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Lord Goodhart: I am grateful to the Minister for that response. It is a concession that I hope will be made. While I recognise that the Government have done their best to produce drafts and have now produced two versions of the documents, there may well be substantial changes before they become a draft order. There will be a good deal of consultation and it is right that they should come back for affirmative resolution. Unfortunately, it is not possible later to amend them at that stage, but it will be possible to have a proper debate in your Lordships' House.

Lord Kingsland: I thank the Minister very much indeed for his extremely full response not only to my amendment but also to those tabled by others. The contributions from all sides of the Committee have helped to focus on the underlying issues that the amendments sought to reveal.

I draw some comfort from what the Minister said in response to the noble Lord, Lord Goodhart, about the affirmative procedure for the regulations. However, the noble Lord, Lord Goodhart, has rightly pointed out that even with an affirmative resolution, your Lordships' House is unable to amend the underlying document. I regard that as a serious defect. I therefore put the Minister on notice that on Report I shall seek to make both the commonhold association agreement and the commonhold community statement schedules to the Bill so that at Third Reading they can be amended.

I accept that it may be appropriate to retain the use of regulatory procedures for some elements in those documents, but I am convinced that the balance at the moment between what is in Schedule 3 and what is, for example, in the commonhold association agreement is wrong. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4.30 p.m.

Clause 33 agreed to.

Schedule 3 [Commonhold association]:

[Amendments Nos. 48 and 49 not moved.]

Schedule 3 agreed to.

Clause 34 [Duty to manage]:

Lord Brennan moved Amendment No. 50:


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The noble Lord said: In moving Amendment No. 50, I shall also speak to Amendment No. 52. Both amendments affect Clause 34, which is a critically important clause. It creates on the part of directors of community associations a specific duty to manage. In subsection (1) the primary objective of the directors is to give full effect to the rights and enjoyment of property of each unit-holder. These two amendments seek to improve subsection (3) which creates special considerations for the directors where there has been a failure by a particular unit-holder. The message of this Bill often includes the tedious but occasionally contains some linguistic charm. Last week we debated the concept of the flying commonhold. If one looks at Clause 34(3)(a) one finds the concept of inaction for the sake of harmony, which would surely be a suitable epitaph for the prime ministership of Stanley Baldwin. But considerable care should be exercised when one converts it into a legislative concept, and this amendment seeks to introduce such care.

Why? Let us take the example of 10 unit-holders, eight or nine of whom pay their dues regularly one or two of whom are recalcitrant. As the clause presently stands, the directors, who numerically may not represent the entire force of eight or nine unit-holders who pay, may decide that it is better for all of them to give up on the one or two recalcitrant unit-holders and let them get away with it. That puts a premium on intransigence by such defaulting unit-holders. The amendment introduces into subsection (3)(a) the concept that directors cannot choose not to act where the result would be financial difficulty for the majority who pay. The proposition is a simple one and I hope that it commends itself to the Government.

The second amendment deals with subsection (3)(b) which advises directors to have regard to the desirability of arbitration and other means of settlement, which is an entirely sensible approach. By the insertion of "particular" before "regard" I seek to introduce some emphasis. The Minister may well say that it adds nothing, and I may well agree. I choose the word because it is sufficiently puny to stimulate the parliamentary draftsman into a greater degree of emphasis, whereby directors choose legal representation as a last rather than first resort.

I hope that some form of wording can be introduced to make directors, as consistently as possible around the country, look to non-legal solutions before they approach lawyers. This is especially important if directors put the management of the units into the hands of management companies which may have a financial incentive with friendly lawyers to go to court at the first opportunity. Those are the purposes of the two amendments. I beg to move.

Lord Selsdon: The noble Lord, Lord Brennan, raises one of the more difficult issues; namely, non-payment of service charges and the consequential impact upon the maintenance of the building or upon others. It is unfortunate that as the law stands people who live abroad, or who may be on holiday, always find plenty of excuses as to why certain things have or have not happened. The matter goes far beyond "the cheque is

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in the post". People transfer their properties and obtain permissions of landlords or companies without having paid their service charges. The problem is that that burden often falls on others, some of whom have retired, who have made careful budgets for the amount that they must pay. There needs to be some protection within the Bill. I am not sure that the amendments tabled by the noble Lord are correct. I had thought that perhaps penalties should be imposed with the right to charge interest at the exorbitant rate charged by many credit card companies. It is a difficult issue and, as the Bill is about money, where money is not paid when it is due the issue should be properly addressed.

Baroness Hamwee: Like the noble Lord, Lord Brennan, I found the introduction of the maintaining of harmonious relationships an interesting one to be brought in by legislation. It makes me wonder how this provision lies with the director's normal fiduciary responsibility. Does this provision mean that that normal responsibility is somehow downgraded? I do not know the answer to that and should be grateful if the noble Lord could tell us.

Lord Goodhart: The point raised by my noble friend introduces the subject matter of Amendment No. 51, which is in the next group but should probably have been grouped with the amendments of the noble Lord, Lord Brennan. I am quite happy to take that separately or to take it now, whichever would be preferable.

Lord Bach: I can be brief in what I have to say. Those who heard the Second Reading speech of the noble Lord, Lord Brennan, and his praise of the language of the Bill, in particular the phrase "maintaining harmonious relationships", will not easily forget the comments he made. No one has yet sought to delete that phrase from the Bill and I trust and hope that no one will.

As regards my noble friend's two amendments, we are interested in both of them; perhaps more the first than the second. With the permission of Members of the Committee and of the noble Lord, Lord Brennan, I should like to take them away and consider them. If we feel that there is something in them, we will table amendments with which he will not be dissatisfied, perhaps more likely in respect of Amendment No. 50 than Amendment No. 52.

In answer to the noble Baroness, Lady Hamwee, I do not know the answer. Rather than guess, perhaps I may write to her after due reflection as to whether it affects the position on the duty of directors under the Companies Act.

Lord Brennan: The Minister has been helpful in his reply. In closing on the issue of duty to manage, I suggest that in all the various clauses with which we will deal, the one question that unit-holders when they meet will ask is, "What are we here for?". The clause requires that directors shall manage in the best interests of the unit-holders.

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I noticed at a glance, though I have not studied it carefully, that the memorandum of association makes no reference to the duty to manage. That seems unfortunate. Neither does the community statement explain to people who may not be trained lawyers how they should implement Clause 34. I do not wish to extend this document. As the noble Lord, Lord Monson, rightly said, it should be reduced to its simplest form. Those around the Minister in his department could probably do it on two sheets of paper. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Goodhart moved Amendment No. 51:


    Page 15, line 9, leave out from ("of") to ("and") in line 10 and insert ("the commonhold association").

The noble Lord said: I rise to move Amendment No. 51. Perhaps I may take advantage of the relative informality of these proceedings. We had mentioned in the previous debate and indeed in earlier ones of how to take proceedings against somebody who fails to pay up and how to enforce them. Would I be right in thinking that, while there is no provision here for forfeiture, there is nothing to prevent a commonhold association, which is owed money by a unit- holder, seeking a charging order under the Charging Orders Act, if necessary using powers under that Act to sell the unit and recover the amount owing which had been unpaid?

I shall now move on to the proper subject of Amendment No. 51. Clause 34(3) appears, at any rate by implication, to allow directors to avoid action only if inaction will establish or maintain harmonious relationships; that is, they say they need not take action in specific circumstances and do not mention any other circumstances.

The noble Lord, Lord Bach, said that he hoped that no one would remove the reference to the maintenance of harmonious relationships. That is exactly what the amendment does. It is of course desirable to maintain harmonious relationships but, first of all, there may be cases where action needs to be taken at risk of damage to relationships. Plainly, the maintenance of relationships is not the only possible justification for inaction.

I give one example. Let us say that one unit-holder, in the view of the directors, is not complying with his obligations. The directors are advised that their view is probably correct, but not certain. The particular unit- holder is known to be extremely litigious, as some of them are, and is likely to challenge any enforcement action; and, if he is successful, the CHA will incur substantial costs. It would be reasonable, therefore, for directors not to take action if the breach of obligation is not likely to have serious consequences for the other members. That is an example of the kind of case that the noble Lord, Lord Brennan, had in mind.

It is a well established principle of company law that directors must act, or refrain from action, in the interests of the company. Why not simply apply the

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same principles here and say that the directors must act in the interests of the commonhold association as a whole, it being of course a matter for their judgment as to what the interests of the commonhold association are in the particular circumstances with which they are faced?


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