Commonhold and Leasehold Reform Bill [H.L.]

– in the House of Lords at 8:24 pm on 16 October 2001.

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House again in Committee on Clause 71.

[Amendments Nos. 92 and 93 not moved.]

Clause 71 agreed to.

[Amendment No. 94 not moved.]

Clause 72 [RTM companies: membership and regulations]:

[Amendment No. 95 not moved.]

Photo of Lord Goodhart Lord Goodhart Liberal Democrat

moved Amendment No. 96:

Page 34, line 5, leave out paragraph (b).

Photo of Lord Goodhart Lord Goodhart Liberal Democrat

The purpose of the amendment is to remove paragraph (b) from Clause 72(1) of the Bill. That provision defines the membership of an RTM company which consists under paragraph (a) of,

"qualifying tenants of flats", and under paragraph (b) of,

"landlords under leases of the whole or any part of the premises".

The purpose of the amendment, which runs contrary to those moved by the noble Lord, Lord Kingsland, prior to the adjournment, is to remove landlords from membership of RTM companies except in cases where they are lessees of flats as well as freeholders. In that case they are entitled to remain in their capacity as lessees.

We strongly believe that it is inappropriate for a landlord to be a member of an RTM company. In many cases the RTM company will have been formed because of dissatisfaction with the landlord. Under the existing legislation where tenants are entitled to take over management on the proof of the improper behaviour or defects of the landlord, the landlord does not participate in the management. However, that is because the landlord has clearly been behaving improperly in the conduct of the management.

In the case of an RTM company, it is possible that the landlord has not been behaving improperly because proof of any such misconduct is in no way necessary for the formation of an RTM company. None the less, it is likely that in a high proportion of cases the RTM company will have been formed because of a degree of dissatisfaction with the way in which the landlord has managed the property.

If the landlord has managed it well and at a fair cost, the chances are that the tenants will be happy to spare themselves the burden of management and will allow the landlord to continue. If the landlord has caused dissatisfaction, there almost certainly would be a desire to use the new route of forming an RTM company rather than using the existing legislation in order to avoid the need to have to prove misconduct on the part of the landlord.

In many cases, because the whole desire to move to an RTM company has been instigated by the landlord's misconduct, it would seem to be wholly inappropriate for a landlord to be a member of the RTM company. Furthermore, in cases where the landlord has not misconducted himself in the management, his interests and those of the leaseholders are likely to be at arm's length. We believe that in that case it is inappropriate for the landlord not only to be representing his own position but also to have a position in the management company.

We believe that there should be an arm's-length relationship between the RTM company and the landlord. Of course the landlord would be, and under the legislation is, entitled to require the RTM company to carry out its obligations to him as well as to the leaseholders. We do not therefore see that there is any unnecessary suffering on the part of the landlord by his being excluded from the RTM company. We believe that allowing the landlord as of right to be a member of the RTM company is a recipe for confusion and for mixed signals. We believe that if the landlord is always there making his points in company meetings as well as in arm's-length negotiations with the company as manager of the property, the RTM company will be more difficult to run adequately.

We believe that if the RTM system is to work, it is a matter of considerable importance that the landlord should not be a member of it and should deal with it at arm's length in the protection of his own interest as landlord. Furthermore, we do not envisage any likelihood of any such rule being held inconsistent with Article 1 of the first protocol to the European Convention on Human Rights. I beg to move.

Photo of Lord Kingsland Lord Kingsland Conservative 8:45, 16 October 2001

My Amendments Nos. 97 and 100 are part of this group. Earlier I spoke in substance to Amendment No. 97 and shall therefore address my remarks to Amendment No. 100. The whole rhetoric of the Bill is to give individuals who live in their blocks of flats a right to manage them. The amendment gives effect to that principle. There is no reason to give the right to manage to individuals who have bought flats for investment purposes only.

The objection made to the amendment in Committee by the noble Lord, Lord Whitty, was that "resident" is extremely difficult to define. The noble Lord did not suggest that my proposition about limiting the rights to residents was wrong in principle. With respect to the noble Lord, Lord Whitty, similar tests apply to vast swathes of housing law. It is, for example, a test as to whether a dwelling house is subject to a Rent Act controlled tenancy or to an assured tenancy under the Housing Act 1988.

The noble Lord, Lord Whitty, went on to suggest that landlords might start detailed investigations into tenants' private lives in order to discover whether or not they were resident. I suggest that that approach tilts at windmills. Normally, it is very easy to say whether or not someone is living in a property. The idea of a landlord setting up 24-hour surveillance of a flat to establish how often the particular tenant occupies it is, frankly, absurd. Therefore, I believe that the issue is not the practicality of the residence test--because such difficulties as there may be can be met--but whether the principle is correct. I draw comfort from the words of the noble Lord, Lord Whitty.

However, I recall that the noble Lord, Lord Goodhart, having tabled amendments similar to this one, resiled from that position--I say that in the nicest possible way--and gave a very compelling explanation of why in Grand Committee. Having tabled this amendment, I nevertheless understand the point of view expressed by the noble Lord, Lord Goodhart. I wonder whether tonight the noble Lord is inclined to go in to bat again or is content to leave it to the noble and learned Lord to bat on his behalf.

Photo of Lord Falconer of Thoroton Lord Falconer of Thoroton Minister of State (Housing and Planning), Department for Transport, Local Government and the Regions, Minister of State (Department of Transport, Local Government and Regions) (Housing & Planning)

I am only sorry that I did not hear the argument of which I am to be deprived. I deal first with the suggestion of the noble Lord, Lord Goodhart, that the landlord should not have the right to be a member of the RTM company. Our proposed right for landlords to become members of the RTM company was the subject of some dispute when this Bill was previously before the House. Leaseholder representatives have expressed considerable concerns about it, and I appreciate that many of them are genuine. However, correspondence received by my officials on this issue suggests that a good many of those concerns are based on a misunderstanding of what is being done in this Bill. I believe that it is important, therefore, to make our intentions clear.

It is true that, put in simple terms, the right to manage is a right to allow leaseholders of flats to gain management control of their block. What it is not, however, is a right to kick out the landlord. Many Members of the Committee who recall the previous Committee stage of this Bill will remember my noble friend Lord Whitty emphasising on a number of occasions that this was a "no fault" right to manage. That point has been acknowledged by the noble Lord, Lord Goodhart, in moving the amendment. That remains a key point which will continue to be stressed on our side throughout the passage of the Bill. Our emphasis on no fault is not intended to be a convenient smokescreen behind which to hide. The landlord will continue to have a legitimate property interest in the building once RTM is acquired. By the same token, the landlord will have an ongoing interest in its management.

Furthermore, because the acquisition of the right is not linked to any process of proving that the landlord has been a bad or negligent manager--hence "no fault"--there is nothing which justifies our ignoring that interest and cutting the landlord entirely out of the management process. The noble Lord, Lord Goodhart, seeks to circumvent that point by saying that frequently bad management will provoke the process by which RTM is instituted. With the greatest respect to the noble Lord, that is not a sufficient answer. There is a no-fault process here. The landlord retains an interest in the property and, as a member of the RTM company, he is entitled to have that retained property right respected.

I believe that there is much common ground between ourselves and the noble Lord. We disagree over how best to ensure that the landlord's legitimate interests are safeguarded. Our view is that the best way to provide for this is to allow the landlord to be a member of the RTM company. That will put him or her on a similar footing to any one of the qualifying leaseholders, with the same rights to receive information and to suggest the best way forward for the management of the property. I suspect that this may be seen as somewhat heretical, but it would even allow the landlord and leaseholders to work together in managing the block in which they all have a property interest.

At Second Reading--or, as the noble Lord, Lord Goodhart, labelled it, Fourth Reading--the noble Lord suggested that the RTM company should deal with the landlord at arm's length. The noble Lord has repeated that suggestion tonight. Our view is that that would be a more complicated and, in many ways, less satisfactory way to address the problem. As the Bill stands, it is his membership rights which provide for a proper relationship between the landlord and the RTM company. There is certainly nothing in the Bill as it stands which would properly provide for an arm's length approach. If the noble Lord's amendment were accepted, therefore, under the Bill there would not be any structured relationship between the landlord and the RTM company. In effect, he would be excluded from the process. The question of how he became involved in the process would be a matter to be determined ad hoc in the particular case. Our view remains that the Bill is right as it stands.

I move to the amendment in the name of the noble Lord, Lord Kingsland. As the noble Lord pointed out, the noble Lord, Lord Goodhart, had suggested at Second Reading that it would be wrong to allow a non-resident landlord to be a member of the company. I understand from the noble Lord's closing remarks that the noble Lord, Lord Goodhart, resiled from that position for reasons very persuasively put but not set out by either noble Lord. I hope that the noble Lord, Lord Kingsland, will not mind my noting that in Amendment No. 100 he proposes that a leaseholder who is not resident in the property should not enjoy any membership rights. The two noble Lords have taken the same principle, albeit at different times, and each has applied it to one of the groups that the Bill permits to be a member of the company.

I believe it is clear from what has been said that the noble Lord, Lord Goodhart, would not support the noble Lord, Lord Kingsland, in his amendment, and I assume that the noble Lord, Lord Kingsland, would not support the current position of the noble Lord, Lord Goodhart, although he might have supported the noble Lord's previous position. The noble Lord nods his head.

Our view on this matter is governed by two principles. First, we cannot agree that different eligibility rules should apply to different people. I believe that both noble Lords agree with that. We believe that there should be one governing criterion, namely whether a person has a significant stake in the property in question. The Bill already enshrines that principle. We believe that that is the principle, not residence. Secondly, we are generally of the view that any form of residence test is undesirable. It exists in other housing legislation but, as the noble Lord, Lord Kingsland, is aware, experience has shown that tests of this nature are open to abuse and confusion. There is contention about what constitutes residence. It is for such reasons that our Bill generally takes the approach of removing or replacing residence tests. That is also the reason why we do not favour the creation of another one here. That is the problem in applying the residence test.

But I make clear that the principle on which membership rests is whether or not the person has a significant stake in the property in question. We remain of the view that that is the correct approach and, therefore, we cannot agree that the approach in Amendments Nos. 96, 100 and 145 is correct. The right to manage is neither pro-landlord nor anti-landlord; rather, it is a measure to ensure that management rights balance property interests. As a holder of a stake in the property, the landlord is a part of that balance.

Perhaps I may deal very briefly with Amendment No. 97 to which the noble Lord, Lord Kingsland, referred in the debate on the previous group of amendments but did not repeat in relation to this matter. The right granted to landlords to be a member of the RTM is a qualified one. A landlord may become a member of an RTM company only after the date on which that company acquires the right to manage that property, whereas the amendment would allow him to become a member at any time. The qualification that he gets that right only after the company acquires the right to manage is there for a sensible, practical reason. Before it can acquire the right to manage the RTM company is required to serve a claim notice on a range of existing management parties, including all of the landlords. That allows the recipients to satisfy themselves that the leaseholders are properly entitled to the right to manage.

If any of the landlords were to be a member of the company at that stage they would be both the people being notified of a claim and a part of the body which notified them. To our minds, that would not make sense. It would also give unscrupulous landlords a double opportunity to cause problems and delay. Not only would they be able to dispute the entitlement of the RTM company; they would also be able to try to slow down the process from within the company. We do not want to open up that eventuality. For that reason, we cannot allow any of the landlords, including the freeholder, to become members of the RTM company before it acquires the right to manage.

As I have said, our Bill already strikes a sensible balance. It allows the landlords to protect their legitimate interests once the right is acquired but prevents them interfering before that date. We believe that that is the right solution.

In the light of the remarks that I have made, I hope that the noble Lord, Lord Goodhart, will withdraw his amendment and that the noble Lord, Lord Kingsland, will not move his.

Photo of Lord Kingsland Lord Kingsland Conservative 9:00, 16 October 2001

Before the noble and learned Lord sits down, my view has always been that the right ought to belong to residents who can be proved to be residents. I had thought that the noble Lord, Lord Whitty, agreed with me when the matter was discussed in Grand Committee but said that it will not work because defining in the Bill exactly who is a resident is too difficult. I think now that the Government are saying that the real test is not the residence test but--I might almost say a stakeholder test--it is whether or not one has a stake in the property.

All my instincts have been against that. However, by far and away the greater number of leaseholders who have lobbied me during the passage of the Bill have taken the Government's view and not mine. So I shall not be tabling the amendment on Report.

Photo of Lord Goodhart Lord Goodhart Liberal Democrat

When I moved Amendment No. 96 I failed to say that I was speaking also to Amendment No. 145. That raises exactly the same point in relation to RTE companies in the period between their formation and before they actually acquire a conveyance of the property. Therefore, the same arguments are relevant.

I regret to say that I am disappointed. This is one of the three or four most important issues in the Bill. The noble and learned Lord, Lord Falconer, said that it was important that the various stakeholders in the house, the leaseholders and the freeholders, should work together. There is nothing in my amendment that prevents that.

If the members of the RTM company and the freeholder are on good terms with each other there is no reason why the freeholder should not be invited to attend meetings of the RTM company and express his views. It is where relations are not that good that problems potentially arise. In that case it is important that the RTM company should be reserved to the leaseholders so they can decide their own issues.

Of course the physical presence of the landlord at the meeting may have a disturbing effect on the leaseholders who are there as other members. Therefore, we think that it would be an important protection to leaseholders to be able to say, "No, we do not want the freeholder to be present at our meeting. We think that in our interests it is best that the freeholder should not be there".

I shall withdraw the amendment today, but it is very probably one which we shall bring back on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 97 and 98 not moved.]

Clause 72 agreed to.

Photo of Lord Williams of Elvel Lord Williams of Elvel Labour

moved Amendment No. 99:

After Clause 72, insert the following new clause--

"MANAGING AGENT

(1) A person who wishes to practise as a managing agent and hold the service charge trust fund shall be required to--

(a) be subject to a code of practice,

(b) undergo yearly auditing of accounts,

(c) be covered by professional indemnity and fidelity insurance, and

(d) undergo a minimum quota of annual management training.

(2) Regulations under this section shall make provision about the form and content of the above and make such other rules, requirements and restrictions as may be appropriate to ensure proper standards are maintained and the interests of landlords, RTM companies and leaseholders are safeguarded."

Photo of Lord Williams of Elvel Lord Williams of Elvel Labour

My noble and learned friend Lord Falconer is aware of the issues, because we went through them all at a previous stage in Grand Committee. I do not propose therefore to spend long on this matter. Nevertheless, it is of intense importance. I wish to stress that. One cannot have people taking over the management of properties who are not properly qualified and registered. In particular, one cannot have anyone who is entitled to hold the service charge trust fund managing properties of that nature.

Therefore, there must be a code of practice. There must be yearly audited accounts of people who want to become managing agents. They should be covered properly by professional indemnity and fidelity insurance and undergo the minimum quota of annual management training. All that must be subject to the regulations which no doubt the Government--if the Government accept the amendment--will produce.

Many of my colleagues and others feel strongly about this matter. We have heard that the Government are not ready to introduce such regulations and that time has to go by. Nevertheless, if RTM is to come into proper--I mean proper--recognition and if it is to be a proper safeguard for leaseholders, I believe that the managing agent has to be properly regulated. I beg to move.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

I rise briefly to add my support to the thrust of the amendment moved by my noble friend Lord Williams of Elvel. The proposal it puts forward is one of a number of ideas that touch on the reality of life for people living in most blocks of flats. To that end, I should like to take the opportunity to make a wider point as regards RTM and the rather restrictive circumstances under which it can be introduced unless we amend the Bill in some fashion.

I shall illustrate that comment by citing two representative examples. In so doing, I declare an interest as chair of the residents' association for my block of flats in WC1. First, in a mixed commercial and residential block the Bill as presently drafted will not confer on the residents the right to manage. Their main concern will lie exactly in the area identified by my noble friend Lord Williams; namely, the often somewhat anarchic relationship between the landlord, the managing agent and the people living in the block.

In the extensive discussions held during the course of the previous Bill, my noble friend Lord Williams pointed out that many cases arise where, because of the nature of the problems associated with management, many of the residents do not want to face up to those responsibilities. I believe that that will affect very many blocks of flats. Already the agendas for meetings of residents' associations are long. Consider the extra items to be added to them, along with the difficulty of persuading people to meet the new legal responsibilities. In those circumstances, it is important to ensure that some improvements are made to the quality and accountability of managing agents. I appreciate that I have made two separate points, but they can be addressed together in this contribution. We need to see a radical improvement made to the present law, where the standards of managing agents are not underpinned in any way.

Secondly, I think that the argument will be put later in our debates as regards who has the right of appointment and dismissal of a managing agent. At present, the landlord has the exclusive right to appoint a managing agent. Given that, no incentive is put on the managing agent to improve the quality of his services. Why is that? As soon as the managing agent provides a good quality service to the tenants or leaseholders, the landlord decides that the agent is spending too much money on the residents. He dismisses the agent in short order and appoints a different managing agent. That is totally unsatisfactory.

In many discussions held on the provisions of the Bill, people have expressed their surprise to me that, although the legislation goes into great detail, it does not address this typical, day-to-day worry. The problem has been raised before and many of us have been considering different approaches to address it. Perhaps at this stage we should try to disentangle to some degree the absolute symmetry established between RTM and RTE. Noble Lords know that, within the architecture of the Bill, every semi-colon covering the rules governing the establishment of RTMs is identical to that in the rules governing the establishment of RTEs. Take, for example, the famous 25 per cent threshold vis-a-vis a mixed block. Why should there be perfect symmetry between an RTM company and an RTE company?

I hope that the Ministers sitting on the Front Bench will be able to say that they will be inclined to look at the problems which have been outlined. Perhaps we need to establish a third route that will address the responsibility and accountability of managing agents. This should be done because for the overwhelming number of leasehold residents in this country that is the reality of their difficulties, whether or not the Bill is passed.

Photo of Lord Goodhart Lord Goodhart Liberal Democrat

The noble Lord, Lord Williams of Elvel, is right to pursue this matter. It is an extremely important point. Those who act on behalf of RTM companies as managing agents should be subject to the degree of control and regulation that has been proposed in his amendment.

Blocks of flats vary enormously. Certain upmarket blocks located in central London are full of people who know perfectly well how to run businesses and choose capable agents to act for them. However, many other residents are not capable of doing that and could easily be taken for a ride by a dishonest or incompetent managing agent.

I understand that, because this amendment has been proposed under Clause 72, it is intended to deal only with managing agents appointed on behalf of RTM companies, because if it were to have the wider application sought by the noble Lord, Lord Lea of Crondall, then I believe that the amendment would have to apply to Chapter 5 of this part of the Bill. However, in principle, we strongly support the amendment.

Photo of Lord Williams of Elvel Lord Williams of Elvel Labour

Perhaps we could hear a view from the Opposition Front Bench.

Photo of Lord Kingsland Lord Kingsland Conservative

We entirely endorse the amendment of the noble Lord, Lord Williams, and support everything that has been said in Committee in relation to it.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 9:15, 16 October 2001

That was a worthwhile inquiry from my noble friend's point of view.

Of course we all agree that it is important to ensure that there is a good standard of management, and we all agree that the role of a managing agent should not be undertaken on a cowboy basis. I do not have any objection to any of the provisions of the amendment in regard to the code of practice, the yearly auditing of accounts, professional indemnity and fidelity insurance, or, indeed, to a minimum quota of annual management training, although that seems to be a little more vague.

We have two difficulties with the amendment. The first difficulty was identified by the noble Lord, Lord Goodhart, and that is that the amendment is tabled under Chapter 1 of Part 2 of the Bill. It relates to the leaseholders' right to manage and therefore is intended to apply only to the appointment of a manager by a right-to-manage company and not to the appointment of a manager in general. If anything is going to be done, surely it should be done for the whole of the business of management rather than only for RTM companies.

Of course there are strong arguments in favour of ensuring that people who are appointed managers of RTM property, like any other property, are of an appropriate standard and are properly equipped to assist the leaseholders in exercising their newly-acquired responsibilities. But there are counter arguments. Despite the support that my noble friend Lord Lea has given to the amendment today, I recall that, when the matter was discussed in Committee in the previous Parliament, he pointed out that it would make it more difficult for leaseholders to manage under RTM if they were only able to appoint managers who meet a specified threshold. This would limit the pool of talent available to them. That was a valid point when he made it then, and it would be a valid point if he were to make it now.

There is also the problem of ensuring fairness. The right to manage is being granted on the basis that leaseholders will have acquired the majority interest in the block and should therefore have a proportionate say in its management. In essence, we are giving homeowners the ability to manage their own homes. We cannot see why that right should be given on any different basis to that which would apply to any other group of homeowners--for example, a group of enfranchised leaseholders. We cannot see why more onerous requirements should be placed upon such homeowners than would apply to someone who was the manager of someone else's home--for example, a non-resident landlord.

I appreciate that that is a negative point of view. It is based on the fact that the amendment has been tabled under Chapter 1 of Part 2 of the Bill and not applied more widely. It would not be legitimate for me to rely only on that defect in the amendment. Our objection is not to the idea that RTM companies should provide good standards of leasehold management--we wish them to do so and we have put on record our firm intention to issue guidance to help them to achieve that--but the question of statutory controls should be addressed as part of the wider work we are carrying out on leasehold management standards.

We are working on this. We are looking closely at the wide range of options which are open to us, including measures along the lines proposed in the amendment. We shall be issuing a consultation paper. If I am forced to, I shall no doubt be able to say how quickly we shall be pursuing a consultation paper. I can assure the Committee that anything which is done in the wider context--which, as the noble Lord, Lord Goodhart, reminded us, it is necessary to cover-- will apply also to the provisions for RTM companies. On that basis, I hope that my noble friend will not pursue the amendment.

Photo of Lord Williams of Elvel Lord Williams of Elvel Labour

I am grateful to my noble friend for his reply. He now recognises that the Liberal Democrat Benches, the Conservative Benches, a number of his supporters behind him and, I have no doubt, a large majority of the Cross Benches, were it to come to shove, would support the amendment. The Cross Benches are, of course, empty at the moment.

But let us wait for the report. I am perfectly happy to accept that my noble friend is about to produce some kind of document which will say something or other. I shall press him, as he invited me to, on the date.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I am happy to respond to that question. I do not know whether the noble Lord will find my response satisfactory. My understanding is that we intend to produce a consultation paper on the matter early next year, subject to Cabinet clearance.

Photo of Lord Williams of Elvel Lord Williams of Elvel Labour

"Early next year" is a long way away. We imagine that by that time the Bill will have left this House.

I shall withdraw the amendment. However, I warn my noble friend that, unless the Government can come up with a reasonable proposal, I shall invite those who supported my amendment to do so again. I am sure that the noble Earl, Lord Caithness, will be in action on the Conservative Benches, and the Government may find themselves in difficulty. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 73 [Qualifying tenants]:

[Amendment No. 100 not moved.]

Clause 73 agreed to.

Clause 74 [Long leases]:

Photo of Lord Goodhart Lord Goodhart Liberal Democrat

moved Amendment No. 101:

Page 35, line 5, leave out "21" and insert "7"

Photo of Lord Goodhart Lord Goodhart Liberal Democrat

In moving the amendment, I shall speak also to Amendments Nos. 102 to 104, which all raise the same point.

The problem arises because, in leasehold property, a number of people may have different leasehold interests, but only one of them can be entitled to be a member of the RTM company. Let us assume that the head leaseholder has a lease for 99 years, that he has created a sub-lease for a term of 21 years and that the sub-lessee has, in turn, granted a "sub-sub-lease" for a term of seven years. The question is: which of those three people is to be the member of the RTM company?

Under the Bill as it stands, the member of the RTM company will be the head lessee who holds the 99-year lease. That is because the only term which counts as a long lease is a term of more than 21 years; therefore, someone who holds a lease simply for 21 years and for no longer is not the holder of a long lease and cannot, therefore, be a member of the RTM company.

Our suggestion--which moves some way towards the suggestion put forward by the noble Lord, Lord Kingsland, in terms of residence--is not that there should be a test of residence, but that the member of the RTM company should be someone who has a reasonably present and direct interest in the state of the premises. A leaseholder who has no right to possession for a period of, say, 20 or 21 years has no real current interest in the state of the premises and is not, therefore, appropriate to be the RTM member. That applies equally at the other end of the scale. It is inappropriate for someone who is interested only as a short-term lessee--someone who possibly has a rack-rent lease for a term of not more than seven years--to be a member of the RTM company. While he may be interested in certain aspects of the maintenance of the premises, he will not be interested in their longer-term stability.

We believe, therefore, that the Government have drawn the boundary line in the wrong place. For the purposes of the RTM company, the long lease definition ought to be reduced from 21 years to seven years. The person lowest down the tree with a lease of more than seven years should be the member of the RTM company. That achieves the right balance between somebody whose interest in the premises is remote rather than immediate and somebody whose interest is for such a limited time that they are not concerned about the maintenance of the premises over the longer term. The right boundary is not 21 years but seven. I beg to move.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

The noble Lord, Lord Goodhart, will remember our reasons for not supporting the proposed change in Grand Committee but we do not differ much in our intention. I do not dissent from the noble Lord's description of a reasonably present and direct interest. We tend to describe it as a substantial long-term stake by people who tend to think of themselves as owner-occupiers rather than renting tenants--and who aspire to something approaching the degree of control over and responsibility for their homes enjoyed by the freeholder of a house. Such people would not have chosen to buy leasehold if, under English property law, buying a freehold flat had been a practicable and sensible option.

There is no perfectly right answer. I do not imagine that the noble Lord would argue for the sanctity of seven years, any more than I would argue for the sanctity of 21 years. All leaseholders are technically tenants. It is impossible to draw a hard and fast line that neatly segregates would-be owner-occupiers from would-be renters.

It is well established and widely accepted that 21 years is a fair and accurate dividing line. It broadly reflects the point at which the value of the leaseholder's interest in the property is equal to that of the landlord. Where the leaseholder buys a lease granted for more than 21 years, he holds a greater stake in the building than the landlord. Where a lease of less than 21 years is bought, the landlord has a greater stake than the leaseholder.

I am sure that that dividing line--like any that could be devised--is open to criticism but it seems the right basis on which to strike the balance. We certainly think that seven years is too short for the purpose.

Photo of Lord Goodhart Lord Goodhart Liberal Democrat

I am grateful for the Minister's explanation and we will consider his response. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 74 agreed to.

Clause 75 [Long leases: further provisions]:

[Amendment 5 Nos. 102 to 104 not moved.]

Clause 75 agreed to.

Clause 76 [Notice inviting participation]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 105:

Page 36, line 32, at end insert--

"( ) set out the principal responsibilities and obligations which the company will assume as the manager of the premises, by referring to the relevant provisions of the Royal Institution of Chartered Surveyors service charge residential management code, or any other code relevant to the management of residential properties subject to a service charge which has been approved by the Secretary of State under the terms of section 87 of the Leasehold Reform, Housing and Urban Development Act 1993 (c. 28)."

Photo of Lord Kingsland Lord Kingsland Conservative

I shall speak first to Amendment No. 106, then to Amendments Nos. 105 and 107.

In Grand Committee, I unwisely suggested that the proposed amendment was unlikely to prove controversial. I was completely wrong. The principle is simple enough. Tenants in a block of flats should all have the right to participate in the RTM company. At present, the Bill proposes no sanction if the promoters of an RTM company fail to send invitations to participate to all the tenants. That seems to us to be a technical defect in the Bill.

As noble Lords will know, there will, inevitably, be some tenants in a block of flats who are more enthusiastic for replacing the landlord than others. There is a danger that the enthusiasts will attempt to override the wishes of the less enthusiastic tenants. At present there is nothing whatever to stop the enthusiastic tenants from deliberately failing to send out the relevant notices to those whom they believe to be opponents of the proposal. We believe that that is a serious defect in the Bill.

The Government's response is to say, first, that a failure to send out notices to tenants who are entitled to participate would invalidate the notices that the RTM company must serve on the landlord in order to trigger the right to manage. However, that seems doubtful. If it were correct, it would mean that a failure properly to serve even one tenant in a block with hundreds of flats would invalidate the notice to the landlord. The Government's second response is that there is no prejudice to a tenant who has not been served because he or she can always join later. But leaving that aside, this argument still ignores the fact that all the tenants should be entitled to take part in the momentous decision as to whether or not to exercise the right to manage.

As far as concerns Amendments Nos. 105 and 107, I hope that there is agreement among noble Lords that the right to manage is an important right and one that puts potentially onerous burdens on tenants who choose to exercise it. Therefore, it is only right that tenants should know what they are letting themselves in for. The management code made by the Royal Institution of Chartered Surveyors sets out very clearly what managers of premises should do.

We on this side of the Committee take the view that the standard of management of blocks of flats can, and should, be improved. The right to manage will be a wholly illusionary right if the exercise of that right by tenants does not lead to the improvement in the quality of their property. At present, there is absolutely nothing in the Bill to ensure that the right to manage does improve the management of blocks of flats.

The Government appear to have set their face against any form of regulation of managing agents in this Bill. However, it is difficult to see what objections there can be to a modest measure to ensure that tenants at the very least know what good management of a block of flats involves; for example, tenants should know what they need to do and what they are letting themselves in for. It would increase knowledge and, therefore, in a favourite word of the Government these days, it would "empower" tenants.

I ask the Government to accept that this is a modest but, nevertheless, creative measure designed to improve the management of blocks of flats. I commend the proposal to the Committee. I beg to move.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 9:30, 16 October 2001

Perhaps I may deal with these amendments in the order suggested by the noble Lord, Lord Kingsland. I shall begin with Amendments Nos. 106 and 108. The noble Lord is suggesting that the directors and officers of an RTM company should be liable to prosecution for a failure properly to serve their invitations to participate. That seems to us to be somewhat draconian. Indeed, it appears to be in conflict with a further amendment of the noble Lord; namely, Amendment No. 122. Under Clause 80, that amendment suggests that,

"a failure to serve any qualifying tenant or tenants with a notice of invitation to participate", should not invalidate the claim notice. I wonder whether the noble Lord is on the same side as regards Clause 80 as he appears to be on Clause 76. As I say, there seems to be some conflict here.

We do not see any advantage in prosecution. The interest of a leaseholder is not prejudiced by a failure to receive a notice of invitation to participate. The right to manage can only be acquired if a sufficient number of the leaseholders become members of the RTM company. Provided that enough of the others had signed up, anyone who does not become aware of the proposed acquisition would not be in a position to prevent it going ahead but will in any event have the right to become a member of the RTM company at any time. I believe that to be a failsafe position.

On Amendments Nos. 105 and 107, the noble Lord, Lord Kingsland, with his usual generosity has given us two different versions of what he wants--one that he used before in the previous Parliament, and one that refers to a "prescribed statement" rather than setting out the principal responsibilities and obligations. I see that they mean the same thing. Amendment No. 116 requires the claim notice to state that the information was provided with the invitation.

We intend to consider what might be included on management responsibilities in the invitation to participate. However, the requirements suggested in the amendments do not strike the correct balance. They are wide ranging and vague. What is meant by "principal" in this context? How much of the code of practice is the RTM company supposed to repeat in the invitation? Without that being properly set out, there would be enormous scope for argument about whether the provision had been complied with.

In any case, it is wrong to make an explicit link between the responsibilities of the RTM company and the approved codes of practice. The responsibilities of the RTM company will derive from the Bill and from the terms of all relevant leases. The codes will supplement that by making clear the standard and degree of management that we would expect to see provided within that framework. They will not impose any new obligations in themselves. The proposed requirement to refer to the codes of practice is otiose. I am sorry; that is the word used by the noble Lord, Lord Kingsland, and I should not be trespassing on it.

There is a difficult balance to be struck. We want the leaseholders to be aware of what they are taking on, but we do not want to overburden them with requirements that have to be met before they can acquire the right. We certainly do not want to put in place subjective requirements which will open up scope for dispute.

We continue to believe that this is best dealt with in the flexible way provided for in the Bill. We have the power to prescribe the form and content of the invitation to participate using regulations. We propose to use that power to include something in the notice on that front. That would allow us both to ensure that the requirements are properly clear and unambiguous and that they could not be changed if it proved that the correct balance had not been struck.

I hope that the noble Lord, Lord Kingsland, will not pursue the amendments.

Photo of Lord Kingsland Lord Kingsland Conservative

I agree that the remedy of prosecution in the context of Amendment No. 106 may be somewhat draconian and I shall reflect on that when drafting a similar amendment on Report. The principle of making sure that every tenant receives proper notice is important and should not be derided. When I re-emerge, rather bloodied, from this Committee stage and table an amendment with a softer sanction at Report stage, I hope that the noble Lord, Lord McIntosh of Haringey, will be prepared, in the even-handed way in which he approaches all opposition amendments, to look at the matter afresh.

I think that he said that some thought would be given in the detailed regulations to the principle that lay behind Amendments Nos. 105 and 107. It is important that tenants who are about to embark on establishing an RTM are aware of the responsibilities, obligations and dangers--as well as the benefits--that will necessarily flow from that. The Bill needs to provide a way to ensure that the information arrives on the doorstep of each tenant, together with the formal notices that are mentioned in the Bill. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 106 to 108 not moved.]

Clause 76 agreed to.

[Amendments Nos. 109 and 110 not moved.]

Clause 77 [Right to obtain information]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 111:

Page 37, line 19, after "person" insert "who has a right to manage the premises, or any part thereof,"

Photo of Lord Kingsland Lord Kingsland Conservative

It seems to the Opposition that, as presently drafted, Clause 77 is both too wide and too vague. As I understand it, the purpose of the clause is to ensure that RTM companies have the necessary knowledge to invoke the participation procedure. That is perfectly sensible. However, what an RTM company really needs to start the procedure for exercising the right to manage is the information which must be put in the claim notice. This is essentially the names of the qualifying tenants and the details of their leases.

The Bill, by requiring information,

"which the company reasonably requires in connection with the making of a claim to acquire the right to manage the premises", invites disputes to arise. Just what is reasonably required? Is it just names and addresses or does it extend, for example, to details of the financial arrangements which the landlord has made with managing agents, with caretakers, with builders, with oddjob men and so forth? An RTM company might well be able to say that it reasonably required that information in order to make an attractive proposal to the qualifying tenants so that it could show in detail how the tenants would benefit from the RTM company taking over the management.

But it is anything but clear whether the clause covers such things. The general rule of drafting is that it is better to say as accurately as possible what one means. Equally, at present the clause allows an RTM company to demand information from absolutely anyone. This seems to be far too wide. The information it will want will be information held by the landlord. In my submission the duty to give information should be confined to him.

Lastly, the clause at present has no sensible enforcement mechanism. An RTM company would have to start an action in either the county court or the High Court seeking an injunction. Except in an obvious case an interlocutory injunction--I believe that it is now renamed an interim injunction--would probably not be granted because it would be the equivalent of granting final relief. So the action would probably have to go to trial at disproportionate expense.

A more narrowly drafted and clearer clause would allow enforcement to take place swiftly in the magistrates' court with a fine for infringement. This must, we think, be preferable to ordinary civil proceedings being necessary. I beg to move.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Parliamentary Under-Secretary, Home Office, Government Whip, Government Whip

These amendments, which I understand are similar to ones tabled in Committee in the Bill's earlier incarnation, are intended to restrict the power for RTM companies to obtain information.

As I believe the noble Lord, Lord McIntosh, explained during the previous proceedings, the power granted in Clause 77 can only be used to obtain information relating to certain matters which are required to be included in the claim notice required by Clause 79. While the main purpose of Clause 77 is to ensure that an RTM company can obtain that information, the company may have a legitimate reason to obtain other information which is pertinent to its claim. That is why the clause provides the general power to obtain other information that the company reasonably requires.

As was said in Committee previously, the word "reasonably" should in most circumstances prevent landlords or other managers being faced with unnecessary or unjustified demands. We continue to believe that that strikes the right balance.

The noble Lord also proposes a criminal sanction for failure to comply. As was explained in Committee earlier in the year, Clause 105 provides a power to apply to a court for an order to provide information requested under the clause. We consider that to be sufficient and have heard nothing this evening to persuade us otherwise. We think that that would be a criminal sanction too far.

On the contents of the claim notice, perhaps I do the noble Lord a disservice, but I think that he may have failed to pick up that the RTM company may need information to put in the notice, not only under Section 79(3) and (4), but also under Section 79(8) and (9). We may also encourage them to provide information through guidance and there may well be a need to get information not just from the landlord but from any manager appointed under or outside the terms of the lease. I hope that with that explanation the noble Lord will feel able to withdraw his amendment.

Photo of Lord Kingsland Lord Kingsland Conservative 9:45, 16 October 2001

I may have tabled the amendments on a previous occasion, but I have furnished the Committee with a fresh speech today. However, the Government's reaction is exactly the same as it was last time. Although my speech has changed, it has clearly proved ineffectual. I accept what the Minister says about the criminal sanction, but apart from that, I suggest that what I have said is inoffensive and constructive and would improve the Bill. I do not intend to press the amendment to a vote today. I shall reflect on what we should do on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 112 to 114 not moved.]

Clause 77 agreed to.

Clause 78 [Notice of claim to acquire right]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 115:

Page 37, line 42, leave out "14" and insert "28"

Photo of Lord Kingsland Lord Kingsland Conservative

As the Bill is drafted, an RTM company has to serve a notice inviting participation on every qualifying tenant. The qualifying tenant then has 14 days to decide whether to participate. As the Government are already aware, we think that that period is too short.

In some cases, the question of forming an RTM company will have been in the air for a long time and lessees will have had extensive discussions among themselves about whether to proceed with such a scheme. However, in other cases the idea of an RTM company will have originated with a small group. That is particularly likely to be the case in large blocks. In such a case, the first that many lessees will hear of the proposal is when they receive the notice inviting participation.

A lessee who first learns of the proposal through the notice inviting participation should have a reasonable time to consider the notice. In particular, he or she may want to obtain advice from a solicitor, surveyor or other professional. The lessees may well also want to hold an open meeting for all tenants in the block to discuss the pros and cons of going ahead with an RTM company. To do all that realistically will require more than 14 days. We suggest that 21 days is a more reasonable period.

I now turn to the other amendments in the group--Amendments Nos. 118, 119 and 121. These amendments deal with one aspect of an important element of the RTM scheme--the handover provisions. It appears to us that the Government have not properly thought through what will occur in terms of the practical, day-to-day management of blocks.

Let us take a straightforward case. A landlord has instructed builders, who are doing repair work on the premises which will take approximately a couple of months. The RTM company serves a claim notice on the landlord to take effect in one month, right in the middle of the works being carried out by the builder. What is the effect of the service of the claim notice on the landlord's contract with the builders? The Bill makes detailed provisions in Clauses 89 and 90 for management contracts and, for that matter, management subcontracts, but says nothing about other contracts, such as a contract with a builder.

There are two possibilities: the RTM company takes over the contract with the builder or the landlord retains responsibility for the existing contract with the builder. The first possibility involves the builder having a different contracting partner being thrust on him. As RTM companies will have no share capital, builders may well be unwilling to allow the contract to be moved. Moreover, the RTM will come completely fresh to any project which is in progress. Admittedly, there are provisions in the Bill for information to be transferred between the landlord and the RTM company. But, as anyone who has ever had involvement in building work knows, it is almost impossible to take over the supervision of building work in mid-flow.

The second possibility involves the landlord remaining a contracting party to all existing contracts. That, I suggest, is contrary to the whole idea of right to manage. Theoretically it would be possible for a landlord to remain liable to the builder while the management function was transferred to the RTM company. In that connection, Clause 92 provides for the landlord to pay over "crude uncommitted service charges". Therefore, it may be considered that the landlord would be able to retain service charges to pay the contract that he had already entered into. However, realistically, that type of split responsibility is likely to prove a recipe for disaster. Who, for example, would be responsible for any cost over-runs?

When the Bill was previously in Committee, the noble Lord, Lord Whitty, indicated that he would seek what he described as "greater clarification" (Official Report, 1/3/2001; col. CWH 177) during debate on the question of transitional arrangements for the handover of contracts. The Bill in its current form does not appear to have taken matters any further than in the Bill as put before your Lordships' House before the general election.

As the Government do not appear to be willing to entertain detailed provisions as to how and when existing contracts should be transferred or otherwise dealt with, it seems to me that the only practical solution is to allow a reasonable time for existing contracts to be run off and for sensible handover arrangements to be made. In my view, the six-month period would, in the ordinary case, be suitable. One month is, with the greatest respect to the Government, simply absurd.

None the less, I accept that there may be cases in which a shorter period would be appropriate; for example, where urgent works need to be done and it is sensible that the RTM company rather than the landlord carries out the works. Therefore, the amendment that I have put forward gives the RTM company an option to ask for an earlier handover date, with the leasehold valuation tribunal to decide in cases of dispute.

I appreciate that leasehold valuation tribunals are currently overworked and that steps would have to be taken to ensure that tribunals decided the issue of a handover date quickly. None the less, steps are currently being taken to appoint further chairmen. In any event, it should not be difficult to devise a fast-track system for the determination of this issue. Accordingly, I commend to the Committee the amendment that I have tabled and beg to move.

Photo of Lord Bassam of Brighton Lord Bassam of Brighton Parliamentary Under-Secretary, Home Office, Government Whip, Government Whip

I hope that the noble Lord, Lord Kingsland, will not think me discourteous if I deal with the amendments quickly and simply. In essence, they have one common feature; that is, to introduce delay into the process of acquiring the right to manage. We see no justification for that. We insist that the timetable that is set out in the Bill has been carefully constructed and thought through. We believe that 14 days is a sufficient gap between invitation to participate and claim notice, and that one month is the correct minimum gap between establishing that the company will take over management and the acquisition date itself.

The amendments were tabled in Committee earlier this year. We have heard nothing this evening to persuade us that we have got the balance wrong. We think that all the amendments lean too far towards the convenience of the landlord. We believe that the balance is right and we therefore see no reason to change the arrangement.

The noble Lord properly raised the issue of contracts but it would be better to discuss the issue in relation to Amendment No. 128. I hope that the noble Lord feels able to wait until we reach the relevant group of amendments so that there can be a more substantive debate on and response to this issue.

I can tell that the noble Lord will be disappointed by our response. However, we feel that we have struck the right balance and that we are right to insist on our approach. I hope that he feels able to withdraw the amendment.

Photo of Lord Kingsland Lord Kingsland Conservative

I am extremely disappointed by the noble Lord's response and vastly unimpressed by the logic that apparently lies behind it. It is not the Liberal Party's practice to vote in Committee; if it were I am sure that I should be backed to the hilt. I shall reflect on what the Government have said and return to the matter on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 78 agreed to.

Clause 79 [Contents of claim notice]:

[Amendments Nos. 116 to 121 not moved.]

Clause 79 agreed to.

Clause 80 [Claim notice: supplementary]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 122:

Page 39, line 15, at end insert--

"( ) Nor shall a failure to serve any qualifying tenant or tenants with a notice of invitation to participate invalidate the claim notice, so long as a sufficient number of qualifying tenants were members of the company on the relevant date."

Photo of Lord Kingsland Lord Kingsland Conservative

I am extremely weary of suggesting that this might prove to be an uncontroversial amendment. All the technical improvements that I have so far proposed have been met with the welcome that Scrooge gave to the Christmas carol singers. None the less, it seems to me that there is a technical lacuna in the clause.

Members of the Committee will have noticed that Clause 80(2) is an anti-technicality measure. In other words, the fact that a claim that purports to be given by some people who are not in fact qualifying tenants will not render the claim notice invalid so long as there is a sufficient number of qualifying tenants. So far so good. However, the clause still leaves the problem that some qualifying tenants may not have been served with notices inviting participation.

In a block of 100 flats or more, there is every chance that one or two tenants have not, by some accident or misadventure, been served with a notice inviting participation. So long as the number of qualifying tenants wanting to exercise the right to manage is sufficient, there seems no reason why that accident or misadventure should invalidate the notice. None the less, difficult though it is to believe, that is the Government's intention.

I raised this issue when we were previously in Committee. The noble Lord, Lord Whitty, stated:

"Any failure to serve notices properly would in itself invalidate any attempt to exercise the right to manage and therefore they would have to start all over again".--[Official Report, 1/3/01; CWH 153.]

In other words, if one tenant out of 100 is not served, the whole exercise is vitiated.

That does not seem sensible. It would be better to have a modest criminal sanction and directors who do not serve all the qualifying tenants with notices inviting participation, thus leaving it to the discretion of the prosecuting authorities or aggrieved tenants to prosecute rather than have the entire "right to manage" procedure rendered a nullity due to a minor and possibly excusable mistake in the service of the notices inviting participation. I beg to move.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

The noble Lord, Lord Kingsland, should hold on to his seat: we think that this is an excellent amendment. At the moment, a claim notice might be invalid or at least be open to challenge if the RTM company has, for whatever reason, failed to serve notices of invitation to participate on all of the qualifying tenants. Having commented on the quality of the amendment, I hope that the noble Lord will not mind if I refer to the exact opposite thrust of his earlier amendments, which I had to refer forward in an earlier debate.

On reflection, the present position is not entirely sensible. It could open the door to frivolous challenges by unscrupulous landlords. Amendment No. 122 seems to strike a better balance. A failure to serve the invitation to participate on everybody would not invalidate the claim notice, provided that the right number of qualifying tenants had signed up as members of the RTM company.

No one's interests would be harmed by such an approach. The acquisition of the right to manage would still need majority support. Any person who had not been sent an invitation to participate would be in the minority and would be unable to prevent the RTM from going forward. At the same time, such a person would still have the right to become a member of the RTM company at any time.

We support the amendment but think that it might have to go wider. It might be prudent, for example, to say that minor inaccuracies do not invalidate the notice, as we have provided in the claim notice in Clause 80(1). We should also like to check that consequential amendments will not be required. I hope that the noble Lord will allow us to take away this matter and consider an appropriate amendment to be brought forward at a later stage.

Photo of Lord Kingsland Lord Kingsland Conservative

My enthusiasm for the amendment is now somewhat tempered by the fact that the Government have accepted it. I wonder whether I was right after all. In any case, I think I am correct in withdrawing the amendment. I shall be interested and, indeed, intrigued, to see what the Government make of it on Report. Meanwhile I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 80 agreed to.

Clause 81 agreed to.

House resumed.

House adjourned at four minutes past ten o'clock.