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

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Clause 146: Application to Crown

     Clause 146 applies various provisions of the 1985 Act, 1987 Act, 1993 Act and the Housing Act 1996 relating to payment and holding of service charges to the Crown Estate, Duchies of Cornwall and Lancaster and Government departments. It also applies the new provisions on administration charges, ground rent and forfeiture of leases to those authorities. Tenants of those authorities will therefore be able to exercise or enjoy the benefit of the rights, and those authorities as landlord will be bound by the requirements contained in those provisions. The Crown authorities will not be subject to any criminal prosecution for a failure to comply with any of the provisions, but will be subject to a declaration of unlawful behaviour in the High Court. This is required because the Crown is unable to prosecute itself.

Chapter VI: Leasehold Valuation Tribunals

     This Chapter consolidates and amends existing provisions relating to the jurisdiction and procedures of leasehold valuation tribunals. Consolidated provisions are repealed by Schedule 13.

Clause 147:     Leasehold Valuation tribunals

     Clause 147 provides that a rent assessment committee constituted in accordance with Schedule 10 of the Rent Act 1977 shall carry out any functions conferred on a leasehold valuation tribunal under any legislative provisions, and that a committee performing such functions shall be known as a leasehold valuation tribunal.

Clause 148: Procedure

     Clause 148 gives effect to Schedule 11which sets out procedures for LVTs. These are described in detail in the notes on Schedule 11 below.

Clause 149: Appeals

     Clause 149 provides for appeals against LVT decisions. Any party to proceedings before a LVT will be able to appeal to the Lands Tribunal. The existing requirement that the person must have appeared before the LVT is removed. But in all cases permission must be obtained from the LVT in the first instance or, if permission is refused, from the Lands Tribunal. Existing provisions which prohibit an appeal against a LVT decision to the High Court and prevent a LVT from appealing against a Lands Tribunal decision are retained.

Clause 150: Consequential amendments

     Clause 150 gives effect to Schedule 12 which makes a number of minor and consequential amendments as a result of this Chapter. Details of these changes are set out in the notes on Schedule 12 below.

Chapter VII: General

Clause 151: Wales

     Clause 151 has the effect of ensuring that any powers to make regulations inserted into the 1985 Act or the 1993 Act are exercisable by the National Assembly for Wales as they apply in Wales. (The existing powers to make regulations in those Acts are already exercised by the National Assembly for Wales by virtue of the National Assembly for Wales (Transfer of Functions) Order 1999.)

Clause 152: Orders and regulations

     Clause 152 provides that any orders or regulations made under Part II of this Bill may make different provisions for different circumstances. It further provides that regulations under Schedule 11 (procedure regulations for LVTs) may make different provisions for different areas. In England, orders or regulations will be made by statutory instrument subject to annulment by Parliament, except those made under paragraphs 9(3)(b) or 10(3)(b) of Schedule 11, (setting a fee for application to a LVT, or a limit for the award of costs by a LVT, exceeding £500) where a draft of the instrument must be laid before and approved by a resolution of each House of Parliament. A separate procedure for making statutory instruments applies for the National Assembly for Wales.

SCHEDULES

Schedule 1: Application for registration: Documents (Clause 2)

     Clause 2 provides for the applicant for the registration of commonhold land to submit documents to the Registrar in support of the application and Schedule 1sets out what those documents should be.

Schedule 2: Land which may not be commonhold land (Clause 4)

     Paragraph 1 forbids the development of commonhold land at first floor level or above unless all the land below it and down to the ground is subject to the same application. This is to avoid the risk which attends 'flying freeholds' at the moment, particularly the problems of enforcing any covenants relating to access and support.

     Paragraph 2 relates to the development of agricultural land and paragraph 3 prevents commonhold land being created out of land which is held contingent on external events. In the first instance, land which is held subject to a grant under the Schools Sites Act 1841 reverts to the grantor when the land in question ceases to be used for a school, and in the second, the ownership of the land is contingent on some future event. For example, the land may be held by A until B reaches the age of 25, when it passes to B.

Schedule 3: commonhold association (clause 33)

Memorandum and articles of association

     Paragraph 1 defines 'memorandum' and 'articles' for the purpose of the Schedule. Paragraph 2 requires regulations to be made providing for the form and content of the memorandum and articles and further requires that the memorandum and articles must comply with those regulations. Paragraph 3 provides for the alteration of the memorandum and articles and paragraph 4 provides for the disapplication of parts of the Companies Act 1985 relating to the memorandum and articles. Paragraph 5 provides for the membership of the company prior to the coming into effect of the commonhold and paragraph 6 provides for membership during the period of transition, if there should be one. Paragraph 7 defines who should be entitled to be entered into the register of members. Paragraph 8 defines how joint unit owners will be entered onto the company register. Paragraph 9 specifies that a commonhold association may not be a member of itself. This covers the position where an association owns a unit, and in effect prevents the association from using the votes associated with the unit. Paragraph 10 provides that no one may be a member of an association on any terms other than those in the Schedule; in effect, this means unit holders or, in the early days, company subscribers. Paragraph 11 provides that membership of the commonhold association begins only with registration in the company register and paragraph 12 provides for termination of association membership on ceasing to be a unit-holder or joint unit-holder. Paragraph 13 makes provisions in relation to the register of members and paragraph 14 makes certain provisions in relation to the Companies Act.

Schedule 4: Development rights (clause 56)

     Schedule 4 sets out the various activities which are to be considered as development business for the purposes of clause 56. These are set out under four headings; Works, Marketing, Variation and Commonhold Association (in this later case, specifically, the appointment and removal of directors of the commonhold association).

Schedule 5: Consequential amendments (clause 65)

Schedule 6: Premises excluded from right to manage

     Paragraph 1 excludes premises where more than 25% of the internal floor area is in non-residential use. This mirrors the exclusion from the right to collectively enfranchise.

     Paragraph 2 excludes premises which contain separate self-contained parts where the freehold of those parts is owned by different persons.

     Paragraph 3 excludes converted premises which consist of no more than four units where either the landlord or an adult member of the landlord's family occupies one of those units as their only or principal residence.

     Paragraph 4 excludes premises where a local housing authority is the immediate landlord of any of the qualifying tenants.

     Paragraphs 5 and 6 exclude premises where the right to manage has already been acquired or where a RTE company has become owner of the freehold under Chapter III of the 1993 Act. Where a RTM company ceases to be responsible for the management of the premises, it will not be possible for any party to acquire the right for those premises within four years of that event except with the agreement of a leasehold valuation tribunal.

Schedule 7: Right to Manage: Statutory Provisions

     Schedule 7 makes consequential changes to existing rights and duties to make them applicable where the RTM company has acquired the right to manage.

     Paragraph 1 provides that the requirements on a landlord in section 19 of the Landlord and Tenant Act 1927 not to unreasonably withhold certain consents required under a lease apply to a RTM company where those consents are required to be given by the company by virtue of clause 95. The company is, however, entitled to make its consent or conditional upon the receipt of their reasonable costs incurred in deciding whether to give that consent.

     Paragraph 2 provides that the duty of care placed on a landlord by section 4 of the Defective Premises Act 1972 becomes a duty of care on the RTM company. This has the practical effect of making the company responsible for ensuring that the property is kept in a sufficient state of repair not to present a threat to public safety. Any liability arising from a failure to keep the property in good repair would therefore fall upon the company.

     Paragraph 3 provides that the obligation placed upon a landlord of a short lease under section 11 of the 1985 Act becomes an obligation of the RTM company insofar as that obligation applies to the common parts and fabric of the premises, but not insofar as it applies only to the individual unit demised under that lease. It also provides that a RTM company will be under the same obligation to anyone who occupies a unit in the premises without having a lease of that unit (e.g. a resident freeholder) as it would be to any tenant with a short lease by virtue of the application of section 11 of the 1985 Act. This will have the practical effect of placing the company under an obligation to tenants under short leases and to residents with no leases to maintain the structure and exterior of the building and the installations for heating and sanitation and for the supply of water, electricity and gas.

     Paragraph 4 provides that the rights enjoyed by tenants in respect of service charges under sections 18 to 30 of the 1985 Act can be exercised against a RTM company by any tenant and any landlord who is required to pay a service charge to the RTM company by virtue of the provisions governing the right to manage. These rights are: the right to challenge the reasonableness of service charges; the right to be consulted on major works (as amended by clause 139 of the Bill); the right to access information on service charges; and the right to establish a recognised tenants' association.

     Paragraph 5 provides that the rights enjoyed by tenants in respect of insurance by virtue of section 30A of the 1985 Act can be exercised against a RTM company by any tenant and any landlord. These rights are: the right to information on insurance and the right to challenge a nominated insurer.

     Paragraph 6 provides that the right enjoyed by a recognised tenants' association to be consulted about the choice of managing agent by virtue of section 30B of the 1985 Act can be exercised against a RTM company.

     Paragraph 7 provides that where the landlord serves an offer notice on qualifying tenants under the right of first refusal granted by Part I of the 1987 Act, a copy of that notice must also be served on the managing company. This will allow consideration of whether the company should be used as the vehicle for accepting the offer.

     Paragraph 8 provides that the right enjoyed by tenants of flats to seek the appointment of a new manager under Part II of the 1987 Act can be exercised against the RTM company by any tenant of a flat and any landlord. It will be possible to make an order appointing a new manager against a RTM company on the same grounds as apply for appointing one against a landlord. In addition, an order can be made against a RTM company where it fails to fulfil any of its obligations in respect of granting approvals or monitoring covenants, or where the company wishes itself to be replaced as manager.

     Paragraph 9 provides that where the right to manage has been exercised, the right of tenants to compulsorily acquire their landlord's interest under Part III of the 1987 Act is disapplied. That is because the right of compulsory acquisition is exercisable on the basis that the landlord is at fault, and it is therefore not appropriate for tenants to be able to exercise it where the landlord has been replaced as manager on a 'no fault' basis.

     Paragraph 10 provides that the RTM company is able to exercise the rights to seek variation of a lease granted to individual tenants of flats, and to landlords of those tenants, under Part IV of the 1987 Act (but not the right of groups of tenants to seek variations under that Part).

     Paragraph 11 provides that the requirement to hold service charges in trust under section 42 of the 1987 Act applies to any monies paid to the RTM company by either a tenant or a landlord.

     Paragraph 12 provides that the company is bound by the requirement under section 48 of the 1987 Act to provide tenants with an address at which notices can be furnished. The company will also have to provide all landlords with such an address. In addition, the company will be bound by the requirement under section 47 of that Act to include its name and address in any written demand for money.

     Paragraph 13 provides that the company is bound by the requirements of the Landlord and Tenant Act 1988 not to unreasonably withhold certain consents. This in turn allows a tenant to bring civil proceedings against the company where he or she believes that the company has not complied with its duties under the 1988 Act.

     Paragraph 14 provides that the right of tenants to arrange for a management audit under Chapter V of Part I of the 1993 Act can be exercised against a RTM company by a tenant or by any landlord who is required to pay a charge to the company.

     Paragraph 15 provides that the right of a registered tenants' association to appoint a surveyor under section 84 of the Housing Act 1996 will apply against a RTM company as it does against a landlord.

     Paragraph 16 provides that the rights of a tenant in respect of administration charges (as set out in Schedule 10) are applicable against a RTM company.

Schedule 8: Enfranchisement by company: Amendments

     Schedule 8 includes a large number of amendments to, principally, the 1993 Act, consequential to clauses 117, 118 and 119. They provide for the collective enfranchisement procedure to be carried out by the RTE company rather than, as now, initially by a group of qualifying tenants and subsequently by a nominee purchaser appointed by them. Rights and obligations currently applied to qualifying tenants, participating tenants, and the nominee purchaser are generally transferred to members of the RTE company, participating members of the RTE company and the RTE company respectively.

     Paragraph 1 amends the Land Compensation Act 1973, which provides rights to compensation to tenants participating in collective enfranchisement in the event of compulsory purchase, to transfer those rights to the RTE company.

     Paragraph 3 amends section 1 of the 1993 Act to provide that the right to collective enfranchisement is exercisable by a RTE company.

     Paragraph 4 amends section 2(1) of the 1993 Act, which provides for the acquisition of certain leasehold interests, to provide that these interests are acquired by the RTE company.

     Paragraph 5 amends section 11(4) of the 1993 Act, which provides a right for qualifying tenants to obtain information about superior landlords, so that the tenants have the right to obtain such information in connection with a claim being made by a RTE company.

     Paragraph 6 amends section 13 of the 1993 Act to provide that the initial notice only needs to provide the names of those qualifying tenants who are participating members of the RTE company; that it should give the registered address of the RTE company (rather than the identity of the nominee purchaser); and that it should contain such other information as may be prescribed in regulations. It introduces a new requirement that a copy of the initial notice must be given to all qualifying tenants in the premises.

     Paragraph 7 amends section 17 of the 1993 Act, which provides a right of access for valuation purposes, so that the RTE company (or its representative) have the right.

     Paragraph 8 amends section 20 of the 1993 Act so that the reversioner may serve a notice on the RTE company requiring it to deduce the title of any qualifying tenant who is a member of the company.

     Paragraph 9 makes consequential amendments to section 21 of the 1993 Act, which sets out requirements for the reversioner's counter notice.

     Paragraph 10 amends section 22 of the 1993 Act, to enable the RTE company to apply to the court for a declaration that an initial notice is valid.

     Paragraph 11 makes consequential amendments to section 23 of the 1993 Act, which enables an enfranchisement claim to be defeated where the landlord intends to redevelop the premises.

     Paragraph 12 amends section 24 of the 1993 Act to enable the RTE company (as well as the reversioner) to apply to a leasehold valuation tribunal for a determination of matters in dispute.

     Paragraph 13 amends section 25 of the 1993 Act to enable the RTE company to apply to the court for an order transferring the freehold to the company on the terms set out in the initial notice where the reversioner has failed to give a counter-notice.

     Paragraph 14 amends section 26 of the 1993 Act to enable the RTE company to apply for a vesting order where the landlord cannot be found.

     Paragraph 15 makes consequential amendments to section 27 of the 1993 Act (supplementary provisions relating to vesting orders).

     Paragraph 16 amends section 28 of the 1993 Act, which provides for the withdrawal of the initial notice. It provides that the RTE company must serve notice of withdrawal on the reversioner, any other relevant landlord and all of the qualifying tenants in the premises. It also provides that in the event of withdrawal, the RTE company and any person who is or has been a participating member of the company shall be liable for the reversioner's and any other relevant landlord's costs. But this liability shall not apply if the lease has been assigned (or acquired by personal representatives, a mortgagee or trustee in bankruptcy) and the assignee has become a member of the RTE company.

     Paragraph 17 amends section 29 of the 1993 Act to provide that the initial notice shall be deemed to be withdrawn in the event of the insolvency, winding up or striking off of the RTE company.

     Paragraph 18 makes consequential amendments to section 30 of the 1993 Act which provides that an initial notice is of no effect if notice of compulsory purchase proceedings has been given.

     Paragraph 19 makes consequential amendments to section 31 of the 1993 Act which provides that an initial notice is of no effect if the property has been designated under the Inheritance Tax Act 1984.

     Paragraph 20 makes consequential amendments to section 32 of the 1993 Act which makes provision for the determination of the price payable for enfranchisement.

     Paragraph 21makes consequential amendments to section 33 of the 1993 Act which sets out the landlord's costs in relation to the enfranchisement which are recoverable.

     Paragraph 22 makes consequential amendments to section 34 of the 1993 Act which provides for conveyance of the freehold.

     Paragraph 23 makes consequential amendments to section 35 of the 1993 Act which provides for the discharge of existing mortgages on conveyance of the freehold.

     Paragraph 24 makes consequential amendments to section 36 of the 1993 Act to require the RTE company to grant a leaseback to the former freeholder in certain circumstances.

     Paragraph 25 amends section 37A of the 1993 Act, which provides for compensation to be payable to the freeholder if termination of a lease is postponed by an ineffective claim for enfranchisement, to provide that compensation is payable by any person who is a participating member of the RTE company immediately before the claim ceases to have effect.

     Paragraph 26 extends section 38 of the 1993 Act to define 'participating member', 'the notice of invitation to participate', and 'RTE company', and makes a consequential amendment to subsection (2).

     Paragraph 27 makes consequential amendments to subsections (4) and (5) of section 41 of the 1993 Act, which require the recipient of a notice served by a tenant seeking information from a landlord in connection with a possible claim to acquire a new lease to inform the tenant of any outstanding enfranchisement claim.

     Paragraph 28 makes consequential amendments to section 54 of the 1993 Act which provides for the suspension of a tenant's claim to acquire a new lease while a claim for enfranchisement is outstanding.

     Paragraph 29 makes consequential amendments to section 74 of the 1993 Act which makes provisions covering the exercise of the right to enfranchise when a request for approval of an estate management scheme is outstanding.

     Paragraph 30 makes consequential amendments to section 91 of the 1993 Act which sets out the jurisdiction of leasehold valuation tribunals.

     Paragraph 31 amends section 93 of the 1993 Act to prohibit agreements which restrict a leaseholders right to become a member of a RTE company or do anything as a member of such a company in the course of exercising the right to enfranchise.

     Paragraph 32 makes consequential amendments to section 93A of the 1993 Act which empowers trustees who are qualifying tenants to participate in enfranchisement.

     Paragraph 33 amends section 97(1) of the 1993 Act to enable a qualifying company to register an initial notice under the Land Charges Act 1972 or as a notice or caution under the Land Registration Act 1925.

     Paragraph 34 makes consequential amendments to section 98(2) of the 1993 Act which enables regulations to be made prescribing procedure.

     Paragraph 35 makes consequential amendments to Schedule 1 to the 1993 Act which enables the court to appoint the reversioner to conduct proceedings on behalf of all relevant landlords.

     Paragraph 36 makes consequential changes to Schedule 3 to the 1993 Act which prescribes procedures in relation to initial notices, places restrictions on participation where forfeiture proceedings have already been commenced and restricts the commencement of forfeiture proceedings against participants once an initial notice has been served. In particular, it provides that an initial notice shall not be invalid if a member of a RTE company is not entitled to be a member because he is not a qualifying tenant, provided that the number of members who are entitled to be members meets the minimum requirement for a RTE company.

     Paragraph 37 makes consequential changes to Schedule 4 to the 1993 Act which requires the reversioner to provide specified information with a counter notice and subsequently.

     Paragraph 38 makes consequential changes to Schedule 5 to the 1993 Act which prescribes procedures for vesting orders under sections 24 and 25 of the Act.

     Paragraph 39 makes consequential changes to Schedule 6 to the 1993 Act which prescribes rules for valuing the interests to be acquired.

     Paragraph 40 makes consequential changes to Schedule 7 to the 1993 Act which prescribes procedures for the conveyance of the freehold.

     Paragraph 41 makes consequential changes to Schedule 8 to the 1993 Act which prescribes procedures for the discharge of mortgages on conveyance of the freehold.

     Paragraph 42 makes consequential changes to Schedule 9 to the 1993 Act which provides for the granting of leases back to the former freeholder.

Schedule 9: Meaning of service charge and management

Loans in respect of service charges

     Paragraphs 1 to 6 make changes to the provisions of the Housing Act 1985 which enable, and in some cases require, local authorities and registered social landlords to provide loans to their leaseholders to cover the costs of maintenance and repairs recoverable through service charges. The changes extend these provisions to cover the costs of improvements where these are payable by leaseholders.

Service charges

     Paragraph 7 extends the definition of 'service charge' in section 18(1)(a) of the 1985 Act to cover improvements.

Appointment of manager

     Paragraph 8 extends the meaning of management for the purposes of section 24 of the 1987 Act to include improvements. Failings in relation to improvements would also be grounds for the appointment of a manager under that section.

Right to acquire landlord's interest

     Paragraph 9 similarly extends the grounds for the right to acquire the landlord's interest under section 29 of the 1987 Act, to include failings in relation to improvements.

Tenants' right to management audit

     Paragraph 10 extends the definition of 'management functions' in section 84 of the 1993 Act, which gives tenants a right to a management audit, to include improvements.

Codes of management practice

     Paragraph 11 extends the definitions of 'management functions' and 'service charge' in section 87(8) of the 1993 Act, which provides for the approval of codes of management practice, to cover improvements.

Right to appoint surveyor

     Paragraph 12 extends the definition of 'management functions' for the purposes of paragraph 4(2) of Schedule 4 to the Housing Act 1996, which gives recognised tenants' associations the right to appoint a surveyor who has rights to inspect premises, to cover improvements.

Power to amend certain provisions

     Paragraph 13 provides that any of the provisions referred to in paragraphs 7 to 12 or section 27A of the 1985 Act (as inserted by clause 140 of the Bill) may be further amended, by order, to change the meaning of 'service charge', 'management' or 'management functions'.

 
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Prepared: 22 December 2000