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Grand Committee

Volume 622: debated on Tuesday 20 February 2001

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Official Report Of The Grand Committee On The Commonhold And Leasehold Reform Bill Hl

Tuesday, 20th February 2001.

The Committee met at half past three of the clock.

[The Deputy Chairman of Committees (Lord Ampthill) in the Chair.]

Before I put the Question that the Title be postponed, it may be helpful to remind your Lordships of the procedure for today's Committee stage. Except in one important respect, our proceedings will be exactly as in a normal Committee of the Whole House. We shall go through the Bill clause by clause; noble Lords will speak standing; all noble Lords are free to attend and participate; and the proceedings will be recorded in Hansard. The one difference is that the House has agreed that there shall be no Divisions in the Grand Committee. Any issue on which agreement cannot be reached should be considered again at the Report stage when, if necessary, a Division may be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.

I should explain what will happen if there is a Division in the Chamber while we are sitting. The Committee will adjourn as soon as the Division Bells are rung and will resume after 10 minutes

Title postponed.

Clause 1 agreed to.

Clause 2 [ Application]:

On Question, Whether Clause 2 shall stand part of the Bill?

Perhaps I may take this opportunity to ask the Government whether they have managed to make progress on the question of stamp duty. I raised that point at Second Reading. I confess that it occurred to me only late during the debate. The Minister said then that he believed that there would be no stamp duty on transfer from freehold to commonhold. I raise the point now because, as I understand the structure of the Bill, there will be a conversion from freehold. The consultation paper, at which I looked again after Second Reading, states that it would be possible to convert from some other status. Given the importance of the structure of what is proposed and the devastating effect that stamp duty would have on the transfer, it would be helpful if the Government were able to confirm that no stamp duty will apply.

We are not able to settle this issue yet but we have it in mind and we expect to reply by the Report stage of the Bill. The noble Baroness's formal objection to Clause 2 standing part of the Bill has taken us slightly by surprise. That is why I cannot give a more satisfactory answer at this stage. However, I do not believe that she has much to fear.

Clause 2 agreed to.

Schedule 1 agreed to.

Clause 3 [ Consent]:

moved Amendment No. 1:

Page 2, line 16, leave out ("anyone who") and insert ("at least 80 per cent. of the following classes of person").

The noble Lord said: This amendment stands in my name and that of the noble Earl, Lord Caithness. It may be for the convenience of the Committee if I speak also to Amendments Nos. 2 to 12, 18, 23 and 41. Other Members of the Committee will no doubt wish to have their own say on their amendments. The amendments to which I am speaking address the problems that other Members of the Committee are seeking to address in the same group of amendments, which is why the amendments have been grouped.

The problem that the Committee will wish to address is whether commonhold as set out in the Bill as drafted is meant to be a substitute for leasehold or is meant to be something in the far distant future to which we may never come. In order to go from leasehold to commonhold, there is no doubt that the freehold of the property has to be in the ownership of those who wish to form a commonhold association. In order to do that, a group of people will either get together and say this is what we want to do, or they will convert into commonhold from the present arrangements of an owned freehold and leaseholds subject to that freehold. It is the latter point that this amendment starts to address. It is quite clear that leasehold enfranchisement is the only way to get to ownership of a freehold.

The provisions of leasehold enfranchisement have up to now been very difficult. The record has not been widely accepted but, nevertheless, it is there and, to a certain extent, the Bill as drafted eases the progress towards leasehold enfranchisement.

Nevertheless, the criteria for leasehold enfranchisement are much less strict than the criteria for going from there to commonhold. If you ask for 100 per cent agreement for going to commonhold from all unit-holders, you will never get it. I would therefore argue with my noble friend that this measure, as it is presently drafted, is not only impractical but also defeats the Government's objective of trying to ensure that commonhold becomes, in the course of time, a substitute for leasehold; that we move out of what I hope my noble friend would agree is an out-of-date procedure—as many people have said of leasehold—and move on to something which is rather more up-to-date and internationally accepted, as was said on Second Reading.

My amendment, which is supported by the noble Earl, simply addresses the problem of what happens if you cannot achieve 100 per cent agreement of leasehold units for conversion to commonhold even where, under the leasehold enfranchisement rules, you have the freehold. You could have absentee leaseholders and all kinds of people who may or may not be around when the decision is made. I hope that my noble friend will be able to respond quite positively to the argument I have made and which I think the noble Earl supports. I beg to move.

3.45 p.m.

My Amendment No. 3 is the next in this group but, as it raises a somewhat different point, perhaps I may leave it until the end. It is an amendment that I would have de-grouped had it not been for the fact that I understand that it is likely to be accepted by the Government.

I should start by making a declaration of interest—or, perhaps, a declaration of a rather peculiar reason why I do not have an interest. I am the leaseholder of a flat—which is not irrelevant—in one of the Regent's Park terraces. The Crown Estates Commission are the freeholders and I have a long lease at a fairly modest ground rent.

Am I right to understand that if we declared our interests at Second Reading that would carry through to the end of the Bill; that we do not need to repeat it?

What I have to say is something that I did not appreciate at Second Reading. At Second Reading, I thought I had an interest. The Bill does not bind the Crown; none of this legislation binds the Crown. The Crown has given an undertaking that it will voluntarily agree to grant the same rights to leaseholders as would have applied if the Act had applied to the Crown. Unfortunately, there is an exemption from this which applies to certain particularly sensitive buildings—such as the terraces in Regent's Park—and I therefore have no possibility of deriving any benefit from the Bill.

I turn to the amendment moved by the noble Lord, Lord Williams of Elvel. Although I entirely sympathise with the reasons behind it, I have very serious difficulties in seeing how it can be practicable to achieve its aims. Quite plainly, it would not be possible to have a block of flats split up into some kind of checkerboard pattern, with some of the flats being commonhold and some being ordinary leasehold. In this respect, it is different from collective enfranchisement because you can and do have some leaseholders acquiring the freehold and becoming the landlords of those who remain leaseholders, but that does not in any way change the status and position of the leaseholders. The only way forward, therefore, would be to convert a whole block in commonhold over the heads of the existing leaseholders and require them to convert their own flats into commonhold. Otherwise, what is to be done with a leaseholder who does not want to convert? We cannot compel them to convert because that may cost them money that they cannot afford. For instance, they would have to participate in any collective enfranchisement. They cannot, therefore, be compelled to join the commonhold association.

Where there is a very large majority in favour of conversion to commonhold it may be possible to treat the flats of dissenters as if those flats were common parts with the commonhold association as the landlord. The rent under the lease could then be paid to the commonhold association and when the lease fell in the commonhold association could sell the flats as commonhold units. That might be workable, but it would be fairly complicated. It would mean elaborate drafting, and I do not see it as a practicable possibility in the Bill. It may be that we should get commonhold going on a relatively straightforward basis and, when it has proved itself, we can proceed to allow conversion without unanimity on the basis that I have mentioned; namely, that the dissenting leaseholders would simply be treated as though their flats were common parts that had been leased to them.

Amendment No. 3 raises a technical point: why on earth is it necessary to get the consent of a registered proprietor of an interest over the land if that interest is not affected? The notes refer to an easement; for example, the easement of a neighbouring owner who has a right to use a drain across the commonhold land. The commonhold association would not have legal rights to stop the use of the drain by the neighbour, and it is wholly immaterial to the neighbour whether the land through which the drain runs is commonhold or freehold. In that situation I see no possible reason why the consent of the neighbour should be necessary simply by reason of the fact that he has an easement over the land which is not likely to be affected.

I support the amendment moved by the noble Lord, Lord Williams. It would be quite impossible to get 100 per cent agreement and it is, therefore, an unnecessary obstacle put in the way of commonhold. I do not agree with the noble Lord, Lord Goodhart, that the property of such people can be treated as common parts, and so on. If the 80 per cent rule were implemented surely the position of the other 20 per cent who did not wish to be involved in any way would not be changed; they would continue to hold leases that would be part of the commonhold until such time as they ran out. I cannot see this as anything other than a major difficulty being created out of nothing, and I agree with the noble Lord, Lord Williams, that 100 per cent is not required.

I support my noble friend Lady Gardner. I am concerned that if the amendment of the noble Lord, Lord Williams, is not accepted commonhold will just fall. I do not believe there is any possibility that any block of flats will ever achieve 100 per cent support for commonhold, not simply because the people in those flats will not vote for it but, as so often, particularly in London, they are not in them; they are owned by companies, overseas investors and the original landlords. There are a number of reasons why people would not join the commonhold. If this amendment, or the following amendment in the name of the noble Lord, Lord Richard, is not accepted, we must find some way to ensure that 100 per cent sign-up to commonhold is not required. Otherwise, the Committee may as well join in the Report stage of the Special Educational Needs and Disability Bill in the Chamber—in a great deal more comfort than we have here—because the whole thing will he a non-starter.

First, I should like to say a few words about the amendment moved by my noble friend Lord Williams. Secondly, I should like to speak to my Amendment No. 5.

The noble Lord, Lord Goodhart, said that it would be very difficult to have a system in which fewer than 100 per cent of the leaseholders consented. I agree that it may be difficult and that there may be problems, but there would also be problems on the other side if you insisted upon 100 per cent. I agree with what my noble friend said and what has been said from the other side of the Committee; that is, that it would indeed be almost impossible to get 100 per cent of the tenants in a block of flats to agree upon a particular course of action. My concern, both in regard to Amendment No. 5 and my own amendment, Amendment No. 12, is to try to remove unnecessary vetoes on the process of conversion to a commonhold. If you insist on 100 per cent, you have a massive veto. I agree with those who say that, in those circumstances, it is very unlikely that that will happen.

Turning to my own amendment, Amendment No. 12, the Committee will notice that it is not entirely on all fours with the amendment of my noble friend Lord Williams. He wants 80 per cent; I want 75 per cent and 10 per cent of the tenants. This is an issue which could, no doubt, be resolved between the various protagonists who want 80 per cent and those who want 75 per cent. That is not a major issue; the principle is the same. I therefore support what my noble friend said and I support his amendment.

My Amendment No. 5 covers exactly the same principle; that is, the removal of a veto. Clause 3, on page 2, states:
"(1) An application … may not be made in respect of a freehold estate … without the consent of anyone who—…
(c) is the registered proprietor of a charge over the whole or part of the land"
Do we really want to give every mortgagor or chargeholder the right of veto on a process to commonhold? That in itself is quite a massive veto as well. I do not see why it is felt that this process of conversion from leasehold to commonhold should be held up by any one person who happens to hold a charge on one flat in a particular block. It is too much. It might be possible to have some kind of qualified majority—I do not know—but that seems a veto too far. It is too strong; it would unduly cripple the process of developing commonhold. In due course, I shall beg to move my amendments.

I apologise to the Minister and to the Committee for not being able to speak at Second Reading. I had my name down but I was stuck in Scotland and it seemed wrong to join the proceedings halfway through. Perhaps I may now declare my interest. I am a surveyor and a consultant to an estate agency, which I set up in London some five years ago. I have been a leaseholder; I have run management companies; I have advised management companies; I have advised people on buying their freeholds under enfranchisement; I have seen the whole gamut of the residential property world. I hope that I have declared enough interests and that I need not say that again.

I totally agree with the noble Lord, Lord Williams of Elvel, who asked whether the Government do or do not want this Bill to work. Do they want commonhold to take over from leasehold? If not, that is fine. We will have three systems—freehold, leasehold and commonhold—and commonhold will wither on the vine after perhaps a gentle start. Putting a 100 per cent requirement into the Bill will effectively negate any chance of commonhold taking over as a rival form of occupation to freehold.

Having been involved with management companies, I was a lessee of a flat in Pimlico. There were five of us. We were all shareholders of the property; we owned the freehold and ran the management company. That was purgatory—and there were only five of us. We were all friends and we all got on. One person did all the work—who happened to be me at one stage until I managed to palm it off to somebody else. Those involved were enthusiastic until it came to arranging a meeting and making a decision, and until it came to paying the management charges. I know how difficult it is to get a small number of people to agree, to make a decision to do the repairs and to carry out all necessary work. To transfer this to blocks of flats, particularly where there is a commercial element, and to ask for 100 per cent is asking the impossible.

I would like the Bill to work—it is a good idea—I would have supported it had it been introduced by own party. Indeed, all the amendments to which I have put my name are designed to make the Bill work; they are not designed to frustrate it. They are positive attempts to make it work.

The Minister is making a rod for his own back by requiring 100 per cent. There are real difficulties leading to considerable frustration which will boil up in various ways. People will have expectations from the Bill that will be unfulfilled and we shall be stuck with a leasehold system to which many people object.

4 p.m.

I must begin by apologising to the Committee for being unable to attend the Second Reading. My poor excuse is that I was in the United States at the time. However, I am not making a good start on this occasion as it is the first time I have participated in any depth in a Bill. I understand the point made by my noble friend Lord Goodhart, but from my experience of the previous Act I know that making the existing legislation work better should be the prime objective of the Bill. Therefore, I support the principle—whether it is 80 per cent or 75 per cent is not material—and in that respect the noble Lord, Lord Williams, made an excellent point.

Although I agree with the point made by my noble friend Lord Goodhart that legally the provision may present some problems, I believe that the Government and their team can see the problems and find a way around them. The previous government's Bill was a success, except to the limited extent to which it did not always work. It needed a high degree of either unanimity or a number of people to agree to leasehold enfranchisement and so on. Therefore, we have to try to make the wheels turn more smoothly.

Finally, I must declare an interest. I hold a lease in a block of 12 flats in central London. My lease is extendable under the previous government's legislation. Three of the other flats are rented under rental terms of less than nine years, and the remaining eight flats are on 20-year leases. There is not a cat in hell's chance that I shall be enabled to enfranchise. Leasehold extension is all I can expect.

It seems that everyone is agreed with the principles of the Bill. It is the only Bill I have ever come across which as it stands is totally unworkable. Speaking as a banker, I can say that there are so many ingredients in this. However, we have forgotten that there are groups of people in the property world who deliberately seek to frustrate. Perhaps the Minister can tell us who cannot do something rather than who can. In the attempt to frustrate, people use many devious and cunning guises.

It is no good requiring 50, 70 or 80 per cent; we are talking about people's rights. If an amendment similar to those tabled by the noble Lords, Lord Williams and Lord Richard, is not agreed to, this part of the Bill will not work. When redevelopment rights come out, people will be looking for a new lease and perhaps more brown land will come in. If groups or individuals do not wish to exercise their rights, is there a way whereby those rights could still be within their hands and be passed on to their successors in title should someone wish that at a future date? The conversion period could be many, many years—longer even than a lease. The point should be addressed. I am sure the Minister will realise that there is no division in the Committee. We are just looking at technical issues where one is trying to interpose something that took place after the event.

My contribution cannot be as imaginative as that of the noble Lord, Lord Selsdon. I am very attracted to his lateral thinking. On a narrow point, can the Minister explain why, if the commonhold community statement may not restrict the grant of a charge, or mortgage, over a unit, it should be open to the mortgagee of that unit before it becomes a commonhold unit—while it is leasehold—to restrict the transfer? To contemplate the possibility of different policies between the different building societies and lending institutions, with the Nationwide taking one view and the Halifax taking another, and so on, could create quite a nightmare.

I rise to reflect on Amendments Nos. 1 to 9 and Amendment No. 12 and to speak to my Amendments Nos. 10, 11, 18, 23 and 41.

As the Committee will be well aware, Clause 3 requires that anyone with an interest in the land, including mortgagors, and anyone who has any other form of charge or caution over the land, must approve the application to convert the land from freehold to commonhold. The effect of this provision is that, in order for an existing block of leasehold flats to convert to commonhold, all the leaseholders would have to agree that this should happen, and they would have to secure the approval both of the freeholder and any intermediate leaseholders.

During the Second Reading debate, the noble Lords, Lord Goodhart and Lord Richard, my noble friend Lady Hanham, the noble Lord, Lord Williams of Elvel, my noble friend Lord Courtown and myself all expressed doubts about the requirement for 100 per cent to convert to commonhold. The noble Lord, Lord Bach, for the Government, sought to justify it on the ground that otherwise one would have anonymous leaseholders remaining.

Clause 3 as drafted is somewhat Delphic about this point. Subsection (1) lays down the requirement for 100 per cent consent, but subsection (2) states that regulations may provide, inter alia, for consent to be deemed to have been given in specified circumstances—I refer to paragraph (e)—and enabling a court to dispense with a requirement for consent in specified circumstances—I refer to paragraph (f).

These provisions are clearly intended to allow the 100 per cent requirement to be circumvented in certain circumstances. Those circumstances are nowhere specified in the Bill; nor are they dealt with in the Explanatory Notes. I pause here and turn to the Minister to thank him very much indeed for distributing the draft commonhold association memorandum and the draft CCS at the end of last week. Alas, I have not yet had the opportunity to subject them to the textual exegesis that I would have wished. I hope that we will be given an opportunity later in the Committee stage to table amendments to these documents. I am sure the Minister will agree that they go to the heart of what commonhold will be in practice. As the noble Lord knows, I would have preferred the text of both these documents to form part of schedules to the Bill and indeed I shall continue to press for that. Nevertheless, I do not see how Members of the Committee can come to grips with Part I of the Bill without a clear understanding of what will ultimately feature in these stipulations.

To return to the main theme, it seems to all Members of the Committee at least to take account of the criticism of the 100 per cent requirement, particularly in respect of larger developments and, in clear terms, to reduce it in the text to something of the order of 80 per cent. That raises the question, 80 per cent of what? The individual units which comprise the proposed commonhold may vary widely in size and value, and the assortment of estates, interests, claims and rights mentioned in Clause 3(1) may not necessarily coincide with the units of accommodation. They could, for example, include rights over parts of a unit, or parts of several units, or the common parts of a building. The total floor area comprised in the proposed commonhold may be an easier and fairer yardstick to use.

The requirement for 80 per cent has been suggested because that would mean, in practice, that a majority consent could not prevail in the case of a small development—such as a house converted into two, three or four units, it being obviously desirable and reasonable that the decision to convert should be unanimous in such cases—while not being unduly repressive in the case of larger developments.

I turn now to Amendments Nos. 18 and 23. The amendments were intended merely as probing amendments, to understand the intentions underlying the provisions for extinguishing existing leases in commonhold and the provisions for compensation of the holders of underleases for the loss of their interest. We appreciate that, in the circumstances envisioned by the Bill, the superior leaseholder would have given his consent to convert to commonhold and so should accept that the consequence of his decision would be to compensate those who lost out through no fault of their own.

But there is the risk that one recalcitrant sub-tenant might hold the conversion of an entire block to ransom for an extortionate sum, however unlikely the prospect of his actually receiving his demand. The likelihood of going to court would undoubtedly delay the conversion process, if not deter some of those who had previously committed to it. In my view, it would be extremely useful to know how the Government expect these situations to be resolved. Is there to be a formula to fix compensation? Must the underleaseholder accept what is offered, or can he negotiate?

I turn now to Amendment No. 41. Subsections (3) and (4) of Clause 27 provide for the extinguishment of existing charges over commonhold land in so far as they relate to the common part. There is no provision to compensate a chargee for his loss. It might have been felt unnecessary if consent to an application to register a freehold estate in commonhold land had to be 100 per cent, including that of all proprietor's charges. That matter is dealt with in Clause 3(1)(c). Such a provision, however, seems necessary if consent is to be based on less than 100 per cent, as proposed in the relevant amendment, or if in some cases consent is deemed to have been given under Clause 3(2)(e), or if consent is dispensed with under Clause 3(2)(f). It would seem only just and consistent with Article 1 of the First Protocol to the European Convention on Human Rights that a chargee can get fair compensation or adequate substituted security before his charge over common parts is extinguished.

4.15 p.m.

Before I attempt to answer the amendments that have been moved and spoken to, may I first of all agree—perhaps taking him slightly out of context—with the noble Earl, Lord Selsdon, in his comment that everyone agrees with the principle of the Bill. The Government are confident that this Committee stage will take place in a non-partisan atmosphere and that the Bill will gain as a result of our discussions. We, for our part, will listen carefully—as will, I am sure, those who move amendments—but we will not always agree. Indeed, in a few minutes' time, the Committee may hear that we do not necessarily agree with all that has been said in this first group of amendments. However, when we do agree, we will say so and act accordingly. We are sure that the Bill will leave this committee room—however uncomfortable it may be to the noble Baroness, Lady Hanham—in a more satisfactory state than it entered it.

Each of Amendments Nos. 1, 2, 4 and 6 to 12 relates to the rule that we asked for, which requires 100 per cent of those with specified interests in the land to consent before it can be come commonhold land. We believe that there are drafting difficulties with Amendments Nos. 1, 2, 4 and 6 to 9 but those drafting difficulties are not of prime importance today in Committee. We do not believe that, as drafted, they will produce the end sought by the noble Lords who proposed them, and I will deal with that in due course. What this is really about is the principle behind the 100 per cent rule. I want to take that head-on, if I may.

The Government—and I am sure previous governments—have thought long and hard about whether it would be appropriate to allow commonholds to be developed in which there were what we have called anomalous leaseholders. We have come to the firm view that it would not. We are also aware that there will be circumstances in which a proportion of long leaseholders wish to buy out the landlord's interest; receive an interest pretty much in perpetuity in their unit; and a significant say in the management of the development by way of voting membership of the company which controls that, leaving those who do not wish to participate living under the terms of their existing leases. That is exactly what enfranchisement under Part II of the Bill will give and, as it happens, at a lower hurdle than the 80 per cent agreement referred to in some of these amendments.

On the other hand, commonhold is specifically designed with equality of interest in mind. The anomalous leaseholder in a commonhold would be anomalous indeed, and we echo what the noble Lord, Lord Goodhart, had to say. First, who would be the landlord? In an RTE company, there is no doubt it would be the company itself, but a common hold association owns only the common parts. It has no interest in the units of the anomalous leaseholders, who have not participated in the conversion and will still be sitting in units under their old leases. The units occupied by the anomalous leaseholders will be commonhold units occupied on long leases bought for a premium; but long leases let at a premium will not be allowed. That is another anomaly.

Perhaps the interest in the leasehold reversion will have been purchased by one or more of the members of the commonhold association in their individual capacities. Would they have to set up a separate company to own and manage the freehold interest in the leaseholder-occupied units, even though the units themselves must be commonhold land? All this assumes that no steps are to be taken to change the leaseholder status of those anomalous leaseholders. Perhaps it is envisaged that they should be forced into the commonhold as unit owners. Should they then be compensated for that overbearing of their will? Or is the change of a leasehold flat into a commonhold unit a benefit for which they should be required to pay? Or will they receive a windfall?

Perhaps, on the other hand, what is envisaged is compulsorily buying them out, effectively expropriating their property and forcing them out of the development altogether. Who should assess the compensation in that event and who should pay it—those who voted for conversion? What should happen if some of them balk at paying an additional sum for their share of the compensation after agreeing to conversion on a particular assessment of the cost? I do not believe that any of the Members of the Committee who spoke to these amendments had any such draconian measures in mind.

We believe the practical difficulties of fitting the upto-20 per cent of non-commonholders into a commonhold are out of all proportion to the benefits a commonhold can give to long leaseholders who take advantage of Part II of this Bill. Whatever the resulting organisation might be, it would not be commonhold as the Bill conceives it.

I shall be entirely realistic with the Committee. It may be that relatively few leaseholders will wish to take the final step of converting to commonhold once they see the extent to which Part II of the Bill will satisfy their needs, and how very far towards the ideal of commonhold that will get them. It may also be that commonhold, being an excellent alternative to leasehold for developers starting from scratch, will become the standard for new developments and its desirability will be proved in practice such that units will trade at a premium compared to their leasehold equivalents. In such circumstances, is it not reasonable to assume that taking the final step will become so much more attractive as to make 100 per cent consent an entirely realistic proposition?

I think that I have made the position clear. Admirable though the proposal might be, the Government do not see existing blocks of leaseholders agreeing to become part of a commonhold. We see it working in the way that new developers starting from scratch will want to deal with their property. We think that is a realistic way of looking at how it might work, and we turn on its head the argument that commonhold cannot work if it is 100 per cent. We believe it can probably work only if it is 100 per cent.

I turn as briefly as I can to the terms of the proposed amendments, but this is an important debate and it needs to be discussed fully. Amendments Nos. 1 and 9 insert the words
"at least 80 per cent. of the following classes of person".
There are five such classes of person set out in Clause 3(1). I am sure that the noble Lords proposing this amendment did not mean to suggest that, provided that four out of five of those classes were in favour—and by what majority?—the vote would pass. Neither did they mean that an average of 80 per cent in favour in each of the five classes would do, as that might mean that one class with 90 per cent out-voted another with only 70 per cent. Did they mean to weight the votes of the members of classes so that the vote of a participating leaseholder would be of greater value than the proprietor of an easement?

Or perhaps they meant no more than that a minimum of 80 per cent of the members of each of the classes specified should agree? I do not know the answer to those queries, and on the simple meaning of the words in the amendment we do not think anyone can.

I draw the Committee's attention briefly to Amendment No. 9. Passing over what I have just said, we are confronted with the proposition that the votes of the 20 per cent who either did not vote or who voted against conversion shall be overturned by a tribunal decision. We believe that this is the edge of a slippery slope. We are perfectly sure that the noble Lords concerned do not invite us to tread too close to its edge, but we do not believe that a tribunal or court in this jurisdiction would welcome legislation that directed it to come to a particular decision, presumably regardless of any pertinent evidence.

Amendments Nos. 10 and 11 would derogate from our policy to require 100 per cent consents. It may be said that we are being asked to say that might is right and the loudest voice wins. I ask the Committee to consider the following example. A freeholder owns a substantial country house in four acres of attractive parkland. His substantial country house is divided into leasehold flats, the aggregate floor area of which is a good deal less than 20 per cent of four acres; indeed, the surface area, if calculated by aggregating the surfaces of floor, walls and ceilings, would still be far short of 20 per cent of four acres. Can the freeholder dispense with their consents, deprive them of their leases and take them into a commonhold without as much as a by your leave?

If that example is objected to, I ask the Committee to consider another. The freeholder lives in the main part of the house and has let one wing as leasehold flats, the surface area of which amounts to less than 20 per cent of the total of the house. Can the tenants be dragged into commonhold in that situation? Will they find themselves suddenly faced with a part, however small, of the upkeep of the park and perhaps the stables as common parts because their consent is not required to register and the landlord has effectively extinguished their leases and substituted a CCS in the construction of which they have had no part?

It is planned that the proposed regulations would overcome those difficulties and, should they fail to do so, the courts would be left to pick up the pieces. The amendments to which I have just spoken fly in the face of our intention to require 100 per cent consent. We believe that that adds layers of uncertainty to an otherwise clear and straightforward process to no good purpose, and it does nothing to address what should be done with the 20 per cent of dissenters.

Amendment No. 12 in the name of my noble friend Lord Richard, which deals with conversion from an RTE company to commonhold, runs into the same kind of problem. Reasonable though it appears on the face of it and when described by my noble friend, when the process is complete anomalous leaseholders will remain.

I turn briefly to Amendments Nos. 18, 23 and 41, all of which have been spoken to by the noble Lord, Lord Kingsland. Those would have the effect of amending later clauses, unnecessarily in our view, because in each case the end that it wishes to guard against has been dealt with already by the fact that the relevant interested person must have consented to registration of the commonhold or been bought out.

Amendment No. 18 would omit from Clause 7(3)(d) the provision relating to the extinguishment of leases, but it is not necessary to do so. The owner of the interest will have consented or sold out. Clause 7(3)(d) merely sets the time at which the inevitable and agreed extinguishment will occur. The same applies to Amendment No. 23 which would omit paragraph (f) from Clause 9(3). Amendment No. 41 adds to Clause 27 words about consent to extinguishment of charges and allows for compensation or substitute security. None of this is necessary because consent would have to be given before the registration process could begin.

Amendment No. 5 would omit proprietors of a charge as a class of person from the list of those whose consent would be necessary before registration. I must also resist that amendment. A charge secured on property relies on the value of the property for its validity. It is our view that the value of property which becomes commonhold land will be much enhanced, but it would be unreasonable to take such fundamental action in relation to land without chargees at least having an opportunity to object.

The noble Lord, Lord Kingsland, asked about deemed consent as it appears in Clause 3. The regulations might deem consent where a number of notices have been served but not responded to. In other circumstances, not as clear cut as that, the regulations might not deem consent but enable a court to dispense with it.

In reply to the question raised by the noble Baroness, Lady Hamwee, a mortgagee has to consent to commonhold because it could affect the value of his or her security. Once a block has become commonhold, there is no need to prevent new mortgages because both mortgagor and mortgagee will know precisely what the security is. That is one of the advantages of commonhold.

Having been so ungracious as not to agree with any of the amendments so far put forward, I turn finally to Amendment No. 3. We accept this amendment. It removes what the Government now believe to be surplusage. We are grateful to the noble Lord, Lord Good hart, for having pointed that out to us at Second Reading and in meetings before the Second Reading debate.

Clause 3 is about ensuring that all those with legitimate interests in the land which it is proposed to register as commonhold consent to the change of status. This must include those directly affected such as those living in existing units, and some third parties; for example, their mortgagees. However, there are some third parties, the existence of whose interests would not interfere with the operation of the commonhold. We can all think of examples of that. I do not need to go into them now.

We feel it would be safe to omit Clause 3(1)(b) and to ensure by careful drafting of the regulations under Clause 3(1)(e) that any classes of third party who would presently fall to be dealt with under the subsection to be omitted are swept up. For that reason we shall be happy to accept the amendment in due course.

4.30 p.m.

Before the Minister sits down, on the understanding that the Government are not prepared to accept either the amendment of the noble Lord, Lord Williams, or the amendment of the noble Lord, Lord Richard, 100 per cent agreement will be required. Does the Minister agree that the likelihood of more than a handful of properties being converted to commonhold is low?

I would not agree with the way in which the noble Lord puts that question. There may well be some conversions, particularly where there are a small number of leaseholders. But the Government believe, as I think I made clear in what I said in discussing the amendments, that the future for commonhold will be more in new developments than it is in converting existing leaseholds. I have to make that clear so that there is no misunderstanding about it. It is certainly not to preclude it from happening where it does.

I am grateful to my noble friend the Minister for his extended reply. I have only two or three comments. First, I invite my noble friend in future discussions in the Committee not to go into too much detail on the drafting of amendments. We are not parliamentary draftsmen. If he could cut down that section on his brief which refers to the drafting, I am sure the Committee would be grateful.

Secondly, the Minister made clear that the object of the exercise is for new builds. He made it clear that he expected limited, if any, conversions. I would expect no conversions on existing properties. If that is the Government's intention, why do they not say so in the Bill, rather than wrapping it up with the idea of having to have the consent of this, that and other. Why not simply say that this is for new builds? We would then be much clearer. My noble friend had an uncharacteristic failure of logic. He said that it is question of new builds but that he was responding to questions of old builds and existing properties. That seemed to be an odd stance for my noble friend to take.

It has been a good debate. Together with other Members of the Committee, I shall have to study my noble friend's response rather carefully. In response to the noble Lord, Lord Goodhart, and to my noble friend, I do not see a particular problem about leaseholders who have not joined in commonhold being leaseholders under commonhold. Nevertheless, we will leave that aside for a moment and we will all have to look at this carefully before Report stage. I am not entirely convinced by my noble friend's argument; nor are my advisers likely to be. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[ Amendment No. 2 not moved.]

On Question, amendment agreed to.

[ Amendments Nos. 4 to 12 not moved.]

Clause 3, as amended, agreed to.

moved Amendment No. 13:

After Clause 3, insert the following new clause—

FLYING COMMONHOLD

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

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

The noble Lord said: In moving Amendment No. 13, I ask the leave of the Committee to speak also to Amendment No. 14. With these two amendments, I have grouped Amendments Nos. 196 and 220, which are from a later part of the Bill and cover more or less the same subject. They relate to the question of the flying freehold.

Having been somewhat sceptical on the subject of anything less than 100 per cent agreement for conversion to commonhold, I am happy that on this occasion I am proposing a group of amendments which should facilitate the conversion or development of properties as commonhold. Briefly, a flying freehold is a part of a building in freehold ownership that is above another part of the same building in different freehold ownership. Flying freeholds exist but are notoriously unsatisfactory, particularly because of the inability of one freeholder to enforce positive covenants against another.

To some extent, albeit limited, the role of positive covenants can be replaced by easements. Flying freeholds can offer the benefit of a right of support—an easement of support—from the freehold underneath them. In this way, the lower freeholder cannot knock down the walls and leave the upper part of the building to float in the air. Unfortunately, however, there is no corresponding easement of shelter which would entitle the owner of the lower part of the property to insist that the owner of the upper part maintains the roof and stops the water dripping through.

At present, it is not possible to use the powers of collective enfranchisement to create flying freeholds, because you can enfranchise part of a building only if it is a self-contained, vertical part thereof, as provided by Section 3 of the Leasehold Reform Act 1993. It is intended that it should not be possible to have a flying commonhold because of paragraph 1 of Schedule 2.

Perhaps rather curiously, however, it seems possible to have a commonhold situated below someone else's flying freehold. Provided the problem of positive covenants can be overcome, I can see no reason why there should not be a flying commonhold of a self-contained part of a building. For example, in a new development such as a block of flats with shops at street level and a separate entrance for flats, so that no common parts are shared between shops and flats, it should be possible to have the flats forming part of the commonhold. There could, of course, be a mixed commonhold to include both the shops and the flats but that is likely to be difficult to run and to lead to continuous tensions between the shop units and the residential units. It seems to me, therefore, that it is a better solution to have a commonhold for the flats and a separate freehold ownership for the shops.

The same principle applies to the collective enfranchisement and that is why I have tabled Amendments Nos. 196 and 220, which are intended to give a right of collective enfranchisement to what could be called a flying freehold. Why does the building have to be vertically divided into separate parts in order to enfranchise that part? Collective enfranchisement and commonhold are closely linked, because, as we have already discussed, in existing properties collective enfranchisement is almost certainly going to be a necessary prelude to conversion to commonhold. However, I accept that those two must operate in tandem.

The key feature in ensuring that you can have a flying commonhold or flying collective enfranchised property is to ensure enforceability between the upper and lower owners of the kind of positive covenants for repairs and maintenance that are normally contained in leases. Amendment No. 13 provides for the enforceability of covenants that are entered into by agreement. That can apply in a number of circumstances. New build developers may want to sell the flats as commonhold but to retain the commercial premises or sell them on separately.

Amendment No. 14 removes from Schedule 2 the legal prohibition on flying commonholds. Amendment No. 196 allows collective enfranchisement on the basis of acquiring a flying freehold, and Amendment No. 220 adopts a different and perhaps better solution to the problem of covenants by allowing positive covenants to be prescribed by regulation and then made enforceable between the parties.

I believe there is no great difficulty in prescribing standard forms of covenant as between the upper and lower parts of the property. Something very like it, for example, is set out in Part IV of Schedule 9 to the 1993 Act. I believe that this is a useful, though perhaps not central, addition to the ways in which it will be possible to create commonholds. As I have already made clear, we strongly support that objective. I beg to move.

As my Amendment No. 15 is grouped with the amendments tabled by the noble Lord, Lord Goodhart, I shall speak briefly to it now. I presume that it is in this group because I, too, support the idea of flying freeholds, or commonholds, above other property. While I agree with many of the points made by the noble Lord, Lord Goodhart, in particular his comment about enforcing the positive covenants, there seems to be a failure to understand the way commonhold works in Australia.

The commonhold title of a building which has, say, shops, commercial premises, a restaurant on the ground floor and residential commonhold above would have two separate management companies. The noble Lord, Lord Goodhart, said how difficult that would be to manage but the residents would not be managing the commercial element, and the commercial element would not be managing the residential element. Indeed, it would be very unfair to the residents to burden them with the management of the commercial element where there were very high costs of fire insurance, particularly if there is a restaurant or premises of that type. It could be quite beyond the means of the residents, particularly if the moment came when the shop or restaurant was producing an unfavourable rent.

The way in which this system operates is that the strata title holders, the bodies corporate, own and manage the residential unit and the commercial element manages the other unit. There is an overall joint management company which controls both the commercial and the residential side of it. Each group accounts separately and then jointly to the strata title, that being the equivalent of commonhold. That system would work well.

There are other situations where the shop at the bottom may remain freehold. It may be leasehold or just let, or it may be the commonhold to which I have just referred. But that is a way of giving the people in the residential element every right to their commonhold, irrespective of the property below them. For that reason, I support the idea of a flying freehold which is covered by Amendment No. 15.

4.45 p.m.

At Second Reading I raised the problem that, as the 1993 Act currently applies, it is possible to end up with a house that is not a house—because it includes part of another building—and a flat which is not a flat. These amendments help to solve that problem. We should remember that sometimes in inner cities there are groups of dwellings that in the past may have been individual houses in the ownership of grand noble Lords but have been converted laterally. In some lateral conversions it is not possible to have all from heaven above to hell beneath, and therefore I support these amendments. This is an anomaly which can be corrected very simply.

There is a good deal of merit in at least considering the amendment at this stage because many of the points to do with RTM and RTE raise very similar questions about mixed developments and residential parts above shops. Can the Minister indicate whether the joint management company referred to by the noble Baroness, Lady Gardner of Parkes, is an inherent necessity in this kind of proposition? If that is the logic of the position, how would the Bill address the question of a joint management company?

I have added my name to Amendment No. 14. As Members of the Committee are aware, the Bill permits commonhold to be created only if it is grounded; that is, commonhold above ground level must have beneath it commonhold land down to the ground. In a mixed use development of flats above shop premises it would not be possible to retain the commercial element as freehold/leasehold and sell the flats as commonhold.

I understand that flying commonholds are relatively common in the United States. Since commonhold is a new tenure, as yet untried in this country, it seems sensible for the legislation to provide maximum flexibility within its structure to ease and encourage its use. Ungrounded commonhold should be permitted where there is no requirement for rights of support or egress or ingress from adjoining property, and there should not be any problem as a result.

Even where there might be issues as to rights of support or egress or ingress, we believe that the legislation should permit commonhold to be developed ungrounded for reasons of flexibility. That might encourage developers of mixed use buildings to consider using commonhold. It is reported that many are reluctant to consider developing the whole building as a commonhold because they are concerned that it might be perceived as limiting the investment value of the commercial element. To permit flying commonholds would enable the residential elements to be sold on a commonhold basis, while the commercial elements would be retained on a freehold/leasehold basis. We believe there is a strong case for limiting to the absolute minimum the number of instances of land which may not be commonhold.

I admire the "Gordian knot" approach of these amendments. They attempt to solve a problem which has been present in our law for very many years; namely, that positive covenants do not run with freehold. With the commonhold provisions of this Bill we are attempting to ameliorate that problem but within severe boundaries.

The amendments would allow a commonhold to be developed above non-commonhold land, bringing exactly that problem of covenants into play. The second subsection of Amendment No. 13 would make it possible for covenants to be entered into between the commonhold association and the proprietor of what I might call the "supporting land", which would be enforceable by and against the successors of the commonhold association and the supporting land—although, perhaps a little oddly, they would only be enforceable if the covenant so provided. By giving the discretion to apply or not apply that covenant leaves open the possibility that a flying commonhold could still be built, even without the special protection of a new covenant.

I am very uncomfortable about these amendments. The Government are open-minded as to the extent to which it would be appropriate to impose positive covenants more widely on freehold land than is provided for in this Bill, which, of course, applies only within the boundaries of commonhold development. I do not believe that this is the way to achieve it.

In his Second Reading speech, the noble and learned Lord the Lord Chancellor said:
"It is our intention to leave open the wider question of whether and to what extent it should be possible to make the burden of positive covenants binding on buyers of freehold land more generally. That question was first considered in 1965 when the Committee on Positive Covenants Affecting Land, chaired by the noble and learned Lord, Lord Wilberforce"—
who we are delighted to have with us today—
"reported to Parliament. It is presently under review by the Law Commission".—[Official Report, 29/1/01: col. 455.]
You might say that 36 years is rather a long time for a matter to be under review by the Law Commission. The noble Lord, Lord Wilberforce, in particular, would be fully entitled to say that. In some defence, it is a pity that the previous Government did not react more favourably to the Law Commission report on land obligations in 1984. The Committee should be aware that the noble and learned Lord the Lord Chancellor is a doughty champion of the commission when legislative programmes are being prepared. The recommendations which are produced by the commission in due course will be consulted on widely and will be treated with the utmost seriousness by the Government when they are formally presented.

I would urge the Committee that, in a matter of such technical complexity, it is the kind of matter best suited to the painstaking and expert work of the Law Commission. It is considering it at the moment. It is better if we leave it that way rather than introduce it into the more restricted scope of the Bill.

I am supported in that view by what the noble Lord, Lord Kingsland, said when he proposed—I am sure not off the cuff but after careful consideration—a more restricted view of the kind of cases when ungrounded commonhold would be possible.

Amendment No. 15, the amendment of the noble Baroness, Lady Gardner, would deprive commonholds in densely built-up areas from expanding their developments by building upwards. I am assured by those who know that many buildings are capable of being extended upwards by a floor or so. I thought she was going to refer to her Westminster experience of this rather than her Australian experience. She certainly raises a point about the difficulties of a joint management company. My noble friend Lord Lea raised the same point and suggested a strata title—if I have the wording correct—type of development, with which the noble Baroness is familiar in Australia.

Our intention is that the developments should all be subject to one commonhold development for the present time, but it is possible for the two types of occupier to have differential interests and for different managers to manage different parts. Clearly, land obligations should clear the problem in due course and commercial units could be let on long leases, as one commercial unit is now. The matter of strata title deserves further consideration. We would be glad to discuss it with noble Lords at any time between now and Report stage.

I turn to the two amendments tabled by the noble Lord, Lord Goodhart, to Part II. I can understand that he has proposed the amendments to help leaseholders who are unable to qualify for the right of collective enfranchisement for their building as a whole. I reiterate that the Government are reluctant to attempt to deal in this Bill with the broader issue of positive covenants which run with the land. Without provision for enforceable obligations on all parties, horizontal separation of ownership will not work. Here again, the issue of mixed use buildings arises as it does in Part I. We appreciate the concerns of leaseholders who are unable to enfranchise or exercise the new rights to manage. However, in all the legislation that has taken place on these issues over many years, there are no easy solutions to this problem; nor are they provided by these amendments, though we would all like them to be.

Perhaps I may briefly intervene. My Amendment No. 60 covers the point about restricting building additional amounts, so I shall come to that point later on.

Perhaps I may refer to one point made by the Minister. He referred to my taking a more restrictive view as to the number of commonholds. If I understood that correctly, it was clearly a slip of the tongue on my part.

I may have summarised too brutally. The noble Lord, Lord Kingsland, appeared to be seeking examples where the nature of the positive covenants which would be necessary would be simpler or more restricted and cause fewer problems than might arise from some more complicated ones.

I was concerned that the Minister did not hear my final remark regarding limiting to the absolute minimum the number of instances of land which may not be commonhold.

I am disappointed by the Minister's response. First, mixed commonholds seem likely to be very unattractive to most people on both sides of the fence, as it were. There are unlikely to be more than a handful of those, either existing or new build. It seems better to accept the need for flying commonholds. As regards the covenants, the possible extent of positive covenants between different kinds or pieces of property is very wide. We are not looking, however, at anything like the whole field but simply the kind of mutual covenants between landlord and leaseholder that are found generally in leaseholds of property on different floors. In fact, there is a useful precedent in existence already in the form of the list of covenants in Part IV of Schedule 9 to the 1993 Act. Admittedly, those relate to the covenant attached to the grant-back of a 999-year lease of parts of property. They could, however, easily be transformed into covenants as between different freehold owners of the same property, which would not seem to present any difficulty even if one did not go as far as generally making positive covenants enforceable.

Finally, even if this is a matter requiring further consideration by the Law Commission, I should have thought that there would be considerable advantages in introducing into the Bill the possibility of having flying commonholds on the basis that the new clause which makes it possible to do so is not brought into force until such time as the Law Commission has had a chance to look at the matter in more detail and recommend what covenants should be made mutually enforceable between the upper and lower parts of a building.

5 p.m.

That suggestion makes me even more nervous. As the noble Lords, Lord Goodhart and Lord Kingsland, know, during consideration of the Leasehold Reform Bill, which has just left this House, I was under fire as regards the possibility of administrations engaging in provisional or slapdash legislation anticipating that it can be put right later by a regulatory or reform order. The same criticism would apply to a legislation that would only come into force if the Law Commission subsequently approved it.

[ The Sitting was suspended for a Division in the House from 5.1 to 5.11 p.m.]

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Schedule 2 [ Land which may not be commonhold land]:

[ Amendments Nos. 14 and 15 not moved.]

Schedule 2 agreed to.

Clause 5 agreed to.

Clause 6 [ Registration in error]:

moved Amendment No. 16:

Page 3, line 24, leave out subsection (2) and insert—
("(2) The register may be rectified by the Registrar if—
  • (a) he is satisfied that the error is a minor matter; or
  • (b) if all relevant parties consent to the rectification.").
  • The noble Lord said: This time I shall be mercifully telegraphic. Clause 6 effectively provides a new mechanism to rectify any errors in the registration of a commonhold. We believe that this is an unnecessary complication. The amendment would permit the registrar to correct minor errors which all the concerned parties are agreed should be rectified.

    The chief land registrar already has wide powers to rectify errors and we see no reason why these are not thought to be adequate. They would ensure that minor or uncontested errors were quickly resolved. If he does not consider the matter to be minor, or if the parties do not agree, it is appropriate to refer the question to the courts to decide.

    I shall speak also to Amendment No. 17. This amendment would enable anyone who thought that he might be adversely affected by an error at some time in the future to seek rectification. A person may be aware that he might be adversely affected by an error in registration, but may not be directly affected at present. The amendment would enable him in those circumstances to seek rectification. I beg to move.

    The two amendments would weaken a control which we believe would help to prevent fraudulent or reckless applications for the registration of commonhold. Perhaps I may remind the Committee that under the clause as it stands the three circumstances in Clause 6(1) which would trigger the use of the court to make a declaration are, first, that the application did not accord with Clause 2; secondly, that the certificate to be given by the directors of the commonhold association was incorrect; or, thirdly, that the registration itself contravenes some provisions of Part I of the Bill. Our case is that none of those possibilities is a trivial matter and we believe that none of them is easily likely to happen by accident. That is why we have specified that it should not be possible to rectify the register, but that the courts should be invited to declare that the estate should not have been registered as commonhold with all that flows from that.

    Amendment No. 16 would allow rectification if either the registrar was satisfied that the matter was a minor one, or that the affected parties consented. In our view, that weakens the protection against possible malpractice, or very serious carelessness. If the parties have to come within Clause (6)(1), the circumstances cannot be trivial. The parties, if they have gone so far as to formulate an application that would deal with those circumstances, are unlikely to consent.

    Amendment No. 17 would allow the courts to hear the application not only from someone who was affected by the erroneous registration but from someone who might reasonably expect themselves to be adversely affected in the future. I have tried to explain why we believe that the first amendment should not be made. The second would invite the court to speculate about future circumstances. Under the present provision, you would have to be satisfied that the applicant was adversely affected by the registration before considering making a declaration.

    Amendment No. 17 would allow the courts to consider the possibility that the applicant might be so affected at some presumably unspecified time in the future. We do not believe that that would be a proper application to allow in the circumstances. I invite the noble Lord to withdraw the amendment.

    5.15 p.m.

    I am obliged for the noble Lord's response. I have some sympathy with his views on my Amendment No. 17 but none with his views on my Amendment No. 16. Were we able to vote in the august surroundings of the Moses Room, I would call a Division but, as it is, I shall have to rely on the Regulatory Reform Bill of the noble Lord, Lord McIntosh, some years down the line in order for justice finally to be done. In those circumstances, I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    [ Amendment No. 17 not moved.]

    Clause 6 agreed to.

    Clause 7 [ Registration without unit-holders]:

    [ Amendment No. 18 not moved.]

    Clause 7 agreed to.

    Clause 8 [ Transitional period]:

    moved Amendment No. 19:

    Page 4, line 32, after ("Part") insert (""the first").

    The noble Earl said: In moving Amendment No. 19, I shall speak also to Amendments Nos. 20 to 22. We move on to the transitional period and I hope that my comments on this amendment will receive greater favour from the Minister, because we are now talking about a new build or a redevelopment of a property.

    As it stands, Clause 8 provides for a transitional period between registration of the estate as commonhold and registration of the first unit-holder as proprietor. During this period the Bill provides that commonhold regulations may be disapplied or modified but—and here we come to the difficult part—the Bill makes no mention of who the members of the commonhold association will be during the time from the sale of the first unit and the end of the construction and the selling period. I believe that clarification is needed for this just as clarification is needed for the responsibilities during this time.

    In a good property market, buildings can be sold almost before the development is complete. In a bad property market—we all know bad property markets—it can take some time. What happens during the period where there are units that are unsold, that have not been taken up, and repairs need to be done? Where does the commonhold stand on that? Where does the individual unit-holder stand? If, as a result of a storm, major repairs are needed to save the roof, and three flats have gone in the building and there are 17 still to go, is it right that the three flats should bear the responsibility? It is not clear in the Bill who should take the responsibility. How will it be apportioned'? Clarity will be necessary to save a lot of wrangling and disputes later. I beg to move.

    As the Committee will know, these four amendments, if I may take them together, will add to the Bill a new concept of a second transitional period during which further regulations would introduce a special regime to govern the actions and responsibilities of the commonhold association between the sale of the first unit and the sale of the last. I understand the problem raised by the noble Earl, Lord Caithness, but our intention is that the commonhold community statement should come into force as soon as the first unit is sold and govern the management of the commonhold from that time.

    Let us take the example of a 20-unit block, three of which have been sold. From that moment the members of the commonhold association are the three owners of the commonhold units together with the developer. They have proportionate financial responsibilities: one-twentieth, not 25 per cent, for each of the three who are in occupation and the remainder for the developer on his own behalf and on behalf of the units that he has not sold. That is the limit of their responsibility.

    As to whether the roof is damaged in a storm, or it is part of the development and, therefore, the responsibility of the developer, the commonhold community statement, which will already be in effect and govern it, will protect the first three commonholders against being drawn in to pay the developer's costs. That is the fundamental concern which has been expressed by the noble Earl, Lord Caithness. The responsibility for paying commonhold assessments will apply to all unit-holders in the proportions laid down in the statement based on a budget.

    It is not likely that a developer will find himself in a position where one unit is sold and many others are on his hands, although I recognise that property markets go up and down. However, we believe that the provisions of the Bill will act as a real incentive to a developer to move quickly, sell units and fully establish the commonhold, because the responsibility of maintaining the unsold units is his and will become more onerous as time passes.

    Before the noble Earl responds, can the Minister direct the Committee to the commonhold community statement? I have not had time to familiarise myself with the details, but the insurance provision states that if there is a default by any unit-holder the commonhold association shall arrange for and maintain insurance on the common parts. That does not appear to provide for the scenario which the Minister explained, unless for these purposes the developer himself is regarded as a unit-holder. I may be reading the wrong passage, but the Committee may be assisted if it is directed to the correct part later.

    The common parts are distinct from the unlet commonhold units. In the example of the noble Earl, Lord Caithness, the developer is regarded as 17 commonhold unit-holders and. therefore, is responsible for seventeen-twentieths of those matters which are properly the concern of the commonhold association.

    It is unfortunate that most Members of the Committee have not seen the commonhold statement. I wondered why it had been received by only a few people. I was informed that it had been placed in the Library yesterday, but neither I nor my colleagues have seen it.

    We sent it in the normal way to Opposition spokesmen on the Bill as appropriate. We placed copies in the Library and copies were also supplied to the Printed Paper Office. We said that we would try to produce these documents before Committee stage. Although they were not produced a long time before Committee stage, we have been as good as our word. I am very sorry that the noble Baroness has not had an opportunity to read them.

    I am grateful for the Minister's observation. The Committee might have been assisted if each Member had had a copy. Looking round the Committee, except for the two Front Benches I do not believe that anyone has seen what is available. That will handicap all our debates this afternoon. I might have been able to save a little time had I been aware that the regulations were available and had read them.

    I am grateful for the response of the noble Lord, Lord McIntosh of Haringey, which to some extent has eased my concern. Will the noble Lord confirm that what he has said is in the regulations and therefore will affect all the proposed developments that it is to be hoped will he commonhold.

    These are not regulations; the memorandum and articles and the commonhold community statement are model documents. I am not sure that I am prepared to give chapter and verse for this. My understanding is that the position that I have stated is in the model statement. I shall write to all members of the Committee who did not have an opportunity to read the statement before today's proceedings and confirm that to them.

    I should add that the model statement and the memorandum and articles are only the best draft that we have at the moment. They could change as a result of consultation between now and a later stage; they could change as a result of representations made in the course of this Committee. After all, that is one of the purposes of having legislative scrutiny. I shall write to all noble Lords who have taken part to confirm the position as we understand it.

    Will my noble friend accept that that will take a large correspondence? Not many of us have received those documents.

    I have said that I shall write to everyone who has taken part in the proceedings, both those who were at Second Reading and those who are present in the Committee today. It will be the same letter and it will go to a great many people.

    I am grateful to the Minister for that. Can he confirm that the model agreement will be the agreement that all developers and potential unit holders will have to enter into? So far as concerns the structure of the building and the common parts, will these be the same for every single commonhold situation? Unless there is clarity on this, there could be a huge number of disputes in the future.

    Yes. They will be minimum requirements. In other words, if people want to add anything else, they are perfectly free to do so. That is why it is not in the form of a schedule to the Bill, or even in the form of regulations. It is important for people to be able to add things, but they cannot take away.

    I am grateful to the Minister. I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    [ Amendments Nos. 20 to 22 not moved.]

    Clause 8 agreed to.

    Clause 9 [ Registration with unit-holders]:

    [ Amendment No. 23 not moved.]

    Clause 9 agreed to.

    Clause 10 agreed to.

    5.30 p.m.

    moved Amendment No. 24:

    After Clause 10, insert the following new clause—

    Planning Permission

    (". After section 66 of the Town and Country Planning Act 1990, there is inserted—

    "Planning permission: commonhold.

    66A. A local planning authority shall not enterain any application for planning permission for a building for multiple residential occupancy unless the land to be developed has hem or is to be registered as a freehold estate in commonhold under section 2 of the Commonhold and Leasehold Reform Act 2001."").

    The noble Baroness said: This is a very draconian and sweeping amendment. I am bringing it forward quite deliberately because I believe that the whole Bill is—what is the English expression?—a damp squib. It is a great disappointment. The other day, I went to the British Property Federation lunch and I heard people sitting around the table saying, "It does not seem very interesting. What would make us want to do this?" These were people who would be in a position to influence and develop properties. I found it extremely disappointing.

    When I say the amendment is draconian, even I. having looked at it, believe that the period indicated is too long; it indicates forever. That would not be necessary. However, a provision of this kind which required that for five years anyone wanting to build anything would have to build commonhold would be of sufficient severity. It would be an attraction, too, because, if people did not comply, they would not be building anything—and no one can tell me that people wanting to develop property will sit and do nothing for five years.

    Such a condition could not be enforced on people who already had their planning permission, who had perhaps agreed a building lease and were far advanced in such matters. Therefore, if such a condition were brought in, and for five years, it could not be enforced against people who already had their planning permission and had perhaps agreed a building lease and fire prevention measures. People who are now going for planning permission are in a position to be able to negotiate the terms of the ground on which they are building and they would then get commonhold. In Australia, it has been clearly established that the price people are prepared to pay for a commonhold unit—in Australia it is called strata title—is so far above what anyone would otherwise pay for a flat that no-one would consider building anything else now. Interestingly, some leasehold is creeping into Australia. Local authorities do not want to part with their land and so they are creating 99-year leases, which have never existed there before. Thus, the swing is slightly the other way.

    For residential accommodation to be occupied by people who wish to own and control their destiny, commonhold is the only thing. That is why I have put forward the amendment. Unless there is an element of compulsion even for a limited period of time, it will not get off the ground. Although I probably will not be alive to see it, in another 10 or 20 years it will be considered a great pity that this opportunity was missed in 2001. This is a new century. It is time for this country to be looking at new ways of people owning property and having their rights in perpetuity. I beg to move.

    I asked for my amendment, Amendment No. 236, to be grouped with this amendment. Although our amendment seeks to amend an entirely different part of the Bill, both amendments are in fact directed at the same objective—that is, preventing a grant of new leases in a form which would recreate the problems dealt with by this Bill and its predecessors. The noble Baroness, Lady Gardner of Parkes, attacks this objective through the planning process. In one respect at least, her amendment goes too far, as it would prevent not only the erection of buildings for long leases but also that of buildings for short leases at a market rent. There is a substantial demand for leases of that kind. Our version would prohibit the grant of leases at a premium. Therefore, it does not apply to a lease for no premium at a market rent. Our amendment would not prohibit new build leaseholds altogether but would require a minimum term for the lease, if granted at a premium, of 150 years. That would defer the problem for a long time, by which time entirely different problems would no doubt have arisen and this problem might well have ceased to exist.

    This is to some extent a probing amendment, to see the Government's reaction. There has been a great deal of pressure from some leaseholder groups to ban the grant of new leases altogether. The noble Baroness's amendment would not achieve that because it would apply only to new build. However, I am also concerned that the commonhold system is untried. It may well succeed and I suspect that what the noble Baroness, Lady Gardner of Parkes, says about Australia will probably happen in this country; namely, that commonhold flats will sell for substantially more than leasehold flats. Market forces will thus mean that commonhold will drive out leasehold. However, I would ask the Government to consider these issues because there is at least something to be said for restricting the grant of new leaseholds in order to give commonhold a fair start.

    What we are discussing here is how to give people an incentive in order to introduce something that we would all like to see introduced. Governments and parliaments throughout history have had incentive departments. Some are called corrupt departments—as carrot and stick. I would like the Government to look at any way they can find to introduce an incentive for this system. We can run through the whole tax gambit of enterprise loans or granting roll-over relief to those who build commonhold. I do not support the details of my noble friend's amendment but, as always, I support her spirit.

    I should perhaps explain that, although I must have spoken on three or four leasehold Bills over the years, I did not take part in the Second Reading of this Bill because it took place on a Monday and train services from the North are not yet fully reliable. However, I did attend the greater part of the debate. I have no interest to declare as regards commonhold or leasehold, although as an owner of a straightforward rented property, I am naturally concerned that the principle of confiscation or partial confiscation of property rights should not become too widely established.

    I believe this pair of amendments are too paternalistic. In addition, the amendment tabled by the noble Baroness, Lady Gardner, as the noble Lord, Lord Goodhart, said, would also affect blocks of flats built specifically for rack renting.

    The late Lord Brook, Henry Brook, the eminent former Cabinet Minister, once told the House of Commons that leasehold had been enormously beneficial for him and his family. It had enabled them to live in a much larger and better house in a much better area than would have been possible had only more expensive freehold houses been available. Why should not people nowadays have the right to opt for a spacious and well designed house or flat in a nice area, albeit a slightly wasting asset, in preference to a much smaller property in a less salubrious area which holds its value in real terms in perpetuity? Surely it should be up to them to decide which they want to do.

    I make a brief intervention on this point. I am a leaseholder of a London flat but my interests do not arise on this clause. We all hope that the commonhold system will work and be a success, and I hope that we can copy the Australian experience, but is it right to introduce a restriction and a degree of compulsion that seems to apply to both these amendments? I would much rather see the commonhold system gain affection among the occupants of property in this country on its own merit, and that is what should happen. I do not like the thought that we shall use the manipulation of the state to force it in one direction or another.

    There might still be a certain market for leasehold properties in this country, even after the introduction of commonhold, because it is familiar. People know what it is and they might be able to buy a leasehold property more cheaply than a commonhold property. I do not feel able to support these amendments.

    I am very happy to support both amendments, although I agree that the amendment of the noble Baroness, Lady Gardner, is somewhat restrictive. It would not be a difficult matter to have a clause which provides that properties for rent could be excluded. That would be a very straightforward provision to make.

    I would not be speaking out of turn for probably 2 million leaseholders in this country in saying that those who know about it are utterly astonished to learn two rather sad facts. Firstly, that their chances of getting into commonhold for existing leases are very small indeed. The discussion that has already taken place confirms that. Secondly, that new developments will take place across the country and they may not be commonhold. It is almost impossible to explain to them why, if the Government are bringing in this quite complex legislation, all new properties should not be commonhold.

    I have asked those on my own Benches who from a legal point of view know more about this than I do. They have explained that the Government recognise that it is quite difficult legislation and that they want to field trial it and not compel everybody to develop under commonhold. That may be the case, and it may even be quite reasonable, but if they do not develop under commonhold they can develop on 75-year or 99-year leases. That is why I support the amendment of my noble friend Lord Goodhart, who has suggested 150 years. In discussion with him, I put forward the idea that 900 years would be more appropriate. At least then the developers would recognise that there was no reversionary gain to be sought by not going into commonhold. If we could discourage developers from considering any more leasehold, the Government's objective would be achieved.

    I would not seek to describe anything that the noble Baroness, Lady Gardner of Parkes, does as draconian; in the same way, I am not entirely happy about being associated with something that is a damp squib or a great disappointment. However, there is no doubt that radicalism of an extreme nature exists and is alive in the House of Lords, and it is very good to see it in her amendment. I would not describe the amendment as draconian; I would describe it as an ingenious attempt to arrive at a position in which future developments of leasehold flats would he forbidden.

    The Government have been clear, rightly so—the noble Lords, Lord Selsdon and Lord Bridges, made the point—that the development of commonhold offers an alternative to leasehold. It has been clear that we have no intention of cutting off the possibility of leasehold development if that is what developers and the market still want. Indeed, to suggest anything else and to go down the road of compulsion would be something for which we would be attacked as quickly as we suggested it.

    Of course we want to see that there are no significant, unforeseen problems with the new system. The opposition parties—and my own—would be the first to criticise any actual or arguable fault which the new system of commonhold put up. What we ask is that the market should be left to make up its mind.

    If, in due course, it seems proper to come to some decision about the continuation of leasehold, no doubt that can be looked at and taken, but we do not think that that is likely to happen in the very short term. To prevent leaseholds altogether, we fear, would be a prohibition and an interference with an owner's use of property and might—I use the word "might"—potentially be a source of problems in relation to the first protocol to the European Convention on Human Rights.

    I know why the noble Baroness has raised this issue in the way that she has; she wants to draw attention to it. I can see her point of view; it would, in a way, be something that was agreeable.

    However, I have to point out to the noble Baroness that if in Australia they are beginning slowly to construct leaseholds again—even if in a small way—there cannot be any prohibition there of the kind she is suggesting should be imposed here. But I do not believe she is absolutely serious in suggesting that there should be a prohibition.

    What the noble Lord, Lord Selsdon, said attracts us. We shall look carefully at ways in which we can, to coin a phrase, "market" the commonhold system. There is no reason why there should not be some marketable incentives towards encouraging people to move to commonhold, provided the playing field remains even. However, I say with confidence that we believe that commonhold will be a success. It will be a success on its own merits and not because we are, as it were, abolishing some other form of land tenure. I ask the noble Baroness not to press her amendment and to withdraw it.

    As far as concerns the amendment of the noble Lord, Lord Goodhart, we see the reasoning behind it. However, at this stage—I do not wish to give any false hopes—we are not convinced that it would be effective in solving the problems faced by leaseholders and might create some very real, practical problems. I shall deal with these shortly.

    In many cases, developers may be able to acquire land only on a leasehold basis. They will be unable to offer leases for a longer term than the term granted to them. Land subject to a lease of less than 150 years could not be utilised for residential development unless the developer could persuade the landowner to grant a new lease of an appropriate term. That may distort the market and prevent the sensible use of land. There may be difficulties in redeveloping existing leasehold property which has reached the end of its life if those concerned are unable to acquire the freehold or to do so on reasonable terms. In addition, council tenants have the right to buy a long lease on the flat in which they live. Local authorities may hold the land on which the flats are built only on leasehold.

    The amendment, if carried out to the letter, would remove consumer choice in prohibiting the grant of any lease below 150 years for a premium. We are advised that it would, therefore, apply to an assured shorthold tenancy where the rent was payable as a lump sum in advance. Where willing parties wish to agree to such an arrangement, such as a company requiring temporary accommodation for an employee, it would be wrong to interfere. The amendment does not deal with the fundamental problem, as the noble Lord sees it, of leasehold tenure. It would not prevent leasehold abuse nor prevent the lease depreciating over time, albeit a long period of time. It would probably merely postpone the latter problem. However, the noble Lord raises a serious issue and we shall look at it again.

    Is the Minister aware of his department's own consultation paper Residential Leasehold Reform in England and Wales? The introduction deals with the fundamental point under discussion: existing and new leaseholds. I read briefly the first two paragraphs:

    "The leasehold tenure is almost unique in England and Wales. It has its roots in the feudal system and gives great powers and privileges to landowners. It is totally unsuited to the society of the twentieth—let alone the twenty-first—century …
    "The Government believes the leasehold system is fundamentally flawed. It is committed to introducing a new form of tenure for flats—commonhold—which in future will enable the individual flat-owners in a block to own and manage the whole building collectively from the outset. We see commonhold as the best way to tackle the problems faced by many existing"—
    I emphasise that word—
    "residential leaseholders".
    Does the Minister agree that what he said about the earlier amendments and the likelihood that very few existing leaseholders would be able to change to commonhold—the noble Lord now says that the Government want to keep leasehold going even when the commonhold legislation is enacted—does not tie up with any of the aspirations of his party from the very beginning?

    5.45 p.m.

    The noble Lord is wrong. Naturally, our aspiration is that eventually there will be no leasehold, but it is a question of how that is arrived at. In a free society people cannot be compelled to lose a tenure that has existed, rightly or wrongly, for centuries. We want to persuade people that with the new commonhold system there is no need for leasehold, and that will take time. People cannot be compelled to do that. In time commonhold will assert itself, but any government would be highly irresponsible if they took any course other than the one that we have taken.

    The noble Baroness, Lady Gardner of Parkes, said that this looked like a damp squib. The longer the Committee stage goes on, the damper the squib appears to become; indeed, it is rapidly becoming sodden. I am disappointed by the attitude and approach of the Government in this matter. I am grateful to the noble Lord, Lord Jacobs, for referring to the consultation paper, which is not the kind of thing that a loyal supporter of the Government would wish to do in public. However, since he has done so I am glad of it. With great respect to the Government, we have oversold this to the general public if the concept is as seems to be emerging this afternoon. That concept appears to be based on no compulsion in terms of whether one moves to commonhold; and it must be 100 per cent and no less, on which I have already expressed my views.

    We are now told that the amendments tabled by the noble Baroness, Lady Gardner of Parkes, and the noble Lord, Lord Goodhart, are not acceptable to the Government because there is an element of compulsion or quasi direction which the Government do not like. I say with all goodwill to the Minister that if he takes that attitude, he has to do something else. He has to say how commonhold will be encouraged if there is no legal framework within which people are being pushed into commonhold. The Minister indicated that the Government might have in mind other incentives. With great respect, he should spell them out. If he does not spell them out, the general public will be left suspended between a flying freehold and the possibility of a commonhold. What are they to make of it?

    We have been selling commonhold. We have all said what a splendid idea it is and people are still saying what a splendid idea it is. But from something which was designed to replace leasehold, it has now become an additional option. The Government will have to face up to that and spell the position out.

    I am much indebted to the noble Lord for having mentioned the consultation paper. The Minister was not too clear when responding on the question of the existing premises, which were clearly marked out in the consultation paper. The impression that has been given is that existing leaseholders will not want to or be able to change to commonhold, but that is not what the consultation paper was about, and it is not what everyone thought commonhold was about. There has always been an aspiration that people with leasehold can change to commonhold. I am sure the Minister meant to reply to that point. I am just giving him another opportunity to do so.

    In contrast to the noble Lord, Lord Richard, I congratulate the Government on having second thoughts, on adopting a more libertarian attitude and on allowing willing buyers of the leaseholder properties to acquire them from willing sellers.

    Having been attacked on all sides, I am beginning to think that I may be in just about the correct position now. As far as concerns marketing for commonhold, my department has a budget for raising awareness by training and education and carefully placed advertising among developers, managers and other professionals, and especially among leaseholders, for over the 12 months after Royal Assent. We have already given some thought to that, and we would like to give more thought to it.

    I am grateful to the Minister for giving way. He has already said that existing leaseholders would normally not qualify for commonhold—they would not want to go in for it. What is the point of a marketing programme for existing leaseholders when they have no rights therein whatever?

    If the noble Lord will forgive me, it was he, not I, who said that it had absolutely no relevance to existing leaseholders. In fact, I said the opposite. I said that we hoped that existing leaseholders might, in some cases, take advantage of commonhold. I did not pretend for a moment that it would happen in a large number of cases. I do not think that it will and the Government do not think that it will. But we do hope that it happens in some cases. I mentioned leases where there were just a couple of leaseholders. I am certainly not saying that there will be never be a case where there will be some conversion from existing leasehold to commonhold; I think that there will. That is why we will be trying to persuade leaseholders or talking to leaseholders about changing to commonhold. But we are realistic about it. We know that it cannot be done overnight.

    Commonhold has to prove itself. We have enough confidence in commonhold to believe that it will prove itself. That is the best way I can respond to my noble friend Lord Richard. We have not changed our stance in any particular way. We want eventually to see the end of leasehold. We do not believe that the proper way to do it is just to abolish it. That would not have the desired effect. By establishing an alternative leasehold such as commonhold, we believe we will get a much better system of tenure in due course.

    The Minister said that the Government had not changed their policy in any way. I did not intend to raise this matter but, having heard that statement, I feel I must. I discussed this paper with the Minister in another place and asked him how he squared the direction that the policy was clearly taking with this ministerial foreword. He thought for some moments and said, "I did not write the foreword". That was the only response he could give.

    The Minister is aware, as are we all, that there has been a change of direction. I do not know why and I do not know anyone else who does. The Government came forward with the position that they were going to support existing leaseholders in trying to get out of their present situation and into commonhold; and. as we understood it, they were going to bring in commonhold for new developments in replacement of leasehold. So clearly there has been a change of policy, which the Minister in another place recognised.

    I wonder whether the Minister will accept from me—I was so impressed by it that I wrote it down—that he did say in his earlier remarks that he did not see commonhold being developed from leasehold.

    Perhaps I may press the Minister a little further on the issues of advertising and getting people on board, a point that I raised at Second Reading, particularly with reference to builders and new developers. Given the disquiet in the Committee today, can the Minister enlarge on what discussions have taken place with builders and developers? We have been told by various sources—the Minister will be aware that we are inundated with letters and information from people—that builders and developers are not taking much interest in this. I should be grateful if the Minister could expand a little.

    I am not in a position to give the noble Baroness many details but, from what we have heard—and also from what we have read in the same journals that she has no doubt been able to read—there is considerable interest among developers in commonhold development. That is our understanding. I shall go back to the department, find out what inquiries have been made and write to the noble Baroness.

    I thank those who have supported me in my unreasonable amendment. When the Minister talks about raising awareness, that is going in quite the wrong direction. The public are already very aware of this issue. The Government promised them that they would be given this solution, which would make life better and fairer for them and give them the right to have their own property. Instead, it is getting nowhere.

    The Minister implied the need to raise awareness among developers as well as the public. There is only one way to interest the developers; that is, to follow my noble friend's suggestion of providing incentives for them. The only time I saw anyone perk up with interest at the British Property Federation lunch was when I said that properties attracted much higher prices if they were sold commonhold. Suddenly, someone looked quite alert and said, "Oh really! Is that so?"

    You need to take this kind of line when you are talking to developers. You have to prove to them that it will be financially wise to do this. In that way, you might provide incentives for them. Perhaps the Chancellor's forthcoming Budget will contain some incentives.

    Anything that will get this system going will be a very important factor. Once this is established in London—I shall not refer to the case that someone is going to do something in Northampton, which is quoted all the time; I am talking about something being done in London—it will be under a magnifying glass. It does not matter which part of London; everyone will be aware of what happens in the capital. If you can provide the incentive for someone to do it here, it will speak for itself. People will be so pleased with it that, once one developer sees it is a success, it will go on.

    This matter is not to be taken lightly. It would be a terrible let down for people if nothing happened. In the meantime, I beg leave to withdraw.

    Amendment, by leave, withdrawn.

    Clauses 11 to 13 agreed to.

    Clause 14 [ Use and maintenance]:

    6 p.m.

    moved Amendment No. 25:

    Page 7, line 24, leave out ("and maintenance") and insert (", maintenance and regular upgrading").

    The noble Lord said: This amendment would require the commonhold community statement to impose a duty to ensure that the unit was regularly upgraded. One of the long-standing problems with leasehold management occurs where leases make no provision for the improvements of buildings. This prevents the cost of improvements being recovered through the service charge. It can lead to services in the building not being modernised because they will count as an improvement rather than a repair or maintenance. The problem has been acknowledged in the Bill. Schedule 9 includes amendments to the existing legislation to add improvements to the standard definition of a service charge.

    We believe that similar provisions in commonhold legislation should be inserted to ensure that these problems are prevented from the start. We propose that the statement should require regular upgrading rather than improvement. This is because we recognise that there can be disputes over what constitutes improvement. In any block there will be spenders and savers as well as those who can afford to pay and those who cannot afford to pay. It is important to ensure that the rights of the minority are protected, and that the spenders and better off members of the commonhold community do not railroad the savers and less well off into an obligation to pay for top-of-the-range improvements.

    We have therefore used regular upgrading to signify the intention for progressive modernisation of the building over time, although we do recognise that there is as much scope for argument as to what constitutes "regular" and "upgrading" as there might be in "improvement". Amendment No. 39 makes similar provision for the regular upgrading of the common part. I beg to move.

    I have views on this regular upgrading. It worries me in the same way as an upward-only rent review. Having had property in Australia, I saw very clearly that there was a huge division between those who lived in the block and wanted the luxury entrance, and those who perhaps because they were working away or for some other reason had sub-let their property. Those people were barely getting a return on the service charge and the upgrading that was envisaged. Maintenance is very important, but definition of upgrading is the most difficult feature.

    Although I understand what underlies the noble Lord's amendment, and his concerns and those of the British Property Federation, I, too, find difficulty with the words. "Regular upgrading" sounds a little like estate-agent speak. When I first read it, it suggested a new kitchen every 10 years. I am sure that that is not what is meant, but I find difficulty in construing the words of the legislative term.

    I, too, have some difficulty with this. There is not a great problem with the new buildings but as regards many existing buildings some have reserve funds included in the service charge but others do not. Most service charges were based on original rateable values but there are now awful argument about the lifts. It often happens that the people who do not pay for the lifts do not want them to be upgraded. They must be maintained annually under a maintenance contract and have the appropriate insurance. In some areas, normal external redecoration is required every five years and internally every seven years.

    Upgrading causes a major problem when some parts of a building are falling down and it is protected by English Heritage. Other buildings may have little foundation and suffer from hump and heave and cracks. There will be those who would like to have a roof which did not leak but who are required to replace it with old tiles which will always leak. It is the term "upgrading" that I do not like. Neither do I like the term often used by the noble Lord opposite, "modernization", which seems to be things spelt with a zee.

    Does the Minister intend to cover the following point? I have not read the new memorandum of association of commonhold which we have just received from the Printed Paper Office, but presumably in secondary legislation or in some other way there will have to be a benchmarking of the standards of maintenance. If not, all the problems of company law, imposing the liability on the two or three residents who do not want to pay and so forth will be a nightmare. I speak as the chairman of a residents' association, as I mentioned at Second Reading. The problem of ensuring that we facilitate the necessary legal structures is very important. It arises in a number of places in the Bill and it certainly arises here.

    Yes, we will try to make clear what my noble friend Lord Lea asks for. As he knows, we accept that the memorandum that is in existence at the moment is a draft only. The three amendments would all reduce a degree of certainty dictated by our policy and provided for us by the draftsmen by adding words and phrases which would bring no discernible advantage if they were employed in the Bill.

    Amendments Nos. 25 and 39 would both introduce a duty regularly to upgrade. We agree with what the noble Baroness, Lady Gardner, said and we are not quite sure what it means. We are not aware that it is a term of art among developers. It is not a term regularly used in leases or other contracts. Furthermore, it has the distinct disadvantage of being impossible to define accurately, as the noble Lord, Lord Kingsland, admitted, in both its parts; "regularly" and "upgrade". The duties with which it would be allied are all well understood and readily ascertainable; in other words, to insure, to repair and to maintain. In any event, regular upgrading, even if it were possible to say what it exactly what it means, is not something that one would expect to impose on freeholders.

    Commonhold brings with it certain duties and responsibilities. It is a concept of freehold in itself and we have no desire to impose further on the freehold concept, thus risking making commonhold less easy to sell as a unit than might have been the case. We are therefore not in favour of those amendments.

    Amendment No. 82 to Clause 66 would add the words "where practicable". Practicability seems to us to be a predefinition of decisions relating to rebuilding and reinstatement and therefore it would add nothing to the clause. We therefore ask the noble Lord to withdraw the amendment.

    When the Minister responds to the points made by the noble Lord, Lord Lea, will he distinguish between the obligations that relate to the whole building and those that relate to individual units? I had intended to say that one of my concerns about the first of the amendments related to the duty that would be imposed on the individual unit-holder as regards what he did within his own unit which may not affect the structure of the building. It would be helpful to have that distinction.

    The phrase "regular upgrading" might well mean that if a building held in commonhold had an aerial on top for reception of television, a new aerial would be required when digital television was introduced. I am not sure that such provision needs to be in a community statement but occupants of the building would clearly want to discuss that question and decide whether they wanted to pay for it before it appeared in their budget. That is one way in which I imagine it would be handled in practice.

    It might be said that the amendments have received a very moderate "hello" from your Lordships. My amendment has received a very moderate greeting from the Committee. In those circumstances, I shall of course withdraw my amendment and, in so doing, reflect upon some new formula that I may table at Report stage to meet what I still believe to be a desirable need. I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    moved Amendment No. 26:

    Page 7, line 27, at end insert—
    ("( ) Notwithstanding these duties, the commonhold association shall always be responsible for the structure of the building, including repairs and insurance of the structure on a full reinstatement basis.").

    The noble Earl said: In moving Amendment No. 26 I should like to speak at the same time to Amendments Nos. 38, 40 and 61. We return to a point that I and the noble Lord, Lord McIntosh of Haringey, debated earlier: the standardisation of the commonhold association statement. Since we debated this matter in a previous amendment my noble friend Lord Selsdon has hurried to the Printed Paper Office and provided me with a copy, for which I thank him. However, I do not believe that my problem is yet solved, since in the brief time that I have had to read through it I do not see an obligation on the commonhold association to maintain the structure and internal walls of the building. The statement refers to common parts but does not define them. I hope that the Minister will be able to clarify the situation.

    Amendment No. 26 refers to insurance of the structure of the building. Although insurance is dealt with in paragraph 49 of the draft statement, it refers to,

    "insurance, including public liability insurance in respect of the common parts".

    Does that refer to the structure of the building? That is the principal point which underlies the four amendments.

    When I moved Amendment No. 19 the noble Lord, Lord McIntosh, said that it would not be possible to contract out of what would be in the model association statement. Yet in Clause 14(2) it is provided that,

    "A commonhold community statement must make provision imposing duties in respect of insurance, repair and maintenance of each commonhold unit".

    If that statement is binding on both parties, what is the purpose of having it in the Bill? I beg to move.

    There is a distinction between the structure of the building and its contents. I agree with the noble Earl that obligatory insurance of the structure of the building should be imposed only on the commonhold association and that unit-holders' fixtures, fittings and contents can be insured by the unit-holders themselves. That clear distinction goes to the heart of a commonhold association. It is also sensible that a single body should be responsible for the integrity of the building as far as concerns insurance. I support the noble Earl's amendment.

    6.15 p.m.

    These amendments appear to have been tabled as a result of a misunderstanding. If passed Amendment No. 26 would give rise to an unfortunate unintended consequence and duplicate a provision already in the Bill that is designed to fulfil the presumed intention of the noble Earl. In its present form the amendment would make the commonhold association responsible for the insurance and maintenance of commonhold houses, detached or otherwise, and other independent buildings such as detached business units. It may be that the noble Earl intends to restrict the force of the amendment to flatted properties, in which case he will find that the provisions of Clause 25 already require the commonhold association to insure and maintain the common parts. In the case of flats, but not necessarily houses, that includes the structure of the building. If I am right in what I have said, I hope that that also deals with the other amendments in this group.

    Clause 25 states:

    "A commonhold community statement must make provision—
  • (a) regulating the use of the common parts;
  • (b) requiring the commonhold association to insure the common parts".
  • That may well be the structure of flatted properties.

    My problem still remains that there is no definition, as I see it, of what common parts are in the draft statement at which I have just glanced. Although the Minister has kindly confirmed that the structural part of the building is involved in the common parts, I hope that this can be made clear in the association statement.

    I ask the Minister to consider the second point that I made. We have various statements in paragraph 14 about how commonhold statements must include certain provisions. The noble Lord has just mentioned Clause 25. However, given what the noble Lord, Lord McIntosh of Haringey, said—that everything in the statement is binding on both parties—is it necessary to have it in the Bill as well as in the statement? Can there not be a subsection in the Bill providing that there will be a model commonhold statement from which neither party may contract out but to which they can add? That would cover it. Everyone would know after that.

    I shall certainly consider what the noble Earl has said. Perhaps I may refer him to a definition of common parts in Clause 24(1) of the Bill. It states:

    "In this Part 'common parts' in relation to a commonhold means every part of the commonhold which is not for the time being a commonhold unit in accordance with the commonhold community statement".

    I am grateful to the Minister for that clarification, which goes some way to reassure me. However, I would like to read what he has said and give it further thought. I am also grateful that the noble Lord has agreed to look at the other question that I raised. I believe there is something in that which would make the Bill and the statement much more intelligible to both parties. I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    Clause 14 agreed to.

    Clause 15 [ Transfer]:

    moved Amendment No. 27:

    Page 7, line 42, at end insert—
    ("( ) Outstanding debts and arrears due to the commonhold association must be paid upon transfer of the unit.").

    The noble Earl said: Those Members of the Committee who have been involved with leasehold properties will know how difficult things become when a property is transferred and debts or moneys are owed from that lessee. The amendment seeks to ensure that when there is a transfer of a commonhold property all debts and arrears are paid. That will ease the commonhold association's liabilities and problems and will make the whole administration of running the building a great deal easier. I beg to move.

    The noble Earl is right. There is a problem with how one transfers the obligations of units and, in particular—I raise this point because Amendment No. 58 is grouped with Amendment No. 27—how one enforces that and what kind of penalties should be imposed. There is a serious problem here which I am sure my noble friend will wish to address.

    There is certainly a serious problem and I am grateful to the noble Earl and to the noble Lord for the way in which they have introduced it. The trouble is that Amendments Nos. 57 and 58 would close down the range of options available to the commonhold association to collect debt. We doubt whether there should be specific mention on the face of the Bill of a power for the commonhold association to take a first charge on the unit to recover unpaid debts. Under the current law, that is one way in which a creditor may attempt to recover what is owed by a debtor, but it is only one, and it is not the only one.

    I do not believe that to take a first charge to recover a debt in the commonhold would never be appropriate, but specifying it as "the" way to recover money owed under Clause 36 regulations or otherwise is to close down the options unnecessarily.

    Presumably, we would only be considering a charge to enforce a debt when the various forms of alternative dispute resolution, which we will require, have failed, but charges seem to represent jam tomorrow, whereas a commonhold association will want to recoup its losses as soon as possible after they arise. If, as I suspect, they have had to get to court to get this far, the charging order is available to them, but so are execution against goods orders, attachment of earnings orders and garnishee orders, all of which might have a more immediate effect in regaining outstanding money than a charge.

    The flexibility of enforcement available to judgment creditors under the present system is valuable and ought to be available to commonhold associations.

    Amendment No. 27 might have made more sense if it required a particular party to settle the outstanding debts. As it is, the burden might fall on either party, and it is rather strange to think that a buyer might be expected to sign two cheques, one to the seller, and one to the commonhold association to settle the seller's debts.

    Amendment No. 27 is an important one. Amendment No. 58 goes too far—that is where the Minister referred to putting on a charge, and so on. Amendment No. 27 would mean that, for anyone buying a unit, his or her solicitor would automatically have to check that there was money outstanding to the commonhold group. We should bear in mind that if someone is not paying their share, all the other commonholders will suffer as a result. I support the amendment of the noble Earl, Lord Caithness.

    We can learn some things from existing leasehold arrangements. In general, if a tenant wishes to sell a flat or a property, the buyer has to have obtained the consent of the landlord, and that consent must not be unreasonably withheld. Usually, those searches are on what amounts of money are outstanding and due. If one takes over a lease from someone else, one takes over all of his obligations. I do not see why it is not possible to give commonhold associations the right to refuse transfer until and unless all outstanding debts are settled.

    Then it would not be commonhold. Clause 15(2) states:

    "A commonhold community statement may not prevent or restrict the transfer of a commonhold unit".
    The benefit of commonhold is that it applies the conditions of freehold to multiple occupation properties. If we did not have that transfer, we would not have commonhold at all. I am not saying that there is not a problem of people selling on their property and being unavailable to pay their outstanding debt. We have already had the answer to that—outstanding debts to the commonhold association ought to be revealed on a solicitor's search, and that ought to be settled before the transfer takes place.

    Is the Minister saying that it is not possible to devise a system so that somebody cannot transfer their commonhold until they have settled their debts to the association; or is he saying that he has tried to devise a system but has not been able to come up with one? Will he look at this again?

    I am not saying that at all. I am not saying either of those things. I am saying that there is a whole series of procedures in the courts for the recovery of debts. To restrict it in this way would be to weaken rather than strengthen the position of the commonhold association.

    Surely, the difficulty is that perhaps the owner is from abroad and leaves outstanding debts. He takes his money from the sale of the commonhold and has not paid his debts to the association. In any reasonable equity situation one would have to discharge one's debts before one obtained title, in this case to the commonhold. The vendor would have to discharge the debt.

    I understand the point that the Minister makes but, taking into account what may happen on occasions where the previous owner disappears, or perhaps just goes abroad, are the Government unable to find any way to put a stop in the system to prevent people completing a transfer before they have settled their debts?

    The problem of recovery of debts has been endemic in human society since the time of cave-dwellers. What is proposed in the amendment, and is at issue here, is that commonhold should somehow be weakened so that transfer of the ownership of a commonhold unit should be made subject to the settlement of debts to the commonhold association. I am not keen to have any restriction on the use of the courts to recover debt. I am very nervous about reducing the quality of commonhold ownership by saying that it is in effect up to the incoming owner to take some responsibility for the outgoing owner's debts.

    Does the Minister agree that in reality there is no way that one can receive the proceeds of sale of a freehold without being obliged, I believe by the lawyers—I do not know how it is done—to deduct any outstanding liabilities? Everyone accepts that that is reasonable. Nobody would regard it as unreasonable that one cannot transfer one's commonhold while one owes a big debt for work that has been done, or money is owing to the commonhold association. All I am asking is whether at least the sale of a commonhold can be in parity with the sale of a freehold.

    As I understand the argument, I believe that the Government are absolutely right and, with great respect to the noble Lord opposite, he is wrong. Assuming that I am a commonhold unit-holder and I want to sell it to the noble Lord opposite, if I have not paid my debts and he finds out about it—the chances are that he will—he need not sign the contract. If he signs the contract for the sale of the unit obviously he is bound, and I am bound if I sign it. This is a question of how one recovers debts, rather than how to stop the transfer of property. I am not in favour of this amendment.

    I am grateful to all those who have taken part in this short debate. I am particularly grateful for the support that I have received. I disagree with the noble Lord, Lord McIntosh, that to insert something like Amendment No. 27 would weaken commonhold. Far from it; it would strengthen commonhold. To run property is not an easy business; it requires a good deal of effort by a number of people if it is to be done successfully. I know many people who for many years have longed to run their flats and to be part of a management company but, when they have achieved that position, have regretted it because of the effort and commitment required.

    I am simply trying to make commonhold work better. As the noble Lord, Lord Richard said, it is a question of collecting debt. But why not use this opportunity to strengthen the hand of the commonhold association and all the other commonholders who have units? I agree that if a particularly troublesome person is constantly in arrears with monies due to the commonhold association there is a range of flexible measures which the commonhold association can take to deal with that individual. However, when it comes to the transfer of the unit there is a golden opportunity to get that situation up to date for the benefit of all the other commonholders in the association. It is that one person, or perhaps two people, who are holding back the regular maintenance; holding back the upkeep of the building. Here is a chance to say, "Right. You cannot transfer your commonhold unit until all the debts have been paid. When you have paid your debts, that is great. You go ahead and transfer it". Surely that is a sensible approach. I hope that the Minister will think again on this issue. I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    6.30 p.m.

    Clause 15 agreed to.

    Clause 16 agreed to.

    Clause 17 [ Leasing: residential]:

    I should advise the Committee that if Amendment No. 28 is agreed to, I shall not be able to call Amendment No. 28A on the supplementary sheet.

    moved Amendment No. 28:

    Page 8, line 20, leave out subsections (1) and (2) and insert—
    ("(1) 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 conditions as may be prescribed.").
  • The noble Lord said: The viability of commonhold depends on the unit-holder having a satisfactory degree of flexibility for the way in which he or she deals with the unit. The unit-holders will not all be permanent residents: some may buy a unit, be posted abroad and want to come back; some may buy a unit for retirement in advance of retiring and taking up residence; and some may buy a unit for investment, and there is no reason why they should not. Unit-holders must have a power to rent out their flats. If they were not able to do so, commonhold would lose a good deal of its attraction because it would be much more difficult to deal with than a leasehold property.

    At the same time, it is reasonable to say that unit-holders should not be allowed to create long leases at a premium. That would simply recreate the leasehold problems and complicate management. In addition, members of commonhold associations should regard themselves as members of a co-operative body and have a real and personal interest in the commonhold property.

    The Bill seeks to leave these issues to regulations. We think that some issues are fundamental to the viability of commonhold schemes and are too important to be left to regulations; they should be on the face of the Bill. We need commercial certainty. It is necessary that vital matters should not be left to regulations, which could always be changed at short notice.

    In our view, two matters are essential and should be on the face of the Bill. One is the maximum length of the lease; the other is the exclusion of the premiums. Our amendment proposes a seven-year maximum for the lease, which we think is the right length of time. Of course, there is nothing to prevent the unit-holder renewing the lease by agreement when the original seven years are coming to an end if at that point he does not want it for his own residence or for leasing to someone else. Less than seven years would not give enough flexibility; if you have more than seven years you begin to get into long leasehold issues and the unit-holder ceases to have any real personal interest in the unit.

    Seven years is recognised by existing legislation as the point at which, for example, certain maintenance and repair responsibilities shift from the landlord to the tenant. We think that 15 years, as proposed by the noble Lord, Lord Kingsland, is somewhat too long. We believe it is appropriate to use the same dividing point for commonhold purposes as is used, for example, for the shift of responsibilities for maintenance and repair. I repeat that this is a matter of such importance that it should be placed on the face of the Bill and not be left simply to regulations. I beg to move.

    Grouped with this amendment is the debate whether Clause 17 shall stand part of the Bill. I am opposed to Clause 17, but I am equally opposed to the amendment. There should be no restrictions whatever. Once you own your unit of commonhold, it should be entirely up to you what you do with it. If you want to let it for ever, that is up to you; if you want to let it for a short time or a long time, that is also up to you. I do not know where the provision comes in about seven years and the liability for repairs. It is not something I have ever thought about. I am not familiar with it and I do not understand it. I have known of people owning units and living abroad for 20 years. That does not apply to me—I have lived abroad for 40 or 50 years. The whole essence of commonhold is for it to be free. The noble Minister told us just a moment ago that he did not want that last restriction about transferring title, nor any restriction on commonhold. He referred to the value of the freedom of commonhold; that it is yours, to do with as you wish. Then we come to this clause and see that we are going to restrict what you can do with it, in terms of having a tenant or anyone else.

    I am grateful to the noble Baroness for giving way. However, would she allow a unit-holder to grant a 99-year lease at a premium?

    I probably would, but I doubt whether anyone would want to do that. It would seem most extraordinary for anyone to have such an aim. However, if you own a unit, it is entirely up to you what you do with it. That is how the Australian system works and it is the right way. There should be no unnecessary restrictions. In response to the previous amendment, the Government said that they did not wish to impose that degree of restriction with regard to people settling their debts. So why should they wish to make this one?

    I am sorry to intervene again. However, this is a perfect example of where we can find incentives. One of the biggest growth markets in this country among the retired and semi-retired should be buying to let. The same is the case with expatriates around the world. If you have the protection of buying a commonhold unit with the intention of letting it, that is better than handing over the money from your pension to a government who will give you a useless annuity over a period of time. That same kind of mood is prevalent around the world. You are providing accommodation for rent, for which there is a demand. I think that my noble friend is wrong and that the noble Lord, Lord Goodhart, is wrong. Somewhere in this is the need to encourage not necessarily owner occupiers but investors.

    Is this not another issue which relates to the commonhold association memorandum? I would be surprised if one could restrict the right of the commonhold association to put in a covenant about sub-letting or other matters along those lines. Will there not be issues to clarify at that stage? There will be a need to clarify what is the scope for restrictive covenants on this document.

    Perhaps I may come back on that point. At Second Reading, I made it clear that there had been two forms of title in Australia. The first was called company title, where you had to get consent of other people for whatever you did in your property. The second one—the strata title—is what we were aiming to produce in this country as commonhold. In the latter case, you were totally unrestricted, even on the point about repairs, which came up on an earlier amendment. Certainly, you were liable to ensure that the building as a whole stayed up, but if you allowed your unit, internally, to become a pig sty, that was entirely your choice. No one in the commonhold could enforce any improvement in that, unless it became noxious or was spreading some terrible infection to other unit-holders. The whole point about the commonhold is that it is your little piece of freehold in that big building.

    My question is not really answered in that way. I am asking whether it is not within the scope of the commonhold association to agree restrictive covenants about various things that people can do. Is that right?

    Clause 17 imposes restrictions on a residential unit-holder's right to create a lease of his unit. According to the Explanatory Notes, the intention is that regulations made under Clause 17(1) set down that no premium should be payable for a lease, and that it should be at a rack rent, and also that the maximum period for a single term of lease should be restricted to seven years.

    As Members of the Committee are well aware, criticism was made of this clause at Second Reading. The noble Lord, Lord Goodhart, and the noble Lord, Lord Richard, thought that some restriction would be appropriate but that the present proposals were too restrictive. My noble friend Lady Gardner of Parkes, as we have just heard, drawing on her own immense experience of strata titles in New South Wales, strongly and persuasively opposed any restriction as she has done today. The noble Baroness, Lady Hamwee, suggested that tight restrictions would hamper the reinvigoration of the rental market.

    Since the principal intent behind the proposal for commonhold is to place unit-holders as nearly as possible into the same position as though they were outright freeholders—that is, with as few restrictions as possible on their powers of disposition and alienation—the presumption should be against any restriction unless clearly justified. As far as I am aware, no such justification has been given; hence this clause should be omitted in its entirety.

    If the concern is that problems may arise if some unit-holders are absentee landlords, those problems are more properly to be treated as problems of management to be dealt with in accordance with the CCS or the M&A rather than by regulation. However, in the case of a new development, the intending purchaser for a commonhold unit would know before he contracted to buy the unit just what restrictions on his powers of disposition and alienation are imposed by the CCS and/or the memorandum of association and will be able to take those into account when deciding whether or not to buy the unit and, if so, at what price.

    In case of a conversion from leasehold, the question of whether or not there should be any such restrictions would have to be debated and agreed upon before an individual leaseholder decided whether or not to consent to the proposed application.

    In any event, the proposed restrictions are far more restrictive than those imposed by, for example, Section 41 of the Settled Land Act 1925, where the basic maximum term for a lease by a tenant for life is 50 years, with longer terms being allowed in special cases. The Trusts of Land and Appointment of Trustees Act 1996, which replaced the Settled Land Act and the later provisions in the Law of Property Act 1925 providing for modern trusts of land, specifically provides that trustees of land shall have all the powers of an absolute owner.

    The Bill does not deal with the leasing powers of trustees of land, nor does it spell out the consequences of granting an invalid lease for an instant purchaser. If it be intended that such matters shall be dealt with by regulation to be made under Section 19, these are all matters of fundamental importance which should be debated and form part of the primary legislation and not left to delegated legislation.

    I was going to wait until the disputes on the other side of the room had died down and hoped to pick up the pieces with the maximum disagreement of those who were proposing these amendments. I cannot quite do that, so let me remind Members of the Committee from the Explanatory Notes what we are doing in Clause 17.

    Clause 17 places one of the few restrictions that the commonhold scheme requires on the ability of a unit-holder to treat his unit as though freehold. It is government policy that residential commonhold units should not be let for long, unbroken periods. The only purpose of that is that we should not be returning to long leaseholds by the back door. That is why Clause 17(1) provides that,
    "It shall not be possible to create a term of years absolute in a residential commonhold unit unless the term satisfies prescribed conditions",
    relating to length, the circumstances in which it is granted or any other matter.

    Amendment No. 28 seeks to bring some of those matters onto the face of the Bill by prescribing a period not exceeding seven years and eliminating the possibility of the payment of a premium or other lump sum. It is legitimate to bring matters onto the face of the Bill. After all, the whole of this part of the Bill contains matters that may or may not, or must or must not, be included in the memorandum and articles or the CCS. We believe that it is necessary to give statutory force to the CCS to ensure that commonhold is as close as is humanly possible to freehold and that we do not slip back to long leasehold.

    As a member of the Delegated Powers and Deregulation Committee, the noble Lord, Lord Goodhart, has failed to recognise that that committee did not object to this degree of delegation to regulation. Although I was not privy to its debate, I hope and believe that it recognised that our intention here was to do only the absolute minimum to stop commonhold being frustrated and slipping back into the creation of long leasehold. We do not wish to interfere any more than is necessary with the use to which unit-holders put their units, but we want to ensure that long leasehold cannot be reintroduced.

    The amendment would put on the face of the Bill the terms on which the Government intend to allow letting. I reiterate the need for flexibility, and I believe that this is a good example of that need. I acknowledge that our original intention was to impose very tight controls on the letting of residential units. It was impressed on us from a number of quarters that tight regulation would tend to make commonhold developments unpopular as buy to let would be next to impossible. We were told that a significant part of the market in flatted properties was buy to let. We have considered that advice and decided to take it. The amendment sets out the terms at which we have arrived on that advice.

    This is a matter of reacting to the market. If in due course there is a change in circumstances and it is necessary to alter the regulations—perhaps there is a new attack on commonhold from those who wish to weaken it as a concept—we need to be able to react. That is why it is dealt with in regulation.

    6.45 p.m.

    Before my noble friend responds, does the Minister really mean that in a system that he supports as being as close to freehold as possible, regulations to react to the market, not on a day-to-day but certainly on a fairly frequent basis, are appropriate?

    Yes. The regulations might be too restrictive and take us further away from the freehold concept, and we might want to change them to preserve the proximity to freehold.

    It would also allow the possibility of making the position more restrictive.

    On that view there would never be regulations and everything would be on the face of the Bill.

    I am not sure that I should disclose what happened in the Delegated Powers and Deregulation Committee. Owing to the timescale the committee had very little time to consider this matter. I was deputed to have a look at it and make recommendations. I am afraid that in the time available I was unable to spot what I subsequently thought were all the possible points that might be made. So it is my fault.

    On the substantive question, it seems that there is a fundamental difference, particularly between the noble Baroness, Lady Gardner, and myself, as to what commonhold is really for. The noble Baroness sees it as dividing up a block of flats into what are basically a number of completely separate freeholds, with unit holders having complete freedom to do pretty much what they like with them. I hope I speak for my noble friends as well as for myself, but we feel that it is much more of a co-operative than that. I can see enormous problems if you say that there are no restrictions on what you can do with your little freehold.

    If we talk in New York terms, surely it is more like a condominium than a cooperative. A co-operative is extremely restrictive.

    Yes. I agree it is not as restrictive as a co-operative. I am not suggesting that we should go the way of New York co-operatives, where all the members have to agree and where you can say that you do not want Bill Clinton coming in as a tenant because you do not like him.

    If you have the freehold with power to create long leases, you will end up with a separation between the management and the people who are really interested in maintenance. For example, let us say that someone does let a unit off as a leasehold, for a premium, over a long period of time. It will be the landlord who will be the member of the commonhold association and it will be the landlord who decides what is to be done. However, if the lease has been granted at a relatively low rent and a substantial premium, the landlord or unit holder will have no particular interest in having the building properly looked after.

    If this system is to work, unit holders must have a real interest in the building as a place in which to live. Perhaps they may not wish to live there immediately—I can quite imagine that some people may not wish to live there for some years; they may go abroad for some years—in which case they could let it on a tenancy, which could be renewed from time to time.

    There is no reason why a seven-year tenancy could not he renewed and then renewed again. However, there seems to be a philosophical problem here. In a sense, as this debate has shown, what matters more than whether it goes into regulations or on the face of the Bill is that there should be restrictions which—while giving flexibility to enable people to derive an income from the building while they are not living there—will ensure that the tenants are not simply investors who let their units off for long periods, with no right of recovery, and who therefore have no interest in the building at all. I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    [ Amendment No. 28A not moved.]

    Clause 17 agreed to.

    Clause 18 [ Leasing: non-residential]:

    [ Amendment No. 29 not moved.]

    Clause 18 agreed to.

    Clause 19 agreed to.

    Clause 20 [ Other transactions]:

    [ Amendment No. 30 not moved.]

    moved Amendment No. 31:

    Page 9, line 32, leave out subsection (3).

    The noble Baroness said: I tabled this amendment because I did not understand exactly what was meant in the Bill. The words that I am seeking to delete are:

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

    I tabled the amendment because the provision sounded to me like a company title or co-operative. I wanted to seek the Minister's assurance that that was not the case and that you would be able freely to sell your unit to someone else. I did not know exactly what was meant, and even the Explanatory Notes did not clarify for me what was meant by "interest". I beg to move.

    I also have an amendment in this group, Amendment No. 32, which I can deal with very briefly. This is another restriction on the right of a unit-holder to deal with his unit. No explanation or justification for it has been given in the Explanatory Notes. Any such restriction as may be justified is more properly to be imposed by the CCS so that, in the case of a new development, a unit-holder will know and accept the proposed restriction before he contracts to purchase his unit. In the case of a conversion from leasehold, a unit-holder will have been able to consider and discuss it before giving his consent to the application to register the commonhold. Therefore, subsections (3) to (6) should be omitted altogether.

    I support these amendments, particularly that of the noble Lord, Lord Kingsland. The question is: what do the Government have in mind here? Why is the consent of the commonhold association needed? "Interest" is not defined, but I assume that it broadly means an equitable interest in the property of the kind which is familiar to property lawyers. The Explanatory Notes mentioned easements. It is most unlikely that a unit-holder will want to create an easement over the unit, but the most relevant form of interest is the estate contract; that is, the contract to grant a lease or tenancy. The short-term tenancies are more often created by a contract for a lease than by a lease which is formally granted.

    Clause 20 as it now stands appears to mean that a contract to grant a tenancy will be void unless the commonhold association consents in writing by a unanimous resolution. That must be wrong. I believe that these subsections should be deleted and that Clause 17 may need amendment to make it clear that it applies to an agreement for a lease as well as to a lease itself.

    I sympathise with the difficulty which noble Lords have in understanding this part of the Bill—I had exactly the same difficulty. I think the answer is that the Bill is not defective. A lease is not the same as a mortgage. A mortgage is a charge and Clause 21(1) distinguishes between them. It states:

    "It shall not be possible to create an interest or charge in or over … part only of a commonhold unit".
    That makes it clear that we are not talking about a mortgage. The definition of "interest" is to be found in the Land Registration Act.

    Amendment No. 31 would remove a necessary form of control on the operation of a commonhold, and I say that in the context of having said that we want as few controls as possible. Clause 23(3) requires that the commonhold association should either be a party to the creation of an interest or consent to it. The idea is to control the possibility of a unit owner granting, for instance, a right of way or some other right over land which, although it is his commonhold unit, might nonetheless affect the lives and surroundings of other members. That seems to us to be a necessary control. It is only in those circumstances that we would envisage these provisions being used.

    7 p.m.

    If that is right, perhaps I may ask my noble friend the Minister why we do not confine the definition of interest in subsection (3). It should not be possible to create an interest that affects the interests of other commonhold unit-holders; otherwise, the provision will be extraordinarily wide. Under the clause the commonhold community statement cannot prevent the unit-holder from creating his interest, but the commonhold association can. In those circumstances it might be desirable for the commonhold association to be restricted. However, with great respect, I think that this is too wide and ought to be spelt out.

    That is helpful. It reflects the puzzlement that I had about these provisions. Perhaps I may think about the matter between now and Report stage.

    Clause 26(2) provides that

    "'inerest' does not include … a charge".
    Therefore, unless one provides that in this clause, the provision suggests that it does.

    I ask the Minister to look again at the estate contract point. I would be very surprised if that were not a interest within the meaning of the Land Registration Act. If so, then clearly Clause 20 would great cause complications. If one is free to create a tenancy of any kind, then equally one must be free to enter into a contract. An interest under a contract is not a mistake—that is plain—but it must be an interest. It is certainly something that we can protect by a notice on the register. I ask the Minister to have a look at that point.

    I do not see how I can look at the point made by the noble Lord, Lord Richard, without covering that as well.

    It is very satisfactory that the Minister is to examine the point. Certainly, in my own experience, I had a unit in a building where we had the offer of putting a television aerial on the top of it. It saved us a great deal of money. We paid a set amount each year which came off our service charge. That is certainly the kind of issue on which every unit-holder would have wanted to have an opinion. However, other matters might be unnecessarily restrictive. I am grateful that the Minister has agreed to look at the point. I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    [ Amendments Nos. 32 and 32A not moved.]

    moved Amendment No. 33:

    Page 9, line 37, leave out ("resolution which is passed unanimously") and insert ("special resolution").

    The noble Lord said: With Amendment No. 33 I wish to speak also to Amendments Nos. 68 and 69. These amendments and others in the group deal with circumstances where the build requires a unanimous resolution by the commonhold association. That does not mean that every member of the association must consent. It means that those who vote on the resolution must vote in favour of it.

    We have just debated the question of what consent should be necessary under Clause 20. It is therefore inappropriate for me to discuss that point again. It will need to be looked at carefully.

    Amendment No. 42, which stands in the name of the noble Baroness, Lady Gardner, is also part of the group. The amendment deals with a unanimous resolution giving a charge over the common parts. That is an unusual step. There can be occasions where it is justified; for instance, in the case of charge of a garden or something else which may be of value to someone other than the holders of the units. Normally, however, common parts are an essential part of the property and enforcement of a charge over them could have serious consequences for members of the commonhold association. There, I would consider unanimity to be justified and I have not put down an amendment to do that.

    Amendments Nos. 68 and 69 deal with the addition of new land to commonhold, which is an important issue. I would accept that the vote of a bare majority would not be sufficient to justify it. Equally, the addition of land could have great benefits for the unit holders and one objector alone should not necessarily be able to block it. Our amendments use the well-known concept of the special resolution under company law, which requires a 75 per cent majority of members voting. In fact, it is very much along the lines of the amendment of the noble Lord, Lord Kingsland, but it is slightly easier to achieve the necessary 75 per cent rather than his proposed 90 per cent. I beg to move.

    Amendment No. 42 is linked with this and follows the earlier argument about the word "unanimous", of which I am not in favour.

    I also support the amendment of my noble friend Lady Gardner of Parkes. I would like to take this opportunity of thanking the noble Lord, Lord Goodhart, for drawing the attention of the Committee to my Amendment No. 70, about which I need say no more.

    In dealing with this group as a whole, certain actions of the commonhold association are of sufficient seriousness that they should be supported by a significant majority in favour of them among the members. We are only too well aware of the difficulties inherent in requiring unanimity—it could not be otherwise after our earlier rather long discussion on Clause 3. The process for reaching unanimity, which we have prescribed in Clause 35, requires all members of the commonhold association to be given the opportunity to vote and to cast that vote in any manner provided for under the governing documents. To achieve unanimity, it is therefore necessary for all those who cast a vote to vote in favour. That is a tough but fair target to aim for in important matters.

    The amendments that have been moved and spoken to would displace our definition of "unanimity" in some of the places of the Bill where it applies and replace it with a special resolution which, as the noble Lord, Lord Goodhart, says, is a well-known concept in this field. We know that the amendment now intends to do no more than replace one term with another, leaving the process intact. Our view is that the term, "unanimity" ought not to be changed in any event.

    Even for the matter to which Amendment No. 33 refers, the use of the term emphasises the importance of what is in hand. To use another term would be to rob the action of some of its significance. "Unanimity" is best for all the places where it appears in the Bill, including also Amendment No. 42 in the name of the noble Baroness, Lady Gardner of Parkes. Our principal unanimity is a better solution for most purposes in the setting of particular limits, as the noble Baroness does in her amendment. It deals with those, first, who cannot be found; notice will go to the last known address on the commonhold association's register for everyone entitled to vote.

    It is the business of the unit-holder to keep that up to date. If he or she loses touch and fails to receive the notice, the failure will not hamstring the commonhold. The same considerations apply if he or she receives the notice but chooses not to vote by post or to appoint a proxy. However, because borrowing on the security of the common parts is potentially a serious step, carrying as it does the risk of losing the land on which the loan is secured, all those who take sufficient interest to vote should be persuaded of its wisdom. That is why we are for unanimity in this case.

    As the noble Baroness suggests, the setting of the limit at 80 per cent is prone to the difficulties to which high absolute limits are prey. Those who are lost to the system, or who abstain in these circumstances, vote against any proposition and that may well serve to hamper the management of the commonhold. It is perfectly possible, for example, that all of the 75 per cent who vote in such a ballot are in favour but the proportion of non-voters stymies the process. We believe that the scheme we have put forward contains sufficient safeguards yet allows important decisions to be taken by the people who are active and interested in their community. No-one is disenfranchised by the scheme. Those who lose touch, or choose not to vote, are either not interested or content to leave matters to others. We believe it is reasonable that their views should not unduly impact on the active management of the commonhold.

    As far as concerns Amendment No. 90 which has been spoken to very briefly, 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 there will be the associated costs of servicing any loan and the ongoing costs of managing and maintaining the new land. We believe, therefore, that here again unanimity is not an unreasonable hurdle for those who make the proposal. We find it a little difficult to grasp what advantage there is in reducing that hurdle by just 10 per cent to 90 per cent. On that basis we ask the noble Lord to withdraw his amendment.

    Perhaps I may ask the Minister to clarify something. I believe the noble Lord said that my 80 per cent would be higher than the number of people required. He said that there would be a much lower number of people, provided that everyone who took part in the ballot voted unanimously for it. If that is correct, what is the lowest number that can qualify to vote? Perhaps the noble Lord is able to clarify whether a very small number—just one or two—can make such a tremendously important decision in the absence of all the others.

    As always, the noble Baroness asks a good question, the answer to which will not come as a complete surprise. The number required to make the vote valid will be set out in the memorandum and articles. I say straight away that that is not a satisfactory response to the question, and a better answer is needed before we deal with the matter at Report.

    I am not sure that that answer is correct. The position is that the resolution must be moved at a meeting of the association which has to be quorate, but I do not believe that in any ordinary memorandum and articles there is any requirement for a minimum number of people to vote on the resolution, and I do not see any in these particular ones.

    The minimum would be the quorum but at this stage we have not said what the quorum should be. That will be set in the memorandum and articles.

    That will indeed be set in the memorandum but, provided the meeting is quorate and some of the members at the meeting decide to abstain, the resolution will still be valid.

    Is the Minister aware that the statement appears to provide that the quorum for proceedings at general meetings should be 20 per cent of the members? Is it proposed that there should be a different quorum?

    My noble friend refers to the document that we have just received from the Printed Paper Office.

    That is the figure in the draft document which the noble Lord has. There is as yet no concluded view.

    Amendment, by leave, withdrawn.

    Clause 20 agreed to.

    7.15 p.m.

    Clause 21 [ Part-units]:

    moved Amendment No. 34:

    Page 10, line 1, leave out subsections (1) and (2) and insert—
    ("( ) An instrument or agreement which creates an interest or charge in or over—
  • (a) part only of a commonhold unit, or
  • (b) part only of an interest in a commercial unit, shall have effect subject to any provision of the commonhold community statement.").
  • The noble Lord said: I rise to move Amendment No. 34 and also to speak to Amendments Nos. 35 and 36. These amendments enable the creation of an interest or charge over part of a unit, as long as that is permitted by the commonhold community statement.

    Clause 21 imposes yet another restriction on unit-holders. The intention as stated in the Explanatory Notes is

    "to preserve the integrity of the unit and also to ensure that no event takes place that would require a change to the commonhold community statement which is not in the control of the commonhold association".

    However, there may be circumstances where it is convenient or financially necessary for a unit-holder to deal with only part of his unit; for example, if he wishes to accommodate an aged parent in a granny flat to which she has contributed her own money. For the same reasons as have been given already in relation to the omission of other such restrictions, in our view any such restriction as may be justified is more appropriately to be imposed by the CCS. I beg to move.

    The amendment, and the others spoken to, would change the policy of the Government to restrict the creation of charges or interests over parts of units. The reason why we arrived at our policy is not difficult to understand, and I try to explain it by way of example. Consider a small estate of very up-market houses, each in its own plot of half an acre with a large garage. The unit-holder wishes to build—to coin the noble Lord's phrase—a granny flat over his garage. He wants to borrow to build it and offers as security the half acre of garden in this prime location. For the sake of the example, let us assume that a lender is rash enough to lend on that security.

    When in due course—and this is a sad tale—the unit-holder defaults on his repayments and the lender forecloses, what happens then? The land now owned by the lender is commonhold land and is surrounded by commonhold land. If it is to be taken out of the commonhold, how will this work? If it is to stay within the commonhold, what effect will that have on the commonhold community statement and the payment of commonhold assessments? And how will it be registered? Is the new owner to be a member of the commonhold association, and on what terms? If the charge sits over the whole property, none of these problems arise. The difficulty occurs with the bits that have to be carved out of the commonhold.

    A significant argument for commonhold, and part of the system, is the generally standard terms of the CCS. The tenor of the amendments is to allow for wide-ranging variations in matters of central importance, to be subject only to the terms of the CCS which, to do the job, as the noble Lord seems to see it, will become less and less standard. One of the biggest headaches facing those moving from leasehold property to leasehold property is the wide variation in terms of leases. That is something from which we are trying to distance ourselves. The Bill which his government produced in 1996 was more prescriptive than this Bill. We believe that we have struck the right balance between prescription and freedom of choice, and we have prescribed only what seems genuinely necessary for the benefit of those concerned.

    If carried to its conclusion, these amendments would have the potential to make the management of the commonhold desperately difficult, and perhaps eventually to bring it down.

    I am not at all happy with what the Minister has said but I shall not press him on it. In any event, it would be futile to do so because we cannot vote. I shall simply lick my wounds, remind myself that I must return to this matter at the Report stage, and beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    [ Amendments Nos. 35 to 36 not moved.]

    Clause 21 agreed to.

    Clause 22 [ Changing size]:

    [ Amendment No. 36A not moved.]

    Clause 22 agreed to.

    Clause 23 [ Changing size: charged unit]:

    [ Amendment No. 36B not moved.]

    Clause 23 agreed to.

    [ The Sitting was suspended for a Division in the House from 7.21 to 7.31 p.m.]

    Clause 24 [ Definition]:

    moved Amendment No. 37:

    Page 11, line 5, at end insert—
    ("( ) Where a statement under subsection (2) above relates to a parking space, such space shall be deemed part of the commonhold unit.").

    The noble Baroness said: I feel strongly about this. People are very aware of the importance of a parking space in their lives. If a parking space is just provided in a unit, it will not have the same appeal as if it were on the title and registered with the commonhold. That has certainly been the case with any unit I have ever had.

    It has the disadvantage that some people might have two car parking spaces and although others may wish they also had two, they cannot because the spaces are an integral part of the commonhold title. It is a good thing, however, as well as a commercial consideration, as more attractive car parking spaces add more to the value of the unit. By that, I mean that if there is a low beam in the car parking area so that only a small car can fit underneath it, that unit will have a lower price because it cannot accommodate a four-wheel drive, which lots of people may wish to fit in. It is an important point, therefore, in the selling of the commonhold units to those people wishing to buy them. It should be clearly set out that it would be part of the commonhold title. I beg to move.

    I can assure the noble Baroness, Lady Gardner, that nothing in the Bill prevents units being sold with the benefit of a reserved space. They would be part of the commonhold of the unit and they would change hands with the unit. Thus, there is no problem with what she wants, nor is there a problem in a case where somebody wants more than one space; he could have two. The problem would be if there were not enough car parking spaces and there were, for example, a waiting list. Somebody would then get a space only when it became available. There is also the problem of transfer. For those reasons, we do not need the amendment.

    I thank the Minister for his reply and beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    Clause 24 agreed to.

    Clause 25 [ Use and maintenance]:

    [ Amendments Nos. 38 to 40 not moved.]

    Clause 25 agreed to.

    Clause 26 agreed to.

    Clause 27 [ Charges: general prohibition]:

    [ Amendment No. 41 not moved.]

    Clause 27 agreed to.

    Clause 28 [ New legal mortgages]:

    [ Amendment No. 42 not moved.]

    Clause 28 agreed to.

    Clause 29 agreed to.

    Clause 30 [ Form and content: general]:

    moved Amendment No. 43:

    Page 12, line 39, at end insert ("otherwise than in accordance with, and subject to, the provisions of the commonhold community statement").

    The noble Lord said: I can deal with this very briefly. This amendment is consequent upon and consistent with other proposed amendments which have been discussed earlier, in particular with the proposed omission of Clause 17 and the proposed amendments to Clauses 20 and 21. I beg to move.

    I shall be equally telegraphic, to use the phrase of the noble Lord, Lord Kingsland. Clause 30(5) provides that inter alia the duty in Clause 30(3)(b) may include in particular subsection 5(e) a duty to

    "refrain from entering into transactions of a specified kind in relation to a commonhold unit".
    The amendment would add the words,
    "otherwise than in accordance with, and subject to, the provisions of the commonhold community statement".
    That is already provided for. You can prevent it happening. If you can prevent someone from doing something completely, as you can under the Bill, you do not need to add conditions as to how he does it.

    I am obliged to the Minister and in the circumstances I beg leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    moved Amendment No. 44:

    Page 13, line 8, after ("interest") insert ("and costs of recovery").

    The noble Lord said: The amendment would enable the commonhold association to recover the costs of pursuing a late payer as well as charge interest on the late payment. There does not appear to be any provision elsewhere in the Bill to ensure that the commonhold association is not bound to bear its own costs if it is forced to pursue one of the unit holders for payment. It is surely unfair that the common hold community as a whole should have to pay the extra cost involved when one of its number refuses to meet his obligations. I beg to move.

    In supporting my noble friend Lord Kingsland, I wish to speak also to Amendment No. 65, which I have tabled. It is extremely unfair that there are always some people who are late payers, whether it be in leasehold property or in commonhold. It is unfair on others that that should be the case. I certainly believe that interest payments should be claimable.

    This is very sensible pair of amendments. Most of us know from our business experience how incredibly time consuming and expensive it can be to recover money—often quite small sums—from people who for the most part are well able to pay but are simply too lazy to do so.

    I am sorry to disrupt the harmony of the Committee, but I am afraid that we do not support the amendment. We feel that it is not appropriate to change on a piecemeal basis broad provisions of the law such as those dealing with the pursuit of debts. There are well understood provisions for recovering debts and they should apply in the usual way.

    The first amendment, Amendment No. 44, would add to the existing provision for the collection of interest in the case of late payment of money owing under a provision of the CCS a provision to collect the costs of recovery. That is not necessary. Clause 36(2)(d) provides that where work is carried out in consequence of the failure to perform a duty, the costs of that work may be recovered. As the calculating and the collection of interest would be work, the new words are unnecessary.

    A similar answer applies to Amendment No. 65. Clause 36(2)(b) provides for provision to be made requiring compensation to be paid when a duty arising under the CCS is not complied with. We had in mind non-payment or late payment of money due from the unit holder to the commonhold association as one of the types of duty to which this provision would apply. My view is that it is not necessary to provide for it specifically in this place.

    I am most grateful to the Minister for accepting the principle of the amendment. I shall look at the other parts of the Bill to which he referred me to make sure that they cover the problem that sought to address. Meanwhile, I beg to withdraw the amendment.

    Amendment, by leave, withdrawn.

    This may be a convenient time for the Committee to adjourn until Tuesday, 27th February at 3.30 p.m.

    The Committee stands adjourned until Tuesday, 27th February at 3.30 p.m.

    The Committee adjourned at twenty-two minutes before eight o'clock.