweigh any conceivable advantages, and also that, given the content of Part 2 of the Bill, it is unnecessary.''—[Official Report, House of Lords, 16 October 2001; Vol. 617, c. 488.]

She refers to conceivable advantages. I have already said that in my judgment it is inconceivable that the Government should effectively be seeking to destroy their own Bill. The unanimity rule is a Trojan horse, which would prevent the Bill from being effective except in relation to new developments. I am not saying that that would apply in every case, but I have already shown how difficult it would be to get the consent of every single person.

Baroness Scotland went on to explain that commonhold would be attractive only to those who had not exercised the right to enfranchise. She pointed out that if some leaseholders refuse to become unit-holders in a commonhold, their leases would have to continue and that that would complicate the administration of a commonhold because there would be some common unit-holders and some continuing long leaseholders. The commonhold association would need to collect service charges from the continuing long leaseholders and would need to prepare accounts and demands in accordance

with the obligations under the leases held by those leaseholders.

In a nutshell, the Government oppose a reduction in the unanimity requirement solely because it would entail a continuation of long leases in commonhold blocks of flats. That, say the Government, is a bad thing. The Opposition understand what the Government are saying. In an ideal world it would be nice if a commonhold block consisted solely of commonhold unit-holders, with no leaseholders at all. None the less, it seems to many Opposition Members that the Government are going too far in insisting on the matter being an insuperable hurdle to conversion.

Baroness Scotland referred to ''conceivable advantages''. We should consider the practical effect of allowing a minority of long leaseholders to refuse to participate in a conversion to commonhold. Those long leaseholders would continue to have their leases and the commonhold association would become their landlord. The commonhold association would demand service charges, calculated in the usual way. If the long lease came to an end, the commonhold association would have the reversion. That may be disadvantageous for the long leaseholder, but it would be the result of their choice not to participate in the conversion to commonhold.

Lady Scotland seemed to suggest that the commonhold association would have to draw up two sets of accounts to demand service charges from the remaining leaseholders. Frankly, I cannot understand that. The commonhold association would need to draw up a budget for works, which would form the basis of the service charge demands on both the unit-holders and the long leaseholders. There would be no need for separate accounts.

On the precise wording of amendment No. 23, numerous proposals were made in the other place in Committee and on Report and amendments were proposed with cross-party support—the Liberal Democrat Lord Goodhart tabled one. I am not sure what has happened to it—it seems to have disappeared. I made a conscious decision to produce a different wording on the basis of the consultation to which I alluded, in the hope that the Government would agree to come up with a solution to the problem. Lord Goodhart's amendment was extensively discussed in the other place, but was rejected and I thought that we should try to find another solution.

In Committee and on Report the amendments, including Lord Goodhart's, enjoyed cross-party support. The Lord Chancellor said that such support would enable us to arrive at a solution, but the Government have said no. Any of the amendments would have found favour with the Opposition if the Government could have been persuaded to support them. Instead, they have made various technical objections. They have said that a detailed scheme would be required to allow leaseholders to co-exist with commonholders.

The amendments are intended to overcome those technical objections by giving the Government the

power to make regulations. I am not generally in favour of giving extensive regulation-making powers to Ministers. However, the reason for so doing in this instance is to demonstrate our flexibility and to put the Government in a position in which they can no longer claim that it is too complicated for leases to continue alongside commonhold units. The Government can overcome any of the problems in the detail by drafting appropriate regulations. I invite them to consider the amendment as a viable alternative.

Amendment No. 23 begins with a reference to the Leasehold Reform, Housing and Urban Development Act 1993, which allows long leaseholders in a block of flats to enfranchise by creating a power to buy out the freeholder. The Bill amends those provisions to make it easier for leaseholders to do that. The amendment refers to the 1993 Act because converting to commonhold should, in our view, be a straight alternative to enfranchisement. If the conditions for enfranchisement are set out, the conditions for converting to commonhold should be too. That means that, in blocks let on long leases, the lessee will have a choice. The only major exception would be small blocks of four flats or less with a residential landlord. Such blocks would be excluded from both enfranchisement and conversion to commonhold unless the residential landlord consented.

The amendment proposes that the freeholder should be the subject of a compulsory buy-out. Regulations would provide for the calculation of the amount payable by way of compensation. There may be a few cases of a residential freeholder living in a block with more than four flats in it. In those cases, the freeholder could, by regulation, be given a choice between having all his interest bought out or being given a commonhold unit—his flat—with compensation for the value of his freehold. Amendment No. 23 proposes that a conversion could not be vetoed by less than a quarter of the leaseholders. Regulations will provide for the future modus vivendi between the refusenik lessees and the commonhold association. Equally, mortgagees and other charge holders will have a veto only if more than a quarter object.

That is the essence of the argument, so the amendment would help the Government. The regulations have been made public in only the past 12 hours or so, and much depends on careful consideration of such matters. We have the rest of our proceedings in Committee to go through and then the near certainty of a Report stage, so I adopt an open-door policy. It is frightfully important that the Government remember that many of the arguments involve technical questions on which there could be debate. There could be a contest between lawyers as to what way would be best in each case.

The amendment is on a matter of principle and whether we can make the Bill work. We want it to work and we want the help of Government to make it do so. I cannot be clearer than that. The Liberal Democrats want it to work, as do some Government Back Benchers in Committee. On the Floor of the

House, other Labour Members made it clear that they would be glad to make it work. My question is asked in the most reasonable fashion. The amendment is by far the most important that we have tabled. We are trying to create opportunities for the Government, not difficulties, which is a fair way to approach the matter.

We are not making a great hoo-hah about the regulations, although we may want to return to them later. I urge the Minister to take what I have said on board in the constructive spirit in which it was given. As I said on Second Reading, amending the Bill would be in the national interest. He should remove the block on its capacity to be as successful as we would all like.

Adrian Sanders (Liberal Democrat, Torbay)

I rise to support the amendment moved by the hon. Member for Stone (Mr. Cash) and our amendments on the same subject. I declare an interest, as I own a leasehold in my constituency. I agree that this group of amendments is the most important that we are likely to debate. It is ironic that Conservative and Liberal Democrat Members are trying to make a Bill work in the way that the Government intend, given how they have publicised and proposed it.

The clause is about ensuring that all those with a legitimate interest in the land that is proposed to be registered as commonhold consent to the change of status. The key word is consent. We all work for consensus, even in a Committee such as this. We do not expect it to be 100 per cent. and we expect compromise, but there will ultimately be a vote to separate a majority and minority. Consensus cannot always be reached, but we seek it. It cannot be imposed without denying someone a right, which is what is wrong with the Bill. The clause enshrines in law a right of veto by a minority of people who would deny the majority their conversion to commonhold.

The Bill requires that there must be consent from all lessees for conversion of a block from leasehold to commonhold. However, it is recognised that procurement of such consent is unlikely in the case of large blocks. The result will be the creation of a two-tier market. New blocks are likely to be sold off on a commonhold basis and existing blocks may remain leasehold for many years. The Government have offered various arguments as to why things should remain as they are and no doubt the Minister will repeat them. They have included the undesirability of a dual regime in which the obligations of some people are governed by their leases and of others by commonhold rules, and interference with existing rights if lease extensions are prevented.

The Government have also relied on the argument that, in the case of non-consenting lessees, other lessees could exercise the alternative right of collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 and extend their leases. It has been argued that that position is unsustainable. Clause 3(2)(f) provides that a court ought to be allowed to dispense with consent in cases to be prescribed. It has been suggested that that provision is intended to apply when a lessee cannot be found. Whatever rules are made to deal with absent lessees can equally be applied to other non-consenting lessees.

The refusal to allow conversion without unanimous agreement will, in addition to being liable to create a two-tier market, afford obstructive lessees the ability to exact ransom payments from their neighbours as the price of giving their consents to conversion. The hon. Member for Stone did not mention that a door would be opened whereby an unreasonable neighbour who was the last person withholding consent could extract a monetary payment from others.

The argument that a dual regime would follow conversion is not convincing. There would still be such a regime if the alternative were followed and there were collective enfranchisement. Participating lessees would hold a freehold and extend their leases, whereas non-participating lessees would continue to have the obligations contained in their original leases. Moreover, even if conversion without unanimous consents were not as good as conversion with them, why should conversion be prevented if the overwhelming majority desired it?

It will be impossible to change to commonhold other than in exceptional circumstances in which unanimity is obtained. Therefore, it is likely that only new developments will become commonhold. As believers in commonhold and supporters of the Government's desire to create it in law, we genuinely want it to work and be a success. The provisions seem the one aspect of the Bill in which the Government propose a good measure, but place a restriction on it that will make it unsuccessful.

If the Government want conversion as a result of the Bill, what assessment has the Minister done of the number of possible conversions? Will he give a percentage of existing properties or an actual number? If such an estimate can be made, I suspect that the number will be extraordinarily low unless the amendments are accepted.

We want commonhold on the statute book. We want it to work so that people have the choice to convert if they so wish. We do not want commonhold to die a death through lack of interest simply because the conversion rules are too difficult. We do not want people to use their consent to hold others to ransom. We want the Bill to be a success and it is bizarre that the Government should object to moves to achieve that.

Andrew Selous (Conservative, South West Bedfordshire)

Is there not a parallel between our proposal and the Government's legislation on the conversion of mutual building societies to non-mutual status? They recently introduced the 75 per cent. rule, under which 75 per cent. of members must agree to convert from mutual to non-mutual status. They were happy to accept 75 per cent. in that context, so I support the proposals of my hon. Friend the Member for Stone on the Front Bench and of the Liberal Democrat spokesman, the hon. Member for Torbay (Mr. Sanders). Is 75 per cent. not the appropriate figure in this context, too?

Michael Wills (Labour, North Swindon)

Before I speak to the amendments, I remind the Committee of the declaration of interest in

long leasehold commercial property that I made on Second Reading.

In various ways, the amendments all relate to the so-called 100 per cent. rule and I shall briefly remind the Committee of what they do. Amendment No. 1 would remove the requirement for all leaseholders with a substantial interest in the property to consent to the conversion of an existing leasehold. It paves the way for amendment No. 2, which would reduce to a bare majority the threshold for the leaseholder consents that were required to convert to commonhold. Those are important matters and I shall discuss at some length why we must, I am afraid, maintain the 100 per cent. requirement and disappoint all those who tabled amendments.

Amendment No. 22 paves the way for alterations to the 100 per cent. consent rule by making the consent requirements of clause 3(1) subject to proposed new subsections (2A) and (2B). Amendment No. 23 would supplant the regulations arising from the consent criteria in clause 3. It would replace them with regulations that would bite where the criteria for enfranchisement were met in a development to which they applied. It would also provide for the enfranchisement criteria to apply to conversions to commonhold.

The scheme in new clause 5 for overcoming the 100 per cent. rule refers to

''no less than 50 per cent. of the long leaseholders''

and would, therefore, allow conversion without a majority being in favour of it. It would provide for just 50 per cent. of existing long leaseholders to carry the other 50 per cent. into commonhold. I suspect that that is not what the Opposition intended, but it is certainly what the new clause does.

The new clause also gives any number of objectors above 10 per cent. of the total an effective veto by allowing them to take their objections to court. Even if their challenge was not successful, both sides would face the inevitable costs. The scheme poses the greatest potential difficulty in terms of the conversion process and future management. It is also far from clear how it would relate to amendment No. 23, which could also cover the conversion of existing buildings, but which applies different thresholds and procedures.

I will explain why we must resist all the amendments. In another place, much time was spent on a series of attempts to persuade the Government that the 100 per cent. rule would strangle commonhold at birth. Much of the debate was based on the erroneous assumption that the Government believed that it was impossible to devise a scheme to provide for conversion with a threshold of less than 100 per cent. agreement. Despite the fact that we have said on many occasions that that was not the case, we continue to be accused—the hon. Member for Stone has repeated the accusation this morning—of dogmatically holding to a line that is not feasible and does nothing but guarantee that our policy will not work.

The arguments will be familiar—the hon. Member for Stone has already rehearsed some of them. However, because they have not been heard with the care and attention that they merit, I shall go over them

again. The Government do not argue now, nor ever have argued, that it would not be possible to devise a scheme to arrange for conversion with a threshold lower than 100 per cent. Our view has been the pragmatic but entirely principled one that—in the national interest, which we all want to pursue—we should protect people buying into commonhold from the possibility of being landed with a scheme that is both difficult to operate and, in the end, difficult to manage, in both cases unnecessarily so.

The amendments omit any consideration of how one might deal with different classes of people who would have to co-exist both during the conversion process and in the resultant scheme, which would not, whatever else it was, be commonhold, as it would exist in new builds or in 100 per cent. conversions. We have also argued, and will continue to do so, that that is not, as has been alleged, a fatal flaw in the Bill.

Part II of the Bill, as we have said on several occasions, allows for enfranchisement with a threshold below 100 per cent. and for the management of the resulting scheme. We heard much on Second Reading, and again today, about the comments of my noble and learned friend the Lord Chancellor in his Second Reading speech in another place on 5 July 2001, and the fact that he said that the Government would listen carefully to well-judged amendments to the 100 per cent. rule. His remarks were then, and have been consistently since, taken out of context and apparently misunderstood by the hon. Member for Stone this morning. I am about to help the hon. Gentleman, however, by reminding him of what the Lord Chancellor said. I shall add some stresses and emphases to help him, and I shall then be happy to give way if he still needs further assistance. My noble and learned Friend said:

''Let me stress that the Government are taking careful note of all the arguments put against the rule which requires the consent of 100 per cent of the prospective unit holders for conversion from leasehold to commonhold. We doubt that allowing long leaseholders to continue physically within, but legally at least semi-detached from, the commonhold arrangement would be a sensible way through. The only alternative, which would bring a non-consenting minority within the new arrangements, might be characterised as expropriation.

However, if a well-judged amendment were put forward, for which there was substantial cross-party support, the Government would listen to the debate and consider it very carefully. That said, the position which the Government have hitherto maintained, and to which they still adhere unless persuaded to the contrary, is that, although there is undeniable merit in not allowing one person out of step with the proposed new regime to obstruct the entire commonhold arrangement agreed upon by the others, the sensitivities inherent in expropriating that one person may be an overriding consideration the other way. But the Government will listen.''—[Official Report, House of Lords, 5 July 2001; Vol. 626, c. 887.]

Bill Cash (Conservative, Stone)

I am grateful to the Minister for repeating the very passage that I quoted on Second Reading. I quoted it because I did not think that it helped anyone other than to indicate that the Lord Chancellor had a predisposition to try to arrive at a solution to the problem. From his mention of undeniable merit and that of the noble and learned Lady, Baroness Scotland, of difficulties, it is clear that

there is a desire—almost a determination—on the part of the Government to resolve questions. I am happy to pay tribute to the Lord Chancellor for the extent to which he was prepared, in the passage that has been read out, to show that there is a desire to resolve this question. I have offered the Government the opportunity to do so—through the amendments—without attempting to be prescriptive or unreasonable, vexatious or frivolous, but simply to be constructive and helpful. The Government want to achieve the results that they have indicated. The Lord Chancellor said what he said and I have no doubt that the Minister will endorse his words—

Alan Hurst (Labour, Braintree)

Order. This is far too long for an intervention. The hon. Gentleman will have an opportunity to make a speech.

Bill Cash (Conservative, Stone)

I would just say, why not use the regulations as a route to achieving the objectives that the Minister and the Lord Chancellor have already indicated that they want?

Michael Wills (Labour, North Swindon)

I recognise that the hon. Gentleman thinks that he has offered us some solutions. However, if we refer to what my noble and learned Friend the Lord Chancellor said, it should be clear that to be considered well-judged, any amendment on the subject would have to deal not only with the consent threshold but with the detail of the conversion process and the management of the resulting scheme—in particular, with how two or more streams of interest may co-exist effectively. I am sorry to say that the amendments do not tackle those topics.

We recognise that to obtain 100 per cent. of the necessary consents will be difficult, notwithstanding that the courts will be able to dispense with consent where obtaining it proves to be impossible, for example where a leaseholder cannot be traced. However, we continue to believe that the difficulties that would follow from the alternative of allowing conversion with a margin of non-participants, of whatever size, would far outweigh any conceivable advantages. Given the content of part II of the Bill, it is unnecessary. Both this and previous Governments have undertaken to provide for conversion from leasehold to commonhold, but the circumstances are now very different from those that obtained in 1996.

Part II of the Bill makes available a much more straightforward way of achieving collective enfranchisement for those who are eager to own the freehold of their development than was available formerly. When the Opposition's legislation was developed, conversion to commonhold was seen by many as the only viable alternative to being caught in the long leasehold trap. We have given a great deal of consideration to the process of conversion to commonhold.

How will it work? We believe that the urge to convert is most likely to occur among those who have not yet taken advantage of the right to enfranchise. If it proves impossible to persuade 100 per cent. of the occupants of the existing development to come on board, it will be necessary for those who do consent to find the extra money needed to buy out the freehold with interest in the non-converting units. It will then

be necessary either to set up a separate company to hold the freehold of the continuing leasehold flats or, perhaps more likely, to make it possible for the commonhold association to do so. The extra work, including the cost, could be considerable.

Adrian Sanders (Liberal Democrat, Torbay)

I accept where the Minister is coming from. What about the case of the lessee who cannot be tracked down and is not contactable? He could be the block on the other 99 per cent. of unit-holders who wish to convert to commonhold. Surely an amendment could be tabled to deal with those exceptional cases. A property could be the subject of legal proceedings and the right of establishing who the unit-holder was might be held up by the courts; that would delay the process. There has to be some flexibility and it is for that that I appeal to the Minister.

Michael Wills (Labour, North Swindon)

I can give the hon. Gentleman some comfort. The courts will be able to dispense with consents, as I have said, where obtaining them proves to be impossible—for example where a leaseholder cannot be traced. I hope that that will reassure him. When I conclude my remarks about the difficulties that can be seen, I shall give the Committee some information that I hope will give reassurance in that particular area. If the hon. Gentleman will bear with me, I shall return to that later.

Julian Lewis (Conservative, New Forest East)

If special arrangements can be made for the specific case that the hon. Member for Torbay has outlined, why cannot the same arrangements apply where an individual leaseholder blocking the conversion for everybody else?

Michael Wills (Labour, North Swindon)

If the hon. Gentleman had been patient he would have found that I was about to explain why I take the view that we can. The courts will not be able to make a disposition if people will not consent, which I think is what the hon. Members for Stone and for New Forest, East (Dr. Lewis) are concerned about, and we recognise that the conversion to commonhold in existing developments may well be blocked in some cases by an obstinate significant minority. However, as I have explained, alternative routes are open to most leaseholders in those circumstances, which will provide a mechanism to tackle most, if not all, of the problems that they can now encounter.

As I have been repeating—I am going to explore the point in more detail—there is an alternative route. The difficulties arising from the amendments are significant enough to sustain our opposition to them. As there is such concern about the matter, I want to set out in some detail the practical problems.

Consideration would have to be given to possible amendment of the remaining leases. The memorandum and articles of association of the commonhold association would have to be altered to take account of the ownership and management of the freehold of the units and direct relations with their leaseholders. The commonhold community statement would have to take into account the distinction between commonhold units and non-consenting units and the differential management tasks. To tailor-make the documents and structures that they reflected would not only add considerably to the costs of the

conversion process, but would fly in the face of the thinking behind commonhold, which, the Committee will recall, is based firmly on parity of interest, uniformity of structure, and standardisation, as far as possible, of the documentation.

It should also be noted that the original consenters would no doubt expect to recoup the extra costs arising from the conversion process and that that would either tend to make the selling price per unit higher than would otherwise be justifiable, making them relatively poor value for money, or mean that the extra costs could not be recouped in the short or medium term.

The difficulties that would arise on conversion would be just the start of the potential problems. The management of the resulting organisation, which, as the Committee will recall, we expect to be carried out by volunteers, would become much more difficult. Despite the efforts that we have made to keep the job of running the commonhold association simple, it would still be a responsible job, requiring a mix of skills including a fair degree of diplomacy and the directors would become landlords. Their leaseholders would be the continuing leaseholders, who might already be disgruntled by the conversion process in which, for whatever reason, they did not take part and through which they would have been dragged against their will. Their leases might have had to be amended and they might have entered into disputes about the value of their remaining interest, particularly if they were not allowed to apply for lease extensions at the end of the lease period. Inevitably, they would be in a less favourable position than the unit-holders who were part of the commonhold, with respect to both the day-to-day running of the development and the sale in due course of the unexpired portion of their leases.

The full members of the commonhold might well find that their units were worth less than those in a comparable development that did not include continuing leaseholders—all of that would come about before the all too common disputes that can arise between landlord and tenant.

The issue is not whether the approach is possible, but whether it is desirable, bearing in mind all the difficulties that would flow from it, and whether it would preserve the essence of what commonhold is supposed to be. We considered fully whether we could preserve that essence of what all members of the Committee want from commonhold while setting a threshold under 100 per cent. It is an obvious proposition and we considered it carefully.

We reluctantly concluded—and, on continued consideration, continued reluctantly to conclude—that even if technically it was possible to construct something under the 100 per cent. threshold, it would not be practical, because of the consequences, complexities and difficulties. The result would be that commonhold would not happen as we should all want—with parity and equality and people working together in a scheme in which they share an equal part. The unit-holders have their rights under the legislation, arising from their obligation to belong to the commonhold association as members and thus participate in all the important decisions relating to the

management of the development, as well as having a freehold interest in their commonhold unit. Leaseholders would not have those rights. Their interest would continue to be time limited by the term of their lease and it would almost certainly be necessary to curtail their rights to apply for lease extensions.

The difficulty of previous attempts at commonhold legislation, however far they got, was that the route away from leasehold was seen only to be commonhold. Now we have an alternative, which is why we should like to preserve the integrity of the commonhold. It will be available not only for new builds but to meet the needs of current properties where the occupiers are in agreement.

The commonhold association will be required to manage the common parts under the terms of the commonhold community statement and the memorandum and articles of association, and to set budgets and collect assessments from the unit-holders. In circumstances where there are continuing leaseholders, it will also have to set levels of service charges for the leaseholders, who will not, because of their minority position, be able to take advantage of the provisions relating to service charges and management that stem from part 2 of the Bill.

There will be two classes of occupant so, self-evidently, there will be two streams of management under two different statutory regimes. There will be two sets of moneys to collect with two sets of accounts to produce. The hon. Member for Stone was not clear why that should be, so I will deal with that point specifically. The calculation of service charges for the remaining leaseholders will continue to be set by the terms of their lease, which is a legal contract. Existing landlord and tenant legislation provides for appeals against the determination of service charges. There will be no such appeal for a commonhold, because commonhold assessments will be set by members of the association in a general meeting. That is why the two streams of accounts and two different sets of money will exist.

Potentially, there could be an almost infinite variety of tailor-made schemes to design and operate, which would bring with them the potential for the drafting problems that have helped to bring leases into disrepute and which the Bill hopes to address. Perhaps most importantly, there will be the medium to long-term preservation of long leasehold properties.

I hope that I have illustrated why, despite the difficulties inherent in obtaining 100 per cent. of the relevant consents, the Government continue to hold to their view that it is the right way to proceed. That is not a stubborn or dogmatic view; it is based on a careful consideration of the options. I ask all members of the Committee who are concerned about the matter and want commonhold to flourish to consider the consequences of implementing a scheme such as the amendments would implement with less than 100 per cent. consent. They should consider the complexities and difficulties that would follow. Would all those problems encourage commonhold to flourish? I do not

think so. Those who are worried about commonhold being strangled at birth should consider the possible effect of the amendments.

Finally, Mr. Hurst, I turn to amendment No. 51. You will be relieved to hear that I shall be brief. The amendment would have the effect that a vote on whether to add land to a commonhold would be passed with 75 per cent. of the members who vote on such a resolution voting in favour. The Bill requires the vote to be unanimous; under clause 35(4), a resolution

''is passed unanimously if every member who casts a vote votes in favour.''

We believe that certain significant functions of the commonhold association should be recognised as such by requiring those who compose a resolution to persuade a significant majority of the unit-holders that it is the right thing to do in the circumstances. In this case, there is likely to be not only capital expenditure from the funds of the commonhold association and a need to borrow, but the associated costs of servicing any loan and continuing costs of managing and maintaining the new land. Unit-holders may be asked for extra commonhold assessments to cover the cost of new facilities on the added land. The addition of the land may involve removing a feature of the commonhold. For example, land may be added to a garden or pond, or for extra car parking spaces. In those circumstances, it seems to us that unanimity on our terms—allowing a small number of concerned unit-holders, who will have to bear their share of the extra cost, to exercise an effective veto—is not an unreasonable hurdle for those making the proposal to face.

As I said earlier, I hope that I can offer some comfort to the Opposition. Despite the fact that we cannot offer any concessions on the 100 per cent. rule, we are happy to make reasonable amendments when we can. On Second Reading, a number of hon. Members pointed out that the list of those whose consent was required contained a number of categories whose interests were too slight to justify them being able to veto a conversion. A number of hon. Members are rather behind the times, as they mentioned interests such as rights of way. Those interests were removed from the Bill on its first journey through the other place, following debate on an Opposition amendment. We expect to propose a minor technical amendment on Report that will remove mention of cautioners from the list, leaving such interests to be dealt with, so far as it is necessary, under clause 3(1)(e).

My explanation has inevitably been long and detailed, but it was important that we should set out our reasoning. In light of that explanation, I hope that the hon. Members for Stone and for Torbay will withdraw their amendments.

Bill Cash (Conservative, Stone)

I have listened to the Minister, but we have not yet had the benefit of hearing what technical amendments will be tabled on Report. For example, we do not know whether he has it in mind to provide that absent leaseholders might have their consent overridden by the court. We have heard nothing from the Minister to suggest how it could be done, and some would find that proposition fairly difficult to swallow.

Serious problems have arisen on matters relating to trials in absentia and on other matters raised in the House.

I am not saying that circumstances will not arise in which it would be impossible to trace a leaseholder, but the courts might be able to bring some rules or principles to bear that could ease the passage of the absence of that person's vote. However, that raises some fairly difficult questions. A concession could be made, based on legal principles, under which the absence of a person from a country or the fact that someone could not be traced would mean that 100 per cent. consent was not needed. By the same token, however, one could stack up a whole series of other arguments for removing the unanimity rule, in which the difficulties would be less than that a person had been absent.

In a nutshell, I am saying that once the principle is breached, a number of other examples may be given, some of which will be more difficult than others. There will always be hard cases, but nevertheless a really recalcitrant person living in a block of flats could veto an entire project. In a democratic society—I trust that all members of the Committee are democrats—[Interruption.] I shall ignore my hon. Friend's comments.

The Minister has not answered my question. Indeed, I would go further. My proposal that Ministers could reflect on it and propose regulations to deal with it still remains reasonable. His arguments will have to be evaluated. Some of them have been heard for the first time. The Minister and his officials have been straining every nerve to come up with difficulties to ensure that the unanimity rule remains. I see that the hon. Gentleman is anxious to intervene.

Michael Wills (Labour, North Swindon)

I would like to clarify the point. Is the hon. Gentleman suggesting that the difficulties I have just outlined are invented, or does he accept that they might actually happen?

Bill Cash (Conservative, Stone)

I have never doubted that there are certain difficulties. I am concerned about the principle. This Bill, which would otherwise be supported in all parts of the House and indeed all parts of the country, is vitiated by failure to recognise that the principle on which the Government are insisting—unanimity—has to give way to the more pragmatic and practical approach required—

John Taylor (Conservative, Solihull)

Would my hon. Friend like to join me in giving the Minister something to think about, possibly after he has reflected and taken the advice of his officials? This is an unusual area. It is my suggestion—which could be mistaken, but I believe I am right—that part III of the Community Land Act 1975 is still on the statute book and that it provides a mechanism for the acquisition of untraceable interests. I wonder whether, with the assistance of his officials and possibly with the concurrence of my hon. Friend the Member for Stone, we can leave the Minister with that thought even at this stage: here is a potential mechanism for the acquisition of the unwilling interest.

Bill Cash (Conservative, Stone)

I listened with great interest to my hon. Friend's remarks and vicariously pass on the thought to the Minister. I hope that he does not bat it away.

I turn to another important aspect of his analogies. He knows that management companies exist to run blocks of flats. Decisions are frequently taken—on the basis of the memorandum and articles of association, companies limited by guarantee and so on—about the manner in which tenants will want the running and administration of the flats to be carried out. I have little doubt that some Committee members are or have been members of such management committees or are subjected to their decisions from time to time.

Some of the issues are controversial and difficult. For example, where there are gardens attached to a block of flats there may be prohibitions on walking dogs, or on children going into the gardens. Decisions on such matters are taken not by unanimity but by majority vote under the terms of the memorandum and articles of association of the individual blocks of flats and the associated appurtenances and curtilages. The idea that unanimity is already regarded as a good idea is out of the question. I shall give way to the hon. Member for Bolton, South-East (Dr. Iddon)—oh, I see he just wanted some water. I thought that this was a new Labour gesture: when wishing to intervene, lift up a bottle of water.

John Taylor (Conservative, Solihull)

He had better not go to an auction.

Bill Cash (Conservative, Stone)

Indeed. I hope that the Minister takes my point that the unanimity rules do not apply in the real world of the management of blocks of flats and there are many examples to show that some majority voting is essential.

Would it not be a good idea to consider the matter further? The official Opposition will think about what the Minister says and return to the subject on Report, as to press the amendment to a Division would shut off the opportunity for further consideration of this important matter. No doubt the hon. Member for Torbay will express his thoughts on the subject.

Adrian Sanders (Liberal Democrat, Torbay)

I understand what the Minister said about standardisation, a principle that the Government want to establish in the Bill. The explanatory notes, the Bill and the statements made show that the Government have faith in what they propose; it is one of the founding principles of commonhold.

I accept what the Minister said about previous failed attempts to establish commonhold, and that there are alternatives. However, the British Property Federation said:

''It is widely considered that achieving this 100 per cent. requirement will be impossible in practice.''

Our amendments were directed to that statement, although they, and the amendments tabled by the hon. Member for Stone and his hon. Friends, may not be the right ones. We want to give the matter more thought—I hope that the Minister will do so too—and return to it on Report.

Bill Cash (Conservative, Stone)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 ordered to stand part of the Bill.

Clause 4 ordered to stand part of the Bill.

Schedule 2 - Land which may not be commonhold land

Bill Cash (Conservative, Stone)

I beg to move amendment No. 43, in schedule 2, page 89, leave out lines 5 to 13.

Alan Hurst (Labour, Braintree)

With this we may take the following: New clause 6—Flying commonhold—

'(1) Commonhold land may consist of, or include, a building, or part of a building, which is above or below other land.

(2) Where subsection (1) applies, a positive covenant relating to the commonhold or the other land entered into between the commonhold association and the registered proprietor of an estate in the whole or part of the other land shall be enforceable by and against their successors in title if the covenant so provides.'

Bill Cash (Conservative, Stone)

The explanatory notes indicate that certain land may not be commonhold land; that is prescribed by clause 4. Schedule 2(1) forbids the development of commonhold land at first-floor level or above unless all the land below it and down to the ground is subject to the same application. It is stated that that is to avoid the risk that attends flying freeholds at present, especially the problem of enforcing any covenants relating to access and support.

It means, in effect, that the Bill permits commonholds to be created only if they are grounded; that is to say, any commonhold above ground level must have beneath it commonhold land down to the ground, so in a mixed-use development of flats above shop premises it would not be possible to retain the commercial elements as freehold-leasehold and sell the flats as commonhold. The provision reflects the problems in English law with flying freeholds, which are not permitted because of the difficulty of establishing neutral rights of support, ingress and egress.

Flying commonholds are relatively common in the United States and Australia. Since commonhold is a new tenure as yet untried in this country, it seems sensible for the legislation to provide maximum flexibility in the structure to ease and encourage its use. I shall be interested to hear what the Minister has to say about my comparisons with what goes on in the US and Australia. He may not be able to respond immediately, but it is an interesting question. Why can it work there when it is not allowed to work here?

Ungrounded commonholds should be permitted where there is no requirement for rights of support or egress or ingress from adjoining property, and there should not be any problem as a result. Even where there might be issues such as rights of support, egress or ingress, the legislation should allow commonholds to be developed ungrounded for reasons of flexibility. The British Property Federation has suggested that if the legal and engineering ingenuity exists to overcome the perceived problems in developing a flying commonhold to the satisfaction of the lawyers, funders and prospective occupiers, it should be allowed the opportunity to do so. That might

encourage developers of mixed-use buildings to consider using commonhold. It is reported that many are reluctant to consider developing the whole building as a commonhold because they are concerned that it might be perceived as limiting the investment value of the commercial element. To permit flying commonholds would enable the residential elements to be sold on a commonhold basis while the commercial elements are retained on a freehold-leasehold basis.

In the other place, in Committee, on Report and Third Reading, Lord Kingsland moved amendments to schedule 2 to allow for the conversion or development of flying commonholds in line with the proposals that I mentioned. On all occasions, Lord McIntosh of Haringey or Baroness Scotland of Asthal referred to the fact that the Law Commission was reviewing positive covenants affecting land, and asked that this technically complicated matter should be left for the commission to determine. I hope that I am not anticipating too exactly what the Minister will say.

During the debate on Third Reading, Baroness Scotland said that the Law Commission does not expect to go out to consultation on land obligations before 2003 because its work is contingent to an extent on the outcome of part 1 of the Bill. Given the fact that the work is under consideration, I do not doubt that I have anticipated what the Minister is about to say. However, it is important that we should bring the issue to the forefront of the Committee, because it is not to say that flying commonholders should not necessarily apply, but that a lot of thought must be given to the matter by the Law Commission, the Government and others in the field of property development. There is a strong case for limiting the instances of land that may not be commonhold to an absolute minimum and linking that to a delegated power to add to the list if necessary.

Michael Wills (Labour, North Swindon)

I will deal with the amendments together. The hon. Member for Stone has covered the ground comprehensively and, as he said, there was fairly extensive discussion in another place.

As I outlined on Second Reading, positive covenants in this jurisdiction do not run with the freehold land after the first purchaser has sold on his interest. That is at the heart of the issue and the difference in the United States and Australia. The hon. Gentleman asked why it worked there and not here, and that is the reason. It is this proposition that lies at the root of the development in English law of long leasehold, because that is how positive covenants can be made enforceable against successive owners.

The problems of flying freehold are considerable. New clause 6 would allow a commonhold to be developed among normal commonhold land, thus creating a flying commonhold and bringing the problem of positive covenants into play. The second subsection of the amendment would make it possible for covenants to be entered into between the commonhold association and the proprietor of the supporting land, which would be enforceable by and against successors entitled to both the commonhold association and the supporting land. Although oddly,

that would only be enforceable if the covenant so provided.

That provision would seem to allow a flying commonhold to be built even if the protection sought by the amendment were not available. The hon. Gentleman rightly guessed that our views have not changed since the debates to which he referred. The Lord Chancellor and I are open minded about the extent to which it would be appropriate to impose positive covenants on freehold land more widely than specified in the Bill. The matter is complicated, and I am afraid that this rather jejune provision would not achieve the intended end.

It is our intention to leave open the wider question of whether, and to what extent, it should be possible to make binding the burden of positive covenants on buyers of freehold land. The Law Commission is reviewing that complicated matter: it is part of its current programme. The Committee would not expect me to predict the content of the report, but the Government will consult on the recommendations and treat them with the utmost seriousness when they are formally presented. I hope, therefore, that the Committee is persuaded that the amendments would cause trouble. In the light of the Law Commission's continuing work, they should be withdrawn.

Bill Cash (Conservative, Stone)

In the light of the desire to be engaged in consultation as much as possible, I wonder how we might proceed. There is a desire to see how part 1 operates, but given the complexity—and the fact that it is now in the court of the Law Commission—it would be sensible to set up a working party that would enable further discussions. I am not speaking on behalf of any particular group, but when dealing with technical and complicated Bills, there is a lot to be said for having the maximum degree of involvement as well as subsequent consultation.

As long ago as 1985, in relation to changes in public procedure, I advocated that draft Bills should be attached to Green Papers so that people could get properly involved at an early stage. In view of the Government's rather generous approach, it might be a good idea to have a working party so that those involved at the sharp end—in the commercial world or whatever—would be able to participate in discussion and help the Law Commission to understand the practical questions that arise.

Amendment negatived.

Schedule 2 agreed to.

Clauses 5 to 7 ordered to stand part of the Bill.

Clause 8 - Transitional period

Bill Cash (Conservative, Stone)

I beg to move amendment No. 32, in page 4, line 36, after 'Part', insert 'first'.

Alan Hurst (Labour, Braintree)

With this it will be convenient to take amendments: No. 33 in clause 8, page 4, line 38, at end insert—

'( ) Second transitional period'' means the period between the event mentioned in section 7(3) and the date upon which all units in the building have been sold.'.

No. 34, in page 4, line 39, leave out first 'a' and insert 'both'.

No. 35, in page 4, line 39, leave out 'period' and insert 'periods'.

No. 36, in page 5, line 3, at end insert—

'( ) Regulations shall provide that during the second transitional period, where units are still under construction or awaiting sale, special provisions shall apply to ensure maintenance, repair, services and insurance are maintained by the commonhold association and contributions from unit-holders and the developer are on an equitable basis.'.

Bill Cash (Conservative, Stone)

Clause 8 deals with the transitional period. It recognises the inevitable period during which decisions will need to be made in relation to land and the management of the development between the time that land is registered as commonhold and the time that that commonhold is, so to speak, effective, by the sale of the first unit, per unit holder under section 7(3).

Again paragraphs (2) and (3), provide for regulations to disapply or modify the effect of any provision of part 1 of the Bill, any subordinate legislation made under it, and any provision made by a commonhold community statement, or by the memorandum or articles of the commonhold association. I have already pointed out that the fact that we did not have a copy of the regulations until the day before the Committee stage started caused much inconvenience, to put it mildly. I do not wish in any way to upset the Minister at this point, I can see that he is about to rise. I have accepted his apology and I think that we ought to leave it at that for the time being.

As pointed out in the explanatory notes, part of the essence of commonhold will be the standardisation of documents on rules and regulations. It is important that this transitional period works effectively. The Government have said that it will be unworkable to insist that the applicant operates under the full panoply of commonhold regulation. Paragraph (4) allows the applicant to apply for the registration of the land as commonhold to be undone. Paragraph (5) ensures that all those who had to obtain consent to register also consent to deregistration. Paragraphs (4) and (5) chiefly allow developers to respond to commercial circumstances, whereas paragraph (6) provides for references

''to a case where a commonhold association would exercise functions in relation to commonhold land but for the fact that the time in question falls in a transitional period.''

We are concerned because developers are somewhat confused about exactly how they will stand in relation to the new system of commonhold. This matter was discussed on Report in the other place. I want the Minister to deal with our concerns, because we cannot assume that what was said in the other place will necessarily be said here, although I suspect that it will be very similar. The concern arises with regard to circumstances that would apply between the sale of the first unit and the completion and sale of the last unit. The Bill provides for a transitional period, but we are concerned about a second such period. We want to be as clear as possible about who has the voting rights in relation to which units for the commonhold

association and what those responsibilities are. Sometimes, flats are sold before they have been completed because of a terrific upsurge in the market. That may not continue indefinitely but we must be clear about what will happen in the transitional period. For example, when referring in the other place to a developer who had 10 flats, the Earl of Caithness said:

''he sold two; six are for sale but there is no market; they are not being sold; and he is completing the others. How do the voting rights of the commonhold association work? What are the responsibilities?''—[Official Report, House of Lords, 13 November 2001; Vol. 628, c. 470–471.]

That is the essence of the problem. I am sure that the Minister has taken advice and has a pretty good answer to it. It is important that it is raised, however, because the transitional period has certain problems for the developers and those whom I have already identified.

Michael Wills (Labour, North Swindon)

I understand the purpose behind the amendment and the motive that drove the hon. Gentleman to table it. Unfortunately, we cannot accept it. Our intention is that the commonhold community statement should come into force as soon as the first unit is sold, and that it should govern the management of the commonhold from that time. The responsibility of paying commonhold assessments will apply to all unit-holders in the proportions laid down in the statement and will be based on a budget. We expect that to act as a real incentive to a developer to move quickly to sell units and to establish fully the commonhold as, clearly, the responsibility for maintaining the unsold units will become ever more onerous as time passes. Given that that is our aim and that we consider that the extra layer of regulation that the amendment would impose is unnecessary, I hope that the hon. Gentleman will withdraw it.

Bill Cash (Conservative, Stone)

I hear what the Minister says, but, as it stands, the clause covers the transitional period. The Bill provides that commonhold regulations may be disapplied or modified. It makes no mention of who the members of the commonhold association will be from the sale of the first unit to the end of construction and the selling period, and that remains the case. Further clarification is required concerning the respective responsibilities during that time.

I understand the Minister's argument, but many matters are dependent on the regulations. We do not have such regulations, at least not in a form in which we can give them the consideration that they deserve. We do not even really know whether they will deal comprehensively with such matters. The Bill is passing through the second House and, in the interests of everyone, perhaps we should reserve our position until the Bill is discussed on Report in the hope that, if further representations need to be made as a result of what happens in Committee, they will take place constructively. I repeat that our objective is to make the Bill work for the tenants, the prospective commonholders, the public and for those who are involved in commercial developments—and for the Government themselves, if that is not too over-

generous. Conservative members of the Committee want the Bill to work, so we shall do everything that we can to ensure that it does.

As the Minister will appreciate, when considering matters that are not to be mentioned in this Committee, people such as myself will take steps to oppose measures with vigour and determination on all occasions. However, we all have a vested interest in trying to make the Bill as constructive and workable as possible. If it is necessary to wait a while now or on other occasions, we shall do that. I shall reserve the right to table a further amendment on Report if that is necessary, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 ordered to stand part of the Bill.

Clauses 9 and 10 ordered to stand part of the Bill.

Clause 11 - Definition

Bill Cash (Conservative, Stone)

I beg to move amendment No. 37, in page 6, line 25, leave out 'may' and insert 'must'.

Alan Hurst (Labour, Braintree)

With this, it will be convenient to discuss the following amendments: No. 38, in page 6, line 26, at end insert

', and must have regard to section 24(2)'.

No. 39, in page 6, line 27, leave out 'may' and insert 'must'.

No. 40, in page 6, line 28, leave out 'may' and insert 'must'.

Bill Cash (Conservative, Stone)

The amendments address the maintenance, insurance and structure of common areas. The existing provisions make the balance of a structure that is not maintained or insured by a unit owner the responsibility of the commonhold association. That could place too much responsibility on unit owners and could risk the community as a whole. It is essential that the commonhold association has the power and responsibility to insure the integrity of a building after even a serious incident such as a fire. If the several units' structures are badly damaged, the reinstatement of the building could be prejudiced if an individual unit owner had not properly insured his unit. A similar problem could apply to serious disrepair.

The responsibilities of a unit owner should not extend beyond his own unit and should be limited to matters that affect only that unit, such as walls, ceilings, plaster, floorboards, internal partitions, non-structural and party walls and window frames. The commonhold association's role is limited if it has responsibility for any part that is not the responsibility of the unit owner, but the unit owner's responsibilities are wider than is appropriate. The commonhold association should have a specified minimum responsibility and the unit owner should be responsible only for elements of the building that affect their unit.

Michael Wills (Labour, North Swindon)

The amendments puzzle us every time they reappear. They would make it compulsory for the

commonhold community statement, in defining the extent of units in the commonhold, to refer to areas subject to the exclusion of specified structures. They would make it compulsory to exclude the structures that delineate an area from the definition of a unit. They would make it compulsory to refer to two or more areas of land as comprising the unit, and they would make it compulsory to have regard to clause 24(2), which deals with limited use areas of the common parts.

Those circumstances seldom arise in a particular commonhold or any part of that although, if it is appropriate, our wording makes it possible for those things to occur. The amendments would make it mandatory to define units in particular ways and by reference to particular factors, whether that is appropriate or not, and, inevitably, would give rise to impossibilities, absurdities or unforeseen consequences that would be undesirable.

For example, when considering a detached house in a commonhold development, there is simply no reason to exclude structures, fittings, apparatus and appurtenances from the definition of the unit, any more than it would be necessary to exclude the garden fence that delineates the property's boundary from the definition. It is also difficult to see why a unit that comprises one area only, which would be the case with the vast majority of units, should be defined by reference to two or more areas. By the same token, if the development is a block of inner-city flats with no gardens or parking facilities, it is extremely unlikely that there will be any limited use areas associated with it. Thus, nothing but confusion will arise if limited use common parts are mentioned in the definitions of the units.

It is not easy to discern any advantage that would be gained by referring to the status of common parts when defining a unit that, by definition, cannot include any of the common parts. In the light of that explanation, I hope that the hon. Gentleman will withdraw the amendment.

Bill Cash (Conservative, Stone)

In the circumstances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 11 ordered to stand part of the Bill.

Clauses 12 to 16 ordered to stand part of the Bill.

Clause 17 - Leasing: residential

Bill Cash (Conservative, Stone)

The Committee may have noticed from the amendment paper that I have not tabled an amendment calling for the clause to be deleted. In accordance with Committee rules, we cannot propose such an amendment. Thus, I will deal with the issue as part of the clause stand part debate, if that is convenient.

Clause 17 places restrictions on the ability of a unit-holder to treat his unit as though it were freehold. The Government policy is that residential commonhold

units should not be let for long, unbroken periods, to avoid a repetition of the difficulties that exist in leasehold blocks. The intention is that regulations will stipulate that no premium shall be payable for a lease—it should be a rack-rent—and that the maximum period for a single-term lease should be seven years.

Again, that raises the question of regulations that are an implicit part of the Bill's mechanism. I am surprised that the issue was not taken up with enthusiasm in the House of Lords, because there was a similar problem there. However, we must give it further consideration ourselves.

Subsection (1) announces the restriction on granting leases unless

''the term satisfies prescribed conditions.''

Subsection (2) sets out matters that would form the basis of those conditions.

Subsection (3) provides that if a lease is granted that contravenes the prescribed terms, it shall be of no effect. Subsection (4) allows recourse to the courts by any party to such an ineffective lease, giving the court powers to order that the ineffective lease should take effect, to order the return or payment of money by way of compensation and to make any other provision it thinks fit. Subsection (5) stipulates that a residential unit should be so described in the commonhold community statement—the CCS. Deleting the clause would remove the restrictions on a unit-holder's powers of leasing, where the unit is residential. Government objections that the proposed amendments let in leasehold tenure by the back door are unconvincing. I put that on the record because amendments to clause 20, to which I need to refer, are consequential on the deletion of clause 17.

I should be grateful for the Minister's comments.

Michael Wills (Labour, North Swindon)

As the hon. Member for Stone said, the amendment would remove the clause on residential leasing.

Alan Hurst (Labour, Braintree)

Order. We are discussing clause 17 stand part.

Michael Wills (Labour, North Swindon)

Thank you, Mr. Hurst. May I also deal with the amendments to clause 17?

Alan Hurst (Labour, Braintree)

Let me clarify the position. No amendment has been selected, therefore the debate is entirely on clause 17 stand part.

Michael Wills (Labour, North Swindon)

Thank you, Mr. Hurst.

The purpose of clause 17 is to respond to representations made to us about the ability to grant leases on commonhold properties. If the clause were removed, it would resurrect many of the problems historically associated with residential long leasehold, which the Bill is designed to solve. We originally intended to impose tight controls on the letting of residential units, for the reasons already discussed, but it was impressed upon us from many quarters that such tight regulations would make commonhold developments unpopular in some parts of the country, as buying to let would be almost impossible. We accepted advice that a significant section of the market in properties divided into flats,

especially in London, was for investment, hence the clause.

We do not want to make unnecessary special arrangements in the commonhold scheme that would remove it unacceptably far from the ideal of freehold, but despite having liberalised our view of letting, we are convinced that the regulation provided by the clause is essential to help avoid the reintroduction of long leasehold by the back door. The hon. Gentleman said that he was unconvinced by that argument, but it follows logically that if long leases could be granted, it would mean the inevitable and perhaps forceful resurrection of long leasehold.

The provision gives us the opportunity to make flexible arrangements in regulations, which will provide for a seven-year maximum lease, but it will be renewable without limit. It could not be sold at a premium.

Bill Wiggin (Conservative, Leominster)

I am grateful to the Minister for explaining the value of the clause, but I fear that the two criteria on which he touched may not be as satisfactory as I had hoped. I am sure that the purpose of the Bill was to release people who are trapped in a leasehold and allow them to own their home through commonhold. However, the buy-to-let phenomenon and the popularity of owning commonhold are not necessarily strong enough criteria to convince me that the Bill is not about taking freehold through the backdoor. I recognise the value of the Minister's suggestion that, when leasehold becomes commonhold, the property could be leased out for a maximum of seven years. However, I am concerned that that may be too long a period, and that, once again, we are back in the loop of leasehold dilemma. I therefore have strong reservations about the value of clause 17.

Michael Wills (Labour, North Swindon)

Let me respond to the point about the seven-year period. The period is not selected arbitrarily: the hon. Member for Leominster (Mr. Wiggin) may be aware that that is the point at which repair and renewal provisions kick in, which is why we have chosen it. A longer period may give rise to the kinds of problems that we have identified. I hope that that reassures the hon. Gentleman.

Question put and agreed to.

Clause 17 ordered to stand part of the Bill.

Clause 18 - Leasing: non-residential

Bill Cash (Conservative, Stone)

I beg to move amendment No. 44, in page 9, line 11, leave out

'which is not residential (within the meaning of section 17)'.

Alan Hurst (Labour, Braintree)

With this it will be convenient to take amendment No. 45, in clause 20, page 10, line 2, leave out '17 to' and insert '18 and '.

Bill Cash (Conservative, Stone)

The amendments are consequential on the deletion of clause 17. We have dealt with that issue as far as we need to for the time being. I wanted to

bring out into the open our concerns about clause 17, which we have done. I therefore have nothing further to add at this stage.

Alan Hurst (Labour, Braintree)

Is the hon. Gentleman withdrawing the amendment?

Bill Cash (Conservative, Stone)

In the light of the Committee's recent discussion, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 18 ordered to stand part of the Bill.

Clause 19 ordered to stand part of the Bill.

Clause 20 - Other transactions

Bill Cash (Conservative, Stone)

I beg to move amendment No. 46, in page 10, leave out lines 4 to 17.

Alan Hurst (Labour, Braintree)

With this it will be convenient to take Government amendment No. 15.

Bill Cash (Conservative, Stone)

Clause 20 deals with what are known as other transactions. Under subsection (1), a commonhold community statement may not prevent or restrict a unit-holder's exercise of his right to create, transfer or grant an interest or charge over his unit: for instance, in appropriate circumstances, granting a right of way, or borrowing on a mortgage, and thereby charging the unit as security. However, subsection (3) requires that no interest other than a lease can be created unless the commonhold association is a party to it or consents in writing. Under subsection (6), the requirement in subsection (3) does not apply to the creation of charges, so the unit-holder's rights to charge are restricted only so far as provided in the Bill or in subordinate legislation made under it.

Subsection (4) provides that a commonhold association can act under subsection (3) only following approval by a 75 per cent. majority of members voting—an example of the application of a percentage vote. Subsection (5) renders void any agreement, however made, in contravention of subsection (3), so a unit holder who purports to act where there is no unanimous consent of association members is unable to make an instrument or agreement to that effect.

Subsection (2) makes subsection (1) subject to the provisions of sections 17 and 19, which deal with leasing. According to the Government, clause 20 deals only with matters that appear on the register, but in our opinion the explanatory notes do not justify the restrictions that I have stipulated with respect to subsections (3) to (6). The aim should be to have as few restrictions as possible on a unit-holder's power. Any restrictions should be tailored to the particular case and contained in the commonhold association's memorandum and articles and/or the commonhold community statement. That again raises the problem that the standard form of the commonhold association is to be prescribed by these drafts, which appeared late in the day.

Michael Wills (Labour, North Swindon)

I cannot resist asking the hon. Gentleman a question. I understand that these

documents—the hon. Gentleman cannot make a contribution to the debate without mentioning them—were laid before the House at 7 o'clock, and that the hon. Gentleman first inquired about them at 6 o'clock. Can we therefore clarify that he was inconvenienced by just one hour? Let us get this right and on the record.

Bill Cash (Conservative, Stone)

I am glad that the Minister raised that point. He will recall that I raised the matter on Second Reading and the question of time lapse should be viewed in that context. However, the Minister has apologised and we do not want to make too much of it. To assess the implications of the provisions, it would have been helpful to have the documentation sooner, but I am glad that the Minister has apologised on the record, so it is now even Stevens.

Michael Wills (Labour, North Swindon)

Since the publication of the Bill, the Government have listened carefully and responded to debates in another place. We have made the regulations on transactions of commonhold units much less stringent, and our more relaxed approach has been carried through in the Government amendments to clauses 20 and 21. Most interests in units will be in the unit as a whole, though some may affect only part of a unit. Having secured the appropriate agreement for which the requirements have been relaxed, the unit-holder will be free to grant a lease on only part of a unit, subject to the same controls as may be prescribed for leases of units generally.

It is still our intention that charges over part-units—rlor, strictly speaking, over part of the interest in the unit—should not be allowed. A charge over a part-unit—if proved necessary to enforce by foreclosure and sale—could result in a change being required to the commonhold community statement, which might affect other unit-holders and the commonhold generally, but would not be under the control of the commonhold association. Enforcement of the charge over the whole would result in transfer of ownership in the same way as if the unit-holder had sold the unit in order to move.

The policy that I have outlined secures the right balance. Amendment No. 46 would go too far in the direction of a laissez-faire arrangement by taking away the provision that allowed the commonhold association some control over transactions that could destroy the development's integrity. In that light, I hope that the hon. Gentleman will withdraw the amendment.

Government amendment No. 15 will remove the reference to the creation of interests in part-units and is linked to the next group of amendments, through which we shall amend clause 21 and interests in part-units. The amended clause 20(3) will relate only to the rules to be followed to create an interest in a whole commonhold unit. New clause 2 deals with interests in part-units. In brief, the creation of interests in part-units will be prohibited—except in the circumstances specified by new clause 2(2)—by new clause 2(1), to which we shall shortly return.

Bill Cash (Conservative, Stone)

Having heard what the Minister had to say, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 15, in page 10, line 5, leave out

'the whole or part of'.—[Mr. Wills.]

Clause 20, as amended, ordered to stand part of the Bill.

Clause 21 - Part-units

Alan Hurst (Labour, Braintree)

With this it will be convenient to take Government amendments Nos. 17 and 18 and Government new clauses 2 and 3.

Michael Wills (Labour, North Swindon)

The amendments are important to the creation of the new arrangements that I have described. Amendment No. 16 would have removed the current clause 21 and paved the way for a new clause 21, which is currently new clause 2. That new clause forms the backbone of the group of amendments. Government amendment No. 17 is minor and consequential on the more substantial changes that have been made to clauses 20 and 21. It amends clause 31(5)(a), which deals with the matters to which regulations about the commonhold community statement may relate. Its effect is that regulations mentioned in clause 21 are those to which clause 31 may relate.

Government amendment No. 18 to clause 59 is necessary to take into account the changes to clause 21. In previous drafts of the Bill, when restrictions that might prevent transfer of part-units were in place, it was nevertheless clearly provided and agreed on both sides that that should not prevent the transfer of part of a unit to a compulsory purchaser. To do so would undermine the scheme of the compulsory-purchase legislation. The amendment is consequential on others that make it clear that part-units may be transferred subject to the requirement for the commonhold association to consent in writing. It provides that, notwithstanding that general requirement, the commonhold association's consent is not necessary for the specific instance of transfer of part of a unit to a compulsory purchaser.

New clause 2 is pivotal in this group, which deals with the rules in the Bill that govern transactions involving part-units. I hope that it will help if I explain the history and background of the amendments, which follow through consideration in another place.

The amendments have as their starting point the policy that the transfer of part-units, which will inevitably involve changes to boundaries and possibly to the number of units, should be possible only as part of a comprehensive process involving the amendment of the commonhold community statement, with an appropriate level of agreement from the commonhold association's members.

It has always been the intention that the practical effect of transferring the ownership of a part-unit should be possible by way of amendment of the

commonhold community statement. For example, clauses 22 and 23 require certain consents to be obtained if the size of a unit is changed. Amendment of the commonhold community statement in parallel with the transfer prevents the problems that would be caused by unilateral, unregulated dealings with part-units. Such dealings would result in ownership patterns and unit boundaries changing without the necessary amendments to ensure that the rights and responsibilities of the unit-holders were enforceable.

We made amendments to clauses 20 and 21 of the Bill on Report in another place on 10 April 2001. The amendments were intended, first, to ensure that the commonhold association did not have to consent to the creation of leases in units or part-units, in keeping with the unit-holder's freedom of disposition as a freeholder. Secondly, we wanted to make it possible for certain interests affecting only part of a unit to be created, subject to regulations to be made under clause 22(3) and (4).

Andrew Selous (Conservative, South West Bedfordshire)

I am genuinely seeking clarification. Is the intention of new clause 2 that it would not be possible to rent out a room in a commonhold unit? The first line refers to ''an interest in.''

Michael Wills (Labour, North Swindon)

I shall come to that point shortly. It is important that I outline the thinking behind the measure first.

Following the amendment, as part of a continuing process of consultation, we considered whether amending clauses 20 and 21 to enable the creation of such interests had opened up the possibility of transferring part-units with the consent of the commonhold association under clause 20(3), but without the crucial concomitant amendment of the commonhold community statement. While that could be dealt with by regulations under clause 21, it is preferable that the essential policy regarding the procedure to be followed is more clearly reflected in the Bill, with the finer technical detail reserved for regulations.

Under clauses 20 and clause 21, if a unit-holder purported to transfer part of a unit, and an interest in the part-unit was created as a result, as long as the unit-holder could secure the consent of the commonhold association under clause 20(3) and (4), the transfer might be effective without modification of the commonhold community statement. Of course, it would not be prudent for the commonhold association to agree to the transfer of a part-unit without making the necessary changes to the commonhold community statement; it would make the task of managing the commonhold a good deal more difficult.

Similarly, it would be unwise for a unit-holder to transfer part of his unit to another without, for example, securing agreement to a corresponding change in the percentages of commonhold assessment fixed for the respective units. However, that does not mean that it would not happen. Thus, the amendments to clause 20 and new clause 2, which will be the new clause 21, are designed to ensure that it does not, by making it clear that transfer of part-units

is not possible except in the circumstances specified in clause 21.

To that end, new clause 2(1) provides that the creation of interests in part-units is not possible. It is bolstered by new clause 2(3), which provides that an attempt to create an interest in contravention of subsection (1) will have no effect. Subsections (2)(a) and (b) make the exception to subsection (1) for the creation of leases in part-units which, by virtue of subsection (6), is made subject to the regulations on residential leases to be created under clause 17. Subsection (7) provides that regulations may modify the application of provisions of the Bill relating to the unit-holder or tenant where part of the unit is held under a lease, so that wrinkles in day-to-day operations can be ironed out. It will therefore be possible to rent out a room or to lease it, provided that the lease matches the criteria. I hope that satisfies the hon. Member for South-West Bedfordshire (Andrew Selous).

As to transfers of part-units, subsection (2)(c) and subsection (8) provide that transfer of the freehold estate in part of a commonhold unit is possible where the commonhold association consents in writing, but that the commonhold association will be able to consent to the transfer only following a resolution with 75 per cent. of those members who vote in favour, as is the case under clause 20(4).

Subsections (9) and (10) of new clause 2 deal with the rearrangement of boundaries and the corresponding obligations. Subsection (9) provides that where part of a unit is transferred, it must either become a new commonhold unit or become part of an existing commonhold unit. The request for the consent of the commonhold association under subsection (2)(c) must specify which of those options is to apply. Subsection (10) provides that regulations may make provision about the registration of units created upon transfer of part-units. We will use these regulations to ensure that the commonhold community statement is amended as a parallel part of the process.

New clause 3 effects a change in arrangement, rather than policy, in the interests of certainty and clarity. It creates a new clause specifically to deal with the charging of part-units, replicating the provision on charging of part-units in the current draft of the Bill. Clause 21, which is to be replaced, both deals with the creation of interests in part-units and contains a prohibition on the charging of interests in part-units. New clause 2, which will replace clause 21, will deal with interests in and transfer of part-units. Bearing in mind the length of that new clause, and in the interests of readability, it seemed appropriate for the rules on charging of part-units to be contained in a separate clause. The policy, however, remains the same—it should not be possible to create a charge over only part of an interest in a commonhold unit.

Subsection (1) of new clause 3 replicates almost exactly the current clause 21(1). The sole difference is that the prohibition in the amendment refers only to the creation of a charge over part only of an interest in a commonhold unit. That reflects the technical point that a unit as such cannot be charged; rather, it is the unit-holder's interest in the unit that is charged. New

clause 3(2) replicates the effect of clause 21(5) of the current Bill, rendering ineffective any attempt to create a charge over part only of an interest in a unit. New clause 3(3) and (4) provide that where land is added to a commonhold and a charge over a part-unit would exist, then such a charge shall be extinguished: that achieves the same effect as the present clause 21(2).

Bill Cash (Conservative, Stone)

I found the Minister's lengthy explanation extremely interesting. He will probably find that the proposed arrangements will be acceptable. However, the amendments have been tabled only recently and are complex. Others may wish to look at them and at their impact on a variety of other clauses that we have already considered and which have been overtaken by events. I have no doubt that it is being done with the best of intentions. I shall seek advice from experts in the Chancery Bar. The arrangements may already have been discussed and

agreed with others from outside. In the circumstances, it would be sensible for us to defer our thoughts on them until a later stage on the Bill. Notwithstanding that, I have no immediate objections to the amendments.

Question put and negatived.

Clause 21 disagreed to.

Clauses 22 and 23 ordered to stand part of the Bill.

Alan Hurst (Labour, Braintree)

The ordering of the Room, subject to the earlier request, will take place at lunchtime. Hon. Members are therefore asked to remove their papers so that that may be done more easily.

Further consideration adjourned.—[Mr. Stringer.]

Adjourned accordingly at five minutes to One o'clock till this day at half-past Four o'clock.