Orders of the Day — Commonhold and Leasehold Reform Bill [Lords] — [1st Allotted Day]

House of Commons, 11 March 2002.

New Clause 17 — Judgement creditor of commonhold association

Bill Cash (Conservative, Stone)

I beg to move, That the clause be read a Second time.

We have tabled the new clause on judgment creditors of commonhold associations because, in discussion with the Law Society, we came to the conclusion that there is inadequate provision for dealing with questions of liability for the viability of the commonhold system. The problem that arises relates particularly to the form of the commonhold association memorandum and articles of association.

The Bill provides that there must, understandably, be a commonhold association that will own and manage the common parts of the commonhold development. It will be a private company limited by guarantee, with members consisting exclusively of all the unit-holders in the development. The issue concerns the nature of the company that is being created and the extent to which it is the appropriate structure for the commonhold association. We concluded that a private company limited by guarantee would be appropriate, but there is still the problem of what the liability would be in relation to such a commonhold association. We believe that strict limitation of liability is not appropriate for commonhold associations—indeed, it is likely to harm the viability of the entire commonhold system.

There is a real problem here. Contractors are likely to be cautious about dealing with commonhold associations if the limited liability may make it impossible to collect sums owing. That is important, because the extent to which repair and maintenance will be properly catered for is part and parcel of the commonhold association's duties and functions. Recovery of work costs and related matters lie at the heart of the system and whether it will work. If contractors are not prepared to go along with the system because they are concerned about the strictly limited liability currently scheduled for commonhold associations, the physical state of the building in question could be brought into question. Indeed, such strict liability could even lead to physical neglect of buildings. For example, if contractors were unhappy with the liability for costs and other responsibilities in respect of the commonhold association, long-term lift maintenance contracts might be vitiated by the fact that no one was prepared to enter into them. That would be a serious problem, and we urge the Government, even at this late hour, to consider it seriously.

Home owners with freehold houses are not protected by limited liability, yet they expect to meet the cost of repairs. It seems appropriate that primary liability should rest with the commonhold association, which would make contracts. Secondly, if one unit-holder defaulted—if he were bankrupt, for example—it should be possible to reallocate his share of service charges among the remaining unit-holders. Thirdly, on final default by the association, it should be possible for individual unit-holders to be held accountable for their respective shares of the debt.

Our proposals are contained in new clause 17. The Law Society supports the proposal that, in the case of final default by the association, judgment creditors should be offered the chance to obtain a court order against individual unit-holders. That would limit cases to those in which a court had adjudicated that a debt was due and allow the court flexibility to take account of the circumstances that affect each unit-holder—in other words, it may consider what they have already paid.

Adrian Sanders (Liberal Democrat, Torbay)

We support the new clause. In Committee, I questioned whether a limited liability company would be the correct constitution for commonhold associations. The new clause would helpfully reduce the onerous responsibilities that would be placed on people who wished to form such a company. We hope that the Government can move along those lines.

Teddy Taylor (Conservative, Rochford and Southend East)

I have one brief question for the Minister on this complex issue. Does a commonhold association have the right to ask part of its membership to make a payment for a development that is contrary to the rules that the association has itself laid down? I ask simply because leasehold arrangements, such as those that exist in some parts of Southend, may contain a restriction to the effect that only single properties may be built, or a further restriction on the size of such properties. In such cases, an individual can say that he wants to add an extra part to a proposed building and to be considered to be allowed to build flats where others may not do so. Even if the freehold rules lay it down that that cannot be done, the freeholder would have the right to agree to it so long as the person paid him some money. I do not like that idea on principle.

It would be helpful to know whether the restrictions on freehold or leasehold contract arrangements can be passed on to the commonhold associations. Will such associations have the power to insist on restrictions and to charge a fee if the restrictions are ignored? Will the Minister explain whether that would be covered by the new clause?

Michael Wills (Labour, North Swindon)

Before I answer the hon. Gentleman's question, I shall address the substance of the new clause that the hon. Member for Stone (Mr. Cash) urged us to consider. I assure him that we have considered it, but we are going to reject it.

First, new clause 17 would allow someone who has a judgment against a commonhold association to proceed against an individual unit-holder to recover the debt owed—but to what end? Such a course would have serious and unwelcome consequences. The hon. Gentleman accepted that a company limited by guarantee is an appropriate form for a commonhold association, but the new clause would breach a fundamental principle of company law—that a company is a distinct legal entity separate from its members.

Secondly, the proposal would put the unit-holder at a distinct disadvantage when compared with an enfranchised leaseholder in similar circumstances. The leaseholder would be protected by existing company law from being pursued personally by a creditor of the company owning the freehold but, in similar circumstances, the commonhold unit-holder would not have that protection. Given the concerns that have been widely expressed about the threshold of 100 per cent. consent that we have set for conversion to a commonhold—I am sure that we shall return to those arguments later—I suggest to the hon. Gentleman that the new clause hardly provides an incentive for leaseholders to move to commonhold as opposed to a right-to-enfranchise company.

Nor do I share the hon. Gentleman's concern that contractors would be cautious about dealing with such limited liability companies. I am surprised that such a worldly gentleman should take that view. Contractors deal with limited liability companies all the time—they are hungry for such business and I do not think that they would be less hungry in these circumstances.

Notwithstanding all that, is the new clause really necessary? If a judgment creditor cannot get the commonhold association to pay him what he is due, he has the ultimate deterrent—he can threaten to put the association into receivership and eventually to wind it up, with access to the association's assets in liquidation. The unit-holders would be aware that the demise of the association risks the ultimate termination of the commonhold if a succession order is not made. That would leave them in a difficult position because if there is no association there is no commonhold, and if there is no commonhold, they risk becoming the owners of flying freeholds that are difficult to manage and unsaleable.

Mark Field (Conservative, Cities of London and Westminster)

The Minister has put what seems a salient point in legal terms but how could a contractor go through all those hoops in practice? In reality, if the straightforward option proposed by my hon. Friend the Member for Stone (Mr. Cash) is not accepted, a contractor would find himself in far greater difficulty.

Michael Wills (Labour, North Swindon)

I am happy to assume that the hon. Gentleman believes what he says, although I can see no reason whatever for his belief. I have just explained that contractors deal with limited liability companies all the time. To breach our company law as the new clause proposes seems wholly inappropriate. There is no evidence to suggest that there would be any such caution.

Bill Cash (Conservative, Stone)

The Minister may be guilty of misleading himself about the nature of the companies concerned. There is no doubt that contractors deal all the time with limited liability companies. He may be missing the fact that we are talking about a company limited by guarantee, which is not a normal company with shareholders. Companies limited by guarantee are frequently controlled by just a couple of people. In the case of a block of flats, for example, one is dealing with a company limited by guarantee and a large number of unit-holders. The point made by my hon. Friend the Member for Cities of London and Westminster (Mr. Field) should not be forgotten. As the Minister was speaking, I was conscious of—

Michael Martin (Speaker, Glasgow Springburn)

Order. The Minister was indeed speaking, and the hon. Gentleman's intervention has gone on far too long. He should let the Minister continue.

Michael Wills (Labour, North Swindon)

We are going round the houses here, I am afraid. I hope that I am not guilty of misleading myself. I am not perhaps the best judge of that, but I do not think that I am. Conservative Members fail to make the distinction between a corporate entity and an individual. That is the distinction on which we are resting. Of course a company limited by guarantee is a different corporate entity—

Bill Cash (Conservative, Stone)

That is the point.

Michael Wills (Labour, North Swindon)

It is a point, but not the one that is relevant here.

There is no evidence that contractors will be any more wary about dealing with commonhold associations than they are with any other corporate entity. The point is that there is a remedy available to such contractors, and it is a pretty severe deterrent to the commonhold association. If people do not discharge their obligations, they could end up with unsaleable properties.

Even if all that were not the case, and there were to be a power such as that in the new clause, who is to pay the extra costs of chasing the individual unit-holder through the courts—both the cost of the order committing the enforcement action and that of the enforcement itself?

The new clause would bring about an iniquitous position. It would introduce an unjustifiable and unnecessary provision in what is likely to be the real world of commonhold management.

In response to the hon. Member for Rochford and Southend, East (Sir Teddy Taylor), if something is contrary to the articles of association, there can be no obligation on the members of that association to be bound by it. However, it is of course possible for an association to change its articles and then oblige any individual member to contribute. I hope that I understood his question correctly and have been able to reassure him.

Teddy Taylor (Conservative, Rochford and Southend East)

Clause 1 says:

"a commonhold community statement makes provision for rights and duties of the commonhold association and unit-holders".

How can the association ensure that an unwilling individual fulfils his duties?

Michael Wills (Labour, North Swindon)

That takes us rather away from the new clause, and we covered this ground extensively on Second Reading and in Committee. Various options are available to the association to pursue obligations that are properly incurred by individual unit-holders. I will be happy to give the hon. Gentleman further details, but I will not pursue the point at length now.

I understand that Opposition Members are genuinely concerned to ensure that commonhold works effectively in the real world and that scenarios such as those outlined by the hon. Member for Stone do not arise, but I hope that I have given sufficient reassurance that the new clause is not necessary. I urge the hon. Gentleman to withdraw the motion.

Bill Cash (Conservative, Stone)

I am afraid that I am not persuaded by the Minister's comments. He suggests that we should not impose unnecessary liabilities on individual unit-holders. On use and maintenance, the Bill sets out that the commonhold community statement must make provision that the obligation to insure, maintain and repair each unit is subscribed to. However, there must also be the flexibility to allow each of those responsibilities to be imposed on either the unit-holder or the commonhold association.

Perhaps the Minister is familiar with my argument, but let me give him an example of the problem. The explanatory notes say that the statement could require the unit-holder to take out an insurance policy on the fabric of a flat while making the commonhold association responsible for insuring and maintaining a balcony. It could also require a unit-holder to be responsible for the decoration of the inside of window units while making the commonhold association responsible for the outside of the same units. In other words, a division of responsibility is inherent in the Government's explanation of the difference between the responsibilities of the unit-holder and the commonhold association. So the Minister's argument that the liability of the commonhold association should be inviolate is extraordinary.

We could spend hours discussing that problem, and no doubt in due course the Court of Appeal, the House of Lords and, for all I know, the European Court of Human Rights will debate it. The bottom line is that for practical purposes we are concerned with whether buildings are likely to be better looked after under the arrangements.

The Law Society might reasonably claim to know a little about the law as it relates to leasehold and commonhold, and the practical effects of the arrangements. Although I am a solicitor, I would not claim that I know a great deal about every aspect of the law. We all learn as we go along. However, the Law Society is a chartered body with a repository of knowledge that I am sure that the Minister is happy to accept. Irrespective of the manner in which he presents his arguments, the plain fact is that it takes a contrary view, and I agree with it. My hon. Friend the Member for Cities of London and Westminster (Mr. Field) disagrees with the Minister, as I suspect do other Conservative Members. Indeed, I do not notice vast enthusiasm among Labour Members for his arguments. However, as is often the case with legislation that deals with a niche market, there are not as many hon. Members present as one might hope.

We are dealing with a practicality. I gave the example of lift maintenance contracts, which are long term. It could be that other contractors are put off by the arrangements because they are insufficiently flexible, in which case we are making the situation unnecessarily difficult. We therefore intend to divide the House on the new clause. As the Minister knows only too well, there was much mutual indulgence in Committee and we have not engaged in terribly bitter conflicts, although we have had our disagreements. None the less, on this occasion, I shall press the motion to a Division.

New Clause 18 — Restriction on building

Bill Cash (Conservative, Stone)

I beg to move, That the clause be read a Second time.

Michael Martin (Speaker, Glasgow Springburn)

With this it will be convenient to discuss the following amendments: No. 81, in schedule 2, page 92, line 5, leave out paragraph 1 and insert—

'Partial building

(1) An application may not be made under section 2 in relation to land which consists of, or includes, a partial building.'.

No. 82, in clause 70, page 33, line 9, at end insert—

'Partial building Section [ ]'.

Bill Cash (Conservative, Stone)

The new clause deals with restrictions on building. We propose that, in relation to this part of the Bill, "a partial building" means part only of a building, unless that part is divided vertically from the remainder of the building and is not structurally dependent on it. We are also proposing that no person shall erect a partial building on common land.

To put that into more straightforward language, that means that commonhold ownership should not be available for only parts of buildings. Indeed, to allow that to happen would undermine the integrity of the new commonhold system in various ways. First, if, as the Bill proposes, a commonhold could consist only of those parts of a building above ground level—this arises under paragraph 1 of schedule 2—it would be possible for a commonhold to consist of the whole of a building, excluding its foundations. If it became necessary to rebuild, whether for voluntary redevelopment or, for example, as a result of a fire or other similar disaster, that would be impossible without foundations. Hence, the proposed rule seriously undermines the value of such commonhold units.

Secondly, as I am sure the Minister would agree, one of the aims of introducing commonhold is to overcome a technical deficiency in the common law, which provides no satisfactory way in which a positive obligation can be enforced against successors in title of the person originally undertaking it. Because that affects, among other matters, duties to repair, insure and pay service charges, it has hitherto made freehold an unsatisfactory way to own flats. However, if the lower part only of the building consists of a commonhold and the upper floors are outside it, as the Bill permits, all the common law inconveniences remain in the relations between the commonhold and the other parts of the building. That, again, would undermine the value of the commonhold units.

The purpose of the new clause and amendments is to ensure that if a commonhold consists of a building, all of it is included. However, it is not essential that there should be a building on a commonhold—for example, it could consist of a car park. That would be permitted, but it would be necessary to ensure that after a commonhold had been created, nothing was built partly within the commonhold and partly outside it. For that reason, we suggest that there should be a general prohibition against building in that way.

As the new clause suggests, "a partial building" would mean

"part only of a building, unless that part is divided vertically from the remainder of the building and is not structurally dependent on it."

It follows that, as proposed subsection (2) states:

"No person shall erect a partial building on commonhold land."

Michael Wills (Labour, North Swindon)

I am grateful to the hon. Gentleman for explaining what is intended by the new clause and amendments. As so often during the Bill's progress through the House, I have some sympathy with his desire to make commonhold work. However, regardless of his good intentions, it is our view that in their current form, the new clause and amendments would give rise to some surprising and, I am sure, wholly unintended consequences, and would probably end up forbidding anything other than detached properties being built as commonholds.

Consider, first, new clause 18, and then consider a first floor flat. It is certainly part of the building, so it passes the first test. It is divided vertically from other first floor flats, but not from the remainder of the building, from most of which it is divided horizontally. It is also obviously structurally dependent upon "it", which I take still to mean the remainder of the building, so it fits comfortably into the "partial building" category of the new clause and thus cannot be built on commonhold land. The scope for argument about the definition in relation to terraced houses and even semi-detached ones is wide. I am not sure whether the hon. Gentleman meant first floor flats to be caught in that way by the new clause, and we would not consider that a welcome development.

That prohibition might seem odd enough, preventing, as it does, any development of a commonhold by new building, certainly of flats and possibly of other structurally interdependent buildings, but to cap it all, amendment No. 81 would amend schedule 2 to forbid any application for commonhold status where any existing building meets the definition. We have been criticised in this House and in the other place for our 100 per cent. rule for consents to conversion to commonhold, but that is as nothing in comparison with the proposals before us.

Under the new clause, no development, including flats, would be able to become a commonhold, whether the application was made for an existing building which was newly re-developed, or for a development which had triumphantly achieved its 100 per cent. consent target. Amendment No. 82 would add the definition to the index of defined terms.

Although I am grateful to the hon. Gentleman for his good intentions, I ask him to withdraw the motion, given the unintended consequences that I have graphically outlined to him.

Bill Cash (Conservative, Stone)

This matter is highly technical, and has certain engineering implications relating to foundations; support; where a building is; and whether it is in fact a building, a car park, or whatever else. We are primarily dealing with normal circumstances in which such situations may not arise. The new clause and amendments would deal with a situation that we believe could arise. The Minister takes a contrary view, but in due course we may find that he is wrong. The likelihood could even be as high as 50:50. We do not agree with the Government's view, but this issue does not go to the heart of all matters relating to commonhold, and deals only with limited circumstances in which we believe restrictions should be imposed.

Bill Wiggin (Conservative, Leominster)

Before my hon. Friend makes up his mind on whether to withdraw the motion, would he help me? Perhaps because my background is not in the law, I did not understand what the Minister was talking about in relation to amendment No. 81. If commonhold property were built on top of something that was not commonhold and the building was damaged, the people in those flats would not necessarily be able to repair it as quickly as possible. Would my hon. Friend throw a little light on that particular concern?

Bill Cash (Conservative, Stone)

That is true. It is difficult to say with any certainty exactly what kind of building it would be in those circumstances. My hon. Friend may hope to nudge me further down a line than I am not disposed to take. We should deal with that situation in the context of the Bill as a whole, which we support. We have serious reservations about certain aspects, as will no doubt emerge in due course, but the bottom line is that this is not a matter on which we want to divide the House. The Minister may turn out to be right, but I think that he is more likely to be wrong, and it will be a matter of judgment. His officials and the Law Society, which wholly supports these proposals, will be watching the situation carefully. If we are right and the Minister is wrong and problems arise, I have no doubt that the hon. Gentleman will be more than happy to introduce amendments to deal with them. Will the Minister give us an assurance that he will deal with problems if they arise? If he is good enough to give me a response on that, I shall be grateful to hear what he has to say.

Michael Wills (Labour, North Swindon)

Of course we will continue to monitor the situation. It is a remote possibility, but if it transpires that I am wrong about this, we will consider how we can put it right. I hope that that reassurance enables the hon. Gentleman to withdraw the new clause.

Bill Cash (Conservative, Stone)

In those circumstances, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Clause 3 — Consent

Adrian Sanders (Liberal Democrat, Torbay)

I beg to move amendment No. 2, in page 2, line 22, leave out "anyone who".

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss the following amendments: No. 3, in page 2, line 23, leave out "is".

No. 4, in page 2, line 25, leave out "is the registered proprietor" and insert—

'not fewer than 75 per cent. of the registered proprietors'.

No. 5, in page 2, line 27, after "(c)", insert "anyone who".

No. 6, in page 2, line 29, after "(d)", insert "anyone who".

No. 7, in page 2, line 30, after "(e)", insert "anyone who".

Adrian Sanders (Liberal Democrat, Torbay)

There seems to be no compromise between those who want a majority to move to commonhold and the Government, who want 100 per cent. of people to do so.

Only a few things in life require 100 per cent. consent, but the Government seem to think it undesirable for a block of flats to contain both commonhold and long-leasehold units. We want the Bill to help with the establishment of commonhold, and to make it as easy as possible for people to become unit-holders in a commonhold association. Although that might be complicated and less than ideal in mixed blocks, we do not think it worth opposing in view of the benefits of commonhold.

The unanimity clause will make the Bill effective only in relation to new developments. I do not see how anything other than a spanking new development can ever gain the title commonhold as things stand.

It has been argued that a commonhold association would need to create separate accounts for service charges. Would that really be the case? Would the association not draw up a budget for works that would form the basis of service charges for both unit-holders and long leaseholders? There should be no need for separate accounts.

The Government fear that freeholders would be subject to compulsory buy-outs if their buildings became commonhold against their wishes. They could, by regulation, choose between being completely bought out and maintaining their flats as commonhold units and receiving compensation for the value of their freeholds.

All the Government's objections to majority consent can be countered. It has been claimed that an individual's property title would be interfered with against his or her will, but legal precedent allows for that. Under section 36 of the Landlord and Tenant Act 1987, the county court can make an order amending all leases in a building on the basis of majority support by the leaseholders. The argument in favour of clause 3 on the basis of possible legal challenges due to interference does not hold up.

Could the Government be concerned about precedent? As was said in Committee, precedent exists for not requiring 100 per cent. agreement. The best example is large-scale voluntary transfer, in which council house tenants can choose a new landlord. In that instance, unanimity among tenants is not required.

There are problems with achieving unanimity. For instance, there are the disparate interests of tenants, especially in large blocks. A small minority could stand in the way of the majority's realising their desire to convert to commonhold. Some people have mortgages, or other financial reasons for withholding consent. Prior disputes between neighbours may lead to one trying to spite the other by refusing to grant consent. Some people may refuse to consider commonhold simply because it is difficult. Older residents may not consider conversion worth the trouble, or they may be too ill or frail to participate.

Someone trying to sell a property probably would not wish to participate either. Absentee leaseholders who sub-let their property for investment purposes may not be interested in purchasing a commonhold. An unreasonable tenant could exact payments from fellow tenants to buy his or her agreement for a commonhold scheme. Hon. Members can probably think of other situations in which tenants could show such reluctance. In achieving the unanimity that the Bill demands, tenants could prove the last piece in the jigsaw.

Unanimity makes the concept of commonhold difficult, if not impossible, to achieve for existing tenants. We want a system in which a majority is sufficient to help establish commonhold. Although the Government want to achieve commonhold, they have yet to convince us that their mechanism is the right way to do so.

Bill Wiggin (Conservative, Leominster)

Before the last election, the Government promised to introduce these new laws without hesitation, but there is serious concern on both sides of the House that the unanimity requirement will make it even harder to bring about commonhold. Although the amendment was not tabled by my party, Conservatives are nevertheless greatly concerned that we have gone through this process only to discover that the Bill could go the way of its 80 predecessors because we have made it too difficult to achieve 100 per cent. consent.

Bill Cash (Conservative, Stone)

As my hon. Friend may know, I addressed that very issue on Second Reading, and extensively in Committee. Perhaps because it had indeed been dealt with extensively, the amendment that we tabled was unfortunately not selected. Notwithstanding that, the issue goes to the heart of the Bill. If the Bill will not work because of the unanimity requirement, that is a very serious matter. I am therefore glad that my hon. Friend is addressing this issue, as shall I later on.

Bill Wiggin (Conservative, Leominster)

I am grateful for that intervention. Throughout our proceedings on the Bill—my hon. Friend will doubtless express the point better than me—we have done everything that we can to co-operate. We all agree that commonhold is a positive measure that should be introduced properly and speedily, but unanimity is an unnecessary stumbling block.

Even the vice-chairman of the Federation of Private Residents Associations said, "The one big disappointment with the Bill is the extreme difficulty it poses for converting existing long leaseholds into commonholds. The Government have said that you will have to get 100 per cent. consent from the leaseholders in the property, and in many cases of larger blocks of flats this will be practically impossible to achieve." He is absolutely right. His organisation is also anxious to ensure that the reforms do not render unmanageable existing residents' owned and managed leaseholds, thereby enabling groups to mount coups within blocks.

The 100 per cent. rule will lead to all manner of problems, and anyone who wants residential leasehold to be abolished will be as uneasy as I am about such a commitment. I look forward to hearing the Minister explain why the rule is a good idea. The Bill risks repeating the failure of its 80 predecessors during the previous century, and unless we get it right, we will be tinkering at the edges and failing to give leaseholders the means to win their own homes.

Andrew Selous (Conservative, South West Bedfordshire)

I find it astonishing that the Government are not prepared to accept the amendment, because their failure to do so will mean that almost no leaseholders will be able to benefit from the opportunity to achieve commonhold status. It beggars belief, and I shall listen carefully to what the Minister says to try to justify his insistence on unanimity or the 100 per cent. rule.

The Government's position is strange for several reasons. In company law, we are well used to minority shareholders being bought out. They are treated fairly by the law and compensated, but they are not allowed to hold up a company takeover that has been agreed by the majority of shareholders. That is established custom and commercial practice in English law, so the Government have no reason to claim that they could not similarly vary rights in the property field.

We will have cases in which the majority of leaseholders in a block—or even all, bar one—want to convert to commonhold status, but are prevented from doing so. If just one person holds out, they could effectively demand a ransom from all the others. The dissenting leaseholder could extort considerable sums of money for their agreement to allow all the other leaseholders to convert.

Don Foster (Liberal Democrat, Bath)

Does the hon. Gentleman agree that the situation could be even worse than he describes? The landlord is included in the list of those eligible to vote, so 100 per cent. of the leaseholders could vote to convert to commonhold but that would still be prevented under the Government's proposals.

Andrew Selous (Conservative, South West Bedfordshire)

The hon. Gentleman is right. Indeed, one mortgage company or secured creditor on one leasehold property in a block could put a stop to conversion. As I have said, it beggars belief that the Government are not prepared to move on this issue. The Opposition support the Bill and wish to see it work, and even at this late stage I hope that the Minister will bear in mind our views and, possibly, those of some Labour Members.

The Government have said that it would not be right to vary the legal title of property owners. However, as I said in Committee, I fail to see how the Government can use the defence that they are unwilling to vary the rights of leaseholders in the rest of the UK when one considers what is happening in Scotland, with owners of large estates having the title to their property varied under measures passing through the Scottish Parliament.

I did some research on the subject and discovered that other jurisdictions around the world do not require unanimity for the conversion to commonhold status. In Honolulu—a somewhat exotic location—under legislation of 1998, the law requires only that 25 owners of units in a condominium development, or at least 50 per cent., need to agree to the conversion. Other jurisdictions do not require unanimity and the onus is now on the Minister to explain why it is uniquely a problem in the UK.

Mark Field (Conservative, Cities of London and Westminster)

I was not on the Committee that considered the Bill. I would like to make a brief declaration, which probably has a certain significance given the importance of this issue in my central London constituency. I own property, a house in Belgravia, in what is typically Grosvenor property land. However, it is a freehold. It was for that reason that I decided to buy the property and not to buy anything else, even on a long Grosvenor lease. I wanted to put that on the record at the outset in discussing these complicated issues, which are of great importance to many people who live in my constituency and in the surrounding area.

I confess that I had some strong reservations initially about the confiscatory element of some of the proposals, but it seems that the requirement for unanimity on commonhold effectively runs the risk of putting a coach and horses through the entire intention of the Bill. That seems a foolish way of moving forward. On the basis that we are to have reform legislation that is supported both by the Conservative and by the Liberal Democrat Opposition, we should at least ensure that such legislation works.

This issue goes almost to the root of the question whether commonhold itself will be popular. Under the current Bill—I know that this has been discussed by a number of colleagues—it will be very difficult for any existing building to be converted into commonhold if a very small minority of dissident tenants object. A dissident tenant may even be in league with the freeholder in order to try to stop the process going through. In essence, if we do not throw away the unanimity rule, we will run the risk of the entire legislation beginning to fall apart.

Bill Wiggin (Conservative, Leominster)

Does my hon. Friend not feel that a person might think it worth while to block the commonhold procedures to receive the money? It is in the interests of any individual faced with a commonhold procedure to say to their fellow leaseholders, "Give me the money." They can wreck, to use the trendy term, the commonhold procedures. It is almost worth their while to put up that sort of resistance. That will have such a bad effect on the whole thing. At the same time if that one person does not ask for the money, more fool him. We should not be legislating to open opportunities of blackmail within small communities or blocks of flats.

Mark Field (Conservative, Cities of London and Westminster)

I thank my hon. Friend for what was a rather long intervention. I could see the Deputy Speaker's eyebrow being raised. We are all wreckers now perhaps, but I think that my hon. Friend's point is spot on.

I agree with what my hon. Friend the Member for South-West Bedfordshire (Andrew Selous) said. I hope that I will be able to join him on the fact-finding mission to Honolulu at some point to discover how these processes work in foreign jurisdictions. He made a point in relation to company law. It is already established that if 90 per cent. of shareholders agree to a takeover, the position is regularised by the remaining 10 per cent. also being subject to the offer, even if they have voted against it. It should not be beyond the wit of the Government and indeed of legislators to find a similar formula where a small minority try to oppose the proposal for a commonhold.

I hope that the Government will rethink the provision. If we allow the unanimity rule to remain in place, realistically the great intent of the Bill will entirely fall apart, and in 10 or 15 years' time commonhold will be remembered as a small part of a Bill that was supposed yet again to sort out property law but that succeeded only in making it more complicated.

Gareth Thomas (Labour, Clwyd West)

I sat on the Standing Committee, and I confess that there were times during the Committee stage when I would have liked to be part of a fact-finding mission to Hawaii or Honolulu.

The fact remains that there has been ample opportunity to test the argument on the unanimity point. I am prepared to accept that the Government have considered the position carefully in this place and another place. I have taken the opportunity to re-read the Official Report—particularly the first Sitting of the Committee, when my hon. Friend the Minister outlined the Government's position. The Government take the view not that it is impossible to draft an appropriately worded amendment or to formulate a form of words that would enable a dual scheme to exist, but that it would be contrary to the purpose behind the Bill to introduce that degree of complexity. If commonhold has one great advantage—I speak as a lawyer who has knowledge of this area of law—it is that it does away with some of the complexity inherent in the current tenure of leasehold, and that it introduces a system of tenure

"based firmly on parity of interest, uniformity of structure, and standardisation, as far as possible, of the documentation."—[Official Report, Standing Committee D, 15 January 2002; c. 18.]

Those were the words of my hon. Friend the Minister on this issue in Committee.

The Government are adopting a pragmatic approach. I well understand that there would be extreme difficulties in allowing long leaseholders to co-exist with commonholders, and that serious practical problems would arise that would undermine the attractiveness of that form of tenure.

Andrew Selous (Conservative, South West Bedfordshire)

Will the hon. Gentleman be kind enough to tell the House how many existing leasehold developments will be able to convert to commonhold status under the Bill in it current form? Is not the reality of the Bill that the only new commonhold developments will be new developments? We are selling the commonhold path to existing leaseholders up and down the country, but they will not be able to take the commonhold route. How many commonhold developments does the hon. Gentleman estimate there will be?

Gareth Thomas (Labour, Clwyd West)

I cannot answer that question—nor, realistically, do I think the hon. Gentleman expected me to. I hope that my hon. Friend the Minister will have a stab at it. Surely the point is that such schemes have a reputation for being too unwieldy and complex and for being the scene of constant dispute, and that they will therefore be a disincentive for the take-up of commonhold. I refer to the practical difficulties that arise when there are two statutory sets of regimes and two sets of money that have to be accounted for. Indeed, when conversion takes place it will be necessary for those who consent to conversion to find the extra money to buy out the freehold interests of those who are not consenting. Again, that would add to the cost of allowing a lower threshold. The commonhold community statement, which is an essential part of the regime, would become unwieldy and unnecessarily complicated.

Bill Wiggin (Conservative, Leominster)

As I understand what the hon. Gentleman has said, to achieve commonhold, other tenants or people living in the same block of flats would be obliged to buy the flat of the person who did not consent to the commonhold. Does that not add to the cost? Will the hon. Gentleman explain what he means?

Gareth Thomas (Labour, Clwyd West)

The hon. Gentleman did not mishear me. That is how I understand the position. Those who convert would have to find the means to buy the freehold in respect of the co-existing leaseholds. Another complication that would arise is that existing leases would have to be amended to take into account the dual regime.

I am sure that the Government have considered the disquiet that Labour Members have voiced and weighed the pros and cons. The Bill's purpose is to introduce a simple form of tenure, so this provision must be considered in the context of the radical reforms relating to the right to manage that the Government are introducing in other parts of the Bill. In many respects, those reforms will deal with the problems that have been raised, but to cut across the Bill's purpose by introducing a large element of complexity would be entirely undesirable.

Bill Cash (Conservative, Stone)

I am fascinated and slightly appalled by what I have heard—or not heard—from Labour Members. On Second Reading, the hon. Member for Brent, North (Mr. Gardiner) and other Labour Members made powerful speeches saying that the Bill could not possibly succeed with the unanimity provision in it. I cannot say that I was persuaded by what they said, because I made exactly the same points on Second Reading. Indeed, as the Minister will no doubt remember, I made similar points in Committee and perhaps so forcefully that the amendment that we tabled was not selected. I was sorry about that, because I have great sympathy for the principles that underlie these amendments. However, other matters also require elaboration.

The unanimity rule simply will not work. The hon. Member for Clwyd, West (Gareth Thomas) was no doubt persuaded to speak by the Whips.

Gareth Thomas (Labour, Clwyd West)

indicated dissent

Bill Cash (Conservative, Stone)

Perish the thought that he was so persuaded. However, does the absence of the other Members who spoke so strongly on Second Reading mean that they have suddenly changed their minds or have the Minister's gentle charms persuaded them to think again?

Michael Wills (Labour, North Swindon)

indicated assent.

Bill Cash (Conservative, Stone)

We must therefore conclude that Labour Members were persuaded to think again. However, I do not think that logic lay at the heart of that conversion. It probably had much more to do with the embarrassment of seeing the Government being harried and hunted like a fox on the question whether the Bill would work at all. I do not believe for a minute that it is possible for the Bill to work in relation to anything other than new developments and circumstances unless the unanimity rule is removed.

We should consider how the questions of consent that are referred to in the amendments arise. Clause 3(1) refers to consent and states:

"An application under section 2 may not be made in respect of a freehold estate in land without the consent of anyone who—

(a) is the registered proprietor of the freehold estate in the whole or part of the land,

(b) is the registered proprietor of a leasehold estate in the whole or part of the land granted for a term of more than 21 years,

(c) is the registered proprietor of a charge over the whole or part of the land,

(d) is registered as a cautioner in respect of the whole or part of the land,

(e) falls within any other class of person which may be prescribed."

[Interruption.] If the Minister has something to say, perhaps he would be kind enough to say it now.

Michael Wills (Labour, North Swindon)

In due course.

Bill Cash (Conservative, Stone)

He will in due course.

The restrictions are confined to the consent of anyone in certain circumstances, as described in the Bill. The problem arises as to whether that might prevent the Bill from working at all. The arrangements that I believe ought to apply should be directed towards ensuring that the proposals are workable.

Will commonhold be popular? Irrespective of my earlier comments about Labour Members, hon. Members from all parts of the House, and even many people outside, believe that the requirement of unanimity is unnecessary, counter-productive and will put a needless fetter on the use of commonhold.

Under the Bill in its present form it will be difficult to convert any existing building into commonhold. Only if everyone with an interest in the building consents to conversion will it be permitted. Thus the consent of every single leaseholder will be necessary, as will that of every single finance house that holds a mortgage for any flat in the block, that of any single judgment creditor who has a charging order over a flat in the block and that of the freeholder. Any of those persons can exercise a veto over conversion.

The key point remains whether the word "anyone" is appropriate in these circumstances. Whenever a veto applies, we will be up against the awkward customer. In any sort of collective activity—whether in a golf club or in relation to charging orders on repairing roads—there is always someone who may want to exercise his rights. I mentioned in Committee that there are already precedents for the exercise of similar rights. For example, a line of garages may abut on to a road and some people in the road may want to carry on with developments. Under many enactments it has been prescribed that those on that road should not be held to ransom by any one person who might try to hold out on the grounds suggested by the hon. Member for Clwyd, West—to gain through an increase in the value of a flat so that he could be bought out.

The application of the unanimity rule will frustrate the entire object of the process. The result will be, in practice, that commonhold will be limited to new developments. I shall be interested to hear the Minister's arguments that that will not happen. No doubt he has given it a great deal of thought.

Bill Wiggin (Conservative, Leominster)

I hope so.

Bill Cash (Conservative, Stone)

We hope so, as my hon. Friend says. In fact, we are more than dubious; we are convinced that it will not be possible for the Bill to work.

We support this important Bill in principle, but it simply will not work given the stubborn attitude of the Minister and the Government. It is very retrograde for the Minister to take such an obtuse and stubborn position. Indeed, that has been the case throughout consideration in the House of Lords and in Committee, but not, curiously enough, in respect of one or two other matters, on which the Government have moved towards our position. For example, on leasehold and forfeiture, Labour Back Benchers argued just as strongly with respect to unanimity, and the Government moved on that issue, yet we see no movement whatever on this issue. I am intrigued, as well as puzzled and appalled, about the way in which the Government are sowing the seeds of the destruction of their own Bill in this way.

Gareth Thomas (Labour, Clwyd West)

As the hon. Gentleman has said, the Government have given way and made concessions on other contentious issues. Does not that rather undermine his point that the Government's opposition on this issue is not principled and that they are stubborn?

Bill Cash (Conservative, Stone)

Our support for the Bill is principled. Indeed, that is why we took the line that we took on Second Reading and why we dealt with the Bill so responsively in Committee, but we are now on Report and I am fascinated to know why some of the more vociferous objectors on this issue from the Government Benches are not prepared to come to the Chamber, or perhaps they are not able to do so. Perhaps they are incapacitated in some way by the Whips or someone else.

The gentle giant of the Whips Office has been most considerate throughout the consideration of the Bill and he has worked as well as possible through the usual channels. We register no personal complaint against him. What worries me is the health and well-being of Labour Back Benchers; he seems to have leant on them in a manner that suggests that he has been highly effective in his discreet fashion; otherwise Labour Members would be jumping to their feet, as they did on Second Reading, but there is no sign of them now. In fact, I think that I am right to say that at least one hon. Gentleman, who is sitting on the Labour Back Benches at the moment in unaccustomed monk-like silence, expressed himself vociferously on Second Reading, but he does not seem to feel it necessary to do so on this occasion.

Kevin Barron (Labour, Rother Valley)

At this stage.

Bill Cash (Conservative, Stone)

I am delighted to hear those words. They are very important because they suggest that, in due course, we may perhaps have a blast of 25 pounders or better from Labour Members on other matters.

This is a question of principle, which is why I raised the issue on Second Reading—the occasion on which the principles of a Bill are debated. If it then becomes apparent that its entrails make a Bill unworkable, the Government effectively undermine their own legislation. The arrangements that they propose in clause 3 will prevent their Bill, which we support, from working effectively. That is not only counter-productive, but extremely foolish.

We do not know how many people will take up the proposals, but given all the people who live in blocks of flats throughout the country, I would guess that we must be talking about millions of our fellow citizens. It is so obvious. We concede the principle of the Bill and we want it to work, but we find that the Government are bent on the destruction of their own proposals. Although there will always be awkward people, arrangements in law mean that a majority vote ensures a proper decision.

The Minister referred to the nature of commonhold associations and how they will operate. I think that I heard him say—at any rate, it was implied in what he said—that we must have regard to the balance of opinion in decisions taken by a commonhold association. That is a majority vote. According to the application of the arrangements put forward by the Government there is an assumption that not everything will have to be decided unanimously but by majority vote. The running of the properties and their repairs and maintenance will be decided by majority vote. However, when it comes to whether the Bill will work, the Government say, "Oh no, we will not allow people to decide by majority vote but will insist on unanimity." That is, I am afraid, a form of totalitarianism. By imposing a completely unnecessary rule, the Government are insisting that nobody will have the freedom to exercise the rights that they have introduced, with our support and that of the Liberal Democrats, to increase the opportunities for holding property in a better way.

Mark Field (Conservative, Cities of London and Westminster)

What does my hon. Friend consider to be the right level of approval? We have talked about majority approval. Presumably he does not accept that a vote of 51 per cent. of people should drive through a decision for the remaining 49 per cent. In the spirit of improving the legislation, does my hon. Friend have some thoughts on the matter?

Bill Cash (Conservative, Stone)

Yes, indeed. I refer my hon. Friend to amendment No. 86, which is identical to one that we moved in Committee. It would ensure that where certain conditions set out in the Leasehold Reform, Housing and Urban Development Act 1993 were satisfied in respect of certain provisions, regulations made under clause 3(2) could, under certain circumstances, dispense with the consent of the person in question. It is not an arbitrary arrangement; it would all be dealt with by regulations, which would have to be debated. The bottom line is that we believe that the many millions of people who will be affected by the Bill deserve better and more informed argument and arrangements than are provided.

Clause 3(1) refers to

"the registered proprietor of the freehold estate"

and

"the registered proprietor of a leasehold estate in the whole or part of the land granted for a term of more than 21 years".

We suggest that where no more than 20 per cent. of the qualifying tenants within the meaning of the 1993 Act refuse to consent, their consent could be dispensed with.

In answer, then, to my hon. Friend the Member for Cities of London and Westminster (Mr. Field), we have in mind a refusal figure of 20 per cent. The Liberal Democrats, in amendment No. 4, propose not fewer than 75 per cent. of registered proprietors registering their consent, so we are all talking in similar terms. There is a margin between us, but no difference of principle. I do not mean to encourage too much support from the Liberal Democrats, but my family were Liberals once upon a time and founded, among other things, the Abbey National building society and the Rochdale co-operative society. I come from a background of seeking to be reasonable and co-operative, but I want the maximum number of people to be able to exercise their rights because I believe in democracy.

What I do not believe is that everyone should be automatically able to enforce his or her rights against other people. The unanimity rule is draconian. We need flexibility, and I appeal to the Minister to think about that. I am truly surprised that the Government do not understand that some people will be awkward and that others will try to engineer situations that will prevent the Bill from working. I cannot believe that the Government do not know that that will happen.

I shall be fascinated to hear what the Minister has to say. He has heard the arguments in the other place and in Committee, and I know that he periodically rewrites his speech to accommodate them. The Government have taken a tough line throughout the Bill's progress, but it is not sensible to be tough in suppressing the rights of millions of people to have their way and to own a better form of property.

I know that when the Minister was at Cambridge, he wrote the whole or part of his thesis on the Primrose League. I am much associated with that myself, and I know that it had much to do with the working man, democracy and the manner in which we guarantee that the maximum number of people obtain the maximum benefit. In the past 150 years or so, an enormous amount has happened. Democracy has been established, and it is a property-owning democracy. I do not want to be too effusive about a Government Bill, but their commonhold proposals are an enormous step in the right direction. Yet they are kicking the house down on the point before us, and I find that strange.

I shall be glad to hear what the Minister has to say. The Government have repeated, here and in the other place, that they are determined to stand by what they have already said. Consequently, commonhold will be limited in practice to new developments and only in the smallest block of flats will there be any prospect of obtaining all the consents necessary to effect conversion to commonhold.

Why are the Government insisting so steadfastly on unanimity? They have advanced two arguments, although there may be more to come. One thing I know about the Minister is that when he is in stubborn mood, he relies on not just two arguments, but has others lined up which he will produce both this afternoon and on Wednesday.

I have no doubt that there are more arguments to come, but so far the Government have made two. In Committee, they said that if one allowed conversion to commonhold with the agreement of fewer than 100 per cent. of the tenants, commonhold blocks would have a mixture of commonhold units and long leases. Tenants who wanted to convert would receive commonhold units, whereas tenants who did not want to convert would be left with long leases. The hon. Member for Clwyd, West made that very point with reference to the Minister's speech on Second Reading.

The Government say that such a result would complicate the administration of the block as two sets of accounts would need to be kept—as the hon. Gentleman pointed out. Furthermore, a mixture of commonhold units and long leases would destroy the perfect beauty—the utopia—of a block owned by lots of happy commonholders working in harmony in a commonhold association. There would be an ongoing relationship between the landlord—who would have become the commonhold association—and some tenants who would maintain their previous arrangements.

Does the Government's argument stand up? It is true that any departure from unanimity would make commonhold less neat and tidy—there would still be tenants with long leases. I am happy to concede that. A block consisting only of commonhold unit-holders would undoubtedly be more elegant. However, it is not merely a matter of elegance but of the interests of all the people in the country. The provisions would affect a huge number of people.

We are not in this place merely to devise an aesthetically pleasing legal construction. Over and over again, my hon. Friends the Members for Cities of London and Westminster, for Leominster (Mr. Wiggin) and for South-West Bedfordshire (Andrew Selous) have been making practical points but we want practicality and philosophy to run together. That is one of my main concerns. We are interested in ensuring that there is a property-owning democracy. We want more people to have more rights in their property.

Furthermore, we are dealing with new Labour and the middle way—as well as the patriotism for which the Minister is primarily responsible. Surely the Minister and the new Labour cohorts want more people to have enhanced property rights. They did not get to power by arguing against such rights—far from it. They would not have cadged all those votes from us without, in effect, making a spurious claim that is undermined by the Bill's proposals. If people heard the arguments in this debate, they would say, "Oh, is that the real attitude? Every person in our block of flats will have to go down that route if we are to have that enhanced property value". Many people, including good honest Labour voters—especially new Labour voters—would realise that they were not getting what new Labour offered them. Of course, now it is a matter for the press. There is no more that we can do once we have discharged our functions at the Dispatch Box.

I hope that people will understand that, in practice, they are not getting what new Labour offered them. These provisions are a good example. I suspect that that is why the hon. Member for Brent, North made such a strong case on Second Reading, when I think that the hon. Member for Rother Valley (Mr. Barron) made some similar points.

The whole point of the change in our approach to property over the past 50 years has been the practical advantage that people gain by owning property rather than living in state-subsidised or council housing. We are not here to devise an aesthetically pleasing legal construction. Indeed, we are surprised to find that new Labour Ministers have any interest in aesthetics. For many of us, the idea of an aesthetically pleasing legal construction is an oxymoron, like a welcome Labour stealth tax—but let us not rough it up too much this afternoon.

We are trying with commonhold to produce something practical and popular. The Government's only practical argument against having both commonhold units and long leases in the same block concerns the difficulties with accounts.

Andrew Selous (Conservative, South West Bedfordshire)

Does my hon. Friend agree that we should not consider our country's accounting and legal skills to be in any way inferior to those of a jurisdiction such as Honolulu, which seems perfectly able to cope with mixed tenures within blocks?

Bill Cash (Conservative, Stone)

I was most attracted by the Honolulu argument, which took me back to that wonderful film, "South Pacific". My hon. Friend is right, and there are many other places where the unanimity rule does not apply—for example, there are the strata arrangements in America, Australia and elsewhere in the western world.

It is certainly true, as the Government say, that a commonhold association would have to make arrangements so that service charges could be collected from commonhold unit-holders in accordance with the commonhold community statement, and from long leaseholders in accordance with the terms of their leases, but it is absurd, with respect, to suggest that this presents any practical difficulties.

Mark Field (Conservative, Cities of London and Westminster)

Does my hon. Friend agree that there is an analogy with the situation in a council block in which some of the flats have been sold to long-standing tenants? In that case, two sets of accounts have to be dealt with in a way that the Bill seems to suggest is impossible.

Bill Cash (Conservative, Stone)

I could not agree more. The same situation arises in many different contexts. Having to have two sets of accounts is no reason to give up on the many advantages that people will gain in respect of the important principle that lies at the heart of the Bill.

There are frequently different leases for different flats in the same block, with different service charge and rent provisions. That is an absolute fact that the Minister must acknowledge. No managing agent has the slightest difficulty in keeping accounts that distinguish between the liabilities of different flats. Why should managing agents be worried about different accounts for commonhold arrangements? I challenge the Minister to tell me now.

Michael Wills (Labour, North Swindon)

In due course.

Bill Cash (Conservative, Stone)

Very well.

The situation would be exactly the same in a block with commonholders and leaseholders: the managing agent would calculate the service charge for each flat, based on the relevant legal principles.

The Government's second argument is even more far-fetched. They say that, okay, one could allow a commonhold without a unanimity requirement but that, with all the recent reforms to leasehold, leasehold is now such an attractive option that there is no need for existing leaseholders to convert to commonhold.

What is one to make of that argument? Commonhold is about choice, and about expanding choice. That is the gravamen of the argument that I urged on Second Reading and in Committee and that I repeat today. People with leases should have the right to choose whether to carry on with leasehold or to convert. That is the key consideration, and it affects millions of people. It is not for the Government to dictate whether people should convert or not. The Government stand condemned for wrecking their Bill and removing that choice from those people. It is incredibly obtuse of them and I do not understand their decision.

It is true that leasehold has been improved as a result of various reforms, most notably those contained in the Housing Act 1996, which was introduced by the last Conservative Administration, although the Government do not admit to that. As a consequence of those reforms, leasehold is a much more satisfactory form of tenure. However, there remains a widespread dissatisfaction with it. It is wrong to prevent tenants in blocks from converting to commonhold when there is a widespread desire to do so just because one tenant or mortgagee does not agree. The veto should go. The amendment would achieve that purpose. The most important consideration is that we enlarge the property opportunities for the people of this country. Millions will be affected by the proposals and the Government are obtuse, wrong and arrogant in their refusal to accept that unanimity must go.

Michael Wills (Labour, North Swindon)

I am glad finally to be given the chance to address the points raised. We have covered this ground over and over again. The indignation of the rhetoric used by the hon. Members for Stone (Mr. Cash) and for South-West Bedfordshire (Andrew Selous) outstripped their attentiveness to the arguments. The words "appalled", "obtuse", "it beggars belief" and "astounding" were used frequently. They might disagree with us, but had they listened carefully they would understand that there is a clear logic to our decision.

The Opposition once again made the same old arguments and they gave only a partial view of the problem. The hon. Member for Stone, in a lengthy disquisition on all sorts of things including the amendments, airily brushed away the problems with the alternative approaches and the opportunities that the alternative choices present for leaseholders. It is not adequate to make a case by dismissing the problems in such a way.

Government amendment No. 10 will render amendment No. 6 unnecessary, and we are not prepared to accept the other amendments in the group. I hope that the hon. Member for Torbay (Mr. Sanders) will forgive me if I pass quickly over amendments Nos. 2, 3, 5, 6 and 7. They are drafting devices aimed at getting to the meat of the group, contained in amendment No. 4. That amendment makes another attempt to introduce a consent level that is less than the 100 per cent. on which the Government still insist for conversion from leasehold to commonhold. Despite the hon. Gentleman's heroic efforts, we looked in vain for recognition of the extremely complex tasks posed by conversion and the subsequent management arising from such a change.

Amendment No. 4, like all the others that have aimed at reducing the hurdle, fails to take into account the practical problems that the poor souls who try to take advantage of conversion will face. We repeatedly said on Second Reading, in another place and in Committee that had we been able to find a way both to lower the hurdle and to provide for a sensible, practical and, above all, simple way of accommodating the resulting procedures, we would have done so, but it has proved impossible. We went through the arguments in considerable detail at every stage of the Bill in both Houses and, of course, in the three stages that were completed in another place before the last election. It is a matter not of being stubborn or obtuse, as the hon. Member for Stone alleges, but of considering the problem practically, in a cold-eyed way, and making a judgment on the best evidence available. There is not much to add to those discussions, but none the less—

Julian Lewis (Conservative, New Forest East)

rose—

Michael Wills (Labour, North Swindon)

I shall give way to the hon. Gentleman in a moment. I am glad to see that he has joined us for the latter part of these proceedings. I was about to say that, as there is such concern among Opposition Members, I shall explain the arguments again in the hope that they may finally penetrate.

Julian Lewis (Conservative, New Forest East)

I thank the Minister for giving way. In case he has not noticed, I was present for the earlier part of the proceedings; there was merely a slight intermission. Does he accept that the import of his remarks is an admission that the Government are accepting the fundamental point made by my hon. Friend the Member for Stone (Mr. Cash) because they cannot get round the problem? Are they not admitting that the benefits of the Bill will apply only to people in new properties and not to those in existing leasehold properties, with hardly any exceptions?

Michael Wills (Labour, North Swindon)

No, I do not accept that. The truth is that nobody in the House has any idea of exactly what will happen in future. As we have always said, the market will decide the issue. As the hon. Gentleman will no doubt be aware, the market, by its very nature, cannot be predicted with any degree of certainty. None the less, I shall go on to reassure him about some other matters that have not fully percolated into Opposition Members' consciousness.

Julian Lewis (Conservative, New Forest East)

May I remind the Minister of the point that I made in Committee when another Minister was dealing with the Bill? If a freeholder does not want leases on his property to be converted to commonhold, is it not a racing certainty that he will take either personally or by proxy a single lease on one small part of the property so that he can block conversion? Is not that an absolute certainty that does not depend on the vagaries and unpredictability of the market?

Michael Wills (Labour, North Swindon)

A similar point was made by the hon. Member for Bath (Mr. Foster) some considerable time ago, and I shall deal with it in due course.

As the hon. Member for Stone eventually got around to acknowledging, there are two good reasons for our persistence with the 100 per cent. threshold. If I may, I shall deal with the matter relatively briefly. Let us consider once again the nature of the problems that will arise if long leaseholders continue to live under the terms of their lease in a commonhold development. There will be two classes of occupant, so self-evidently there will be two management streams under two different statutory regimes. There will also be two sets of moneys to collect and two sets of accounts to produce, because the calculation of service charges for the remaining leaseholders will continue to be set by the terms of their lease, which is a legal contract.

Existing landlord and tenant legislation provides for appeals against the determination of service charges. There would be no such appeal for a commonhold, because commonhold assessments will be set by members of the association at a general meeting. That is why the two streams of accounts and two different sets of moneys would persist. There could be an almost infinite variety of tailor-made schemes to design and operate, and they would bring with them all the potential for the drafting problems that have helped to bring leases into such disrepute and which the Bill sets out to address.

This is a matter not of aesthetics—curiously, that is what the hon. Member for Stone appears to believe—but of practicality. As my hon. Friend the Member for Clwyd, West (Gareth Thomas) so cogently pointed out, complexity, burdensome bureaucracy and all the consequent costs should worry deeply anybody who is concerned about the future of commonhold. If anything will strangle commonhold at birth—another bit of the Opposition rhetoric that I recall from Second Reading—it is the complexity, bureaucracy and cost that would flow from accepting a hurdle of less than 100 per cent. for conversion.

Of course, there are issues in terms of minority holdings, which were mentioned by the hon. Member for Torbay and also the hon. Member for Bath, who referred to landlord blocking. However, all that discussion merely brushes aside the option now available under part 2: the right to enfranchise, which can be triggered by two thirds of leaseholders. Under the right-to-enfranchise provisions in part 2, the landlord's interest can be bought out regardless of whether those who must consent have done so. If the landlord is bought out under those provisions, in due course the right-to-enfranchise company can transform into commonhold, which would in itself stop the blocking potential of a landlord.

Of course important issues are involved, but we must consider what is most likely, in practical terms, to ensure that the new form of tenure takes hold. As we have said many times, in the end the market will decide. I do not want to rehearse those arguments at great length. I merely remind the House that if commonhold has the virtues that we believe it has, it will take root not only in new developments and redevelopments of existing properties without leaseholders, but in the conversion of existing leaseholds.

I hope that the existence of the remedy in part 2 and all the changes that it makes possible, coupled with the fact that profound problems are associated with making the consent level less than 100 per cent., will enable the hon. Member for Torbay to withdraw the amendment.

Bill Cash (Conservative, Stone)

I remain puzzled by the Minister's remarks. He told us that he would go through all the arguments and give us a full explanation, but he has done nothing of the kind. Furthermore, he says that a market will operate, but how can that happen if one puts an enormous roadblock in its way by saying that the unanimity rule will prevail? There will be no flexibility and no marketplace in such circumstances. On the one hand he suggests that he wants more freedom of action and opportunity, but on the other hand he takes it away.

Michael Wills (Labour, North Swindon)

I shall try again to illuminate the matter for the hon. Gentleman. With respect, he must focus on the purpose of the Bill—that is, for commonhold to take root. It is all very well for him to say, "Let's have a threshold of less than 100 per cent. Let's not worry about all the problems that will result or the burdensome bureaucracy, complexity and cost. Let's just assume that this will not have any deleterious effect on commonhold taking root"—

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

Will my hon. Friend give way?

Michael Wills (Labour, North Swindon)

In a moment; I want first to deal with this point. We have gone over it again and again, and I want to have one last shot at convincing the hon. Member for Stone, after which I shall abandon all hope.

The hon. Gentleman must consider these matters in the round; one should never focus on just one aspect. I hope that he will finally be prepared to change his mind; that he will not be stubborn and obtuse about the matter; and that he will focus on the problems that would result from the amendment. In doing so, he should bear in mind the fact that the right-to-manage and right-to-enfranchise provisions in part 2 give leaseholders—whose concerns are in the forefront of all our minds—an effective remedy against the problems that Opposition Members have described at some length in relation to the amendment—and many times previously. Those are important advances that will benefit leaseholders everywhere, and I ask the hon. Gentleman to bear that in mind.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

Many Labour Members are worried about the matter, and I am grateful for my hon. Friend's arguments. Fears have been expressed that ultimately the Bill may be a dead letter because it is extremely difficult for people to get these associations off the ground. Will my hon. Friend undertake on behalf of the Government to reconsider the matter with a view to making such modifications as are necessary in the light of experience?

Michael Wills (Labour, North Swindon)

Of course I understand the concerns of my hon. Friend and of other hon. Friends who are not here, as well as those of Opposition Members, because this matter is important to their constituents. We are a flexible and responsive Government who want to deliver for the people of this country. If changes need to be made, of course we shall consider making them.

Having given my hon. Friend that reassurance and, I hope, finally broken through the barriers to understanding on the part of Opposition Members, I hope that the hon. Member for Torbay will feel able to withdraw the amendment.

Adrian Sanders (Liberal Democrat, Torbay)

We have spent an extraordinarily long time on this subject in Committee and on the Floor of the House, and a great deal of time was devoted to it in the other place. As the Minister said, the purpose and principle of the Bill is to let commonhold take root. The amendment would do precisely that by removing the barriers that might prevent it from happening. We have heard some effective arguments from Opposition Members; in fact, the only unanimity has been on this side of the House.

The hon. Member for Clwyd, West (Gareth Thomas) made a good argument about the practicalities of the amendment being in place—that is, that leaseholders who voted in favour of commonhold would have to buy out the leases of those who did not. Given that the amendment calls for a 75 per cent. majority, the maximum number of leases that would need to be bought out would be to the value of 25 per cent. It is possible that those would not need to be bought out because the existing freeholder would only sell the 75 per cent. to those who wished to become commonholders. The leaseholders would not have to buy out in every event. On the other hand, if they did, the value of their commonhold association would be significant, and they would have little problem in raising the money. Of course, if they wished not to go ahead in the light of the figures, they would be at liberty not to do so. There is not, therefore, the blockage suggested by the hon. Member for Clwyd, West.

The British Property Federation believes that achieving the 100 per cent. requirement will be impossible in practice. One would not have expected that organisation to be a great ally of a Bill allowing people to enfranchise themselves with greater ease. If, as I suspect, the federation has decided, "This isn't going to work; it will be impossible for people to become commonholders", that is a good reason for Labour Members who believe in leasehold reform to support the amendment. I duly wish to press it to a vote.

Michael Wills (Labour, North Swindon)

I beg to move amendment No. 10, in page 2, line 29, leave out paragraph (d).

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss Government amendments Nos. 11 to 22.

Michael Wills (Labour, North Swindon)

As many hon. Members are aware, the Land Registration Act 2002 has achieved Royal Assent and will be implemented ahead of the Commonhold and Leasehold Reform Bill, assuming that the Bill completes its last stages successfully. For this reason, we found it necessary to take another look at those parts of the Bill which rely on the 1925 Act or will be affected by the provisions in the 2002 Act.

The amendments in this group are rather technical and are required so that the provisions in our Bill work in tandem with the scheme created by the Land Registration Act 2002. To avoid repeating myself ad nauseam when speaking to this group of amendments, let me explain that references to the 1925 Act are to the Land RegistrationAct 1925, and references to the 2002 Act are to the Land Registration Act 2002.

Subsection (l)(d) of clause 3 provides that one of the consents required before land can be registered as commonhold land is that of a person who is registered as a cautioner of the whole or part of the land. I announced on the first day of the Committee stage of the Bill that we would table an amendment to remove cautioners from the list of persons who must consent to registration of land as commonhold. Amendment 10 would do that by removing subsection (l)(d) from clause 3.

There are two reasons for doing that. First, it will honour a commitment that I made in Committee to simplify the consent requirement in the Bill, as a class of interests would be removed from the blanket protection of the consent requirement and, so far as may be necessary, would be dealt with under clause 3(l)(e). Secondly, it would give room to manoeuvre to take the provisions of the new scheme in the 2002 Act into consideration. The 2002 Act makes changes to the scheme of protection of interests on the register which makes the reference to "a cautioner" in clause 3(l)(d) no longer effective or appropriate. Under the 2002 Act it is still possible to enter cautions against first registration, and transitional arrangements mean that existing entries on the register are retained. However, it will no longer be possible to enter cautions against dealings on the register.

Instead, under the 2002 Act, cautions against dealings are, for the most part, replaced by unilateral notices. Some types of interest that are at present protected by a caution will in future be protected by a restriction. Some interests may be able to be protected by both a notice and a restriction under the new regime—the notice to protect the priority of the interest, and the restriction to ensure that certain procedural requirements of the interest are complied with.

The policy behind the inclusion of cautioners, as opposed to any other interest holder, in subsection (1)(d) was based not on a need for additional protection for cautioners, but rather on the fact that a caution is regarded as a hostile entry on the register, and is subject to the warning-off procedure. Including a requirement for the consent of cautioners in clause 3 effectively brought forward to the pre-application process any dispute under the warning-off procedure that might otherwise delay the registration of the land. Bringing potential disputes to the fore at an early stage was felt to contribute to streamlining, which we considered sufficiently necessary to include it in the Bill.

We want to continue with this policy of early discovery of potential disputes. We will also need to consider whether provision for consent by holders of interests which were protected by entering a caution is necessary. Further consideration will need to be given to whether, and if so what, consent provisions are required for beneficiaries of notices and restrictions as defined in the 2002 Act who would not previously have been cautioners under the 1925 Act.

As we want to be certain that we have given sufficient thought to the consent requirement and those interests, taking into careful consideration the implementation of the 2002 Act, it would be difficult and foolhardy to prescribe in the Bill the holders of which interests should be required to give consent under clause 3. We are certain that further work will need to be done on the matter in conjunction with the implementation of the 2002 Act.

Geoffrey Robinson (Labour, Coventry North West)

On consents, I am not sure whether this part of the Bill relates to the issue of Millendreath in Cornwall, a village with many holiday homes, which was part of the National Union of Mineworkers, and which has a long-standing link to the former Coventry colliery, very near my constituency. Will holiday homes be covered by the provision; and what special consents, if any, might be required?

Michael Wills (Labour, North Swindon)

I am grateful to my hon. Friend. Other hon. Members have raised in various forums the question of whether commonhold can apply to holiday homes. I am happy to tell him that commonhold can apply to any development where there are at least two interdependent units and common parts. A development consisting entirely of holiday homes is possible, or a few holiday homes in an otherwise owner-occupied development. Commonhold as a form of tenure is flexible enough to allow for any such developments. I hope that that satisfies my hon. Friend's interests.

We are certain that further work will be necessary on the matter to which I referred, in conjunction with the implementation of the 2002 Act. In order to deal with these interests, therefore, the Government would rely on the power as it stands in subsection (l)(e) of clause 3 to prescribe other classes of persons whose consent should be required.

Clause 6(2) refers to section 82(1) of the 1925 Act, which deals with rectification. It excludes the register being rectified under section 82(1) in the specific circumstance of errors in the process leading up to the registrar registering land as commonhold land, and creates a specific procedure in respect of commonhold land for matters that are specific to commonhold.

The 2002 Act provides for a more limited scheme of rectification in clause 65 and schedule 4 than was provided under section 82(2) of the 1925 Act. However, for the purposes of clause 6, because subsection (2) of the clause paves the way for provision on rectification in error of commonholds, the more limited nature of the new scheme is not relevant. The minor change in amendment No. 11 is necessary simply to correct the reference in subsection (2), so that it refers instead to the rectification provisions of section 65 of, and schedule 4 to, the 2002 Act.

On amendment No. 12, in listing various courses of action that a court may take when making an order under clause 6, the Bill provides that the court may order the rectification of the register. This amendment would substitute the word "alteration" for "rectification".

"Rectification" under the 2002 Act has a narrower meaning than was provided under the 1925 Act. We do not want unnecessarily to restrict the power of the court under clause 6(6)(b) to ordering rectification in the new, narrower sense of the word. If there is a defect in the process leading up to registration as a commonhold rather than a mistake on the register preceded by correct registration process, we want to give the court a wide power to make an order that it feels appropriate. In those circumstances, which may have very little to do with the register, it is proper that the registrar should not be asked to consider issues not strictly involving the correctness of the register itself. It should be left to the court to consider the appropriate course of action. The amendment, by replacing the word "rectification" with "alteration", would ensure that defects in the process of application not calling for rectification in the new stricter sense of schedule 4 to the 2002 Act do not fall within the registrar's competence.

Government amendment No. 13 is the fourth of the Government amendments to take into consideration the provisions of the 2002 Act. Clause 6(6)(g) refers to sections 83 and 84 of the 1925 Act, which are provisions in respect of indemnity. That indemnity scheme has been replaced by a scheme contained in section 103 of, and schedule 8 to, the 2002 Act. As with amendment No. 11, because clause 6(6)(g) confers a power to apply, disapply or modify for the specific commonhold context a provision of the indemnity scheme, the differences between the scheme in the 1925 Act and that in the 2002 Act are not relevant for the purposes of the Bill. This amendment would correct the reference in clause 6(6)(g) so that it refers instead to schedule 8 to the 2002 Act.

Amendments Nos. 14 to 19 amend clause 65 of the Bill, which empowers the Lord Chancellor to make rules about registration specifically in relation to commonhold land. In making provision about how these rules are to be made, what they may cover and how they are to have effect, clause 65(2) relies on references to section 144 of the 1925 Act. Clearly, those references cannot survive the repeal of the 1925 Act by the 2002 Act. Therefore, amendments Nos. 14 to 16 would remove reference to section 144 in clause 65(2) and refer instead to the "land registration rules" within the meaning of the 2002 Act. Section 132(1) of the 2002 Act defines land registration rules as any rules to be made under the 2002 Act. That is a useful definition for our purposes, as it catches all the land registration rules in the 2002 Act. As those rules, which are equivalent to those in section 144 of the 1925 Act, are separated out over a number of sections in the 2002 Act, it would be impractical to list them clause by clause.

Amendment No. 17 would remove clause 65(3)(b), which provides that commonhold registration rules may make provision disapplying section 64 of the 1925 Act in certain circumstances. Section 64 dealt with the production of certificates. It is not directly replaced in the 2002 Act, but paragraph 4 of schedule 10 of that Act provides a power to make provision about the production of certificates. The disapplication of general rules for certain circumstances can be done under that power without the need for specific provision to that effect in the Bill, as section 128(1) of the 2002 Act allows "different provision for different cases" to be made by land registration rules. In tabling this amendment, therefore, we seek simply to disapply clause 65(3)(b).

Clause 65(5) requires a commonhold registration document to be accompanied by such fee as specified by order under section 145 of the 1925 Act. Section 145 is replaced by section 102 of the 2002 Act for all relevant purposes. Amendment No. 18 would replace the reference to section 145 of the 1925 Act with a reference to section 102 of the 2002 Act.

Clause 65(6) of the Bill defines "commonhold registration document" and "general registration document", and does so for the latter by referring to a document sent to the registrar under a provision of the 1925 Act. Amendment No. 19 would correct that to a reference to a document sent to the registrar under the 2002 Act.

On Government amendments Nos. 20 and 21, clause 67(1) defines "the register" as that kept under section 1 of the 1925 Act. That section is repealed by section 1 of the 2002 Act. Amendment 20 would correct the reference in clause 67(1) so that it refers instead to section 1 of the 2002 Act.

Amendment No. 21 would amend clause 67(6) to remove reference to an insertion in the 1925 Act after section 126(4), which made provision for the expenses of the registrar—principally salaries of staff—to be provided out of money given by Parliament. Clause 67(6), as it stands, extends the scope of that provision so that expenses relating to commonhold registration functions can be similarly provided. Provision of the registrar's expenses out of money given by Parliament is no longer appropriate, given the Land Registry's trading fund status, and the 2002 Act does not reproduce section 126 or make provision in the same way. Land Registry expenses will be met in different ways. The provision to be inserted by subsection (6) is therefore no longer required.

Government amendment No. 22 affects clause 69(3), which provides for any provision of the 1925 Act defining an expression to apply to the use of that expression in part 1 of the Bill unless the contrary intention appears. The reference to the 1925 Act in clause 69(3) should now be to the 2002 Act, and amendment No. 22 would do that.

Bill Cash (Conservative, Stone)

The Minister rattled through these complicated but not very interesting amendments, although there are some important exceptions. I am put in mind of the famous occasion when it was said—I believe that it is true—that a town clerk added a clause to a private Act by burying in the verbiage a provision that "the town clerk shall hereby be divorced". When I heard the reference to the Land Registry and the state trading unit—or whatever it was described as—my ears pricked up. However, I am sure that, given the Minister's integrity, we have not landed ourselves with an enormous problem that we will live to regret; far from it. We are thoroughly gratified by the speed with which he dealt with the amendments.

In my comments on unanimity, I rightly included—because the amendment had not been tabled—a reference to cautioners as those whose consent would be required under clause 3(1)(d). Now I see that—of course, I observed this before—cautioners will be taken out of the Bill by an amendment that was about to be tabled. We are grateful that, as a result of our powerful arguments in Committee, the references in clause 3(1)(d) have been excluded from the Bill. As the House will know, my view is that the amendments do not go anything like far enough. The unanimity problem will prevail for all the other circumstances described in clause 3.

We have had an extensive debate on that issue, so I have no further comments to make on the amendments. We will certainly not divide the House on them.

Don Foster (Liberal Democrat, Bath)

The Liberal Democrats congratulate the Minister on a 14-minute tour de force covering a wide range of important issues. I merely invite him to tell us which bit of his speech he considers the most important, and would tell the editors of either "Today in Parliament" or "Yesterday in Parliament" to concentrate on.

Michael Wills (Labour, North Swindon)

They would disregard anything that I have said at their peril.

Amendment agreed to.

Clause 6 — Registration in error

Clause 19 — Leasing: supplementary

Bill Cash (Conservative, Stone)

I beg to move amendment No. 75, in page 9, line 39, at end insert—

'(6) On the grant of a lease of a commonhold unit, the landlord shall inform the tenant of the effect of section 48( )—

(a) by including an explanation in any written lease, and

(b) in any other case by giving the tenant notice in a prescribed form.'.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following:

Government amendment No. 32.

Amendment No. 76, in clause 27, page 12, line 41, at end insert—

'(3) On the grant of a lease of common parts, the commonhold association shall inform the tenant of the effect of section 48( )—

(a) by including an explanation in any written lease, and

(b) in any other case by giving the tenant notice in a prescribed form.'.

Amendment No. 80, in clause 49, page 24, line 6, at end insert—

'(3A)(a) The landlord may terminate any lease of the whole or part of the commonhold land by giving to the tenant three months' notice in writing and on quitting the tenant shall be entitled to be paid compensation by the landlord.

(b) The amount of the compensation shall be—

(i) if the Part II of the Landlord and Tenant Act 1954 applied to the lease, the amount which would have been payable under section 37 of that Act had the court been precluded from making an order for the grant of a new tenancy on any of the grounds there specified,

(ii) in any other case, a sum equal to one year's rent at the rate payable when the notice was served.'.

Government amendments Nos. 23 and 24.

Bill Cash (Conservative, Stone)

The amendments are intended to deal with the serious risk that one unit-holder who grants a lease on his own unit will prejudice the value of other units. That is because redevelopment of the whole commonhold will not be possible under the Bill if any of the units is let. In some cases, lettings may well be common. We think that it would be wrong to curb that, but there is a need—for the common good—for all the leases to be made to end at the same time to facilitate redevelopment, whether it is necessary after major accidental damage or voluntary.

The same difficulties could arise if the commonhold association had let some of the common parts. We think, and the Law Society thinks, that the appropriate solution is for leases to end automatically if the commonhold association is wound up. Linking the effect to winding up would ensure that unit-holders could not end the leases capriciously, because the effect would be linked to a court procedure.

The interests of tenants would clearly need protection. The amendments offer it, in three ways. First, the lease would contain a warning, or in the case of a verbal letting the landlord would give the tenant written notice. Secondly, the tenant would be entitled to three months' notice to quit. Thirdly, the tenant would be entitled to compensation, calculated according to a formula to avoid disputes.

Bill Wiggin (Conservative, Leominster)

Having seen the Government get their unanimity proposal through, we may wonder whether the Bill has been completely wrecked. Now, once again, we are trying to improve what may already be damaged goods.

Once the Government have released leaseholders from their burden and allowed them to proceed to commonhold we find ourselves talking, in an almost Orwellian fashion, about re-leasing what is currently commonhold. This is a curious part of the Bill. Amendment No. 80 at least makes it clear that a new type of lease on a commonhold will be very different from those with which we currently live. At some stage people will know that if they are to lose their leases they will be given proper notice, and will be entitled to

"a sum equal to one year's rent at the rate payable when the notice was served."

There is, then, some good in these worthy amendments, although following the earlier vote, I think it unlikely that we shall have commonhold in the form that the Government would—I hope—have wanted.

Michael Wills (Labour, North Swindon)

Amendments Nos. 75 and 76 are intended to provide potential leaseholders, in the commonhold context, with information about the process by which a commonhold tenancy could be ended if the scheme imposed by amendment No. 80 were in force. The first requires information to be given to a leaseholder of a unit; the second requires the information to be given to the leaseholder of common parts. Amendment No. 80 would add to clause 49 a scheme allowing the landlord to terminate a commonhold lease with three months' notice, and with compensation.

The thinking behind the amendments appears to be that if a specific ground for ending leases of commonhold land on termination of the commonhold is not provided, it may in some cases be impossible, in practical terms, to secure the requisite level of agreement to the termination resolution, because members of the commonhold association who are landlords will be unwilling or unable to consent owing to uncertainty about how they may terminate the leases of their properties.

The problem strikes us as exiguous. There will be very few cases in which the lease of a commonhold unit, taken with the landlord-and-tenant legislation, does not provide a ground for its termination; and the solution to the perceived difficulty is so inflexible that it might have the opposite effect to that intended, making such a lessor of a commonhold unit less likely to terminate the lease because of the cost to him or her of doing so.

The devotion to practicality normally evinced by the hon. Member for Stone (Mr. Cash) seems—temporarily, I hope—to have deserted him on this occasion. There is a lack of flexibility here. We do not expect many commonholds to be terminated; indeed, in other jurisdictions—such as Honolulu's, no doubt—the equivalent organisations have been found to be stable, and good financial risks. Certainly, we believe that the circumstances of any terminations will differ, and the straitjacket of amendment No. 80 is not welcome. For instance, it is hardly equitable to suggest that one year's rent is likely to compensate satisfactorily a tenant with six years of his or her lease to run, and it might be considered too much for a tenant with three months and two days to run. We believe that such matters should be for the parties to arrange on the basis of the facts in each termination, and I therefore hope that the hon. Gentleman will feel able to withdraw the amendment.

Clause 20 deals with the creation of interests and charges in commonhold units. Subsection (3) provides that it is not possible to create an interest in a commonhold unit other than a lease unless the commonhold association is party to the creation of the interest or consents in writing. The policy behind the restriction on the creation of interests in units was to prevent unit-holders creating easements and profits à prendre from their units, or any other interests that might cause nuisance or annoyance to other unit-holders or otherwise cause problems for the commonhold association as a whole. The Bill therefore provides that the creation of interests in units must be approved by the commonhold association. Thus the assessment of what interests in units are likely to cause problems and should not be permitted to be created should be left to the commonhold association.

After the Committee stage, however, it was brought to our attention by one of our consultees that we might inadvertently have excluded the possibility of a unit-holder's creating an express trust of land, for example in a will, without first gaining the consent of the commonhold association. We did not intend to require the association to consent to such day-to-day innocuous and commonplace transactions as this, and we now no longer believe that it is necessary to cast such a wide net to catch any potentially problematic interests.

If amendment No. 32 is accepted, clause 20(3) will read

"It shall not be possible to create an interest of a prescribed kind in a commonhold unit unless the commonhold association is a party to the interest, or consents in writing to the creation of the interest".

Regulations will then prescribe the interests to which the clause applies. They are likely to include easements and profits à prendre but may be more specific, depending on the outcome of widespread consultations. 6.30 pm

Amendment No. 23 amends paragraph 2 to schedule 5, which deals with consequential amendments. The intention behind paragraph 2 is that a mortgagee's power of sale under the Law of Property Act 1925 should in commonhold be subject to the restrictions in clause 21 on dispositions of part-units. The intention is that a mortgagee will not purport to sell part of a mortgaged unit without reference to the commonhold association. To achieve such an effect, it is necessary to subject section 101(1) of the 1925 Act to the entirety of clause 21, rather than to just subsections (1) and (2). Amendment No. 23 will achieve precisely that.

Amendment No. 24 is consequential to amendments to clause 21 that were made in Committee. One result of those amendments was the splitting in two of provisions relating to interests in, and charges over, part-units previously contained in clause 21. Clause 21 now deals with interests in part-units, and clause 22 deals with charges over part-units. It is necessary to amend paragraph 8 to schedule 5 to take account of that change, and to maintain the intention that trustees' power to partition land and to distribute the proceeds among beneficiaries be subject to clauses 21 and 22.

Bill Cash (Conservative, Stone)

The Minister will be glad to know that I do not intend to divide the House on the amendments. Our discussions in Committee—through which we raised a number of matters such as profits à prendre—demonstrated that Standing Committees have their value. This is very complicated territory, involving a series of technical points that are important to the law of property. It is important that we take this opportunity to clear out some dead wood, and to make amendments after a period of reflection.

Having said that, I am glad that the Government are making further improvements to the Bill. That shows the value of our procedures. Some other countries tend to legislate by decree, but it is not possible to get such matters right first time round—a point that is illustrated amply by the Government's approach. With some exceptions, which I need not return to at the moment, the process has been one of continuous improvement, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 20 — Other transactions

Schedule 3 — Commonhold association

Bill Cash (Conservative, Stone)

I beg to move amendment No. 68, in page 96, line 25, at end insert—

'(3) Sections 364 and 365 of that Act (annual return (company not having a share capital) and time for completion of annual return) shall not apply to a commonhold association.'.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following amendments: No. 87, in clause 37, page 18, line 3, at end insert—

'(5) Any monies payable by a unit-holder to the commonhold association under:

(a) the commonhold community statement;

(b) the memorandum or articles of the commonhold association; or

(c) regulations made under subsections (1) and (2) hereof

shall be a charge over that unit-holder's unit ("a commonhold association charge") and enforceable as a first legal charge in priority to all other charges or encumbrances over that unit–holder's unit.

(6) The existence or potential existence of a commonhold association charge shall not prevent any person who is restricted or prohibited whether by statute or otherwise from lending money save on the security of a first legal charge from lending money on the security of a charge which, but for the existence or potential existence of the commonhold association charge, would have been a first legal charge.'.

No. 77, in clause 38, page 18, line 11, at end insert—

'(ba) enabling the directors to add to their estimate any sum which a unit-holder was previously required to pay under this section but which remains unpaid despite all reasonable efforts by the directors to enforce payment,'.

No. 78, in page 18, line 13, at end insert—

'but permitting the directors not to allocate any part of a sum added under paragraph (ba) to the unit to which it was previously allocated but unpaid,'.

No. 79, in page 18, line 23, at end insert—

'(3)(a) Payment of any sum allocated to a unit under this section shall be secured on that unit in priority to all other sums secured on it;

(b) The Registrar shall note the effect of this subsection on the register relating to each unit.'.

Bill Cash (Conservative, Stone)

Amendment No. 68 relates to some of our earlier arguments. In our experience, tenant co-operative companies—freehold companies that are closely analogous to commonhold associations, the members of which are long leaseholders—are notorious for neglecting formalities such as filing annual returns. [Interruption.] I know that the Minister has to attend to other matters, and I do not criticise him for that, but I hope that he will listen to this point, which relates to a distinction drawn in current companies legislation. I almost referred to it as the Companies Act 1948, which would have betrayed my fine knowledge of that Act. Of course, the legislation has been amended many times since.

Tenant co-operative companies are notorious for neglecting the rules, and formalities such as filing annual returns, precisely because they are not of the same nature as other shareholder companies. They number among the most common types of companies that are struck off the Companies House register for neglecting to file. It is most undesirable that that should happen to commonhold associations. Although formalities exist to enable reinstating the registration of such companies, they take time and are costly. The need for them could quite unnecessarily undermine the commonhold system's reputation. From a practical point of view, we should beware of the fact that such companies have a strong record of non-compliance with the requirement to file returns. If a similar situation arises in respect of commonhold associations, which are companies limited by guarantee, there will be a problem.

Importantly, the Law Society considers that no reason exists to insist on associations' filing returns. In other words, there is resistance to unnecessary regulation, or a deregulation arrangement, as it were. Full information will be available internally to members. They will give it freely to prospective buyers of units, and to people with whom they wish to contract. There is no wider general interest.

Amendment No.87, which would amend clause 37, is important. It attempts to remedy the question of enforcement, which is one of the Bill's most glaring holes. Every commonhold block needs to be kept in repair, and the only source of funds for repairs is the commonholders themselves. The efficient collection of service charges from the unit-holders will be essential to the success of commonhold. In leasehold blocks, a very efficient method—the sanction of forfeiture—exists to ensure that lessees pay their service charge. Forfeiture is a draconian remedy, and we will propose an important amendment when we discuss the relevant part of the Bill on Wednesday.

The critical feature of forfeiture, however, is that the landlord has a remedy against not just the tenant, but the tenant's mortgagee. If the mortgagee does not pay, the lease is liable to be forfeited and the mortgagee loses the security. Accordingly, it is generally the mortgagee who can be prevailed upon to pay the service charge if the tenant becomes impecunious. Those are the practicalities, which I have already discussed with the British Property Federation and others.

The Government do not propose any special remedy for commonhold associations against defaulting unit-holders. They propose that, if a unit-holder does not pay his service charge, the commonhold association should bring proceedings in the usual way in the county court, recover judgment and use ordinary methods of enforcement to recover the judgment debt. In particular, the Government envisage the commonhold association's obtaining just a common or garden charging order over the commonholder's unit.

Just about everything in that idea is deficient. First, county court proceedings are slow, and anything to do with service charges is particularly slow. Secondly, the commonhold association would almost certainly be out of pocket on the legal costs associated with bringing any county court proceedings. Thirdly, the association would have a remedy against only the unit-holder, not his mortgagee, although the mortgagee benefits from repairs carried out with the service charges because the value of the security is maintained.

Fourthly, unit-holders who do not pay are likely to be impecunious. A charging order is worthless if no equity exists in the property over which the charging order is granted. The commonhold association would rank lower in priority to the mortgagee. I address that point to the Under–Secretary in particular, because she knows what I am getting at. [Interruption.] Apparently, so does the Minister who is responsible for this part of the Bill. Excellent—now we have two Ministers who know what they are talking about.

The effect of those deficiencies is significant. First, it will place an unfair burden on those unit-holders who pay their service charges. All the money for running a commonhold block comes from the commonholders. If one commonholder does not pay, the other commonholders must pay—an effective and cheap way of enforcement. Secondly, one of the questions that mortgagees always ask solicitors to confirm when someone takes out a mortgage is whether satisfactory arrangements have been made for the repair and maintenance of buildings. Any solicitor who considers the matter in relation to a commonhold development would be bound to answer no. If one unit-holder refuses to pay service charges, then—for the reasons I have outlined—the commonhold association will have a job getting the money in. There is the substantial risk of a domino effect starting, when other unit-holders see the ease with which service charge obligations are avoided.

If solicitors were unwilling to confirm to mortgage lenders that there were proper procedures in place for the proper collection of service charges, that would inevitably mean that commonhold units became unmortgageable. Without being melodramatic, it can be readily seen that the consequences of that would be disastrous for the commonhold concept.

The amendment would meet that point in a simple way. Moneys owed to the commonhold association by a unit-holder would become a first legal charge on the unit. Critically, that charge would arise automatically without any court proceedings and, equally critically, it would take priority to any mortgage over the unit, so that the commonhold association could—as with forfeiture—in practice obtain payment from the mortgage lender.

The proposed new subsection (6) in amendment No. 87 is simply a technical provision. There are still some bodies that are restricted in their ability to lend, so that they can lend only on the security of a first legal charge over land. The subsection makes it clear that the proposed commonhold association charge does not affect those lenders' ability to lend. In other words, a first legal charge will remain a first legal charge even when there is a commonhold association charge in priority to it.

Amendment No. 87 is important in ensuring that commonhold works as we want it to work, so that defaulting unit-holders are properly held to account and so that other unit-holders who honour their obligations are not left paying for their defaulting neighbours' debts. I commend the amendment strongly for those reasons and I hope that, even at this late stage, we can deal with those serious and practical points.

It is essential to the solvency of a commonhold association that every unit-holder pays his share of the association's expenses, in the form of the service charge. Because there is no landlord and tenant relationship, and therefore there can be no threat to forfeit the unit if the unit-holder's dues are not paid, there is a serious risk that there will be defaults. That problem lies at the heart of the amendments to clause 38. Payment of the service charges will not be a condition precedent to the sale of the unit, so there will be no incentive for an incoming unit-holder to ensure that his predecessor has made all the payments to date and there will be no incentive for mortgagees to insist that their mortgagor/unit-holder pays. While it is true that if the association has to take proceedings to recover the debt, it will be able to obtain a charging order secured on the unit as an enforcement measure, that will not greatly alleviate the position because the order will rank in priority after existing charges—in other words, existing mortgages would take precedence.

The Law Society considers—and I agree—that securing the service charge automatically, and with priority to other mortgages, is important for the smooth working of the commonhold system. I am trying to be constructive and positive. The provision should not be regarded as prejudicial by mortgagees: their practice in leasehold cases is to make payments when necessary and assess the amounts to the mortgage debt. Those dealing regularly in the residential market have a clear interest in ensuring the continuing viability of commonhold associations.

Amendment No. 78 addresses the relationship of directors to the strict limitation of liabilities. The Law Society considers that strict limitation of liability is not appropriate for commonhold associations, and is likely to harm the viability of the commonhold system. I have dealt with the issue of contractors and I have already made the case on strict liability. It would not be appropriate to regard the company limited by guarantee, and the strict limitation of liability that goes with it, as appropriate models for commonhold associations. We need the flexibility that will relieve directors of the strict liability that a company limited by guarantee would require.

On amendment No. 79, it is essential to the solvency of a commonhold association that every unit-holder pays his share of the association's expenses, in the form of the service charge. Because there is no landlord and tenant relationship, and therefore there can be no threat to forfeit the unit if the unit-holder's dues are not paid, there is a serious risk that there will be defaults, as I have said before. Payment of the service charges will not be a condition precedent to the sale of the unit, so there will be no incentive for an incoming unit-holder to ensure that his predecessor has made all the payments to date and there will be no incentive for mortgagees to insist that their mortgagor or unit-holder pays. I made those arguments in respect of a previous amendment and I conclude by repeating that those dealing regularly in the residential market have a clear interest in ensuring the continuing viability of commonhold associations.

Michael Wills (Labour, North Swindon)

This is an interesting group of amendments, and the hon. Member for Stone (Mr. Cash) made a good job of outlining them. However, we will reject all of them. Amendment No. 68 would amend paragraph 15 of schedule 3 by adding to it an exemption for commonhold associations from the requirement to supply annual returns to Companies House.

Incidentally, the hon. Gentleman mentioned the numbers of Companies Acts and feared that he might not have been up to date with them. He may be right, because the Companies Act 1985 has been amended by the Companies Act 1989, and the sections that apply to the duty to deliver annual returns and that governing their contents are new sections 363 and 364 respectively. However, the substance of his argument remains.

We do not accept the amendments because the information required is not onerous to provide and it is important that it should be provided. There are very few disciplines imposed on commonhold associations by outside agencies. One is the production and submission of annual returns. There is a prescribed form and the return has to be submitted within 28 days of the appropriate due date. The contents of the report include—the list is not exhaustive—the address of the registered office, the type of company it is and its main business activities, the name and address of the company secretary, names and addresses of directors and certain other information relating to them, and where the register of members is kept if that is different from the registered office. All that information is important—if not essential—to people who may be thinking of buying in to the commonhold. It is therefore essential that it be kept up to date and readily accessible.

For the great majority of associations, the provision of the form will be a simple and routine task year after year, but will provide important information for all those with an interest in it. For those associations that are large and complex enough for it to be a more significant task, the provision of the information becomes even more important. I hope that that explanation has persuaded the hon. Gentleman to withdraw the amendment.

Amendments Nos. 87 and 79 return to ground that has already been extensively trodden. Both would secure moneys payable to the commonhold association by the unit-holder by way of first legal charge. We are opposed to both amendments. Although they are of rather different scope and effect, both would impose on unit-holders in a commonhold strictures that do not exist for similar purposes elsewhere. Although it may be argued that that is itself a pity, we are convinced of two things. First, if commonhold is hedged around with unnecessary special requirements, it will not prove popular; the need to sell the concept and to popularise it has been a recurring theme from Opposition Members at all stages of the Bill. Secondly, ample routes to the settlement of debt are available in law at present. The hon. Gentleman mentioned some of the problems with the routes available. The fact is that they are available in other areas of life, and we see no reason for commonhold to be given any special provision. Indeed, for the reasons that I have just stated, we believe that that could be damaging.

Amendments Nos. 77 and 78 are unnecessary. There will be detailed best practice guidance to directors and company secretaries of associations in due course. I assure the hon. Gentleman that we will consider whether it is necessary to spell out the matters that have been raised. Until that time, I hope that he will feel able not to press those amendments.

Bill Cash (Conservative, Stone)

The Minister has said in his usual pleasant manner that under no circumstances will the Government take notice of what we are saying. I am equally obdurate in my determination to ensure that the Bill will be improved. We have made some progress and we have even more progress to come. No doubt we can all reflect happily on the fact that the Government's amendments in part reflect the deliberations in Committee and the representations that have been made, so the process continues to improve the Bill. However, in this particular case, I have every intention of dividing the House.

The Minister knew that this was coming. I noticed that there was a certain amount of discussion between him and the Under-Secretary, who will deal with the leasehold arrangements of the Bill. Some aspects of this issue will recur when we get on to those on Wednesday this week, but we intend to divide the House. We believe that we are right. Only time will tell.

Clause 64 — Orders and regulations

Clause 65 — Registration procedure

Clause 67 — The register

Schedule 5 — Commonhold: consequential amendments

Clause 69 — Interpretation

New Clause 12 — Charges under estate management schemes

Sally Keeble (Labour, Northampton North)

I beg to move, That the clause be read a Second time.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following: New clause 4—Enfranchised properties located within 'scheme area'—

'.—(1) This Chapter shall from the commencement of this Act apply to a dwelling within the meaning of the Leasehold Reform Act 1967, as amended, and the Leasehold Reform, Housing and Urban Development Act 1993, as amended, which—

(a) has been enfranchised;

(b) is situated within an area ("scheme area") in respect of which a scheme of management has been approved and is in force pursuant to section 19 of the Leasehold Reform Act 1967 or Chapter IV of the Leasehold Reform, Housing and Urban Development Act 1993.

(2) The right to manage provisions of this Chapter shall come into operation two months after a notice has been served by, or on behalf of not less than one half of the owners of enfranchised properties within the scheme area, and the form of notice shall be prescribed by regulations and shall be deemed to have been served from the seventh day after the notice has been sent by first class recorded delivery post addressed to the landlord or his agent at his last known address or left at such premises.

(3) On demand, the landlord shall provide an enfranchised owner intending to join with others to serve a notice of right to manage with the names and addresses of all enfranchised owners within the scheme area.'.

Amendment No. 25, in clause 72, page 34, line 20, at end insert—

', or—

(d) they consist of individual houses and blocks of flats comprised in an estate management scheme.'.

Government amendment No. 35.

Sally Keeble (Labour, Northampton North)

These new clauses and amendments deal with estate management schemes. I hope that they improve current arrangements.

I shall deal first with new clause 4 and amendment No. 25. The Government have considerable sympathy with the suggestion that leaseholders of an estate of leasehold properties managed as a single entity should be able to exercise the right to manage en bloc rather than on a property-by-property basis. However, several difficult technical problems would need to be addressed and overcome before we could introduce such a measure with confidence. There would be difficult questions as to how best to deal with situations in which a majority of leaseholders in the estate as a whole favoured exercise of the right to manage but in which leaseholders of one or more individual blocks were opposed. Furthermore, many leasehold estates are a mixture of flats and houses, and problems would therefore arise from differences between the existing leasehold law on flats and on houses. It is also not uncommon for estates managed as a whole to include freehold as well as leasehold properties. Clearly, much work would have to be done before a regime could be devised for such estates, and that would have to await a future legislative opportunity.

I shall now deal with new clause 12 and Government amendment No. 35, which will go some way towards dealing with some of the issues that hon. Members have legitimately raised. In the other place, my noble Friend Lord Falconer gave an undertaking that the Government would introduce an amendment on estate management schemes if possible. I am pleased to inform the House that we are now in a position to do so.

Since estate management schemes were first permitted under the Leasehold Reform Act 1967, Parliament has legislated to provide protection for tenants in respect of service charge payments. As hon. Members are aware, leaseholders who pay service charges have rights and protections against unreasonable charges. The Bill will improve and extend those rights and introduce comparable ones for administration charges made under a lease. There are not, however, any similar provisions in respect of charges made under estate management schemes. At present, therefore, anyone who enfranchises and is subject to a scheme will move from having protection against unreasonable charges under their lease to having no protection against unreasonable charges under the estate management scheme. That seems to be an anomaly.

Leaseholders who enfranchise in an area that is subject to an estate management scheme will find that, where they are obliged to contribute to the costs of services or maintenance charges provided or incurred by the landlord, they lose the right to challenge the level of charges for such services that they would have had as tenants under section 19 of the Landlord and Tenant Act 1985. We have introduced the new clause to remedy this situation. It will provide that charges under estate management schemes should be payable only to the extent that they are reasonable, and the leasehold valuation tribunal will have the power to determine the extent to which such charges are reasonable. I am sure that hon. Members will see the merit of the new clause, which will improve the position of those involved.

Amendment No. 35 is a technical amendment that is intended to ensure that it continues to be possible to request consent for the making of an application for the approval of an estate management scheme in connection with acquisitions under chapter I of part I of the Leasehold Reform, Housing and Urban Development Act 1993. It has come to our attention that, once clause 116 comes into force, we will remove an existing right to make an application for an estate management scheme under section 69 of the 1993 Act. That is clearly not our intention. The amendment will preserve the existing right.

I commend new clause 12 and amendment No. 35 to the House and, in the light of what I have said and the assurance that I have given about the extension of rights, I invite the hon. Member for Guildford (Sue Doughty) not to press new clause 4 and amendment No. 25.

Sue Doughty (Liberal Democrat, Guildford)

New clause 4 was tabled because we want to extend the same rights of self-management given to leaseholders in blocks of flats to enfranchised owners in estate management schemes. Under those antiquated schemes, leaseholders who buy their freehold might find themselves with fewer rights than they had before and face higher charges despite the substantial expenditure and administrative difficulty of enfranchisement.

The annual fee payable to their previous landlord for managing the scheme can be higher than their erstwhile ground rent and landlords frequently impose onerous charges in respect of consents for alterations and supervision of work. That aspect of being forced to pay a landlord's surveyor—often at extremely high rates—to agree and supervise work evolved long before the days of conservation areas and careful planning controls by local authorities. Enfranchised owners subject to such charges and double surveillance are understandably resentful. Now that leaseholders in blocks of flats are being given a no-fault right to manage their own affairs, the anomalous position of freehold owners in the outmoded estate management schemes is even more inequitable than it was.

I appreciate that, since the new clause was tabled, the Government have introduced a new clause that certainly goes some way to dealing with the concerns that I have expressed. However, we want to know how far the new clause will go towards dealing with the problem. I look forward to hearing the Minister's response.

Bill Cash (Conservative, Stone)

This group of new clauses and amendments, including the Liberal Democrat proposal, deals with an extremely important issue. However, I was slightly surprised by the fact that the Minister hardly provided the type of explanation that one would have expected in relation to new clauses—I refer in particular to new clause 12—that are not only extremely long but contain very complicated arrangements.

New clause 12(1) says that the new clause applies to schemes under

"(a) section 19 of the 1967 Act (estate management schemes in connection with enfranchisement under that Act),

(b) Chapter 4 of Part 1 of the 1993 Act (estate management schemes in connection with enfranchisement under the 1967 Act or Chapter 1 of Part 1 of the 1993 Act), or

(c) section 94(6) of the 1993 Act (corresponding schemes in relation to areas occupied under leases from Crown)".

Subsection (1) also includes provision for

"imposing on persons occupying or interested in property an obligation to make payments ('estate charges')".

I have described the three types of schemes to which the new clause will apply.

Subsection (2) adds:

"A variable estate charge is payable only to the extent that the amount of the charge is reasonable; and 'variable estate charge' means an estate which is neither—

(a) specified in the scheme, nor

(b) calculated in accordance with a formula specified in the scheme."

Given the size of the Government's majority in the House, we should not imagine that the new clause will not be enacted. Subsection (3) states:

"Any person on whom an obligation to pay an estate charge is imposed by the scheme may apply to a leasehold valuation tribunal for an order varying the scheme in such manner as is specified in the application on the grounds that—

(a) any estate charge specified in the scheme is unreasonable, or

(b) any formula specified in the scheme in accordance with which any estate charge is calculated is unreasonable."

We all know that the word "unreasonable" means what a court—or tribunal in this case—regards as unreasonable. The question of whether something is unreasonable is determined by the court. That does not necessarily mean that everything will work out in the way that the Government intend, so I will be interested to hear what the Minister has to say about that. I doubt whether the hon. Lady will be able to say what would be regarded, in given circumstances, as being unreasonable, although had she spent more time on her explanation, she might have been able to make the position clearer.

Subsection (4) states:

"If the grounds on which the application was made are established to the satisfaction of the tribunal, it may make an order varying the scheme in such manner as is specified in the order."

Again, we have no idea as to the manner in which the tribunal would make such an order. The phrase

"varying the scheme is such manner as is specified"

invites the question: what will the tribunal actually do? The Government might know, but they have not told us and the Minister's opening remarks did not tell us what grounds on which the application was made would be likely to satisfy the tribunal. However, the tribunal will be able to vary the scheme in the manner that it determines.

Subsection (5) states:

"The variation specified in the order may be—

(a) the variation specified in the application, or

(b) such other variation as the tribunal thinks fit."

We know what "thinks fit" means in these circumstances, because it is a well-established principle of law that where, for example, those words—or, in analogous circumstances "in the opinion of"—are used, they are non-justiciable in the general context of the deliberations. An enormous power is granted to the tribunal. The variation specified in the order is immensely important to those who are assessing the variation in any given scheme.

Subsection (6) provides:

"An application may be made to a leasehold valuation tribunal for a determination whether an estate charge is payable by a person and, if it is, as to—

(a) the person by whom it is payable,

(b) the person to whom it is payable,

(c) the amount which is payable,

(d) the date at or by which it is payable, and

(e) the manner in which it is payable."

Clearly, an enormous range of matters go before the tribunal, but the Minister has provided no explanation of the implications lying behind the provision. It may be beneficial, but we have had no explanation. The Minister disposed of all the new clauses in about five minutes at most, yet these matters are crucial to those affected.

Subsection (7) goes on to say that the matters to which I referred—the application made to the leasehold tribunal in the respects that I outlined—

"applies whether or not any payment has been made."

That moves us into deeper territory because the subsection will apply irrespective of whether a payment has been made, yet, as we saw, subsection (6) makes it clear that the question arises in relation to whether an estate charge is payable. A distinction is being made between what is payable and what is paid, which leaves an enormous amount at large.

Subsection (8) continues:

"The jurisdiction conferred on a leasehold valuation tribunal in respect of any matter by virtue of subsection (6)",

to which I have twice referred,

"is in addition to any jurisdiction of a court in respect of the matter."

Frankly, that is exceedingly wide. It is not just a question of the functions of a tribunal: it extends to a wide arena, which is almost impossible to identify.

Subsection (9) states:

"No application under subsection (6) may be made in respect of a matter which—

(a) has been agreed or admitted by the person concerned,

(b) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which that person is a party,

(c) has been the subject of determination by a court, or

(d) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement."

All those matters are excluded, but the impact on the scheme and the persons concerned remains serious.

Subsection (10) continues:

"But the person is not to be taken to have agreed or admitted any matter by reason only of having made any payment."

The fact that a person has paid up, when the gravamen of the situation depends on payment, means that the person's agreement or admission cannot be assumed to mean anything by reason only of having made a payment. The Minister should have provided a proper explanation of the proposals, but she only skipped through them.

Under subsection (11):

"An agreement (other than a post-dispute arbitration agreement) is void in so far as it purports to provide for a determination—

(a) in a particular manner, or

(b) on particular evidence".

We are dealing with a range of generalities and a series of propositions here. There are some sensible provisions such as assisting people through these schemes, but we have no idea whether they are capable of working effectively or whether people will be prejudiced by these arrangements.

I acknowledge that Bills need definitions, but a degree of opaqueness is apparent in the wording of subsection (11)—particularly where it states that an agreement

"other than a post-dispute arbitration agreement"

is void—when in subsection (12), the definition subsection, it states that a

"'post-dispute arbitration agreement', in relation to any matter, means an arbitration agreement made after a dispute about the matter has arisen".

It goes on to provide further definitions with which I would not disagree, according to which

"'arbitration agreement' and 'arbitral tribunal' have the same meanings as in Part I of the Arbitration Act 1996".

For all those reasons, it is difficult to understand how the Minister can make such a brief statement saying what the measure provides. The Government know that they will get their way because they have a majority. Nevertheless, a full and proper explanation is expected.

Let us move on to new clause 4, tabled by the Liberal Democrats. The hon. Member for Guildford (Sue Doughty) provided a brief explanation of what she wanted, but accepted that the Government have produced their own version. With respect to types of dwellings affected, the new clause states:

"This Chapter shall from the commencement of this Act apply to a dwelling within the meaning of the Leasehold Reform Act 1967 as amended, and the Leasehold Reform, Housing and Urban Development Act 1993, as amended, which—

(a) has been enfranchised;

(b) is situated within an area ('scheme area') in respect of which a scheme of management has been approved and is in force pursuant to section 19 of the Leasehold Reform Act 1967 or Chapter IV of the Leasehold Reform, Housing and Urban Development Act 1993."

It then goes on to say:

"The right to manage provision of this Chapter shall come into operation two months after a notice has been served by, or on behalf of not less than one half of the owners of enfranchised properties within the scheme area, and the form of notice shall be prescribed by regulations and shall be deemed to have been served from the seventh day after the notice has been sent by first class recorded delivery post addressed to the landlord or his agent at his last known address or left at such premises.

On demand, the landlord shall provide an enfranchised owner intending to join with others to serve a notice of right to manage with the names and addresses of all enfranchised owners within the scheme area."

I do not know for sure, because I have not heard, whether the Liberal Democrats will pursue new clause 4, but, if they do not, it will not be because of any explanation from the Minister as to the manner in which the proposals in new clause 12, which is extremely extensive, have been understood by the House. No one could possibly have understood from what the Minister has said exactly what is at stake and how the proposals would operate. I am sorry to have to say this, but the Minister's explanation was rather truncated, to say the least, and the House deserves better than that.

The Liberal Democrats also tabled amendment No. 25 to clause 72 on the qualifying rules in relation to the right to manage. Under their amendment, they propose to insert a new provision at the end of line 20 on page 34, which relates to the premises to which chapter 1 applies. The Bill states that chapter 1

"applies to premises if—

(a) they consist of a self-contained building or part of a building, with or without appurtenant property,

(b) they contain two or more flats held by qualifying tenants, and

(c) the total number of flats held by such tenants is not less than two-thirds of the total number of flats contained in the premises."

Under amendment No. 25, the Liberal Democrats would add:

"or—

(d) they consist of individual houses and blocks of flats comprised in an estate management scheme."

I may have missed something, but I heard no clear explanation of how amendment No. 25 interacts with the provisions that I have already described.

We then come to Government amendment No. 35, which, by any reasonable standards, is pretty convoluted, but for the benefit of the House, I should say that it would amend clause 116, which refers to qualifying leases. Clause 116 refers to the 1993 Act to which we have already referred and states:

"In section 5(1) of the 1993 Act (which provides that a qualifying tenant is a tenant under a long lease which is at a low rent or for a particularly long term), omit 'which is at a low rent or for a particularly long term'".

The Government then propose to add subsection (2), which states:

"In section 69(1)(b) of the 1993 Act (estate management schemes), for the words 'by virtue of the amendments of that Chapter made by paragraph 3 of Schedule 9 to the Housing Act 1996 (c.52)' substitute 'in circumstances in which, but for section 116(1) of the Commonhold and Leasehold Reform Act 2002 and the repeal by that Act of paragraph 3 of Schedule 9 to the Housing Act 1996 (c.52), they would have been entitled to acquire it by virtue of the amendments of that Chapter made by that paragraph'."

We all know that legislation can be convoluted, but, by no reasonable standards can we regard with equanimity the insertion of provisions of that kind into clause 116 without the Minister fully explaining exactly what the Government have in mind. No one reading their proposals—a member of the public, anyone involved in leaseholds or anyone other than a lawyer who specialises in such matters—could possibly follow all that.

For the reasons that I have already given, it is by no means satisfactory that the Government have simply introduced those proposals without adequate explanation and at this late stage. After all, let us face it, the Bill started out many months, if not years, ago. It has been through about five stages in the other place and it has been debated on Second Reading and in Committee in this House, and we are now on Report. We are all in favour of improving the Bill. I have repeatedly said that we want it to be improved and, furthermore, that we want to be sure that it makes improved and enhanced provision for the benefit not only of commonhold but of leasehold arrangements. However, it certainly does not improve the quality of debate in the House if, in fact, no explanation or description of the proposals is given.

I do not want to make any invidious comparisons, but certainly with regard to the issues that we discussed earlier, we heard an extensive description of the Government's arguments. Sometimes their proposals were not adequate and we had to vote against them, but that does not alter the fact that, in matters of such importance affecting so many people, we must have a proper explanation. The best thing that the Minister could do—if she would be good enough—is to do as I have asked and, even if we have to sit here for a little time, provide a proper explanation of what these provisions involve. I have no doubt that we would then all be the wiser and the explanation would be on the record.

We need to make another point in this context: under the current rules of statutory interpretation, which have changed considerably over the many years during which I have been involved in this sort of business, it is now far more likely that the courts will consider what the Minister has said and the nature of the debate in Parliament, and as we move further down the route of other jurisdictions which seem to impinge on our legislation, that rule will become even more readily applicable. Therefore, it is absolutely incumbent on Ministers to explain fully what they are up to.

The reason why we are legislating is to ensure that the people of this country have the opportunity to hear a full explanation. Not everyone would expect to be able to understand every word of the Bill's drafting. It is complicated; we all know that. However, it is important that these matters be fully and adequately explained to the House and put on the record. Hansard comes out every day; some of it is extremely tedious to read, but for those who are affected by these important provisions, a proper and full explanation is required.

I invite the Minister, if not to go back to square one, to give us a proper and full explanation of these provisions, because her introduction of new clause 12 left us not much the wiser.

Mark Field (Conservative, Cities of London and Westminster)

The Minister will be relieved to know that I will not speak at length, in view of the comprehensive comments of my hon. Friend the Member for Stone (Mr. Cash).

I understand that there are about 3.8 million leaseholders in this country. At times, when the Bill has been making its slow and steady way towards the statute book, I have wondered whether all of them live in my constituency—I think that a fair number of them do.

Adrian Sanders (Liberal Democrat, Torbay)

The amendments cover people who are not leaseholders but have enfranchised. I am on the same side as the hon. Gentleman on this issue, but I emphasise that these amendments are very important and cover far more people than leaseholders alone.

Mark Field (Conservative, Cities of London and Westminster)

I thank the hon. Gentleman for his intervention.

The high and somewhat uncertain cost of enfranchisement, which has been discussed, is very much a live issue, particularly in central London. The comments of my hon. Friend the Member for Stone reflected the concern about the enormous associated bureaucracy. If the Government are unable to tell us at this juncture how they envisage the estate management schemes working, lawyers will have a field day. I should perhaps say that I am a former member of that profession. We will see an expensive and protracted exercise in bluff and counter-bluff, based on little decisive evidence.

I hope that the Minister will go into some detail to explain how she envisages new clause 12 and Government amendment No. 35 working. The terms of the new clause are very extensive; the worry is that it will do little good for the many former leaseholders and those who are enfranchising and want to see the benefit of the legislation. If, as has so often been the case, it has not been thought through properly and is too complicated, this worthwhile effort to introduce another piece of legislation—we have had a number of Acts going back to the Leasehold Reform Act 1967, which was the trailblazer in this area—will simply create problems. Without sufficient improvement and clarification, the Bill will cause great problems. I hope that the Minister will be able to elucidate these matters.

Simply putting into place a new layer of complicated legislation will not achieve the trailblazing goals of six or seven years ago that the Labour party made great play of, particularly before the 1997 election. The worst thing is that many millions of leaseholders will find themselves still in a problematic situation with a lot of new legislation on the statute book that achieves very little. I hope that, given the comments of the hon. Member for Guildford (Sue Doughty) and my hon. Friend the Member for Stone, we will have more explanation from the Minister about how the new clause will work.

Sally Keeble (Labour, Northampton North)

I shall start by commenting on the points raised by the hon. Member for Guildford (Sue Doughty); I will then deal with those of the hon. Member for Stone (Mr. Cash). There are also some general points to consider as well as specific ones.

The hon. Member for Guildford spoke about the right to manage—the right to manage is for blocks of flats, but we are dealing with whole estates. She also referred to the reasonableness of the costs of estate management schemes. We brought forward new clause 12 to deal with that issue. It will provide that the charges under estate management schemes will be payable only to the extent that they are reasonable. The leasehold valuation tribunals will have the power to determine the extent to which such charges are reasonable. I will give an explanation of the definition of "reasonableness" that I hope will keep the hon. Member for Stone happy. It is precisely to deal with some of the issues referred to by the hon. Lady that we introduced the new clause.

The thrust of the hon. Gentleman's argument was that the new clause is very long and has been introduced at a late stage of the Bill's proceedings. Nobody could gainsay that. However, we have constantly brought forward amendments to refine the Bill. It has been a long process; before the Bill even reached this House, it was introduced twice in the other place, so there has been constant refinement. We have accepted throughout the process that it is still possible to make amendments. The hon. Gentleman has paid tribute to the fact that the Government have brought forward many amendments, even at this stage, to deal with concerns that were raised in Committee by hon. Members on both sides of the House.

As I will probably say ad nauseam, tonight and on Wednesday, many of the issues in the Bill are extremely complex. Many provisions are interrelated and have knock-on effects on various pieces of legislation. We are dealing with people's homes and must ensure that provisions are watertight; people get very sensitive if changes are made to legislation that affects their home and there are unintended consequences. Therefore, the changes tend to be complex. We run into problems if a simple amendment has unforeseen consequences or has not been thought through properly.

The hon. Gentleman said that new clause 12 is not clear, but I think that it is startling clear. It sets out the arrangements for ensuring that people know their rights and are able to exercise them. I understand that guidance will not be forthcoming because all the steps in the process are clearly set out in new clause 12. It refers to two Acts because two Acts have been involved in enfranchisement. That point has been raised repeatedly on both sides of the House—perhaps more often from my hon. Friends, whose constituents have enfranchised under various pieces of legislation. I argue that these arrangements—unusually, perhaps, for a complex piece of legislation—are set out as a clear process.

The hon. Gentleman asked about the use of "reasonable". I understand that that was first applied to variable charges under the Landlord and Tenant Act 1985. Applying it to charges made under the estate management schemes merely follows the long-established precedent for service charges. The LVT will consider all circumstances in reaching a view on reasonableness, just as it does now.

If arbitration takes place on estate management schemes, it is up to the parties to agree an arbitrator. The purpose of the new clause is to prevent binding arbitration clauses in schemes that would deny access to the LVT. The drafting follows the general approach taken in the Bill towards service and administration charges, and the hon. Gentleman will understand that we need such regimes to be as close to one another as possible.

The hon. Member for Stone asked for information on the point contained in amendment No. 35. As I have said previously, the Bill includes several points at which an amendment in one place would have an unintended consequence elsewhere. Several later amendments would also do just that. In this case, once clause 116 came into force, we should be removing an existing right to make an application for an estate management scheme under section 69 of the Leasehold Reform, Housing and Urban Development Act 1993. That was not our intention.

Bill Cash (Conservative, Stone)

I am intrigued that new clause 12(1)(b), as drafted for the Government by parliamentary counsel, refers to "Chapter 4" while the 1993 Act contains "Chapter IV". The point may seem trivial, but can the Minister explain that? Chapter IV contains important provisions, and if amendments are being made to it in such a way, who is to say that they may not contain other similar mistakes?

Sally Keeble (Labour, Northampton North)

I do not have the 1993 Act in front of me, but I shall ensure that that point is checked and give the hon. Gentleman an answer shortly.

Bill Cash (Conservative, Stone)

On a point of order, Mr. Deputy Speaker. I am surprised to hear the Minister say that she does not have the 1993 Act in front of her. I do not want to make a meal of the point, but it is impossible for her to give the explanation that I have asked for unless she has the 1993 Act. Indeed, the Minister has not explained the point, except by a vague reference to reasonableness. We cannot possibly carry on trying to extract explanations from a Minister who does not have with her even the Act that she would amend.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

The hon. Gentleman is experienced enough to know that that verges on the matters for debate and is not a point of order for me. I can recall, however, that we have managed, with greater disability, to debate matters in the past.

Sally Keeble (Labour, Northampton North)

I am grateful, Mr. Deputy Speaker. If I had to have with me every piece of legislation to which the Bill refers, the Table would be entirely covered.

The hon. Member for Stone probably knows much better than I do the different arrangements made in different Acts for enfranchisement. I shall ensure that his point of detail is dealt with.

Amendment No. 35 is necessary to ensure that our proposals do not have unintended consequences. We want to ensure that it continues to be possible to request consent for the making of an application for the approval of an estate management scheme. With that explanation, I urge the House to support the Government new clause and amendment, and I ask those who tabled the new clause 4 and amendment No. 25 to withdraw them.

Bill Cash (Conservative, Stone)

rose—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman cannot speak again.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Bill Cash (Conservative, Stone)

On a point of order, Mr. Deputy Speaker. Having relatively recently come to the Front Bench, I wonder whether I might be able to speak on new clause stand part?

Alan Haselhurst (Deputy Speaker, Saffron Walden)

The hon. Gentleman has been a Member of the House for long enough to appreciate that we do not have stand part debates on consideration. They are a feature only of deliberations in Committee.

Sue Doughty (Liberal Democrat, Guildford)

Further to that point of order, Mr. Deputy Speaker. The Minister invited me to withdraw new clause 4. Should I be given the opportunity to respond to that request?

Alan Haselhurst (Deputy Speaker, Saffron Walden)

No. What the Minister said was unnecessary. We were dealing with the lead new clause in the group—new clause 12—and new clause 4 fell when that was decided.

New Clause 13 — Premises including railway track

Sally Keeble (Labour, Northampton North)

I beg to move, That the clause be read a Second time.

I hope that this new clause will prove luckier than the last.

We have already had a long and detailed debate with many references to clauses and subsections. The aim of presenting new clauses is also to give hon. Members some idea of our general intent, and this new clause is intended to deal with a pressing and practical problem—what to do about railway tracks and properties.

It has recently been brought to our attention that the Leasehold Reform, Housing and Urban Development Act 1993 did not adequately provide for cases in which flats are built over a railway track, such as the case in which a block has been built on top of a bridge or tunnel under which the railway runs. Nothing in existing law prevents leaseholders living in such flats from buying their freeholds. Freeholders have the right to take out 999-year leases on the commercial parts of the building when leaseholders buy their freeholds, but there is reason to doubt whether that would apply to land over which a railway runs, as that does not form part of the block itself. That could clearly lead to serious difficulties.

The new exemption would prevent leaseholders from exercising their right to enfranchise if the freeholds that they would otherwise be entitled to buy would include land over which a railway track runs or where it would include structures used for the support of the railway. It would ensure that the right to enfranchise cannot be exercised under circumstances in which it could seriously hinder the continued operation of a railway. That is a practical amendment.

Bill Cash (Conservative, Stone)

I have no doubt that the Minister regards the new clause as extremely important. On the face of it, it seems to cover many matters of considerable interest to those affected by chapter I of the 1993 Act. The new clause states:

"In section 4 of the 1993 Act (premises in the case of which right does not apply)."

However, section 4 of the Act refers to premises excluded from right.

Why does the new clause not describe section 4 of the Act? It is certainly not the same description as the one in my copy of the Act. For some reason the words have been changed. "Premises excluded from right" is not the same as

"premises in the case of which right does not apply".

That is extremely curious and no doubt the Minister will want to explain.

That is the second point that I have had to raise as regards the drafting. My points may seem trivial but there seems no reason for the changes. At the very least, the drafting is sloppy. That is not the way to legislate. It is extraordinary that although parliamentary counsel and the Department's solicitors must have been involved, we have ended up with no more than a semantic difference. That does not seem necessary.

We have not even received a minimal explanation of the new clause. The new clause provides that chapter I of the Act—headed "Collective Enfranchisement in Case of Tenants of Flats"—

"does not apply to premises falling within section 3(1)".

That section is headed

"Premises to which this Chapter applies",

but those words are not included in the new clause. That is an important point. The new clause states:

"This Chapter does not apply . . . if the freehold of the premises includes track of an operational railway, and for the purposes of this subsection—

(a) 'track' includes any land or other property comprising the permanent way of a railway (whether or not it is also used for other purposes)".

That is a new definition of "track" and it raises several questions. The sentence continues:

"includes any bridge, tunnel, culvert, retaining wall or other structure used for the support of, or otherwise in connection with, track."

The words

"or otherwise in connection with, track"

are very curious, because they refer back to the attempt to define track at the beginning of sub-paragraph (a). It seems to me that those words need to be distinguished from the definition of "track" at the beginning. At best, that is a curious way to set out such an important provision.

Furthermore, the words

"includes any land or other property comprising the permanent way of a railway"

are not a self-contained definition, as

"any land or other property"

includes

"any bridge, tunnel, culvert, retaining wall or other structure."

The word "other" is used twice and I am sure that the Minister will have heard that, as a matter of statutory interpretation, where the word "other" appears it has to be taken ejusdem generis with the other words.

There is thus a double problem. The first is that the word "track" is apparently defined as including "land or other property" and we do not know what that other property might be, because property ejusdem generis with land cannot refer to any property that is not land. The second problem involves the use of the word "track". It is used twice; it is defined in one case but not in the other.

That raises some serious questions. For example, to introduce a substantive issue, there might be a difficulty as regards the Railway Clauses Consolidation Act 1845. That Act contained rights of pre-emption with which I am extremely familiar, because for many years I had to examine such questions. The Act also contains provisions on surplus lands.

The rights of pre-emption and the problems of surplus lands are extremely contentious. They are directly relevant to the new clause because it states that track

"includes any land or other property comprising the permanent way of a railway (whether or not it is also used for other purposes)".

If, according to the law, those surplus lands are part of the permanent way of a railway, so be it. However, that may not be the case. The existing legislation gives rise to serious questions.

I was involved in the passage of the British Railways Act 1968 and we held some extremely difficult discussions with people who had acquired land and subsequently wanted to develop it to increase its value. That was an extremely contentious issue. Much of the problem turned on the question of whether the land was subject to rights of pre-emption or surplus land.

The railwayland developments were considered important because they increased the value of the property available to British Rail, but unfortunately they gave rise to a great deal of litigation. Under the rights of pre-emption and of surplus land, it became necessary to determine who owned the land, which introduced the difficult question of the limits of deviation. The railways were provided for under enactments going back to about 1830, and the question of who owns land, including the land within the limits of variation, is directly linked to the determination of what comprises the permanent way of a railway.

The new clause says:

"This Chapter does not apply to premises falling within section 3(1) if the freehold of the premises includes track of an operational railway".

That gives rise to a real problem. In the light of the 1845 provisions, it will be very hard to determine what comprises the track of an operational railway—defined as in the new clause—including

"any bridge, tunnel, culvert, retaining wall or other structure."

I do not pray in aid any special knowledge, other than to say that my great-great-grandfather founded the London-Brighton railway. No doubt, those involved had to pay well over the odds in the early 1830s in determining whether they would be able to acquire the land that they needed for the permanent way.

The permanent way can in fact go much wider than the track, within the limits of deviation, to take in land that has now become very valuable because properties have been built on it. Because in those days there was no land registration and no clear way of knowing what the limits of deviation were, other than looking at the maps and plans deposited in Parliament, it was hard for conveyancers to determine what was within the land management of the railway system. Properties built along railway lines could well fall within the estate management scheme in the Bill.

The new clause says that "operational" means "not disused". I do not know whether my hon. Friends are with me on this—

Bill Wiggin (Conservative, Leominster)

Yes, 100 per cent.

Bill Cash (Conservative, Stone)

I am very glad to hear it.

Why on earth is it necessary to use a double negative to define what is operational? Would not it be simpler to say "used"? It is very strange.

The new clause says:

"'railway' has the same meaning as in any provision of Part 1 of the Railways Act 1993 . . . for the purposes of which that term is stated to have its wider meaning."

Greg Knight (Conservative, East Yorkshire)

The definitions have been troubling me somewhat and I wonder whether my hon. Friend can help. Does he think that "operational" in new clause 13 would cover a tourist attraction that is a railway but not in the sense that it carries passengers from one city to another?

Bill Cash (Conservative, Stone)

That is another extremely important point. It so happens that the Severn Valley railway operates very near where I live in Shropshire. I have just realised that I ought to declare an interest, because I have one share in the Churnet Valley railway in my constituency, which is a railway of the kind that my right hon. Friend describes.

The Minister has certainly not explained to us what is in the Railways Act 1993. Some of us would be extremely grateful to be enlightened about that. Further complication is added when we are told that the term is

"stated to have its wider meaning".

If I look at a tree, for example, under its wider meaning could it not also be a bush? We do not know what the wider meaning could convey, and that could be extremely important in dealing with an estate management scheme.

The vagueness of the drafting does not allow us to determine exactly what "railway" means. That reminds me of Humpty Dumpty telling Alice that words mean whatever he chooses, and

"The question is . . . which is to be master—that's all."

That characterises the drafting. The definition in the new clause leaves open the question of what the wider meaning is, and that is problematic.

I have already exposed, as a matter of logic and law, a whole series of internal contradictions and uncertainties in provisions that the Minister has declared are very important. That certainly does not help the House or those who will soon be affected by the provisions. That problem should concern us at such a late stage in our proceedings. As the Minister said, there were five opportunities to examine the Bill in the other place and we have had the chance to discuss it in Committee and on Report. Yet the explanation for the provision is vague and uncertain.

The new clause refers to section 4 of the Leasehold Reform, Housing and Urban Development Act 1993. It is all very well to jam in at the bottom of a provision something that is so vague and uncertain, but it must be related to the relevant provisions of that Act.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman may have unintentionally diverted himself on to a loop line and may therefore take longer to reach his destination. He would do the House a service if he focused more directly on the new clause.

Bill Cash (Conservative, Stone)

I am grateful to you, Mr. Deputy Speaker, for that guidance. However, I do not believe that I have departed from the new clause. I have explained its vagueness, contradictions and uncertainties. It is not possible to explain it in full without going into the manner in which it impinges on the 1993 Act.

The new clause is to be inserted at the end of section 4 of the 1993 Act. It says:

"This Chapter does not apply to premises falling within section 3(1)"

of that Act. In other words, the whole Act applies to the Bill for the purposes set out in the new clause. It is not necessarily a loop line; it is more a case of taking us through a tunnel into another Act. That is the point of the new clause. The Minister has made no attempt to explain the situation. She is looking for the first time at the 1993 Act. That is important, because without doing that it is not possible for the House or the people who need to refer to the legislation subsequently to understand the relevance.

The provisions of section 4 are amended by proposed new subsection (5). It is a substantive provision that relates to premises including so-called railway track, and states:

"This Chapter does not apply to premises falling within section 3(1)",

which are

"any premises . . . if they consist of a self-contained building or part of a building and the freehold of the whole of the building or of that part of the building is owned by the same person . . . they contain two or more flats held by qualifying tenants; and . . . the total number of flats held by such tenants is not less than two-thirds of the total number of flats contained in the premises."

The chapter does not apply to premises

"if the freehold includes track of an operational railway",

which gives rise to the difficulties of the definition.

Section 4 of the 1993 Act says that the chapter does not apply to the premises that I have just outlined if

"any part or parts . . . is or are neither . . . occupied or intended to be occupied, for residential purposes".

I would have thought a railway track would not be regarded as something that was occupied or intended to be occupied for residential purposes unless it was part of the railway development schemes, which give rise to complicated questions about pre-emption and surplus land if they apply under the Railway Clauses Consolidation Act 1845. Section 4 goes on to say that the chapter does not apply to premises if they are

"comprised in any common parts of the premises".

Furthermore, it states that it does not apply to premises if

"the internal floor area of that part or those parts (taken together) exceeds 10 per cent. of the internal floor area of the premises (taken as a whole)."

We have had almost no explanation of the interaction between the different pieces of legislation. In the last Session, however, before programme motions came into effect, we had a fuller explanation.

The Minister referred to different premises that could be covered by new clause 13. Section 4 goes on to say:

"Where in the case of any such premises"—

those excluded from the right—

"any part of the premises (such as, for example, a garage, parking space or storage area) is used, or intended for use, in conjunction with a particular dwelling contained in the premises (and accordingly is not comprised in any common parts of the premises), it shall be taken to be occupied, or intended to be occupied, for residential purposes."

It would be one thing if we were merely talking about an estate management scheme, but we are not: the provision relates to the railway track business—not to mention Railtrack business, which I shall not go into. The problem is that it is difficult both for those who are involved in estate management schemes and for tenants to interpret the legislation.

New clause 13 will not give enough assistance to remove the doubts that have been raised. There is much more to this than meets the eye, and there are serious difficulties to resolve. Although it has taken time to explain, the problem has to be properly considered and I look forward to hearing the Minister's explanation of what the new clause means in the context of the 1993 Act, the 1845 Act and all the other matters to which I have referred.

Bill Wiggin (Conservative, Leominster)

The new clause is bizarre. It has arrived at a late stage in our proceedings and relates to part I of the 1993 Act which is entitled "Collective Enfranchisement in Case of Tenants of Flats". I cannot understand why anyone would think that people who live above an underground railway line or the tube might think that that is relevant to them. Section 4 is entitled "Premises excluded from right" and does not apply to premises falling within section 3(1). I am aware that the Minister does not have a copy, so I shall briefly go through it.

Subsections (1)(a) and (b), (2), (3) and (4) of section 4 refer to "premises" and nothing else. To me, and perhaps to other lay people, the word "premises" implies something in which people could live, and could not refer to a railway line. That is why I find the new clause bizarre. I am afraid that I cannot dissect it in detail and with the same skill as my hon. Friend the Member for Stone (Mr. Cash), but I feel that it is wholly inappropriate in respect of leasehold and commonhold reform.

Why would the Government suddenly want to introduce a provision relating to railways in the middle of a Bill that relates to people's homes? It is extremely odd. Without wishing to fuel conspiracy theories, I could suggest that this might be another instance of the Government burying a strange amendment for use on another day. I do not see why the new clause is crucial to the Bill. The idea that tourist railways, the underground or indeed any sort of railway would be property that a commonholder would want to own is bizarre. The fact that the railways are currently in receivership makes it even less likely that anybody who wants to be included in a commonhold arrangement would consider suggesting that the underground line over which they live might be part of their property. I find that proposition extraordinarily naive.

I hope that the Minister will give us some assurances that the new clause has snuck on to the amendment paper by accident. I hope also that she will seek to withdraw new clause 13—an unlucky number on no small scale in this instance—as it is so out of character with the rest of the Bill. It strikes me as extraordinary that we are expected to believe that people who want to enfranchise will also hope to claim a small part of the Circle line. It must be an accident or even a mistake, so I look forward to hearing that the Minister will seek to withdraw the new clause as it is wholly inappropriate, especially in light of the 1993 Act.

One can see that garages, parking spaces, storage areas and so on are proper premises. It would be possible to convert a garage or parking space—presumably a covered one—into a home of some sort, but the idea that people would live on any part of the Circle line in a tunnel strikes me as out of order and bizarre. [Interruption.] The Minister appears to be saying that there are people who live in the underground.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I suggest that the hon. Gentleman does not take too much account of sedentary comments, of which the occupant of the Chair does not approve. While I am on my feet, I also remind him that he is now in danger of repeating himself more than once.

Bill Wiggin (Conservative, Leominster)

I am grateful, Mr. Deputy Speaker. I shall leave my comments at that.

Sally Keeble (Labour, Northampton North)

I am told that of 244 minutes of debate this evening, the hon. Member for Stone (Mr. Cash) has occupied 132. He probably spent about a quarter or a third of that time on new clause 13, in a contribution that was probably the least constructive that he has made, and certainly of the debate.

The new clause is intended to deal with very practical issues around access to railway tracks when major works are needed. As the hon. Gentleman said, the identification of ownership is a major issue in that regard. At the start of his contribution, he spoke about his experience of how difficult it can be if it is not possible to determine where ownership rests.

The hon. Gentleman spoke at length about estate management schemes, but I advise him that the new clause does not deal with such schemes; the hon. Member for Leominster (Mr. Wiggin) had it right—it is about enfranchisement. I also remind him that there is a need for major infrastructure works on the railways and the underground. The purpose of the new clause, as I thought I had made clear previously, is to ensure that we deal with issues of land ownership in relation to the work that is needed. It has also been made clear to us that the Railways Act 1993 did not make adequate provision for cases in which flats had been built over railway track—a point that deals with the questions about properties located on top of the Circle line. The new clause refers to blocks of flats that are built on top of a bridge or tunnel under which a railway runs.

The hon. Gentleman also asked about the definition of track. The description set out in the new clause is clear. The definition is based on that which is contained in existing railway legislation. He said that the provisions were very complex and again referred to his experience in the 1960s. Of course, legislation has been amended and introduced since then. Clearly, it would be unhelpful if the definition in the new clause was different from that used in other railway legislation.

Bill Cash (Conservative, Stone)

If the definition of track has been lifted from current legislation, why does not the provision say so? It could merely say that "track" means whatever is stated in existing legislation. That is the normal way of dealing with such matters. I do not have the legislation immediately to hand, but I would not be surprised if there were differences between the existing definition and that which is used in the new clause. If there is no such difference, why should it be set out again?

Sally Keeble (Labour, Northampton North)

The hon. Gentleman asked a question and he has got the answer—it seems merely that he does not like it. There is a lot of clarity in the definition and I am told that it is based on the definitions in existing railway legislation. That seems the best possible approach.

The hon. Gentleman asked about differences in numberings. I understand that the use of Roman numerals is no longer practised. He will notice that the passage that he claims to be different from the 1993 Act is not part of the substance of the new clause. We are not inserting that into legislation; it is a parenthesis and is purely descriptive. The passage in inverted commas—the new clause itself—is perfectly accurate and there is absolutely nothing wrong with it.

I have said openly that the new clause was tabled at a late stage in response to questions about potential problems relating to access to track and other requirements for carrying out work on railway lines. Given the current importance of infrastructure work on both overground and underground railways, we must ensure that we do not in any way complicate or frustrate that through any lack of clarity as regards land ownership. That is the purpose of the new clause. It is extremely helpful and constructive, and I commend it to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 14 — Extension of right to challenge landlord's choice of insurer

Sally Keeble (Labour, Northampton North)

I beg to move, That the clause be read a Second time.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss Government amendments Nos. 52 to 55.

Sally Keeble (Labour, Northampton North)

New clause 14 and the amendments are purely technical. The new clause is important in that it builds on amendments that were tabled in Committee by ensuring that their intent is properly carried through. I hope that it will assist certain groups of people.

As hon. Members may recall from previous debates, some leases provide for insurance to be taken out with a nominated insurer. Some landlords have abused that right by insisting that their leaseholders take out insurance with a company that charges inflated premiums so that they can secure a large commission. Several hon. Members referred to the disgraceful scams that have taken place and the hardship that has been caused to many people.

Existing leasehold law gives leaseholders the right to challenge their landlord's choice of nominated insurer. Clause 161 further provides that where the terms of a lease on a house require the leaseholder to use a nominated insurer, it will be sufficient for them to take out insurance with any insurer authorised to carry on business in the UK, subject to certain conditions being met. However, some leases provide that insurance must be taken out with an insurer who is approved by the landlord. We are concerned that it could be argued that that is not quite the same as a requirement to take out insurance with an insurer who is nominated by the landlord. Although we do not think that such an argument would be likely to succeed, for the avoidance of doubt we thought it important to amend the relevant provisions to make it absolutely clear that they also apply to approved insurers. I am sure that that will be especially welcome to my hon. Friends the Members for Bolton, South-East (Dr. Iddon) and for Bolton, North-East (Mr. Crausby), who led the charge on the matter in Committee and beforehand.

Amendment No. 55 ensures that the new clause tabled in Committee on nominated insurers—now clause 161—applies to Crown land.

I commend the new clause and the amendments to the House.

Bill Cash (Conservative, Stone)

The Minister is completely right to say that the new clause is an important provision. We had a useful debate in Committee about the implications of the matter. Several issues are raised by the manner in which certain landlords put tenants at a disadvantage by requiring that they accept their insurance company, with which they, the landlords, may themselves be involved. The Minister rightly described that as a scam. It raises questions of conflict of interest and of uberrimae fidei, which lie at the heart of insurance contracts. It also raises questions about the extent to which there is a free market and whether a monopoly may arise, albeit in relatively constrained circumstances. Some of the very large estates represent a vehicle for acquiring vast amounts of commission, which can be generated on the back of a simple requirement to nominate an insurer.

On the face of it, the new clause makes an extremely simple amendment to paragraph 8 of the schedule to the Landlord and Tenant Act 1985, which deals with the right to challenge the landlord's nomination of insurer. Nevertheless, it is, by any reasonable standards, a considerable step forward that will come as a considerable relief to many people who have been taken for a ride in the past. The sums involved may be important as well, but the downstream consequence of being landed with a bucket-shop insurer—or even a big insurer—simply because the landlord has the power to insist on it has always struck me as an extraordinary state of affairs. It is almost nothing to do with the landlord, in the sense that what is done in the flat in question relates to compliance with covenants of repair, and so on. It could be argued that, if the tenant or leaseholder did not properly insure, other people in the premises could be at risk.

Bill Wiggin (Conservative, Leominster)

I am curious as to what would happen if a tenant claimed to have insurance—or perhaps ran his own insurance business—but it turned out to be inadequate. What sort of protection would the freeholder have from a rogue tenant who claimed to have insurance but in fact could not insure himself?

Bill Cash (Conservative, Stone)

The short answer to that is that there are some very complex laws on assets under various Acts relating to insurance companies. These laws require that any insurer must have a certain degree of viability. It is certainly true that a number of other insurers, who could fall into the category of being involved in scams, would not have that degree of proper insurance. I seem to remember an enormous insurance scandal about 25 years ago.

Sally Keeble (Labour, Northampton North)

Which one?

Bill Cash (Conservative, Stone)

The Minister asks which one. I do not think that it matters unduly, but the man's name began with "S".

Peter Bottomley (Conservative, Worthing West)

It was Savundra; I think the company involved was Fire, Auto and Marine.

Bill Cash (Conservative, Stone)

I am most grateful to my hon. Friend.

Greg Knight (Conservative, East Yorkshire)

Was he a Labour supporter?

Bill Cash (Conservative, Stone)

I have no idea. What I do know is that the principles of asset backing matter a great deal to an insurance policy when the crunch comes and something goes wrong, whatever kind of insurance we are dealing with. In relation to property insurance of this kind, it is essential for the tenant to have a proper degree of interest in who the insurer is, because he will be affected if the assets are not there to back the insurance policy. He and the other tenants and leaseholders will all be affected.

The matter should not, therefore, be left entirely to the landlord. That is why I agree that the inclusion of the words "or approved" means that there would be no way in which a tenant, under paragraph 8 of the schedule to the Landlord and Tenant Act 1985—which covers the right to challenge—could leave a leaseholder swinging in the air, because he would now be able to give names to the insurer. It would not simply be a question of nomination, which I regard as offensively monopolistic and extremely dangerous from the point of view of the people living in the premises.

There has been quite enough trouble, one way or another, in the insurance industry over the last few years, and it is the easiest thing in the world for a large estate with many leaseholders and tenants to prescribe its own insurer, and not only collect the commission but give no verifiable evidence of the assets that back that insurance company. That does not apply in all cases, but in a number of cases the provision will be extremely important. For all those reasons, I regard the new clause as good and sensible.

The Minister referred to clause 161, which prescribes that

"where a long lease of a house requires the tenant to insure the house with an insurer nominated by the landlord . . .

The tenant is not required to effect the insurance with a nominated insurer if—

(a) the house is insured under a policy of insurance issued by an authorised insurer";

furthermore,

"(b) the policy covers the interests of both the landlord and the tenant",

and

"(c) the policy covers all the risks which the lease requires to be covered by the insurance provided by a nominated insurer";

furthermore,

"(d) the amount of cover is not less than that which the requires to be provided by such insurance, and

(e) the tenant satisfies subsection (3)."

The provision is extremely useful and will be of great benefit to tenants. We support the Government's proposals.

David Crausby (Labour, Bolton North East)

I shall be brief. I welcome clause 161, for all the reasons that the hon. Member for Stone (Mr. Cash) set out. It is disgraceful that members of the British public should be forced by anybody to take out insurance with the landlord's insurer. The amendments strengthen the clause and give people the power to decide which insurer to have.

The clause is a fine example of how Parliament should work. In the original proposals that went through the other place and came to this place, there was no recognition of the point. Because hon. Members in all parts of the House argued their case, the Government listened, rightly, and are acting in the interests of the British people.

John Pugh (Liberal Democrat, Southport)

I shall make a brief and inexpert contribution. I cannot rival the hon. Member for Stone (Mr. Cash) in his eye for detail or his rhetorical skills.

There will be genuine rejoicing in my constituency at the inclusion of the clause, as it puts to bed an issue that has dogged Southport for many years. I am grateful to the Government for being responsive, and to my hon. Friend the Member for Torbay (Mr. Sanders) for drawing the matter to the Government's attention.

Southport was developed in the Victorian era and land was originally in the hands of feudal families. They sold off the land on 999-year leases, which is a peculiarity of the north. In the discussion of the Bill, there has been something of a London focus, and that practice is a northern peculiarity. For many years, those families collected a ground rent and expected an income for about a thousand years.

Attached to the lease were various exotic conditions. When I first owned my house, I understood that the Weld Blundell estate had the right to appear if ever, during the course of gardening, I struck oil or found coal or gold. The estate had additional income, quite apart from ground rent. Further income was derived by charging for alterations and extensions. A fee would be charged for an alteration as simple as putting in a new window.

As a result, the value of the ground rent in Southport fell. The cost of administration outweighed the income received by the original ground landlords. The ground rents were sold off to City firms, which had no connection whatever with the locality. The problem surfaced in Southport in the 1980s, when the then Member of Parliament, Sir Ian Percival, the Solicitor-General, got involved. There were threats from various companies that if insurance companies were not changed, dispossession would be a distinct possibility.

Southport people are thoughtful and intelligent, which is one reason why they habitually elect Liberal Democrats. They reacted positively. They got together and there were huge meetings attended by hundreds of people. Pressure was brought to bear, and as a result some of the companies that tried to profiteer backed off. Few, if any, cases went to court, and there was something of a stand-off. However, the problem was not resolved. Many people took the opportunity to buy their freehold.

Latterly and very recently the problem has resurfaced. Residents, many of whom are elderly and still have houses under leasehold conditions, are being asked to switch insurance companies—not to fly-by-night companies, but major insurance companies that are associated with this technique. AXA is the insurance company that people in the northern part of Southport have been asked to change to, and it is a shame that AXA is associated with such a process. It is not motivating it: a Welsh finance company is doing that.

The letters and communications, which I have seen, have an undertone of threat. Letters sound legally assured, and people are genuinely frightened that they may lose their property. The people who are frightened are none the less well insured. They may not have an opportunity to look round the insurance market to find out what would be best for them.

Until this law is enacted, the process that is happening now could be repeated in three, six or nine years' time. It is an abuse: it has nothing to do with securing people proper insurance, but everything to do with making a fast buck.

It is a shame AXA is involved. No company should be party to an arrangement that involves frightening elderly people. It has nothing to do with the legitimate interests of ground landlords or real insurance: it is simply profiteering. Although this legislation may be dull—it is certainly a dull evening for many of us—there will be genuine rejoicing in Southport that it is going through because it will benefit many ordinary people.

Peter Bottomley (Conservative, Worthing West)

I support the comments of my hon. Friend the Member for Stone (Mr. Cash). I note what was said about long leases in Southport. I have a family interest in a long lease on the Isle of Wight, which is about as far south as one can get. I should declare an interest in a flat in Worthing, so I would potentially be affected, although not directly.

The leaseholders in my constituency and elsewhere want service, assurance and a reasonable way of being protected against sharks. The suggestions that my hon. Friend made in welcoming this new clause would help to protect people against sharks, and ensure that there is a common interest in insurance being carried through properly. In my block of flats in Worthing, all bar one of the six tenants have changed during the five years that I have been the Member of Parliament. It is important that managing agents and freeholders as well as the changing leaseholders have some continuity of protection. When damage occurs, insurance matters. I welcome the Government's rational approach to this issue.

Shona McIsaac (Labour, Cleethorpes)

I welcome the new clauses on insurance and the one that was passed in Committee. In all our deliberations on the Bill, we have shown that too many sharp practices are associated with leasehold tenure, whether it is the insurance scams that were detailed on Second Reading and in Committee or forfeiture and ground rent grazing. This new clause is welcome, as it closes down the possibility of freeholders abusing leasehold home owners. The Government have done well to introduce the new clause. It is right that leaseholders should have freedom of choice and be able to choose the insurer that best suits them and gives them best value for money. I welcome this further tightening of the law to deal with insurance scams.

Sally Keeble (Labour, Northampton North)

I welcome the support for new clause 14 from my hon. Friends the Members for Bolton, North-East (Mr. Crausby) and for Cleethorpes (Shona McIsaac), and from the hon. Members for Southport (Dr. Pugh) and for Worthing, West (Peter Bottomley). Members have raised the issue repeatedly, and I hope that these measures will go further to ensure that people are not ripped off.

The hon. Member for Stone (Mr. Cash) mentioned the possibility of tenants' failing to insure properly. Under clause 161, landlords can be satisfied that properties are insured. He also asked about insolvent or dubious insurers. Insurance must be with authorised insurers, supervised by the Financial Services Authority. I wrote to him just after the Committee stage, and he should have that on file.

The new clause extends what we have already done. It reflects concern expressed by Members on both sides of the House about the skill of a small percentage of freeholders in finding ways of making legal loopholes work to their financial advantage. I hope that many leaseholders will benefit from this further safeguard.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 15 — Consultation about service charges

Sally Keeble (Labour, Northampton North)

I beg to move, That the clause be read a Second time.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss Government amendments Nos. 60 and 48.

Sally Keeble (Labour, Northampton North)

I will speak at some length about these complex proposals because that may help Members, although I know that time is marching on and that others want to speak.

Don Foster (Liberal Democrat, Bath)

About marriage values.

Sally Keeble (Labour, Northampton North)

Indeed. Although I have been as brief as possible so far—to the dissatisfaction of the hon. Member for Stone (Mr. Cash)—these proposals require some explanation.

New clause 15 would replace clause 150, and is intended to provide greater flexibility in the drafting of new regulations setting out the consultation requirements that will replace those contained in section 20 of the Landlord and Tenant Act 1985. It reflects views expressed in response to an informal discussion paper on how the new consultation arrangements might work, and views expressed in a recent meeting of a public sector leaseholders' working party.

The revised measure incorporates three minor but important changes. It will provide the flexibility for exclusion of long-term contracts from the consultation requirements when the value of a contract is below a de minimis figure. Clause 150 as now drafted requires landlords to consult leaseholders before entering into any contract of more than 12 months—regardless of value—when costs will be passed on to leaseholders through service charges. While long-term contracts are cheaper for the leaseholder, we would not want added consultation costs to be passed on when that was not strictly necessary.

Concern has been expressed that the measure could mean landlords' having to consult leaseholders about a large number of contracts involving minimal costs to leaseholders. For example, when a large corporate landlord is entitled to recover a share of general administration costs from leaseholders, consultation may be required on contracts for the provision of office services and stationery. The cost of consulting leaseholders could exceed the costs that they would be asked to meet. That makes no sense.

The new clause will enable us to exclude contracts whose value is below a prescribed amount from the consultation requirements. When we consult formally on draft regulations, we will seek views on what the amount should be and how it should be calculated.

Clause 150 currently provides that, if the consultation requirements on long-term contracts are not met or dispensed with by a leasehold valuation tribunal, no costs under that contract may be recovered through service charges. We envisage occasions when a landlord will not consult because the estimated costs are less than the prescribed amount, as we have discussed. However, if the cost subsequently increases above the prescribed amount, perhaps through genuinely unforeseen external factors, it would be unfair to put at risk the whole of the costs incurred. Subsections (6) and (7) therefore provide that only the excess above the prescribed amount would be irrecoverable. That is in line with the existing approach for consulting on specific works under section 20 of the 1985 Act.

On dispensations, as drafted, clause 150 provides that a leasehold valuation tribunal may grant dispensation from all or any of the consultation requirements in a particular case. The intention is to ensure that landlords are not penalised for technical infringements that do not disadvantage leaseholders, or in circumstances in which it is not practicable to consult fully or at all—for example, where work has to be carried out in an emergency. It is arguable that, as drafted, clause 150 allows such dispensation to be sought only after the event. The new clause therefore makes it clear that a landlord may apply to a leasehold valuation tribunal for dispensation of the requirement to consult before the works are carried out.

Amendment No. 60 is consequential to new clause 15 and deletes the existing clause 150.

Amendment No. 48 would create a new power to exempt managers, by regulation, from the requirement to use separate accounts for separate groups of service charge payers. Again, it may be helpful if I briefly explain the rationale behind the Bill's existing provisions and our reasons for the changes. Under existing law, managers are allowed to hold service charges from unrelated blocks of flats in the same account, which can make it easy for the unscrupulous to misappropriate funds. For example, if a group of leaseholders who had a sinking fund of £20,000 asked to see proof that their money was being kept safely, they might be shown details of a bank account holding £50,000, which supposedly included £20,000 from their block. They might assume that all was well, but they would have no way of knowing whether the account should in fact hold a much larger sum.

We know of a case in which leaseholders' funds went astray and, because they were held in the same account as funds from other leasehold blocks, it was extremely difficult for them to establish precisely what had happened to their money. It is reasonable to assume that that is only one of many cases. Using a single account for unrelated funds also makes the job of certifying accountants much harder. If they are asked to produce a certificate relating to just one block, they, too, will be unable easily to establish whether the right sum is being held at the bank.

Many managers already use separate bank accounts as a matter of good practice, and the time has come when all should do so. However, we have received representations from some managers who claim that operating separate accounts would be unduly expensive. Such costs would, in turn, be passed on to leaseholders. We remain sceptical about such claims. Managers who already operate separate accounts say that the additional costs of doing so are relatively small. Certain banks have already designed packages to minimise the inconvenience involved, and to avoid the need to keep separate cheque books for separate accounts, for example. They also apply interest based on the total sum held at the bank, rather than on individual accounts.

None the less, we are anxious to ensure that the costs of operating separate accounts do not outweigh the benefits. After all, those costs would inevitably be passed on to leaseholders in the form of higher service charges. We have therefore decided that it is sensible to include in the Bill a power to exempt managers from the requirement to use separate bank accounts under certain circumstances. We do not intend to use that power unless we are presented with reliable and persuasive evidence that the cost of using separate accounts would outweigh the benefits in certain cases. Moreover, if we were to use that power, any exemption should be subject to the agreement of the majority of service charge payers concerned. The new power will also allow us to impose alternative requirements on managers to minimise any risk to leaseholders. We consider that to be a sensible precaution that would allow us to respond to any changes in the services provided by financial institutions, or in their charges, that might increase the costs of maintaining separate accounts to the point at which it became unduly expensive and the undue expenses were passed on to the leaseholders.

Bill Cash (Conservative, Stone)

We discussed this issue at some length in Committee and I am glad that the Minister has taken the opportunity to describe the arrangements in new clause 15. It is always refreshing to note occasions on which consideration in Committee has produced improvements in legislation—and that is especially so in relation to this Bill, following the extended discussions that took place when it was first introduced and then on its reintroduction.

The Minister said that the new clause will replace the old clause 150 and section 20 of the Landlord and Tenant Act 1985. As new clause 15 states, when the new section applies

"to any qualifying works or qualifying long term agreement, the relevant contributions of tenants are limited in accordance with subsection (6) or (7) (or both) unless the consultation requirements have been either . . . complied with in relation to the works or agreement, or . . . dispensed with in relation to the works or agreement by (or on appeal from) a leasehold valuation tribunal."

The new clause then defines a "relevant contribution". The Minister made the point that she wants to be sure that we do not end up with the costs outweighing the benefits, and that is an important point. However, that leads us to a feature of recent Government legislation. I was asked to comment on the Education Bill and I said that it was regulation, regulation and regulation rather than education, education and education. The position with this Bill is similar.

We all understand that an important Bill cannot cover every issue, but—as I said in Committee—it is a matter of increasing concern that a tidal wave of regulation is affecting the people of this country. The public are confused, because even if they can understand the opaque and difficult provisions of a Bill—we have already discussed several examples tonight and I have tried to point out how difficult it is for people to understand, or even have ready access to, the provisions that will affect them—it is even more difficult to understand those areas that are shoved off to be the subject of regulations.

We do not even know what the regulations will contain. In Committee, I made that point about the drafting and preparation of the standard form of community statement and the commonhold association. I do not want to go back over old ground, but it took more than a nutcracker to get the details out of the Government. I am glad that I succeeded.

Mark Field (Conservative, Cities of London and Westminster)

I understand my hon. Friend's concern about an overwhelming tide of regulation. Equally, I think all of us would accept that leaseholders must be protected. Some of the Government's suggestions are entirely sensible. However, does my hon. Friend have some thoughts on the de minimis provisions, on which the Minister was unfortunately unwilling to go into any detail, and the amounts of money below which such regulations would not come into play?

Bill Cash (Conservative, Stone)

I should have thought that it was sensible to prescribe arrangements to ensure that people were excluded from the operation of the regulations except in circumstances where it was obvious that there was no alternative. Just as we cannot apply sunset clauses to everything, we cannot apply de minimis regulations to everything. What we can do is set a threshold and say, "The regulation will not apply in these cases but it will apply in others." As it happens, thresholds have already been set in a number of provisions in the Bill. They may have been applied in this case.

I have a general concern. New section 20ZA(5) states that the regulations will

"in particular include"—

it does not say exclusively include—

"provision requiring the landlord—

(a) to provide details of proposed works or agreements to tenants or the recognised tenants' association".

I do not know whether you, Madam Deputy Speaker, live in a block of flats like the block I live in. I dare say that most hon. Members do, certainly in London. I am happy to declare an interest and a concern, as I have done several times during our proceedings. There is the idea that, after we leave the precincts of the palace of Westminster, we will go to a late-night meeting with a tenants' management association and sit there between 10 pm and 1 am listening to harmonious, or very unhappy, discussions.

I have on occasion unwisely taken part in some of those activities. I am a little apprehensive, because there is always—I say it with great respect—the A1 barrack-room lawyer, who is determined to continue analysing the management association, the articles of association and the memorandum in every detail. [Interruption.] I take good note of the gesture the Minister has just made to me, which I perfectly understand. I assure her that those people do what they do in the great cause of ensuring that people understand the documents properly. All I can say is that there will be many occasions when the regulations will be buried from view. They will probably be in some obscure corner of a solicitor's office and cause a great deal of difficulty.

Greg Knight (Conservative, East Yorkshire)

My hon. Friend should know that there is a lot of concern among Conservative Members about the scope of the regulations to which the Minister has referred. Has the Minister given him any undertaking as to whether she will consult with him and other political parties in the House before the regulations are formulated? If that assurance has not been given, has an assurance been given that the House itself will have the opportunity to debate the regulations? I share the concern that he expressed a few moments ago on this matter.

Bill Cash (Conservative, Stone)

I am glad that my right hon. Friend has raised that point. Vicariously, I pass it on to the Minister from the Dispatch Box. In a nutshell, will the hon. Lady ensure that we are consulted on the regulations? The question of their being subject to annulment in pursuance of a resolution of either House is a perennial problem. There is the question whether they will ever be properly examined, even by the House itself. That is another problem, so the Government should please consult. I also ask for a clear leaflet on the whole content of this Bill to be produced for those affected by it, particularly with regard to the provisions under discussion. Then people outside the House will be able to understand what is going on, with reference being made to the regulations if necessary. Please let us have regulations in plain English. If the Minister for Europe—this is the first time that I have referred to this today—can reduce to 300 words all the treaties from the treaty of Rome to the dreadful treaty of Maastricht, right the way through to the treaty of Nice, I hope that the Minister can give a clear explanation of the provisions under discussion.

Peter Bottomley (Conservative, Worthing West)

May I add two points to my hon. Friend's contribution? If the Minister cannot answer my questions this evening, I should be happy to receive a letter subsequently.

First, constituents have told me that, sometimes, in leasehold agreements, if someone who is not a leaseholder but a potential purchaser asks the freeholder for an answer to a legal point, the freeholder is free to consult his own lawyers and the existing leaseholders have to pay the legal costs. I find that surprising. That may be understandable in the lease, but it is not understandable to the leaseholders. The Minister may want to consult her officials on whether, here or in another place, that point can be covered by this new clause or by another.

Shona McIsaac (Labour, Cleethorpes)

Many Members raised this issue in Committee—the leaseholder always seems to be paying the freeholder's costs in relation to many different things. Concerns were voiced in Committee, and I hope that the hon. Gentleman will acknowledge that.

Peter Bottomley (Conservative, Worthing West)

I am happy to do so. The point is whether anything can be done about it. To raise the issue in Committee—and to have nothing done about it—is an advance, but I want a more practical advance.

My second point may fall within the new clause or outside it. Sometimes, managing agents and freeholders are highly reluctant to spend a small amount of money that can make a major difference to the costs to leaseholders. I shall give a brief example from the commercial field. When I was a junior Minister in the Department of Employment in the 1980s, I discovered that spending £250 on a water meter in the Department of Employment's office in Tothill street would save £100,000 a year—£100 for each employee. I then had that change made throughout the Department of Employment estate. In Worthing, which has the highest proportion of retired people in the country and a reasonable proportion of leaseholders, nearly all pensioner flats pay more for water in terms of council tax values than they would if they were on meters. Installing meters in blocks of flats is complicated—many managing agents and landlords do not want the bother—but the leaseholder would be the gainer.

Therefore, I hope that under this new clause, or under an amended version of it, or under an amended Bill, not only water companies but managing agents and freeholders will be subject to incentives or requirements to consult leaseholders, who will thus be told when it is likely that there will be an advantage. By installing a water meter—which is free from many water companies, or £50 from others—people may find that they can save £50 or £100 a year, which is a very high rate of return. However, leaseholders cannot always fix that by themselves.

Sally Keeble (Labour, Northampton North)

I shall try to deal with the issues raised and, in particular, with the points made by the hon. Member for Stone (Mr. Cash), who referred to regulations and gave the example of the de minimis level in the contract. Of all the provisions in the Bill, the one before us should be set by regulation because of the need for consultation and because we are talking about small sums of money. What is a small sum one year might appear to be completely trifling 10, 50 or 100 years later. Arrangements for such sums should be made by regulation.

The hon. Gentleman referred to "regulation, regulation, regulation", but it is often far preferable to use regulations for certain types of arrangements. If they are enshrined in the Bill, changes can be made only by primary legislation and the hon. Gentleman knows how rarely the occasion to do that comes along. We want an efficient means of making provision for the proper management of leasehold properties.

Questions were also raised about the application of the de minimis level and about the levels we had in mind. Subsections (4) and (5) of the revised section 20 of the Landlord and Tenant Act 1985 are intended to provide the maximum flexibility in determining the prescribed amount and they will enable the amount to be based on the total cost of the contract, the total costs in any period or the costs recoverable from any service charge payer either over the length of the contract or in any other period. We wish to consult before we commit ourselves to any particular option, but it is our intention to exclude contracts only when the costs of consultation would be disproportionate to the costs of the contract. However, it is difficult to envisage what that might involve.

The hon. Member for Cities of London and Westminster (Mr. Field) asked about the sums that might be involved and, to give him some idea, it might be that we exclude contracts where the annual costs paid by any leaseholder exceed £20 to £25. That might sound a small sum, but I am sure that the hon. Gentleman realises that, when there are many people in a block of flats, that might involve a substantial contract. It is important that there is proper consultation so that we get the amount right. We must strike a careful balance between costs and the requirement to consult.

The hon. Member for Stone asked many questions about the proposed new section 20ZA of the 1985 Act. The proposed new subsection (5) states:

"Regulations under subsection (4) may in particular include provision requiring the landlord",

and paragraphs (a) to (e) list the matters, such as providing details of proposed work, to which the regulations might apply. The hon. Gentleman found the provisions to be very detailed and I do not think that he understood why people might be intensely interested in the issue. However, it is perfectly possible for people to talk at great length about who will do the work to their properties and how much it will cost. The fact that he finds that odd might reflect the way in which we choose to spend our evenings and not reflect the way in which people who are passionately interested in their homes choose to spend theirs.

The hon. Gentleman also asked for assurances about consultation on the regulations. I hope that I have already made clear our commitment to consult on the de minimis level, which is probably one of the most important provisions before us. He asked whether Members would have a right to discuss the regulations and, as he knows, if they are discussed under the affirmative resolution procedure, they will be debated in Standing Committee. That debate might be wide ranging and extensive. If the regulations are considered under the negative resolution procedure, the Opposition will have the opportunity to pray against them and then discuss them. [Interruption.] The hon. Member for Stone now gestures at me.

Peter Bottomley (Conservative, Worthing West)

My hon. Friend is smiling.

Sally Keeble (Labour, Northampton North)

Good. I had not noticed that, but never mind.

As the hon. Member for Stone well knows, the Conservatives frequently pray against negative resolutions and we have extensive debates on the regulations concerned. He will get plenty of opportunity to debate regulations.

Greg Knight (Conservative, East Yorkshire)

Will the Minister tell the House tonight which of those procedures the Government will be prepared to use? It is obviously better from our point of view if she gives an undertaking tonight that the affirmative procedure will be used.

Sally Keeble (Labour, Northampton North)

There is provision for a number of different regulations—some affirmative, some negative. I think that I am right in saying that the de minimus ones are negative. It will be possible to pray against them, but there will be consultation beforehand.

Peter Bottomley (Conservative, Worthing West)

Those who listen to our debates may not know this, but am I right in saying that if the Government are defeated on a negative resolution, the measure is still carried into effect?

Sally Keeble (Labour, Northampton North)

The hon. Gentleman is right. However, there will be consultation and it will be in the interests of us all to make sure that we get regulations that work.

The hon. Member for Stone asked about plain English, and he is correct. My officials and I are very concerned about that, since the many changes proposed by the Bill will profoundly affect a lot of people and their homes. We are doing a lot to ensure that there is good information in plain English so that people know their rights.

The hon. Member for Worthing, West (Mr. Peter Bottomley) asked about a number of points, most of which did not apply to the new clause or the amendments but which were very interesting none the less. On the question of the legal costs for purchasers being passed on, if charges are levied under the terms of the lease, the provisions of schedule 11 regarding administration charges will apply; for example, they must be reasonable and there is a right to challenge them at the leasehold valuation tribunal. It is always the case that if rights are given to people, they have to exercise them. However, the rights are there and the point has been considered.

I will write to the hon. Member for Worthing, West about water meters. One point that he might not have picked up on, if he has not been closely involved in the Bill, is that the Bill opens up to leaseholders a right to manage. That is very important—particularly for pensioners—because it means that they do not have to go to the trouble to enfranchise, but can acquire the right to manage in leasehold blocks of flats.

Peter Bottomley (Conservative, Worthing West)

In my constituency, the average age in a block of flats may be about 80, and most people do not want to take on the responsibilities of management.

Sally Keeble (Labour, Northampton North)

I take that point, but in terms of people's ability to deal with issues that otherwise they could deal with only through enfranchisement, they will now have this other route open to them.

That deals with all the points. The new clause and the amendments provide further improvements to the Bill and make it possible to look in more detail at some of the more detailed provisions. They ensure that we get the right balance between consultation and cost, for example, and that we help to improve the Bill for leaseholders.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 1 — Landlord's share of marriage value

Adrian Sanders (Liberal Democrat, Torbay)

I beg to move, That the clause be read a Second time.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following: Government amendment No. 43.

Amendment No. 8, in clause 134, page 65, line 20, leave out clause 134.

Amendment No. 9, in clause 135, page 65, line 24, leave out clause 135.

Amendment No. 1, in clause 144, page 69, line 33, leave out clauses 144, 145 and 146.

Adrian Sanders (Liberal Democrat, Torbay)

First, I declare an interest as a freeholder of a flat occupied by a leaseholder who pays a ground rent.

Under the Leasehold Reform Act 1967, marriage value was not deemed to be part of the valuation of the freehold interest; the leaseholder had only to pay the capitalised value of the ground rent, plus the reversion of the site value. In the pamphlet "An End to Feudalism", prepared by the Minister for Local Government and the right hon. Member for Holborn and St. Pancras (Mr. Dobson) before the 1997 election, a call is made to return to

"the fundamentally sound logic of the 1967 Act, which does not include marriage value in the valuation process. Its subsequent appearance has tilted the balance significantly in favour of the landowner and there is a strong case for it to be deleted".

A freeholder can sell a property to a leaseholder for full market value, as there is no difference between the price of a 99-year lease and the price of a freehold purchase. Hon. Members have only to look in an estate agent's window anywhere in central London to see that that is the case. However, after a certain length of time, the leasehold property reverts back to the freeholder, who can sell it again for its full market value. During that entire period, the property's upkeep has been paid by the leaseholder, who must then pay marriage value on top of everything. That fee is exacted to compensate the landlord for the depreciation in the asset's value over the period that it has been in the leaseholder's possession. By paying for maintenance and upkeep for so many years, the leaseholder has already shouldered the financial burden of the property's depreciation. Marriage value is therefore a bounty on top, and it requires that the leaseholder pay again.

The Government have said that most compulsory purchase schemes are based on full open market valuation, and they do not want to depart from that principle. However, they have made a mistake regarding what constitutes the open market value of a property. The Royal Institution of Chartered Surveyors defines that value as:

"An opinion of the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the date of valuation, assuming . . . that no account is taken of any additional bid by a prospective purchaser with a special interest."

The leaseholder obviously has a special interest, as moving from their long-time home would pose much stress and inconvenience. If the Government believe, as they say they do, that the basis for property valuation in collective enfranchisement cases should be the full open market value, the RICS code of practice makes it clear that they should reject the inclusion of marriage value, which arises out of the special purchaser status of the parties involved.

The reality for many people is that they have no choice between freehold and leasehold properties. Due to the circumstances in which they find themselves, they may have no choice but to opt for leasehold, even though it may not be in their best interests. The complicated and murky practice of marriage value is widely misunderstood, and there must be a clearer and easier way to compensate landlords on the transfer of property from leasehold to commonhold.

Let us compare purchasing council housing with buying leasehold properties. For example, leaseholders have paid for mortgages and years of upkeep and improvements to their homes, yet they must still pay a premium to transfer their properties to freehold, but council housing tenants have had the upkeep on their homes paid for by the council—albeit with contributions through rent—yet they can buy their properties at a significant discount.

Leaseholders often feel that they are maintaining someone else's property, yet they are bled once again if they try to improve their position by enfranchising and converting their property to freehold.

Often leaseholders do not even realise that they are being taken advantage of because the calculations involved in these negotiations are complex and specialised. Going to a leasehold valuation tribunal is intimidating and costly, so many people fall prey to unscrupulous landlords without having any idea of their rights.

It is important to remember that leaseholders paid for their property when they originally bought the lease. Why should they have to pay extra to keep what should already be theirs? Additionally, the leaseholder may have paid just as much as neighbouring freeholders for the right to live in their property. Why should they have to pay again when their neighbours do not have to?

The main problem with marriage value is that it takes unfair advantage of the fact that leaseholders have a vested interest in keeping the property in which they live and so are willing to pay whatever it takes to gain freehold rights to their property. In that relationship, freeholders have the power and can force leaseholders to pay exorbitant prices to hold on to the property in which they live. That is not a realistic market situation; it is unfair to the leaseholder, who should not be charged more than an outside investor would be asked to pay for the property.

We have been having this debate in the Chamber for more than 100 years. Its time has come—we should rid ourselves of marriage value.

Sally Keeble (Labour, Northampton North)

I will be brief because I understand that a number of other hon. Members want to speak on this issue. I shall begin by speaking to Government amendment No. 43, which also relates to marriage value.

The Bill generally provides for marriage value to be disregarded in cases where the unexpired term of a lease exceeds 80 years. Our policy aim is to prevent potentially expensive debate over sums of money which would, in any event, be very small. However, in the case of collective enfranchisement, the Bill provides that marriage value should be disregarded only if the unexpired terms of all leases of flats held by participating members of the right-to-enfranchise company exceed 80 years.

On reflection, we do not consider that that approach meets our policy objectives. It has the potential for abuse. If a landlord owned just one flat in a block directly, there would be nothing to prevent him from granting a new, relatively short lease for that flat to an associated company which could then exercise its right to participate in a collective enfranchisement bid.

Mark Field (Conservative, Cities of London and Westminster)

That argument was made earlier in relation to unanimity and 100 per cent. consent. It is now being used to justify the provisions on marriage value.

Sally Keeble (Labour, Northampton North)

The argument refers to the amendment to which I am speaking; it is not about marriage value.

The position that I have just described would enable marriage value to be claimed on the whole block, even though all the other leases may exceed the 80-year threshold. We decided, therefore, to provide that marriage value should be disregarded on any individual lease with more than 80 years left until its expiry. This is consistent with the approach taken for the individual rights of lease renewal and house enfranchisement, and would be a better way to meet our policy objectives.

More generally, marriage value is clearly one of the most controversial aspects of the Bill. It has been widely discussed and, as I mentioned in Committee, is a major issue for leasehold reform campaign groups. These groups have long campaigned for marriage value to be excluded from the purchase price altogether, and we have considered their representations carefully. However, we concluded that it would be wrong to remove marriage value from the determination of the price. Although some may not like it, we must recognise the property rights of both the freeholder and the leaseholder. That said, there are defects in the provisions that need to be corrected.

The right to enfranchise is a right of compulsory purchase, as is the right to a longer lease on a flat. To exercise it, leaseholders do not have to demonstrate that the freeholder is at fault in any way. It is only fair, therefore, that the landlord should be paid the same price that he would have received from voluntarily selling the freehold—or a longer lease—to the leaseholder or leaseholders.

When leaseholders buy their freehold or renew their lease, they obtain a benefit that no other purchaser would receive. When leaseholders of flats enfranchise, they can gain new 999-year leases without having to pay a penny for them. Similarly, a leaseholder who buys the freehold of a house is no longer subject at all to a lease. The value of that extra benefit is the marriage value. If existing leases still have, say, 80 or more years to run, new longer leases will be worth little more than existing ones, so any marriage value will be insignificant. If the unexpired term is relatively short, however—say 50 years—the difference will be substantial.

It follows that in a sale between willing parties where the unexpired term of the leases was not very long, the leaseholders would be prepared to pay additional money for the extra benefit but would certainly not offer the whole amount of the marriage value. They would be well aware that they represented the freeholder's only chance of obtaining a higher price than he would gain from an ordinary purchaser.

In practice, a sale would be agreed only if the parties agreed to split the difference: if the parties were equally willing and eager, the split would be 50:50. The freeholder would finish up with a higher price than he would have received from another purchaser, but I emphasise that the leaseholders would still finish up with an asset that was worth more than they had paid for it.

People often ask how marriage value can be said to apply to the right to buy a longer lease. After all, there is no joining, or marriage, of the two interests. The answer is that the term does not have quite that meaning in the lease renewal context. Indeed, marriage value is something of a misnomer. Lease renewal marriage value is quite different in concept from the same term in enfranchisement. As defined in the Act, in broad summary, it is the difference between the aggregate values of the landlord's and tenant's interests as they are before the new lease is granted and as they will be after it is granted.

The notion that, in one way or another, extra value is created by the transaction is common to both cases. For lease extension, as for enfranchisement, any amount of marriage value will be extremely small if the unexpired term of the existing lease is still long. As with the right to enfranchise, the split of marriage value has been much argued about in individual cases, but in most cases the LVT has decided that it should be shared equally between the parties.

Our intentions are the same for both lease renewals and enfranchisement cases. The leaseholder should be required to pay no more and no less for the compulsory acquisition of a new lease than he or she would pay in a similar transaction between the same parties if they were equally willing. That is the principle behind marriage value, and the Government believe it to be sound. That is why we cannot support new clause 1, but have offered an amendment that will improve on the current position.

Mark Field (Conservative, Cities of London and Westminster)

I broadly support new clause 1 and have received constituency representations to that effect. The Government's main argument in justifying retention of marriage value seems to be that abolition would be confiscatory. Almost all popular legislation since 1967—and perhaps even before then—is confiscatory in the sense that it compulsorily intervenes in what would otherwise be a free market for what the Parliament of the day considers to be the broader social interest.

It has been argued that the open market value of the freehold interest is greater to the leaseholder than to anyone else and that the cost to the leaseholder should reflect that. Hon. Members on both sides have expressed concern about the logic of that argument.

The view has also been taken that the leaseholder would gain an unjust windfall at the freeholder's expense. That concern could be overcome by a covenanting provision similar to that introduced under the right-to-buy legislation of the 1980s so that there should be further compensation if someone who bought a lease made a sale within a specified period.

We must ensure that, as far as we can, we expedite the succession of leasehold tenure. We must clarify and simplify those procedures. I hope that is the long-term aim of the Bill. However, the retention of the half share of marriage value remains a controversial and uncertain element in the cost equation. That will continue to be a significant barrier to the proposed progress of enfranchisement.

The abolition—or at least the watering down—of marriage value would thus contribute substantially to the achievement of the aims of the measure. It would be widely welcomed not only by the groups which have been campaigning on the subject but by a great number of lawyers and other professionals who have to deal with the practicalities.

Shona McIsaac (Labour, Cleethorpes)

I have to announce an interest on behalf of people living in the 21,000 leasehold houses in my constituency and in the neighbouring town of Grimsby.

Those people should not be affected by marriage value—the landlord's bounty. However, as I explained to my hon. Friend the Under–Secretary during Committee, because of the complexity of the rules and guidelines on marriage value people are ripped off on many occasions. People are charged far more than they legally should be because marriage value is used to get even more money from enfranchising leaseholders to whom it should not apply.

I point out to Liberal Democrat Members—as I did in Committee—that marriage value will not be scrapped at this stage. I have concerns about it. In Committee, I went through the mathematics of a hypothetical case to show that the landlord realises that value on day one. As the property can revert to him after 99—or 999—years the landlord obtains even more than the market value.

During Committee, my hon. Friend the Minister gave me some assurances that marriage value would apply as little as possible. One of the measures that I asked her to consider was creating a level playing field for flats and houses. Marriage value does not apply to flats where the freeholder voluntarily sells on the leases. The tenants have the right of first refusal and marriage value does not come into play.

That right does not exist for people who live in freehold houses—about half the leasehold houses in the country. About 1 million houses are affected. Landlords can dispose of those freeholds without informing any of the residents. That has happened in whole streets in my constituency. If we were to give the right of first refusal to people living in such houses marriage value would not apply.

My hon. Friend assured me that she would consider that proposal. She also assured me that, due to the complexity of the law and the lack of understanding of the mathematics involved, she would devise a formula—probably through a statutory instrument—to which freeholders would have to adhere and which would show what people were paying for.

Mark Field (Conservative, Cities of London and Westminster)

Is not one of the concerns that any mathematical formula would have to be far more complicated, because it would have to be regionalised for different parts of the United Kingdom, or even different parts of London? That confusion is one of the reasons why many people feel that we should abolish the whole concept of marriage value.

Shona McIsaac (Labour, Cleethorpes)

If we had some simplicity and clarity, people would not have such concerns. Because of the complexities, people are being grossly overcharged—ripped off. There should be an obligation on the freeholder to inform the leaseholder how the price was arrived at. At present, figures are plucked out of the air. In my constituency, the fee for enfranchising exactly the same type of property can range from £2,000 to £20,000. That unacceptably high level of charge can happen because of the complexities in the structure of marriage value.

I hope that the Minister can assure my constituents and the House that she will do all that she can to ensure that marriage value is applied less to leasehold properties.

David Lepper (Labour/Co-operative, Brighton, Pavilion)

I welcome Government amendment No. 43, which provides the necessary clarification. It is a step in the right direction. Regrettably, however, it is not a big enough step. I am one of the vice-chairs of the all-party group on commonhold and leasehold reform, and I remind the Minister that in the consultation on the original Bill we expressed the hope that the Government would take the opportunity to abolish marriage value entirely.

The hon. Member for Torbay (Mr. Sanders) has made an important point about how the leaseholder contributes to the value of the property over and over again, yet marriage value gives a bounty to the freeholder. I see no justification for marriage value in the definition of open market value set out by the Royal Institution of Chartered Surveyors. The Government have missed an opportunity. I will support Government amendment No. 43, but I cannot support the Government in opposing the new clause.

Adrian Sanders (Liberal Democrat, Torbay)

Let me re-emphasise the point that the leaseholder has paid for the property once, when taking up the lease, and again on enfranchisement. There can be no justification for an extra sum, even if it were to be split 50:50, as the Minister suggests.