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Lord Goodhart: Before the Minister sits down, surely there is a problem here. If someone was away but wanted to participate, they would be unable to do so if the necessary majority had been obtained without their joining in. Is that not correct?

Lord Whitty: No. Anyone who is qualified can join at any time, whatever view he or she may have taken at the beginning.

Lord Kingsland: The Minister is confident that his own provision will work effectively. I disagree with him, but I cannot put the matter to the vote. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 133 not moved.]

Clause 77 agreed to.

Clause 78 [Contents of claim notice]:

[Amendment No. 133A not moved.]

Lord Kingsland moved Amendment No. 133B:



("( ) It must include an offer of cover to provide for the RTM company directors' and officers' liability insurance, fidelity guarantee and professional indemnity insurance.").

The noble Lord said: This amendment would require the RTM company to include in its notice of claim that it had secured an offer from an insurance company to provide appropriate insurance cover. The intention of the amendment is to offer a means by

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which the RTM company can demonstrate its competence to manage and reassure all parties without laying itself open to any form of challenge regarding the degree to which it would be competent.

The amendment would require the company to obtain the three forms of insurance specified. The first is directors' and officers' liability insurance to protect those leaseholders involved in the management of the RTM company. It is already widely regarded as good practice for residents and management companies to obtain that form of insurance. The protection it offers against personal liability for the consequences of any errors on the part of a lessee who is involved in management may encourage more people to volunteer to serve.

The second is a fidelity guarantee to protect leaseholders' funds held by third parties in service charge or reserve fund accounts against theft or embezzlement, with the intention that the moneys would be directly protected. Any loss would be restored immediately while the insurers pursued the culprit.

The third protection is professional indemnity insurance to insure the company against the consequences of any failure in the day-to-day management of the block. It is unlikely that an insurer would agree to offer professional indemnity insurance without being certain that those undertaking the day-to-day management were competent. To give one example, insurers would wish to be certain that health and safety issues would be managed in a professional and competent manner, which would be expected of a commercial managing agent. We see no reason why an individual leaseholder should expect any less protection from the arrangements put in place by the RTM companies. The benefits to the leaseholders and the RTM company from these forms of insurance are, we believe, self-evident.

Amendment No. 133C is also in this group. That amendment sets a deadline of two months, rather than one month, to respond to the notice of claim for the right to manage. As with Amendment No. 132A, we believe that the timeframe proposed is too short. We prefer the deadline for responses to be two months, in keeping with the parallel requirement for responses to claims, enfranchisement or lease extension.

My noble friend Lord Caithness and the noble Lord, Lord Williams of Elvel, have tabled Amendment No. 136 which is also in this group. I support that amendment. I beg to move Amendment No. 133B.

The Earl of Caithness: Perhaps I may draw the Committee's attention to Amendment No. 136 which is grouped with this amendment. I call this my "health warning provision". There is a potential liability as to costs for a right-to-manage company in various circumstances. I believe that it is only right that before--this is the important point--one enters into a right-to-manage company one's attention is drawn to these liabilities, which can be substantial. The Committee will find the liabilities in Clauses 85 and 86 of the Bill.

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It is important to remember that these are joint and several liabilities; there is not only your potential share of the liability as a member of the RTM company but the overall liability should one of the other people involved default on their share of the costs. I believe that that should be drawn to everyone's attention before the proceedings start, rather than waking up to it later, as I have experienced in my practice.

Lord Williams of Elvel: I have added my name to the noble Earl's amendment. It is an improvement on the amendment of the noble Lord, Lord Kingsland. I have very serious problems with the amendment of the noble Lord, Lord Kingsland.

Directors and liability insurance is now almost impossible to obtain. Certainly an RTM company would have enormous difficulty in obtaining this kind of insurance in the market--as it would with fidelity insurance--and even the larger firms of consultants are having difficulty in renegotiating their professional indemnity insurance. I understand that the legal profession also is having problems with this. I do not see this as a practical proposition for directors of RTM companies. I do not believe that any underwriter would accept them.

Although the provisions of Amendment No. 136 are quite draconian, I believe, as the noble Earl said, that there should be a health warning for people going in for the right to manage. Again, it comes down to the proposition that people should go into the right to manage with their eyes fully open as to what they are letting themselves in for. When the Bill is enacted, a section such as this would be helpful in that regard.

Lord Hodgson of Astley Abbotts: I think that the health warning in Amendment No. 136 is a very worthwhile addition to the Bill. In many cases we will be dealing with people who may be quite inexperienced in what they are taking on; therefore, what they are getting into needs to be made very clear. It is all too easy for people to be seduced into thinking that a right to manage is very attractive, but they need to be faced very clearly with the consequences.

I also have some concerns about Amendment No. 133B. My concerns partially reflect what the noble Lord, Lord Williams of Elvel, said. The amendment as it stands seems attractive, but it is all about quantum. You could have a very low amount of cover which achieves very little other than providing something for a fig leaf of respectability. It is about the quantum cover and the nature of the wording of the cover that is to be provided. You can have wording which is sufficiently opaque and broadly drawn as to have very little impact.

There is also another reason why we probably do not need this provision. I suspect that every director of an RTM company will want it. You therefore do not need to write it into the legislation because the directors of the RTM company will themselves be seeking it in order to protect their position. It will therefore be drawn in inexorably by the directors of the RTM company who will want to have it. Amendment No. 133B represents another hurdle which we do not need to impose.

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6.15 p.m.

Lord McIntosh of Haringey: I am sorry that we cannot agree that the claim notice should have to include an offer to take out liability assurance. I am less sorry after hearing the noble Lords, Lord Hodgson and Lord Williams, because it would effectively make insurance a further qualifying criterion by the back door.

The right to manage is designed to reflect the fact that the leaseholders hold a majority of the equity of the building and should therefore already have a say in the management of the block. We are putting leaseholders on a more even keel with other home owners. We cannot agree that that needs to be hedged around with requirements that are based on the presupposition that they will not be competent enough to take sensible decisions about the management of that property. We have heard graphic examples from a number of Members of the Committee of people who have been put in the position of managing property who are not competent to do so. However, there is no protection to be found from having a nanny state and putting on the face of the Bill things that are not appropriate.

The noble Lord, Lord Kingsland, is right: the benefits of insurance are self-evident. It would be very sensible for the RTM company to consider taking out insurance of that kind. However, the noble Lord, Lord Hodgson, had a valid point: the fact of saying that there should be insurance does not guarantee that there would be adequate insurance, and the problem of defining "adequate insurance" on the face of the Bill would be quite significant. We cannot agree to making them do so, therefore.

The noble Lord, Lord Kingsland, also proposes allowing two months to respond to a claim notice. The procedure for acquiring the right to manage, and particularly the timescale involved, have been the subject of much discussion with interested parties. Nobody has suggested that one month is too short, so we stick to the view that one month is enough. Adding a further month would only introduce further delay for no good purpose.

The amendment tabled by the noble Earl, Lord Caithness, is interesting. It is intended to ensure on the face of the Bill that the parties are aware that in the event of the failure of an RTM bid the individual leaseholders, as well as the RTM company, are jointly and severally liable for the landlord's reasonable costs. I certainly agree that everybody should be aware of the respective rights and liabilities.

The Bill provides that the form and content of both the notices of invitation to participate, required under Clause 75, and claim notices may be prescribed by regulation. That would provide the opportunity for us to require an appropriate statement about this matter to be included in the notices. That would meet the requirements of the noble Earl, Lord Caithness, that people should be made aware before they become members. This amendment, which refers only to claim notices, would not do that. Our power under regulations will also apply to the notice of intention to

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participate and therefore meets his requirement. The detail of it is still subject to consultation, and that is as it should be. However, it is better to have it in regulation than on the face of the Bill for that reason.


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