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Mr. Adrian Sanders (Torbay): We support the new clause. In Committee, I questioned whether a limited liability company would be the correct constitution for commonhold associations. The new clause would helpfully reduce the onerous responsibilities that would be placed on people who wished to form such a company. We hope that the Government can move along those lines.

Sir Teddy Taylor (Rochford and Southend, East): I have one brief question for the Minister on this complex issue. Does a commonhold association have the right to ask part of its membership to make a payment for a development that is contrary to the rules that the association has itself laid down? I ask simply because leasehold arrangements, such as those that exist in some parts of Southend, may contain a restriction to the effect that only single properties may be built, or a further restriction on the size of such properties. In such cases, an individual can say that he wants to add an extra part to a proposed building and to be considered to be allowed to build flats where others may not do so. Even if the freehold rules lay it down that that cannot be done, the freeholder would have the right to agree to it so long as the person paid him some money. I do not like that idea on principle.

It would be helpful to know whether the restrictions on freehold or leasehold contract arrangements can be passed on to the commonhold associations. Will such associations have the power to insist on restrictions and to charge a fee if the restrictions are ignored? Will the Minister explain whether that would be covered by the new clause?

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The Parliamentary Secretary, Lord Chancellor's Department (Mr. Michael Wills): Before I answer the hon. Gentleman's question, I shall address the substance of the new clause that the hon. Member for Stone (Mr. Cash) urged us to consider. I assure him that we have considered it, but we are going to reject it.

First, new clause 17 would allow someone who has a judgment against a commonhold association to proceed against an individual unit-holder to recover the debt owed—but to what end? Such a course would have serious and unwelcome consequences. The hon. Gentleman accepted that a company limited by guarantee is an appropriate form for a commonhold association, but the new clause would breach a fundamental principle of company law—that a company is a distinct legal entity separate from its members.

Secondly, the proposal would put the unit-holder at a distinct disadvantage when compared with an enfranchised leaseholder in similar circumstances. The leaseholder would be protected by existing company law from being pursued personally by a creditor of the company owning the freehold but, in similar circumstances, the commonhold unit-holder would not have that protection. Given the concerns that have been widely expressed about the threshold of 100 per cent. consent that we have set for conversion to a commonhold—I am sure that we shall return to those arguments later—I suggest to the hon. Gentleman that the new clause hardly provides an incentive for leaseholders to move to commonhold as opposed to a right-to-enfranchise company.

Nor do I share the hon. Gentleman's concern that contractors would be cautious about dealing with such limited liability companies. I am surprised that such a worldly gentleman should take that view. Contractors deal with limited liability companies all the time—they are hungry for such business and I do not think that they would be less hungry in these circumstances.

Notwithstanding all that, is the new clause really necessary? If a judgment creditor cannot get the commonhold association to pay him what he is due, he has the ultimate deterrent—he can threaten to put the association into receivership and eventually to wind it up, with access to the association's assets in liquidation. The unit-holders would be aware that the demise of the association risks the ultimate termination of the commonhold if a succession order is not made. That would leave them in a difficult position because if there is no association there is no commonhold, and if there is no commonhold, they risk becoming the owners of flying freeholds that are difficult to manage and unsaleable.

Mr. Mark Field (Cities of London and Westminster): The Minister has put what seems a salient point in legal terms but how could a contractor go through all those hoops in practice? In reality, if the straightforward option proposed by my hon. Friend the Member for Stone (Mr. Cash) is not accepted, a contractor would find himself in far greater difficulty.

Mr. Wills: I am happy to assume that the hon. Gentleman believes what he says, although I can see no reason whatever for his belief. I have just explained that contractors deal with limited liability companies all the

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time. To breach our company law as the new clause proposes seems wholly inappropriate. There is no evidence to suggest that there would be any such caution.

Mr. Cash: The Minister may be guilty of misleading himself about the nature of the companies concerned. There is no doubt that contractors deal all the time with limited liability companies. He may be missing the fact that we are talking about a company limited by guarantee, which is not a normal company with shareholders. Companies limited by guarantee are frequently controlled by just a couple of people. In the case of a block of flats, for example, one is dealing with a company limited by guarantee and a large number of unit-holders. The point made by my hon. Friend the Member for Cities of London and Westminster (Mr. Field) should not be forgotten. As the Minister was speaking, I was conscious of—

Mr. Speaker: Order. The Minister was indeed speaking, and the hon. Gentleman's intervention has gone on far too long. He should let the Minister continue.

Mr. Wills: We are going round the houses here, I am afraid. I hope that I am not guilty of misleading myself. I am not perhaps the best judge of that, but I do not think that I am. Conservative Members fail to make the distinction between a corporate entity and an individual. That is the distinction on which we are resting. Of course a company limited by guarantee is a different corporate entity—

Mr. Cash: That is the point.

Mr. Wills: It is a point, but not the one that is relevant here.

There is no evidence that contractors will be any more wary about dealing with commonhold associations than they are with any other corporate entity. The point is that there is a remedy available to such contractors, and it is a pretty severe deterrent to the commonhold association. If people do not discharge their obligations, they could end up with unsaleable properties.

Even if all that were not the case, and there were to be a power such as that in the new clause, who is to pay the extra costs of chasing the individual unit-holder through the courts—both the cost of the order committing the enforcement action and that of the enforcement itself?

The new clause would bring about an iniquitous position. It would introduce an unjustifiable and unnecessary provision in what is likely to be the real world of commonhold management.

In response to the hon. Member for Rochford and Southend, East (Sir Teddy Taylor), if something is contrary to the articles of association, there can be no obligation on the members of that association to be bound by it. However, it is of course possible for an association to change its articles and then oblige any individual member to contribute. I hope that I understood his question correctly and have been able to reassure him.

Sir Teddy Taylor: Clause 1 says:

How can the association ensure that an unwilling individual fulfils his duties?

Mr. Wills: That takes us rather away from the new clause, and we covered this ground extensively on Second

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Reading and in Committee. Various options are available to the association to pursue obligations that are properly incurred by individual unit-holders. I will be happy to give the hon. Gentleman further details, but I will not pursue the point at length now.

I understand that Opposition Members are genuinely concerned to ensure that commonhold works effectively in the real world and that scenarios such as those outlined by the hon. Member for Stone do not arise, but I hope that I have given sufficient reassurance that the new clause is not necessary. I urge the hon. Gentleman to withdraw the motion.

4 pm

Mr. Cash: I am afraid that I am not persuaded by the Minister's comments. He suggests that we should not impose unnecessary liabilities on individual unit-holders. On use and maintenance, the Bill sets out that the commonhold community statement must make provision that the obligation to insure, maintain and repair each unit is subscribed to. However, there must also be the flexibility to allow each of those responsibilities to be imposed on either the unit-holder or the commonhold association.

Perhaps the Minister is familiar with my argument, but let me give him an example of the problem. The explanatory notes say that the statement could require the unit-holder to take out an insurance policy on the fabric of a flat while making the commonhold association responsible for insuring and maintaining a balcony. It could also require a unit-holder to be responsible for the decoration of the inside of window units while making the commonhold association responsible for the outside of the same units. In other words, a division of responsibility is inherent in the Government's explanation of the difference between the responsibilities of the unit-holder and the commonhold association. So the Minister's argument that the liability of the commonhold association should be inviolate is extraordinary.

We could spend hours discussing that problem, and no doubt in due course the Court of Appeal, the House of Lords and, for all I know, the European Court of Human Rights will debate it. The bottom line is that for practical purposes we are concerned with whether buildings are likely to be better looked after under the arrangements.

The Law Society might reasonably claim to know a little about the law as it relates to leasehold and commonhold, and the practical effects of the arrangements. Although I am a solicitor, I would not claim that I know a great deal about every aspect of the law. We all learn as we go along. However, the Law Society is a chartered body with a repository of knowledge that I am sure that the Minister is happy to accept. Irrespective of the manner in which he presents his arguments, the plain fact is that it takes a contrary view, and I agree with it. My hon. Friend the Member for Cities of London and Westminster (Mr. Field) disagrees with the Minister, as I suspect do other Conservative Members. Indeed, I do not notice vast enthusiasm among Labour Members for his arguments. However, as is often the case with legislation that deals with a niche market, there are not as many hon. Members present as one might hope.

We are dealing with a practicality. I gave the example of lift maintenance contracts, which are long term. It could be that other contractors are put off by the

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arrangements because they are insufficiently flexible, in which case we are making the situation unnecessarily difficult. We therefore intend to divide the House on the new clause. As the Minister knows only too well, there was much mutual indulgence in Committee and we have not engaged in terribly bitter conflicts, although we have had our disagreements. None the less, on this occasion, I shall press the motion to a Division.

Question put, That the clause be read a Second time:—

The House divided: Ayes 140, Noes 241.

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