My Lords, in begging leave to ask the Question standing in my name on the Order Paper, perhaps I may declare an interest as honorary president of the Southern Tourist Board.

The Question was as follows:

Whether Her Majesty's Government will now give the English Tourism Council the responsibility and adequate finance to market Tourism for England in close co-operation with the regional tourist boards.

My Lords, Tomorrow's Tourism did not give the English Tourism Council a role to market England. However, in the light of events this year and recent consultations which the Secretary of State has had with senior industry representatives, we are currently reviewing the options for stimulating better co-ordination of the public and private sector funds currently spent on marketing tourism in England.

My Lords, I thank the Minister for that Answer. Although it is certainly a step forward, why does not England have a tourist body of its own which can speak for it? With the BTA it co-operates with the Scottish, Welsh and Northern Irish tourist boards which have their own rights, but England does not.

My Lords, as the noble Lord, Lord Montagu, indicated, he has close relations with the southern regional development agency. The regional development agencies are charged, and have been funded with resources, to improve the marketing of tourism in England. We cannot be doing so badly because it is still the case that expenditure by tourists in England substantially outscores the spending in Scotland, Wales and Northern Ireland. Therefore, the present strategy has something to commend it.

My Lords, tourism in England is a business with a turnover of approximately £53 billion. Does the Minister agree that it is odd that the business should allow its marketing to be done by its subsidiaries, in this case the regions? Does the Minister further agree that now is the time to introduce a central marketing strategy? Yesterday we had a most interesting debate on the National Trust. Should not such bodies be brought in to assist in such a strategy?

My Lords, during the foot and mouth outbreak, which resulted in a decline in visitors from abroad and elsewhere, an increased role was created for the English Tourism Council in relation to marketing abroad. However, it is thought that marketing aimed at British tourists is done better by concentrating on the specific English regions—for instance, the Lake District—rather than speaking about England as a whole.

My Lords, are the Government doing more to encourage broadband access to the Internet through availability in the regions in order to promote, for instance, tourism and industries which are alternatives to farming?

My Lords, I am the first to confess to not being totally familiar with the arrangements for broadband in this dimension. However, I want to stress that it is important that the industry and all our tourism and heritage developments are not looked upon as employing fuddy-duddy technology. That is far from the case. The most modern technology is used to promote what is an important industry and earner for this country, as the noble Viscount, Lord Falkland, indicated.

My Lords, I am sure that the Minister will agree that the timing of any marketing efforts by English, Scottish and Welsh tourist boards abroad is most delicate. What guidance are the Government giving to those boards with regard to marketing efforts abroad?

My Lords, we are all conscious of the fact that the latest tragedy in the United States will not have encouraged the use of airlines by tourists from America to the whole of the United Kingdom, including Northern Ireland. We recognise that the US is an important market, and of course the issue must be approached with great sensitivity. However, during the problems we had with the foot and mouth outbreak earlier this year, we indicated the importance of co-ordinating all efforts and ensuring that arrangements were in hand to recoup potential losses in terms of visitors here.

The Secretary of State has been in close liaison with leaders of the industry, particularly the CBI, in order to ensure that the industry comes together in one body to promote tourism. That is of great importance to us all.

My Lords, does the Minister agree that, in any advertising abroad, the merits of the whole country—Wales, England and Scotland—need to be stressed? Further, does he agree that perhaps there has been a lack of stress on Scotland and Wales, as the noble Lord has just told the House that much more money is spent by tourists in England?

My Lords, the noble Lord will recognise that the advantages of devolution have enabled the Scottish Parliament and the National Assembly for Wales to devote greater resources to marketing their own excellent tourist facilities When one talks about tourism from overseas, particularly the American market, it is important that co-ordination is effected on behalf of the whole of the United Kingdom. The noble Lord will recognise that in the promotion of tourism increased efforts on the part of everyone—the Scottish and Welsh dimension and the regional development work in England, for which additional resources have been made available—all contribute to a greater whole.

My Lords, does the Minister agree that one of the best advertisements for tourism in this country are the cathedrals and churches? Therefore, will the noble Lord incorporate those both in the publicity and consideration by the Government of increased financial help for those buildings?

My Lords, if the glory of the cathedrals did not speak for itself the right reverend Prelate has certainly done so on their behalf. We know that a very high percentage of tourists enjoy our national heritage, of which inevitably ecclesiastical architecture and cathedrals, and all that they represent, are a very important part.

asked Her Majesty's Government:

Whether they have discussed with the French Government the possibility of joint Franco-British assessment at Sangatte of third country nationals wishing to enter either the United Kingdom or France; and, if so, with what result.

My Lords, the British and French Governments are currently pursuing a number of initiatives aimed at resolving the immigration problems in northern France. We are actively considering ways to encourage a more orderly asylum system which will help in the fight against illegal immigration and reduce the pressures at Sangatte.

My Lords, I thank the noble Lord for his reply. I am sure the Minister is aware that the situation is now much worse than when we discussed this subject last week because the French railways have closed the Channel Tunnel to all freight trains, thus severely disrupting trade. Will the two Governments, therefore, at least agree to the presence of British frontier officers in France? If that can be done, will it not help to separate economic migrants from genuine refugees?

My Lords, there are British immigration officers in France. Indeed, by the end of the month we shall have increased the number from 40 to 45. At Coquelles they will work 174 extra shifts per week by the end of this month. The noble Lord referred to the difficulties with the freight system operated by SNCF. There have been difficulties in the past few days. It is probable that the security of the freight site, for which SNCF is wholly responsible, has not received the same attention as the tunnel. That has shifted the clandestines, who will look for weaknesses, from one to the other. I understand that that situation is being rapidly addressed in the interests of trade between our two countries.

My Lords, do the Government agree that the use of the Sangatte centre goes beyond a joke? We hear that 74 people from Afghanistan and Iraq arrived on freight trains on 6th November. Does the Minister agree that the Sangatte centre is a symptom of a far wider problem; namely, that we are trying to reformulate an asylum policy, some but not all of which is welcomed by these Benches, without having a clear immigration policy?

My Lords, in recent weeks and days I have explained at some length that in January we shall produce a White Paper setting out what we hope will be a managed migration system. That will enable us to arrive at a system of managed migration from areas where there is pressure and conflict, not clandestines in the European Union. If we start to operate a system that picks up clandestines within the European Union it will become the most serious "pull" factor for people traffickers than anything we can possibly design in the areas of the world that are in conflict. We hope that regard will be had to the wider picture when we publish the White Paper in January.

My Lords, can my noble friend bring the House up to date on the outcome of discussions to introduce a common system to deal with asylum applications right the way across the European Union?

My Lords, I wish that I could. Discussions are ongoing, and it is crucial that neither we nor the French operate in isolation. As we debated briefly last week at Question Time, we must reform the Dublin Convention. Within the European Union, working in conjunction with the United Nations High Commissioner for Refugees, we need a managed system so that, while Europe takes a fair share of the responsibility, it does so in a way that does not create a "pull" factor or provide extra financial incentives to the people traffickers. We can do that only with a better managed migration system where there are ways to enable people to come to this country to work, which the vast majority of these people want to do. At the end of the day, the majority of the claims do not appear to be based on a well-founded belief as required by the 1951 convention. But in our discussions we must look at access to jobs and the economy in a more managed way. The Home Secretary will be in Brussels on Friday to further discussions on trying to find a European-wide solution.

My Lords, before the White Paper appears, can the noble Lord tell the House what has happened to the principle in the UN convention on refugees that the first safe country in which an asylum seeker arrives is duty bound to consider that person's claim to asylum? The UK and France are both signatories to that convention. The purpose of that principle was to make certain that would-be asylum seekers were not subject to a system of pass-the-parcel between safe countries. Why is that principle not being enforced by the French at the moment?

My Lords, the short answer is that it is probable that the people concerned do not make a claim for asylum while they are in France.

My Lords, this is—I use the phrase—"passing the parcel". While we wait for European-wide agreement, is there not a massive case for Franco-British co-operation by means of a joint ministerial committee that can bring together the various agencies to look at the problem? It is a problem for Britain and France to solve first. While we wait for the European-wide solution, a real joint government effort On this matter could produce immediate results.

My Lords, that may sound seductive, but most of the people arriving in France have come through a safe European Union country. Therefore, it is in the interests of both the French Government and the UK Government to achieve a European solution to the problem. It is not one, with respect to the noble Lord, that Britain and France can solve on their own.

My Lords, in separating economic migration from asylum seekers, would it not be possible to establish a system whereby applicants for economic status within the United Kingdom could be screened at Sangatte? That would meet much of what is in the document published by the Government last week.

My Lords, yes, but if that was done, it would simply increase the flow to Sangatte. It would become the holding centre for access to managed economic migration into the European Union. We must find a way to avoid the need for people to climb on the back of lorries or cling to the axles of railway rolling stock; we must look at the regions they come from and at the areas of the world where the pressures are; and we must take the claims in a more managed way outside the European Union. If we were to screen at Sangatte, it would simply provide a bigger "pull" factor.

My Lords, I declare an interest as a member of the Immigration Appeal Tribunal. The noble Lord has mentioned the people traffickers several times. Does he agree that many of these traffickers—agents as they are known—operate within countries whose governments have good relations with the British Government? What is being done to prevent those people dealing in this horrendous trade in human life? It is worse than slavery because their victims are conned into believing that they will get a good job at this end. Very often they do not. Can the noble Lord also say why the traffickers are not picked up at Heathrow and Gatwick airports? They are known to the immigration officers. Apparently, they just go in and out of the airports without any problems.

My Lords, the people traffickers are picked up and prosecuted. In answer to the first part of the noble Countess's Question, within the past two years, we have placed immigration liaison officers in several countries around the world to assist on the very issue that she raises; that is, to identify people at the points of exit of a country and to give advice to those countries. I understand that there are some 57 officers around the world at the moment. They usually work in pairs. I do not know the exact number of countries they operate in. They are not full time, but they are there on a regular basis. They work on a three or four-month secondment or for a couple of years in some cases. It depends on how safe the country is.

The noble Countess's second point is more difficult. We must have tracking through the airports to make sure that the facilitators and the traffickers who are exchanging documents or removing documents from travellers can be identified—from the point of getting off the plane to when they get to the immigration desk. That may or may not be within a short time. They may loiter around the airport for a considerable period of time, in which case we cannot prove which aircraft they were on. One of the reasons that we are installing closed-circuit television is to help with that issue.

asked Her Majesty's Government:

What they consider to be the necessary preconditions for a viable, sustainable Palestine.

My Lords, Her Majesty's Government remain convinced that an independent democratic and peaceful Palestinian state should emerge as part of a negotiated settlement that guarantees peace and stability for Israel, secure within recognised borders and viewed as an equal partner in the region. The details are for agreement between the parties in permanent status negotiations.

Her Majesty's Government believe that the characteristics of such a viable Palestinian state might include, for example, a high degree of territorial contiguity, responsibility for internal security, and the development of a full range of institutions necessary for effective governance.

My Lords, I thank the Minister for her reply. Does the noble Baroness agree that Israel's determination to build and expand illegal settlements around East Jerusalem and the West Bank, in spite of international resolutions over many years, is now the main obstacle, both to peace and to a viable Palestinian state? Will the Government urge the United States, which has financed some of this road building and the bypasses around these settlements, to convince Israel that withdrawal is essential under the Mitchell plan, and that there are other legal means of guaranteeing Israel's security through international supervision?

My Lords, the noble Earl is right; the settlements are indeed illegal under international law. Her Majesty's Government believe that they are an obstacle to peace. As the noble Earl said, the recommendations of the Mitchell committee are that Israel should freeze all settlement activity, including what is termed "natural growth" of existing settlements.

Of course the United States policy is a matter for that country. However, it is my understanding that the United States has repeatedly called for an end to Israeli settlement activity and has also fulsomely supported the Mitchell committee's recommendations.

My Lords, does my noble friend agree that the fundamental precept of viability and sustainability of a Palestinian state is the absolute commitment of the Palestinian authority to fight terrorism? Does the noble Baroness agree with the words of President Bush this very weekend that there is no such thing as a good terrorist? Does she further accept that the only way that Chairman Arafat can demonstrate his commitment to fighting terrorism is not by word alone but by the specific actions that he takes against Hamas, Hezbollah and Islamic Jihad?

My Lords, I agree that the Palestinian authority's commitment to fight terrorism must be matched by a consistent and sustained effort on the ground. A peaceful Palestinian state co-existing with a secure Israel, which is recognised and respected by Israel, and which offers the best prospect of a lasting peace.

As to the remarks of President Bush this weekend, of course I agree that terrorism should be condemned absolutely. The last part of my noble friend's question asked what Chairman Arafat could do in that respect. We believe that we can ask no more or less of Chairman Arafat on this point than for him to exert every possible effort and to use every possible influence that he has to combat terrorism, to end the violence and to arrest and punish the perpetrators.

My Lords, does the Minister agree that in the circumstances described by the noble Lord in relation to the term "terrorism" it is sometimes difficult to distinguish the recent actions of the Israeli army from those of some of the supporters of the Palestinians?

My Lords, we have spent a great deal of time in your Lordships' House trying to discuss what we mean by terrorism. Her Majesty's Government unequivocally condemn terrorism wherever it arises. Indeed, as I made clear to your Lordships' House on the previous occasion we discussed this issue, we as part of the European Union have made démarches to the Israeli Government on such matters as extra judicial killing.

My Lords, does the Minister agree that one important pre-condition for a viable and sustainable Palestinian state is a fairer distribution of water resources? Is the noble Baroness aware that according to World Bank statistics, 90 per cent of the water in the West Bank is used for Israel's purposes and 10 per cent is left to the Palestinians who are not allowed by the occupying power to dig their own wells?

My Lords, I indeed agree that the issue of water resources is an extremely fraught one. Of course it is not the only difficult issue with which we are dealing. In respect of water resources I believe that Her Majesty's Government have made our position clear. However, many other issues concerning trade, for example, are often related to the issue of water resources and Her Majesty's Government have made clear to the Israeli Government that on that issue we believe there should be fairer treatment of those in the territory of the Palestinian authority.

My Lords—

My Lords, can the Minister—

My Lords—

My Lords, may we hear from the right reverend Prelate first and then from the Liberal Democrat?

My Lords, thank you. Is the Minister aware that under the Israeli Government the Palestinian Christians have felt greatly persecuted? Since the conflict began with Afghanistan that Palestinian Christian group has been under increasing threat from some of the Muslim communities. Can the noble Baroness say whether the Government will use their influence in the creation of a proposed Palestinian state to ensure that the rights of the Palestinian Christian minorities are preserved and promoted?

My Lords, I am aware of the problems faced by some Palestinian Christians. I hope that the right reverend Prelate will agree that Her Majesty's Government have made a point of fostering inter-state relationships wherever there are matters of conflict. I do not want to prescribe what kind of settlement would be appropriate throughout the peace talks and the final settlement discussions, but I believe that any such talks should pay proper attention to the rights of all people in Palestine, irrespective of their faith or ethnicity.

My Lords, given the importance of the trade relationship between the European Union and Israel, does the European Union intend to use its trade instrument to bring pressure to bear on the parties to move towards a settlement?

My Lords, it is an interesting and difficult topic. The General Affairs Council of the European Union will meet again next week on Monday, 19th November. The meeting with the Israeli authorities is due to take place on the 20th. The position of the European Union will be discussed on the 19th and I am sure that a wide range of matters will be taken up with the Israeli authorities on the 20th.

asked Her Majesty's Government:

When they plan to bring the Freedom of Information Act 2000 into force in relation to government departments.

My Lords, I acknowledge the role that the noble Lord played in ensuring the passage of the Freedom of Information Act through this House. The timing of his Question today is admirable, although little time remains to discuss it. It allows me to announce the Government's decision.

The Act will be fully implemented by January 2005, 11 months before the timetable set out in the Act itself. The publication scheme provisions will be implemented first, on a rolling programme, starting with central government in November 2002. I am today placing a full schedule of organisations and dates of implementation in the Libraries of both Houses. This roll-out will be completed in June 2004, and the individual right of access to information held by all public authorities, including government departments, will be implemented in January 2005.

My Lords, does the noble and learned Lord accept that his Answer will bring a great deal of relief to those who have been concerned about recent reports in the press that it would be 2005 before central government departments were subject to the Freedom of Information Act? Is what has happened due to a change of mind on the part of the Government, or was there never any strength behind the press reports which strongly suggested that the Government were going to defer central government freedom of information until 2005?

My Lords, noble Lords should not believe everything that they read in the press. The decisions I have been pleased to publicly announce to this House are the collective decisions of the Government.

My Lords, I congratulate my noble and learned friend on that announcement. Why will there be a delay for public bodies outside central government? As the information, with exceptions, is not illegal, will the Government encourage public bodies outside central government to release information to citizens in an open manner and at an early date?

My Lords, my noble friend and I had the pleasure at one time of co-operating together in the development of freedom of information policy. The schedule which has been placed in the Library shows that, so far as concerns publication schemes, central government comes first in November 2002 and local government follows in February 2003.

It has to be remembered that a much greater level of preparation—n is required. We took two years with the Human Rights Act before the Freedom of Information Act. The Act covers about 70,000 organisations. It could have been made prospective only, but, as my noble friend will remember, we made it retrospective so as to cover all past papers and not merely future papers. The Information Commissioner has to double her staff and she has to approve about 70,000 publication schemes. That will take time. But it will all pay off in the end, in the same way as the Human Rights Act has paid off, with the predicted chaos in the courts being the non-event that we always said it would be.

My Lords, whether or not we believe what we read in the press, does not this illustrate that getting the machinations of Whitehall out into the open helps those Ministers who want to implement government policy against those Ministers who want to slow it down, however high ranking they may be? If there is any slowdown, would it not be a good idea to bring the noble Lord, Lord Clark, back into the Government? He is clearly still committed to early implementation of the Act.

My Lords, I believe that I have announced an early and effective implementation of the Act.

My Lords, I beg to move that this Bill do now pass.

Moved, That the Bill do now pass.—(Lord McIntosh of Haringey.)

My Lords, I rise to intervene at this stage of the Bill, having advised both the Government and the Opposition in advance that I would be doing so and of the rough grounds upon which I propose to argue.

The Bill is described as a "(Money Bill)" on today's Order Paper. However, on the Bill itself, where one would normally expect a designation of this kind to appear, it is stated:

"Be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal"—

that is us—

"and Commons, in this present Parliament assembled, and by the authority of the same, as follows".

There then follows the text of the Bill.

For some time now—at any rate, for as long as I can remember—this abbreviated procedure whereby the House is not invited to consider in any way the detail of the Bill has always been taken as a convention of the House. We are prohibited by convention—I shall return to that in a moment—from tabling amendments to the Bill or, indeed, engaging in detailed arguments about it. The position is, I suppose, that these matters have been established as a convention. The nature and extent of that convention is presently unknown, but it seems to have been slavishly followed without reference to any text at all except that of the Parliament Act 1911, which is taken as the basis for the convention that this House does not intervene in any way in considering the detail of a money Bill.

I leave it to others to decide whether that should be so. There are those who say that the convention exists and is valid, that this should be the approach, and that this House should not be involved in a Bill designated as a money Bill. Another view—I cannot say whether or not I subscribe to it—says that, whatever the convention may be, there is nothing to prevent this House intervening in the detail of a Bill, however it is described, so long as it comes before the House.

This matter is somewhat apposite at present, when consideration is being given to the ideal functions of this House and its methods of operation. Speaking mildly—as is my custom—I believe that the House ought to consider how much it wants to become involved in considering the detail of legislation and advising Her Majesty and everyone else. I do not see why that should not happen.

It lies in the power of the Government and Her Majesty's Loyal Opposition to give us their views on the subject. There is a general view, with which I have become acquainted over the past two or three months, that there is no intellectual reason, and no representative reason either—in the true meaning of "representation"—why this House should lack any authority in considering money Bills. Sometimes such Bills are complex. On reading Hansard, in many cases I cannot detect any intellectual or other ability in another place that is not demonstrated here. We are all honourable men, and we all have our heads screwed on.

This consideration becomes of some importance in the following circumstances. As the Explanatory Notes indicate, the Bill provides for some degree of flexibility in the conditions under which money is provided out of our own Exchequer. It also provides some description of how it is dealt with. For example, there are some amendments—otherwise it would not have been necessary to include them in a Bill—to the way in which own resources are determined by the European Commission, by the European Council and indeed by the European Parliament.

I am certain, having looked at the papers, that my noble friend is justified in saying that the Bill does not provide for any change in the own resources available to the European Community that would be of any disadvantage to the UK. In my submission it is immaterial whether the Bill provides for some changes in the method of calculation of own resources, and whether they are more or less favourable at the moment. The point is that they are mentioned in some detail in the Explanatory Notes and are, therefore, relevant to our discussions.

The mention of own resources brings us to the question of how the whole system works. It works by the mechanism of the European budget. The budget is considered regularly every year; it lays down the amount of own resources—even though it may be unchanged; and it describes in some detail—which many may think unnecessary and unintelligible—how the money is to be spent.

This is all well and good. Members of this House who are zealous in their work, as I am sure your Lordships are, will not object very much to that—except that there are further circumstances. In the normal way, the European budget, which makes provision for European own resources, is debated in some detail in another place. Members of the other place have normally given the Bill their consideration—with what degree of thoroughness I am not prepared to speculate.

We have no inherent right to examine the European budget in this House. But the current circumstances are such that we ought to have, as of right, the power as a House to examine the European budget and to pass judgment on it. Noble Lords who have seen the contents of the papers will know how voluminous they are. I can assure the House that even those who are most efficient and who are the quickest readers would take at least three weeks to read through the damn thing, let alone understand it. My question to the Government is this. How do they and the usual channels propose that this House should have the opportunity to discuss the European budget in view of the fact that Members of another place have now given up that task? It now goes through on the nod at 10.30 p.m. without any consideration at all.

We are not talking about "chicken feed"; we are talking about a net contribution from this country of some £350 billion. It is now a consideration whether we ought to charge the usual channels—who ultimately determine the business of the House—to make provision for this House, even though it may not consider the other implications of money Bills, at least to have the opportunity to give constructive and thorough consideration to the European budget.

To underline that point, only today a report was published from the European Court of Auditors revealing losses due to fraud and irregularity of £2.5 billion. This is not chicken feed—and we do not even have the document here. I hope that this matter may merit further discussion among your Lordships about the desirability or otherwise of this House being able to exercise its talents and its time in a thoughtful examination of European finances and money Bills on the same basis as the other place.

My Lords, the House is frequently grateful to the noble Lord, Lord Bruce, for his wisdom and his diligent hard work on these matters. We have frequently had occasion to benefit from them. On this occasion we on this side of the House are grateful to the noble Lord for supporting a view that we have expressed previously, notably in relation to a Bill introduced not long ago by my noble friend Lord Saatchi. Clearly, these are important matters.

One of the noble Lord's points related to whether or not we should be having this discussion on a money Bill. For greater accuracy, I have just looked up the Companion to the Standing Orders, which specifically says that the conventions on money Bills do not debar the Lords from amending such Bills—and clearly from debating them as well. I understand that on a few occasions amendments have been made in this House to such Bills and that they were accepted by the Commons. The only provision is that if we fail to pass the Bill without amendment within one month of it being sent to your Lordships' House, it becomes law automatically, so we have to get a move on with such Bills, particularly if we wish to amend them. That is why there is a special note on today's Order Paper explaining that we have not observed the usual intervals in considering this Bill.

There is no doubt that we can discuss and amend money Bills. However, that has not been our usual practice; nor has it been our usual practice on any Bill to have extended discussions on the Motion that the Bill do now pass. That practice has recently been criticised by the Captain of the Gentlemen-at-Arms, among others.

Those are the customs and rules of your Lordships' House at the moment. They may change. If some of the propositions that are flying around about the future of your Lordships' House come to pass in any form—it seems unlikely at the moment, but let us suppose—those rules will certainly be under the greatest and most careful scrutiny and will almost certainly be altered considerably. I know that the Government do not wish to discuss powers on these occasions, but that is my view and I do not think that I am alone in holding it.

Meanwhile, we should observe the customs of your Lordships' House with regard to money Bills. We should not stop ourselves entirely from talking on them, but we should exercise a certain self-restraint.

My Lords, I shall do my best not to open up debate on the matter. The House owes a debt of gratitude to my noble friend Lord Bruce and to the Opposition Chief Whip for expanding the time-scale of House of Lords reform. While other people want to move forward, they appear to want to move back to 1911. I know that the noble Lord, Lord Saatchi, wanted to do that, because he wished to question Section 1 of the Parliament Act 1911, which debars the Lords from rejecting money Bills.

The procedural situation with money Bills is that they are certified as such by the Speaker. That certification is final and there can be no challenge to it. The Bill is then sent here and if it is not sent back within a month—I believe that this Bill arrived here on 18th October—it is presented for Royal Assent without the intervention of this House. The noble Lord, Lord Cope, is right that such Bills can be amended, but the Commons is not obliged to consider any amendments that are made and if the Bill has not been passed in the form in which it arrived in this House, it can still go for Royal Assent without us.

I do not propose to say more on the constitutional matter. The noble Lord, Lord Bruce, raised three points of substance about the Bill to which I shall respond briefly. First, he raised matters relating to the European Union budget. I remind him that the Bill concerns the own resources decision, which sets out the system by which the budget is financed. It does not directly concern the setting of the annual budget.

Secondly, the noble Lord raised a question about debate in another place on the European Commission budget. It is true that the last such debate was on 12th July 2000 about the 2001 budget. However, a scrutiny debate on the 2002 budget is scheduled for committee on Monday 19th November at 4.30 p.m. I understand that that will not simply go through on the nod, although of course that is a matter for the House of Commons and not for us.

Thirdly, for anyone worried about European Community spending rising, the Berlin agreement maintains the own resources ceiling at 1.27 per cent of EU GNP and will stabilise spending through the EU budget. For the first time, spending in the existing member states will be lower in real terms at the end of a six-year financial perspective than it was at the beginning. I hope that that goes some way to calming my noble friend's fears.

moved Amendment No. 1:

Page 2, line 18, at beginning insert "Subject to subsection (1A)."

My Lords, requiring 100 per cent consent to convert has largely been a question of the Government against the rest of your Lordships. On Second Reading in January, and in Grand Committee the following month, the noble Lords, Lord Goodhart, Lord Richard and Lord Williams of Elvel, my noble friends Lady Hanham and Lord Courtown, and myself all expressed doubt about the 100 per cent requirement. For the Government, the noble Lord, Lord Bach, sought to justify the provision on the ground that, without unanimity, anomalous leaseholders would remain.

Clause 3 is somewhat opaque about the degree to which 100 per cent consent is necessary. Clause 3(1) lays down that requirement but subsection (2)(e) states that regulations may provide, inter alia,

"for consent to be deemed to have been given in specified circumstances".

Clause 3(2)(f) provides for,

"enabling a court to dispense with a requirement for consent in specified circumstances".

Implicit in those provisions is the Government's acceptance that one will not always obtain unanimity. But nowhere does the Bill state that less than 100 per cent consent will suffice, or spell out the consequences of non-consent.

In Committee, on 16th October, the noble Baroness, Lady Scotland of Asthal, accepted that it was not impossible to devise a system under which fewer than 100 per cent of persons interested had to consent to convert to commonhold but added that this would lead to administrative difficulties because of the need to distinguish both between commonhold units and non-commonhold units and between the differential management tasks. The Minister added:

"To tailor-make the documents and structures that they reflected would not only add to the costs of the conversion process but fly in the face of the thinking behind commonhold".—[Official Report, 16/10/2001; col. 489.]

Later, at col. 492, the noble Baroness said that the amendments provided no fewer than four different schemes to displace the 100 per cent rule. The amendments of the noble Lord, Lord Goodhart, and the noble Baroness, Lady Hamwee, the Minister said, did not overcome the serious problems that she had outlined although she conceded that they represented,

"the kernel of a workable scheme to provide for conversion with less than 100 per cent. consent".

One of the other schemes was that proposed by the Opposition Front Bench. Perhaps, understandably, these proposals were not received with great favour by the noble Baroness. Therefore, I shall concentrate my few remaining remarks on what looks likely to be the most promising scheme so far as concerns the noble Baroness; that is, the scheme of the Liberal Democrats.

That scheme has, I concede, the attraction that the non-consenting proprietor of a flat is not irretrievably shut out but can at a later time, until the expiry of his or her lease, exchange the lease for the freehold estate in the flat. The new schedule provides for two new sets of regulations: one to deal with the price and the terms on which the lessee buys into the commonhold; and the other, in rather general terms, to,

"make consequential provision for giving effect to this Schedule".

But that is nothing unusual for the Bill because it is littered with references to regulations.

I hope that your Lordships' House will accept first, that your Lordships wish commonhold to be popular. I do not believe that there is any dissension in your Lordships' House about that. Secondly, I hope that your Lordships will accept that it should not become compulsory. The amendments aim to enable existing blocks of flats to convert to commonhold in the face of a small but appreciable opposition, which, by the law of averages, there is likely to be. If there must be 100 per cent agreement, as the Government wish. Such conversions will be rare and there will be a danger that, after all the effort that has been put into the Bill, commonhold may never catch on.

My Lords, Amendment No. 4 standing in my name and in that of the noble Lord, Lord Williams of Elvel, is an alternative to that put forward by the noble Lord, Lord Goodhart, and supported by my noble friend Lord Kingsland. Before I speak to that amendment, perhaps I may say how sorry I was to miss the Committee stage of the Bill. I should like to have taken part in it but I was abroad. I believe that it is probably right that I declare my interest as a surveyor and state that some of my friends and acquaintances will be affected in some shape or form by the Bill. Many of the people with whom I work will also be affected by the Bill.

I read with care what the noble Baroness. Lady Scotland, said in Committee. As she explained to me, she set out in some detail the Government's thoughts on commonhold and the reason for their position. I have to tell the noble Baroness how very disappointed I was. She has been so good at grasping opportunities, but on this occasion she was totally negative. She thought of every conceivable excuse not to seek the opportunities that commonhold offered but to decry them. As my noble friend Lord Kingsland has just said, many of us are concerned that commonhold will not catch on if there is no opportunity for it to be available to existing tenants.

Two different types of amendment are before your Lordships. I am very happy with that of the noble Lord, Lord Goodhart. I believe that it is probably better than the amendment in my name and in that of the noble Lord, Lord Williams of Elvel. However, at the end of the day, we are trying to help the Government to get commonhold off the ground. If, from now on, it is confined entirely to new build, it will not be a great success. I believe that the noble Lord, Lord Goodhart, explained carefully the correlation that exists with the RTE companies, where an 80 per cent vote in favour will be required. That leaves out 20 per cent. Surely the same thing can apply to commonhold.

Of course, another important point mentioned by the noble Lord, Lord Goodhart, is that that is the expensive part for the tenants. Once they have reached that stage, surely it is not an impossible step, and certainly not a terribly expensive one considering what they have already done, to go the whole way to commonhold. For that reason, I shall support the amendment of the noble Lord, Lord Goodhart.

My Lords, I say straight away that the noble Lord, Lord Goodhart, was correct when he said that this is, indeed, the fifth time that we have discussed this issue. We were delighted to discuss it twice under the old Bill; we were intrigued by the discussion at Second Reading; we were entranced by the further in-depth trammelling of these issues in Committee; and now here we are at Report. Therefore, it seems that one can never play a good tune too often or too loudly.

We have listened with great care to everything that has been said by all noble Lords, both today and, indeed, at every stage until today. We sympathise with the motivation of noble Lords who are persisting in their attempts to persuade us to ameliorate the effects of the 100 per cent consent rule. We share their regret at the inevitable result of its imposition in terms of the potential difficulty for those who wish to convert. I reassure the noble Earl that it was not negativity that drove us to come to that conclusion but inevitability and logic.

However, as I say, I am afraid that very little in our discussion today is new and capable of convincing us that the need is any less great than it was when I spoke at length on the matter in Committee. I am afraid that I can do no better than to refer your Lordships to the Official Report for 16th October, which has already been referred to by the noble Lord, Lord Kingsland. I am also grateful for noble Lords' forbearance on that occasion. With interruptions, I believe that in responding I took up approximately half an hour of your Lordships' time in the hope that we would explore fully all the issues that were there to be explored.

Perhaps I may explain briefly how we view the matter. We believe that it is necessary to balance the desirability of allowing those in long leasehold circumstances to convert to commonhold easily with the significant difficulties that we envisage in the conversion process and, more importantly perhaps, with the difficulties of running the eventual development. We believe that the balance comes down overwhelmingly in favour of the relative—I emphasise: relative—simplicity of the 100 per cent consent scenario, both in terms of the conversion process and future management.

Of course, I hear what the noble Lord, Lord Goodhart, says in relation to the complexities of the drafting. I am sorry that he now departs from us in terms of accepting those complexities. I reiterate that we never said that it would not be possible or that it could not be done; rather, we believe that it should not be done because of the nature of the commonhold which would be left. Of course, it is true that conversion from RTE to commonhold would be a smaller step. However, I must emphasise that it would still leave a special form of CCS and of commonhold association. With the greatest respect, we say that there is no argument for saying that, because problems will be faced in relation to the RTE, those problems should be imported wholesale into commonhold.

As I said on the previous occasion when we debated this issue, the scheme outlined in the amendments set down by the noble Lord, Lord Goodhart, and the noble Baroness, Lady Hamwee, contains the kernel of a workable proposal to get through the conversion process. Having said that on the previous occasion, I note that the noble Lord, Lord Kingsland, now supports that scheme as he has added his name to the first and third amendments. I am somewhat puzzled that he seems to have spurned the second amendment, although I am sure that he has his reasons for doing so. These amendments do not address the difficult problems and potentially considerable extra costs which will arise in dealing with remaining leaseholders in the commonhold context.

The amendment that was tabled by the noble Earl, Lord Caithness, who I am delighted to see is back in his place, and by my noble friend Lord Williams of Elvel suffers, as it did previously, first, from the fact that it would allow conversion to go ahead without a majority of leaseholders being in favour. Secondly, it would perpetuate the existence of long leases, in that lease extension would continue to be available. Thirdly, it says nothing about the difficulties that I outlined today or when I previously spoke on the matter, somewhat exhaustively, in Committee.

I should say, in line with the usual courtesies, that the Government will table several tidying-up amendments at Third Reading that arise from continued consultation and which will take account of the parallel progress of the Land Registration Bill through your Lordships' House. They will clarify such matters as the liability for extinguished leases and how interests in and dealings with part units will work. That will involve four very minor drafting amendments, for one of which we must thank the noble Lord, Lord Kingsland. We make it clear that, in a compulsory purchase, the commonhold association is not required to consent.

We would have wished to assist if we could. We have considered the matter exhaustively. We have come to the conclusion that the balance relating to the way in which the Government have framed the current regulations is right. Now that we have, for the fifth time, debated this matter—again, quite extensively—I invite the noble Lord to withdraw the amendment.

My Lords, I think that we have in fact debated this matter either four or six times. There have been two debates at Second Reading, during the two Committee stages and, on this part of the Bill, during the two Report stages. I am extremely sorry that those six discussions have entirely failed to shift the Government's position. No issue of principle is involved; it is simply an issue of practicality. We think that the Government are taking an unnecessarily negative view but we do not intend to press the amendment. We may return to the matter for a seventh time at Third Reading but, for the moment, I beg leave to withdraw the amendment.

moved Amendment No. 5:

Page 88, line 5, leave out paragraph 1.

My Lords, I rise briefly to support the noble Lord, Lord Kingsland, although I do not propose to support the amendment because, as the law now stands, there are serious difficulties with flying freeholds; namely, the problems that are associated with positive covenants. It is something of a disgrace to our legal system that although the matter has been the subject of technical and academic study for many years, and although answers are perfectly possible—the noble and learned Lord, Lord Wilberforce, produced them many years ago—it has still proved impossible to find parliamentary time to deal with this problem. I therefore echo the hope of the noble Lord, Lord Kingsland, that the Government will see fit to do something about the matter. I also hope that they will enable positive covenants to be made enforceable as between the owners of freehold land within the same building.

My Lords, I make two minor corrections to what has been said. First, the issue is wider than that which simply involves flying commonhold or flying freehold; it involves positive covenants. Secondly, I say to the noble Lord, Lord Goodhart, that it is not currently a matter of finding parliamentary time; the matter is before the Law Commission rather than Parliament, and I do not know when the Law Commission will report.

I was asked by the noble Lord, Lord Kingsland, for a timetable. I say with confidence that whatever timetable there is is too long—36 years is far too long a period in which to have resolved this matter, although it is of much greater generality than the issue that arises in particular in this context. Although I do not know when the Law Commission will report, I shall make investigations and see whether I can come back to the matter at Third Reading.

The noble Lord, Lord Kingsland, was telegraphic, and I do not think that I need to repeat the arguments. We do not see the desirability of amending the law on positive covenants on one particular occasion when the matter has much wider ramifications, which must be considered by the Law Commission.

My Lords, I am most grateful to the Minister for his sympathetic reply. It would be intriguing to find out what the Law Commission thinks its timetable is in relation to this matter. If this exchange between the Minister and myself could encourage it to give us a target date, that would be a great benefit, as the noble Lord, Lord Goodhart, said, to the legal system generally. Meanwhile, I beg leave to withdraw the amendment.

moved Amendment No. 6:

Page 4, line 31, after "Part" insert ""first"

My Lords, the Government remain of the view that nothing helpful is achieved by this group of amendments. The amendments introduce a second transitional period between the sale of the first unit and the final handover of the completed development to the commonhold association. They dilute the encouragement that exists at present for the developer to finish developing and get off the site and would unnecessarily complicate the early operation of a newly developed commonhold.

As I have said previously, it is our intention that the commonhold community statement should come into effect on the sale of the first unit. That is my answer to the specific question of the noble Earl about the situation after the end of the transitional period. The rights and responsibilities granted and imposed should take effect from that time. For that reason we cannot support the amendment.

The noble Earl asked about the position on voting rights during the period after the first unit has been sold. I have given the answer as the Bill is drafted. The voting rights will be as set out in the existing draft commonhold community statement and memorandum and articles. The developer has directors' and voting rights which will slowly diminish as more units are sold. I turn the noble Earl's question back to himself and ask: what is the situation under his second transitional period? It is not spelt out under his amendment.

My Lords, I believe that it is spelt out in the amendments but let us not get into that detail. We seek to satisfy the concerns of people who will provide the units. I am grateful for the Minister's reply. It goes some way to satisfying me.

Let us presume that the developer is building 10 units. He has sold two and has completed the other eight. Presumably the developer is responsible for the charges on those units because those are funds that must come into the commonhold association; and he must be responsible for the expenditure. Therefore he is responsible for eight-tenths of the income to the association and has virtual control over the commonhold association and how funds are distributed. For example, if there is a fire and structural damage, one needs to be clear who will pick up the appropriate proportions of the cost. Can the Minister confirm whether the situation that I describe regarding the 10 units is correct?

My Lords, with the leave of the House, yes, broadly. During the transitional period, the developer is entitled to appoint a maximum of two directors. The draft Commonhold Community Statement states:

"After the end of the transitional period and for so lone as the developer is the unit-holder of more than [one quarter] of the total number of units in the Commonhold, he shall be entitled to appoint a total of [one quarter] (or the nearest whole number exceeding [one quarter]) of the maximum number of directors of the Commonhold Association, and shall be entitled to remove or replace any director so appointed".

The noble Earl's question was about financial responsibility. Unless I am corrected, I understand that financial responsibility follows in the same proportions.

My Lords, I am most grateful to the Minister. I beg leave to withdraw the amendment.

moved Amendment No. 11:

Page 6, line 12, leave out "may" and insert "must"

My Lords, I am intrigued by the way the amendments have been introduced. I had not understood—it must be my fault—that they related to insurance. I had thought that they were about the definition of what is in the commonhold and the commonhold unit. Everything within the curtilage is either part of the unit or in common. Therefore, insurance policies will have to be formulated in such a way that they cover everything which falls into one or other of those categories.

Let us consider the amendments individually. The first amendment would amend Clause 11(3)(b) to make it a requirement that a definition should exclude specified structures, fittings and so on. I do not understand why. I understand permitting it to exclude specified structures but if circumstances suggest that particular fittings such as grilles for warm air heating systems should be in or out of the definition of a unit, why should that not be so? What harm does that do?

The second amendment would require the definition of a unit somehow to take into account the definition in Clause 24(2) of a limited use area. But they are quite specifically parts of the common parts, not of the unit, and the amendment would tend to confuse the two. The third amendment would amend Clause 11(3)(c) and would require the exclusion from the definition of a unit of the structures delineating it. But what then of garden walls and fences? Logically, they would be part of the unit rather than the common parts.

Finally, the fourth amendment would amend Clause 11(3)(d) in such a way as to require it to refer to two or more areas within a unit whether or not there are two more areas to define. The noble Earl said that he was speaking also to Amendments Nos. 17 and 18 and I am happy to respond. Amendment No. 17 is misconceived. It would make the commonhold association responsible for the whole of the built environment in all commonhold developments. As we have pointed out on many occasions, that makes no sense. Why should the commonhold association be responsible for the upkeep of the fabric of a detached house, or of a stand-alone factory unit? I am sure that the amendment was intended to catch only flats, but it does not. Even if it did, it seems to make no sense to try to define in the Bill what shall be the responsibility of the commonhold association in terms of the structure of what we assume is meant to be the block of flats.

Amendment No. 18 raises many more problems. Does the term "main walls" include load-bearing walls within a building? Does it include the services which run within the walls? If the area beneath the plaster is not the unit-holder's responsibility, how will he or she deal with re-wiring. Or is it supposed, as may well be the case, that all such services are the responsibility of the commonhold association? If so, why do they not appear in the list in the amendment? If the floor does not include the timber surface, does that mean that the commonhold association is responsible only for the joists? Does the roof include any roof in proper use as a roof terrace? If so, to what extent has the commonhold association the right to direct the unit-holder as to what he may and may not do to the roof surface? Who will be responsible for the regular maintenance of the terrace? Will the commonhold association have to recompense the unit-holder for a period of lack of quiet enjoyment of his terrace during repairs—to say nothing of the costs of raising any surface that the unit-holder has put down?

I may have over-egged the pudding, but I think that the noble Lord will understand the difficulty of trying to include such definitions in the Bill. The really important part of his argument, which is about insurance, is that everything must be either common parts or part of a unit and that the insurance must be adequate to cover both, because they add up to the whole of the property.

My Lords, I understand the last point made by the Minister, but under the Bill as drafted it is the commonhold association's responsibility to maintain and insure everything that is not the responsibility of the unit-holder. I was trying to turn that round so that commonhold associations would be clear about what was their responsibility.

The Minister said that the insurance will be either that of the unit-holder or that of the commonhold association. My concern is that commonhold associations will enter into many different types of agreement and that there will be no consistency. As a result, what should be insured by the commonhold association for the integrity of the whole of the unit-holders may be insured by the unit-holder who may not have adequate insurance, may not have paid the premium or may not be fully covered.

Who will check on that? The Minister's final equation was that the insurance cover of the unit-holder and the commonhold will cover 100 per cent. That is exactly the problem: it may not.

My Lords, with the leave of the House, paragraph 22 of the commonhold community statement specifies that everything falls under either the unit or the common parts, and that it is an obligation on every unit-holder to carry adequate insurance. It would not help if there were some different division between the unit-holder and the commonhold association.

My Lords, there is the same onus on lessees now, but I can give the Minister examples in which lessees, although they have a positive covenant in their lease to say that they will insure to an adequate level, have not done so. That is precisely the burden of my argument. I want to turn the provision round, so that at least the commonhold association has the responsibility to maintain and insure the structure of the unit for everyone's benefit.

It is clear that the Minister and I will not agree. We are both trying to protect the unit-holders once a development is complete. The Bill as drafted does not achieve that, but perhaps we can meet between now and Third Reading to talk the matter through.

My Lords, with the leave of the House, all that the amendments would do is move the boundary; there would still be a boundary.

My Lords, so long as the boundary is clear and it is the commonhold association that maintains and insures all the structure I shall be satisfied. I am not satisfied at present. However, I beg leave to withdraw the amendment.

moved Amendment No. 15:

Page 8, line 18, leave out subsections (1) and (2) and insert—

"( ) No term of years absolute may be created in a residential commonhold unit—

(a) for a term exceeding 7 years;

(b) in consideration of the payment of a premium or other lump sum;

(c) which does not comply with such other considerations as may be prescribed."

My Lords, this is another amendment that has been hotly disputed. I do not intend to repeat what I have said on at least five previous occasions. I agree with the noble Lord, Lord Goodhart, that whatever the Government decide is the appropriate term should be written into the Bill; but I disagree that the term should be limited to seven years.

Let us consider the arrangements for trustees, for example, in relation to absolute owners of land—freehold owners—which are far more generous. Fixed terms of seven years are far more restrictive than the terms allowed by Section 41 of the Settled Land Act 1925. Moreover, the trust of land in the Appointment of Trustees Act 1996, passed by a Conservative government, specifically provides that trustees of land shall have all the powers of absolute owners. The Bill does not deal at all with the leasing powers of trustees of land, nor does it spell out the consequences of granting an invalid lease for an innocent purchaser.

In Committee, the noble Lord, Lord McIntosh of Haringey, said, at col. 516 of Hansard of 16th October 2001, that setting out leasing restrictions in regulations allowed more flexibility and "tighter controls".

The trouble, as the noble Lord, Lord Goodhart, said, is that flexibility leads to uncertainty. Few, if any, would "buy to let" if the Government kept the power to clamp down on residential lettings in the future. The restrictions which they have in mind would give the unit holder fewer leasing powers than a tenant for life had under Section 6 of the Settled Land Act 1882.

Though I have not tabled an amendment to this effect, I came to the conclusion, as these debates evolved, that perhaps the best approach for the Government would be to follow the advice of the noble Lord, Lord Goodhart, and put the appropriate term on the face of the Bill; but to add to the seven years—or perhaps another rack-rent term—an alternative of 999 years. In other words, no lease less than 999 years could be created for commonhold holdings in the future; that would in effect be commonhold. Otherwise, only rack-rent leases would be allowed.

That would entitle a commonhold owner, if that owner wished, to rent out for a shortish period of time. At the same time, it would give the commonholder the freedom that freeholders have to lease their properties, but to require that lease to be no less than 999 years. That would remove the main objection to the freedom for commonholders to lease properties in the future; that is, a return to the bad old days of leases somewhere between rack-rent leases and 999 years, which would re-contaminate the system.

My Lords, I hope to be able to give the noble Lord, Lord Goodhart, the assurance he seeks. His amendment would put on the face of the Bill the rules about leasing, which we would find more conveniently placed, for flexibility, in the commonhold community statement. Amendment No. 15 replicates exactly the terms that we will put in the commonhold community statement.

An illustration of the difficulties we may face if we take another course is amply demonstrated by Amendment No. 15. The Government will be tabling some tidying-up amendments to Part 1 of the Bill at Third Reading. I mention that now, by way of example, as to why we believe that matters of detail ought to be kept in the regulations.

While developing the policy underlying this Bill, one of the important matters considered was the extent of the interest a leaseholder should have in the property before their consent to conversion should be required. It was decided that a lease granted for 21 or more years was substantial enough. That was not a period chosen at random, but as your Lordship will be aware, is, at present, the period which renders a lease subject to registration at the Land Registry. Though, of course, the period still to run might be less than 21 years at the time of the application to convert and the leaseholder might have bought only the last 10 years of a 21-year lease, it seemed to us to be a reasonable limit. We expressed that limit simply by saying at Clause 3(1)(a) of our Bill that consents should be required from registered proprietors of an estate in the whole or part of the land. That had the virtue of catching freeholders and leaseholders of registered leases without having to go into what would have been unnecessary definitions.

However, as many noble Lords will know, particularly the noble Lord, Lord Goodhart, Chapter 1 of Part 2 of the Land Registration Bill provides that leases be registered if they are for seven or more years.

Fortunately, the various parts of the department of my noble and learned friend the Lord Chancellor speak to each other and so this change was picked up before our Bill arrived on the statute book. One of the amendments to be tabled for Third Reading will sort that matter out.

This is not a matter of detail. It is an essential plank of the development and conversion process. Only those with a substantial interest should be required to give their consent. But circumstances are changing. Fortunately, we were able to keep up with them before we ran the risk of confusion.

We shall be putting the limits for residential leasing in the commonhold community statement and they will be mandatory. But the seven-year maximum lease period was not chosen at random either. As your Lordships know, it was chosen because it is the time limit at which responsibility for repair and insurance to the property passes from the landlord to the tenant. But if, in the future, the market dictates that a different period of maximum lease length would be advantageous, we would want the flexibility to be able to react to that. It would be wrong unduly to tie our hands and make us reliant on finding parliamentary time to amend such things in primary legislation when regulations could be introduced speedily and easily.

The noble Lord, Lord Kingsland, would omit from the Bill any power to regulate the letting of residential leases. We regret to say that we cannot agree with him. Although we have tried to avoid the setting of too many regulations about commonhold, we are convinced that we should avoid the possibility that commonhold units be turned into just so many more long leasehold properties.

Much has been said during our debates on this Bill in your Lordships' House and elsewhere that the Government should have gone further than we have and forbid the development of new leasehold properties; and even to convert all current leaseholds into commonholds. Although, for the reasons we have given, we are not prepared to go that far, we certainly take the view that we should avoid the introduction of the long leaseholder traps into commonhold. That is what Clause 17 sets out to do. Without it, we would be powerless to do so. I therefore invite the noble Lord, Lord Goodhart, to withdraw his amendment.

My Lords, I am grateful to the noble Baroness for that explanation. What she said was sufficient to satisfy us. I should say that on this issue we are fundamentally in disagreement with the noble Lord, Lord Kingsland. Our view is that commonholds should be designed as a form of collective ownership by those who have a real stake in the property. For that reason we should not consider allowing the re-creation of the long leasehold problem through long leases of commonholds. Therefore we would be strongly opposed to any provision that enabled leases to be granted at a premium or for a term of seven years. Certainly we would be strongly opposed to the proposal of 999-year leases being granted. That would mean that the freeholder, as a member of the commonhold association, for all practical purposes would have no interest whatsoever in the property. That would simply re-create all the problems of absentee landlordism and indeed in an aggravated form.

However, as we are satisfied with the Government's response, I beg leave to withdraw the amendment.

moved Amendment No. 19:

Page 18, line 18, at end insert—

"(3A) The assets of a fund established and maintained by virtue of this section shall be treated as monies reserved for future expenditure.

(3B) Any sums paid into a fund established and maintained by virtue of this section by a unit-holder, and any investments representing those sums, shall (together with any income accruing thereon) be held by the commonhold association on trust either as a single fund, or, if the commonhold association deems appropriate, as two or more separate funds.

(3C) The commonhold association shall hold any trust fund—

(a) on trust to defray costs incurred in connection with the matters for which the relevant contributions were payable (whether incurred by the commonhold association itself or by another person), and

(b) subject to that, on trust for the persons who are the contributing unit-holders for the time-being.

(3D) Subject to subsections (3F) and (3G), the contributing unit-holders shall be treated as entitled by virtue of subsection (3C)(b) to such shares in the residue of any such fund as are proportionate to their respective liabilities to pay a proportion of the levy set under subsection (2).

(3E) If the Secretary of State by order so provides, any sums standing to the credit of any trust fund may, instead of being invested in any other manner authorised by law, be invested in such manner as may be specified in the order; and any such order may contain such incidental, supplemental or transitional provisions as the Secretary of State considers appropriate in connection with the order.

(3F) On the transfer of a commonhold unit, the unit-holder shall not be entitled to any part of any trust fund, and any part of such trust fund which is attributable to relevant contributions paid in accordance with this section shall accordingly continue to be held on the trusts referred to in subsection (3C).

(3G) Any trust fund established under this section shall be exempt from any tax in respect of contributions made to it by the unit holders, whether (apart from this provision) a liability to tax may be imposed on the commonhold association or the contributing unit-holder."

My Lords, Amendment No. 19 seeks to introduce into commonhold a form of fundholding developed for leasehold funds by Section 42 of the Landlord and Tenant Act 1987. The principal purpose of Section 42 was to establish a rule that funds held by the landlord or his agent for future works should be held in trust for the lessees.

As I mentioned in Committee, Section 42 was introduced to improve and standardise the manner in which service charges and sinking funds are managed while they remain in the hands of the landlord. There are two benefits of the statutory trust for leasehold service charges to leaseholders. First, money paid by tenants to the landlord or his agents is safe from creditors in the event of his or their bankruptcy or liquidation. Secondly, it ensures that the landlord or his agent is subject to the duties of a trustee and will therefore be liable for breach of trust if the money is misappropriated or not adequately safeguarded or invested.

Those considerations simply do not apply within commonhold. The commonhold association is a company whose members are those who pay the money into the funds. They appoint and dismiss the directors of the company. They approve the objects of expenditure and the setting of budgets and have absolute control over all aspects of the company under company law.

The directors who act on their behalf are bound by their fiduciary duty to act honestly and bona fide in the interests of the company, and are to act for the proper purposes as set out in the company's constitution and in accordance with any statutory duty. They are also subject to the sanctions available both under the Companies Act and the general criminal law. They must produce accounts and answer for their contents. The funds under Clause 38 are funds of the commonhold association to be established by the directors of the association in accordance with the commonhold community statement for the purposes specified by the Bill.

If a commonhold association decides, with regard to its particular circumstances and following appropriate legal advice, that it wishes to hold some or all of its funds on trust for any reason, then it may do so. We are not preventing that step being taken. However, as I explained, the purposes for which Section 42 was included in the 1987 Act simply do not apply in commonhold. It would be wholly appropriate for parts of that section to be replicated in the Commonhold and Leasehold Reform Bill.

In the event that a sinking fund were to be liable to meet a debt which is properly referable to it, it can be expected to pay, but otherwise it is protected until the CA is finally wound up. Clause 38(4) provides for the protection and Clause 55 releases the reserve funds at termination.

I turn to Amendment No. 20, tabled by the noble Lord, Lord Kingsland. The amendment would have the effect that a vote on whether to add land to a commonhold would be passed with 75 per cent of the members who vote on such a resolution voting in favour. That currently requires a unanimous vote; that is, all members who vote on the resolution must vote in favour.

We believe that certain significant functions of the commonhold association should be recognised as such by requiring those who compose a resolution to persuade all unit-holders who are voting on an issue that it is the right thing to do in the circumstances. In this case not only is there likely to be capital expenditure from the funds of the commonhold association or a need to borrow, but the associated cost of servicing any loan and ongoing costs of managing and maintaining the new land. Unit-holders may be asked for extra commonhold assessments to cover the cost of new facilities on the added land. In those circumstances, it seems to us that unanimity on our terms—namely, allowing a small number of concerned unit-holders to exercise an effective veto—is not an unreasonable hurdle for those making the proposal to get over. I ask the noble Lord to consider withdrawing his amendment.

My Lords, I thank the noble Baroness for her reply. The difference of view here is an assessment about how commonhold associations are likely to behave in the future. Perhaps, because I am of greater age than the noble Baroness, I am somewhat more cynical about the conduct that is likely to manifest itself. However, I do not consider these to be appropriate matters on which to divide your Lordships' House. In those circumstances I beg leave to withdraw the amendment.

moved Amendment No. 21:

Page 32, line 27, leave out from first "company" to end of line and insert "which, in accordance with this Chapter, may acquire and exercise those rights (referred to in this Chapter as a RTM company)"

My Lords, I am grateful to the noble and learned Lord for bringing me that truly exciting news. I had begun to despair that parliamentary counsel would ever see that important problem of lexicography my way. I trust that the noble and learned Lord will now recommend to his leader that an amendment to the House of Lords Act 1999 is tabled to effect that change—and, perhaps, other changes as well.

My Lords, I welcome the amendment and congratulate the noble Lord. However, I hope that parliamentary counsel will not feel that they have satisfied all their obligations to consider amendments tabled by the Opposition Benches. That may be important, but it is perhaps not the most substantial of the amendments. While leaseholders may continue to question whether this Bill does all that they would like, I believe that they may be even more perplexed if they discover that this is the only amendment seen by counsel. I would not like to impugn the noble Lord in that regard.

moved Amendment No. 22:

Page 33, line 8, at end insert ", and

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

My Lords, I support my noble friend Lord Kingsland on this amendment. The right to manage mixed use property is a matter I have raised on a number of occasions during consideration of the Bill. It is not an area which many owners or developers want to become involved with even at the best of times. It is much simpler to have one commercial or residential unit. A mixed use development always has problems. It is therefore important that we get it right and do not deter the future provision of these very useful multi-use buildings. For that reason I support my noble friend.

My Lords, the noble Lord, Lord Kingsland, has spoken only to Amendment No. 22 and not to his Amendment No. 23 as well. I take his Amendment No. 24 to be consequential to Amendment No. 22. Amendment No. 23 is in the same group.

Amendment No. 22 is broadly the same as one debated on several occasions. As the noble Lord, Lord Kingsland, set out, its effect would be to exclude from the right to manage any mixed use property regardless of how small is the non-residential portion of the property.

As made clear by my noble friend Lord Whitty, and by myself in Committee, we have two reasons for being firmly opposed to this amendment. First, we consider it to be wrong as a matter of principle. The right to manage is designed to allow leaseholders who hold a majority of the equity in their block to take over the management of that block.

As explained previously, the 25 per cent threshold set by Schedule 6 paragraph 1 reflects that. Amendment No. 22 does not. It would allow the landlord to retain a monopoly over the management of the block even where a commercial unit accounts for no more than one per cent of the overall floor space. We consider that wrong and wholly contrary to the spirit of the right to manage. That point has nothing to do with the potential for either confusion as to where the line is to be drawn or abuse; it is simply concerned with the principle that the right to manage should be designed to allow leaseholders who hold the majority of the equity in their block to take over its management. That is what the principle reflects.

Our second objection is that the amendment opens up a major loophole which would allow unscrupulous landlords to put their properties outside the right to manage. We acknowledge that the noble Lord has listened to our concerns on this matter and that he has tried to accommodate them in bringing forward this revised version of the amendment. However, we believe that what is now proposed still gives rise to significant problems. I know that the noble Lord, Lord Kingsland, has made a close study of Section 23 of the Landlord and Tenant Act 1954 in framing his amendment. He will therefore know that the section defines what is a business tenancy for the purposes of the Act, and therefore for this amendment, and that the definition is rather vague. As the noble Lord will already know the definition, and because it is quite long, I shall not read the whole of it today. However, I shall remind the noble Lord of one aspect of it.

As he knows, the section covers not only units which have been let solely for business purposes but also premises which are used for business and other purposes. That includes units which are let primarily for residential purposes but which are also used without a breach of the terms of the lease for professional activities. A good example would be a childminder who has bought a flat as a home on a long lease but also uses it as a place in which to look after children. What is—I ask rhetorically—the noble Lord's intentions in such a case? Should it be caught by his amendment. In short, should the fact that one flat in the block is owned and used by a childminder mean that the whole block should be put outside the right to manage? We believe that the proposal would have that effect.

Furthermore, we believe that the amendment would encourage landlords to seek to let units on the basis that they could be used for both residential and professional purposes or to look for uses which it could be argued fall within the scope of Part II of the Landlord and Tenant Act 1954. We do not agree that the reliance on planning consent is particularly helpful. Rather, we believe that the whole approach will open up a grey area and grounds for dispute. Therefore, we do not accept the proposal made in Amendment No. 22 and ask the noble Lord to withdraw it.

Perhaps I may deal with the point relating to signs on shop fascias. The noble Lord rightly said that I had failed to deal with it in Committee. The short but unhelpful answer is that it will depend on whether the matter is covered by the commercial lease. If so, it would be for the commercial landlord. If not, it would be for the RTM company. That is our initial reaction and perhaps we need to reflect a little more on it, but it seems ultimately to depend on the purpose of the commercial lease.

In those circumstances, I ask the noble Lord to withdraw his amendment.

My Lords, it is clear from what the noble and learned Lord has said, not only today but in Committee, that he believes that the solutions I sought to the problem have proved unworkable. Perhaps I may ask him a further question. Does he believe that there is a problem? It is clear that a central feature of town and country planning policy is the promotion of mixed development. It must follow that it is highly desirable to co-ordinate the law so that it assists mixed developments to be built around the country. Does the noble and learned Lord believe that the proposals in the Bill will inhibit mixed developments in the future? If he does, does he have a better solution than the one I have proposed?

My Lords, no, I do not believe that it would inhibit mixed developments. The noble Lord, Lord Kingsland, is right to say that, looking at developments as a whole, we would in planning terms want to encourage mixed development. We believe that it is an important policy aim.

We do not believe that the legislation would remotely discourage mixed development. It is an issue with which we have all wrestled during the course of the Bill. The department, the noble Lord and we believe that it is the best solution that can be devised.

My Lords, I thank the noble and learned Lord for that reply. I am surprised that his department has concluded that the proposals will not inhibit mixed development. It is an area on which I have been most substantially and intensively lobbied by various interests. All of them take the view that the proposals will indeed inhibit mixed developments; but we shall see what happens. In the meantime, I beg leave to withdraw the amendment.

moved Amendment No. 25:

Page 33, line 26, leave out "for the purposes of this Chapter"

My Lords, in calling Amendment No. 26, I must advise the House that "(2)(c) above" in the proposed new subsection (2B) as it appears on the Marshalled List should read "(2A) above".

moved Amendment No. 26:

Page 33, line 31, at end insert—

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

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

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

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

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

My Lords, the noble Lord, Lord Kingsland, has not spoken to Amendment No. 29, which is grouped with Amendment No. 26. Am I right to assume that Amendment No. 29 has been mistakenly grouped with Amendment No. 26, with which it appears to have no affinity, and should be in the next group which comprises Amendments Nos. 27, 28 and 65?

My Lords, I am very grateful to the noble Lord. I had intended to speak later to that amendment and failed to spot that it was grouped as it is. Perhaps the noble and learned Lord will allow me to speak to it in the next grouping.

My Lords, of course. The point that the noble Lord raises in Amendment No. 26 is that people who wish to become members of an RTM company must agree to give a guarantee to the company that is equivalent to two years' worth of service charges. As ever, quite fairly the noble Lord referred to the argument advanced by my noble friend Lord Whitty. The answer is that it would price very large numbers of people who would want to join such a company—and, therefore, discourage RTMs—out of the market. We believe that that factor is sufficient to indicate that this is a bad proposal.

Perhaps we may look at the actual sums that would face those who wished to join RTM companies. We understand that the Association of Residential Managing Agents carried out a survey of its members three years ago to find out what might be considered to be a typical annual service charge. That survey found that a reasonable estimate for outside London was £800 a year and for inside London about £1,200 a year. While those are estimates, it means that the guarantee which would have to be provided by an individual before he could become a member of an RTM company would be approximately £1,600 to £2,400. Furthermore, if the noble Lord's amendment was accepted he would be asked to agree that this liability should be left to hang over him, with no indication of when, or even if, it would be called upon and how it would fit into the cycle of paying the mortgage and bills, feeding the family and so on.

Frankly, we believe that the prospect of such a liability would put all but the hardiest and wealthiest off the prospect of exercising the right to manage. We fully appreciate that the proposal of the noble Lord, Lord Kingsland, is not intended to be a disincentive, but that is what we believe it would be. We acknowledge that there is a need to ensure that the RTM company is properly funded, which is the foundation of the noble Lord's point, but we do not agree that it is right to address that in the way proposed.

The right to manage is granted on the basis that the leaseholders already hold the majority share in the property and, therefore, should be able to control how their assets are managed. As such we are allowing people to manage their own homes. We believe that that should be done in the same way as any other person is allowed to manage his own home, be it leasehold or freehold. We trust leaseholders as home owners to take sensible and informed decisions about how the block should be managed. Guidance will make clear to them that that will involve finding the money to look after their homes, and that may include the need for some kind of start-up capital for the RTM company. We are even prepared to look at that issue as part of the work on the company constitution, albeit without any commitment as to what may come out of it. But we cannot agree to the introduction of what is effectively a requirement on leaseholders to pay or undertake a liability to manage their own homes.

I hope that in the light of what I have said the noble Lord, Lord Kingsland, is prepared to withdraw his amendment.

My Lords, I thank the Minister for his comprehensive reply. I feel a little like I did when responding to the debate on the previous amendment. I believe I am right in saying that the noble and learned Lord recognises that there is a problem here. I discern from his reply that he believes at least a partial solution to the problem may be found at a later stage in the making of the regulations. If I am right about that, the Minister is saying, yes, I have identified a problem but the solution that I propose is unacceptable.

I do not propose to take this amendment to a vote; but I hope that when the Minister's department comes to draft the regulations which touch on this matter it will give serious consideration to what lies behind my decision to table the amendment in the first place; namely, that sometimes RTM companies will have substantial financial responsibilities. One of the consequences of setting up such a company could be very substantial financial outgoings in future. Bearing that in mind, I beg leave to withdraw the amendment.

moved Amendment No. 27:

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

My Lords, I rise to speak to Amendments No. 28 and 29. Amendment No. 29 was not included in this group, but the noble and learned Lord agreed that it could be.

The question of the involvement of a landlord in the continuing management of the block is one where, when the matter was previously debated, your Lordships' House divided in three ways. We consider that a landlord who wants to exercise the right should have one seat on the board of directors. The Liberal Democrats take the view that a landlord should have no involvement in the management or in the RTM company. The Government suggest that the landlord should be a member of the RTM company but should not have an automatic right to a place on the board.

We consider that it cannot be right to exclude the landlord altogether. The landlord, after all, has some interest in the block. Where leases have only a short time to run, a landlord's interest in the building may be greater than that of the lessee. That interest should be expressed by giving the landlord some formal role in the management of the block.

The Government's position recognises the landlord's interest but seeks to meet it in an unsatisfactory manner. The Bill, as presently formulated, gives the landlord membership of the RTM company but gives him no further rights. Membership of the RTM company gives the member a right to attend the annual general meeting of the company and any extraordinary general meetings which may be held. It gives a right to receive the accounts. They would be available from Companies House in any event. It also gives him the duty to contribute the sum of £1 to the RTM company on its insolvency.

We do not consider that those provisions adequately recognise the landlord's interest in ensuring the proper maintenance of the block of which he owns the reversion. When the matter was in Committee the main philosophical difference discussed was an issue as to residence requirement. We suggested then that the right to manage was one which should be given to residents and not to non-residents. The Government's response was that it was illogical to give non-resident landlords the right to take part in the management of a block. We have now dropped our support for a residence requirement for tenants who wish to exercise the right to manage. Accordingly, this illogicality—if such it was—drops away.

The only issue then is whether mere membership of the RIM company gives the landlord sufficient status. It seems to us that it does not. Landlords who want one should be entitled to a place on the board of directors. Many, particularly where the reversion will not fall in for many years, will not want to take up that right. Your Lordships will note that a directorship is unpaid unless a service contract is entered into between the company and the director. Thus a landlord would have no immediate financial incentive to take up a directorship.

My Lords, we cannot support Amendment No. 29, to which the noble Lord. Lord Kingsland, has just spoken, for the reasons given by my noble friend with regard to shareholders. Indeed, it would compound the position. That concerns us. As my noble friend said, there is a relationship between the landlord and the RTM company which is quite separate from that of co-shareholders in a company and that among a board of directors and between directors and shareholders.

We expressed our concern that as shareholders at meetings would be able to use procedural matters to more than procedural advantage, that would be available, perhaps in spades, to an unco-operative, unhelpful landlord by using his position as director. Can the Minister confirm that a landlord who, as an individual—I am not quite sure how the amendment works where the landlord is not an individual, but that is perhaps being picky—is helpful and constructive and can make the RTM company work well, will be eligible to be elected as a director by the shareholders?

My Lords, under the present arrangements, yes, he could be. It would be a matter for members to decide who they want as a director. If the members want the freeholder, assuming he is an individual, to be a director, it would be open to them to elect him. The noble Lord, Lord Kingsland, did not deal with Amendment No. 28. Amendment No. 27, tabled by the noble Lord, Lord Goodhart, takes away the right of landlords to be members of the RTM company. Amendment No. 65, which is in the same group, does likewise for a company which is both an RTM and an RTE company.

We have listened carefully to the arguments put forward by the noble Lord, Lord Goodhart, today and in both previous Committee stages. For the reasons that we gave on both those occasions, unfortunately, we remain unpersuaded by his arguments. The right to manage is intended to redress the imbalances caused by the leasehold system. We do not want to create one imbalance while seeking to remedy another. That is precisely what the amendment of the noble Lord, Lord Goodhart, would do.

The arrangements for membership of the RTM company are based on the principle that everyone who has a significant stake in a property should be able to have a say in its collective management. That means that a landlord with a minority stake in the property will no longer be able to exercise a monopoly control over its management. However, it also means that we cannot disregard that minority stake. To do so would be to move from an unjustified monopoly on the part of the landlord to an equally unjustified monopoly on the part of the leaseholders.

The noble Lord, Lord Goodhart, argued in Committee that the landlord is likely to be a disruptive member of the RTM company. He repeated that argument today. He frequently said that the circumstances in which the right to manage would be exercised would be where there was difficulty or problems with the landlord. We believe that that presumption is both an unfair generalisation and inappropriate in this context. This is, as the noble Lord knows, a "no fault" right. There is nothing which requires the acquisition of the right to be in any way tied to the previous or projected future conduct of the landlord. To suggest, as is implicit in this amendment, that the landlord cannot ever be trusted is effectively to pronounce him guilty from the start, and guilty without any opportunity to be proved otherwise. We recognise that any member of the RTM company may want to try to be obstructive. That needs to be taken account of in the overall RTM framework. It is for that reason that we intend to make voting rights in the company properly proportional to interest in the property, as embodied in the draft constitution which noble Lords have already seen. That will stop any obstructive minority from being able to block the working of the company. We cannot accept the amendment and therefore we ask the noble Lord to withdraw it.

Amendment No. 29 was spoken to by the noble Lord, Lord Kingsland. It allows the freeholder to appoint at least one of the directors of the RTM company. The noble Lord referred to the circumstances in which the freeholder might have a substantial share in the property. He said that that was the way that those interests can be safeguarded. He will, of course, be aware that for the right to manage to be acquirable for a property, the freeholder of the property will necessarily have a minority interest in the property. We are therefore somewhat confused as to why that minority interest should enjoy special treatment through being able to appoint a director. Why, for example, are the individual leaseholders not also able to appoint a director each in the interests of safeguarding their own individual interests? What about intermediate landlords? Surely if the noble Lord wishes to ensure that everyone's interests are properly looked after, he should extend the amendment to allow every person who has an interest in an RTM property to appoint at least one director. As I am sure the noble Lord recognises, that would be unworkable, but at least it would be fair and equitable under this proposed approach.

We acknowledge, of course, that the freeholder will be only one RTM company member against many. If he or she holds a minority view, he or she will lose a vote. The same will, of course, apply to an individual leaseholder who holds a minority view. That is democratic property management. As I have said, we can see no reason why a freeholder with a minority view is deserving of preferential treatment when compared to a leaseholder with a minority view.

That said, it is important that everyone—including the freeholder—has proper rights to safeguard their interests. As has been explained on a number of occasions, the Bill already provides for that. All affected parties can challenge mismanagement and can seek to have the RTM company removed as manager. Amendment No. 55, which we shall come onto later, supplements that.

We therefore do not agree that Amendment No. 29 is either justified or necessary. We hope that the noble Lord will not press the amendment.

My Lords, I regret that, even at this late stage, the Government are not willing to accept the view we have put forward that the landlord has no place on an RTM company, and that the RTM company should be a body which collectively represents the lessees and acts at arm's length with the landlord. However, I do not intend to divide the House. I beg leave to withdraw the amendment.

moved Amendment No. 30:

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

My Lords, we have rehearsed this argument on a number of occasions—which is perfectly legitimate; I am not complaining—and the noble Lord, Lord Goodhart, is aware that we do not support the amendment. We believe that it is correct to make this right available essentially to those categories of leaseholders who have acquired a substantial long-term stake in the property, and 21 years has been accepted to be the correct threshold for those purposes. It is accepted, for example, in the Leasehold Reform Act 1967 and in the Leasehold Reform, Housing and Urban Development Act 1993; it is the definition of a long lease. The noble Lord, Lord Goodhart, described that period as the point at which the value of the reversion begins to exceed the value of the freehold.

These amendments seek to open up the right to manage to those with leases granted for more than seven years. That is what the noble Lord, Lord Goodhart, called—I listened carefully to his speech—a significant interest in premises.

I understand the noble Lord's point, but I have to disagree. Someone who holds a seven-year lease on a flat will hold a minority stake in the property as a whole. He will certainly hold a lesser stake in the property than the landlord. Our view is that someone with a seven-year lease will not have a direct or, to use the noble Lord's word, significant interest in the property but a minor and rather short-lived one.

The main aim behind the right to manage is to redress the balance where a landlord holds a monopoly over the management of a property but only has a minority share of the equity. The amendment moved by the noble Lord, Lord Goodhart, would turn this argument on its head. The right would, instead, allow leaseholders who hold a minority share in the property to take over the management from the landlord who holds a majority share of the equity. We cannot agree that that would be right. It might even be contrary to the European Convention on Human Rights.

It is not relevant to say, as the noble Lord, Lord Goodhart, did, that under the Land Registration Act seven years is the period for registration on the basis that, for some purposes, that has been so for some time and it is a matter of practicality that the Land Registry now thinks that it can make it the period of registration for all purposes. It is hoped in future to reduce the period to two or three years. I do not know whether that would influence the noble Lord's judgment. It does not matter when registration occurs. It is not even relevant to talk about what happens in the commonhold part of the Bill, because in commonhold there is no landlord whose rights must be judged against the rights of the leaseholders. The important fact is that a lease of less than 21 years is still a minority interest in the property, and it would not be right for that to be recognised in this part of the Bill.

My Lords, I regret that we and the Government are still at odds on this issue. It seems to us that it is desirable in principle that, as far as possible, management should be in the hands of those who live in a property. We recognise that it is inappropriate in the case of rack-rents or short-term leases, but we believe that seven years is the appropriate dividing line. However, it is clearly not possible to change the Government's mind. Once again, I do not intend to press the matter. I beg leave to withdraw the amendment.

moved Amendment No. 34:

Page 36, line 41, at end insert—

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

My Lords, this amendment is an old favourite as well. I thought that we had reached a reasonable degree of agreement about this matter. As I explained in Committee, we agree with the thrust behind the amendment but we do not agree with its form. We see merit in ensuring that those who are invited to take on the right to manage are properly made aware of what that will involve. We intend to look carefully at how that might be done in regulations, using the power granted under Clause 76(3) of the Bill. I can give the noble Lord the firmest of assurances that we will do that.

However, we do not want to write a provision on to the face of the Bill. We certainly do not want to do so in terms of this amendment. As we have said previously, with all due respect to the Royal Institution of Chartered Surveyors, its code of practice is a red herring for these purposes. The management responsibilities of an RTM company do not derive from that or from any other approved code of practice, but rather from this Bill and from the leases of the property.

The approved codes of practice will, of course, have an important role to play. The RTM company will be expected to follow the provisions of the code, and failure to do so will be one of the grounds on which it will be possible to seek the replacement of a company under Part II of the Landlord and Tenant Act 1987. In that respect, the RTM company will be no different to landlords who govern outside the Bill.

Given that role, we see no objection to the invitation to participate drawing attention to the general expectation that the RTM company should follow the relevant code. However, we see no advantage in repeating individual provisions of the code in the invitation; nor do we find the concept of "relevant provisions" helpful. Surely the RTM company, and indeed any manager, should comply with the code as a whole, in which case all the provisions would be relevant and the whole code would need reproducing.

We continue to agree with the noble Lord, Lord Kingsland, that the invitation to participate has a role to play in highlighting what it will mean to acquire the right to manage. But we do not wish to tie ourselves to a form of words at this stage. We prefer to seek views on what the correct form of words might be—in both content and clarity—as part of the wider consultation to which we have committed ourselves on RTM regulations. We then intend to use our regulation-making powers to put an appropriate requirement in place.

The noble Lord, Lord Kingsland, referred to his amendment at Committee stage. That was then Amendment No. 122, which proposed that a failure to serve notice of invitation should not in itself invalidate a claim notice. It is for that reason, as the noble Lord recognised, that we have brought forward Amendment No. 35. I hope that the noble Lord will not seek to press his amendment.

My Lords, I shall not seek to press the amendment. I beg leave to withdraw it.

moved Amendment No. 35:

Page 37, line 16, at end insert—

"( ) A notice of invitation to participate is not invalidated by any inaccuracy in any of the particulars required by or by virtue of this section."

My Lords, I wanted the noble Lord, Lord Kingsland, to have his moment of glory before I rather churlishly intervened with a question, but he has urged me to ask my question. I appreciate that the same point arises on Clauses 79 and 80, to which the Minister has just drawn our attention.

I do not oppose the provision, which is a fairly standard one, but its extent is not entirely clear to me. Will the Minister confirm that a misleading inaccuracy would not be covered by the provision? I have in mind inaccuracies in such details as the address of the premises or, in the later clauses, an estimate of the price that is referred to among the particulars. If those details are wildly wrong, would that so go to the heart of the issue as to invalidate the notice of invitation to participate?

I am also unclear about whether Clause 76(5) falls within the provision, or whether it just extends to Clause 76(2). I apologise for not having given notice of those questions.

My Lords, in spite of the inspiration of the noble Lord, Lord Kingsland, I join the noble Baroness, Lady Hamwee, in having some questions about the amendment. The noble Baroness has cited some ways in which the notice of invitation to participate might be misleading, to which I might add errors in specifying the place at which the articles of association may be inspected so that no one could get to see them. If the notice was wholly inaccurate in many respects, surely it could not be a proper notice of participation.

My Lords, I am much obliged to the Minister for his magnanimous comments about my contribution to the draft that the Government have decided to include in the Bill. I hope that that concession will characterise the second half of our proceedings.

My Lords, I think that it is in order for me to ask a question. Does Amendment No. 67 cover a different issue? It seems to come in the section about leasehold collective enfranchisement rather than the right to manage. Am I correct in thinking that? If so, I should like to comment on Amendment No. 67.

Yes.

My Lords, in that case I have a question. If someone wishes to enfranchise collectively—not even in the case of a single house—is there no obligation on the person from whom they are enfranchising to tell them whether the properties are under a management scheme or any type of restrictive covenant? What information on their future obligations is provided to people who are about to enfranchise a house or a flat collectively?

I ask that because the point has been raised by people who tell me that only after going through the whole enfranchisement procedure and receiving their freehold documents have they been given a list of restrictions to be imposed on them. That seems unfair. Someone who is to be subject to a special management scheme, particularly from the former freeholders of the property, should be told in advance. That might relate to Amendment No. 67 and we could discuss it again when we reach that amendment.

My Lords, I shall respond to the noble Baroness, Lady Hamwee, the noble Lord, Lord Williams of Elvel, and the noble Baroness, Lady Gardner. The first point raised by the noble Baroness, Lady Hamwee, was about misleading information. I am advised by my noble and learned friend Lord Falconer that fraud unravels all. In other words, if the information is deliberately misleading, it cannot stand under any circumstances. The question then arises as to whether it is inadvertently misleading. Clearly, to some extent any wrong information under the clause could be inadvertently misleading. The question is whether it is sufficiently misleading as to cause difficulty.

The amendment is restricted to the items in the notice that are included in Clause 76, but that includes the items in subsection (5). The amendment refers to "this section". There must be a point at which an inaccuracy becomes so misleading as to invalidate the notice, but similar phraseology has been used in legislation on many occasions and I have no doubt that in the end the courts will resolve whether an inaccuracy is misleading enough, inadvertently, to cause damage to the notice. I shall write to noble Lords about that before the next stage and to the noble Baroness, Lady Gardner, who has raised an interesting point about Clause 120.

moved Amendment No. 36:

Page 37, line 22, leave out "in connection with the making of a claim" and insert "for ascertaining the particulars required by or by virtue of section 79 to be included in a claim notice for claiming".

My Lords, I thank the noble Lord for the compliment he paid this side of the House and I reflect, admiringly, on his wisdom.

moved Amendment No. 37:

Transpose Clause 77 to after Clause 80.

moved Amendment No. 38:

Page 38, line 35, at end insert—

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

My Lords, I am sorry to interrupt the noble Lord but he appears to be moving Amendment No. 44.

My Lords, that is not so—for reasons that will become evident. I ask the noble Lord to be patient.

One solution might be a form of a statutory novation of any contract between contractors and landlords, so that the RTM company would automatically take over the contractual obligations from the landlord. The Government have set their face against such a provision. There are serious practical difficulties with such a novation—not least, that building contractors may be unwilling to have a new, possibly inexperienced and undercapitalised employer, foisted upon them.

Since RTMs will have no share capital, builders may be unwilling to allow the contract to be moved and simply walk off site. Moreover, the RTM company will be coming completely fresh to any project in progress. Admittedly there are provisions in the Bill for information to be transferred between the landlord and the RTM company; but anyone who has been involved in building works knows that it is almost impossible to take them over mid-flow.

As the Government are not willing to entertain detailed provisions for how and when existing contracts should be transferred or otherwise dealt with, the only practical solution is to allow reasonable time for existing contracts to be run off and for sensible handover arrangements to be made. Six months would ordinarily be a suitable period. One month is inadequate. Nonetheless, there may be cases where a shorter period would be appropriate, such as when urgent works are needed and it is sensible that the RTM company undertakes them rather than the landlord. The amendment gives the company the option to request an earlier handover date, with the Leasehold Valuation Tribunal left to decide in a dispute.

I appreciate that tribunals are currently overworked and that steps would need to be taken to ensure that they decide handover dates quickly. Nonetheless, steps are currently being taken to appoint additional chairmen. In any event, it would not be difficult to devise a fast-track system to determine the issue. I beg to move.

My Lords, I venture to suggest that speech had nothing to do with Amendment No. 38, which is about liability insurance, but with Amendments Nos. 39, 40 and 41—and It has a connection with Amendment No. 44. The noble Lord was talking about handover arrangements, including what happens to a contract, and was saying that more time than one month is required—not just in connection with the specifics of Amendment No. 39 but also with the transfer of contracts. The same point was made by the noble Lord in Committee, where his alternative to transferring contracts was to make the time allowed six months.

My Lords, I am much obliged to the Minister.

On that basis, I shall speak not to Amendment No. 38, because in effect the noble Lord was addressing Amendments Nos. 39, 40 and 41.

I hope that the noble Lord will be pleased to know that we are sympathetic. When he spoke to the comparable amendments in Committee, he referred to the arrangements for handing over management responsibilities and contracts in particular He advanced similar arguments today. We have reflected on the noble Lord's remarks and are persuaded that there is a need for some movement.

The Bill provides in a number of places for the acquisition of the right to manage to take place a minimum of one month after the date on which it becomes apparent that the right will definitely be acquired. A longer period could apply if the RTM company wishes but it is not unreasonable to assume that one month will apply in many cases.

The gap between determination and acquisition serves a number of purposes. One is to allow for a period of negotiation over contracts following the service of the notices provided for in Clauses 89 and 90. Other amendments propose alternative approaches to contracts, so I will not dwell on that issue.

The noble Lord, Lord Kingsland, suggested that one month is not long enough for the purposes of sorting out contracts and invited me to,

"reflect on introducing a longer period of notice than that suggested in the Bill so that at least parties will have an opportunity to consider a whole range of options".—[Official Report, 22/10/01; col. 847.]

We have duly followed that advice. On reflection, we found that the noble Lord—the inspiration for much of today's proceedings—was right. One month is undoubtedly not long enough. By the time notices are sent, received and responded to, the first week of the month would probably have been lost.

We are not initially attracted to a period as long as six months, which could create problems of its own. We propose to take the issue to those who deal with such matters in the outside world, to seek their views on how long might be needed. That will allow us to bring forward an appropriate amendment in another place.

We shall be happy to involve the noble Lord, Lord Kingsland, and, indeed, any other noble Lord in our discussions on this issue. We shall certainly let noble Lords who do not wish to be involved in the discussions know the outcome. Therefore, we accept the principle which lies behind the noble Lord's amendment and shall look very carefully at how we might amend the Bill in another place in order to address this important matter. I hope that, in the light of the undertaking to bring forward an amendment in another place, the noble Lord will be content not to press his amendment at this time.

My Lords, the noble and learned Lord will not be surprised to hear that I am most grateful to him for his response. I shall certainly take the opportunity, as and when he gives it to me, to talk to him again about the details of the amendment. I beg leave to withdraw the amendment.

moved Amendment No. 42:

Page 40, line 30, leave out from "given" to "in" in line 32 and insert "agrees, or the persons by whom the counter-notices were given agree,".

My Lords, as a member of the Bar, I cannot speak on behalf of the Law Society. However, speaking for myself—and I am sure that the Law Society would concur—we are grateful that the noble Lord and the department concerned have given favourable consideration to at least a significant number of the amendments proposed by the Law Society. Therefore, I welcome the proposed amendments in this group standing in the name of the Lord Chancellor.

moved Amendment No. 43:

Page 42, line 21, at end insert—

"( ) Subsection (1) does not apply if the person by whom the counter-notice was given has, or the persons by whom the counter-notices were given have, (before the time when the withdrawal would be taken to occur) agreed in writing that the RTM company was on the relevant date entitled to acquire the right to manage the premises.".

moved Amendment No. 44:

Page 46, line 8, at end insert—

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

My Lords, I am not sure whether or not the noble Lord moved Amendment No. 44.

My Lords, I did not speak to Amendment No. 44, but I beg to move.

My Lords, now that it is clear that that amendment has been moved, I speak to my Amendment No. 45 without, of course, moving it. The proposal within it is substantially to the same effect as Amendment No. 44 moved by the noble Lord, Lord Kingsland.

He took the view that his alternative suggestion—that the one-month notice period between the RTM becoming entitled to take over management and its actually doing so should be increased—was satisfactory. I see that it is in some sense an improvement. However, our proposal, which is basically for a statutory novation of existing contracts, is preferable. That is partly because there may be several contracts that are unjustifiably destroyed or frustrated because they run for longer than three months, or whatever the period that the Government eventually choose.

Our proposal is also preferable because it is undesirable for there to be any significant delay between the RTM company becoming entitled to exercise its powers and its actually doing so. Once the RTM company becomes entitled to exercise the powers of management, the relevant time should be kept at a minimum, subject to the RTM company's power to extend it if it is, for example, having difficulty finding a suitable managing agent. As soon as the RTM company is ready to go, it should be allowed to do so.

The proposal that contracts should be frustrated is seriously damaging to the RTM company and in many cases to contractors. We can envisage various possible scenarios. I am grateful to a correspondent company for raising in a letter to me the examples that I am about to give. The first example is that of a lift maintenance contract. Such a contract is required under safety legislation to be enforced at all times. The RTM company may be unaware of the need to ensure that the lift maintenance contract is in force; it may accidentally fail to renew it because it is concerned with other problems. It therefore seems to us that that is a clear example in which it would be desirable for an existing contract to be preserved for the benefit of the RTM company.

Another example is that of a contract gardener who was not previously an employee of the landlord but, because he looks after two or three blocks—he does so in the course of his business—he may look after the gardens of the particular block that the RTM company is taking over. Suppose that the gardener has a contract that lasts for a year at a time. He will lose a significant part of his rights, without any right to compensation, if the RTM company decides not to offer to renew his contract. It might decide instead to use the voluntary work of tenants, not to maintain the garden or to employ another contractor to do the work. Again, we think that that would be inappropriate. In such a case, the RTM company should be bound by the existing contract.

I turn to perhaps the most significant example. Substantial works, which may take several months, may have to be done on the property. They may involve a major operation such as re-roofing the building. Depending on the timing, there is a significant possibility that the contract would be determined half-way through the roofing work. In such circumstances, the roofing contractor might be in a position to insist on a renegotiation of the contract, which would give him substantially greater payment than he was entitled to under the original contract.

We believe that it is plain that there should be a statutory novation of existing contracts relating to the management of the property. There should be limited exceptions to that. They are set out in paragraph (3) of the amendment as being circumstances in which the RTM company should be entitled to cancel the contract. They would arise out of what was essentially misconduct by the landlord, who may have entered into contract with a company that was, for example, associated with him or his friends. That might require payment that was in excess of the proper market price, it might require work to be done that was not genuinely needed for the benefit of the property or it might involve a contract with a person who was unfit to provide the work or services that were contracted for.

In those cases, the RTM company should have the right to cancel the contract. Failing those circumstances, we believe that the arrangement is in the interests of both the RTM company and the contractor—admittedly, however, in some cases it may be in the interests of one rather than the other. The roofing contractor would no doubt be rather pleased if he was in a position to insist on substantially higher payment. It is right and proper that contracts should continue, except in the special circumstances that are outlined in paragraph (3) of the amendment.

My Lords, I shall speak, if I may, only to the unmoved amendment of the noble Lord, Lord Goodhart, on the basis that, in view of what I said in relation to the previous group of amendments, the noble Lord, Lord Kingsland, said that he had not spoken to Amendment No. 44.

We have grave concerns about Amendment No. 45 for several reasons. First, it would not give contractors the right to decide whether they would or would not wish to work for an RTM company. We have grave concerns about that. I acknowledge that the noble Lord is seeking to be helpful to the RTM company by ensuring that it is supported by some contracts from the start. That is obviously commendable. However, we believe that binding the contractor into working for the RTM company against his will will cause more harm than good. We are extremely concerned that some contractors, particularly those who are linked to the landlord, would deliberately fail to provide a proper service. They could even be actively disruptive. I do not think that leaseholders would thank us for that.

The amendment of the noble Lord, Lord Goodhart, is specifically designed to avoid the problems that are associated with sweetheart contracts. Under that approach, all contracts would carry over, but the RTM company, as the noble Lord said, would then have rights to terminate individual contracts on specified grounds.

Even if one got to that point, we still have considerable concerns about the noble Lord's suggestion. While we accept that Amendment No. 45 is reasonably fair to the RTM company, we believe that it is fundamentally unfair to the contractors. To our mind, the grounds for the termination of contracts—those in paragraph (3) of the amendment—are somewhat vague and subjective. We believe that it would be open to an RTM company to terminate almost all transferred contracts. There is certainly nothing in the amendment that would stop them.

I turn to the examples that were suggested to the noble Lord by a correspondent company and in particular to that involving the lift maintenance contract. It is not clear under the amendment what would stop the RTM company, if it wanted, from cancelling that contract—that also applies to the contracts in the other examples. As I understand it, the amendment in effect says, "You can determine if, in the opinion of the directors of the RTM company, the charges were excessive, the services were inappropriate or the supplier of the services was not fit or proper to provide those services". That is not a matter of objective assessment; it involves the opinion of the directors. It is hard to imagine them not being able to say, in relation to practically any contract, "I think that that is too expensive; let us try and do better", or, "We, the RTM company, think that those services are not appropriate; let us get them from somebody else". We believe that it would be open in those circumstances to terminate practically all transferred contracts.

It could of course be argued that the RTM company may act reasonably in order to avoid being taken to court by the contractor. But what is to stop unscrupulous contractors such as those who have been set up under earlier contracts threatening to take the RTM company to court anyway, even if the termination was justified?

On the one hand, therefore, we could have arbitrary termination with no recourse for the contractor. On the other, we could have the RTM company unprepared to terminate any contracts because of the risks, no matter how unhappy it is with the contract. We do not think that either outcome is desirable.

We appreciate the concern underlying the amendment but we do not think that the amendment achieves the right outcome. We therefore continue much to prefer the approach taken in the Bill. This will allow the RTM company and the contractors to work matters out by negotiation. No one is forced to work for anyone else against his will. We accept that in some cases that may mean that the RTM company loses the benefit of existing contracts. That is no different from the situation an RTE company would be in when it starts to manage after enfranchisement. And we believe that it is infinitely preferable to trampling over the rights of either party.

However, as was said when I spoke to Amendment No. 39 we believe that a longer time period is needed than is provided for currently. We need to give all parties, in particular the RTM company, a decent amount of time to prepare for management and to make sure that the right contracts are in place from the outset. As I said earlier, we see on reflection that one month is not long enough for that. We have undertaken, therefore, to consider and bring forward an appropriate amendment on that issue in another place. As we do that we shall take into account the concerns expressed by noble Lords today and on earlier occasions. But we cannot agree to the amendment of the noble Lord, Lord Goodhart. We hope that he will not press it.

My Lords, for obvious reasons, I beg leave to withdraw the amendment.

moved Amendments Nos. 46 to 52:

Page 46, line 10, after "company," insert "the company may give notice to"

Page 46, line 16, leave out "must" and insert "requiring him to"

Page 46, line 17, leave out "him to provide"

Page 46, line 20, leave out "RTM company" and insert "notice"

Page 46, line 28, leave out "person may not be required" and insert "notice may not require a person"

Page 46, line 31, after "required" insert "by a notice"

Page 46, leave out line 33 and insert "notice is given"

moved Amendment No. 53:

Page 48, line 39, at end insert—

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

My Lords, I put my name to the amendment because I believe that the Government should pay considerable attention to the issue.

I give an example. Let us suppose that a leaseholder decides to knock down half his flat. He applies for planning permission; he applies perhaps for listed building permission and obtains it. He then goes to the RTM company—he would at present go to the landlord—and says, "I now want a licence". In its wisdom the RTM company decides that it is a good idea. Alternatively, let us suppose that the leaseholder decides to turn his basement into a lap-dancing club. He obtains permission for a change of use and gets planning permission. He goes to the RTM company which says, "Yes, this is not a bad idea".

Both proposals would probably damage the reversionary interest of the landlord. The point which the noble Earl's amendment addresses should be addressed by the Government.

My Lords, it is a good and worthwhile amendment. The only improvement would be the inclusion of the word "significant" before "diminished". If a proposed alteration, improvement or change of use were to lead to a diminution in reversionary value by a mere one quarter of 1 per cent one would not be justified in interfering; but any significant diminution would be wrong. I hope that the Government will accept the amendment in principle.

If the Government wish to insert "significant", or an equivalent word, that can always be done at Third Reading or in another place. I look forward to hearing the Minister's response.

My Lords, we agree with the noble Earl, Lord Caithness, that it is important that the landlord's interests are safeguarded against the granting of inappropriate approvals. That is the current position. However, we believe that the Bill already addresses this satisfactorily.

As noble Lords will know, Clause 96 provides that where the right to manage is acquired, the RTM company takes on primary responsibility for all approvals which are required under the leases. However, where the RTM company proposes to grant a consent, Clause 96(4) provides that it must first give written notice of that intention to the relevant landlord. The landlord then has the opportunity to decide whether to agree or object to the granting of that consent and to notify the RTM company accordingly.

Where a landlord decides that he wishes to object, the RTM company may grant the approval only if one of two conditions are met. First, the landlord must agree to withdraw the objection. Alternatively, an application must be made to a leasehold valuation tribunal for its agreement that the approval should be granted.

We believe that these arrangements already make admirable provision for the safeguarding of the landlord's legitimate interests. A landlord who believes that his reversionary interest would be damaged by the granting of an approval is able, first, to ensure that the RTM company does not disregard that and grant the approval itself and, secondly, to seek to persuade a leasehold valuation tribunal that the approval should not be granted. In the latter case, one of the arguments that the landlord would be able to place before the tribunal would be that the approval would unduly harm his reversionary interest although, of course, the question of whether the approval should be granted would have to be decided in accordance with the terms of the lease, as the noble Earl would accept.

We do not think that the amendment adds anything to those arrangements. Our first concern is that the question of what will or will not diminish the reversionary value of the landlord's interest is both vague and subjective. It could be argued that any consent for improvements or alterations might, in some way, diminish the immediate value of the landlord's reversion. Does that mean that the RTM company should never grant an approval for these matters? Indeed, does the amendment mean that the company should not grant an approval even if the landlord agrees that approval should be granted?

We are not clear, furthermore, what should happen where the RTM company decides that it wishes to grant an approval on the basis that it does not believe that the reversionary interest would be affected and then the landlord alleges otherwise. Who would adjudicate in such disputes? And why would that be better then the present arrangement of allowing all disputed approvals to go to the LVTs? We believe, therefore, that the arrangements in the Bill already address the issue raised in the amendment; and that they do so in the most sensible and practical way. In effect, they prevent any approval being granted unless the landlord or the LVT agrees. I believe that we do that in a sensible and practical way. On that basis, I hope that the noble Earl will not press the amendment.

My Lords, I am grateful for the support I received from the noble Lord, Lord Williams of Elvel, and the noble Lord, Lord Monson. I listened carefully to the Minister's reply. I was reassured to some extent. I would not say that the position of the landlord was admirably protected—I think that those were the words used by the noble and learned Lord—otherwise I would not have tabled the amendment. However, I should like to consult between now and another stage because it is an important matter to get right. It is better to get it right in this House than in another place. I beg leave to withdraw the amendment.

moved Amendment No. 54:

Page 48, line 43, after "or' insert "structural alterations or"

moved Amendments Nos. 55 to 57:

Page 100, line 12, at end insert—

"( ) The power in section 24 to make an order appointing a manager to carry out functions includes a power (in the circumstances specified in subsection (2) of that section) to make an order that the right to manage the premises is to cease to be exercisable by the RTM company; and such an order may include provision with respect to incidental and ancillary matters (including, in particular, provision about contracts to which the RTM company is a party and the prosecution of claims in respect of causes of action, whether tortious or contractual, accruing before or after the right to manage ceases to be exercisable)."

Page 100, line 21, after "42B" insert "of the 1987 Act"

Page 101, line 23, leave out "registered" and insert "recognised"

moved Amendments Nos. 58 and 59:

Page 52, line 29, leave out "is"

Page 52, line 30, at end insert ", begins so to act or an order under that Part of that Act that the right to manage the premises is to cease to be exercisable by the RTM company takes effect."

moved Amendment No. 60:

Page 57, line 5, column 2, leave out "Section" and insert "Sections 69(1) and"

moved Amendment No. 61:

Leave out Clause 113.

My Lords, I again rise briefly to support my noble friend. Your Lordships will have heard what I had to say on the matter many times, so I shall not repeat it.

My Lords, I am concerned whether the amendment would affect the current position. At present, there is a deliberate system under which freeholders of mews houses put the garage onto a separate lease from the rest of the property to make it unenfranchisable. That frustrates our purpose: we would want such people to be able to enfranchise their property. What effect would the amendment have on that?

My Lords, the short answer is that the amendment would leave the situation as it is at present. The problems identified by the noble Baroness, Lady Gardner of Parkes, would continue.

I recognise that this is a difficult and contentious issue, and a problem to which there is no ideal solution for all purposes. The noble Lord, Lord Kingsland, has consistently opposed the proposal to increase the present limit of non-residential use from 10 per cent to 25 per cent. However, as I think that he would acknowledge, others who have taken part in our debates have thought that we have not gone far enough to help leaseholders in mixed-use premises. Clearly, people have been exercising their minds, and we are grateful to them for that.

We have considered all the solutions put forward and concluded that there is no alternative to the provision in Clause 113, which will raise the threshold from 10 per cent to 25 per cent. It is a fact of history that the old 10 per cent threshold prevented too many leaseholders from enfranchising. A 25 per cent threshold will make it easier for them, but it will protect the landlord where the commercial unit is the majority interest in the building. However, where the leaseholders hold the majority interest, it is only right that they should be able collectively to buy out the landlord.

Leaseholders enfranchise to address either the problem of their diminishing leases or the problem of the landlord's monopoly over the management of the block, or both. Any enlightened developer, in planning a new scheme, would give careful thought to ensuring that residents were comfortable in their homes. We hope that many, if not all, new mixed-use schemes will be carried out on a commonhold basis.

The noble Lord, Lord Kingsland, asked about existing schemes and the retrospective effect of the clause. I remind him that the Leasehold Reform, Housing and Urban Development Act 1993, which is causing the problem, was introduced by a Conservative administration and included mixed-use premises without exception. In his terms, that had retrospective effect. Why was that right in 1993 and not now? I think that the noble Earl, Lord Caithness, was involved in that Act. The noble Earl shakes his head. However, a number of people hold responsibility for that Act.

There is no perfect solution; the provision in Clause 113 is the best that we can find.

My Lords, the fact that the Conservative government were wrong in 1993 does not excuse the present Government from being wrong in 2001. I accept that this has been a vexed and much disputed issue throughout our proceedings. I shall think hard whether to reintroduce the amendment at Third Reading—and, perhaps, whether to press it to a Division. Meanwhile, I beg leave to withdraw the amendment.

moved Amendment No. 62:

Page 58, line 7, after "units" insert "or following the conversion for 10 or more years before the date hereof"

My Lords, the problem here is not whether it is 10, 11 or even nine years; the problem is that there is a potentiality—indeed a reality—for abuse which would continue if this amendment were accepted in any form. We have received many complaints about resident landlords who abuse their privileged position. Indeed, during the consultation process we received a number of representations that the exemption for the right of enfranchisement for resident landlords should be abolished entirely.

The conclusion to which we came was that the exemption should be restricted to people who sub-divide their own home into flats and continue to live there. That is what Clause 115 seeks to do. Many resident landlords acquire the freehold at the same time as they purchase their flat or subsequently. We see no reason why they should be put in a privileged position.

Amendment No. 62 would retain the privileged position for those who have the good fortune to have held it for a period of 10 years. I cannot see any justification for accepting that. It is not as though they were going to be forced out of their homes. They have the option of either requiring the enfranchising group to buy out their whole interest or take a 999-year lease back on their old flat at nil ground rent. There is no difficulty about the protection of landlords here; we have to be concerned with encouraging enfranchisement.

My Lords, the Minister said that a number of individuals complained to him.

My Lords, during the consultation process we received complaints.

My Lords, I apologise for mishearing the Minister. Equally, during the time that I have been responsible for this Bill on behalf of the Opposition, I have received a number of complaints from individuals who find themselves in the opposite position; that is, individuals who have purchased leaseholds together with the freeholds and remained there for a long time. They feel that they would be adversely affected by the changes in the law the Government propose.

I shall reflect on what the Minister said. I beg leave to withdraw the amendment.

moved Amendment No. 63:

Leave out Clause 117.

My Lords, my name is attached to some of the amendments in this group. That is a result of lack of vigilance on my part and possibly of a muddle between myself and the noble Earl. I would not like it to be thought that I am against the abolition of the residence test. I am in favour of the Government's view on that issue. Therefore, in some respects, the noble Earl and I will have to part company.

Nevertheless, having removed my name from his amendments, I believe that the noble Earl makes two serious points. This matter needs study by the Government. I hope that my noble friend will not simply brush the issue aside and say, "No, the Government have taken this view and that is the end of it". As the noble Earl mentioned, the unintended consequences could be rather dramatic.

My Lords, my position is similar to that of the noble Lord, Lord Williams of Elvel. As regards the residence test, we were approached by the British Property Federation which made a persuasive case. The federation argued strongly that the residence qualification should be retained. I admit that I came close to being persuaded. However, ultimately I decided that its case fell just short—I consulted my noble friends—primarily because anybody who holds a property which is subject to a long lease which has a residence qualification will be aware that that property is vulnerable to enfranchisement or an extended lease by a purchaser of the lease who then proceeds to reside there. There may be a limited "hope" value as a result of the possibility that someone buying the lease may never occupy the property. However, frankly, that will not add significantly to the value of the property. Therefore, anybody who holds the reversion to a lease which is capable of extension or enfranchisement will be aware that the property which is held is vulnerable and the reversion is worth no more than its market value.

Ultimately, it did not seem to me that the disadvantages of the residence qualification to the freeholder were sufficient to overrule the advantages, indicated by the Government in previous debates in favour of removing the residence test and simply substituting in certain circumstances a requirement of two years' ownership of the lease.

However, I have also seen documents on the subject of the division of the marriage value between a freeholder and a long leaseholder when the long lease is subject to leases which are capable of enfranchisement or extension. There is a real and serious problem here. We are opposed to the principle of marriage value altogether. However, we believe that if there is to be a marriage value, the way in which the Bill in its present form divides that marriage value in the circumstances mentioned by the noble Earl. Lord Caithness, between the freeholder and the long leaseholder is highly unsatisfactory and will simply transfer a substantial amount of money from the freeholder to the long leaseholder. On that aspect I am happy to support the noble Earl, Lord Caithness.

My Lords, like other speakers who followed the noble Earl, Lord Caithness, I have mixed views. I did not intend to speak on this matter. However, I was approached by the Leasehold Reform Professional Committee, which is in favour of the residence test being abolished. I said that I could not speak on that matter because I would benefit from it if it happened. I believe I have told your Lordships' House before that I purchased a flat for my old age, which I do not occupy. The committee asked me whether I would declare that matter and speak on the amendment.

The noble Earl, Lord Caithness, raised a number of important points. I was concerned by his comment that the only way that people are able to get a lease and get into a flat is to buy the lease in a company name. I am aware of the fact that certain property owners will not now sell or give a lease to anyone unless it is bought in a company name. That is a specific process by which they intend to prevent the person having any right to enfranchise. Such property owners are forcing people to take the property in company names only. Therefore, it is important to them that this change should not be made.

The noble Earl mentioned that charities own properties, which is true. Not long after the 1993 Act was passed, the Smith Charities decided to dispose of all their properties. Although the law required them to offer the properties to their tenants, they did not do so. Notice was served, which was short notice. Tenants were not given the right amount of notice, and it was done when everyone was away on holiday. Fortunately, the tenants were alert enough to take action and, in many cases, obtained the right to buy the properties. Certainly, charities act just like any other major landlord in that way.

The noble Earl also mentioned major estates in the capital and elsewhere. Here again we must be careful. As I shall mention later when we discuss the leasehold valuation tribunal, if the major estates are prepared to enfranchise one's freehold but then one is stuck with an estate management scheme which is so onerous that one is worse off than before one was a freeholder, that is not, in the real spirit, selling a freehold.

A valid point was made by the noble Earl and we must ensure that something is done about it. I refer to the situation he described in which a head lessee would replace a landlord. That seems to me wrong and not at all in the spirit of what was decided or what is intended. The abolition of a residence test is meant to help people. For example, in the block in which my flat is situated it may be that because there are other people in a similar situation to me we cannot enfranchise because there are too many of us who do not live there. I know for a fact that some people who are posted or who live abroad let their flats. People wish to see the abolition of the residence test. The noble Lord, Lord Williams of Elvel, made that clear, as did the noble Lord, Lord Goodhart. I do not believe that anyone wishes a situation to be created whereby a head lessee acquires the rights of the existing landlord. The example was quoted of four flats in a block and the person entitled to be enfranchised being the head lessee. That is not what I believed was going to happen. I understood that on the abolition of the residence test each of the four people in the block of flats would have a right to a share of the freehold. It would be a total distortion of the Government's intention if what I fear should happen.

The noble Earl, Lord Caithness, has brought out a number of important points. It is good to abolish the residence test from the point of view of helping people to enfranchise their freehold, but the Government must look at what can be done to avoid the other consequences which have been described as being very possible.

My Lords, the noble Earl, Lord Caithness, has described a state of affairs whereby charitable beneficiaries will effectively be robbed for the benefit of extremely clever and rich people. Surely, that must be unacceptable to noble Lords in all quarters of the House.

My Lords, I supported the residency test until the Committee stage a few weeks ago. I gave my reasons during the previous proceedings as to why I would not table those amendments again at Report stage. However, I share, entirely, the concerns expressed by the noble Earl, Lord Caithness, and other noble Lords, as regards the powers which are seen to accrue to the head lessee in the Bill as now drafted. I shall be extremely interested to hear what the Minister has to say.

My Lords, there are two issues here which are related but not the same. The first is the residence test and the second is about head lessees. The noble Earl, Lord Caithness, asked me to deal with the residency point as a matter of principle rather than criticising the wording of the amendments. I am not doing that. As far as I can see they would achieve their intention. But the noble Earl referred to causes of discontent about the residency test and that is the point.

It is not an issue of principle, but it has been a cause of considerable discontent. Those tests have been open to abuse and confusion over many years. We firmly believe that it is right to base eligibility on whether or not the leaseholder has a significant stake in the property. We are confirmed in that view by the fact that the noble Earl is on his own now. The noble Lords, Lord Williams of Elvel, Lord Goodhart and Lord Kingsland and the noble Baroness, Lady Gardner of Parkes, have peeled off. There are no other supporters for that view.

However, the noble Earl raised a point on which he has a great deal of support; namely, the issue of head lessees. We are aware of the concerns which he expressed at Second Reading and now that the head lessee of a house converted into flats may be able to enfranchise under the 1967 Act and then receive a substantial profit if the under-lessees of the flat collectively are enfranchised under the 1993 Act. We are not certain that that is the effect of the Bill. We are currently considering the position. It is not our intention that head lessees should be put into that position. If we are convinced that that is the effect of the Bill, we shall certainly consider introducing amendments to prevent the problem. That would have to be done in another place rather than at Third Reading in view of the complexity of the argument. We certainly recognise that genuine concerns have been expressed on the matter.

My Lords, I am very grateful for that reply. There is genuine concern on this matter which needs urgent attention. I am very grateful that the Government are considering it. If there is a chance of consultation with the Minister I shall be very happy to join in. I thank those noble Lords who supported me on the principles I raised, including the noble Lords, Lord Williams of Elevel, Lord Goodhart, Lord Monson and my noble friends Lady Gardner of Parkes and Lord Kingsland.

The noble Lord, Lord McIntosh of Haringey, said that I was totally against the abolition of the residency test. I am not. If the noble Lord reads with care what I said, he will see that I did try to come forward with a solution to the company's problem. That was also addressed by my noble friend Lady Gardner of Parkes. There has been abuse. I was trying to help the genuine resident. What I am not trying to do is to help the intermediary property companies some of which none of us would want to see owning blocks in our cities. I am extremely grateful for what the noble Lord, Lord McIntosh, said. I beg leave to withdraw the amendment.

moved Amendment No. 64:

Page 59, line 14, at end insert—

"(4) A company which is a RTM company may not become a RTE company except by a resolution passed with the affirmative vote or written consent of all its members.

(5) In this Part, "RTM company" has the same meaning as in Chapter I of Part 3 of the Commonhold and Leasehold Reform Act 2001."

My Lords, we appreciate the concerns about members of an RTM company who do not participate in a subsequent enfranchisement. The Bill provides that any such leaseholders will cease to be members of the company on completion of the enfranchisement. The reason for that is that after enfranchisement conflicts of interest might well arise between those leaseholders who respectively did and did not participate in the enfranchisement. For example, there might be differences of view between them as to how the proceeds of sales of leases should be used or distributed. If the non-participants were still members of the company, the company directors would find themselves in a very difficult position as a result of their accountability to the entire membership.

As the noble Lord, Lord Goodhart, pointed out, since the original Bill was introduced we have removed the bar on there being separate RTM and RTE companies for the same premises. This will mean that where RTM has been exercised and a proportion of the members wish to proceed to enfranchisement, they would now be able to set up a separate RTE company for the purpose and non-participants would be able to continue to participate in the management of the building.

It is correct that a non-participating minority would not be able to force the participating members to take that approach, although in many cases doing so would clearly promote harmonious relations for the future management of the building. But we are not convinced that forcing the participants to use a separate company would be justified. That would be the practical effect of the amendment. Securing unanimous support for any proposition can be difficult. Given that the landlord is entitled to membership of the RTM company, unanimous support may prove to be impossible. The noble Lord, in nodding, indicates his earlier amendment. I recognise the noble Lord's view that a landlord should not be a member of an RTM company, but, as he knows, for the reasons we have given we are unable to accept that.

One of the reasons we have proposed the use of prescribed companies is to make it easy for leaseholders to progress from the right to manage to enfranchisement. Furthermore, if a majority are forced against their wishes to set up a separate company, there would be nothing to prevent them winding up the RTM company once enfranchisement had taken place.

Non-participating leaseholders would still have the benefit of general rights under leasehold law, including the right to be consulted on major works and the right to challenge unreasonable service charges. These rights are being strengthened by other provisions in the Bill.

I hope that in the light of what I have said the noble Lord will feel able to withdraw his amendment.

My Lords, I have not been persuaded but I do not intend to press the amendment further today. I beg leave to withdraw it.

moved Amendment No. 66:

Page 60, line 17, at end insert—

My Lords, the amendment would provide that where a lease was assigned by a member of an RTE company, the assignee would automatically become a member of the company. I recall the concern expressed by the noble Lord, Lord Goodhart, in Committee about the ability of assignees to become members of an RTE company. My noble friend Lord Bassam then explained why we could not provide for membership of the company to transfer automatically to assignees. I subsequently wrote to the noble Lord clarifying the position.

Company law does not provide for the automatic transfer of membership of a company limited by guarantee. Section 22 of the Companies Act 1985 sets two conditions which have to be satisfied to constitute a person as a member of such a company. First, the person must agree to become a member and, secondly, the member's name should be entered on the register. Both those conditions must be met and are cumulative. Unless both conditions are satisfied, the person in question will not have acquired the status of a member. The Government would be very reluctant to override that key principle in this particular case.

As I explained, although Part 1 of the Bill, and regulations to be made under it, make provisions which are intended to ensure that all purchasers of commonhold units must agree to become members of the commonhold association, the situation with RTE companies is rather different. Unlike the commonhold association, where the Bill envisages ongoing regulation, we are proposing to regulate RTE companies only during the enfranchisement process.

We consider that the operation of the company after enfranchisement should be a matter for the enfranchised leaseholders to agree among themselves. We do, however, agree that the RTE company should be able to admit new members after completion. This would include assignees of participating members or leaseholders who did not participate in the original enfranchisement. We accept that the draft of the memorandum and articles, which we provided to your Lordships, did not provide for that and we shall include appropriate changes in revised drafts which we expect to produce shortly.

As we have said previously, in practice, where a participating member assigns his lease, the premium would reflect the benefits of membership. It is unlikely that the prospective assignee would agree to the purchase without being satisfied that membership of the RTE company was an integral part of the package. This happens now with both the existing nominee purchaser arrangements under the 1993 Act and in other circumstances where there is a leaseholders' management company and we are not aware of any problems.

Furthermore, it would not be in the leaseholders' interests to exclude assignees from the RTE company where assignors had previously been members. Evidence of such behaviour could discourage prospective purchasers so that the leaseholders concerned might have difficulties selling their flats in the future.

I hope that that explanation gives the noble Lord the assurances he sought and that he feels able to withdraw his amendment.

My Lords, I am not sure that it goes quite as far as I wish. Effectively, I should like to see a prohibition on the assignment of the lease by a member of an RTE company, except on the basis that the assignee is entitled to take membership in the company if he or she wishes to do so. I recognise, however, that commercially it is likely that in the great majority of cases something of that kind will take place, and certainly this is progress towards that objective. In the circumstances, I beg leave to withdraw my amendment.

moved Amendment No. 67:

Page 61, line 40, at end insert—

"(6) A notice of invitation to participate shall not be invalidated by any inaccuracy in any of the particulars required by or by virtue of this section.

moved Amendments Nos. 68 and 69:

Page 102, line 20, leave out "RTE company" and insert -company (referred to in this Chapter as a RTE company)"

Page 108, line 24, leave out "section" and insert "sections 1(1) and"

moved Amendment No. 70:

Page 62, line 9, leave out from "payable)," to end of line 10 and insert "in paragraph 1(1), for the definition of "the valuation date" substitute—

""the valuation date" means the date of service of the reversioner's counter-notice.""

My Lords, the noble Lord, as he rightly acknowledged, raised these issues in Committee and in debate on the previous Bill. While I admire his persistence, I am sure he will not be surprised to learn that the speech that he has just delivered fails to persuade us. In those circumstances, both we and the noble Lord remain in the same position as then. I ask the noble Lord, therefore, to withdraw his amendment.

My Lords, I am sad but not surprised by the response of the noble and learned Lord. This issue has been between the Opposition and the Government for some time, and, in the circumstances, I should like to test the opinion of the House.