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Lord Goodhart: I return the compliment made by the noble Lord, Lord Kingsland. On this occasion we broadly support his amendment. It seems to us that a single insurance policy covering a whole building is an essential element; indeed, our Amendment No. 238YA (formerly Amendment No. 237) includes, among a number of other provisions, a power to vary leases so as to ensure that there is an obligation to insure the whole building under a single policy. This obviously makes good practical sense, and we support it.

The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty): At the risk of creating too broad a consensus, I should tell the noble Lord, Lord Kingsland, that we have some sympathy with what lies behind his amendment, although I do not support it as it stands. Clearly, in almost all circumstances it would be better for a block of flats to be subject to one insurance policy which covered the whole building for all the reasons the noble Lord, Lord Kingsland, spelt out. We would also expect anybody who took out that insurance to follow the principles of best value, as he also said. However, later in the process of the Bill we shall come to our own proposals to address these issues. Members of the Committee may recall that the consultation paper of August 2000 floated the idea that the absence of a requirement to take out a single insurance policy for the block should be made clear grounds for the variation of the relevant leases. We prefer that approach to what is in this amendment, which overrides the terms of the leases.

A number of noble Lords have tabled later amendments relating to the question of variation of leases, which arises first in Amendment No. 195. We can perhaps discuss that in more general terms later. As to that, it is the Government's intention to bring forward some proposals.

Leaseholders already have a right to challenge the "reasonableness" element of the service charge, including insurance, so there is an incentive for best value, in that the landlord who has taken out

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unnecessarily expensive insurance, for example, may find himself unable to recover the full costs of that from the leaseholders if they appeal against it. Our proposed amendment to Section 20 of the 1995 Act will also provide some protection to require the landlord to consult before taking out insurance contracts which last more than 12 months.

I hope that the noble Lord, Lord Kingsland, and others accept that these measures are intended to address the problem which has been rightly identified. I also hope that the noble Lord understands why we cannot accept that more stringent requirements should be placed on the RTM company in taking out insurance of the property than would apply to any other landlord, or any other manager in these circumstances. We believe that at a later stage we shall devise a better way to deal with the fundamental problem.

Lord Richard: Before my noble friend sits down, perhaps I may ask him a question on one matter which I do not quite follow. I can see what my noble friend and the noble Lord, Lord Kingsland, seek to achieve. But if one looks at Amendment No. 195, which my noble friend indicated was the approach he preferred, that gives the RTM company the right to make the application if the insurance of a flat is defective; in other words, it is a permissive right. If it wishes to make the application, it can. The amendment of the noble Lord, Lord Kingsland, seeks to place an obligation on them. I would have thought that, as opposed to the permissive right on the one hand and the actual obligation on the other hand, there is a lot to be said for having an obligation for single insurance rather than merely having the right to apply for a variation of the lease in order to try to achieve it. Will my noble friend expand a little on why he rejects the mandatory nature of the amendment?

Baroness Gardner of Parkes: Before the Minister replies, perhaps I may follow up on that point. I may not be here when we get to Amendment No. 195 as I am chairing a meeting elsewhere.

With regard to Amendment No. 195, which has just been mentioned--and, indeed, to Amendment No. 171A--does a leasehold valuation tribunal have a right to interpret a lease? I have been contacted by tenants about whether or not it will be given such a role. Tenants say that that is not clear in the legislation.

4.15 p.m.

Lord Whitty: I referred to the group of amendments which includes Amendment No. 195 because those amendments deal with the variation of leases in general. I am not necessarily commending the exact terms of Amendment No. 195 in order to deal with this problem. In that general context, we will propose grounds for changing a lease. Part of the grounds for changing a lease would be to write into the varied lease the obligation to insure the building as a whole.

I am not prepared at this stage to go down the road of a mandatory requirement through that mechanism in relation to the RTM. As I said in my previous

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remarks, one would be putting on to the RTM an obligation that one would not put on any other landlord in those circumstances. Generally speaking, we have tried not to place any further thresholds on the proper operation of an RTM than exist for any other manager or landlord of the property. The ability to vary the lease should deal with the problem where it is identified.

As to an LVT's ability to interpret the lease, as I understand it, an LVT's responsibilities are confined to the application of the lease and whether the terms of the lease have been followed. It cannot expand or elaborate on the terms of the lease. It may be more sensible if I write to the noble Baroness on that question.

Baroness Gardner of Parkes: The point that was made to me by various tenants' groups was that many leases are defective and are therefore unclear. If you plan to vary a lease, you have to know what the lease is. Tenants feel that if the leasehold valuation tribunal could determine what the terms of the lease were that may be an answer to the problem. I do not expect an answer on this point today. I am happy to wait for a letter.

At the moment, the leasehold valuation tribunal tends to refer people to a court to have their lease interpreted; the matter then goes back to the leasehold valuation tribunal, and so it becomes an expensive football.

Lord Kingsland: I thank the noble Lord, Lord Goodhart, for returning the compliment. I should like to thank also the noble Lord, Lord Richard, for saying what I hope I would have said had he not said it first.

The tone of the Minister's response was extremely constructive and most sympathetic. I should like to reflect on what he said, see what he says when we get to Amendment No. 195, and then perhaps return to the matter on Report with a different amendment. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 95 [Functions relating to approvals]:

[Amendments Nos. 172 to 175 not moved.]

Clause 95 agreed to.

Clause 96 [Approvals: supplementary]:

[Amendment No. 175A not moved.]

Clause 96 agreed to.

Clause 97 [Enforcement of tenant covenants]:

[Amendment No. 176 not moved.]

Lord Kingsland moved Amendment No. 176A:


    Page 46, line 31, at end insert--


("( ) The RTM company shall assist and co-operate with the landlord, or any other person by whom tenant covenants are enforceable, in the enforcement of any covenant which has not been complied with.").

The noble Lord said: Under Clauses 97 and 98, a landlord retains the right to step in and enforce tenant covenants if the RTM company does not for any reason. The amendment requires the RTM company

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to assist and co-operate with the landlord if he decides to exercise that right. In other words, the RTM company should not obstruct the enforcement of covenants.

There are two other amendments in this group--Amendments Nos. 176B and 176C--and I shall trespass on the Committee's time to speak briefly to them. Amendment No. 176B would render the RTM company liable to recompense the landlord for any loss resulting from its failure to monitor and report on any breaches of tenant covenants under Clause 98. The obvious purpose of the amendment is to ensure that the landlord does not find himself out of pocket as a result of the failure of the company to comply with its duties.

Amendment No. 176C is self-explanatory. The RTM company is unable to exercise the powers of forfeiture or re-entry. If a case requires enforcement and reaches the stage where the use of those powers is justified, it must seek the co-operation of the landlord who remains able to exercise the powers granted to him by the lease. The landlord will not derive any direct benefit from taking enforcement action, particularly if the dispute is in relation to unpaid service charges.

Enforcement proceedings involve costs, which at present can be recovered through the service charge if necessary. However, the landlord no longer has access to that. To ensure that landlords will be willing to support RTM companies where proceedings are necessary, the legislation should state explicitly that the RTM companies will reimburse the landlord's costs. The company will be able to recoup those from the tenant through the service charge. I beg to move.

Lord Whitty: This group of amendments proposes a number of changes to the provisions governing enforcement of tenant covenants. It may be helpful if I explain to the Committee where we are in the Bill as it stands in order to achieve enforcement of covenants.

Clause 97 already ensures that the RTM company can enforce any of the tenant covenants itself. That is needed so that we can ensure that they can exercise proper management control over the premises and deal with problems that arise, either with the building or with disputes between tenants, where someone breaches the terms of their lease. Because a breach of lease can in some cases, like those concerning the amendment of the noble Lord, Lord Kingsland, affect the landlord's reversionary interest, we have not taken away their right to take enforcement action. So the landlord and the company will both have rights in parallel to one another here.

Clause 98 sets out the responsibilities of the RTM company in respect of monitoring compliance with covenants. I should make clear that this should not be interpreted as being too heavy-handed, but a good leasehold manager will be expected to keep an eye on compliance with covenants and we therefore expect the same from the RTM company. It is also important, as the noble Lord, Lord Kingsland, said, that the landlord knows if a breach is causing long-term harm

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to his reversionary interest. We are therefore requiring the RTM company to inform the landlord of any breaches which are not put right within three months of their coming to the attention of the company.

Beyond that, we do not see any requirement on the company to have any further explicit requirement to co-operate with the landlord in this manner, because the RTM company itself is under an obligation to enforce the covenants. As such, the company could not be anything but failing in its duties if it were preventing those covenants being enforced. Therefore, that is already covered by the obligations of the RTM company in the Bill.

We certainly are not in favour of the RTM company being made liable for compensation, as one of the amendments would require, at least not in the way that is suggested in the amendment. The landlord would already have a general civil right to take action against someone for failure to comply with a statutory requirement. So unless we provide otherwise--and we have not--the landlord would therefore be able to seek compensation from the RTM company if it fails to meet its obligations under Clause 98. A court would then have to decide what a fair amount of compensation would be.

However, we would consider it wrong to do what these amendments suggest we should do, which is automatically to peg such compensation to the loss caused to the landlord by the breach. Any such sums should be sought from the tenant who was in breach rather than the RTM company, although in some cases there will be a complex inter-relationship.

It is correct to say that the RTM company cannot seek forfeiture but the company has general powers to use against a defaulting leaseholder, such as going to court to enforce a debt. We do not consider that the RTM company will necessarily need to involve the landlord and, therefore, invoke the rather draconian power of forfeiture to settle lesser disputes; for example, disputes over service charges.

The proposed requirement to pay the landlord's costs could also be unfair. As the rights are parallel to the landlord and the RTM company, the landlord will be able to take his own enforcement action at any time, even in the case where the RTM company is itself taking such action to deal with the matter. If the landlord chooses to do so, the costs need to fall on the landlord himself. If there are costs arising from a failure of the RTM company to deal with the matter, these will be recoverable as part of any action for non-compliance with the statute--mainly under Clause 98. The rights of the landlord regarding non-fulfilment of duties are already in the Bill. We do not need the additional powers that are spelled out in the three amendments.


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