House of Lords - Explanatory Note
Commonhold and Leasehold Reform Bill - continued          House of Lords

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Clause 31: Regulations

     Clause 31 sets out the regulation making powers in relation to the commonhold community statement. Subsections 31(1) and (2) set out the general powers for the making of the regulations. Subsection 31(3) provides that, if a statement is defective in any respect set out in the regulations, it may be deemed to contain such matter or be allowed to contain provisions which stand in place of provisions which otherwise would be deemed by the regulations to exist in the statement. Subsection 31(4) permits regulations to make different provisions in different circumstances and subsection 31(5) sets out the clauses to which the regulations may apply, whilst not restricting the scope to those listed.

Clause 32: Amendment

     Subsection 32(1) requires that regulations made under clause 31 must contain provisions as to how the statement can be amended, particularly (subsection 32(2)) in respect of what the regulations may deem to be included (subsection 31(3)(a)) or what may be permitted to stand in place of a deemed provisions (subsection 31(3)(b)). To have effect, the amended statement must be registered with HM Land Registry (subsection 32 (3)) and the Registrar is required to keep in his custody the amended statement in place of the then existing statement if it is submitted in accordance with this clause (subsection 32 (4)). The commonhold association must file with the amended statement a certificate that the statement accords with the requirements of this Part (subsection 32(5)). Where the amendment changes the extent of a unit or of the common parts, the necessary consents relating to charges must be submitted, or the court orders dispensing with them, as required in subsection 23(3)) and subsection 29 (3) respectively (subsections 32(6) and (7)). Subsection 32(8) gives the Registrar the discretion, on filing the amended statement under subsection 32(4), to make any other amendments to the register as he thinks appropriate.

Commonhold association

     Clauses 33, 34 and 35 (and Schedule 3) set out the provisions relating to the commonhold association, which, as has been mentioned, owns and manages the common parts of the commonhold development and is a private company limited by guarantee, its membership consisting exclusively of all the unit holders in the development.

Clause 33: Constitution

     Subsection 33(1) makes provision about the type of company as mentioned above, and goes on to say (subsection 33(1)(a)) that one of the objects of the company must be to carry out the functions proper to a commonhold association in relation to specified commonhold land and (subsection 33(1)(b)) that the guarantee required of each member shall be £1. Subsection 33(2) brings Schedule 3 into effect.

Clause 34: Duty to manage

     Subsection 34(1) places on the commonhold association a duty to manage the development in such a way as to allow unit-holders (or their tenants (subsection 34(4))) to exercise their rights and to enjoy their occupation of their units. However, subsection 34(2) also requires the association to use any of its rights and powers granted under clause 36 to ensure that any unit-holder or tenant who is in breach of any requirement or duty imposed on him either complies or stops committing the breach. Subsection 34(3) gives the association discretion not to enforce if that would be more conducive to corporate harmony and requires the association to consider alternative dispute resolution before resorting to the courts.

Clause 35: Voting

     Clause 35 relates to any voting provision in Part I of the Bill which requires unanimity or a specified percentage of votes in favour of a resolution. Subsection 35(2) requires all members of the association to be given an opportunity to vote on such a resolution in accordance with any relevant provision in the commonhold community statement or the memorandum and articles. Subsection 35(3) provides that a vote may be cast in person or, if such provision is made in the statement or the memorandum and articles, by proxy, by post or in any other way in accordance with the regulations governing the particular commonhold association. Except in relation to clause 41 a vote is be to considered unanimous if all those members voting cast a vote in favour of the motion or proposition (subsection 35(4)).

Operation of commonhold

Clause 36: Enforcement and compensation

     Subsection 36(1) gives power to make regulations covering enforcement of rights or duties springing from the commonhold community statement, the memorandum and articles or Part I of the Bill or any subordinate legislation made under it. Subsection 36(2) lists matters about which the regulations may make provision. The list is not exhaustive. Subsection 36(3) provides that any mention of a provision for the payment of compensation that may be payable under such regulations or under the commonhold community statement should include provision for determining the amount of the compensation and provision for the payment of interest if payment is late. Subsection 36(4) makes it clear that regulations made in relation to commonhold community statements may include regulations under subsection 31(5)(b).

Clause 37: Commonhold assessment

     Subsection 37(1) requires the commonhold community statement to include provision for the setting of annual budgets (subsection 37(1)(a)) to meet the expenses of the association and to enable the setting of interim budgets (subsection 37(1)(b)) in addition to the annual budget from time to time. It must also specify the percentage of the annual and other estimates to be allocated to each unit (subsection 37(1)(c)), ensuring that the total of those percentages shall be 100 (subsection 37(2)) and must require each unit holder to pay the required amount, to be called the commonhold assessment, in response to a notice or notices which the association must issue (subsection 37(1)(e)). Subsection 37(2)(b) makes it possible to specify a 0% share for a unit. This is chiefly to ensure that, where a commonhold association is the unit-holder, it is not in the anomalous position of having to levy assessments on itself. It will be possible for the CCS to specify a 0% for any unit.

Clause 38: Reserve fund

     Clause 38 provides that regulations made under clause 31 may require a commonhold community statement to include provision for the setting up and maintaining of reserve funds for the repair and maintenance of either or both of the common parts (subsection 38(1)(a)) and the units (subsection 38(1)(b)) within the commonhold. Subsection 38(2) provides that, where such fund or funds are set up, the statement must provide for the commonhold association to set a levy from time to time (subsection 38(2)(a)), allocate percentages of the levy to be paid by each unit (subsection 38(2)(b)), again with the requirement that the percentages total 100 (subsection 38(3)), (though also allowing the setting of a 0% share for specified units) requiring the unit holders to pay (subsection 38(2)(c)) and providing for the issue of notices requiring payment (subsection 38(2)(d)).

     Subsection 38(4) provides that funds established under this clause may not be used in satisfaction of any debt other than a judgement debt arising from an activity which, under the commonhold community statement, could properly be funded from such a fund. Thus, if regular roof replacement is an item to be funded by the reserve fund under a statement, and a roofing contractor has to proceed against the commonhold association, the reserve fund may be used in satisfaction of the debt if a court finds in the contractor's favour. However, if the association is required to pay a substantial excess to its insurer in connection with a claim and the payment of insurance is not a proper call on the reserve fund, the fund cannot be touched by the insurer, even if it is in possession of a judgement, except where the association is insolvent (see definition of reserve fund activity in subsection 38(5)(a)). Subsection 38(5)(a) defines reserve fund activity, (see note to subsection 38(4) above), subsection 38(5)(b) specifies what is meant by assets being used for purposes of debt enforcement, and subsection 38(5)(c) makes it clear that the term judgement debt includes any interest on such a debt.

Clause 39: Rectification of documents

     Subsection 39(1) makes provision for a unit-holder to apply to the court for a declaration that either (a) the commonhold community statement or (b) the memorandum and articles relating to the commonhold association do not comply with the provisions of the Bill or regulations made under it. Subsection 39(2) provides that, where the court makes such a declaration, it may make any other order it thinks appropriate, and subsection 39(3) lists a number of matters that might be covered by such an order. These include requiring that the officers of the commonhold association take steps to alter or amend the offending document or take other specified steps, requiring the association to pay compensation and ultimately, ordering that the land cease to be commonhold. Subsection 39(4) sets a time limit for such an application of three months from the date the applicant became a unit-holder, three months from the alleged start of the failure to comply, or, failing these, subject to a time limit or any other permission laid down by the court.

Clause 40: Enlargement

     Clause 40 applies where a commonhold association relating to existing commonhold land votes unanimously and in advance (subsection 40(3)) (and see clause 35 as to unanimity) to apply to bring further land into the commonhold to be held as part of their commonhold land and an application under clause 2 is submitted to the Registrar (subsection 40(1)). The requirement that all the documents listed in Schedule 1 should be submitted for registration is lifted in relation to this application by subsection 40(2) but consents will be required as set out in paragraph 6 of Schedule 1, as will an application as set out in clause 32 to amend the commonhold community statement to take account of the new land. Also to be provided will be a certificate stating, first, that the application satisfies Schedule 2, which specifies which land may not become commonhold land, and second that the vote leading to the application was unanimous.

Termination: voluntary winding-up

     Clauses 41-46 deal with the termination of a commonhold following a voluntary winding up, which might arise, for instance, from the decision to recognise the eventual demise of a building through old age, or from a particularly advantageous offer by a developer to buy the land. The clauses differentiate between terminations which are the result of unanimous resolutions (clause 41) and those which are the result of majority votes (clause 42).

Clause 41: 100 per cent agreement

     Clause 41 provides that a commonhold association may make an application for termination within six months of achieving a 100% vote in favour of a winding up resolution from the members.

Clause 42: 80 per cent agreement

     Clause 42 provides for a commonhold association to make an application to a court to determine the terms upon which a termination application may be made and also the terms of the termination statement which must accompany the application in the event that a vote of between 80% and 100% is achieved. The commonhold association must make the appropriate application within 3 months of the court order.

Clause 43: Termination application

     Subsection 43(1) defines the termination application as the application to the Registrar to achieve the result of the termination resolution that all the commonhold land for which the commonhold association acts should cease to be commonhold. Subsection 43(2) requires that such an application should be accompanied by a termination statement (see clause 44) and subsection 43(3) requires the Registrar to note the application on the register on receipt.

Clause 44: Termination statement

     Subsection 44(1) requires the termination statement to specify what is to be done with the land which had been the commonhold land, when the commonhold association has acquired the freehold estate in all the units under subsection 46(2), and how any assets of the commonhold association will be distributed amongst the members. Subsection 44(2) provides that a commonhold community statement may make provisions as to how the termination statement will make arrangements or specific kinds, or how it will determine in a specific manner about the rights of unit-holders in the event of termination. Subsection 44(3) requires any termination produced for the purposes of a termination application to comply with the terms of the commonhold community statement. Subsection 44(4) allows for a court to disapply subsection 44(3) as to all the terms of the statement or in respect of specific matters or for a specific purpose, and an application to the court for this purpose may be made by any unit-holder. This gives the court the power to take into account changed circumstances since the currently-statement reached its final state. It also allows challenges to the fairness of the statement in this respect which otherwise would not have given rise to a challenge.

Clause 45: The liquidator

     This clause deals specifically with the position of a liquidator in a members voluntary winding up and specifically his position vis-...-vis the termination application. Clause 45 applies where a termination application has been made and a liquidator has been appointed (subsection 45(1)). Subsection 45(2) requires the liquidator to inform the Registrar of his appointment and subsection 45(3) requires him to consider the terms of the termination statement and either notify the Registrar that he is content or make an application to the court under the Insolvency Act 1986 for an order varying the terms. Subsection 45(4) requires the liquidator to inform the Registrar of the outcome of any application to the court under subsection 45(3)(b), subsection 45(5) specifies that subsection 45(4) is to be done in addition to anything which is required to be done under the terms of section 112(3) of the Insolvency Act 1986, and subsection 45(6) specifies that any duty placed on a liquidator by this clause must be done as soon as possible (the term used by the parent Act being 'forthwith').

Clause 46: Termination

     Clause 46 provides that, where the Registrar receives notice from the liquidator that he is satisfied with the statement or receives a copy order from the court in accordance with subsection 45(4), the commonhold association will become entitled to be registered as the owner of the freehold interests in all the units (subsection 46(2)). Subsection 46(3) then requires the Registrar to take the appropriate action to give effect to the termination statement.

Termination: winding-up by the court

     Clauses 47, 48, 49, 50 and clause 51 deal with winding-up by the court following a petition to declare the commonhold association insolvent by a creditor. Clause 48 makes provision for a successor commonhold association to be set up where the court approves, so that those members of the association who have paid all their liabilities to the creditors of the insolvent association may continue to live in a stable commonhold development.

Clause 47: Introduction

     Clause 47 specifies that clause 48 applies when a petition to wind up a commonhold association is made to the court and defines the terms 'insolvent commonhold association' and 'successor commonhold association'.

Clause 48: Succession order

     Clause 48 provides a mechanism for the continuation of a commonhold development in circumstances in which a proportion of the members of an insolvent association have paid the full extent of their liabilities. As it is essential to have a commonhold association in existence to have the benefits of commonhold, it is necessary to find a way to provide for the continuity of the association if there is to be a continuing element of commonhold following a winding-up on the petition of a creditor. Clause 48 enables a court to make an order bringing a successor commonhold association into being whilst dealing with a winding up and specifies who may make the application for the successor association and the documentation which must accompany the application.

Clause 49: Assets and liabilities

     Clause 49 applies where the court winds-up an association following a petition and puts in place a successor association. It provides that the successor association shall be entitled to be registered as the owner of the common parts and that the insolvent association should, at the same time, cease to be the owner.

Clause 50: Transfer of responsibility

     Clause 50 makes provision for the transfer of responsibilities from the insolvent association to the successor association from the time of the winding-up order.

Clause 51: Termination of commonhold

     Clause 51 makes provision for termination of a commonhold where the court has made a winding-up order and has not made a succession order. The liquidator is required to inform the Registrar that this clause applies and to give certain other information, and the Registrar is then required to take such action as will give effect to the liquidator's determinations.

Clause 52: Winding-up without termination application

     Clause 52 provides that, where a winding-up resolution is passed by a commonhold association but no termination application is made within the appropriate time limit, the liquidator should inform the Registrar of the circumstances and the Registrar should then take whatever action is appropriate to give effect to the liquidator's determinations.

Clause 53: Termination by court

     Clause 53 provides that, where the court makes a provision under subsection 6(6)(c) that land should cease to be commonhold as it should never have been registered as such, or under subsection 39(3)(d) that it should cease to be commonhold because it has declared a fatal flaw in the memorandum and articles of the association or the commonhold community statement, it should have the same powers that it would have if it were winding the association up under section 125 of the Insolvency Act. The liquidator appointed to carry out the winding-up will have like powers, but the court will have power to require the liquidator to carry out his functions in a particular way, may impose additional rights or duties on the liquidator and modify or remove the rights or duties of the liquidator. These powers are given to the court to mark the unusual nature of the commonhold association, and particularly the fact that winding up the company also fundamentally changes the nature of the tenure of the members of their homes.

Clause 54: Release of reserve fund

     Subsection 38(4) protects reserve funds from creditors whilst the commonhold association is a going concern, but once it has decided to wind itself up voluntarily or is wound-up by the court on the petition of a creditor or the court orders that the land should no longer be commonhold land (see clause 53) that protection is lifted.

Miscellaneous

Clause 55: Multiple site commonholds

     Clause 55 provides for the possibility of a commonhold association being made up of two or more areas of land which need not be contiguous. However, for that to apply the memorandum and articles must specify that the association is to exercise commonhold functions over that land and a single commonhold community statement must apply to all the land in question. The clause also makes provision for applications to register commonhold land coming from two or more people each of whom owns the freehold estate in part of the land to be registered, and gives a regulation making power to facilitate that.

Clause 56: Development rights

     This and the next provision are designed to reserve to the developer certain rights to do things which will enable him both to develop and market the units in the development and to develop the common parts, and to react reasonably to commercial pressures.

     Subsection 56(1) defines a developer as one who makes an application under clause 2, and development business as set out in Schedule 4. Broadly, this relates to execution or completion of works, marketing and variation of the extent of the commonhold land. Subsection 56(2) permits the commonhold community statement to contain provisions to facilitate or permit the developer to do development business, and subsection 56(3) provides that those provisions may include a requirement that a unit-holder or the association co-operate with the developer for the appropriate purposes, but that the rights conferred on the developer may be constrained by terms and conditions set down in the commonhold community statement and that there may be provisions about breach of such a term or condition. Subsection 56(4) provides that any provisions for this purpose made under subsection 56(2) shall be subject to regulations under clause 31, and in the case of development business under paragraph 7 of Schedule 4 which relates to the appointment and removal of directors, subject to the memorandum and articles of the commonhold association. Subsection 56(5) provides that the rights conferred under subsection 56(2) may be regulated or restricted by regulations. Subsection 56(6) provides that, should the developer have been granted rights under subsection 56(2) but subsequently surrenders them, he shall send a notice to the Registrar, who will note the register and inform the commonhold association and the rights will cease to apply from the date of registration.

Clause 57: Development rights: succession

     Subsections 57(1) and (2) provide that, where a developer transfers all or part of his rights in commonhold land to another person during a transitional period (see clause 8) his successor in title shall be treated as the developer in relation to the land so transferred once the transfer has taken effect. Subsection 57(3) provides that if such a transfer takes place after the end of a transitional period, or where such a period has not applied, the successor in title shall be treated as the developer only if the transfer specifies that the development rights are part of the rights transferred and again, only after the transfer has taken effect. Subsection 57(4) provides that, other than during a transitional period, no one may have the status of developer and thus development rights unless he is or has at some time been registered owner of two or more units and is still owner of at least one.

Clause 58: Compulsory Purchase

     Clause 58 makes special provisions for dealing with compulsory purchase of units or common parts, or of parts of them. Subsection 58(1) makes it clear that any land subject to compulsory purchase ceases to be commonhold land and subsection 58(2) disapplies the provision of subsection 21(1) (as provided by subsection 21(2)), which would otherwise forbid a unit-holder from transferring only part of his unit, thus allowing compulsory purchase of a part-unit where necessary. Subsection 58(3) gives power to make regulations governing transfer of all or part of any commonhold land to a compulsory purchaser, and subsection 58(4) lists a number of matters which such regulations might cover. These matters include a provision at subsection 58(4)(f) which would allow the regulations to disapply or apply with modifications any legislation relating to compulsory purchase as it relates to commonhold land.

Clause 59: Matrimonial rights

     Clause 59 provides that, where the term 'tenant' is used in Part I of the Bill, it applies to anyone who has matrimonial home rights under the Family Law Act 1996. This says, at section 30(2), that a spouse who is not entitled to a property right in the matrimonial home has '(a) if in occupation, a right not to be evicted or excluded from the dwelling-house or any part of it by the other spouse except with the leave of the court given by an order under section 33; (b) if not in occupation, a right with the leave of the court so given to enter into and occupy the dwelling house.'

Clause 60: The Crown

General

Clause 61: Orders and regulations

     Subsection 61(1) provides that wherever the term 'prescribed' is used in Part I of the Bill it refers to regulations to be made by the Lord Chancellor. Subsection 61(2) is a standard scope subsection, subsection (e) specifying that such regulations shall be subject to the negative resolution procedure in both Houses.

Clause 62: Registration procedure

     Subsection 62(1) gives the Lord Chancellor power to make rules governing registration of commonhold land and the procedures to be followed in relation to commonhold registration documents. Subsection 62(2) provides that such rules should be made in the same way as the Land Registration Rules under section 144 of the Land Registration Act 1925, that is to say, by statutory instrument with the advice and assistance of the Rule Committee. It also provides that the Rules so made may make provision for any matter that is or may be provided for under the section 144 Rules, and particularly, to avoid the need to re-make all the section 144 Rules to make them apply to commonhold, it allows for the application of the Rules made under the 1925 Act to commonhold land registration in the same way as they apply to general registration. Subsection 62(3) sets out a number of areas in which the Rules may make provision, and subsection 62(4) deals with matters concerning commonhold registration documents, and particularly whether originals or copies are to be used for registration, if copies, whether and if so how they are to be certified and whether electronic documents might be permitted or required. Subsection 62(5) gives HM Land Registry the power to charge fees for commonhold land registration, and subsection 62(6) defines 'commonhold registration document' and 'general registration document' for the purposes of Part I of the Bill.

Clause 63: Jurisdiction

     Subsection 63(1) provides that mention of 'court' in Part I of the Bill refers to the High Court or a county court and subsection 63(2) provides that the allocation of business between tiers of court shall be subject to section 1 of the Courts and Legal Services Act 1991. Subsection 63(3) provides that mention of conferring jurisdiction on a court includes conferring jurisdiction on a tribunal as appropriate. Subsection 63(4) provides that rules of court or rules of procedure for a tribunal may make provision for dealing with proceedings brought under any provision of Part I of the Bill or generally in relation to commonhold land.

 
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Prepared: 22 December 2000