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Mr. John Taylor (Solihull): Will the company limited by guarantee that undertakes management be the same company that will own the freehold? Is that the Minister's intention?

Mr. Wills: No. There is no reason why it should not be, but the two are not linked; they are alternative routes for leaseholders to get control over their flats. One is a more limited measure in which a company limited by guarantee manages the building. The other involves setting up a right-to-enfranchise company, also limited by guarantee, which owns the building on behalf of all the leaseholders who have a stake in it through the company.

Mr. Taylor: Does the Minister agree that it would not be unusual for long leaseholders who want to manage then to want to own the freehold as well? If they have an existing vehicle for the first purpose—a company limited by guarantee—can they not conveniently use it for the second?

Mr. Wills: Of course, I agree that that may well happen, as the process and vehicles are in place. The Bill provides for that possibility. We are trying to give existing leaseholders a variety of mechanisms to deal with the problems that they currently suffer.

Mr. Geoffrey Clifton-Brown (Cotswold): My hon. Friend the Member for Solihull (Mr. Taylor) made

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another point. Many people are concerned that the Bill alters the way in which our great leasehold estates are managed in relation to the former estate management scheme in the Leasehold Reform Housing and Urban Development Act 1993. The right-to-manage company will have to incorporate the provisions on how the leaseholds are managed, but how will the company be negotiated in the first place, what rights will there be in the absence of agreement and how will appeals be managed? Furthermore, what rights will there be to alter the right-to-management agreement once it has been made?

Mr. Wills: This is a very important point. We are aware of the concerns about estate management schemes and have received a number of representations about them. However, we cannot simply abolish them. They are often needed to ensure the maintenance of common facilities on an estate. I understand that the issue that the hon. Gentleman raises affects a significant number of people. We will continue to consider carefully the representations that we have received. I am afraid that I cannot give any commitment at this stage, but we may return to the matter in Committee and I should be happy to discuss it further.

Let me return to the right-to-enfranchise company. The point is that it will ensure democratic management and an effective mechanism for resolving disputes. It will help leaseholders to progress from the right to manage to enfranchisement if they wish to do so. The hon. Member for Solihull (Mr. Taylor) is no longer in his place, but I was about to reassure him that the provisions also enable leaseholders to transfer to commonhold if they wish to do so. All long leaseholders will have a new right to become members of the right-to-enfranchise company. That is an improvement on the current position. At present, leaseholders can be and are unfairly excluded from an enfranchisement once the required majority has been achieved.

Mr. Clifton-Brown: The Minister said that all commonholders would have the right to enfranchise. Why will commonholders who hold leases under the Crown not be given similar rights?

Mr. Wills: The hon. Gentleman may have misunderstood me. I was talking about leaseholders rather than commonholders. If he would like to return to the point later, perhaps in Committee, I should be happy to try to clarify the matter. I fear that he may be labouring under a misapprehension.

I turn now to the valuation rules. We share the concern that has been expressed by many leaseholders about the cost of enfranchisement, but we must also recognise that landlords have legitimate interests, and we consider that they are entitled to a fair market price for those interests, including a share of any marriage value. However, we know that disputes about the price can ensure that leaseholders incur costs that may amount to as much as the price itself. We intend to make it easier and quicker to determine a price that is fair to both sides and that will reduce the scope for well-resourced landlords to drag out the process to their advantage.

The Bill provides that where marriage value exists, it will be divided equally between the parties. When the unexpired term of a lease is long, marriage value is likely

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to be minimal. The Bill therefore provides that no marriage value will be payable when all the leases in a block have more than 80 years to run. According to the survey of English housing, about three quarters of leaseholders have leases with more than 80 years to run. The Bill also provides that the valuation date will be the date of the initial notice. That follows the approach for leasehold houses. It provides more certainty and removes any incentive for landlords to delay proceedings in a rising property market.

Finally, the Bill introduces a requirement to obtain permission to appeal against any decision of the leasehold valuation tribunal. Some landlords routinely appeal to the Lands Tribunal to persuade leaseholders to settle at a higher price. The Bill would amend the right of individual leaseholders of flats to buy a new, longer lease. Many of the changes reflect those proposed for collective enfranchisement. For example, any marriage value would be shared equally between the parties and no marriage value would be payable where the unexpired term of the lease exceeded 80 years.

The Bill would remove the existing three-year residence requirement to help leaseholders who occupy their flats as a second home or sub-let. To prevent the possibility of short-term windfall gains by speculators, however, leaseholders must hold a long lease for a period of two years before being able to exercise the right. There are special provisions to help the personal representatives of deceased leaseholders.

The Bill amends the rules for enfranchising leasehold houses under the Leasehold Reform Act 1967 along similar lines to those for flats. It grants new rights to leaseholders of houses who have extended their leases under the 1967 Act. They will be able to buy the freehold after the extended lease has commenced and they will be entitled to remain, under an assured tenancy, when that lease expires. The Bill also amends the procedures for acquiring the freehold of a leasehold house where the landlord cannot be found, to bring them in line with those applying to flats.

The Bill will extend and improve leaseholders' existing remedies against unreasonable charges and other abuses. It amends the definition of a service charge under the Landlord and Tenant Act 1985 to cover improvements, where those are payable under the terms of the lease. That change will help leaseholders of social landlords in particular.

The Bill gives leaseholders new protection against unreasonable administration charges, including charges for granting approvals and providing information—for example, for prospective purchasers—and penalties for late payment of rent or service charges. There is widespread concern about such abuses and the Bill will tackle that.

The Bill will improve security and accountability for service charge moneys, which will normally have to be held in a separate designated trust account for each property. Accounting requirements will be revised to provide greater transparency and there will be a new, specific right for leaseholders to withhold service charge payments if key requirements are not met.

The Bill extends the existing requirements under the 1985 Act to consult leaseholders on proposed works. There will be a new requirement for the landlord to consult leaseholders before entering into any contract for

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the provision of works or services lasting for more than 12 months. For specific works, consultation will be required when the costs payable by any leaseholder exceed a prescribed sum.

The Bill will make it easier to remedy defective leases. The grounds for seeking a variation under the Landlord and Tenant Act 1987 will be extended and clarified and jurisdiction transferred from the courts to the leasehold valuation tribunals. The Bill provides that ground rent will be payable only when the landlord has sent a notice to a leaseholder in a prescribed form. Provided that payment is made within 30 days of the notice, the landlord will be prevented from making any additional charges or starting any proceedings.

The Bill will also introduce new restrictions on the commencement of forfeiture proceedings for breaches of covenants or conditions under a lease. Landlords can use the threat of forfeiture, sometimes based on spurious or non-existent grounds, to persuade leaseholders to pay unreasonable sums of money. Landlords will be prohibited from commencing forfeiture proceedings for any breach of a covenant or condition in a lease, unless a leasehold valuation tribunal or court determines that a breach has occurred.

The Bill will make a number of changes to the jurisdiction and procedures of the leasehold valuation tribunals. The changes are intended to improve the effectiveness of the tribunals and to speed up the resolution of disputes. Together with the administrative changes, they will implement the recommendations of the financial management and policy review that were published last year. Taken together, those changes will greatly enhance the rights of leaseholders. They will redress the current unfair balance that exists between landlords and leaseholders, but at the same time they will respect the legitimate rights of landlords. Together with the proposals for commonhold, they will implement the Government's commitments and put us on course for a fairer system of land tenure that is far more appropriate for the times in which we live.

Consultation has shown a broad consensus in support of the Government's proposals. Due to the conflicting interests, there are inevitably differences of opinion on particular aspects. Some leaseholders have complained that the proposals do not go far enough. We have tried to strike a fair balance. I believe that we have done so. Our proposals are aimed at resolving the main difficulties that face most leaseholders in England and Wales and I believe that they will do so. The Government believe that this is a good Bill and I hope that right hon. and hon. Members on both sides of the House will agree.


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