House of Commons - Explanatory Note
Commonhold and Leasehold Reform Bill [HL] - continued          House of Commons

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Clause 58: Development rights: succession

113.     Clause 58(1) and (2) provide that, where a developer transfers all or part of his rights in commonhold land to another person during a transitional period (see clause 8) his successor in title shall be treated as the developer in relation to the land so transferred once the transfer has taken effect. Subsection (3) provides that if such a transfer takes place after the end of a transitional period, or where such a period has not applied, the successor in title shall be treated as the developer only if the transfer specifies that the development rights are part of the rights transferred and again, only after the transfer has taken effect. Subsection (4) provides that, other than during a transitional period, no one may have the status of developer and thus development rights unless he is or has at some time been registered owner of two or more units and is still owner of at least one.

Clause 59: Compulsory Purchase

114.     Clause 59 makes special provisions for dealing with compulsory purchase of units or common parts, or of parts of them. Subsection (1) makes it clear that any land subject to compulsory purchase ceases to be commonhold land, unless (subsection (2)) the Registrar is satisfied that the compulsory purchaser wishes it to remain as commonhold land. Subsection (3) disapplies the provision of clause 21(1) (as provided by clause 21(2)), which would otherwise forbid a unit-holder from transferring only part of his unit, thus allowing compulsory purchase of a part-unit where necessary. Subsection (4) gives power to make regulations governing transfer of all or part of any commonhold land to a compulsory purchaser, and subsection (5) lists a number of matters which such regulations might cover. These matters include a provision at subsection (5)(f) which would allow the regulations to disapply or apply with modifications any legislation relating to compulsory purchase as it relates to commonhold land. Subsection (6) makes provision to deal with land which remains after compulsory purchase of part only of a commonhold development.

Clause 60: Matrimonial rights

115.     Clause 60 provides that, where the term 'tenant' is used in Part 1 of the Bill, it applies to anyone who has matrimonial home rights under the Family Law Act 1996. This says, at section 30(2), that a spouse who is not entitled to a property right in the matrimonial home has '(a) if in occupation, a right not to be evicted or excluded from the dwelling-house or any part of it by the other spouse except with the leave of the court given by an order under section 33; (b) if not in occupation, a right with the leave of the court so given to enter into and occupy the dwelling house.'

General

Clause 62: Orders and regulations

116.     Clause 62(1) provides that wherever the term 'prescribed' is used in Part 1 of the Bill it refers to regulations to be made by the Lord Chancellor, with the exception of regulations to be made under clause 59 (compulsory purchase) which are to be made jointly by the Lord Chancellor and the Secretary of State. Subsection (2) is a standard scope subsection, subsection (3)(e) specifying that such regulations shall be subject to the negative resolution procedure in both Houses.

Clause 63: Registration procedure

117.     Clause 63(1) gives the Lord Chancellor power to make rules governing registration of commonhold land and the procedures to be followed in relation to commonhold registration documents. Subsection (2) provides that such rules should be made in the same way as the Land Registration Rules under section 144 of the Land Registration Act 1925, that is to say, by statutory instrument with the advice and assistance of the Rule Committee. It also provides that the Rules so made may make provision for any matter that is or may be provided for under the section 144 Rules, and particularly, to avoid the need to re-make all the section 144 Rules to make them apply to commonhold, it allows for the application of the Rules made under the 1925 Act to commonhold land registration in the same way as they apply to general registration. Subsection (3) sets out a number of areas in which the Rules may make provision, and subsection (4) deals with matters concerning commonhold registration documents, and particularly whether originals or copies are to be used for registration, if copies, whether and if so how they are to be certified and whether electronic documents might be permitted or required. Subsection (5) gives HM Land Registry the power to charge fees for commonhold land registration, and subsection (6) defines 'commonhold registration document' and 'general registration document' for the purposes of Part 1 of the Bill.

Clause 64: Jurisdiction

118.     Clause 64(1) provides that mention of 'court' in Part 1 of the Bill refers to the High Court or a county court and subsection (2) provides that the allocation of business between tiers of court shall be subject to section 1 of the Courts and Legal Services Act 1991. Subsection (3) provides that mention of conferring jurisdiction on a court includes conferring jurisdiction on a tribunal as appropriate. Subsection (4) provides that rules of court or rules of procedure for a tribunal may make provision for dealing with proceedings brought under any provision of Part 1 of the Bill or generally in relation to commonhold land.

Clause 65: The register

119.     Clause 65 provides definitions in relation to registration and the powers conferred on the Registrar in this Part of the Bill and also provides that regulations made under any part of Part 1 may confer discretion on the Registrar. Subsection (6) confers a power to collect fees to defray expenses of the commonhold registration process.

Clause 66: Amendments

120.     Clause 66 gives effect to Schedule 5 (consequential amendments).

Clause 67: Interpretation

121.     Clause 67(1) defines a number of terms from Part 1 of the Bill. Subsection (2) provides that a reference to an obligation to insure includes an obligation to use any payment under a claim against the insurance to re-instate or rebuild the structure or otherwise which was the subject of the claim. Subsection (3) provides that expressions used in Part 1 shall bear the meanings which they bear in any of the Law of Property Act 1925, the Land Registration Act 1925 or the Companies Act 1985, unless the Bill provides an alternative definition.

PART 2: LEASEHOLD REFORM

Chapter 1 - Right to manage

Clause 69: Introductory

122.     Clause 69 provides that this Chapter confers the right to acquire and exercise the management of the relevant property on a company which is constituted for the purposes (a 'RTM company'). This right is to be known as the 'right to manage'.

Qualifying rules

Clause 70: premises to which Chapter applies

123.     Clause 70 provides that the right can be exercised for any detached property or self-contained part property containing two or more flats held by qualifying tenants (as defined by clause 73). This can include other property enjoyed by the tenants under the lease, such as garages or gardens, but does not have to. The eligibility of the property is subject to a further requirement that the qualifying tenants hold not less than two-thirds of the flats in the property. These criteria mirror those used for the right of collective enfranchisement under the 1993 Act. Certain properties are specified as not being eligible for the right to manage. These are listed in Schedule 6 - see notes on Schedule 6 below.

Clause 71: RTM companies

124.     Clause 71 provides that in order to qualify to exercise the right to manage, a company must be a private company limited by guarantee and must include the acquisition and exercise of the right to manage as one of its objects. However, a company which is also a commonhold association cannot be a RTM company.

125.     In order to prevent competing bids for the right to manage being mounted, a company does not qualify if there is already a RTM company for the premises. A RTM company which is used to acquire the freehold of the property by any means (including, but not solely, under the 1993 Act) ceases to enjoy the right to manage upon completion of that acquisition.

Clause 72: RTM companies: membership and regulations

126.     Clause 72 makes provision in respect of the membership and constitution of a RTM company.

127.     Any person who is a qualifying tenant of a flat in the premises (as defined in clause 73) is entitled to be a member of the RTM company at any time. Any person who is a landlord under a lease of the whole or part of the premises is also entitled to be a member of the company, but only after the time that the company takes over the management of the premises.

128.     Regulations will be made about the form and content of the Memorandum and Articles of a RTM company. (These will cover, amongst other matters, the provisions for taking up membership of the company. The regulations will also set out default provisions governing voting rights in the company.) The regulations may over-ride any terms inconsistent with them included in the Memorandum and Articles. They can also require any compulsory terms to be deemed to be included if the company fails to include them. Certain provisions of the Companies Acts which would otherwise conflict with this provision are disapplied.

Clause 73: Qualifying tenants

129.     Clause 73 specifies which tenants are qualifying tenants for the purposes of acquiring the right to manage. These are effectively any tenant of a flat under a 'long lease' (as defined in clauses 74 and 75), subject to the proviso that there can only be one qualifying tenant per flat. Business tenants cannot be qualifying tenants.

Clauses 74 and 75: Long leases

130.     Clauses 74 and 75 specify what is a 'long lease' for the purposes of the right to manage. The provisions mirror the relevant existing provisions for the right to collectively enfranchise. A long lease is principally any lease originally granted for a term certain exceeding 21 years, but includes also certain other types of lease regardless of term, including leases of leaseholders whose long leases have expired and who remain as tenants under the provisions of Part 1 of the Landlord and Tenant Act 1954 or Schedule 10 to the Local Government and Housing Act 1989. Where the lease is a shared ownership lease, it is only counted as a long lease for the purposes of the right to manage if the leaseholder owns a 100 per cent share of the lease.

Claim to acquire right

Clause 76: Notice inviting participation

131.     Clause 76 requires a RTM company to serve a notice on all qualifying tenants who are not members of the company inviting them to become members for the purposes of acquiring the right. This is known as 'the notice of invitation to participate' and must be served before notice claiming the right to manage can be served on the landlord (see clause 77). The notice of invitation to participate will have to comply with minimum requirements set out in the Bill and any further ones specified in regulations. The notice will have to be either accompanied by a copy of the Memorandum and Articles of Association for the RTM company or include a statement explaining where these documents can be inspected and from where copies can be obtained. Any inaccuracies in the particulars of the notice will not invalidate the notice.

Clause 77: Notice of claim to acquire right

132.     Clause 77 specifies the procedures to be followed in acquiring the right to manage.

133.     Subsection (1) provides that a RTM company claims acquisition of the right by giving notice of that claim. This is known as the 'claim notice'.

134.     Subsection (2) provides that the claim notice may not be given unless at least fourteen days have passed following the service of any notice of invitation to participate.

135.     Subsections (3), (4) and (5) provide that a claim notice may only be given if the correct number of qualifying tenants are members of the company. Ordinarily, the notice will be given by qualifying tenants who hold at least half of the flats in the premises. However, where there are only two qualifying tenants in the block, both must be members of the company at the time that the claim notice is served.

136.     Subsections (6) and (7) provide that the claim notice must be served on anyone, other than a tenant, who is party to a lease of any part of the property and who can be traced at the time the claim notice is to be given. (That would include any landlord and any third party appointed manager under a lease). A claim notice must also be served upon anyone appointed manager of the premises under Part 2 of the 1987 Act. Where no party can be found to serve a claim notice upon, an application will need to be made to a leasehold valuation tribunal to exercise the right (see clause 83).

137.     Subsection (8) provides that a copy of the claim notice must be given to each qualifying tenant. This will allow those who have already become members to be aware that the company is proceeding to exercise the right, and will allow those who are not members to consider whether to do so in the light of the company proceeding.

138.     Subsection (9) provides that, where a manager has been appointed under the 1987 Act, a copy of the claim notice must be given to the court or leasehold valuation tribunal which made the appointment. This will allow arrangements to be put in hand for the handover of management responsibility.

Clause 78: Contents of claim notice

139.     Clause 78 makes provision in respect of minimum requirements to be contained in the claim notice. These are designed to ensure that the company demonstrates that it qualifies to acquire the right to manage. The company must specify a date, which must be at least a month after the date of the claim notice, by which recipients of that notice are invited to give a counter-notice (see clause 82). The company must also specify a date, which must be at least one month after the last day for giving a counter-notice, on which it intends to take over the management of the premises. There is a power to specify further requirements for the notice by secondary legislation.

Clause 79: Claim notice: supplementary

140.     Clause 79 makes supplementary provisions in respect of the claim notice. It provides that a claim notice is not to be considered invalid merely because of any inaccuracy in the details or form of the notice. (That does not in itself prevent the landlord being able to dispute entitlement to the right to manage - if, for example, the notice incorrectly states that a property is eligible for the right, the landlord would be able to mount a challenge on the basis that the property is not eligible.)

141.     Specific provision is made for circumstances where any member of the company at the time that the claim notice is served is not a qualifying tenant for the purposes of the right to manage. Where that occurs, the claim notice would continue to be valid provided that the correct number of qualifying tenants were members of the company at the time the notice was served. (As set out in clause 77, that would be qualifying tenants who held at least half of the flats in the premises or, where there are only two qualifying tenants in the block, both of those tenants.)

142.     There may only be one claim notice served for an individual block at any given time. Where a notice is served, it is therefore not possible to serve a further notice while the first one remains in force. A claim notice could cease to be in force because, for example, the company withdraws it or because it is determined that the company is not entitled to take over the management of the premises.

Clause 80: Right to obtain information

143.     Clause 80 provides that the RTM company may require any person to provide it with information reasonably required for the purposes of ascertaining the particulars required to be included in a claim notice (by virtue of clause 78 or any regulations made under that clause). Any information required by virtue of this right must be provided within 28 days of it being requested.

Clause 81: Right of access

144.     Clause 81 grants the RTM company and any recipient of a claim notice, or anyone acting on their behalf, a general right of access to any part of the premises if needed in connection with the claim to acquire the right to manage. (For example, access might be required to measure floor area of non-residential parts to ensure that the property is eligible for the right to manage.) The right of access can be exercised at any reasonable time, subject to a requirement to give not less than ten days' notice to the occupier.

Clause 82: Counter-notices

145.     Clause 82 specifies the procedures governing the serving of counter-notices.

146.     Subsection (1) states that anyone who receives a claim notice may give a notice to the RTM company by the date specified in the claim notice. This is known as a 'counter-notice'.

147.     Subsection (2) specifies that a counter-notice may only either admit that the RTM company is entitled to acquire the right to manage or state that the company is not entitled to do so. To be effective, a counter-notice to the latter effect must state the grounds on which the company is considered not to comply with the eligibility criteria set out in the Bill. The form of counter-notices may be prescribed by regulations.

148.     Subsections (3) and (4) provide that where a RTM company receives a counter-notice disputing its entitlement to acquire the right to manage, it can apply to a LVT for a determination of its eligibility. Application to the LVT must be made within 2 months of the date of the counter-notice.

149.     Subsection (5) provides that where a RTM company receives a counter-notice disputing its entitlement to acquire the right to manage, it cannot take over management of the premises unless on an application to a LVT it is finally determined that it is eligible to acquire the right or the parties who disputed the entitlement subsequently agree in writing that the company is entitled.

150.     Subsection (6) provides that a final determination that a company was not entitled to acquire the right to manage causes the claim notice to cease to have effect.

151.     Subsections (7) and (8) explain what is meant by a final determination.

Clause 83: Landlords etc. not traceable

152.     Clause 83 provides that a RTM company may apply to a leasehold valuation tribunal to acquire the right to manage where no party can be found to serve a claim notice upon. Prior to making such an application, the company must first notify all qualifying tenants of its intention to do so. The LVT may order the company to take further steps to find any of the missing parties, or may make an order providing that the company is entitled to acquire the right to manage. If any of the absent parties is traced prior to the LVT making an order, no further proceedings will be taken regarding the making of the order and the LVT will instead order how the claim should be dealt with.

Clause 84: Withdrawal of claim notice

153.     Clause 84 makes provision for the withdrawal of a claim notice.

Clause 85: Deemed withdrawal

154.     Clause 85 sets out the circumstances under which a claim notice is deemed to be withdrawn. This would occur where the RTM company either fails to apply to a LVT following receipt of a counter-notice disputing entitlement to right to manage within the two months allowed, or where such an application is made and subsequently withdrawn. It would also occur where the company is wound up, enters receivership, becomes insolvent or is struck off.

Clause 86: Costs: general

155.     Clause 86 specifies that any recipient of a claim notice is entitled to recover from the company the reasonable costs incurred in dealing with that notice. Such costs cannot include any costs incurred in proceedings before a LVT unless the tribunal finds that the RTM company is not eligible to acquire the right to manage. Application can be made to a LVT for a ruling on the amount which can be recovered.

Clause 87: Costs where claim ceases

156.     Clause 87 makes provision for liability for costs where a claim notice ceases to have effect. That could occur, for example, where the notice is withdrawn (under clause 84), deemed to be withdrawn (under clause 85) or where a LVT determines that a company is not entitled to acquire the right to manage. In such circumstances, both the RTM company and all persons who are or have been members of the company (other than people who have assigned their lease to someone who has then become a member of the company) are liable for the costs incurred up to that point of all parties who received the claim notice. Liability is placed upon the members as well as the company in order to avoid the company being deliberately wound up at this stage as a means of avoiding the payment of costs.

Acquisition of right

Clause 88: The acquisition date

157.     Clause 88 makes provision for deciding the date upon which the RTM company acquires the right to manage ('the acquisition date').

158.     Subsections (2) and (3) (taken together) provide that where no recipient of a claim notice serves a counter-notice disputing the entitlement of the company to acquire the right to manage, the company is entitled to take over the management of the premises on the date specified for that purpose in the claim notice.

159.     Subsection (4) provides that where the entitlement of the company to acquire the right to manage is disputed and it is determined on an application to a LVT that the company is so entitled, the company takes over the management of the premises one month after the determination becomes final.

160.     Subsection (5) provides that where the entitlement of the company to acquire the right to manage is disputed and the parties who disputed that entitlement subsequently agree in writing that the company is so entitled, the company takes over the management of the premises one month after the last of those parties gives their written agreement.

161.     Subsection (6) provides that where the right to manage is acquired by virtue of an order made by a leasehold valuation tribunal under clause 83, the right is acquired on the date specified in that order.

Clauses 89 and 90: Notices relating to management contracts

162.     Clauses 89 and 90 place an obligation on the manager of premises where the right to manage is acquired by a RTM company to serve notices in respect of management contracts he has entered into prior to the date on which the company takes over the management of the premises. These requirements are intended to allow all parties employed in the management of the premises to make the necessary arrangements to prepare for the company taking over the management of the premises. That could include negotiating with the company to continue to provide the services in question.

163.     The first notice to be served by virtue of these provisions is a notice to each of the contractors employed by the existing manager to carry out the management of the premises. This is known as a 'contractor notice'. This notice will inform all such contractors that the right to manage is to be acquired, and state the date on which the company is to take over the management of the premises.

164.     The second notice to be served by virtue of these provisions is a notice informing the RTM company of the contractors already employed by the existing manager to carry out the management of the premises. This is known as a 'contract notice'.

165.     Where a contractor receives a 'contractor notice', he is in turn required to serve a copy of that notice on any sub-contractor employed by him to carry out the management of the premises. He must also serve a 'contract notice' on the RTM company to notify it of such sub-contractors.

Clause 91: Duty to provide information

166.     Clause 91 places an obligation on any landlord, third party to a lease or manager appointed under the 1987 Act to provide, following a written request, any information required by the RTM company as a result of the right to manage being exercised. Such information might include, for example, copies of leases or service charge accounts. Any request for such information must be complied with within 28 days of the request being made, subject to the proviso that any party cannot be compelled to hand over any information under this clause within four months of the date of the claim notice or the date the company takes over management (whichever is the later). This will mean that if the RTM company specifies an earlier date as the date on which it wishes to take over management responsibility, it will do so in the knowledge that it would not be immediately entitled to any necessary supporting documents.

Clause 92: Duty to pay accrued uncommitted service charges

167.     Clause 92 places an obligation on any landlord, third party to a lease or manager appointed under the 1987 Act to pay over to the company any sums held on behalf of the tenants in respect of the premises on the acquisition date. They are not, however, required to hand over such sums as are required to meet costs incurred before the right is acquired for which those monies are entitled to be used. Nor are they required to hand over such monies before four months has elapsed since the service of the claim notice or, if later, the date on which the company takes over the management of the premises. As for information (under clause 91), this will mean that if the RTM company specifies an earlier date as the date on which it wishes to take over management responsibility, it will do so in the knowledge that it would not immediately be entitled to any necessary supporting funds.

168.     The company or the party required to hand over the monies may apply to a LVT for a determination of the sum to be paid over.

 
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Prepared: 20 November 2001