Commonhold and Leasehold Reform Bill [Lords]

Public Bill Committee, 17 January 2002.

Standing Committee D

Clause 69 - The right to manage

Bill Cash (Conservative, Stone)

I beg to move amendment No. 67, in page 33, line 12, at end add—

'(3) But this Chapter does not apply to any part of a building which is not occupied, nor intended to be occupied, for residential use'.

Alan Hurst (Labour, Braintree)

With this we may discuss the following amendments: No. 52, in page33, line 21, at end insert ', and

(d) no part of the premises are let on a tenancy to which Part 2 of the Landlord and Tenant Act 1954 (c. 56) (business tenancies) applies, provided always that planning consent has been granted for such business use or that deemed planning consent for such use exists.'

No. 53, in page 33, line 21, at end insert—

'( ) But this Chapter does not apply to any part of a building which is not occupied, nor intended to be occupied, for residential use.'

No. 68, in page page 96, line 35, leave out paragraph 1.

Bill Cash (Conservative, Stone)

We now move on to leasehold reform. I welcome the Parliamentary Under-Secretary of State for Transport, Local Government and the Regions, the hon. Member for Northampton, North (Ms Keeble), and I look forward to our discussions. I am sorry that the Parliamentary Secretary, Lord Chancellor's Department has disappeared, but he will no doubt reappear on Report.

The positions on leasehold reform and commonhold are quite different, but it is convenient to deal with both matters in the Bill. Both sides in the House of Lords agreed that there was a problem with mixed-development buildings and that it was not appropriate for residential tenants to manage the commercial parts of such properties.

Commercial tenants expect premises to be professionally managed. Furthermore, the landlord's interest in the management of the building is more intensive for the commercial parts than it is for the residential parts. The residential parts must, of course, be kept in good repair, but there is rarely much dissension about what is required, and most disputes are about timing and cost. Decisions about commercial premises, on the other hand, must be taken on a much more commercial, diligent and, some would say, pro-active basis. The landlord is under an obligation to decide which works must be undertaken to make the premises attractive to new tenants. What is more, where he is under an obligation to repair, commercial tenants will be much more demanding than residential tenants who must bear repair costs

through a service charge. That problem was recognised in the other place and is probably accepted by all those involved in such issues.

The main argument of the Minister in the other place was that the amendment would mean that landlords could get round the residential tenants' right to manage by converting small parts of the development into business premises. He gave the example of a landlord who converted a broom cupboard into an office and an attic into a factory. I am not much convinced by that argument and I trust that the Minister will not simply trot it out again. It is obvious that converting a broom cupboard into an office would require planning permission and I would like to see someone try to install a steam hammer for metal pressing in someone's attic.

There is a risk that a landlord will seek to convert part of a block of flats into commercial premises, but that will occur in only a few cases. We must accept that, on the whole, residential blocks are not suitable for converting into premises that can be used for business or commerce. I am sure that the Minister would agree, although she looks a little uncertain. For my part, I find it difficult to disagree with that proposition.

Lord Whitty said that clause 94 meant that commercial parts would not be subject to the right to manage. However, the clause is extremely opaquely drafted, dense and difficult to comprehend. If responsibility for the commercial parts is intended to be the landlord's obligation, the clause does not say so. Moreover, it leaves demarcation disputes very much in the air.

Will the Minister explain what is meant in clause 94 by the phrase

''functions with respect to a matter concerning only a part of the premises consisting of''?

Does it refer to a commercial unit? A standard issue that arises with shops on the ground floor of mixed developments is the frontage and the type of advertisements that can be displayed. After the right to manage has been exercised, will the landlord or the right-to-manage company be responsible for such matters?

It was suggested in the other place that landlords should be given 999-year leases of the commercial parts. There is something to be said for that and I shall be interested to see whether Liberal Democrats on the Committee take a similar view. The proposal would be a productive way forward, but Lord Whitty did not respond to it.

The Government's proposals for mixed developments will lead to great difficulties and, some might even say, disaster. The only practical solution to the problems that I have outlined is to exclude mixed developments from the scope of the automatic right to manage. That would not put residential tenants in a difficult position with bad landlords, because the present right to manage would still exist.

That is all that I need to say at this stage, and I look forward to the Minister's reply.

Sally Keeble (Labour, Northampton North)

This is the first opportunity that I have had to speak, although I have obviously attended the Committee previously. The part of the Bill for which I am responsible is important and very detailed, but I am sure that we shall make good progress under your chairmanship, Mr. Hurst.

The amendments relate to the application of the right to manage mixed-use properties, as the hon. Member for Stone (Mr. Cash) said. If I looked a little quizzical when he talked about turning broom cupboards into offices, it was because the image of several hon. Members' offices in this Building flashed before my eyes—[Interruption] I have clearly struck a chord.

The right to manage is intended to allow leaseholders who have a majority stake in a property to take over the management of that property. The amendments would have precisely the opposite effect. They would prevent leaseholders who had acquired 99 per cent. of the property on long leases from being able to manage the block merely because the remaining 1 per cent. was subject to a business tenancy.

That would open up a serious loophole on which unscrupulous landlords would be eager to seize. I appreciate that the hon. Gentleman said that he did not regard that as a sufficient obstacle, but it is a substantial one and it is part of our argument against the amendment. The landlord could frustrate the right to manage by letting a small part of his property on a business lease. It must be remembered that business leases extend way beyond factories, possibly to professional activity. Many people work from home and they could be interpreted to be business tenants. The practical effect of the amendments would thus be to allow landlords to put any property that they wanted outside the right to manage. I accept that that might not be the intention, but that is what would happen.

We have looked long and hard at how best to apply the right to manage mixed-use properties. However, problems would be encountered in any attempt to impose a statutory division of management responsibilities in an interdependent block. We have reflected hard on those problems, but still find them intractable. The fundamental difficulty is that responsibility for the fabric of a structure as a whole, and for related matters such as insurance for the structure and for any parts or services common to the domestic and non-domestic sections of the block, could not sensibly or realistically be divided between the two parties. It would leave the landlord responsible for the fabric of the property.

Only responsibilities that related solely to the interior of the domestic parts and any common parts exclusively associated with them would transfer to the right-to-manage company. In most cases, that would be of little use or benefit to the residential leaseholders, because all the major management decisions and most costly aspects of management would remain with the landlord, who would continue to recoup costs from leaseholders through the service charge. The right to manage would in effect be weakened because 1 per cent. of the property was a business tenancy, or could effectively be classified as such.

I appreciate that the amendments may stem in part from concern that the RTM company might lack the motivation and expertise to manage the non-domestic part successfully. I stress that under the Bill there would be no question of the RTM company becoming involved in the commercial relationship between the landlord and his business tenants. Clause 93(6)(a) explicitly reserves to the landlord all management functions that relate exclusively to units that are not leased to a qualifying tenant. Although the problem is difficult, we remain satisfied that the Bill's approach is the best solution available.

Adrian Sanders (Liberal Democrat, Torbay)

I wonder whether the Government have any mixed developments in mind. Are they putting barriers in the way of developments in which there would be a mix of right-to-manage tenants and businesses? Throughout the Bill, it seems as though the Government want everything to be clear cut, with residential and business properties seen as separate. Does the Minister see that there could be an enormous number of mixed developments and that they ought to be encouraged?

Sally Keeble (Labour, Northampton North)

There has been careful discussion and consultation on all aspects of the Bill with all the parties involved. As will come out in our debates on this part of the Bill, we have often had to strike a balance between competing and sometimes conflicting priorities. Although there may be a discussion about our judgment, we feel that the balance is right and that our system is workable and will provide residents with what they require. It will not deter developers.

The right to manage is intended to allow leaseholders to gain management control of properties in which they hold a majority stake, but where the landlord holds a monopoly over the management. Where, therefore, the developer has set up proper communal management arrangements from the outset, there should be no need for the right to manage to be exercised. We are aware that enlightened developers take that approach already. Leaseholders are often given a right to manage their blocks, or, if it is a mixed block, the residential parts, through a resident management company, which is written into the leases.

On the points about developers raised by the hon. Member for Torbay (Mr. Sanders), it is much easier for the developer of a block to put in place, at the outset, appropriate arrangements tailored to the precise circumstances of the building and to ensure that the relationship between the management responsibilities for the residential part and for the block as a whole is sensible. If that is done properly, the leaseholders will already be able to manage their own homes and there will be no real incentive for them to exercise the right to manage.

Developers can take a similar approach when they wish to protect themselves from the prospect of enfranchisement. Furthermore, the Bill will provide the opportunity for commonhold development. That is an important point, which is, as the hon. Gentleman said, often missed by those who have raised concerns about mixed-use development. Commonhold will necessarily involve both outright ownership of

individual units and a share in the common management from the outset. The rights to manage and to enfranchise will not be needed and will therefore not apply. The developer of a commonhold will consequently be certain from the outset about what will happen to his investment and will not face the prospect of losing the management or ownership of the commercial units.

The operation of commonhold or comparable systems in other countries does not seem to have inhibited mixed-use developments there. Furthermore, some developers with experience in such countries have expressed an interest in commonhold development once it becomes possible in England and Wales.

In the light of those considerations, the concerns that have been expressed about mixed use are misplaced. Developers who make sensible use of the options open to them have nothing to fear from our changes and have no rational reason not to continue with mixed-use developments. We acknowledge that there is a need to help developers to understand fully the options that will be open to them. We are already seeking to do so.

We resist amendment No. 68, which would remove the provisions that permit the right to manage to be acquired for mixed-use properties where no more than 25 per cent of their space is in non-residential use. If we accepted certain other amendments that threshold would not be needed, but as we do not accept them, we need to retain it.

On that basis, I invite the hon. Member for Stone to withdraw the amendment.

Bill Cash (Conservative, Stone)

It does not sound to me as though the Minister is in any way likely to give way on the matter. She has made that clear and the Bill has been through many stages in the other place as well. We are up against it and we have no alternative but to divide the Committee. The Liberal Democrats may wish to say something about that, but I will leave that to them.

Alan Hurst (Labour, Braintree)

Are you seeking leave of the Committee to withdraw the amendment?

Bill Cash (Conservative, Stone)

No, certainly not; I wish to divide the Committee, but I am waiting to see whether the hon. Member for Torbay wants to say anything.

Mr. Sanders indicated dissent.

Alan Hurst (Labour, Braintree)

In that case, I will put the question.

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 12.

Clause 71 - Miscellaneous enactments

Bill Cash (Conservative, Stone)

I beg to move amendment No. 48, in page 34, line 7, at end insert—

'(2A) The sum to which each member of an RTM company undertakes to contribute to the company's assets if it should be wound up whilst he is a member, or within one year after he ceases to be a member, for payment of the company's debts and liabilities contracted before he ceased to be a member, and of the costs, charges and expenses of winding up and for the adjustment of the rights of the contributories among themselves shall be the minimum sum, as defined in subsection (2B) below.

(2B) The minimum sum mentioned in subsection (2)(A) above shall be the following amount, namely the greater of—

(a) the total service charge and rent payable by tenants in respect of the premises in the two years prior to the acquisition date, or

(b) twice the average service charge and rent payable in respect of the premises in the five years prior to the acquisition date,

in each case divided by the number of members of the RTM company.'.

Again, this matter was extensively discussed in the other place. It is important for the Committee to realise that an RTM company is a small business. Its business is the management of a block of flats. It is impossible for any business to run without adequate working capital. Let us imagine that some developers or builders are engaged to do some building work and, as often happens, the work turns out to be greater than was originally thought and the costs overrun the estimate. We are all familiar with that scenario. Personally, I have never come across an original estimate for a building contract that has not been totally inconsistent with the final bill.

Where will the RTM company get the money from to pay the excess amount? It will only have raised the money to pay the original sum by way of service charges. That is an important point, which I am sure the Committee will appreciate. Money cannot be raised from service charges at the drop of a hat. It is probably impossible and certainly unlikely that a bank would lend money, because the RTM company would have nothing to offer by way of security. We propose that RTM companies should have some share capital.

In the other place, the Minister, Lord Whitty, said:

''I appreciate that the leaseholders company which takes over the management of the property needs to have access to funds''.

The Government accepted in principle that RTM companies needed to have money. We seemed to be making some progress. However, nothing was done about the issue. Lord Whitty went on to say that acquiring share capital from the start

''would price a lot of leaseholders out from the start and create far too great a threshold for them to pass through into the right-to-manage company.''—[Official Report, House of Lords, 27 February 2001; Vol. 622, c. CWH125.]

We are not convinced by that, but I will wait to hear what the Minister has to say. That is the answer that we received in the other place, but it is not a proper one. If an RTM company needs money to operate, it needs it. Going through the motions and saying that such arrangements are difficult for the tenants is simply not good enough. The RTM companies run a great risk of failure unless they have adequate working capital.

Our proposal was meant to keep RTM companies as companies limited by guarantee, but with a substantial guarantee to be given by the tenants. Under the Bill, each member of an RTM company would have to contribute £1 to the company in the event of its being wound up. On that basis, the company would effectively be worthless. Under our proposals, the guarantee given by each tenant would be, in broad terms, the equivalent of two years' service charges.

The advantage of the proposal is that an RTM company would have some borrowing capacity from the start, so it would be able to obtain working capital from the bank, but the tenants would not have to part with the money at that time. I hope that the Minister will seriously consider the amendment.

Adrian Sanders (Liberal Democrat, Torbay)

There is some merit in this amendment. It focuses on what could be a major problem for a group of tenants who formed a right-to-manage company. I am not sure whether it is the right solution, but I do not have an alternative proposal and I shall go along with the hon. Gentleman and treat it as the best that can be devised. The danger, as I mentioned before, concerns the barriers that already exist for people—particularly small groups—who combine to take responsibility for a company limited by guarantee. The amount of funds that they would need to gather would be an important consideration alongside their other responsibilities. I am reluctant to create further complications, but on the other hand, the hon. Gentleman has raised an important issue, which could set back some right-to-manage companies, particularly small ones, if they had financial difficulties.

Sally Keeble (Labour, Northampton North)

Clearly, it would be important for right-to-manage companies to have ensured that they had made proper financial arrangements before embarking on work. We shall make it clear in guidance that they would have to have adequate funds before doing so. However, the need would depend on particular circumstances. Our objection to the amendment is that it would act simply as a barrier preventing a number of leaseholders from acquiring the right to manage.

The right to manage is an important provision, which should provide an effective remedy for a number of leaseholders who want a major role in running their property. We see it as a solution that people might find preferable to enfranchisement. A number of leaseholders are concerned about the management of their properties. Often, in the first instance, they want the right to manage. However, the amendment would necessitate individual members

taking on a high minimum personal liability. The suggested formula would effectively price many leaseholders out of exercising the right to manage.

While I appreciate the good intentions behind the amendment—it is intended to ensure that the company has effective financial arrangements—the practical effect would be to make the right to manage inaccessible to the vast majority of leaseholders. That is contrary to our intentions. Where small leaseholders are concerned, an onerous burden would be the most unjustifiable barrier of all. The amendment would create an incentive for landlords to set the highest service charges possible. We cannot agree to the creation of such a glaring opportunity for landlords to undermine the right to manage. That said, I appreciate that leaseholders who take over the management of properties should have the necessary funds to be able to do the job properly. We agree and will strongly encourage them to do so in guidance; it is not a matter for the Bill.

Leaseholders already have to pay for the management of the property. They therefore exercise the right to manage knowing that they will have to meet that cost if they run it themselves. The additional requirement is an unnecessary and heavy burden. In many cases, the necessary funds will be available through the service charges and in the sinking funds. We are aware of at least one financial institution that is developing tailor-made packages to support resident management companies. On that basis, I ask that the amendment be withdrawn.

Bill Cash (Conservative, Stone)

I am afraid that I find the Minister's arguments unconvincing. This is an important issue and we shall press the amendment to a Division. I look to the Liberal Democrats for support and to see whether they have anything to say about our amendment and the Minister's reply.

Adrian Sanders (Liberal Democrat, Torbay)

I was grateful for the Minister's reply. She is right that this provision could cause a further complication. However, she did not deal with the more serious point of what happens if a small RTM company gets into financial difficulties. That point overrides her argument about difficulty. On that basis, we shall support the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 12.

Clause 72 - RTM companies: membership and regulations

Adrian Sanders (Liberal Democrat, Torbay)

I beg to move amendment No. 7, in page 34, line 20, leave out from 'premises' to end of line 23.

Alan Hurst (Labour, Braintree)

With this it will be convenient to take the following amendments: No. 54, in page 34, line 23, at end insert

', and

(c) the holder of the freehold of the premises'

No. 8, in page 34, line 23, at end insert

'provided that those landlords reside on the premises'.

No. 55, in page 34, line 26, at end insert—

'(2A) Such regulations shall provide for the holder of the freehold of the premises to be able to appoint at least one director of the RTM company.'.

Adrian Sanders (Liberal Democrat, Torbay)

The Bill contains proposals that give landlords an automatic right to be a member of a right-to-manage company. We believe that RTM companies should represent tenants and be able to deal at arm's length with the landlord. The clause brings the two together. We obviously accept that where the landlord is also an occupier of a flat it would reasonable for him or her to be a member of the RTM company. However, the automatic inclusion of the landlord gives an unjustified advantage, particularly to a non-resident landlord. Simply put, the amendment would deny the landlord that automatic right and discourage absentee, non-resident landlords from being fully participating members of an RTM company when the purpose of such companies is to be there for the tenants.

Sally Keeble (Labour, Northampton North)

This group of amendments deals with the constitution of the RTM company. It is a question of dealing with conflicting and competing pressures. Amendment No. 7 provides that the landlord should not have the right to be a member of the RTM company. I understand that our proposed right for landlords to become members of the RTM company has been the subject of some dispute. I am also aware that leaseholder representatives have expressed concern about this matter. I am pleased that on this occasion the hon. Gentleman is championing some of the arguments that have been put forward by leaseholders.

I appreciate that many of those concerns are genuine, but correspondence received by my officials on this issue suggests that many are based on a misunderstanding of what is being done in the Bill. I hope that it will help if I make our intentions clear. It is true that, in simple terms, the right to manage is the right to allow leaseholders of flats to gain management control of their block. I use the term leaseholders, rather than tenants. It is not a right simply to kick out the landlord as freeholder. We recognise that any member of an RTM company may wish to try to be obstructive and unhelpful. That must be taken into account in the overall right-to-manage framework.

We therefore intend to make voting rights in the company properly proportional to interest in the

property. That will prevent any obstructive minority from blocking the workings of the company. It is a no-fault right, which is particularly important. Our emphasis on no fault is not intended to be a convenient smokescreen for us to hide behind. The landlord will continue to have a legitimate property interest in the building while the right to manage is acquired. By the same token, the landlord will have an on-going interest in its management. Furthermore, because the acquisition of the right is not linked to any process of proving that the landlord has been a negligent manager—

Bill Cash (Conservative, Stone)

The Minister is not being specific. Will she confirm that the landlord would have no right to sit on the board and, in other words, would be excluded? The hon. Lady is not really addressing the point. She is telling us about his relationship with the management of the building. I am sure that she will accept that the idea of management carries with it responsibilities and the opportunity to be able to participate in board meetings.

Sally Keeble (Labour, Northampton North)

I will certainly deal with some of those issues. I am dealing with the membership of the company, which is what the hon. Member for Torbay was dealing with.

As this is a no-fault right, nothing justifies our ignoring the interests of the landlord and cutting him or her entirely out of the management process. The right to manage is not being organised because of failing, negligence or fault on the part of the landlord. The best way to safeguard the legitimate interests of the landlord is to allow the landlord to become a member of the right-to-manage company. That will put him or her on a similar footing to any one of the qualifying partners, with the same rights to receive information and to suggest the best way forward for the management of the property.

Bill Cash (Conservative, Stone)

Perhaps I am being unfair in not allowing the hon. Lady to finish her argument, but I am somewhat frustrated by the responses that are emerging. I was simply pointing out that a company of this sort is not as broadly based as a shareholder company. The Minister says that the landlord will be a member of the company, but is ignoring the fact that the board of directors will run the company. The ability to participate in management activities that she described is not adequate.

Sally Keeble (Labour, Northampton North)

The hon. Gentleman is trying to pre-empt the structure of my speech and move on to the questions that he is concerned about, which are that the freeholder should be able to appoint one of the directors, or have some right to be a director. I am dealing with the membership of the company. Clearly, the directors will be elected by the members. In our proposals, the landlord has the right to be a member of the company on the same basis as any other qualifying leaseholder. There is a difference there, but I will return to the points that the hon. Gentleman made.

I hope that I have dealt with some of the concerns about the exact role that the freeholder or landlord will play in the operation of the right-to-manage company and with any concerns that leaseholders

might have about that role and future arrangements for the building.

The best way to safeguard the landlord's interests is to allow him or her to be a member of the right-to-manage company. I suspect that that might be seen as somewhat heretical, but it would allow the landlord and the leaseholder to work together to manage the block in which they both have a property interest. Given the history of leaseholding, that view may seem heretical, but I am sure that in some instances there have not been the sorts of dispute between leaseholders and freeholders that have occurred elsewhere. The right to manage is a no-faults right, so there is no implication that there has been a history of bad relations between the two sides.

Amendment No. 8 allows resident landlords to be members of a right-to-manage company. Our view on this is governed by two principles. First, we cannot agree that different eligibility rules should apply to different people. There should be one governing criteria, namely, whether a person has a significant stake in the property in question. The Bill already enshrines that principle. Secondly, we are generally of the view that any form of residence test is undesirable. Hon. Members will know that we have dealt with that elsewhere in the Bill.

Adrian Sanders (Liberal Democrat, Torbay)

My reading of the Bill is that a landlord with several blocks of flats could not be a member of several different companies at the same time and would therefore nominate someone to represent their interests as a member of the company. That is likely to be a common development. One thinks of a landlord as a small business person who owns a block. However, he or she could own substantial holdings and have to nominate people who would probably be professionals, or even, dare I say it, legal professionals, who are nominated to the companies from time to time.

Alan Hurst (Labour, Braintree)

Order. That intervention was too long.

Sally Keeble (Labour, Northampton North)

One of the main issues about being a member of a company is the provision of information and access to it. That is an important aspect of giving the landlords or freeholders a right to membership of the company. I stress that that is membership, not directorship. The landlord's or freeholder's right is not a nomination right. As landlords will have the right to be a member of the company, they will know of the decisions that are taken at meetings. However, that right would not allow them to nominate someone to exercise it on their behalf.

Adrian Sanders (Liberal Democrat, Torbay)

Could a landlord's nominee, as a member of the company, seek election to a board position in the company?

Sally Keeble (Labour, Northampton North)

I said that the landlord could not nominate a representative. Most of the provisions for the leasehold arrangements are being made under the standard provisions of company law. Several amendments propose a departure from that law. The

provisions of company law are appropriate. If they are not followed, problems may arise. I accept that any arrangement can run into difficulties. There are legal remedies and a well-established body of law and practice exists to deal with such problems.

I will clarify the problem as that will help with some of the technical issues. It will be difficult to give a full answer to some of the technical legal questions, as that would involve drawing on an existing body of law that is affected by company law, which is a different statute. I will ensure that hon. Members receive a full explanation once we have given legal consideration to some of the questions raised. Although I have some knowledge of company law, I am not a qualified solicitor. Some queries can be dealt with, but where there is a need to examine company law, it will help hon. Members and the progress of the Committee to make that arrangement.

Bill Cash (Conservative, Stone)

I understand the Minister's remarks, but we run into a problem that has already cropped up in relation to commonhold. The Minister was not present at that debate, but she was on Second Reading. I suggested that regulations ought to be made available. The shorthand of regulations has been overlaid by the availability of draft documents to be made under the regulations, which are not the same. I have a letter here from the representative of the Lord Chancellor's Department, Mr. Paul Zimmerman—

Alan Hurst (Labour, Braintree)

Order. I am not certain that the reading of letters amounts to an intervention.

Sally Keeble (Labour, Northampton North)

My point about the basis that will underpin our debates during the next two sittings was intended to assist the hon. Members for Torbay and for Stone.

Experience has shown that residence tests are open to abuse because there is contention about what constitutes residence. The Bill removes or replaces residence tests and we would not favour creating another test. That is the correct approach. The right to manage is neither pro-landlord nor anti-landlord. It is a measure to ensure that management rights balance with property interests. As a holder of a stake in a property, the landlord is part of that interest.

The notion that the landlord cannot be trusted or might intimidate tenants underpinned the concerns of the hon. Member for Torbay. It is suggested that opposition to landlord membership is based on those presumptions, which is an unfair and inappropriate generalisation. The right is a no-fault right and its acquisition should not be tied to the previous conduct or predicted future conduct of the landlord. To suggest that a landlord cannot be trusted would pronounce that person guilty without any opportunity to prove otherwise. It also pre-supposes that all landlords are bad and all leaseholders are good and trustworthy.

Adrian Sanders (Liberal Democrat, Torbay)

I did not mention the behaviour of landlords, but I understand where the Minister is coming from. It is unlikely that tenants would want to take over the management of a well-managed block. It is only in the event of poor management by a landlord that they are liable to want to form an RTM company. Therefore, guaranteeing the landlord an automatic

place in the company would bring about the problems that people have raised in consultation.

Sally Keeble (Labour, Northampton North)

That is a fair point. However, it makes a supposition about the reasons why people might want to exercise the right to manage. Many do so because they want to make decisions about their own properties.

Bill Cash (Conservative, Stone)

Before the Minister moves on, did she suggest that the fact that the landlord might be on the board would effectively act as a veto? She must understand that it would not get to that point: participation is not the same as veto.

Sally Keeble (Labour, Northampton North)

I accept that point. I was not suggesting that a landlord who is a member of a company has a right of veto. Some leasehold organisations have suggested that the presence of a landlord as a member of a company might be intimidating.

We are dealing with existing leasehold practice, where significant disputes between the two sides have arisen, so we have to reconcile different experiences and pressures.

Amendment No. 54 proposes that the freeholder should be given an unqualified right to become a member of the RTM company at any time. Members of the Committee will be aware that under clause 72(1)(b) the freeholder, together with any intermediate landlord, is already entitled to be a member of the RTM company. For the purposes of the clause, the freeholder will be the landlord of the qualifying tenants who exercise the right to manage.

The right granted to landlords under the clause is qualified in that a landlord may become a member of the RTM company only after the date on which that company acquires the right to manage the property. The qualification exists for a sensible, practical reason. Before it can acquire the right to manage, the RTM company is required to serve a claim notice on a range of existing management parties, including all the landlords. That allows the recipients to satisfy themselves that the leaseholders are properly entitled to the right to manage.

If landlords were also members of the company at this stage, they would be both the people who are being notified of a claim and a part of the body that notifies them, which does not make sense. Furthermore, it would give unscrupulous landlords a double opportunity to cause problems and delay. They could not only dispute the entitlement of the RTM company, but could slow the process down from within the company—an eventuality that we do not want.

For that reason, we cannot allow any of the landlords, including the freeholder, to become members of the RTM company before it acquires the right to manage. The Bill strikes a sensible balance in allowing landlords to protect their legitimate interests once the right is acquired, but preventing them from interfering before that date. That is the right solution.

Under amendment No. 55, the freeholder would have the right to appoint at least one director of the RTM company, which raises the difference between a member and a director. We believe that that provision

is neither necessary nor appropriate. The right to manage will give everyone with a significant stake in a property a balanced and proportionate say in its management. I see no reason to unbalance the position by giving landlords the right to insist on their own directors, who should be elected by members of the company.

Those proposals are based on the unhelpful assumption that leaseholders cannot be trusted to manage the property in which they have acquired the majority stake and that landlords need special protection. We disagree. Nothing justifies the landlord, with a minority stake in the property, having a disproportionate degree of protection. We agree that everyone with a stake in the property should be able to take action to protect their interest where the RTM company is failing to do its job, but the Bill already provides for that. Our view remains that such rights should be granted on a fair and equitable basis.

We have had a thorough debate and I have tried to make our position clear. I ask the hon. Member for Torbay to withdraw the amendment.

John Taylor (Conservative, Solihull)

First, may I say how much I have enjoyed serving under your chairmanship for the first time, Mr. Hurst,. The tenor and tone of the Committee has been most agreeable.

In common with the Minister, I have found it difficult always to hear what is being said. I hope that the Committee can hear me satisfactorily. The Minister did not quite catch the words of the hon. Member for Torbay, and neither did I. It may be the consequence of advancing years, but if it is not merely that could you, Mr. Hurst, use your good offices and influence to arrange for some ear trumpets to be distributed in the Committee? I complimented you on your chairmanship and they would be extremely valuable.

I want to reassure the Minister, although she is full of confidence and may not need it. At one stage, she admitted that she was not a qualified lawyer, but being a qualified lawyer is a profound disadvantage, although lawyers tend to get more fun out of these occasions, even though they keep it to themselves. There is not much rollicking hilarity; the pleasure is inward. It is a glow of self-satisfaction that, contrary to all precedents of the House of Commons, one finds oneself in the position of knowing about what one is discussing. That is normally ill-advised in the House and the silent ones—the Whips—normally ensure that Committees are selected so that no member knows what they are talking about. That gives the Minister an easy ride, which is what the Whips are all about.

The Minister seems to be bending over backwards to avoid being partisan in favour of the tenant against landlord. There is a traditional tension in the House that always presumed that the Tories were in favour of landlords and Labour in favour of tenants. There is a great anxiety in new Labour to get away from that past and in some senses that is admirable. However, there is a good reason for trapping the landlord in the management company, which is that the tenants can then intimidate the landlord. We did that in the

development in which I live in Solihull. We ensured that the landlord was a member of the management committee, so that he could not avoid hearing us let rip at him.

Finally, as I know that my interventions are normally unwanted in this Committee—[Hon. Members: ''Shame'']. Faint praise. The Minister said that she would be writing to the Committee on some technical points and I am sure that that is welcome. I believe that the proper convention is that the Minister should write to you, Mr. Hurst, because you are in charge and send copies to the rest of us. I remind her that her colleague, the Parliamentary Secretary, who was with us on Tuesday, undertook to write to me about the priority of the rights of the deserted spouse. I will not dig the ground again, but it is extremely important and we should not lose sight of it. I come to this Committee with two priorities. One is to ensure that the position of the deserted spouse is covered in rank priority to both arrears and a first or second mortgagee. The second, which we have not yet reached, is that I wish to secure in the Minister's mind the importance—

Alan Hurst (Labour, Braintree)

Order. If we have not yet reached the point in the Bill, it is not appropriate to pursue it.

John Taylor (Conservative, Solihull)

I accept your guidance, Mr. Hurst. My intervention has lasted far too long and I thank you for the courtesy of your rebuke.

Bill Cash (Conservative, Stone)

I am glad that you have been complimented on your handling of the Committee, Mr. Hurst, and that the Minister had the opportunity to speak before me, because it allowed me to hear her arguments before I spoke. The more I heard, the less I liked.

A curious situation is developing, which is that the landlord might be thought capable of intimidating the tenants. As my hon. Friend the Member for Solihull (Mr. Taylor) rightly said, in certain circumstances, it is not a question of intimidation. It is a question of participation in an important and complex process. Among other things, we are dealing with relationships between different people, some of whom may be downright difficult. My experience in dealing with such people is that they are difficult just for the sake of it. Equally, landlords can be difficult.

It may amaze the Committee to learn that difficult people who live in blocks of flats are not necessarily Conservative, Labour, new Labour, Liberal Democrat or anything else. They do not come from a particular political party; they are just plain difficult. We must get the balance right in the interests of the people who will live in such premises, to avoid what has, historically, been an arm's length relationship. The landlord has an interest and the tenants have an interest in what the landlord is thinking.

Those of us who watched ''Doctor Zhivago'' for the sixth time over Christmas may recall what happened when Zhivago returned. Just before Alec Guinness appears, we see an amazing sight: the Leninist committee has appropriated the property of Ralph Richardson, the father-in-law. The landlord is

excluded from the premises. He lives there, but the whole building has been taken over. I do not wish to carry this too far, but those who have seen the film may find the questions that it raises interesting.

John Taylor (Conservative, Solihull)

On the subject of Alec Guinness, did the hon. Gentleman see ''The Bridge on the River Kwai?''

Bill Cash (Conservative, Stone)

I thought that it would be a good idea to watch both films, but we must return to the matter under consideration. I made the point, somewhat graphically, to demonstrate that we do not need to engage in confrontational situations of the Zhivago type, because the world has moved on. Excluding the landlord by law, which is what is being done, is carrying things too far.

I do not know whether anyone in the Committee seriously believes that because a person has a substantial interest in property they should be specifically excluded. They are part of a process that should involve consultation—not necessarily a veto, as I said earlier—and the right to participate in the running of the company as a director. I do not see the virtue of excluding such people; it would be odd. The Minister may wish to reflect on that.

When I intervened earlier, the Chairman rightly pulled me up for going into detail about a letter, but I have more latitude when speaking to the amendment. We referred to the regulations. The Delegated Powers and Regulatory Reform Committee does not appear to have focused on the regulations relating to right-to-manage companies. I do not know whether that was an oversight or intentional, but the principle remains the same, and I should be grateful if the Minister would give it some thought.

Clause 72 is entitled

''RTM companies: membership and regulations''.

So many of the things to which the Minister referred will be worked out in the memorandum and articles of association of the RTM companies. That is where the balance lies between the various interests.

The clause states:

''A provision of the memorandum or articles of a RTM company has no effect to the extent that it is inconsistent with the regulations.''

I hope that hon. Members will forgive me, because I loathe going over the top on these matters but, rather like excluding the landlord, that absolute insistence on uniformity is going too far. We are saying what the template is, but we do not even know what the leasehold articles of association will contain.

Sally Keeble (Labour, Northampton North)

If the hon. Gentleman wants to make points, I will deal with them when I reply.

Bill Cash (Conservative, Stone)

Certainly. Let me put it the other way round. Irrespective of Mr. Zimmerman's letter and the point that I made about commonhold, it would be helpful if the draft articles of association could be made available. At least then we would know where we were going on the matter, which would be a step in the right direction.

My amendments are designed to tackle the problem of the landlord's status. The Government recognise

that the landlord will continue to have an interest in the building, as we have discussed. It is right for the landlord to have that involvement, but the way in which the Government recognise that right is—in my judgment—wrong. The Bill proposes that the landlord should be a member of the RTM company with one vote, but, as I have said several times because I feel quite strongly, he would have no right to sit on the board. If he was allowed to sit on the board but did not want to, that would be one thing, but he will be excluded, which is rather sinister.

I wish that a Labour Member would give an example or some reasoning as to why they think, in this day and age, that members of the new Labour party who are landlords—[Interruption.] I think that the Minister who attended a previous sitting declared an interest as a landlord of the sort of property that we are discussing. If I lived in that block of flats, I would like to have the Minister on the board because we have good personal relations.

Shona McIsaac (Labour, Cleethorpes)

Will the hon. Gentleman give way?

Bill Cash (Conservative, Stone)

Of course. I am delighted to have sparked a response. It has been hard work: this is the third sitting.

Shona McIsaac (Labour, Cleethorpes)

I have probably only just woken up.

Given that one of the biggest landlords in the country is the Duke of Westminster, will the hon. Gentleman estimate how much time that that landlord would have to spend attending myriad management meetings? Frankly, he would have to invent time travel to be able to attend them.

Bill Cash (Conservative, Stone)

First, no one imagines that the word ''landlord'' necessarily means the landlord himself. It could be a representative and I do not believe that there is the slightest doubt about that. The important point is that in a smaller block of flats it would almost certainly be the landlord, because there would be a personal relationship of the sort that I described. That does not alter my argument about the necessity of avoiding the difficulties that arise when there is a clash of personalities or interests and the landlord is actively excluded. We are not talking about the Duke of Westminster in this context.

Bill Wiggin (Conservative, Leominster)

Having listened to the Minister and other members of the Committee, it is clear that the essence of the reform of leasehold is balance. The Bill should not focus solely on the Duke of Westminster who is just one landlord, but there is no reason why the Duke of Westminster should not turn up to a meeting if he wished to do so. He should not be excluded and the purpose of the amendment is to prevent him from being excluded. We are all concerned that the leasehold reform should not be seen as a way of pushing the freeholder out of that committee.

Bill Cash (Conservative, Stone)

That is right. There are boards of directors in so many walks of life. That does not mean that every director must turn up on every occasion. It may be appropriate for him to turn up

only once in a blue moon when his interests and what is going on with his block of flats demand it. I in no way decry the intervention of the hon. Member for Cleethorpes (Shona McIsaac). I do not blame her for having a shot at whomever she wanted to have a shot at.

Shona McIsaac (Labour, Cleethorpes)

It was you, actually.

Bill Cash (Conservative, Stone)

In that case, it was wide of the mark. By no stretch of the imagination am I the Duke of Westminster.

Julian Lewis (Conservative, New Forest East)

But you deserve to be.

Bill Cash (Conservative, Stone)

That is another story.

I do not see why a person should be excluded, and I am astonished that not one member of the Government is prepared to acknowledge that the policy of exclusion is unjustified or is prepared even to justify it. The Minister has not justified it. However, the only proper way to recognise the landlord's legitimate interest is to allow him to sit on the board of directors. The extent of his right would be no more than to attend the general meetings and, if the circumstances were such, to be outvoted on the board by the tenant members every time, as I pointed out earlier. It does not follow because the landlord is on the board that he will win the votes or exercise any control or intimidation.

I mentioned the veto earlier. If the landlord tried to pursue interests that were inimical to the interests of the tenants, he would be outvoted. I am worried for new Labour, because there is a Stalinism here. I find it peculiar and do not understand it. The amendment is important in many ways for that reason. The landlord should be allowed to sit on the board of directors, especially if the Government persist in their avowed intention to allow buildings with commercial premises to be made subject to the residential tenants' right to manage. The landlord should be allowed some input into the management if he so wishes. The landlord may not be interested in being a director, particularly where there are long leases with substantial periods to run before expiry. If the reversion is to fall in the near future it must be right to give the landlord the opportunity to take part in the decision-making process. I do not understand the reason for the omission in the Bill.

Sally Keeble (Labour, Northampton North)

I am grateful to the hon. Gentleman for raising those points. I should have waited to hear them first. I am sure that he will be relieved to hear that I do not intend to go back over my speaking notes, which I should have read out at the end. May I also apologise to the Committee? I should have declared my interest when I first spoke. My husband and I live in a house in London that is a leasehold property.

Bill Cash (Conservative, Stone)

I think that we all do.

Sally Keeble (Labour, Northampton North)

I am sure that we virtually all do.

In the context of these discussions I should also declare a formal interest in that as a leaseholder I enfranchised myself, along with other leaseholders. I have been through quite a lot of the process that we are talking about. [Interruption.] I gather that other hon. Members have too.

I am grateful to the hon. Member for Solihull (Mr. Taylor) for his advice on lawyers. We clearly want arrangements for the ownership and management of properties that will work to the benefit of all the parties involved. The right to manage will probably be more immediately attractive to leaseholders because it will provide them with a degree of involvement that they have not had previously, without having to go for enfranchisement, which they might not want to do for a variety of reasons. However, that does not mean that it has to be seen in a confrontational way. I completely take the point that Opposition Members have made. That approach underpins the fact that this is a no-fault right. I have spoken about that quite often and so I will not go into it in great detail again.

The hon. Member for Solihull gave an interesting explanation of how the management committee of his property pinned the landlord down. In this instance we are dealing with a slightly different arrangement because it is a company. The members can elect as their directors people from among their membership. I will return to that when I deal with the arguments of the hon. Member for Stone. His main thrust was that he sensed that the landlords were being excluded. Further explanation is needed. I completely take the points made by the hon. Member for Solihull about the deserted spouse. I am sure that he will get a full response. I will ensure that our officials also look at the leasehold side.

The hon. Member for Stone pointed out that it is a two-way relationship. That is right. It is part of the principle underpinning the no-fault right to manage. It is a new and important right that will address many of the concerns that have been raised. The fact that people thought that it was all or nothing encouraged a more antagonistic approach between freeholders and leaseholders on decisions about companies. This no-fault right to manage is important progress.

The hon. Gentleman also asked about the constitution and regulations. We recognise that the constitutional right to manage a company is a fundamental part of the framework that the Bill puts in place. It is important that these matters are subject to careful consideration. We consider that that is best served by the Bill's approach, which will allow us to work out the constitutions in detail after consultation with the interested parties before carrying out a wider public consultation on the draft regulations. The work is under way and, expecting great interest in the matter, I asked the officials to bring the drafts to the Committee. The usual protocol is that we ask your permission to circulate them, Mr. Hurst. If you agree, perhaps they can be distributed when we break for lunch. I emphasise that the documents are drafts and I welcome comments on them from hon. Members or as part of the consultation exercise to be carried out later in the year.

Bill Cash (Conservative, Stone)

I am grateful to the Minister for acceding to my request. I do not mean to be curmudgeonly, but we should look back a little. The Bill has been through five stages in the other place where such matters have been considered exhaustively, and has had a Second

Reading in the House. I mentioned what the Deregulation and Regulatory Reform Committee said on the matter with the Parliamentary Secretary, Lord Chancellor's Department, who was surprised that the regulations had not been produced. We are now being offered, not the regulations that that Committee said should be made available, but drafts based on those regulations. We have now reached the part of the Bill that deals with the question relating to—

Alan Hurst (Labour, Braintree)

Order. If the hon. Gentleman wishes to speak to that amendment he must do so after the Minister, not during her speech.

Bill Cash (Conservative, Stone)

I should be happy to do so, Mr. Hurst, as I want to continue the argument, but I could bring what I want to say to a close very rapidly. It is cutting it a bit fine to let us have the regulations just before Report, when the opportunity to make amendments will have passed. I could wrap that into a point of order if you wish, Mr. Hurst.

Sally Keeble (Labour, Northampton North)

These are drafts of the proposals for the constitution of the RTM company that would normally go through a long process of consultation—

Bill Cash (Conservative, Stone)

It is in the Bill.

Sally Keeble (Labour, Northampton North)

The hon. Gentleman is trying to make a meal out of a reasonably straightforward point. Realising that there would be interest in the matter, I have ensured that drafts—they are no more than that—are available and they can be seen. The regulations that the hon. Gentleman asked for prior to this sitting—he spoke to me outside the Committee Room—were provided, although admittedly just before the sitting. I am making a genuine offer to ensure that hon. Members get full information and can see the draft constitution at an early stage so that they can take part in a process that will continue long after these proceedings have finished, because there must be proper consultation with the interested parties. It is up to the hon. Gentleman, but I am making a genuine offer to be helpful.

The thrust of the hon. Gentleman's argument is the unfair exclusion of the landlord and I have difficulty seeing how the proposal would work. The amendment states:

''Such regulations shall provide for the holder of the freehold of the premises to be able to appoint at least one director of the RTM company''.

There is clearly a difference between a member and a director and we argue that the freeholder, as someone with a proper interest in the property, should be entitled to be a member of the right-to-manage company and have all the benefits of membership, which include receiving information and, elsewhere in the Bill, the ability to challenge decisions that the directors make.

As I have said, a number of measures in the Bill are intended to reconcile different views and competing pressures and priorities. Some people on the leaseholder side of the argument do not think that the freeholder should have the right even to be a member of the company. That argument is not sound

because the freeholder has an interest in the property and that should be properly recognised.

In addition, this is a no-fault right and, as Opposition Members have consistently argued, including the hon. Member for Torbay, it is in everyone's best interests that the right-to-manage company works in an amicable fashion. We should not have this constant argument between who is a freeholder and who is a leaseholder. There are sharp differences of interest, but to all intents and purposes, the interests of both freeholders and leaseholders should in most cases be the proper management of the company and the building in which they have interests and investments.

It is simply not the case that the freeholder is being excluded by our proposals. We are not saying that the freeholder should have any rights, in terms of board membership, over and above all of the other people who have an interest in the building. It seems to be perfectly fair that the members of the company should elect the directors they want. That matter should be entirely determined by the members of the company. It would be wrong to say that one member should have superior rights to others.

We recognise the property rights of the freeholder. Those people who are totally opposed to the leasehold system would not want us to recognise those rights. The way properly to recognise them is to put them on the same footing as every other person with an interest in the premises, which is to be a member of the company.

Clearly, there is an option for members to stand for the board of directors. When a landlord has an interest in a large number of properties, it will not be practical for him or her to be on the board of directors of every single property that has set up a right-to-manage company. They will certainly not be excluded, however, from company membership.

I assure the right hon. Gentleman that his fears are not borne out by the provision in the Bill, which strikes the right balance between the need to respect the property interests of everyone who is involved and provide for the proper arrangements for the property concerned. On that basis, although I suspect there will be further discussion about this matter, I ask the hon. Gentleman to withdraw the amendments.

Mr. Taylor rose—

Bill Cash (Conservative, Stone)

I would be happy to allow my hon. Friend the opportunity to go first, if that is convenient.

John Taylor (Conservative, Solihull)

I am grateful to my hon. Friend. In her perfectly proper and appropriate declaration of interest, the Minister said that she and her husband had enfranchised, what I assumed to be a leasehold house and that they had acquired the freehold reversion. I can tell from her body language that I am mistaken in that, but I would like to leave a question with her. This is really an exercise in impertinence, and she does not have to answer, but I would be interested to know whether the Minister and her husband in acquiring their freehold reversion, enjoyed the benefit of certainty of valuation. The

Committee will know that that is one of the directions—

Sally Keeble (Labour, Northampton North)

I shall stop any speculation: we are currently leaseholders. I was referring to a flat that I had owned previously.

John Taylor (Conservative, Solihull)

So the Minister, in a previous existence, acquired the reversion on a flat. I would like to leave her with this impertinent and pertinent question. Did she enjoy certainty of valuation or did she start off miles away from the figure required for reversion? The Committee will realise that I am interested in certainty of valuation. When the Minister's officials inquire into the rights of the deserted spouse, about which I am concerned, they may want to know that the seminal case was Bendall vs McWhirter. It was taken to its groundbreaking conclusion by a brilliant firm of solicitors in the west midlands, which employed me.

Andrew Selous (Conservative, South West Bedfordshire)

Does the Minister agree that my hon. Friend the Member for Stone tabled the amendment to allow ease of communication? It is easier for leaseholders to communicate with the freeholder at a directors meeting, if the freeholder can be present. Otherwise, if the board of directors and the freeholder disagree, they will have to engage in correspondence, further meetings and so on. As my hon. Friend the Member for Solihull commented, where meetings have taken place and the freeholder was present, it was easier to thrash such matters out.

Bill Cash (Conservative, Stone)

The reference to McWhirter made me wonder whether it was anything to do with the distinguished founder of the Freedom Association. Perhaps some people have to learn important lessons about the exercise of freedom. That takes me to the Human Rights Act 1998. The Minister has certified compatibility with the convention on human rights at the beginning of the Bill. I notice that Government Members have suddenly acquired that alert expression that I usually associate with the fact that the buzzers on their controllers are going. For any Conservative Member to mention human rights is regarded by Labour Members as close to treason. In fact, the Human Rights Act 1998 has clear provision on property rights and I would be surprised if no one raised that question in relation to the explicit exclusion of the freeholder.

We do not regard the function of the landlord in the historical sense with which the Duke of Westminster was raised. We recognise the importance of the tenant. In my own family, a Member of Parliament in the 1840s was the secretary of the tenants' rights association in Ireland. One cannot get more closely related to tenants' rights than that. Anyone who cares to look up what Mr. Lucas's functions were at that time and the battles in which he had to engage on behalf of the Irish tenants would understand where I am coming from. It is not only a question of landlord and tenant; it is a question of the balance that must be struck in communication and the interests of everyone.

The Minister question protested that the landlord could be outvoted if he was on the board. It will be difficult to see to what extent the proposals in the draft documents that she made available mesh into her arguments, although it may not be as difficult if we

manage to accelerate our consideration of the provisions. She will know that, when it comes to the crunch these days, the courts can interpret what a Minister says in the House. That is an onerous responsibility, which can cause some difficulty. Unnecessary uncertainty could arise in relation to the provisions if the Committee has not had the opportunity at the right time to evaluate the regulations and their interaction with the Minister's remarks or the interpretation of the intention behind those remarks.

I hope that we can return to the issue on Report or pursue it in some other way. We have debated it at length, and I hope that you have not found it uninteresting, Mr. Hurst. There are some important questions about attitudes and culture, as well as practicalities. We intend to press the matter to a vote.

Adrian Sanders (Liberal Democrat, Torbay)

When I moved amendment No. 7, I thought the discussion would be short and sweet. I did not realise that it would develop into such a wide-ranging debate on issues such as ear trumpets, the films of David Lean and Obi-Wan Kinobe—perhaps Sir Alec Guiness's best role—in Star Wars.

I presume that I may withdraw my amendment while allowing the amendment tabled by the hon. Member for Stone (Mr. Cash) to be pressed to a vote? I listened carefully to the Minister and I accept what she said. Our concern is that people will want to move to the right to manage because of a bad experience with a landlord. The Minister believes that some people may take advantage of that. She may be right, but it remains to be seen. As things stand, the greatest incentive to want to exercise the right to manage would be a bad experience with a landlord and the desire to be distanced from that landlord once the right-to-manage company was set up. It has been a fascinating debate.

I beg to ask leave to withdraw the amendment.

Alan Hurst (Labour, Braintree)

The Committee has divided on the hon. Member for Torbay's amendment No. 7. The hon. Member for Stone asked that his amendment No. 54 be put, to which I acceded, and we divided on it. I believe that he now wishes to move amendment No. 55.

Amendment proposed: No. 55, in page 34, line 26, at end insert—

'(2A) Such regulations shall provide for the holder of the freehold of the premises to be able to appoint at least one director of the RTM company.'.—[Mr. Cash.]

Question put, That the amendment be made:—

The Committee divided: Ayes 5, Noes 14.

Clause 73 - Qualifying tenants

Adrian Sanders (Liberal Democrat, Torbay)

I beg to move amendment No. 9, in page 35, line 17, at end insert—

'(8) Where the tenancy of a flat under a long lease is assigned, the assignee shall become the qualifying tenant for the purposes of this section.'.

I am extremely reluctant to say that this will not take long. I am going to be brief once again, but I have no idea whether the rest of the Committee will follow suit. This is a probing amendment to establish the Government's position. We welcome the extension of the right of collective enfranchisement to several leaseholders who previously did not have it. One defect remains, but the Minister may be able to put us right about it.

The Bill does not require the automatic transfer of membership of a right-to- enfranchise company on the

assignment of a lease. The central purpose of a right-to enfranchise company is to give leaseholders the right to participate in ownership. We view the concept of an RTE as an embryonic commonhold association. Do the Government share that view?

Sally Keeble (Labour, Northampton North)

We are talking about right-to-manage companies at this stage.

Adrian Sanders (Liberal Democrat, Torbay)

In that case, the amendment obviously deals with the wrong part of the Bill. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Sally Keeble (Labour, Northampton North)

When I explained that we were using company law, some hon. Members may have wondered what I was talking about. Now they can see the point. The right-to-manage company falls under the ambit of company law, so a person becomes a member of a company, enters into a contract and agrees to be bound by the provisions of the memorandum and articles of association. In an RTM company the assignee does not acquire a share, but becomes a guarantor. The law requires that the person must formally agree to that. It is not right to force people to become members of a company in the way suggested by the hon. Member for Torbay. The usual provisions of company law should apply.

Bill Cash (Conservative, Stone)

There is a slight problem, but it will be ironed out as people become familiar with companies limited by guarantee. It is easy for people to imagine a company as a company, but a company limited by guarantee—as the Railtrack experience well

illustrates—is different in respect of management and control. Also, there is a different shareholder relationship to that in a normal company. People should not be deluded into believing that the proprietorial right that develops out ownership in a normal company applies to a company limited by guarantee. They would be sadly mistaken if they believed that the two sorts of company were the same, which is an important point about the framework. It will certainly be interesting to see precisely what the drafts say about the constitution, memorandum and articles of association.

Sally Keeble (Labour, Northampton North)

I do not want to detain the Committee. To be helpful, I note the remarks of the hon. Member for Stone.

Question put and agreed to.

Clause 73 ordered to stand part of the Bill.

Alan Hurst (Labour, Braintree)

I have an announcement. An application has been made to move the Committee to another Room because we are so cramped here. Investigations have taken place, but proved unsuccessful. The Committee will have to continue to sit in this Room for the duration of the Bill.

John Taylor (Conservative, Solihull)

On a point of order, Mr. Hurst. Will it be convenient for us to leave our papers here until this afternoon?

Alan Hurst (Labour, Braintree)

Yes, the Room will be secure.

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Two o'clock.

Standing Committee D

Commonhold and Leasehold Reform Bill [Lords]

Clause 76 - Notice inviting participation

Bill Cash (Conservative, Stone)

I beg to move amendment No. 72, page 37, line 15, at end insert:

'(3A) Regulations shall prescribe that a notice to participate shall include, or be accompanied by, a prescribed statement setting out the principal responsibilities and obligations which the company will assume as the manager of the premises and setting out in particular the relevant provisions of the service charge residential management code made by the Royal Institute of Chartered Surveyors or such other code as may be approved by the Secretary of State under the terms of section 87 of the Leasehold Reform, Housing and Urban Development Act 1993 (c. 28).'

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to take amendment No. 56, in clause 78, page 38, line 37, at end insert:

'( ) It must include an offer of cover to provide for the RTM company directors' and officers' liability insurance, fidelity guarantee and professional indemnity insurance.'

Bill Cash (Conservative, Stone)

I welcome you to the Chair of the Committee, Mr. Illsley. We complimented Mr. Hurst, and I have no doubt that we will be able to confer the same congratulations on you, as we discussed the Land Registration Bill under your chairmanship.

The amendments deal with the regulations, and amendment No. 72 states that the regulations will prescribe that a notice to participate shall include, or be accompanied by, a prescribed statement that sets out the main responsibilities and obligations that the company will assume as the manager of the premises, and sets out the relevant provisions of the service charge residential management code made by the Royal Institution of Chartered Surveyors or such other code as may be approved by the Secretary of State under section 87 of the Leasehold Reform, Housing and Urban Development Act 1993.

It goes without saying that the right to manage is important, and I think that all members of the Committee would agree. The right to manage places considerable responsibilities on the tenants who decide to exercise it. It is therefore only right that the tenants should be in a position to know with what they are faced. That crucial question is at the root of the amendment. The RICS is a chartered body of great distinction that has been going for a long time, and it has accumulated a vast amount of experience in the pursuit of its charter. It has produced a management code that reflects the professional view of those who have been given the privilege of chartered status. A trade association will pursue its own interests exclusively. Those of us in the Committee who are

familiar with chartered bodies know that their first objective must be to pursue the public interest under their own charters subject to revocation, amendment or even suspension by the Privy Council. We do not need to go into all the ramifications, but it is important to bear in mind that the management code in the amendment is prescribed by the RICS, which clearly sets out what managers of premises should do.

Blocks of flats must be properly managed, and the prescribed standards should be improved. The right to manage would be entirely illusionary if its exercise did not lead to improvements in the running of blocks of flats, but nothing in the Bill prescribes that the right to manage will improve such management. That is left in the air. The Minister may correct me, but I do not believe that she will be able to do so. I have criticised the fact that we have not seen the regulations, but I have now come up with a regulation myself. At least I have set out in an amendment what it should comprise.

I shall wait to hear what the Minister has to say, but the Government do not propose any legislation to regulate managing agents. I have tabled a new clause later in the Bill that would tackle that question. Some agents are notoriously bad, and some are very good. We need not debate that point, because it is pretty obvious and well known throughout the land. I cannot understand what objections there could be to a minimal requirement to ensure that tenants at the very least know what good management of blocks of flats involves, what they need to do and what is expected of them.

I am proposing a simple measure. It is common sense that there should be a code of the sort that I have described. I do not say that it should be the RICS code, but it could be or a similar one approved by the Secretary of State. I am putting the ball into the Minister's court and asking why not?

Adrian Sanders (Liberal Democrat, Torbay)

I welcome you to the Chair, Mr. Illsley.

I support what the hon. Member for Stone (Mr. Cash) has said, although it may be covered by the guidance. However, any guidance needs to lay out clearly, coherently and in simple English what tenants' responsibilities will be if they set up a company. The guidance needs to be expressed in such a way that people are not put off. As I have said previously, I am concerned that people will be worried about taking on the responsibilities and will therefore not bother, although the legislation's real purpose is to encourage people to take a greater interest in, and control and management of, their housing. I hope that a body such as the Plain English Campaign can be consulted on the guidelines that are issued, so that tenants are clear about their responsibilities but are not discouraged.

Sally Keeble (Labour, Northampton North)

I, too, welcome you to the Chair, Mr. Illsley.

This group of amendments relate to the service of a notice of invitation to participate in acquisition of the right to manage. The hon. Member for Stone referred

to the regulation of managing agents, on which we are looking to produce a consultation paper. Clearly, there would have to be careful discussions before any such measure was ventured, but many hon. Members have raised the issue repeatedly.

Amendment No. 72 would require that information about the obligations of the right-to-manage company be set out in the invitation to participate. The hon. Member for Stone is concerned that leaseholders should be able to exercise their right properly. We will consider what should be included in management responsibilities in the invitation to participate.

The proposal in the amendment does not strike the correct balance. For example, it does not say what principal means. That is crucial, bearing in mind the points of the hon. Member for Torbay (Mr. Sanders) about plain English and easily accessible information. It does not say how much of the relevant code of practice the right-to-manage company would be expected to repeat in the invitation. Without that being properly set out, there would be tremendous scope for argument over whether the provision had been complied with.

It is wrong to make an explicit link of that sort between the responsibilities of the right-to-manage company and the approved codes of practice. The responsibilities of a right-to-manage company will derive from the Bill and from the terms of all relevant leases. The codes that we will produce—I completely take the point that they must be easily understandable—will supplement that by making clear the standard and degree of management that we expect. However, they will not impose any new obligations. Thus the proposed requirement to refer to the codes of practice is not necessary.

There is a difficult balance to be struck. We want leaseholders to be aware of what they are taking on, but we do not want to overburden them with requirements before they can acquire the right, or put in place subjective requirements that would allow scope for dispute. As such, we believe that the flexible requirements provided in the Bill are the best way to deal with the issue.

Through regulations, we already have the power to prescribe the form and content of the invitation to participate. We propose using the power to include a reference in the notice. Furthermore, that would allow us to ensure that the requirements were clear and unambiguous and that they could be changed if it proved that the correct balance had not been struck. I hope that that reassures the hon. Member for Stone that we are alive to the issues that he raised.

On amendment No. 56—

Bill Cash (Conservative, Stone)

I did not refer to amendment No. 56, which is an amendment to clause 78. It would prescribe further requirements to the contents of the claim notice. It does not fit in conveniently at this point, but I am sure that it will be fine to deal with its substance now. I look forward to the Minister's reply.

Sally Keeble (Labour, Northampton North)

At one stage, two identical amendments had been tabled, probably because of a mix-up. One of them, amendment No. 70, was withdrawn.

Amendment No. 56 would require the right-to-manage company to include details in the claim notice about liability insurance. The amendment would make the provision of liability insurance a qualifying requirement for the right to manage through the back door. Therefore, it undercuts the philosophy behind the right to manage; namely, that leaseholders should have a say in the management of their block by virtue of their investment in the property. That is a simple and widely supported principle, which I am sure will go a long way towards giving leaseholders an effective remedy for many of the issues that they face as directors, without having to go to the full extent of enfranchising. As has been said, we see no justification for putting in place requirements that discriminate against the RTM company by making it subject to more stringent requirements than would apply to any other leasehold manager.

Secondly, the proposed requirement will be largely worthless, as it says nothing about the level of insurance that is to be offered. The RTM company could therefore come forward with a laughable and negligible insurance offer and still comply with the letter of this requirement. On that basis, and with the assurance that I have given, I hope that the hon. Gentleman will withdraw his amendment.

Bill Cash (Conservative, Stone)

In all the circumstances, and having heard what the Minister has to say about the question of regulation, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Eric Illsley (Labour, Barnsley Central)

Order. The hon. Gentleman was absolutely right, amendment No. 56 is an amendment to clause 78. It would appear from the Chairman's draft that it was originally linked to amendment No. 76, which has not been selected, so it has been listed for debate with clause 76. If the hon. Gentleman wishes to refer to it during the debate on clause 78, the Chairman will allow him to do that.

Clause 76 ordered to stand part of the Bill.

Clause 77 ordered to stand part of the Bill.

Clause 78 - Contents of claim notice

Bill Cash (Conservative, Stone)

I beg to move amendment No. 57, in page 38, line 41, leave out 'one month' and insert 'six months'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to take the following amendments: Government amendment No. 77.

Amendment No. 58, in page 38, line 41, at end insert

', or must state that the RTM company intends to apply to the leasehold valuation tribunal for it to acquire the right to manage at an earlier date'.

No. 59, in page 39, line 5, at end insert—

'(10) Regulations may provide for the procedure for an RTM company to apply to a leasehold valuation tribunal for the acquisition of the right to manage earlier than six months after the relevant date.'.

Government amendments Nos. 78 to 81.

Bill Cash (Conservative, Stone)

These amendments deal with the question that I raised on Second Reading about the important issue of the handover provisions as part of the RTM scheme. It seems that the problem is that the Government have not really given the fullest thought to what would happen on a day-to-day basis in the management of blocks of flats.

I will give a good example. A landlord has instructed some builders to do some repair work on the premises, and it is due to take two months. The RTM company serves a claim notice on the landlord, taking effect in one month, which is in the middle of the work being carried out by the builders. What effect does serving a claim notice have on the landlord's contract with the builders? There are many provisions in the Bill relating to management contracts and subcontracts, but what about contracts with a builder? There are two possibilities. The RTM company takes over the contract with the builder, or the landlord retains the responsibility for the existing contract with the builders.

The first instance involves a different contracting partner being imposed on the builder. As RTM companies are to have no share capital—which we mentioned before when dealing with questions relating to companies limited by guarantee, and I said that there was a great distinction between the two—builders may be unprepared or it may not be regarded as worth while to allow the contract to be moved, and the builders will go. Furthermore, the RTM company will be coming straight on to a new project in progress. There are provisions in the Bill for information to be exchanged between the landlord and the RTM company, but anyone who knows anything about building work knows that the taking over of works by builders in mid-flow is extremely difficult. I expect we all have experience of that. It is a recipe for disaster.

The second possibility involves the landlord remaining the contracting party for all the existing contracts. That is contrary to the idea of the right to manage. Theoretically, a landlord could remain liable to the builder while the management function was transferred to the RTM company. The Bill provides for the landlord to pay what are described as accrued uncommitted service charges. It may be thought that the landlord will be able to retain service charges to pay the contracts in which he is already engaged. However, when split up, that responsibility is itself a recipe for further problems. In that situation, one would ask who would be liable for the excess costs.

The Bill clearly needs to be amended. I trust that we will be able to arrive at an accommodation in relation to the Government's amendments. I await with interest the Minister's proposals. These are detailed and practical questions. It is important that the Minister gives us a full explanation of the Government's amendments so that we end up with a handover arrangement that will work.

Sally Keeble (Labour, Northampton North)

The hon. Gentleman mentioned two issues, one of which was handover arrangements. He is right that good workable arrangements are needed. I hope that what I have to say will provide some comfort. The other issue was the provision for contracts, which is dealt with elsewhere. I shall not deal with that matter now because we shall cover it when debating later clauses and, no doubt, later amendments.

This is a complex issue and it might help if I go through the clauses that we are amending. Although the amendments are grouped together they relate to different clauses. I shall then set out the rationale behind the Government amendments.

Clause 78 deals with the claim of the landlord to exercise the right to manage, where a date must be given. Clause 88 deals with the acquisition date, which is when the RTM company takes over responsibility. At present, that is set at one month. I believe that is the issue to which the hon. Gentleman was referring; he feels that one month is not adequate. I can give him some comfort on that matter.

Clause 91 deals with the duty to provide information about the running of the property, which the freeholder would have. The time period currently stands at three months. Clause 92 deals with handing over the money, which is one of the crucial provisions. The date given is three months. The figure quoted in clauses 91 and 92 is four months, but there is a simple answer—that is what we get when we add the three month and one month periods together.

We are considering the arrangements for the handovers and dates, and the need for clarity. The RTM company would take over responsibility on the acquisition date and then wait three months before it received the information and money if the freeholder kept to the letter of the legislation. These dates constitute the minimum, and there is no reason why they could not be extended voluntarily. As things stand, there is a mismatch.

The purpose of amendments Nos. 77 to 81 is to increase the gap between determination of the right to manage and the acquisition of that right from one to three months. That would bring it in line with information and money. They are minimum dates, and their alignment is probably the hon. Gentleman's main concern in terms of possible confusion and difficulty of implementation. The vast majority of responses to our consultation agreed with this approach. We are keen to ensure that the procedures strike the correct balance between facilitating quick acquisition of the right and ensuring that all parties, including the RTM company, have enough time to prepare themselves for the transition. We believe that we have found that balance and achieved the correct alignment of the different aspects of handover.

During the proceedings in another place, there was much discussion about handover arrangements upon acquisition of the right to manage. The procedures for requiring right to manage were originally designed to deliver a speedy handover of management responsibilities when that is what the leaseholders want. The arrangements recognise also that landlords

and other existing managers will need time to arrange their affairs before they are able to hand over management documents and service charge moneys. That means that if leaseholders wanted to do so, they could take over management without necessarily having all supporting information in place or access to funds. Concerns have been expressed about that, because of the mismatch of dates, and the Government have been pressed to ensure that management, accrued service charges and information are all handed over on the same day.

Concerns have also been expressed that the current arrangements have insufficient regard to the practicalities of dealing with existing contracts. The RTM company and contractors could often have only one month in which to negotiate transfer of existing contracts or enter into new contracts. As I said, some more detailed aspects of the contract arrangements are dealt with elsewhere. The Government have listened to the concerns that have been expressed and, after consulting interested parties, we have introduced amendments to provide more time, to align the different dates and to deal with the concerns that have been raised.

The amendments of the hon. Member for Stone would deal with acquisition to management, but not, as they stand, with the handover of information or money. Under his proposals, one would be able to get the money before responsibility, which would be a recipe for even greater difficulties. On that basis, and given that we have listened to practical concerns and introduced proposals to deal with them, I ask the hon. Gentleman to withdraw his amendment.

Bill Cash (Conservative, Stone)

I am grateful to the Minister for her explanation of the Government's amendments. We are making progress because on this matter, if not on many others, there has been some response. I thank the Minister, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 77, in page 38, line 41, leave out 'one month' and insert 'three months'.—[Ms Keeble.]

Clause 78, as amended, ordered to stand part of the Bill.

Clauses 79 to 87 ordered to stand part of the Bill.

Clause 88 - The acquisition date

Clause 90 - Duties to give notice of contracts

Bill Cash (Conservative, Stone)

I beg to move amendment No. 60, in page 46, line 35, at end add—

'(8) Unless the contractor party and the RTM company otherwise agree in writing within a period of 28 days after service of a contract notice, the management contract shall continue in full force and effect from the acquisition date as if it had been made between the contractor party and the RTM company and not with the manager party, save that the RTM company shall have no liability under it for breaches on the part of the manager party occurring prior to the acquisition date.'.

The clause provides that the manager party is under an obligation to give notice in relation to an existing management contract to the contractor party, which is known as the contractor notice, and to the RTM company, which is contract notice. There is a range of requirements about how those two notices must be given and what the contractor notice must do. For example, it must give details to identify the contract, state that the right to manage the premises is being acquired by an RTM company, and give the name and registered office of the RTM company and the acquisition dates.

The clause does not cover one important matter, which my amendment describes. There is a requirement to provide for such a matter and avoid difficulties that would otherwise arise. I cannot improve on the description in the amendment, so I will not try. I will be interested in the Minister's reply.

Adrian Sanders (Liberal Democrat, Torbay)

I will be interested in the Minister's reply too, because it strikes me that the Government are legislating for a clean break. There may be a good case for that, but some contracts could be easily transferred from one entity to another without the break.

Sally Keeble (Labour, Northampton North)

I shall stick closely to my notes, because the underpinning law is that of contract, with which the hon. Member for Stone will be familiar. It is concerned with that wonderful term ''frustration'', which has an obvious meaning—one often shared by members of spending committees—and a legal meaning. I shall read my response. If hon. Members have particular queries, I would be happy to send them a written response. It would be unwise to discuss the details of contractual law because it could be used in a damaging way.

The amendments relate to what happens to existing management contracts when the right to manage is acquired. If a party to a contract is placed, by events outside his control, in the position of being unable to fulfil his obligations or role under that contract, the normal effect of contract law will be that the contract falls as frustrated. One such case is where the operation of the law intervenes to prevent someone being able to fulfil part of a contract.

That will happen in most instances where the right to manage is acquired. Subject to having met the qualifying rules, leaseholders have the right to take over management. A landlord will not be able to prevent a qualifying group from doing so. Acquisition

of RTM is therefore a compulsory, not voluntary, transaction.

Furthermore, clause 95(2) provides that following the acquisition of the right, the landlord cannot continue to exercise any duties that have become ''management functions'' of the RTM company. Operation of the law will therefore mean, for example, that the landlord will no longer be responsible for the maintenance of the property. That strongly suggests that a contract delegating that function will tend to be regarded in most cases as frustrated by the acquisition of the right to manage: an event outside the landlord's control. I am not suggesting that that would necessarily be the position in every case. The application of the law of frustration, and the law of contract generally, will depend upon the circumstances of the case.

If a contract is frustrated in such circumstances, each party to the contract will have the right to recover moneys due to them for what has been done up to the point of frustration. The contractor will be able to recover from the other party all sums due for the work that has been done up to the point of frustration. The other party will in turn be able to recover from the contractor any sums advanced prior to that point for works that will not be carried out. Neither party, however, will have the right to seek compensation for profits forgone or other such matters as a result of the frustration of the contract: that is both right and fair.

Some believe that there would be circumstances in which the employment of a particular contractor, such as a gardener, would transfer to the RTM company. We agree, but that will be the result of employment law, particularly the rules that relate to protection of employment following transfer of an undertaking—under the Transfer of Undertakings (Protection of Employment) Regulations 1981—rather than general contract law. Nothing in the Bill overrides such employment rights and we would not want to do so. Whether a particular employee or contractor would pass to the RTM company will depend upon whether the acquisition of the right to manage would constitute a transfer of undertaking for those purposes. It is a complex area and the application or otherwise of TUPE will depend upon the individual circumstances of the case. However, we are content that, if it does apply, the employment of the individual in question should pass to the RTM company.

Amendment 60 provides that, rather than being frustrated, all contracts should be novated. Such an approach would have some merits at first glance. It would ensure that the RTM company was supported from day one by a network of existing contractors: cleaners, gardeners, lift maintenance companies and so forth. It would also give existing contractors certainty that their services will continue to be required, at least initially, after the management of the block changes hands. We recognise that the right-to-manage company will sometimes be perfectly happy to work with the landlord's contractors, and vice-versa. Where that applies, the Bill provides an opportunity for it to happen.

Clauses 89 and 90 together provide for notice to be served to ensure that contractors know that the right

to manage is to be acquired and that the RTM company knows who the contractors are. Either side will then be able to initiate negotiations for the RTM company to take over the responsibilities and obligations of the landlord and the contract, thereby allowing it to carry on after the acquisition of the right. We do not want to force the RTM company and the contractors into a contractual relationship against their will. Nor do we want to allow the landlord to enter into sweetheart contracts with contractors that would be binding on the RTM company, which would be the consequence of amendment No. 60.

The rights of an RTM company have been discussed, but the contractor's rights are also important. He will have contracted with the landlord and might not want to carry on, at least on the same terms, with the RTM company. We must allow for that possibility and recognise that contractors also have the right to decide what is in their best interest. Our approach strikes a fair balance. The machinery set up by clauses 89 and 90 will allow contractors and the company to decide, in advance of right to manage being acquired, whether to continue a particular contract. Only when they cannot reach an agreement will contracts be frustrated by default. We have given careful thought to this matter and are satisfied that it is the right approach, so I ask the hon. Gentleman to withdraw the amendment.

Bill Cash (Conservative, Stone)

After that dissertation of law, which would have done credit to some of the worthy tomes I have had to study, it is right to pay tribute to the Minister and to those compiling the law behind the scenes. However, when it comes before the courts—and if any subject does, I suspect that it will be this one—the proof of the pudding will be in the eating. Best efforts have been made to resolve the matter—our approach is to go down the route of novation, and I was encouraged to hear the Minister say that it had some merit—but we are now locked into a position. With her hand on her heart, I doubt whether the Minister can say that the provision will produce exactly the desired results. If Lord Denning—or another lawyer, like him, always searching for the essence of differences—were still with us, unpredictable consequences would be expected.

Time will tell. It is the Government's responsibility to get the Bill right, and we have heard the dissertation. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 90 ordered to stand part of the Bill.

Clause 91 - Duty to provide information

Clause 92 - Duty to pay accrued uncommitted

Clause 96 - Functions relating to approvals

Bill Cash (Conservative, Stone)

I beg to move amendment No. 73, in page 49, line 18, at end insert—

'( ) The RTM Company must not grant an approval in relation to the making of alterations, improvements or change use which will diminish the reversionary value of the landlord's interests.'.

Eric Illsley (Labour, Barnsley Central)

With this we may take amendment No. 71, in page 49, line 22, leave out

'the making of structural alterations or improvements or alterations of use.'.

Bill Cash (Conservative, Stone)

The clause sets out the procedures to be followed under the RTM where an approval is required under the lease. Subsection (1) states:

''This section and section 97 apply in relation to the grant of approvals under long leases of the whole or any part of the premises.''

Although I suspect that the words ''reversionary value'' in amendment No. 73 might trigger a state of excitement in my hon. Friend the Member for Solihull (Mr. Taylor), I have now mentioned them. It would be inappropriate—an extraordinary state of affairs—for a RTM company to be able to grant an approval in the circumstances I described which would diminish the reversionary value of the landlord's interest.

In the circumstances described in subsection (2), amendment No. 73 would exclude the making of structural alterations or improvements or alterations of use from the requirement to give 30 days' notice under the provisions of clause 96(4). It is a reasonable proposition given the importance of ensuring that an approval is granted in reasonable circumstances, and I await the Minister's comments on the amendment.

Sally Keeble (Labour, Northampton North)

Amendment No. 73 would prevent a RTM company from granting an approval that would diminish a landlord's reversionary interest. We accept that it is important that landlords' interests are safeguarded against the granting of inappropriate approval. However, the Bill already addresses that matter satisfactorily. Clause 96 provides that where the right to manage is acquired, the right-to-manage company takes on primary responsibility for approvals that are required under the leases. However, where the RTM company proposes to grant a consent, clause 96(4) provides that it must first give written notice of that intention to the relevant landlord. The landlord then has the opportunity to decide whether to agree or

object to the granting of the consent and to notify the RTM company accordingly.

When a landlord decides that he wishes to object, the RTM company may grant approval only if one of two conditions is met: the landlord must agree to withdraw the objection, or, alternatively, an application must be made to a leasehold valuation tribunal for its agreement that the approval should be granted. Those arrangements already make admirable provision for safeguarding the landlord's legitimate interest. A landlord who believes that his reversionary interest would be damaged by the granting of an approval is able, first, to ensure that the RTM company does not disregard that and grant the approval itself and, secondly, to seek to persuade a LVT that the approval should not be granted. In the latter case, one argument that the landlord could place before the tribunal would be that the approval would unduly harm his reversionary interests.

The amendment adds nothing to the arrangements, and our first concern about it is that what will or will not diminish the reversionary value of the landlord's interests is unclear and subjective. It could be argued that any consent to improvement or alteration might diminish the immediate value of the landlord's reversion. For example, would that mean that a RTM company should never grant such an approval? Would the amendment mean that the company should not grant an approval, even if the landlord agreed that approval should be granted?

We are not clear what would happen if the RTM company decided that it wished to grant an approval on the basis that it does not believe that the reversionary interest would be affected but the landlord alleges otherwise. The issue is who would adjudicate in such disputes and why it would be better than the present arrangements of allowing all disputed approvals to be LVTs.

The arrangements in the Bill are the most sensible and practical way to deal with the issue addressed in the amendment, which I hope will be withdrawn.

Bill Cash (Conservative, Stone)

The question of what is sensible and practical is often a matter of dispute. I do not wish to add to what I have said, but I am glad the Minister recognises that there is a problem. She believes that the Bill adequately caters for the issues raised; I am not satisfied that that is so, and I shall press the amendment to a Division.

It may have been an oversight, but the hon. Lady did not mention Government amendment No. 82 in this group—

Eric Illsley (Labour, Barnsley Central)

Order. That Government amendment is in a separate group. It will be debated after amendments Nos. 73 and 71.

Bill Cash (Conservative, Stone)

Thank you, Mr. Illsley.

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 10.

Sally Keeble (Labour, Northampton North)

I beg to move amendment No. 82, in page 49, line 37, at end insert

'; and an approval required to be obtained by virtue of a restriction entered on the register of title kept by the Chief Land Registrar is, so far as relating to a long lease of the whole or any part of any premises, to be treated for the purposes of this Chapter as an approval under the lease.'.

If it is any comfort to the hon. Member for Stone, I was informed only late in the day too. This is a technical amendment to prevent an anomaly in the approvals regime that the Land Registry has highlighted. As hon. Members are aware, clauses 96 and 97 make the RTM company responsible for the granting of approvals under long leases of the whole or any part of the premises that are subject to the right to manage. The Land Registry has alerted us to the fact that a requirement under a lease to obtain a consent can sometimes be replicated by identical restrictions applied for and entered on the land register in section 58 of the Land Registration Act 1925. The practical effect of such a restriction on the register is that the Land Registry must satisfy itself that a consent has been obtained as required by the restriction, before it can proceed to make the relevant change on the register. Furthermore, the registry will have to be satisfied that the consent has been obtained from the person named in the restriction, which could often be the landlord.

This restriction would therefore frustrate the intentions behind clauses 96 and 97. We can envisage a scenario in which a leaseholder has obtained approval from the RTM company in accordance with clauses 96 and 97, but then needs to approach the landlord separately for consent to satisfy the restriction on the register. That is clearly undesirable. There would therefore be a parallel consent regime, but one that required consent for the same thing from different people. The amendment would rectify that anomaly, and I hope that the Committee will agree to it.

Bill Cash (Conservative, Stone)

I am grateful to the Minister for bringing this forward. It is obviously on the advice of the Chief Land Registrar. Not only do we have this Committee in common, Mr. Illsley, but fairly recently we were together on the Land Registration Bill. Even before that, although I hesitate to refer to this extremely contentious matter, there was what is now described as an arrangement in a brewery at a football ground not far from your constituency. I served on a Committee

for about eight weeks on that matter. We have become accustomed to having to deal with extremely contentious issues. However, the matter before us is not contentious. If an amendment is required to the land registration legislation to accommodate the arrangements set out in the Bill, and there are one or two other matters where amendments have been tabled that affect land registration, I should be grateful if it could be slotted in at the right place so that that Bill can be in shipshape form on Report. I am grateful to the Minister for her explanation.

Amendment agreed to.

Clause 96, as amended, ordered to stand part of the Bill.

Clauses 97 to 100 ordered to stand part of the Bill.

Schedule 7 agreed to.

Clauses 101 and 102 ordered to stand part of the Bill.

Clause 103 - Cessation of management

Sue Doughty (Liberal Democrat, Guildford)

I beg to move amendment No. 12, in page 52, line 36, after 'passed', insert

'by not fewer than 51 per cent. of the members of the company, voting in person by secret ballot.'.

The amendment is similar to an earlier one. We took note of the discussion on that but we still have some points to make. If a company is to be wound up, many people will have an interest in it. Without a quorum of 51 per cent. of the members, such a decision would not be democratic. We propose the amendment in the interest of fairness to all tenants and to avoid winding up a company on the vote of a small majority. We use the phrase

''in person by secret ballot''

but we would be swayed if an amendment on Report specified postal and proxy votes, as long as secrecy was maintained.

Sally Keeble (Labour, Northampton North)

The amendment relates back to one of the principles that I set out earlier. We are drawing on existing law for the company and the contracts. Clause 103 specifies the circumstances in which an RTM company ceases to be entitled to exercise the right to manage. Amendment No. 12 would have the effect of imposing a particular resolution procedure on the RTM company. We do not consider that to be necessary. Indeed, some of the voting figures look rather different when one considers existing procedures. We intend to set out in the articles of association the voting procedures for the RTM company. We see no reason for departing from the normal procedures of company law in this area to insist that a voluntary winding-up resolution should be conducted in person or in secret.

Any resolution for winding up the RTM company would need to be by special resolution. A special resolution needs to be passed by a majority of three quarters of those voting at the meeting at which it is proposed, or in a ballot. In some circumstances the amendment would require a larger absolute number of

members to support the resolution, because it requires a majority of all the members of the company, not just of those voting, but we believe that the normal procedures of company law provide sufficient protection and should apply in this as in a number of other areas. On that basis I hope that the hon. Member for Guildford (Sue Doughty) will withdraw her amendment.

Sue Doughty (Liberal Democrat, Guildford)

I thank the Minister. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 103 ordered to stand part of the Bill.

Clauses 104 to 108 ordered to stand part of the Bill.

Clause 109 - Notices

Sally Keeble (Labour, Northampton North)

I beg to move amendment No. 83, in page 55, line 6, at end insert 'or'.

Eric Illsley (Labour, Barnsley Central)

With this it will be convenient to take Government amendment No. 84.

Sally Keeble (Labour, Northampton North)

This is a technical amendment removing an inconsistency in clause 109, which as Members will know, relates to the right to manage. Amendment No. 84 removes the reference to the Land Registration Act 1925. As Members will know, the Land Registration Bill is currently before Parliament. Some Members present were involved in the discussions on that. It will repeal the section to which clause 109 refers, which makes the reference redundant. Amendment No. 83 is consequential.

Bill Cash (Conservative, Stone)

I am happy with the amendment as it stands. I have no doubt that it will stand the test of time, but we will have to see.

Amendment agreed to.

Amendment made: No. 84, in page 55, line 10, leave out from 'rent' to end of line 12.—[Ms Keeble.]

Clause 109, as amended, ordered to stand part of the Bill.

Clauses 110 to 112 ordered to stand part of the Bill.

Clause 113 - Non-residential premises

Bill Cash (Conservative, Stone)

Because of the formalities of moving amendments in these Committees in the Commons, as compared with the Lords, my amendment on the Order Paper, which seeks to leave out clause 113 altogether, can be taken as such but I cannot move it. My remedy is to move the debate on the question that the clause start part to a Division. I do not believe that the Minister is in any doubt as to my intention. The clause proposes to amend the restriction on the right to enfranchisement, contained in section 4(1) of the 1993 Act, from the current threshold of 10 per cent for non-residential premises to 25 per cent. It is apparent that this is an important matter. I know that it has already been discussed in the other place, but we

should have a reply from the Minister in the light of my arguments.

I take exception to the clause for several reasons. There is much compelling evidence from the industry, those in property development, and others who know about these matters that developers and investors would be reluctant to develop mixed schemes if there was a likelihood, or risk, of enfranchisement of the premises as a result of the new threshold of 25 per cent. for non-residential use in place of the 10 per cent. threshold. Their views are based on experience, and we should take account of them.

When I did my legal practice before entering the House, I advised the oil companies on the Petroleum and Submarine Pipelines Bill. It became obvious, with the best will in the world, that although the Government had a view about how to regulate North sea oil, in practice those on the ground in the commercial field knew most about it. That Bill was amended extensively, as the Labour Government of the time recognised that the views expressed by commercial interests were driven not only by a desire to make an extra profit, but by an understanding of the practicalities. I apply a similar principle here. The provisions will not work if those to whom I referred are not prepared to invest because they believe that their investment lacks security or will be vitiated by uncertainty because of the likelihood of enfranchisement.

The bottom line is that all that would have a serious detrimental effect on the prospect of redevelopment or on the development of mixed property schemes, which in turn would adversely affect actual and potential urban regeneration schemes. Such buzz words occasionally emerge. I imagine that those who want urban regeneration schemes would want to avoid such a consequence, which we and, I am sure, the Labour party also want to avoid. There is no great Machiavellian plot behind all this. It is simply a question of whether there will be the right investment in urban regeneration schemes, among other things. Will the clause be an incentive or disincentive?

My experience of North sea oil regulation was similar in that there was also a question about the regime that was being set up. We can get the Bill quite wrong by taking a figure, in this case 10 per cent. rather 25 per cent, that could make a substantial difference. I will be interested to hear what the Minister has to say in the light of what was discussed in the other place. This is not just a legal issue, but a policy issue.

I am also concerned that the clause may have a retrospective effect in relation to mixed-use premises, which, where non-residential use is between 10 per cent. and 25 per cent., would face enfranchisement under the clause, even though they made their investment when no such risk existed. The clause could undermine existing investment in mixed-use premises. I do not know whether intensive discussions have taken place behind the scenes between the Department and the developers. I am not aware of that: perhaps the Minister would confirm that discussions have taken place.

People who are residential enfranchisers are not likely to want to become commercial property managers, and they are not usually candidates for that. If enfranchisement were allowed in cases where non-residential use exceeds 10 per cent., the effect could be harmful to business occupiers, and for the marketability of the property as a whole. To a significant extent, that could depend on the value of the business forming a major part of it. I would be interested to hear what the Minister has to say in the light of the deliberations in the other place.

John Taylor (Conservative, Solihull)

I speak not to any particular clause, but to chapter 2, which begins on page 58. I realise that party business managers may have intended to bring the proceedings swiftly to a conclusion today. I shall not take it as a discourtesy if the Adjournment is moved before I have finished. That would enable me to resume the Floor when the Committee meets next.

I say to the Minister, and to those who advise her, that a law is heading for the statute book that will affect all our constituents. Many people with long leases will aspire to participate in the ownership of the freehold: I am one of them. The real weakness of the 1967 legislation, which was the first visitation of enfranchisement known to English law, was that it did not give clear guidance to the affected citizens as to what price they could expect to pay for the freehold. Lacking guidance, our constituents were obliged to litigate in the Lands Tribunal, or at least those who could afford to did so. A pattern of decisions emerged that served as guidance or precedent to others. We have a classic opportunity, and if the Minister returns to it when the debate resumes, I would like her to reassure the Committee that we are helping our constituents and the residents of this country by not merely giving them a right but a clear indication—

Shona McIsaac (Labour, Cleethorpes)

In north-east Lincolnshire, 21,000 residents occupy leasehold houses, which will be affected by the measures in the Bill. If the hon. Gentleman examines the amendment paper, he will see that I have tabled an amendment that would require freeholders to detail how they have derived the purchase price of the freehold. I fear that they often merely pluck a figure out of the sky, and our constituents are none the wiser. I hope that the hon. Gentleman will think about discussing that amendment at a future sitting.

John Taylor (Conservative, Solihull)

It may not surprise the Committee to know that the hon. Lady and I have compared notes. My present disposition is probably to support her with my voice and perhaps also my vote when the time comes. I am developing the theme that it is not adequate for the Committee, the House of Commons and Parliament to give our citizens the right to acquire something extremely important—for 99 per cent. of people, the most valuable single asset that they will ever own—only on a freehold basis. It is wonderful to do that, but it falls short without a pretty clear definition of the price mechanism. That is in the interests of the reversioner or landlord as well as the leaseholder. It is in the interests of all that the position be fair.

I do not want the price or valuation mechanism to be out of kilter and favour the leaseholder or the reversioner; it should be fair to both. After all, the landlord is losing something that he truly owned, and I suggest that none of us is in favour of confiscation. There should be a proper valuation. A proper consideration, as we lawyers would say, should pass from one party to the other for the enfranchisement from leasehold to freehold.

I have probably developed the point sufficiently both now and when I have had the benefit of having the Floor previously. I merely ask the Committee to join me in begging the Minister to ensure that the legislation goes on to the statute book with as much clarity as possible on what the leaseholder should expect to pay the landlord, and what the landlord can expect to receive from the leasehold for that state of grace when the leaseholder becomes freeholder or part-freeholder. That is my plea. It is not technical, although it may be considered political. It would certainly take public policy in a good direction if the situation were as clear as possible to all concerned. The only gainers otherwise will be the professional people who handle the disputes before tribunals and in law courts.

I am therefore speaking against members of my own profession. I do not want them to have any work from disputes at all. They can do the conveyancing, but I do not want it to turn into litigation. I once worked for a firm where the conveyancing files turned into litigation files and I did not stay there long; I did not like the attitude. We do not want to create an arguing ground; we want to create a benefit that will work, with the good interests of both sides properly catered for. As I have said, my plea is not technical and scarcely political. In fact, I am talking plain common sense.

Sally Keeble (Labour, Northampton North)

The clause amends the existing commercial limit that prevents leaseholders from buying their freehold if more than 10 per cent. of the property is for non-domestic purposes. That limit was set by a Conservative Government and was, I believe, retrospective. Clearly, there is an issue about resolving priorities, and some people might have liked us to go further.

I think that the hon. Member for Stone was being somewhat disingenuous when he referred to the impact on regeneration. He did, however, ask whether that has been discussed with the property industry, and I can assure him that it has. As one would expect, some people were unhappy with the proposals, but they will not have a substantial impact on the development of mixed-use schemes. In future, it will be open to developers to apply common law to such schemes. Some of the hon. Gentleman's assumptions about conflicts of interests and disputes do not apply in this case.

In our view, existing limits are too low and unfairly prevent too many leaseholders from enfranchising. If the commercial unit has a majority interest in a building, a 25 per cent. threshold will protect the landlord. If the leasehold has the majority interest, it is right that it should be able collectively to buy out the landlord. It has been argued that raising the

enfranchisement threshold from 10 to 25 per cent. will discourage mixed-use developments. If that claim had a rational basis, it would be a legitimate cause for concern. However, on the basis of discussions and consultations in the Department, the problem has not materialised.

Leaseholders enfranchise in order to address either or both of the problems of diminishing leases and the landlord's monopoly over the management of the block. We have already debated the right to manage. Any enlightened developer planning a new scheme will want to give careful thought to ensuring that future occupants will be satisfied with their home.

For future developments we hope that many, if not all, new mixed-use schemes, as well as solely residential ones, will be carried out on a commonhold basis, which we debated extensively on Second Reading. That would ensure collective management from the outset, and avoid the problem of diminishing assets. It would also allow the developer to retain ownership and therefore management of the commercial unit if it wished. Raising the commercial threshold deals with problems encountered by leaseholders in existing mixed-use blocks. Commonhold provides a perfectly satisfactory solution for new developments, so I do not see why our measures would discourage new development. The concerns expressed are based on a misunderstanding of our position.

The hon. Member for Solihull asked about valuation. The clause does not deal specifically with it, but the theme applies to many issues, so I shall respond to it. The hon. Gentleman argued for a

formula basis for valuation. Much work was done to produce a basis for determining price and valuation, but research concluded that it was not practicable to produce a fair formula. We have, however, tried to simplify the valuation process, which will be debated again later in the Bill. I am not sure whether the hon. Gentleman will be present then, but I shall ensure that he receives any detailed information on the subject.

John Taylor (Conservative, Solihull)

I am grateful to the Minister for the tone of her response, but I must tell her with a degree of irony that when she says that research failed in the end to find a formula, she should know that exactly the same was said in 1967.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 10, Noes 7.