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

Volume 622: debated on Tuesday 20 February 2001

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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 Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.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—