Commonhold & Leasehold Reform Bill [Lords]

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Mr. Cash: I am grateful to the Minister for repeating the very passage that I quoted on Second Reading. I quoted it because I did not think that it helped anyone other than to indicate that the Lord Chancellor had a predisposition to try to arrive at a solution to the problem. From his mention of undeniable merit and that of the noble and learned Lady, Baroness Scotland, of difficulties, it is clear that

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there is a desire—almost a determination—on the part of the Government to resolve questions. I am happy to pay tribute to the Lord Chancellor for the extent to which he was prepared, in the passage that has been read out, to show that there is a desire to resolve this question. I have offered the Government the opportunity to do so—through the amendments—without attempting to be prescriptive or unreasonable, vexatious or frivolous, but simply to be constructive and helpful. The Government want to achieve the results that they have indicated. The Lord Chancellor said what he said and I have no doubt that the Minister will endorse his words—

The Chairman: Order. This is far too long for an intervention. The hon. Gentleman will have an opportunity to make a speech.

Mr. Cash: I would just say, why not use the regulations as a route to achieving the objectives that the Minister and the Lord Chancellor have already indicated that they want?

Mr. Wills: I recognise that the hon. Gentleman thinks that he has offered us some solutions. However, if we refer to what my noble and learned Friend the Lord Chancellor said, it should be clear that to be considered well-judged, any amendment on the subject would have to deal not only with the consent threshold but with the detail of the conversion process and the management of the resulting scheme—in particular, with how two or more streams of interest may co-exist effectively. I am sorry to say that the amendments do not tackle those topics.

We recognise that to obtain 100 per cent. of the necessary consents will be difficult, notwithstanding that the courts will be able to dispense with consent where obtaining it proves to be impossible, for example where a leaseholder cannot be traced. However, we continue to believe that the difficulties that would follow from the alternative of allowing conversion with a margin of non-participants, of whatever size, would far outweigh any conceivable advantages. Given the content of part II of the Bill, it is unnecessary. Both this and previous Governments have undertaken to provide for conversion from leasehold to commonhold, but the circumstances are now very different from those that obtained in 1996.

Part II of the Bill makes available a much more straightforward way of achieving collective enfranchisement for those who are eager to own the freehold of their development than was available formerly. When the Opposition's legislation was developed, conversion to commonhold was seen by many as the only viable alternative to being caught in the long leasehold trap. We have given a great deal of consideration to the process of conversion to commonhold.

How will it work? We believe that the urge to convert is most likely to occur among those who have not yet taken advantage of the right to enfranchise. If it proves impossible to persuade 100 per cent. of the occupants of the existing development to come on board, it will be necessary for those who do consent to find the extra money needed to buy out the freehold with interest in the non-converting units. It will then

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be necessary either to set up a separate company to hold the freehold of the continuing leasehold flats or, perhaps more likely, to make it possible for the commonhold association to do so. The extra work, including the cost, could be considerable.

Mr. Sanders: I accept where the Minister is coming from. What about the case of the lessee who cannot be tracked down and is not contactable? He could be the block on the other 99 per cent. of unit-holders who wish to convert to commonhold. Surely an amendment could be tabled to deal with those exceptional cases. A property could be the subject of legal proceedings and the right of establishing who the unit-holder was might be held up by the courts; that would delay the process. There has to be some flexibility and it is for that that I appeal to the Minister.

Mr. Wills: I can give the hon. Gentleman some comfort. The courts will be able to dispense with consents, as I have said, where obtaining them proves to be impossible—for example where a leaseholder cannot be traced. I hope that that will reassure him. When I conclude my remarks about the difficulties that can be seen, I shall give the Committee some information that I hope will give reassurance in that particular area. If the hon. Gentleman will bear with me, I shall return to that later.

Dr. Julian Lewis: If special arrangements can be made for the specific case that the hon. Member for Torbay has outlined, why cannot the same arrangements apply where an individual leaseholder blocking the conversion for everybody else?

Mr. Wills: If the hon. Gentleman had been patient he would have found that I was about to explain why I take the view that we can. The courts will not be able to make a disposition if people will not consent, which I think is what the hon. Members for Stone and for New Forest, East (Dr. Lewis) are concerned about, and we recognise that the conversion to commonhold in existing developments may well be blocked in some cases by an obstinate significant minority. However, as I have explained, alternative routes are open to most leaseholders in those circumstances, which will provide a mechanism to tackle most, if not all, of the problems that they can now encounter.

11.30 am

As I have been repeating—I am going to explore the point in more detail—there is an alternative route. The difficulties arising from the amendments are significant enough to sustain our opposition to them. As there is such concern about the matter, I want to set out in some detail the practical problems.

Consideration would have to be given to possible amendment of the remaining leases. The memorandum and articles of association of the commonhold association would have to be altered to take account of the ownership and management of the freehold of the units and direct relations with their leaseholders. The commonhold community statement would have to take into account the distinction between commonhold units and non-consenting units and the differential management tasks. To tailor-make the documents and structures that they reflected would not only add considerably to the costs of the

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conversion process, but would fly in the face of the thinking behind commonhold, which, the Committee will recall, is based firmly on parity of interest, uniformity of structure, and standardisation, as far as possible, of the documentation.

It should also be noted that the original consenters would no doubt expect to recoup the extra costs arising from the conversion process and that that would either tend to make the selling price per unit higher than would otherwise be justifiable, making them relatively poor value for money, or mean that the extra costs could not be recouped in the short or medium term.

The difficulties that would arise on conversion would be just the start of the potential problems. The management of the resulting organisation, which, as the Committee will recall, we expect to be carried out by volunteers, would become much more difficult. Despite the efforts that we have made to keep the job of running the commonhold association simple, it would still be a responsible job, requiring a mix of skills including a fair degree of diplomacy and the directors would become landlords. Their leaseholders would be the continuing leaseholders, who might already be disgruntled by the conversion process in which, for whatever reason, they did not take part and through which they would have been dragged against their will. Their leases might have had to be amended and they might have entered into disputes about the value of their remaining interest, particularly if they were not allowed to apply for lease extensions at the end of the lease period. Inevitably, they would be in a less favourable position than the unit-holders who were part of the commonhold, with respect to both the day-to-day running of the development and the sale in due course of the unexpired portion of their leases.

The full members of the commonhold might well find that their units were worth less than those in a comparable development that did not include continuing leaseholders—all of that would come about before the all too common disputes that can arise between landlord and tenant.

The issue is not whether the approach is possible, but whether it is desirable, bearing in mind all the difficulties that would flow from it, and whether it would preserve the essence of what commonhold is supposed to be. We considered fully whether we could preserve that essence of what all members of the Committee want from commonhold while setting a threshold under 100 per cent. It is an obvious proposition and we considered it carefully.

We reluctantly concluded—and, on continued consideration, continued reluctantly to conclude—that even if technically it was possible to construct something under the 100 per cent. threshold, it would not be practical, because of the consequences, complexities and difficulties. The result would be that commonhold would not happen as we should all want—with parity and equality and people working together in a scheme in which they share an equal part. The unit-holders have their rights under the legislation, arising from their obligation to belong to the commonhold association as members and thus participate in all the important decisions relating to the

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management of the development, as well as having a freehold interest in their commonhold unit. Leaseholders would not have those rights. Their interest would continue to be time limited by the term of their lease and it would almost certainly be necessary to curtail their rights to apply for lease extensions.

The difficulty of previous attempts at commonhold legislation, however far they got, was that the route away from leasehold was seen only to be commonhold. Now we have an alternative, which is why we should like to preserve the integrity of the commonhold. It will be available not only for new builds but to meet the needs of current properties where the occupiers are in agreement.

The commonhold association will be required to manage the common parts under the terms of the commonhold community statement and the memorandum and articles of association, and to set budgets and collect assessments from the unit-holders. In circumstances where there are continuing leaseholders, it will also have to set levels of service charges for the leaseholders, who will not, because of their minority position, be able to take advantage of the provisions relating to service charges and management that stem from part 2 of the Bill.

There will be two classes of occupant so, self-evidently, there will be two streams of management under two different statutory regimes. There will be two sets of moneys to collect with two sets of accounts to produce. The hon. Member for Stone was not clear why that should be, so I will deal with that point specifically. The calculation of service charges for the remaining leaseholders will continue to be set by the terms of their lease, which is a legal contract. Existing landlord and tenant legislation provides for appeals against the determination of service charges. There will be no such appeal for a commonhold, because commonhold assessments will be set by members of the association in a general meeting. That is why the two streams of accounts and two different sets of money will exist.

Potentially, there could be an almost infinite variety of tailor-made schemes to design and operate, which would bring with them the potential for the drafting problems that have helped to bring leases into disrepute and which the Bill hopes to address. Perhaps most importantly, there will be the medium to long-term preservation of long leasehold properties.

I hope that I have illustrated why, despite the difficulties inherent in obtaining 100 per cent. of the relevant consents, the Government continue to hold to their view that it is the right way to proceed. That is not a stubborn or dogmatic view; it is based on a careful consideration of the options. I ask all members of the Committee who are concerned about the matter and want commonhold to flourish to consider the consequences of implementing a scheme such as the amendments would implement with less than 100 per cent. consent. They should consider the complexities and difficulties that would follow. Would all those problems encourage commonhold to flourish? I do not

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think so. Those who are worried about commonhold being strangled at birth should consider the possible effect of the amendments.

Finally, Mr. Hurst, I turn to amendment No. 51. You will be relieved to hear that I shall be brief. The amendment would have the effect that a vote on whether to add land to a commonhold would be passed with 75 per cent. of the members who vote on such a resolution voting in favour. The Bill requires the vote to be unanimous; under clause 35(4), a resolution

    ''is passed unanimously if every member who casts a vote votes in favour.''

We believe that certain significant functions of the commonhold association should be recognised as such by requiring those who compose a resolution to persuade a significant majority of the unit-holders that it is the right thing to do in the circumstances. In this case, there is likely to be not only capital expenditure from the funds of the commonhold association and a need to borrow, but the associated costs of servicing any loan and continuing costs of managing and maintaining the new land. Unit-holders may be asked for extra commonhold assessments to cover the cost of new facilities on the added land. The addition of the land may involve removing a feature of the commonhold. For example, land may be added to a garden or pond, or for extra car parking spaces. In those circumstances, it seems to us that unanimity on our terms—allowing a small number of concerned unit-holders, who will have to bear their share of the extra cost, to exercise an effective veto—is not an unreasonable hurdle for those making the proposal to face.

As I said earlier, I hope that I can offer some comfort to the Opposition. Despite the fact that we cannot offer any concessions on the 100 per cent. rule, we are happy to make reasonable amendments when we can. On Second Reading, a number of hon. Members pointed out that the list of those whose consent was required contained a number of categories whose interests were too slight to justify them being able to veto a conversion. A number of hon. Members are rather behind the times, as they mentioned interests such as rights of way. Those interests were removed from the Bill on its first journey through the other place, following debate on an Opposition amendment. We expect to propose a minor technical amendment on Report that will remove mention of cautioners from the list, leaving such interests to be dealt with, so far as it is necessary, under clause 3(1)(e).

My explanation has inevitably been long and detailed, but it was important that we should set out our reasoning. In light of that explanation, I hope that the hon. Members for Stone and for Torbay will withdraw their amendments.

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