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Lord Lea of Crondall: In speaking to Amendment No. 89, my noble friend Lady Gibson of Market Rasen and I are grateful for the support of the noble Lord, Lord Kingsland. In one respect, the thrust of the approach we set out has also been reflected by the statement made by the noble Lord, Lord Goodhart.

Whereas the right to enfranchise must take the whole block into consideration, that is quite unnecessary and counter-productive when it comes to the right to manage. The actual management of residential parts in these situations is usually quite separate from the management of the shops or restaurants. The noble Lord, Lord Kingsland, said

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that there is very little common interest between the shops and the residential parts. Indeed--this could be a point of further clarification and is implicit in what the noble Lord, Lord Goodhart, said--normally there will be separate front doors and separate access and it is normally quite clear from the point of view of service charges that there is a separation between the residential and commercial parts. This could be clarified by surveyors.

It is true--this is not something one has to concede-- it is an obvious ex hypothesi that the freeholder would still appoint the managing agent for the shops. Where is the problem in that? All that would happen would be that the freeholder would be dealing with the same two management categories as at present. At present, he is dealing with the management category "commercial" and the management category "residential".

Giving the residents the right to manage would give them the right to appoint the managing agent if they wished to take on the responsibilities set out. They may not always wish to do that, but this is the potential right that would be adduced. It also sheds light, as has been mentioned by previous speakers, on the 25 per cent threshold maximum for the commercial share if the RTM right is to be exercised.

Let me just consider a point made by the noble Lord, Lord Kingsland, whereby the residents consider taking over the RTM option where the share is 20 per cent below the threshold. They have the right to do that, which is set out in Schedule 6. Why should they have to exercise the management right vis-a-vis the commercial parts? There is no reason at all that I can see, and yet we are told that it is essential. Perhaps the Minister would confirm that this is indeed the implication and that those of us who have spoken have not misunderstood that that is what is being said.

The two amendments would eliminate--we all agree that there are several ways of doing this--the 25 per cent threshold but, more importantly, they would change the basis of the RTM to the residential parts. I put it to the Minister that that would be a far more plausible proposition than whether the figure was 15 per cent, 20 per cent or indeed 40 per cent. Does the Minister disagree with that? That is much more relevant than the percentage.

Incidentally, the argument that the 25 per cent is needed to identify a division above which the value of the freehold is split roughly 50/50 in value--that is adduced because of the higher value per square foot of the commercial parts--is a concept which seems to have been conceived in the context of the right to enfranchise. I do not know whether someone's word processor has got stuck, and that is why we see 25 per cent appearing on the right to manage, but the logic is quite different. It is inappropriate to adduce that as a consideration here.

Finally, if it is suggested that this amendment would change the very delicate balance of the Bill between the legitimate interests who have been consulted, I have to say that I have had a good deal of correspondence and

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many conversations now. The main property interests are not opposing it, as I understand it and, indeed, we have the support which is adduced here today.

The final subsection of Amendment No. 89 provides for arbitration of any dispute on the extent of residential parts. That does not create a new precedent as this is precisely the sort of demarcation that is necessary for the application of service charges at the moment.

The Government may have firmly grasped the wrong end of the stick on this point. I hope we can look at this point--and not in the longer term. I know that Members of the Committee will be familiar with the statement by Lord Keynes that, in the long run, we are all dead. That is rather too close to home in this context. But why the longer term? The difficulties have been addressed and there should be time for the Government. We do not know how this will progress in the time set down, and timescales may open up so that this Bill has more room for examination. We do not know what will happen in the next few weeks. But these matters have been discussed extremely thoroughly and there should be some scope to address this point before we reach a conclusion.

6.30 p.m.

Lord Jacobs: I have some problems with the amendment moved by the noble Lord, Lord Kingsland. I agree with him that the idea of having the residents of a block of flats being responsible for the management of a commercial undertaking--usually retail shops on the ground floor--is, as I have always thought, somewhat absurd. However, the idea that we should reverse it and allow the landlords effectively to appoint managers for the shops and for the flats would, in my opinion, be going backwards. He mentioned that, at the moment, there is a strong demand for freehold reversionary interest to obtain the insurance commission. Members of the Committee have no doubt read the deeper meaning of that, which means that the landlords should not trouble to get the lowest possible insurance because that would give them less commission. That is not an encouragement and is one reason we want to see flats having the right to manage their own properties.

I would like to ask the Minister why it has never been possible to separate the retail shops entirely from the residential blocks located above. One could, for example, insert a 999-year lease between the freeholder and the shops, which would make it possible for the shops to be managed separately and the flats to be enfranchised, or whatever, thus providing an alternative structure. At the moment, however, it should remain that the flats have the right to form their own RTM.

Lord Selsdon: This is an occasion on which all sides of the Committee agree and on which the Government have tried to do things in the interest of harmonious relationship but have probably failed. It is quite idiotic to try to bring commercial and residential management together. The structures that exist

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historically are not clean and neat. While the residents in the mixed block may well hold a direct lease with the freeholder, sometimes they may hold indirect leases and commercial property may often be on franchises, or let, or there may several intermediate landlords.

Moreover, usually or from time to time there is a conflict between the residents and those of the commercial property. It may relate to opening hours, to noise, to parking by customers or to signs. It may relate to a whole range of issues. Therefore, if the spirit of the Bill is harmonious relationship, as drafted in terms of right-to-management, it is likely to lead to disharmony. It would seem logical, therefore, to separate the two. The idea of a group of residents in a large block, who have never managed a property in their lives, forming a company and coming together to try to manage it strikes me as very difficult.

There is an alternative which is within current procedure. If a landlord wishes to appoint a managing agent rather than manage a property himself, he or she is required to choose three alternatives and receive three proposals for management by professional, competent agencies. They are not always obliged to take the cheapest but to take the one that will provide best value. It seems that in mixed development, if one is unable to separate the management of the commercial property from the residential property one should try to adopt some formula like this, where both sides are required or have the right to appoint an independent managing agent.

Lord Whitty: These amendments focus broadly on the same area, although that of the noble Lord, Lord Kingsland, ranged somewhat more widely, which may perhaps have been appropriate for early discussions of this part of the Bill. However, I shall resist responding to that part of it and concentrate on the amendments. I was not entirely clear where the noble Lord, Lord Kingsland, stood on this because his name was attached to two amendments that appeared to move in precisely opposite directions.

Amendment No. 84, to which he spoke, is effectively attempting to propose that the right to manage should not apply to any property to which a business tenancy also applies. On the other hand, his support of the Amendment No. 89, tabled by the noble Lord, Lord Lea of Crondall, is effectively to provide for virtually the same thing. There seems to be some confusion here. It is a complex area and I shall deal with the fundamentalist opposition of the noble Lord, Lord Kingsland, to what is provided here. It is that in certain circumstances where there is a business tenancy we provide for the residential element to have a right to manage the company, whereas the noble Lords, Lord Goodhart and Lord Lea of Crondall, are looking for an extension to that right.

We all probably agree that apart from the first amendment of the noble Lord, Lord Kingsland, in certain circumstances there should be that right.

Amendment No. 84 suggests that we disapply the right to manage for all properties with a business tenancy. We have significant difficulties with that. The right to manage is intended to allow leaseholders who

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have a majority stake in the property--which is our dividing line; I shall return to the issue when I deal with the point made by the noble Lord, Lord Lea--to take over the management of that property.

Amendment No. 84 would have the opposite effect. Theoretically, at least, it would prevent leaseholders who have acquired 99 per cent of a property on long leases from being able to manage the block simply because of the presence of another 1 per cent which was not in that category. Your Lordships may say that that is a ludicrous situation which would never arise, but it underlines the importance of my point. By saying that one cannot exercise the right to manage any property where there is a business tenancy, one directly creates a tremendous incentive for a landlord to engineer a way of letting a small part of the property on a business lease. At its most extreme, a broom cupboard suddenly becomes an office or an attic becomes a factory. That may seem absurd but, nevertheless, we know that a number of scams have operated. We have to ensure that unscrupulous landlords are not allowed to seize on such a loophole. Amendment No. 84 is therefore not within the spirit of the Bill.

My noble friend Lord Lea accused us of getting hold of the wrong end of the stick. To some extent, his amendment and the amendment of the noble Lord, Lord Goodhart, also get hold of the wrong end of the stick. It may not be the same stick.

The position is not that the right-to-manage company takes on the responsibility for the management of the business unit--indeed, subsection (6)(a) has the effect of preventing the RTM company from becoming directly responsible for the management of any flat or unit which is not on a long lease; in other words, a remaining tenanted flat or a business premise, shop, restaurant or whatever--but it will be responsible to everyone, including renting and commercial tenants, for maintaining the common part and fabric of that property.

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