Commonhold and Leasehold Reform Bill [Lords]

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Mr. Wills: The hon. Gentleman is right to say that we want the Bill to work well, and he is right to scrutinise everything. However, when he has found the time to examine the matter more carefully, he will discover that his worries are more abstract and theoretical than they are real.

Mr. Cash: You mean legal.

Mr. Wills: No, I do not.

The regulations are, primarily, technical. They do not go to the heart of the Bill. Its heart lies in the matters that have already been discussed; they were exhaustively rehearsed on Second Reading, and in another place.

The options that the hon. Gentleman has described remain open to him. I would not encourage him to pursue them too far, but it is up to him to make a decision about that. However, it is my fond belief that he will gain reassurance as the Committee works through the rest of the Bill.

For the third time, I invite the hon. Member for Torbay to withdraw his amendment.

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Mr. Sanders: I am not reassured by the Minister's comments.

A small commonhold association of fewer than 10 people might consider embarking upon the process under discussion. I am a non-pecuniary director of a not-for-profit limited liability company that is in the charitable sector. Therefore, I have direct experience of the amount of responsibility that rests on the shoulders of such directors. I am also aware of the amount of work and effort that has to be put in by the person who acts as the company secretary-the person who is the holder of the funds.

Such people have to make a considerable commitment, and that has implications for any group of people who might wish to seek to share in the ownership of their property by forming a commonhold association. Some of those people might be working, others may be retired, but all of them will have to put in a significant amount of time and energy; they will have to keep abreast of changes to the laws of the land and to the guidelines for limited liability companies.

Therefore, I wonder whether the arrangement under discussion would be right for a small group of people. I fear that, on the contrary, it might defeat the object. I suspect that only large groups of, for instance, 50 or 60-plus unit-holders would choose to form commonhold associations, because the laws of dynamics suggest that in such circumstances there might be enough people for some of them to be willing to come forward and take on the necessary roles and responsibilities. Groups of fewer than 10 people might often feel that creating a commonhold association requires too much effort.

I shall withdraw the amendment, but we may need to come back to the issue on Report. I would be interested to hear why the Minister does not share my fears. Why does he think that people will find it easy to come to grips with such important responsibilities? My experience is that it be asking an enormous effort of a few people within the unit-holders group. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 33 ordered to stand part of the Bill.

Schedule 3 agreed to.

Clause 34 ordered to stand part of the Bill.

Clause 35

Voting

Question proposed, That the clause stand part of the Bill.

Mr. Taylor: I will delay the Committee only briefly to engage in a little retrospection. I have more than 20 years' experience of partnerships and comparable experience of limited liability companies, including a company limited by guarantee. I would rather live within a constitutional structure that is a company limited by guarantee than a partnership. Partnerships have all the characteristics of an unhappy marriage without any of the benefits. I have had enough of

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partnerships and would steer clear of them. I would not recommend them to anyone.

Question put and agreed to.

Clause 35 ordered to stand part of the Bill.

Clauses 36 and 37 ordered to stand part of the Bill.

Clause 38

Reserve fund

Mr. Cash: I beg to move amendment No. 49, in page 18, line 27, at end insert-

    '(3A) The assets of a fund established and maintained by virtue of this section shall be treated as monies reserved for future expenditure.

    (3B) Any sums paid into a fund established and maintained by virtue of this section by a unit-holder, and any investments representing those sums, shall (together with any income accruing thereon) be held by the commonhold association on trust either as a single fund, or, if the commonhold association deems appropriate, as two or more separate funds.

    (3C) The commonhold association shall hold any trust fund-

    (a) on trust to defray costs incurred in connection with the matters for which the relevant contributions were payable (whether incurred by the commonhold association itself or by another person), and

    (b) subject to that, on trust for the persons who are the contributing unit-holders for the time-being.

    (3D) Subject to subsections (3F) and (3G), the contributing unit-holders shall be treated as entitled by virtue of subsection (3C)(b) to such shares in the residue of any such fund as are proportionate to their respective liabilities to pay a proportion of the levy set under subsection (2).

    (3E) If the Secretary of State by order so provides, any sums standing to the credit of any trust fund may, instead of being invested in any other manner authorised by law, be invested in such manner as may be specified in the order; and any such order may contain such incidental, supplemental or transitional provisions as the Secretary of State considers appropriate in connection with the order.

    (3F) On the transfer of a commonhold unit, the unit-holder shall not be entitled to any part of any trust fund, and any part of such trust fund which is attributable to relevant contributions paid in accordance with this section shall accordingly continue to be held on the trusts referred to in subsection (3C).

    (3G) Any trust fund established under this section shall be exempt from any tax in respect of contributions made to it by the unit holders, whether (apart from this provision) a liability to tax may be imposed on the commonhold association or the contributing unit-holder.'.

The measure relates to the mechanics of the reserve fund and provides that:

    ''Regulations under section 31 may, in particular, require a commonhold community statement to make provision-

    (a) requiring the directors of the commonhold association to establish and maintain one or more funds''

I refer again to the common form memorandum of association, which includes provisions relating to the matter and which raises again the question of its interaction with the mechanics of the commonhold association.

The amendment would provide for the creation of a reserve fund. It would also provide that sums invested under these provisions would be held by the commonhold association as a single fund or two or more separate funds.

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5.30 pm

We need to be sure that nothing in the amendment would conflict with the arrangements of the commonhold association. However, we would not be happy if it turned out that the form of association imposed on unit-holders did not permit the creation of the sort of reserve fund that we propose.

The provisions in new subsection (3C), paragraphs (a) and (b) make eminent sense. New subsection (3D) provides that the contributing unit-holders would be required to be

    ''treated as entitled . . . to such shares in the residue of any such fund as are proportionate to their respective liabilities to pay a proportion of the levy set under subsection (2)'',

which is also eminently sensible.

We acknowledge that the Secretary of State has an important role in all this. The amendment states:

    ''(3E) The Secretary of State by order so provides, any sums standing to the credit of any trust fund may, instead of being invested in any other manner authorised by law, be invested in such manner as may be specified in the order;''

Of course, the provisions of the common form for the commonhold association are also relevant in this context.

The amendment continues:

    ''(3F) On the transfer of a commonhold unit, the unit-holder shall not be entitled to any part of any trust fund, and any part of such trust fund which is attributable to relevant contributions paid in accordance with this section shall accordingly continue to be held on the trusts referred to in subsection (3C).''

All those ideas, observations and suggestions are, I hope, understandable and acceptable to anyone who has regard for the importance of providing that the reserve fund operates in a proper manner. One must remember that

    ''Any trust fund established under this section shall be exempt from any tax in respect of contributions made to it by the unit holders, whether (apart from this provision) a liability to tax may be imposed on the commonhold association or the contributing unit-holder.''

Clause 38, which deals with the reserve fund, states that ''regulations under section 31'', which is the power to make regulations, to which we return frequently,

    ''may, in particular, require a commonhold community statement'',

-the memorandum of association, many copies of which are on the Table-

    ''requiring the directors of the commonhold association to establish . . . one or more funds to finance the repair and maintenance of the common parts''

and commonhold units. I will not go into all the provisions to make my point, but will simply say that it is important that the proposed reserve fund should be dealt with in a manner that pays due regard to the apportionment of the ownership and the beneficial interest of the unit-holders in the way that I described. The establishment of such trust funds is appropriate first to ensure that the unit-holders are properly protected in the event that the association becomes insolvent and, secondly and importantly, to prevent a misuse of funds.

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The Government have made suggestions in the other place, but we believe that those considerations apply to commonholds that may become insolvent. One example might be a substantial liability for a factor such as nuisance or trespass, which was uninsured. An example of nuisance would be liability for tree roots, which one can find in some London streets where a tree is immediately adjacent to a block of flats. I have had practical experience of that, and the case went on for four or five years. Not only did it go on for years, but getting the local authority to accept liability for the tree and its roots also touched on the liability of the surveyors and the laws on negligence and insurance. The whole case became a nightmare and it involved only one flat owner.

In the context of the Bill, more serious problems could arise. The creation of funds that are clearly distinguishable from those in the hands of property owners is extremely important. Unit-holders would not build up a large sinking fund if they thought it could be cut by expenditure on day-to-day expenses. Those points are dealt with under new subsection (3B).

Subsection (3F) would make the transfer of commonhold easier to achieve and would avoid commonhold associations having to collect money repeatedly when units were sold. Subsection (3G) would reduce the burden of administration and the costs of the commonhold and remove what might otherwise be regarded as a disincentive to sinking funds.

We must remember that the practical and technical questions that we refer to are not driven only by a requirement to achieve a solution. We have to be practical about how the operations work in practice. The arrangements that I mentioned ought to be introduced, but I am interested to hear what the Minister has to say.

 
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