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Lord Lucas: My Lords, I could not possibly answer the latter question without notice, but I will certainly do so in writing. I am delighted to have the support of the Benches opposite in an inquiry which it is important to get right for the sake of the children of Wales, and which is not a party-political matter.

On Question, Motion agreed to.

Housing Bill

3.10 p.m.

Lord Lucas: My Lords, on behalf of my noble friend Lord Ferrers I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.--(Lord Lucas.)

On Question, Motion agreed to.

House again in Committee accordingly.

[The CHAIRMAN OF COMMITTEES in the Chair.]

Lord Dubs moved Amendment No. 254C:


After Clause 88, insert the following new clause--

Common parts: right to self-management

(".--(1) After section 34 of the Landlord and Tenant Act 1987 there is inserted--
"Common parts: right to self-management.
34A.--(1) The qualifying tenants of premises other than premises in respect of which the valuable reversion condition set out in Schedule 1A is satisfied may at any time serve notice on the landlord requiring him to grant to a management company to be established in accordance with subsection (3) a management lease of all the

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common parts of the premises which the landlord is obliged to maintain and for which the tenants contribute a service charge under their existing leases of parts of the premises.
(2) The landlord shall within 3 months of service of such notice enter into the lease, which shall contain--
(a) provisions for the demise of the common parts;
(b) details of the term of the lease which shall be commensurate (except for a nominal period) with the longest of the existing occupational leases;
(c) provisions for the payment of a peppercorn rent;
(d) provisions entitling the landlord to enforce obligations and to forfeit such lease in the event of non-observance; and
(e) obligations on the management company to observe the landlord's covenants in occupational leases.
(3) Any management company established in accordance with this section shall be in the form of a company limited by guarantee with a Memorandum and Articles in accordance with Table C of the Companies (Tables A-F) Regulations 1985.
(4) Any application to forfeit such management lease shall be made on notice by the landlord to the County Court.
(5) Membership of the management company shall consist of all of the qualifying tenants and the landlord.
(6) In respect of all blocks of flats exceeding 4 flats the management company shall appoint a firm of managing agents on such terms as may be agreed to manage the premises in accordance with the principles of good estate management.
(7) No contract for the employment of managing agents shall extend for a period of more than 2 years and any contracts in existence at the time of service of notice under subsection (1) shall be deemed to come to an end within 9 months from the date of service of such notice irrespective of the contents of any contract and such notice and such termination shall not give rise to a claim for damages on the part of the managing agents.
(8) Any managing agents appointed in accordance with this section shall be required as a term of their contract to observe any management code approved under section 77 of the Leasehold Reform, Housing and Urban Development Act 1993.
(9) Any disputes arising under this section shall be referred for determination to the Leasehold Valuation Tribunal (save in respect of matters referred to in subsection (4)) which shall have full powers to determine all disputes arising under this section.
(10) Where a landlord fails to comply with the provisions of this section, any rent or service charge otherwise due from the tenant to the landlord shall as from the date of expiration of any notice served by the qualifying tenants be treated for all purposes as not being due from the tenant to the landlord.
(11) The qualifying tenants, by calling for a management lease, shall--
(a) confirm the right of the management company to perform and charge for services included in their occupational leases, and
(b) grant to the management company whatever rights as may be necessary to enforce such rights including the right to set up and maintain reserve funds.
(12) Any such management lease shall not affect the tenants' rights to acquire the freehold under Part 1 of this Act.".
(2) After Schedule 1 to the Landlord and Tenant Act 1987 there is inserted--
"SCHEDULE 1A
VALUABLE REVERSION CONDITION
.--(1) The following provisions shall have effect for the purpose of determining whether the landlord's interest in the premises satisfies the valuable reversion condition set out in this Schedule and referred to in section 34A ("the valuable reversion condition").
(2) In the event that the valuable reversion test is satisfied, the premises shall be premises to which section 34A does not apply.

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(3) The valuable reversion condition is satisfied if the present value, as assessed in accordance with this Schedule, of the landlord's interest or interests (taken together) in the premises is equal to or greater than one fifth of the aggregate present values, as assessed in accordance with this Schedule, of each of the qualifying tenant's leaseholds.
(4) For the purposes of this Schedule the present value of the landlord's interests in the premises shall be assessed as the sum of the present values of the landlord's interest in the reversion of each leasehold comprised in the premises together with the sum of the landlord's other interests if any) in the premises, the present values of which shall be assessed in accordance with paragraph 6 of this Schedule.
(5) The present value of the landlord's interest in the reversion of each leasehold comprised in the premises shall be assessed as follows--
(a) the value of each such reversionary interest shall be assessed as the sum of R+I# where--
(i) R = the present value of the right to re-entry on the expiry of the term of years of the lease; and
(ii) I# = the present value of the right to receive for the term of years of the lease the rent reserved by the lease;
(b) R shall be assessed in accordance with the formula (100-x)/100*f where--
(i) x = the percentage figure for the unexpired term of years of the lease taken from the table at Schedule 8 to the Taxation of Capital Gains Act 1992 or such other curved line amortisation table for wasting assets as may be prescribed by the Secretary of State, and
(ii) f = the open market value of the leasehold at the relevant date valued on the assumption that the leasehold has an unexpired term of 999 years and that all other terms, including the rent reserved, were unchanged;
(c) I# shall be assessed by applying such arithmetic formula for the calculation of the present value of a known future stream of income as may be prescribed by the Secretary of State and if no formula is prescribed, 1# shall be assessed by applying any recognised formula.
In applying the relevant formula, the 30 year Treasury Bond yield at the relevant date, or such other long-term interest rate as may be prescribed by the Secretary of State, shall be adopted as the relevant internal rate of return.
(6) All of the landlord's other interests (if any) in the premises shall be assessed at their ordinary open market value.
(7) The present value of each qualifying tenant's leasehold interests shall be assessed in accordance with the formula (x)/100*f where--
(a) x = the percentage figure for the unexpired term of years of the lease at the relevant date taken from the table at Schedule 8 to the Taxation of Capital Gains Act 1992 or such other curved line amortisation table for wasting assets as may be prescribed by the Secretary of State, and
(b) f = the open market value of the qualifying tenant's leasehold at the relevant date valued on the assumption that the leasehold has an unexpired term of 999 years and that all other terms, including the rent reserved, were unchanged.
(8) For the purpose of assessing the aggregate value of the qualifying tenants' interests in the premises, any leasehold that is the subject of possession proceedings, but in respect of which no unconditional court order for possession has been made, shall be included in the calculation.".").

The noble Lord said: When a long leaseholder is faced with a bad freeholder or bad landlord, the leaseholder theoretically has two ways out of the dilemma. One way is to find some means so that the

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leaseholder, with other leaseholders, can manage the common parts of the property; alternatively, the leaseholder and other leaseholders can secure enfranchisement of the block of flats in which they live. This amendment concerns the right to manage. The amendments in the group which follows relate to enfranchisement or seek to find better ways of achieving enfranchisement.

With regard to the right to manage, the aim is to give the right to manage in such a way that leaseholders may choose who will manage the property on their behalf. That, therefore, will subject to market forces the property manager so selected. He will have to pass tests in order to demonstrate that he can deal with the management more effectively than others.

At present, a freehold landlord can provide such services as he sees fit. Normally, he has a monopoly in the supply of maintenance, decorations, building works, insurance and other services. He can earn a profit in the form of a management fee for his work. In that situation, there is bound to be potential for abuse in that one party has a right to spend another's money.

There would be safeguards under the scheme proposed by the amendment. If the leaseholders fail to organise the management properly, the freeholder can apply to the court to regain control of management. Under the scheme, the management obligations will be discharged by a professional managing agent, typically a member of the appropriate professional body.

In contrast, the Government's proposals, as contained in the Bill, seek temporarily to replace a bad manager with a professional agent chosen by the leasehold valuation tribunal. But that managing agent would still be the agent of the freeholder, who could therefore still exert an influence over the overall management of the property. The LVT would be under the pressure of many applications. Indeed, at present it already takes several months for a leaseholder to obtain an enfranchisement hearing in the LVT, such is the pressure of work on that tribunal. Further, there would be the need to test the reasonableness of the proposition, which may be hard to prove. A difficulty may arise with what happens to the leasehold valuation tribunal order if the freehold interest were to be sold to another freeholder. In the meantime, the properties would be blighted and a leaseholder would find it very difficult to sell a property under that type of management.

The Government have made clear over the years their wish and intention to give council tenants the right to manage their own property. Indeed, that was confirmed two years ago in the 1993 Act. It seems to me wrong in principle that the Government, who are willing to give council tenants the right to manage their properties, so far have denied a similar right to long leaseholders.

The history of the scheme set out in the Bill is as follows. The right to manage was originally put into the Bill by the Standing Committee in the other place. It was removed by the Government at Report stage in the other place. That was when the Government, I think for the first time, invented the idea of giving the leasehold valuation tribunal the power to appoint a temporary manager.

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I am sure that other Members of the Committee will have received letters from leaseholders about issues contained in various parts of the Bill. Perhaps I may quote from just one letter from a leaseholder in W11. He speaks of the chance to improve the Bill and writes:


    "We cannot let this opportunity drop. I urge you to rigorously oppose the matter"--
that is the present scheme--


    "in the Lords and pursue amendments which will give tenants, lessees, the right to manage. I am not at all persuaded that the European Court of Human Rights would overturn such legislation".

The reference to the European Court of Human Rights is, I understand, because the Government used that as an excuse for not maintaining the change introduced by the Standing Committee in another place. The Government felt that there would be an appeal to the European Court of Human Rights. I do not understand that argument. I am not even sure that the Government still wish to sustain it. But that was the argument that was used. Without the right to manage, many leaseholders will be left with only one option, if they can exercise it--namely, to enfranchise--in order to escape from landlords who treat them badly.

Perhaps I may make three final points. First, leaseholders typically in a block of flats probably own nearly 100 per cent.--perhaps 98 per cent.--of the equity of the building. Theirs is the significant financial stake, not that of the freeholder who may have bought the freehold for a fairly small sum in relation to the interests of the leaseholders.

Secondly, as I said earlier, it is the freeholder under the Government's scheme who is spending the leaseholders' money. Thirdly, it is the leaseholder's home which is at risk in these matters. It is not the freeholder who takes the risk. After all, he simply manages the block as a business proposition and may be doing it badly. I do not say that most freeholders do it badly.

I argue that the amendment will protect quite a large number of leaseholders from the minority of freeholders who do not treat the leaseholders properly. It is a matter of a business proposition on the one hand for the freeholder, and on the other hand the very home of the leaseholder. In that rather unequal equation I believe that it is right that the leaseholders should have more say, if they wish it, in the management of the common parts of the properties in which they live. I beg to move.

3.15 p.m.

Baroness Gardner of Parkes: I have very mixed views on the amendment. I feel that it is desirable for tenants and leaseholders to have a significant say in how the money is spent in a block of flats. But I speak from my own experience when chairman of housing for an area on the Greater London Council. In those days, when we attempted to give tenants the responsibility to manage their flats, many did not want it. There were always just one or two people in a particular block who were keen to take on the responsibility and took an active part.

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The suggestion in the amendment is that managing agents should be appointed to fulfil the management function. But someone still has to instruct and give directions to the managing agent. So I am not so sure about that part of the provision.

The noble Lord covered very clearly the situation of a freeholder who manages the properties. But frequently the freeholder has a head lessee. The head lessee is not the freeholder but is the person who appoints the managing agents to run the properties. So there is an additional layer of management in the middle. The noble Lord did not mention that situation, and I wonder what would happen.

I also wondered what the situation would be in terms of how much tenants and leaseholders would have to pay to compensate the head lessee for losing his business. That would be the case if they had the right to take over his management.

I shall be grateful if those questions could receive answers.


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