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Amendment No. 74 has been tabled because I found the provision at page 23 very strange. It states that the property would cease to be commonhold, but it did not state what it would become when that happened. It is very important that, if people are unit-holders, they are owners of that basic piece of property. Even if it was all burnt down, it would end up still being theirs, and I think it should be freehold at that point. This is why I have tabled Amendment No. 74.
Lord McIntosh of Haringey: I shall deal first with Amendment No. 66, which would import into the Bill a provision lifted almost bodily from Section 42 of the Landlord and Tenant Act 1987. In the 1987 Act, this provision was designed to protect the interests of tenants paying into accumulated funds by way of service charges, by requiring the landlord or his agent, whoever held the fund, to hold it on trust for the tenants.
As the noble Lord, Lord Goodhart, recognised, the relationship between the commonhold association and the unit-holder differs in almost every respect from that between a tenant and his landlord or his landlord's agent. Apart from what might be seen as a natural reluctance to import into the Bill the setting up of a new kind of ownership--a provision from the landlord and tenant law--we do not think we need it.
Because of the relationship between the commonhold association and the unit-holder, there is no need to set up a complex structure designed to provide protection against a problem which will not exist. There should never be a conflict of interest between the commonhold association and its members such that it would be necessary to create trusts as in the 1987 Act.
So far as tax is concerned, we do not believe that receipts by the company--that is, the commonhold association--would be taxable in the way that the fund accruing under the 1987 Act would be, as it would be a company asset and not a taxable asset of the unit-holder. I will check on that point and I undertake to write to the noble Lord, Lord Kingsland, about it before Report stage.
The purpose of Clause 38(4) is to protect what we acknowledge may not be the most efficiently run companies from becoming easy prey to unscrupulous contractors. Clause 54 provides that where a court has been satisfied that winding up is appropriate, or the commonhold association passes a voluntary winding up resolution, or the court makes a declaration that the land is no longer commonhold, the reserve fund is released.
As to Amendment No. 73, we recognised that Clause 38(4) gives what some have thought to be an unusual degree of protection to the reserve funds of commonhold associations. In effect, it provides that reserve funds should not be available to judgment debtors to satisfy debts unless those debts arise directly from works or the provision of services for which the reserve fund was established. If you had a garden contractor paid on a weekly basis out of a current account, he would not be able to get at the reserve fund for outstanding fees but a lift engineer, carrying out periodic lift replacement, which is paid for out of the reserve fund, would have access to it. Therefore, we believe that the degree of protection is not unreasonable, but in addition a commonhold association which has been managed in such a way as to face winding up should no longer be protected in that way. It would be grossly unfair to creditors if a commonhold association got away with insolvency and kept what might be a considerable asset intact to be passed on to a successor association. I am afraid that that is what this amendment would do.
If the commonhold association has got itself into such a mess that the court believes winding up is the way to deal with it, it must pay up and the creditors should be recompensed as fully as possible. If it means that the successor association gets under way with no reserve funds, it is for the directors to find an alternative way to manage things until those funds can be built up again.
I turn to Amendment No. 74. I apologise that the noble Baroness, Lady Gardner, was not consulted on the grouping. Commonhold land continues to be freehold land when it is registered as commonhold. It must be freehold land to begin with. A unit-holder is defined as the person who is entitled in law to be registered as the proprietor of the freehold estate in his unit. The land takes on certain statutorily defined special attributes during the time that it is registered as commonhold which are, however, in addition to its underlying freehold status. When it ceases to be commonhold for any reason it merely sheds those
Lord Kingsland: I thank the Minister for his observations. He kindly agreed to look at the text of my Amendment No. 66 in relation to what he saw as the underlying reality and write to me. In those circumstances, I am content to beg leave to withdraw the amendment.
The noble Lord said: In moving Amendment No. 71 I should like to speak also to Amendment No. 72. These are minor drafting amendments to remove the word "community" from the phrase "commonhold community association" to achieve the correct title. I point out to the Committee--perhaps it is a hostage to fortune--that, whereas the Government have received criticism in the past for tabling, even at this stage, a large number of government amendments to Bills introduced in both Houses, in this part of the Bill, as in those parts to come, there are very few such amendments. I believe that that is worthy of mention. I beg to move.
The Earl of Caithness: In Clause 50 we move to the transfer of responsibility from an insolvent association to the successor association. Clause 50 as drafted lists a number of matters that the court may include in an order. What it does not say and what it omits is serious. It does not tell us how the funds will be held and what will be done with those members who do not pay. These two items are worthy of regulation, so that it is clear for those who are entering into the association right at the beginning to know exactly what the
Lord McIntosh of Haringey: I am grateful to the noble Earl, Lord Caithness, for giving us notice of his question on this clause. He asked how the debts would be held on transfer to a successor commonhold association and what would be done about members who do not pay. The debts of the original insolvent commonhold association will be its debts and not those of the successor commonhold association. The liquidator will have the full range of powers given by the Insolvency Act to collect the insolvent commonhold association's assets which will include arrears owed to it by unit-holders, and the liquidator will be able to seek a charging order over such unit-holders' property including his unit. That point was made in response to the question posed earlier by the noble Lord, Lord Goodhart. I hope that satisfies the noble Earl.