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Lord Goodhart: To what clause does subsection (6)(a) refer?

Lord Whitty: It refers to Clause 93. It is not the case that we would be in a difficult situation were the RTM company to take on the direct management of the internal affairs of the business premises; it is only the fabric of the building that we are talking about.

As to the threshold above which the residential part has the right to manage, my noble friend Lord Lea of Crondall says that the idea that one must roughly assess where the dividing line arises is not appropriate. I believe it is. A rough indication is that the RTM would become available only where the non-domestic element of the block was no greater than 25 per cent. That 25 per cent equates to the 75 per cent which would thereby remain in residential ownership.

Lord Lea of Crondall: I hope it is possible in this procedure for me to intervene to ask my noble friend a question. Does not his most recent remark depend on the presumption that the right to manage would cover

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the residential and the commercial sections? One would then have the concept of an equity majority. If we are talking about a separate right to manage, where does the question of the minority dominating the majority--which is my noble friend's argument--arise?

Lord Whitty: My noble friend's amendment appears to address the right to manage not only the leasehold flats but all the common parts. I am referring to the outer fabric. The management company would become responsible for the outer fabric of the building and for the services which are common to the building as a whole. The difficulty arises if it is responsible only for less than half the putative value of the property, which was why we arrived at 25 per cent.

As to the management of the fabric and the common services, it is important that those aspects remain in one pair of hands; otherwise, if responsibility for the integrity of the fabric is unclear there is endless scope for confusion, disputes and risk to occupants. There are also issues to do with insurance and the split between the landlord, or the landlord's agent, as regards the management of the non-domestic parts and the leaseholder as regards the domestic aspects. It is to some extent an arbitrary threshold. However, where they are responsible for more than half the value of the property that is a sensible point at which to establish the threshold.

To allow the residential leaseholders to take management control over matters which are strictly internal to the domestic parts and closely associated common parts, such as stairways, would not be of huge value, in the sense that again there would be a risk of constant arguments about exactly where responsibilities began and ended.

I recognise the importance of this issue. Approximately 10 per cent of all leasehold premises are mixed use, but it is not entirely clear whether the whole of that would fall under this criterion. Nevertheless, it is a significant proportion of the leasehold market and, therefore, it may well be desirable that some rights should be extended to everybody who is in that situation. However, these are hugely complex issues. Were we to move down the road suggested in the amendment tabled by my noble friend Lord Lea the complexities would have to be addressed by much more detailed amendments than simply the addition of the set of tenants to the list of those who are eligible. Regrettably, at the moment there is little that we can offer to residential leaseholders in this area where there is a high--over 25 per cent--non-residential component.

Amendments Nos. 85 to 88 in the name of the noble Lord, Lord Goodhart, produce an even more wide-ranging extension, in that they change the definition of a self-contained part of a building. That would allow the right to management to be extended to a horizontally-separated part of a building provided it had a separate entrance. In certain circumstances that would lead to ridiculous situations. Let us consider a row of terraced houses, each of which is divided into two flats, one up and one down. Theoretically, the

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amendment would allow two neighbouring top floor flats to combine together to exercise the right to manage, provided that they could have a separate entrance. What happens to the two downstairs flats? How do they address the problem of the fabric or the roof over the top flat which is leaking downstairs onto their own woodwork? Again, it is a question of who is responsible for what and to whom. To extend the right to any geographically adjacent flats compounds the difficulties which are inherent in the amendment tabled by my noble friend Lord Lea. Therefore, I am concerned that we would enter into even greater complexity if we adopted the amendment tabled by the noble Lord, Lord Goodhart.

Without going into all the complexities, we believe that it is much preferable to ensure that the whole block is subject, as far as practicable, to the same management regime for the fabric of the building. We believe that to make exemptions from that, and to make extensions to different sub-parts of the building, undermines the simplicity of the right and the way in which the building is managed thereafter.

We hope that, given all these practical problems--we do not disagree with the principle--all noble Lords who are concerned with this group of amendments recognise that they will not achieve what they want, and to achieve more would go beyond the nature of the Bill that we are currently proposing.

6.45 p.m.

Lord Kingsland: Of course we understand the Government's desire to harmonise procedures under the legislation as far as possible, and entirely accept the important wish of residential leaseholders to gain greater control of the properties in which they live. But requiring them to take on the commercial elements in a mixed use building adds an unnecessary complication, as my noble friend Lord Selsdon said. I believe that is the view from all parts of the Committee. At Second Reading a noble Lord asked why someone who has a residential flat above, say, a well-known London department store should wish to take on the management responsibilities in relation to property matters of the store itself.

In my introductory remarks to our amendment I set out the views that we would prefer. I should say in that context that I would not like to give the noble Lord, Lord Jacobs, the impression that I endorse some of the practices that landlords have engaged in with respect to insurance premiums and other matters such as that: I deplore them. I believe, nevertheless, that where a good landlord offers a competitive price for a service to the tenant, that should be something that is properly applauded.

One aspect which the amendment of the noble Lord, Lord Lea, does not address is the position of older converted buildings where there is a single entrance and access and all the units--whether commercial or residential--have their individual entrances off a single common access. The Minister thought that out rather well.

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If the solution that we offer in Amendment No. 84 is not acceptable, the Minister might like to consider whether it would be sensible to include in the legislation the ability for the landlord to require a lease back of the commercial elements, to mirror the position in relation to the right to enfranchise in mixed use buildings. I shall leave the Minister to reflect on that, and meanwhile beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 84A to 88 not moved.]

Lord Lea of Crondall had given notice of his intention to move Amendment No. 89:

    Page 30, line 2, at end insert--

("(5A) This Chapter applies also to a part of a building which comprises flats occupied as dwellings, "the residential part", where the building containing those flats is not solely occupied for residential purposes.
(5B) The exercise of rights under subsection (5A) includes the residential common parts.
(5C) The "residential common parts" shall be all of those areas over which the qualifying tenants have rights of use, passage, or other easement or right.
(5D) Any dispute between the RTM company and the landlord as to the extent of the "residential part" shall be determined by a surveyor appointed by the president of the leasehold valuation tribunal, whose costs shall be met equally by the RTM company and the landlord.").

The noble Lord said: Perhaps I may say that there are matters which we will have to consider. We shall look closely at Hansard to see how many of the arguments stack up. Points have been made on all sides which require some thought. I have not found totally convincing the Minister's rationale that one could separate out a new demarcation between the service charges for the shops and the fabric of the shops--I think that is what is being said. We need to consider that.

[Amendment No. 89 not moved.]

[Amendment No. 89A not moved.]

Clause 69 agreed to.

Schedule 6 [Premises excluded from right to manage]:

[Amendment No. 90 not moved.]

Lord Goodhart moved Amendment No. 91:

    Page 78, line 22, leave out paragraph 2.

The noble Lord said: I shall speak also to Amendment No. 93. I have raised the question about paragraph 2 because I do not know what it is about. Why should the fact that two persons own different parts of freehold premises mean that that should be taken outside the scope of the right to manage? I cannot understand why it makes any difference and the Explanatory Notes make me none the wiser.

Amendment No. 93 refers to paragraph 6(1) of Schedule 6, which says that the chapter does not apply to any premises where the right to manage has been exercised by an RTM company and ceased to be so exercisable less than four years before that time. Why is there the need for a gap? It would seem to me that it should be possible, for example, to form a new RTM

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company to take over from an existing one immediately, if the lessees consider that appropriate. I should like to hear the explanation for the need for this gap and why four years rather than three or five years is considered the appropriate time.

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