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Standing Committee Debates
Commonhold and Leasehold

Commonhold and Leasehold

Column Number: 65

Standing Committee D

Thursday 17 January 2002


[Mr. Alan Hurst in the Chair]

Commonhold and Leasehold

Reform Bill [Lords]

Clause 69

The right to manage

9.30 am

Mr. William Cash (Stone): I beg to move amendment No. 67, in page 33, line 12, at end add—

    '(3) But this Chapter does not apply to any part of a building which is not occupied, nor intended to be occupied, for residential use'.

The Chairman: With this we may discuss the following amendments: No. 52, in page33, line 21, at end insert ', and

    (d) no part of the premises are let on a tenancy to which Part 2 of the Landlord and Tenant Act 1954 (c. 56) (business tenancies) applies, provided always that planning consent has been granted for such business use or that deemed planning consent for such use exists.'

No. 53, in page 33, line 21, at end insert—

    '( ) But this Chapter does not apply to any part of a building which is not occupied, nor intended to be occupied, for residential use.'

No. 68, in page page 96, line 35, leave out paragraph 1.

Mr. Cash: We now move on to leasehold reform. I welcome the Parliamentary Under-Secretary of State for Transport, Local Government and the Regions, the hon. Member for Northampton, North (Ms Keeble), and I look forward to our discussions. I am sorry that the Parliamentary Secretary, Lord Chancellor's Department has disappeared, but he will no doubt reappear on Report.

The positions on leasehold reform and commonhold are quite different, but it is convenient to deal with both matters in the Bill. Both sides in the House of Lords agreed that there was a problem with mixed-development buildings and that it was not appropriate for residential tenants to manage the commercial parts of such properties.

Commercial tenants expect premises to be professionally managed. Furthermore, the landlord's interest in the management of the building is more intensive for the commercial parts than it is for the residential parts. The residential parts must, of course, be kept in good repair, but there is rarely much dissension about what is required, and most disputes are about timing and cost. Decisions about commercial premises, on the other hand, must be taken on a much more commercial, diligent and, some would say, pro-active basis. The landlord is under an obligation to decide which works must be undertaken to make the premises attractive to new tenants. What is more, where he is under an obligation to repair, commercial tenants will be much more demanding than residential tenants who must bear repair costs

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through a service charge. That problem was recognised in the other place and is probably accepted by all those involved in such issues.

The main argument of the Minister in the other place was that the amendment would mean that landlords could get round the residential tenants' right to manage by converting small parts of the development into business premises. He gave the example of a landlord who converted a broom cupboard into an office and an attic into a factory. I am not much convinced by that argument and I trust that the Minister will not simply trot it out again. It is obvious that converting a broom cupboard into an office would require planning permission and I would like to see someone try to install a steam hammer for metal pressing in someone's attic.

There is a risk that a landlord will seek to convert part of a block of flats into commercial premises, but that will occur in only a few cases. We must accept that, on the whole, residential blocks are not suitable for converting into premises that can be used for business or commerce. I am sure that the Minister would agree, although she looks a little uncertain. For my part, I find it difficult to disagree with that proposition.

Lord Whitty said that clause 94 meant that commercial parts would not be subject to the right to manage. However, the clause is extremely opaquely drafted, dense and difficult to comprehend. If responsibility for the commercial parts is intended to be the landlord's obligation, the clause does not say so. Moreover, it leaves demarcation disputes very much in the air.

Will the Minister explain what is meant in clause 94 by the phrase

    ''functions with respect to a matter concerning only a part of the premises consisting of''?

Does it refer to a commercial unit? A standard issue that arises with shops on the ground floor of mixed developments is the frontage and the type of advertisements that can be displayed. After the right to manage has been exercised, will the landlord or the right-to-manage company be responsible for such matters?

It was suggested in the other place that landlords should be given 999-year leases of the commercial parts. There is something to be said for that and I shall be interested to see whether Liberal Democrats on the Committee take a similar view. The proposal would be a productive way forward, but Lord Whitty did not respond to it.

The Government's proposals for mixed developments will lead to great difficulties and, some might even say, disaster. The only practical solution to the problems that I have outlined is to exclude mixed developments from the scope of the automatic right to manage. That would not put residential tenants in a difficult position with bad landlords, because the present right to manage would still exist.

That is all that I need to say at this stage, and I look forward to the Minister's reply.

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The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Ms Sally Keeble): This is the first opportunity that I have had to speak, although I have obviously attended the Committee previously. The part of the Bill for which I am responsible is important and very detailed, but I am sure that we shall make good progress under your chairmanship, Mr. Hurst.

The amendments relate to the application of the right to manage mixed-use properties, as the hon. Member for Stone (Mr. Cash) said. If I looked a little quizzical when he talked about turning broom cupboards into offices, it was because the image of several hon. Members' offices in this Building flashed before my eyes—[Interruption] I have clearly struck a chord.

The right to manage is intended to allow leaseholders who have a majority stake in a property to take over the management of that property. The amendments would have precisely the opposite effect. They would prevent leaseholders who had acquired 99 per cent. of the property on long leases from being able to manage the block merely because the remaining 1 per cent. was subject to a business tenancy.

That would open up a serious loophole on which unscrupulous landlords would be eager to seize. I appreciate that the hon. Gentleman said that he did not regard that as a sufficient obstacle, but it is a substantial one and it is part of our argument against the amendment. The landlord could frustrate the right to manage by letting a small part of his property on a business lease. It must be remembered that business leases extend way beyond factories, possibly to professional activity. Many people work from home and they could be interpreted to be business tenants. The practical effect of the amendments would thus be to allow landlords to put any property that they wanted outside the right to manage. I accept that that might not be the intention, but that is what would happen.

We have looked long and hard at how best to apply the right to manage mixed-use properties. However, problems would be encountered in any attempt to impose a statutory division of management responsibilities in an interdependent block. We have reflected hard on those problems, but still find them intractable. The fundamental difficulty is that responsibility for the fabric of a structure as a whole, and for related matters such as insurance for the structure and for any parts or services common to the domestic and non-domestic sections of the block, could not sensibly or realistically be divided between the two parties. It would leave the landlord responsible for the fabric of the property.

Only responsibilities that related solely to the interior of the domestic parts and any common parts exclusively associated with them would transfer to the right-to-manage company. In most cases, that would be of little use or benefit to the residential leaseholders, because all the major management decisions and most costly aspects of management would remain with the landlord, who would continue to recoup costs from leaseholders through the service charge. The right to manage would in effect be weakened because 1 per cent. of the property was a business tenancy, or could effectively be classified as such.

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I appreciate that the amendments may stem in part from concern that the RTM company might lack the motivation and expertise to manage the non-domestic part successfully. I stress that under the Bill there would be no question of the RTM company becoming involved in the commercial relationship between the landlord and his business tenants. Clause 93(6)(a) explicitly reserves to the landlord all management functions that relate exclusively to units that are not leased to a qualifying tenant. Although the problem is difficult, we remain satisfied that the Bill's approach is the best solution available.

Mr. Adrian Sanders (Torbay): I wonder whether the Government have any mixed developments in mind. Are they putting barriers in the way of developments in which there would be a mix of right-to-manage tenants and businesses? Throughout the Bill, it seems as though the Government want everything to be clear cut, with residential and business properties seen as separate. Does the Minister see that there could be an enormous number of mixed developments and that they ought to be encouraged?

Ms Keeble: There has been careful discussion and consultation on all aspects of the Bill with all the parties involved. As will come out in our debates on this part of the Bill, we have often had to strike a balance between competing and sometimes conflicting priorities. Although there may be a discussion about our judgment, we feel that the balance is right and that our system is workable and will provide residents with what they require. It will not deter developers.

The right to manage is intended to allow leaseholders to gain management control of properties in which they hold a majority stake, but where the landlord holds a monopoly over the management. Where, therefore, the developer has set up proper communal management arrangements from the outset, there should be no need for the right to manage to be exercised. We are aware that enlightened developers take that approach already. Leaseholders are often given a right to manage their blocks, or, if it is a mixed block, the residential parts, through a resident management company, which is written into the leases.

9.45 am

On the points about developers raised by the hon. Member for Torbay (Mr. Sanders), it is much easier for the developer of a block to put in place, at the outset, appropriate arrangements tailored to the precise circumstances of the building and to ensure that the relationship between the management responsibilities for the residential part and for the block as a whole is sensible. If that is done properly, the leaseholders will already be able to manage their own homes and there will be no real incentive for them to exercise the right to manage.

Developers can take a similar approach when they wish to protect themselves from the prospect of enfranchisement. Furthermore, the Bill will provide the opportunity for commonhold development. That is an important point, which is, as the hon. Gentleman said, often missed by those who have raised concerns about mixed-use development. Commonhold will necessarily involve both outright ownership of

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individual units and a share in the common management from the outset. The rights to manage and to enfranchise will not be needed and will therefore not apply. The developer of a commonhold will consequently be certain from the outset about what will happen to his investment and will not face the prospect of losing the management or ownership of the commercial units.

The operation of commonhold or comparable systems in other countries does not seem to have inhibited mixed-use developments there. Furthermore, some developers with experience in such countries have expressed an interest in commonhold development once it becomes possible in England and Wales.

In the light of those considerations, the concerns that have been expressed about mixed use are misplaced. Developers who make sensible use of the options open to them have nothing to fear from our changes and have no rational reason not to continue with mixed-use developments. We acknowledge that there is a need to help developers to understand fully the options that will be open to them. We are already seeking to do so.

We resist amendment No. 68, which would remove the provisions that permit the right to manage to be acquired for mixed-use properties where no more than 25 per cent of their space is in non-residential use. If we accepted certain other amendments that threshold would not be needed, but as we do not accept them, we need to retain it.

On that basis, I invite the hon. Member for Stone to withdraw the amendment.


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Prepared 17 January 2002