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

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Clause 64: The register

     Clause 64 provides definitions in relation to registration and the powers conferred on the Registrar in this Part of the Bill and also provides that regulations made under any part of Part I may confer discretion on the Registrar. Subsection 64(6) confers a power to collect fees to defray expenses of the commonhold registration process.

Clause 65: Amendments

     Clause 65 gives effect to Schedule 5 (consequential amendments).

Clause 66: Interpretation

     Subsection 66(1) defines a number of terms from Part I of the Bill. Subsection 66(2) provides that a reference to an obligation to insure includes an obligation to use any payment under a claim against the insurance to re-instate or rebuild the structure or otherwise which was the subject of the claim. Subsection 66(3) provides that expressions used in Part I shall bear the meanings which they bear in any of the Law of Property Act 1925, the Land Registration Act 1925 or the Companies Act 1985, unless the Bill provides an alternative definition.

Clause 67: Index of defined expressions

PART II: LEASEHOLD REFORM

Chapter I - Right to manage

Clause 68: Introductory

     Clause 68 provides that this Chapter confers the right to acquire and exercise the management of the relevant property on a company which is constituted for the purposes (a 'RTM company'). This right is to be known as the 'right to manage'.

Qualifying rules

Clause 69: premises to which Chapter applies

     Clause 69 provides that the right can be exercised for any detached property or self-contained part property containing two or more flats held by qualifying tenants (as defined by clause 72). This can include other properties enjoyed by the tenants under the lease, such as garages or gardens, but does not have to. The eligibility of the property is subject to a further requirement that the qualifying tenants hold not less than two-thirds of the flats in the property. These criteria mirror those used for the right of collective enfranchisement under the 1993 Act. Certain premises are specified as not being eligible for the right to manage. These are listed in Schedule 6 - see notes on Schedule 6 below.

Clause 70: RTM companies

     Clause 70 provides that in order to qualify to exercise the right to manage, a company must be a private company limited by guarantee and must include the acquisition and exercise of the right to manage as one of its objects. But (in order to prevent competing bids for the right to manage being mounted, and also to prevent competition between the right to manage and the right to collectively enfranchise) a company does not qualify if there is already either a RTM company or a company which qualifies to exercise the right to collectively enfranchise (a 'RTE company') for the premises. A company which qualifies to exercise both the right to manage and the right to collectively enfranchise ceases to enjoy the right to manage if it becomes the owner of the freehold of the premises as a result of exercising the right to collectively enfranchise. Similarly, where a separate company exercises the right to collectively enfranchise, an existing RTM company will cease to enjoy the right to manage upon the completion of the purchase of the freehold.

Clause 71: RTM companies: membership and regulations

     Clause 71 makes provision in respect of the membership and constitution of a RTM company.

     Any person who is a qualifying tenant of a flat in the premises (as defined in clause 72) is entitled to be a member of the RTM company at any time. Any person who is a landlord under a lease of the whole or part of the premises is also entitled to be a member of the company, but only after the time that the company takes over the management of the premises.

     Regulations will be made about the content and form of the Memorandum and Articles of a RTM company. (These will cover, amongst other matters, the provisions for taking up membership of the company. The regulations will also set out default provisions governing voting rights in the company.) The regulations may over-ride any terms inconsistent with them included in the Memorandum and Articles. They can also require any compulsory terms to be deemed to be included if the company fails to include them. Provisions of the Companies Acts which would otherwise conflict with this provision are disapplied.

Clause 72: Qualifying tenants

Clause 72 specifies which tenants are qualifying tenants for the purposes of acquiring the right to manage. This is effectively any tenant of a flat under a 'long lease' (as defined in clauses 73 and 74), subject to the proviso that there can only be one qualifying tenant per flat. Business tenants cannot be qualifying tenants.

Clauses 73 and 74: Long leases

     Clauses 73 and 74 specify what is a 'long lease' for the purposes of the right to manage. The provisions mirror the relevant existing provisions for the right to collectively enfranchise. A long lease is principally any lease originally granted for a term certain exceeding 21 years, but includes also certain other types of lease regardless of term, including leases of leaseholders whose long leases have expired and who remain as tenants under the provisions of Part I of the Landlord and Tenant Act 1954 or Schedule 10 to the Local Government and Housing Act 1989. Where the lease is a shared ownership lease, it is only counted as a long lease for the purposes of the right to manage if the leaseholder owns a 100 per cent share of the lease.

Claim to acquire right

Clause 75: Notice inviting participation

     Clause 75 requires a RTM company to serve a notice on all qualifying tenants who are not members of the company inviting them to become members for the purposes of acquiring the right. This is known as 'the notice of invitation to participate' and must be served before notice can be served on the landlord (see clause 77). The notice of invitation to participate will have to comply with minimum requirements set down in the Bill and any further ones specified in regulations.

Clause 76: Right to obtain information

     Clause 76 provides that the RTM company may require any person to provide it with information reasonably required for the purposes of acquiring the right to manage. That includes the right to inspect and receive copies of relevant documents. Information required under this clause might include, for example, that which is required to be stated in a claim notice by virtue of clause 78 or any regulations made under that clause. Any information required by virtue of this right must be provided within 28 days of it being requested.

Clause 77: Notice of claim to acquire right

     Clause 77 specifies the procedures to be followed in acquiring the right to manage.

     Subsection (1) provides that a RTM company claims acquisition of the right by giving notice of that claim. This is known as the 'claim notice'.

     Subsection (2) provides that the claim notice may not be given unless at least fourteen days have passed following the service of any notice of invitation to participate.

     Subsections (3), (4) and (5) provide that a claim notice may only be given if the correct number of qualifying tenants are members of the company. Ordinarily, that will be qualifying tenants who hold at least half of the flats in the premises. However, where there are only two qualifying tenants in the block, both must be members of the company at the time that the claim notice is served.

     Subsections (6) and (7) provide that the claim notice must be served on anyone, other than a tenant, who is party to a lease of any part of that property and who can be traced at the time the claim notice is to be given. (That would include any landlord and any third party appointed manager under a lease). A claim notice must also be served upon anyone appointed manager of the premises under Part II of the Landlord and Tenant Act 1987 ('the 1987 Act'). Where no party can be found to serve a claim notice upon, an application will need to be made to the court to exercise the right (see clause 82).

     Subsection (8) provides that a copy of the claim notice must be given to each qualifying tenant. This will allow those who have already become members to be aware that the company is proceeding to exercise the right, and will allow those who are not members to consider whether to do so in the light of the company proceeding.

     Subsection (9) provides that, where a manager has been appointed under the 1987 Act, a copy of the claim notice must be given to the court or leasehold valuation tribunal which made the appointment. This will allow arrangements to be put in hand for the handover of management responsibility.

Clause 78: Contents of claim notice

     Clause 78 makes provision in respect of minimum requirements to be contained in the claim notice. These are designed to ensure that the company demonstrates that it qualifies to acquire the right to manage. The company must specify a date, which must be at least a month after the date of the claim notice, by which recipients of that notice are invited to give a counter-notice (see clause 81). The company must also specify a date, which must be at least one month after the last day for giving a counter-notice, on which it intends to take over the management of the premises. There is a power to specify further requirements for the notice by secondary legislation.

Clause 79: Claim notice: supplementary

     Specific provision is made for circumstances where any member of the company Clause 79 makes supplementary provisions in respect of the claim notice. It provides that a claim notice is not to be considered invalid merely because of any inaccuracy in the details or form of the notice. (That does not in itself prevent the landlord being able to dispute entitlement to the right to manage - if, for example, the notice incorrectly states that a property is eligible for the right, the landlord would be able to mount a challenge on the basis that the property is not eligible.)

     Specific provision is made for circumstances where any member of the company at the time that the claim notice is served is not a qualifying tenant for the purposes of the right to manage. Where that occurs, the claim notice would continue to be valid provided that the correct number of qualifying tenants were members of the company at the time the notice was served. (As set out in clause 77, that would be qualifying tenants who held at least half of the flats in the premises or, where there are only two qualifying tenants in the block, both of those tenants.)

     There may only be one claim notice served for an individual block at any given time. Where a notice is served, it is therefore not possible to serve a further notice unless the first one ceases to have effect. That could occur, for example, because the company withdraws the first notice or because it is determined that the company is not entitled to take over the management of the premises.

Clause 80: Right of access

     Clause 80 grants the RTM company and any recipient of a claim notice, or anyone acting on their behalf, a general right of access to any part of the premises if needed in connection with the claim to acquire the right to manage. (For example, access might be required to measure floor area of non-residential parts to ensure that the property is eligible for the right to manage.) The right of access can be exercised at any reasonable time, subject to a requirement to give not less than ten days' notice to the occupier.

Clause 81: Counter-notices

     Clause 81 specifies the procedures governing the making of counter-notices.

     Subsection (1) states that anyone who receives a claim notice may give a notice to the RTM company by the date specified in the claim notice. This is known as a 'counter-notice'.

     Subsection (2) specifies that a counter-notice may only either admit that the RTM company is entitled to acquire the right to manage or state that the company is not entitled to do so. To be effective, a counter-notice to the latter effect must state the grounds on which the company is considered not to comply with the eligibility criteria set out in the Bill. The form of counter-notices may be prescribed by regulations.

     Subsections (3) and (4) provide that where a RTM company receives a counter-notice disputing its entitlement to acquire the right to manage, it can apply to a LVT for a determination of its eligibility. Application to the LVT must be made within 2 months of the date of the counter-notice.

     Subsection (5) provides that where a RTM company receives a counter-notice disputing its entitlement to acquire the right to manage, it cannot take over management of the premises unless on an application to a LVT it is finally determined that it is eligible to acquire the right or the parties who disputed the entitlement subsequently agree in writing that the company is entitled.

     Subsection (6) provides that a final determination that a company was not entitled to acquire the right to manage causes the claim notice to cease to have effect.

     Subsections (7) and (8) explain what is meant by a final determination.

Clause 82: Landlords etc. not traceable

     Clause 82 provides that a RTM company may apply to a court to acquire the right to manage where no party can be found to serve a claim notice upon. Prior to making such an application, the company must first notify all qualifying tenants of its intention to do so. The court may order the company to take further steps to find any of the missing parties, or may make an order providing that the company is entitled to acquire the right to manage. If any of the absent parties is traced prior to the court making an order, no further proceedings will be taken regarding the making of the order and the court will instead order how the claim should be dealt with.

Clause 83: Withdrawal of claim notice

     Clause 83 makes provision for the withdrawal of a claim notice.

Clause 84: Deemed withdrawal

     Clause 84 sets out the circumstances under which a claim notice is deemed to be withdrawn. This would occur where the RTM company either fails to apply to a LVT following receipt of a counter-notice disputing entitlement to right to manage within the two months allowed, or where such an application is made and subsequently withdrawn. It would also occur where the company is wound up, enters receivership, becomes insolvent or is struck off.

Clause 85: Costs: general

     Clause 85 specifies that any recipient of a claim notice is entitled to recover from the company the reasonable costs incurred in dealing with that notice. Such costs cannot include any costs incurred in proceedings before a LVT unless the tribunal finds that the RTM company is not eligible to acquire the right to manage. Application can be made to a LVT for a ruling on the amount which can be recovered.

Clause 86: Costs where claim ceases

     Clause 86 makes provision for liability for costs where a claim notice ceases to have effect. That could occur, for example, where the notice is withdrawn (under clause 83), deemed to be withdrawn (under clause 84) or where an LVT determines that a company is not entitled to acquire the right to manage. In such circumstances, both the RTM company and all persons who are or have been members of the company (other than people who have assigned their lease to someone who has then become a member of the company) are liable for the costs incurred up to that point of all parties who received the claim notice. Liability is placed upon the members as well as the company in order to avoid the company being deliberately wound up at this stage as a means of avoiding the payment of costs.

Acquisition of right

Clause 87: The acquisition date

     Clause 87 makes provision for deciding the date upon which the RTM company acquires the right to manage ('the acquisition date').

     Subsections (2) and (3) (taken together) provide that where no recipient of a claim notice serves a counter-notice disputing the entitlement of the company to acquire the right to manage, the company is entitled to take over the management of the premises on the date specified for that purpose in the claim notice.

     Subsection (4) provides that where the entitlement of the company to acquire the right to manage is disputed and it is determined on an application to a LVT that the company is so entitled, the company takes over the management of the premises one month after the determination becomes final.

     Subsection (5) provides that where the entitlement of the company to acquire the right to manage is disputed and the parties who disputed that entitlement subsequently agree in writing that the company is so entitled, the company takes over the management of the premises one month after the last of those parties gives their written agreement.

     Subsection (6) provides that where the right to manage is acquired by virtue of an order made by a court under clause 82, the right is acquired on the date specified in that order.

Clauses 88 and 89: Notices relating to management contracts

     Clauses 88 and 89 place an obligation on the manager of premises where the right to manage is acquired by an RTM company to serve notices in respect of management contracts he has entered into prior to the date on which the company takes over the management of the premises. These requirements are intended to allow all parties employed in the management of the premises to make the necessary arrangements to prepare for the company taking over the management of the premises. That could include negotiating with the company to continue to provide the services in question.

     The first notice to be served by virtue of these provisions is a notice to each of the contractors employed by the existing manager to carry out the management of the premises. This is known as a 'contractor notice'. This notice will inform all such contractors that the right to manage has been exercised, and state the date on which the company is to take over the management of the premises.

     The second notice to be served by virtue of these provisions is a notice informing the RTM company of the contractors already employed by the existing manager to carry out the management of the premises. This is known as a 'contract notice'.

     Where a contractor receives a 'contractor notice', he is in turn required to serve a contractor notice on any sub-contractor employed by him to carry out the management of the premises. He must also serve a 'contract notice' on the RTM company to notify it of such sub-contractors.

Clause 90: Duty to provide information

     Clause 90 places an obligation on any landlord, third party to a lease or manager appointed under the 1987 Act to provide, on request, any information required by the RTM company as a result of the right to manage being exercised. Such information might include, for example, leases or service charge accounts. Any request for such information must be complied with within 28 days of the request being made, subject to the proviso that any party cannot be compelled to hand over any information under this clause within four months of the date of the claim notice or the date the company takes over management (whichever is the later). This will mean that if the RTM company specifies an earlier date as the date on which it wishes to take over management responsibility, it will do so in the knowledge that it would not be immediately entitled to any necessary supporting documents.

Clause 91: Duty to pay accrued uncommitted service charges

     Clause 91 places an obligation on any landlord, third party to a lease or manager appointed under the 1987 Act to pay over to the company any sums held on behalf of the tenants in respect of the premises on the acquisition date. They are not, however, required to hand over such sums as are required to meet costs incurred before the right is exercised for which those monies are entitled to be used. Nor are they required to hand over such monies before four months has elapsed since the service of the claim notice or, if later, the date on which the company takes over the management of the premises. As for information (under clause 90), this will mean that if the RTM company specifies an earlier date as the date on which it wishes to take over management responsibility, it will do so in the knowledge that it would not be immediately entitled to any necessary supporting funds.

     The company or the party required to hand over the monies may apply to a LVT for a determination of the sum to be paid over.

Exercising the right

Clause 92: Introductory

     Clause 92 states that clauses 93 to 100 apply while the RTM company is responsible for the management of the premises.

Clause 93: Management functions under leases

     Clause 93 sets out the functions, duties and responsibilities taken on by the RTM company by virtue of acquiring the right to manage.

     Subsection (2) provides that where a landlord is obliged to carry out any of the management functions under any lease of the premises, those functions become functions of the company.

     Subsections (3) and (4) provide that any of the management functions which are the responsibility of a third party under a lease also become functions of the company.

     Subsections (5) and (6) define the management functions to be taken on by the company. That includes matters for which the company is to be responsible and matters for which the company is not to be responsible. In particular, the company is not to be responsible for the management of any unit which is not held by a qualifying tenant (e.g. a commercial unit or a flat of a renting tenant). The company will, however, be responsible to all parties for the management of the common parts and fabric of the building. The company is also not to be entitled to take any forfeiture action.

     Subsection (7) provides a power to further specify by order what is or is not to be a management function of the RTM company.

Clause 94: Management functions: supplementary

     Clause 94 makes further provision in respect of the management functions of the RTM company.

     Subsection (1) provides that any obligation owed by the company to any tenant by virtue of taking on the management functions is also an obligation to any landlord.

     Subsections (2) and (3) provide that any landlord of any part of the premises, any third party to a lease or anyone appointed manager under the 1987 Act is not entitled to carry out any of the management functions taken on by the RTM company without the company's agreement. That does not, however, prevent any party insuring the premises at his own expense.

     Subsections (4) and (5) provide that any function or obligation owed by a tenant to a landlord or to a third party under a lease will instead be owed to the RTM company if it relates to any of the management functions taken on by the company. (For example, where a tenant is obliged under a lease to meet the management costs incurred by the landlord, he or she will instead be required to meet the costs incurred by the RTM company.) This does not, however, prevent the tenant still having to pay any management costs incurred prior to the company taking on the management functions.

Clause 95: Functions relating to approvals

     Clause 95 specifies the procedure to be followed under the right to manage where an approval (including a consent or a licence) is required under a lease.

     Subsections (2) and (3) provide that where a tenant is required to seek approval under a lease, the functions of the landlord, or of a third party, in granting approvals become functions of the company.

     Subsection (4) provides that the company must not grant approval without having given 30 days' written notice to the landlord in respect of approvals for specified matters, and 14 days' written notice in all other cases.

     Subsection (5) provides for regulations to specify other matters for which the landlord is to be given longer than 14 days' notice, and what period should apply.

     Subsection (6) provides that any obligation placed on a tenant under a lease to obtain the approval of a landlord or a third party for any matter will instead be an obligation to obtain the approval of the RTM company.

Clause 96: Approvals: supplementary

     Clause 96 specifies the procedures which apply where a landlord objects to the granting of an approval under clause 95.

     Subsection (1) provides that where the landlord objects to the granting of approval within the period allowed, the company may not grant approval except in accordance with the agreement of the landlord or in accordance with a determination of (or on an appeal from) a LVT.

     Subsections (2) and (3) provides that a landlord may not object to the granting of an approval (including an objection which has effect if tenant fails to comply with a condition imposed by the landlord) unless he would have been able to do so were he the person responsible for granting the approval. That would include the landlord being bound not to unreasonably object to the granting of the approval in circumstances where he would be bound not to unreasonably withhold consent under section 19 of the Landlord and Tenant Act 1927 (such as, for example, in dealing with a request for consent for the assignment of the lease). (The RTM company is also bound not to unreasonably withhold such consents by virtue of paragraph 1 of Schedule 7.)

     Subsection (4) provides that a landlord who objects to the granting of an approval under clause 95 must give notice of that objection to both the RTM company and the tenant seeking the approval.

     Subsection (5) provides that application made be made to a LVT for its adjudication on the matter by either the landlord, the company, or the tenant who applied for the approval.

 
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Prepared: 22 December 2000