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Mr. Cash: The Minister will be glad to know that I do not intend to divide the House on the amendments. Our discussions in Committeethrough which we raised a number of matters such as profits à prendredemonstrated that Standing Committees have their value. This is very complicated territory, involving a series of technical points that are important to the law of property. It is important that we take this opportunity to clear out some dead wood, and to make amendments after a period of reflection.
Having said that, I am glad that the Government are making further improvements to the Bill. That shows the value of our procedures. Some other countries tend to legislate by decree, but it is not possible to get such matters right first time rounda point that is illustrated amply by the Government's approach. With some exceptions, which I need not return to at the moment, the process has been one of continuous improvement, so I beg to ask leave to withdraw the amendment.
Amendment made: No. 32, in page 10, line 4, leave out
'other than a term of years absolute'
and insert "of a prescribed kind".[Mr. Wills.]
'(3) Sections 364 and 365 of that Act (annual return (company not having a share capital) and time for completion of annual return) shall not apply to a commonhold association.'.
'(5) Any monies payable by a unit-holder to the commonhold association under:
(a) the commonhold community statement;
(b) the memorandum or articles of the commonhold association; or
(c) regulations made under subsections (1) and (2) hereof
shall be a charge over that unit-holder's unit ("a commonhold association charge") and enforceable as a first legal charge in priority to all other charges or encumbrances over that unitholder's unit.
(6) The existence or potential existence of a commonhold association charge shall not prevent any person who is restricted or prohibited whether by statute or otherwise from lending money save on the security of a first legal charge from lending money on the security of a charge which, but for the existence or potential existence of the commonhold association charge, would have been a first legal charge.'.
'(ba) enabling the directors to add to their estimate any sum which a unit-holder was previously required to pay under this section but which remains unpaid despite all reasonable efforts by the directors to enforce payment,'.
'but permitting the directors not to allocate any part of a sum added under paragraph (ba) to the unit to which it was previously allocated but unpaid,'.
'(3)(a) Payment of any sum allocated to a unit under this section shall be secured on that unit in priority to all other sums secured on it;
(b) The Registrar shall note the effect of this subsection on the register relating to each unit.'.
Mr. Cash: Amendment No. 68 relates to some of our earlier arguments. In our experience, tenant co-operative companiesfreehold companies that are closely analogous to commonhold associations, the members of which are long leaseholdersare notorious for neglecting formalities such as filing annual returns. [Interruption.] I know that the Minister has to attend to other matters, and I do not criticise him for that, but I hope that he will listen to this point, which relates to a distinction drawn in current companies legislation. I almost referred to it as the Companies Act 1948, which would have betrayed my fine knowledge of that Act. Of course, the legislation has been amended many times since.
Tenant co-operative companies are notorious for neglecting the rules, and formalities such as filing annual returns, precisely because they are not of the same nature as other shareholder companies. They number among the most common types of companies that are struck off the Companies House register for neglecting to file. It is most undesirable that that should happen to commonhold associations. Although formalities exist to enable reinstating the registration of such companies, they take time and are costly. The need for them could quite unnecessarily undermine the commonhold system's reputation. From a practical point of view, we should beware of the fact that such companies have a strong record of non-compliance with the requirement to file returns. If a similar situation arises in respect of commonhold associations, which are companies limited by guarantee, there will be a problem.
Importantly, the Law Society considers that no reason exists to insist on associations' filing returns. In other words, there is resistance to unnecessary regulation, or a deregulation arrangement, as it were. Full information will be available internally to members. They will give it freely to prospective buyers of units, and to people with whom they wish to contract. There is no wider general interest.
Amendment No.87, which would amend clause 37, is important. It attempts to remedy the question of enforcement, which is one of the Bill's most glaring holes. Every commonhold block needs to be kept in repair, and the only source of funds for repairs is the commonholders themselves. The efficient collection of service charges from the unit-holders will be essential to the success of commonhold. In leasehold blocks, a very efficient methodthe sanction of forfeitureexists to ensure that lessees pay their service charge. Forfeiture is a draconian remedy, and we will propose an important amendment when we discuss the relevant part of the Bill on Wednesday.
The critical feature of forfeiture, however, is that the landlord has a remedy against not just the tenant, but the tenant's mortgagee. If the mortgagee does not pay, the lease is liable to be forfeited and the mortgagee loses the security. Accordingly, it is generally the mortgagee who can be prevailed upon to pay the service charge if the tenant becomes impecunious. Those are the practicalities, which I have already discussed with the British Property Federation and others.
The Government do not propose any special remedy for commonhold associations against defaulting unit-holders. They propose that, if a unit-holder does not pay his service charge, the commonhold association should bring proceedings in the usual way in the county court, recover judgment and use ordinary methods of enforcement to recover the judgment debt. In particular, the Government envisage the commonhold association's obtaining just a common or garden charging order over the commonholder's unit.
Just about everything in that idea is deficient. First, county court proceedings are slow, and anything to do with service charges is particularly slow. Secondly, the commonhold association would almost certainly be out of pocket on the legal costs associated with bringing any county court proceedings. Thirdly, the association would have a remedy against only the unit-holder, not his mortgagee, although the mortgagee benefits from repairs carried out with the service charges because the value of the security is maintained.
Fourthly, unit-holders who do not pay are likely to be impecunious. A charging order is worthless if no equity exists in the property over which the charging order is granted. The commonhold association would rank lower in priority to the mortgagee. I address that point to the UnderSecretary in particular, because she knows what I am getting at. [Interruption.] Apparently, so does the Minister who is responsible for this part of the Bill. Excellentnow we have two Ministers who know what they are talking about.
The effect of those deficiencies is significant. First, it will place an unfair burden on those unit-holders who pay their service charges. All the money for running a commonhold block comes from the commonholders. If one commonholder does not pay, the other
If solicitors were unwilling to confirm to mortgage lenders that there were proper procedures in place for the proper collection of service charges, that would inevitably mean that commonhold units became unmortgageable. Without being melodramatic, it can be readily seen that the consequences of that would be disastrous for the commonhold concept.
The amendment would meet that point in a simple way. Moneys owed to the commonhold association by a unit-holder would become a first legal charge on the unit. Critically, that charge would arise automatically without any court proceedings and, equally critically, it would take priority to any mortgage over the unit, so that the commonhold association couldas with forfeiturein practice obtain payment from the mortgage lender.
The proposed new subsection (6) in amendment No. 87 is simply a technical provision. There are still some bodies that are restricted in their ability to lend, so that they can lend only on the security of a first legal charge over land. The subsection makes it clear that the proposed commonhold association charge does not affect those lenders' ability to lend. In other words, a first legal charge will remain a first legal charge even when there is a commonhold association charge in priority to it.