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

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Clause 97: Enforcement of tenant covenants

     Clause 97 provides that a RTM company may take action to enforce any obligation entered into by any tenant of the premises under a lease. The company may exercise any power granted under a lease to enter the premises to check compliance with the terms of that lease, but may not exercise any powers of re-entry or forfeiture.

Clause 98: Tenant covenants: monitoring and reporting

     Clause 98 sets out the responsibilities of the RTM company in respect of the covenants of the tenants under their leases. The company is required to monitor tenants' compliance with the terms of their leases, and to report any breaches of those terms to the landlord which are not put right within three months of the breach coming to the attention of the company (unless the landlord has asked not to be so notified or reasonable compensation has been paid in respect of the failure).

Clause 99: Statutory functions

     Clause 99 introduces Schedule 7, which makes consequential amendments to existing rights and duties to make them applicable where the RTM company has acquired the right to manage. Details are set out in the notes on Schedule 7 below. Regulations may specify how any other statutory requirements should apply where the right to manage has been exercised.

Clause 100: Landlord contributions to service charges

     Clause 100 places landlords under an obligation to meet any shortfall in the costs recovered by the RTM company caused by the proportions payable by tenants under their leases failing to add up to 100 per cent of the total. Where that obligation applies, a landlord of a unit which is not held on a long lease, is required to pay his proportion of the shortfall. Where there are two or more units, the proportion to be paid by an individual landlord is calculated by reference to the proportion of the total internal floor area of such units which relates to units for which he is the landlord. Where a unit is not subject to a lease, the payment must be made by the freeholder.

Supplementary

Clause 101: Registration

     Clause 101 amends the Land Registration Act 1925 to make the right to manage a registrable interest in land.

Clause 102: Cessation of management

     Clause 102 specifies the circumstances in which the company ceases to be entitled to exercise the right to manage. This will occur:

    (i)     with the agreement of all landlords;
    (ii)     because the company is wound up, enters receivership, becomes insolvent or is struck off;
    (iii)     where a manager is appointed to replace the RTM company under Part II of the Landlord and Tenant Act 1987; or
    (iv)     where the company ceases to be a RTM company (which may happen, for example, because the freehold of the property is purchased by an RTE company under the right to collectively enfranchise).

Clause 103: Enforcement of obligations

     Clause 103 provides that any interested party may apply to a court to enforce any obligation imposed by virtue of this Chapter.

Clause 104: Agreements excluding or modifying right

     Clause 104 provides that any agreement which has the effect of either restricting the ability of a tenant to participate in the right to manage or penalising the tenant as a result of an action of RTM company is void.

Clause 105: Application to Crown

     Clause 105 applies the right to manage to the holdings of the Crown Estate and the Duchies of Cornwall and of Lancaster and to Government properties. Leaseholders in such premises will therefore be eligible to acquire the right. It also enables the Duchies of Lancaster and of Cornwall to make any payments required of it as landlord under this Chapter out of either revenue or capital funds.

Clause 106: Powers of trustees in relation to right

     Clause 106 provides that trustees who are the qualifying tenant of a flat may become members of the RTM company, unless the instrument regulating the trust specifically provides otherwise.

Clause 107: Power to prescribe procedure

     Clause 107 provides that regulations may make further provisions governing the procedure for giving effect to a claim notice. (Such provisions may be required in the light of experience should it prove that circumstances may arise which it would be difficult to accommodate within the normal procedures for acquiring the right to manage.)

Clause 108: Notices

     Clause 108 sets out the procedures to be followed in serving any notice under this Chapter.

Chapter II: Collective enfranchisement by tenants of flats

Clause 111: Amendments of right to collective enfranchisement

     Clause 111 provides that this Chapter amends the right to collective enfranchisement under the 1993 Act.

Qualifying rules

Clause 112: Non-residential premises

     Clause 112 amends section 4(1) of the 1993 Act to enable premises where the proportion of the internal floor area used for non-residential purposes is up to 25% to qualify for the right. This replaces the present limit of 10%.

Clause 113: Qualifying leases

     Clause 113 amends the definition of qualifying tenant in section 5(1) of the 1993 Act to remove the current requirement that the tenant's long lease should be at a low rent or for a particularly long term (i.e. over 35 years).

Clause 114: Premises with resident landlord

     Clause 114 amends section 10 of the 1993 Act which exempts premises converted into four or fewer flats where the landlord or an adult family member has occupied one of the flats as their only or principal home for at least twelve months. This exemption would now apply only if the landlord has owned the freehold since before the conversion. Where the freehold of the premises is held on trust, the exemption would only apply where the person, or at least one of the persons, occupying one of the flats as their only or principal home for at least twelve months, had also been a beneficiary of the trust since before the conversion.

Clause 115: Proportion of tenants required to participate

     Clause 115 amends section 13(2) of the 1993 Act to remove the current requirement that an initial notice of claim to exercise the right must be given by at least two-thirds of the qualifying tenants of flats in the premises.

Clause 116: Abolition of residence condition

     Clause 116 amends section 13(2) of the 1993 Act to remove the current requirement that at least half of the tenants giving the initial notice must satisfy a residence test.

Exercise of right

Clause 117: Right exercisable only by RTE company

     Clause 117 amends section 13 of the 1993 Act to require an initial notice to be given by a RTE company consisting of the required number of qualifying tenants, rather than by the qualifying tenants themselves; and that where there are only two qualifying tenants in the block, both must be members of the RTE company.

Clause 118: RTE companies

     Clause 118 inserts new sections 4A, 4B and 4C into the 1993 Act.

     Section 4A defines a RTE company. To qualify, the company must be a private company limited by guarantee, and its memorandum must include as one of its objects the exercise of the right to collective enfranchisement. But (in order to prevent competing bids for enfranchisement being mounted) it does not qualify if there is already a RTE company for the purposes of this right.

     Section 4B specifies who may be a member of a RTE company. Subsection (1) provides that all qualifying tenants would be entitled to membership. Subsections (2) and (3) provide that where a RTE company is already a RTM company for the purposes of Chapter I of Part II of the Bill (right to manage), any landlords under leases of the whole or part of the premises may also be members. Subsection (4) provides that once the freehold is conveyed to the RTE company any member who is not a participating member ceases to be a member.

     Subsection (5) defines a participating member as a member who is a qualifying tenant and who has given a participation notice in accordance with subsections (8) and (9), or is an assignee of a lease held by a participating member in the circumstances set out in subsection (6), or the personal representatives of such a member in the circumstances set out in subsection(7). Subsection (6) provides that, where a qualifying tenant who was a participating member has assigned his lease to another qualifying tenant, that person can become a participating member by giving a participation notice to the RTE company within 14 days starting from the date of the assignment. Subsection (7) provides that if a participating tenant dies, his or her personal representatives (if they are a member) will be a participating member unless they notify the company within 56 days of the death that they do not wish to be such a member.

     Subsections (8) and (9) provide a member who has given a participation notice before the initial notice under section 13 of the 1993 Act was given or during the participation period with a right to become a participating member. Subsection (8) defines a participation notice as a notice which states that a member wishes to be a participating member, and which complies with any requirements prescribed in regulations. Subsection (9) defines the participation period as starting at the date of the initial notice and lasting for 6 months afterwards (or any other period which may be specified by order), or, if earlier, until just before contracts are exchanged for the purchase of the freehold.

     Section 4C provides a power to make regulations specifying the content of the memorandum and articles of RTE companies. The regulations would over-ride any terms inconsistent with them included in the memorandum and articles. The regulations may also require any compulsory terms to be deemed to be included if the company has failed to include them. Provisions of the Companies Act 1985 which would otherwise conflict with regulations made under this section are disapplied.

Clause 119: Invitation to participate

     Clause 119 inserts new section 12A into the 1993 Act. This requires the RTE company, before making a claim to exercise the right, to serve a 'notice of invitation to participate' on any qualifying tenants in the block who have not yet agreed to become participating members. Provision is made as to the content of this notice, and further requirements may be prescribed in regulations. The company cannot go on to serve an initial notice until fourteen days after service of the invitation to participate.

Clause 120: Consequential amendments

     Clause 120 provides that Schedule 8 should have effect. This includes a large number of amendments, principally to the 1993 Act, consequential on clauses 117 to 119. They provide for the collective enfranchisement procedure to be carried forward by the RTE company rather than, as now, initially by a group of qualifying tenants and subsequently by a nominee purchaser appointed by them. Details are set out in the notes on Schedule 8 below.

Clause 121: Right of access

     Clause 121 extends the existing right of access by the landlord for valuation purposes under section 17(1) of the 1993 Act, so that it applies for any purpose in connection with a claim to exercise the right of collective enfranchisement.

Purchase price

Clause 122: Valuation date

     Clause 122 amends Schedule 6 to the 1993 Act to provide that the various values included in the price payable by the RTE company shall be determined as at the 'relevant date' - that is, the date of service of the initial notice - instead of as at the 'valuation date' - that is, the date at which it has been agreed or determined what freehold interests will be acquired by the company.

Clause 123: Freeholder's share of marriage value

     Clause 123 amends paragraph 4(1) of Schedule 6 to the 1993 Act to provide that the freeholder's share of marriage value should be 50% in all cases, rather than the greater of (a) such proportion as is agreed by the parties or determined by a leasehold valuation tribunal and (b) 50%.

Clause 124: Disregard of marriage value in case of very long leases

     Clause 124 amends paragraph 4 of Schedule 6 to the 1993 Act to provide that where the unexpired term of each of the leases held by participating members of the company exceeds 80 years, at the relevant date, the marriage value shall be taken to be nil.

Chapter III: New leases for tenants of flats

Clause 125: Introductory

     Clause 125 provides that this Chapter amends the right of tenants to acquire new leases under the 1993 Act.

Qualifying rules

Clause 126: Replacement of residence test

     Clause 126 removes the previous requirement that tenants must satisfy a residence test to qualify for this right. Instead, it introduces a new requirement that the tenant must have been a qualifying tenant (i.e. a long leaseholder) for at least two years before they can exercise this right.

Clause 127: Qualifying leases

     Clause 127 amends the definition of qualifying tenant. Previously, a qualifying tenant had to either have a lease of more than 35 years (a lease for a particularly long term) or a lease of more than 21 years at a low rent. The amendments remove the 'low rent' and lease for a 'particularly long term' tests. Following these changes, a qualifying tenant is, for the purposes of the right to acquire a new lease, a long leaseholder of a flat.

Clause 128: Personal representatives

     Clause 128 makes special provision for the benefit of those who inherit leases. Provided that the deceased had been a qualifying tenant for at least two years (see clause 126), their personal representatives will have the right to a new lease notwithstanding the fact that they have not, themselves, held the lease for at least two years. This right will be limited to a period of six months starting from the date of grant of probate or of letters of administration.

Clause 129: Crown leases

     Clause 129 inserts a new version of section 94(2) of the 1993 Act. It ensures that any long leaseholder of a flat in a Crown property can obtain a new lease under that Act where their immediate landlord is not the Crown. Where the Crown is the immediate landlord, the long leaseholder can obtain a new lease outside of the 1993 Act under the voluntary undertaking given by the Crown to that effect.

Purchase price

Clause 130: Valuation date

     Clause 130 provides that the determination of the various values included in the price payable by the tenant under Schedule 13 to the 1993 Act shall be as at the 'relevant date' - that is, the date of service of the initial notice under section 39 of that Act, instead of as at the 'valuation date' - that is, the date at which it has been agreed or determined what freehold interests will be acquired by the company.

Clause 131: Landlord's share of marriage value

     Clause 131 provides that the freeholder's share of marriage value shall be 50% in all cases, rather than - as now - at least 50% with a higher share going to the landlord where it is agreed by the parties or where a leasehold valuation tribunal determines that the landlord should have a greater share.

Clause 132: Disregard of marriage value in case of very long leases

     Clause 132 provides that where the unexpired term of the existing lease exceeds 80 years at the relevant date, the marriage value shall be taken to be nil.

Chapter IV: Leasehold houses

Clause 133: Introductory

     Clause 133 provides that this Chapter amends the 1967 Act.

The rights

Clause 134: Abolition of limits on rights after lease extension

     Clause 134 amends section 16 of the 1967 Act. Section 16 currently limits the rights of leaseholders of houses who have exercised their right to extend their lease. By removing paragraph (a) of subsection (1), leaseholders with extended leases will be given the right to acquire the freehold. Similarly, the removal of subsection (4) will also give sub-tenants of a tenant with an extended lease the right to acquire the freehold if otherwise qualified to do so. These rights will apply to leases extended before these provisions come into force in the same way as it will apply to those extended after that date.

     Subsection 2 of clause 134 replaces section 16(1B) of the 1967 Act. The existing subsection 1B prevents an extended tenancy from being an assured tenancy and disapplies the provisions of Schedule 10 to the Local Government and Housing Act 1989. It will be replaced with a provision that allows those with extended leases to benefit from security of tenure even if they can no longer meet the relevant low rent test. This is necessary because the higher ground rent payable under an extended lease will normally be above the limits of that test.

Clause 135: Purchase price for enfranchisement during lease extension

     Clause 135 provides that, where a leaseholder gains the right to enfranchise by virtue of clause 134 above, he pays a price that includes a share of marriage value, where relevant.

Absent Landlords

Clause 136: Applications to be to county court

     Clause 136 amends section 27 of the 1967 Act. Section 27 confers powers on the High Court in cases where a leaseholder of a house wishes to buy the freehold but the landlord cannot be found. The amendments transfer jurisdiction from the High Court to a county court. This will allow a county court to issue a vesting order so that the freehold can be bought in the absence of the landlord, where it is satisfied that certain conditions have been met. In addition, the sum paid by the leaseholder for the freehold will be paid to a county court rather than the Supreme Court following these changes.

Clause 137: Valuation by leasehold valuation tribunal

     Clause 137 replaces the existing section 27(5) of the 1967 Act with a new section 27(5). It also amends section 21(1) of that Act. The effect of the amendments is to transfer jurisdiction to determine the price to be paid for the freehold in cases where the landlord cannot be found from the President of the Lands Tribunal to a leasehold valuation tribunal.

Chapter V: Other provisions about leases

Clause 138:     Extending meaning of service charge and management etc

     Clause 138 gives effect to Schedule 9 which makes a number of changes to existing provisions relating to the management of, and service charges in respect of, leasehold properties. In short the changes apply the provisions to, or in relation to, improvements and, with the exception of loans to local authority or registered social landlord leaseholders, any other matters which may be specified by order. The changes are described in detail in the notes on Schedule 9 below.

Clause 139:     Consultation about service charges

     Clause 139 amends section 20 of the 1985 Act (which requires landlords to consult tenants before carrying out works to which a tenant is obliged to contribute through a service charge, and restricts their right to recover the costs if they fail to do so). It requires landlords to consult before entering into agreements for the provisions of works or services where the agreement will last for 12 months or more, regardless of value. If they fail to do so, they would be unable to recover any amount from leaseholders in relation to such a contract. It provides a power to make regulations exempting agreements of a prescribed description or in prescribed circumstances from this requirement.

     It also requires landlords to consult before carrying out works if the amount payable by any tenant through service charges exceeds an amount prescribed by regulations. If they fail to do so, they will be unable to recover any amount payable by a leaseholder which exceeded the prescribed amount. This requirement is additional to any requirement to consult before entering into a contract of 12 months or more.

     It provides a power to make regulations specifying detailed consultation requirements. It also provides that a leasehold valuation tribunal may dispense with any of the requirements, if the tribunal is satisfied that the landlord acted reasonably.

Clause 140: Liability to pay service charges: jurisdiction

     Subsection 140(1) inserts new section 27A into the 1985 Act. Subsection (1) of the new section provides that landlords or tenants may apply to a LVT for a determination as to whether service charges are payable and, if they are payable, by whom they are payable, to whom they are payable, the amount which is payable, the date they are payable and the manner in which they are payable. Subsection (2) enables landlords or tenants to apply for such a determination before relevant costs are incurred.

     These provisions replace and extend the existing provisions under section 19(2A) to (3) of the 1985 Act (which enable LVTs to determine the reasonableness of service charges) which are repealed by Schedule 13. Subsection (4) now provides that arbitration agreements are void unless arbitration is agreed to after a particular dispute has arisen. Previously LVTs were unable to hear disputes where leases contained a clause requiring the use of arbitration. Subsection (5) provides that this new jurisdiction for LVTs is in addition to any existing jurisdiction of the courts.

     Subsections (2) and (3) define 'post-dispute arbitration agreement' for the purposes of the Landlord and Tenant Act 1985.

Clause 141:     Administration charges

     Clause 141 gives effect to Schedule 10. The changes are described in detail in the notes on Schedule 10 below.

Clause 142: Ground rent

     Clause 142 provides that a long leaseholder is not liable to pay rent unless the landlord has issued a notice in accordance with the requirements of this clause.

     Subsection (2) provides that the notice must specify the amount of the payment, the date on which the leaseholder is liable to pay it and (if different) the date on which it would have been payable under the terms of the lease. It also provides that it should contain such further information as may be prescribed (by regulations - subsection (7)).

     Subsection (3) provides that the date on which the payment is due must be at least 30 days and not more than 60 days after the day on which the notice is given, and not before the date it would have been due under the terms of the lease.

     Subsection (4) provides that where the due date under the notice is later that that specified in the lease, any provisions in the lease which enable the landlord to impose a charge or take other action for late or non-payment will not apply until after the due date in the notice.

     Subsection (5) provides that the notice must be in the form prescribed (by regulations - subsection (7)) and may be sent by post.

     Subsection (6) provides that a notice sent by post must be sent to the leaseholder at the dwelling in question unless the leaseholder has notified the landlord in writing that it should be sent to another address.

     Subsection (7) provides that rent does not include a service charge or an administration charge within the meaning of this Chapter.

Clauses 143 to 145: Forfeiture of leases of dwellings

     Clause 143 places restrictions on the service of notices under section 146(1) of the Law of Property Act 1925 in respect of breaches of covenants or conditions in a long lease. Subsection (1) prohibits the serving of a notice unless the provisions of subsection (2) are satisfied. These are:

    (i)     that on an application to a LVT it has been finally determined that a breach has occurred;
    (ii)     the breach has been admitted;
    (iii)     a court in any proceedings, or arbitral tribunal in proceedings pursuant to a post dispute arbitration agreement, has finally determined that a breach has occurred.

     Subsection (3) provides that a notice cannot be served until 14 days after a final determination has been made under (i) or (iii) above.

     Subsection (4) provides that a landlord may apply to a LVT for a determination that a breach of covenant or condition has occurred but subsection (5) precludes this where the matter is to be referred to arbitration under a post dispute arbitration agreement (see clause 140(2)) or where the matter has already been determined by a court or arbitral tribunal pursuant to such an agreement.

     Clause 144 makes supplementary provisions to clause 143.

     Subsection (1) provides that certain agreements providing for determination of questions under a lease in a particular manner are void. Subsections (2) and (3) provide that where a decision is appealed against, the matter has finally been determined when the appeal or challenge has been decided and the period for making a further appeal has expired.

     Subsection (6) provides that section 146(7) of the Law of Property Act 1925 applies for the purposes of this clause. Subsection (7) provides that this clause does not apply to the service of a notice under section 146(1) of the 1925 Act for non payment of service or administration charges (covered by clause 145).

     Clause 145 amends section 81 of the Housing Act 1996 (which places restrictions on forfeiture for non-payment of service charges).

     Subsection (2) amends subsection (1) to extend the restrictions on forfeiture to non-payment of administration charges (as defined by Part I of Schedule 10) and to allow forfeiture proceedings to be commenced when it is finally determined by (or on appeal from) a LVT that the service or administration charge is payable.

     Subsections (3) and (4) amend subsections (2) and (3) and insert new subsection (3A) to extend the restriction in cases where an appeal has been made against the original determination until the matter has been finally determined.

     Subsection (5) inserts new subsection 4A which provides that restrictions on the exercise of a right of re-entry or forfeiture include the service of a notice under section 146(1) of the Law of Property Act 1925.

 
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Prepared: 22 December 2000