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The noble Lord, Lord Goodhart, said that it would be very difficult to have a system in which fewer than 100 per cent of the leaseholders consented. I agree that it may be difficult and that there may be problems, but there would also be problems on the other side if you insisted upon 100 per cent. I agree with what my noble friend said and what has been said from the other side of the Committee; that is, that it would indeed be almost impossible to get 100 per cent of the tenants in a block of flats to agree upon a particular course of action. My concern, both in regard to Amendment No. 5 and my own amendment, Amendment No. 12, is to try to remove unnecessary vetoes on the process of conversion to a commonhold. If you insist on 100 per cent, you have a massive veto. I agree with those who say that, in those circumstances, it is very unlikely that that will happen.
Turning to my own amendment, Amendment No. 12, the Committee will notice that it is not entirely on all fours with the amendment of my noble friend Lord Williams. He wants 80 per cent; I want 75 per cent and 10 per cent of the tenants. This is an issue which could, no doubt, be resolved between the various protagonists who want 80 per cent and those who want 75 per cent. That is not a major issue; the principle is the same. I therefore support what my noble friend said and I support his amendment.
I totally agree with the noble Lord, Lord Williams of Elvel, who asked whether the Government do or do not want this Bill to work. Do they want commonhold to take over from leasehold? If not, that is fine. We will have three systems--freehold, leasehold and commonhold--and commonhold will wither on the vine after perhaps a gentle start. Putting a 100 per cent requirement into the Bill will effectively negate any chance of commonhold taking over as a rival form of occupation to freehold.
Having been involved with management companies, I was a lessee of a flat in Pimlico. There were five of us. We were all shareholders of the property; we owned the freehold and ran the management company. That was purgatory--and there were only five of us. We were all friends and we all got on. One person did all the work--who happened to be me at one stage until I managed to palm it off to somebody else. Those involved were enthusiastic until it came to arranging a meeting and making a decision, and until it came to paying the management charges. I know how difficult it is to get a small number of people to agree, to make a decision to do the repairs and to carry out all necessary work. To transfer this to blocks of flats, particularly where there is a commercial element, and to ask for 100 per cent is asking the impossible.
I would like the Bill to work--it is a good idea--I would have supported it had it been introduced by own party. Indeed, all the amendments to which I have put my name are designed to make the Bill work; they are not designed to frustrate it. They are positive attempts to make it work.
The Minister is making a rod for his own back by requiring 100 per cent. There are real difficulties leading to considerable frustration which will boil up in various ways. People will have expectations from the Bill that will be unfulfilled and we shall be stuck with a leasehold system to which many people object.
Lord Jacobs: I must begin by apologising to the Committee for being unable to attend the Second Reading. My poor excuse is that I was in the United States at the time. However, I am not making a good start on this occasion as it is the first time I have participated in any depth in a Bill. I understand the point made by my noble friend Lord Goodhart, but from my experience of the previous Act I know that making the existing legislation work better should be the prime objective of the Bill. Therefore, I support the principle--whether it is 80 per cent or 75 per cent is not material--and in that respect the noble Lord, Lord Williams, made an excellent point.
Although I agree with the point made by my noble friend Lord Goodhart that legally the provision may present some problems, I believe that the Government and their team can see the problems and find a way around them. The previous government's Bill was a success, except to the limited extent to which it did not always work. It needed a high degree of either unanimity or a number of people to agree to leasehold enfranchisement and so on. Therefore, we have to try to make the wheels turn more smoothly.
Finally, I must declare an interest. I hold a lease in a block of 12 flats in central London. My lease is extendable under the previous government's legislation. Three of the other flats are rented under rental terms of less than nine years, and the remaining eight flats are on 20-year leases. There is not a cat in hell's chance that I shall be enabled to enfranchise. Leasehold extension is all I can expect.
Lord Selsdon: It seems that everyone is agreed with the principles of the Bill. It is the only Bill I have ever come across which as it stands is totally unworkable. Speaking as a banker, I can say that there are so many ingredients in this. However, we have forgotten that there are groups of people in the property world who deliberately seek to frustrate. Perhaps the Minister can tell us who cannot do something rather than who can. In the attempt to frustrate, people use many devious and cunning guises.
It is no good requiring 50, 70 or 80 per cent; we are talking about people's rights. If an amendment similar to those tabled by the noble Lords, Lord Williams and Lord Richard, is not agreed to, this part of the Bill will not work. When redevelopment rights come out, people will be looking for a new lease and perhaps more brown land will come in.If groups or individuals do not wish to exercise their rights, is there a way whereby those rights could still be within their hands and be passed on to their successors in title should someone wish that at a future date? The conversion period could be many, many years--longer even than a lease. The point should be addressed. I am sure the Minister will realise that there is no division in the Committee. We are just looking at technical issues where one is trying to interpose something that took place after the event.
Baroness Hamwee: My contribution cannot be as imaginative as that of the noble Lord, Lord Selsdon. I am very attracted to his lateral thinking. On a narrow point, can the Minister explain why, if the commonhold community statement may not restrict the grant of a charge, or mortgage, over a unit, it should be open to the mortgagee of that unit before it becomes a commonhold unit--while it is leasehold--to restrict the transfer? To contemplate the possibility of different policies between the different building societies and lending institutions, with the Nationwide taking one view and the Halifax taking another, and so on, could create quite a nightmare.
As the Committee will be well aware, Clause 3 requires that anyone with an interest in the land, including mortgagors, and anyone who has any other form of charge or caution over the land, must approve the application to convert the land from freehold to commonhold. The effect of this provision is that, in order for an existing block of leasehold flats to convert to commonhold, all the leaseholders would have to agree that this should happen, and they would have to secure the approval both of the freeholder and any intermediate leaseholders.
During the Second Reading debate, the noble Lords, Lord Goodhart and Lord Richard, my noble friend Lady Hanham, the noble Lord, Lord Williams of Elvel, my noble friend Lord Courtown and myself all expressed doubts about the requirement for 100 per cent to convert to commonhold. The noble Lord, Lord Bach, for the Government, sought to justify it on the ground that otherwise one would have anonymous leaseholders remaining.
Clause 3 as drafted is somewhat Delphic about this point. Subsection (1) lays down the requirement for 100 per cent consent, but subsection (2) states that regulations may provide, inter alia, for consent to be deemed to have been given in specified circumstances--I refer to paragraph (e)--and enabling a court to dispense with a requirement for consent in specified circumstances--I refer to paragraph (f).
These provisions are clearly intended to allow the 100 per cent requirement to be circumvented in certain circumstances. Those circumstances are nowhere specified in the Bill; nor are they dealt with in the Explanatory Notes. I pause here and turn to the Minister to thank him very much indeed for distributing the draft commonhold association memorandum and the draft CCS at the end of last week. Alas, I have not yet had the opportunity to subject them to the textual exegesis that I would have wished. I hope that we will be given an opportunity later in the Committee stage to table amendments to these documents. I am sure the Minister will agree that they go to the heart of what commonhold will be in practice. As the noble Lord knows, I would have preferred the text of both these documents to form part of schedules to the Bill and indeed I shall continue to press for that. Nevertheless, I do not see how Members of the Committee can come to grips with Part I of the Bill without a clear understanding of what will ultimately feature in these stipulations.
To return to the main theme, it seems to all Members of the Committee at least to take account of the criticism of the 100 per cent requirement, particularly in respect of larger developments and, in clear terms, to reduce it in the text to something of the order of 80 per cent. That raises the question, 80 per cent of what? The individual units which comprise the proposed commonhold may vary widely in size and value, and the assortment of estates, interests, claims and rights mentioned in Clause 3(1) may not necessarily coincide with the units of accommodation. They could, for example, include rights over parts of a unit, or parts of several units, or the common parts of
The requirement for 80 per cent has been suggested because that would mean, in practice, that a majority consent could not prevail in the case of a small development--such as a house converted into two, three or four units, it being obviously desirable and reasonable that the decision to convert should be unanimous in such cases--while not being unduly repressive in the case of larger developments.
I turn now to Amendments Nos. 18 and 23. The amendments were intended merely as probing amendments, to understand the intentions underlying the provisions for extinguishing existing leases in commonhold and the provisions for compensation of the holders of underleases for the loss of their interest. We appreciate that, in the circumstances envisioned by the Bill, the superior leaseholder would have given his consent to convert to commonhold and so should accept that the consequence of his decision would be to compensate those who lost out through no fault of their own.
But there is the risk that one recalcitrant sub-tenant might hold the conversion of an entire block to ransom for an extortionate sum, however unlikely the prospect of his actually receiving his demand. The likelihood of going to court would undoubtedly delay the conversion process, if not deter some of those who had previously committed to it. In my view, it would be extremely useful to know how the Government expect these situations to be resolved. Is there to be a formula to fix compensation? Must the underleaseholder accept what is offered, or can he negotiate?
I turn now to Amendment No. 41. Subsections (3) and (4) of Clause 27 provide for the extinguishment of existing charges over commonhold land in so far as they relate to the common part. There is no provision to compensate a chargee for his loss. It might have been felt unnecessary if consent to an application to register a freehold estate in commonhold land had to be 100 per cent, including that of all proprietor's charges. That matter is dealt with in Clause 3(1)(c). Such a provision, however, seems necessary if consent is to be based on less than 100 per cent, as proposed in the relevant amendment, or if in some cases consent is deemed to have been given under Clause 3(2)(e), or if consent is dispensed with under Clause 3(2)(f). It would seem only just and consistent with Article 1 of the First Protocol to the European Convention on Human Rights that a chargee can get fair compensation or adequate substituted security before his charge over common parts is extinguished.
Lord Bach: Before I attempt to answer the amendments that have been moved and spoken to, may I first of all agree--perhaps taking him slightly out of context--with the noble Earl, Lord Selsdon, in his comment that everyone agrees with the principle of the Bill. The Government are confident that this Committee stage will take place in a non-partisan
Each of Amendments Nos. 1, 2, 4 and 6 to 12 relates to the rule that we asked for, which requires 100 per cent of those with specified interests in the land to consent before it can be come commonhold land. We believe that there are drafting difficulties with Amendments Nos. 1, 2, 4 and 6 to 9 but those drafting difficulties are not of prime importance today in Committee. We do not believe that, as drafted, they will produce the end sought by the noble Lords who proposed them, and I will deal with that in due course. What this is really about is the principle behind the 100 per cent rule. I want to take that head-on, if I may.
The Government--and I am sure previous governments--have thought long and hard about whether it would be appropriate to allow commonholds to be developed in which there were what we have called anomalous leaseholders. We have come to the firm view that it would not. We are also aware that there will be circumstances in which a proportion of long leaseholders wish to buy out the landlord's interest; receive an interest pretty much in perpetuity in their unit; and a significant say in the management of the development by way of voting membership of the company which controls that, leaving those who do not wish to participate living under the terms of their existing leases. That is exactly what enfranchisement under Part II of the Bill will give and, as it happens, at a lower hurdle than the 80 per cent agreement referred to in some of these amendments.
On the other hand, commonhold is specifically designed with equality of interest in mind. The anomalous leaseholder in a commonhold would be anomalous indeed, and we echo what the noble Lord, Lord Goodhart, had to say. First, who would be the landlord? In an RTE company, there is no doubt it would be the company itself, but a commonhold association owns only the common parts. It has no interest in the units of the anomalous leaseholders, who have not participated in the conversion and will still be sitting in units under their old leases. The units occupied by the anomalous leaseholders will be commonhold units occupied on long leases bought for a premium; but long leases let at a premium will not be allowed. That is another anomaly.
Perhaps the interest in the leasehold reversion will have been purchased by one or more of the members of the commonhold association in their individual capacities. Would they have to set up a separate company to own and manage the freehold interest in the leaseholder-occupied units, even though the units themselves must be commonhold land? All this
Perhaps, on the other hand, what is envisaged is compulsorily buying them out, effectively expropriating their property and forcing them out of the development altogether. Who should assess the compensation in that event and who should pay it--those who voted for conversion? What should happen if some of them balk at paying an additional sum for their share of the compensation after agreeing to conversion on a particular assessment of the cost? I do not believe that any of the Members of the Committee who spoke to these amendments had any such draconian measures in mind.
We believe the practical difficulties of fitting the up-to-20 per cent of non-commonholders into a commonhold are out of all proportion to the benefits a commonhold can give to long leaseholders who take advantage of Part II of this Bill. Whatever the resulting organisation might be, it would not be commonhold as the Bill conceives it.
I shall be entirely realistic with the Committee. It may be that relatively few leaseholders will wish to take the final step of converting to commonhold once they see the extent to which Part II of the Bill will satisfy their needs, and how very far towards the ideal of commonhold that will get them. It may also be that commonhold, being an excellent alternative to leasehold for developers starting from scratch, will become the standard for new developments and its desirability will be proved in practice such that units will trade at a premium compared to their leasehold equivalents. In such circumstances, is it not reasonable to assume that taking the final step will become so much more attractive as to make 100 per cent consent an entirely realistic proposition?
I think that I have made the position clear. Admirable though the proposal might be, the Government do not see existing blocks of leaseholders agreeing to become part of a commonhold. We see it working in the way that new developers starting from scratch will want to deal with their property. We think that is a realistic way of looking at how it might work, and we turn on its head the argument that commonhold cannot work if it is 100 per cent. We believe it can probably work only if it is 100 per cent.
Or perhaps they meant no more than that a minimum of 80 per cent of the members of each of the classes specified should agree? I do not know the answer to those queries, and on the simple meaning of the words in the amendment we do not think anyone can.
I draw the Committee's attention briefly to Amendment No. 9. Passing over what I have just said, we are confronted with the proposition that the votes of the 20 per cent who either did not vote or who voted against conversion shall be overturned by a tribunal decision. We believe that this is the edge of a slippery slope. We are perfectly sure that the noble Lords concerned do not invite us to tread too close to its edge, but we do not believe that a tribunal or court in this jurisdiction would welcome legislation that directed it to come to a particular decision, presumably regardless of any pertinent evidence.
Amendments Nos. 10 and 11 would derogate from our policy to require 100 per cent consents. It may be said that we are being asked to say that might is right and the loudest voice wins. I ask the Committee to consider the following example. A freeholder owns a substantial country house in four acres of attractive parkland. His substantial country house is divided into leasehold flats, the aggregate floor area of which is a good deal less than 20 per cent of four acres; indeed, the surface area, if calculated by aggregating the surfaces of floor, walls and ceilings, would still be far short of 20 per cent of four acres. Can the freeholder dispense with their consents, deprive them of their leases and take them into a commonhold without as much as a by your leave?
If that example is objected to, I ask the Committee to consider another. The freeholder lives in the main part of the house and has let one wing as leasehold flats, the surface area of which amounts to less than 20 per cent of the total of the house. Can the tenants be dragged into commonhold in that situation? Will they find themselves suddenly faced with a part, however small, of the upkeep of the park and perhaps the stables as common parts because their consent is not required to register and the landlord has effectively extinguished their leases and substituted a CCS in the construction of which they have had no part?
It is planned that the proposed regulations would overcome those difficulties and, should they fail to do so, the courts would be left to pick up the pieces. The amendments to which I have just spoken fly in the face of our intention to require 100 per cent consent. We believe that that adds layers of uncertainty to an otherwise clear and straightforward process to no good purpose, and it does nothing to address what should be done with the 20 per cent of dissenters.
Amendment No. 12 in the name of my noble friend Lord Richard, which deals with conversion from an RTE company to commonhold, runs into the same kind of problem. Reasonable though it appears on the face of it and when described by my noble friend, when the process is complete anomalous leaseholders will remain.
I turn briefly to Amendments Nos. 18, 23 and 41, all of which have been spoken to by the noble Lord, Lord Kingsland. Those would have the effect of amending later clauses, unnecessarily in our view, because in each case the end that it wishes to guard against has been dealt with already by the fact that the relevant interested person must have consented to registration of the commonhold or been bought out.
Amendment No. 18 would omit from Clause 7(3)(d) the provision relating to the extinguishment of leases, but it is not necessary to do so. The owner of the interest will have consented or sold out. Clause 7(3)(d) merely sets the time at which the inevitable and agreed extinguishment will occur. The same applies to Amendment No. 23 which would omit paragraph (f) from Clause 9(3). Amendment No. 41 adds to Clause 27 words about consent to extinguishment of charges and allows for compensation or substitute security. None of this is necessary because consent would have to be given before the registration process could begin.
Amendment No. 5 would omit proprietors of a charge as a class of person from the list of those whose consent would be necessary before registration. I must also resist that amendment. A charge secured on property relies on the value of the property for its validity. It is our view that the value of property which becomes commonhold land will be much enhanced, but it would be unreasonable to take such fundamental action in relation to land without chargees at least having an opportunity to object.
The noble Lord, Lord Kingsland, asked about deemed consent as it appears in Clause 3. The regulations might deem consent where a number of notices have been served but not responded to. In other circumstances, not as clear cut as that, the regulations might not deem consent but enable a court to dispense with it.
In reply to the question raised by the noble Baroness, Lady Hamwee, a mortgagee has to consent to commonhold because it could affect the value of his or her security. Once a block has become commonhold, there is no need to prevent new mortgages because both mortgagor and mortgagee will know precisely what the security is. That is one of the advantages of commonhold.
Having been so ungracious as not to agree with any of the amendments so far put forward, I turn finally to Amendment No. 3. We accept this amendment. It removes what the Government now believe to be surplusage. We are grateful to the noble Lord, Lord Goodhart, for having pointed that out to us at Second Reading and in meetings before the Second Reading debate.
Clause 3 is about ensuring that all those with legitimate interests in the land which it is proposed to register as commonhold consent to the change of status. This must include those directly affected such as those living in existing units, and some third parties; for example, their mortgagees. However, there are some third parties, the existence of whose interests would not interfere with the operation of the commonhold. We can all think of examples of that. I do not need to go into them now.
We feel it would be safe to omit Clause 3(1)(b) and to ensure by careful drafting of the regulations under Clause 3(1)(e) that any classes of third party who would presently fall to be dealt with under the subsection to be omitted are swept up. For that reason we shall be happy to accept the amendment in due course.
Lord Jacobs: Before the Minister sits down, on the understanding that the Government are not prepared to accept either the amendment of the noble Lord, Lord Williams, or the amendment of the noble Lord, Lord Richard, 100 per cent agreement will be required. Does the Minister agree that the likelihood of more than a handful of properties being converted to commonhold is low?
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