House of Commons - Explanatory Note
Commonhold and Leasehold Reform Bill [HL] - continued          House of Commons

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Clause 141: Exclusion of shared ownership leases

237.     Clause 141 corrects technical defects in the 1967 Act relating to shared ownership properties. Such properties are exempt from the right to enfranchise under certain circumstances. The clause allows the existing exemption to apply in cases where property is or has been transferred from a local authority to a registered social landlord (within the meaning of Part 1 of the Housing Act 1996). It also allows the exemption to apply in cases where a lease restricts a tenant's power to assign the lease.

Purchase price

Clause 142: Tenant's share of marriage value

238.     Clause 142 provides that, where relevant, marriage value on a house should be split equally between leaseholder and landlord.

Clause 143: Disregard of marriage value in case of very long leases

239.     Clause 143 provides that marriage value should be disregarded where the lease on a house has more than 80 years left to expiry.

Clause 144: Purchase price for enfranchisement during lease extension

240.     Clause 144 provides that, where a leaseholder gains the right to enfranchise by virtue of clause 139 above, he pays a price that includes a share of marriage value, where relevant.

Absent Landlords

Clause 145: Applications to be to county court

241.     Clause 145 amends section 27 of the 1967 Act. Section 27 confers powers on the High Court in cases where a leaseholder of a house wishes to buy the freehold but the landlord cannot be found. The amendments transfer jurisdiction from the High Court to a county court. This will allow a county court to issue a vesting order so that the freehold can be bought in the absence of the landlord, where it is satisfied that certain conditions have been met. In addition, the sum paid by the leaseholder for the freehold will be paid to a county court rather than the Supreme Court following these changes.

Clause 146: Valuation by leasehold valuation tribunal

242.     Clause 146 replaces the existing section 27(5) of the 1967 Act with a new section 27(5). It also amends section 21(1) of that Act. The effect of the amendments is to transfer jurisdiction to determine the price to be paid for the freehold in cases where the landlord cannot be found from the President of the Lands Tribunal to a leasehold valuation tribunal.

Chapter 5: Other provisions about leases

Service charges, administration charges etc.

Clause 147:     Extending meaning of service charge and management etc

243.     Clause 147 gives effect to Schedule 9 which makes a number of changes to existing provisions relating to the management of, and service charges in respect of, leasehold properties. In short the changes apply the provisions to, or in relation to, improvements and, with the exception of loans to local authority or registered social landlord leaseholders, any other matters which may be specified by order. The changes are described in detail in the notes on Schedule 9 below.

Clause 148:     Consultation about service charges

244.     Clause 148 substitutes a new section for section 20 of the 1985 Act (which requires landlords to consult tenants before carrying out works to which a tenant is obliged to contribute through a service charge, and restricts their right to recover the costs if they fail to do so). It requires landlords to consult before entering into agreements for the provisions of works or services where the agreement will last for more than 12 months, regardless of value. If they fail to do so, they will be unable to recover any amount from leaseholders in relation to such a contract. It provides a power to make regulations exempting agreements of a prescribed description or in prescribed circumstances from this requirement.

245.     It also requires landlords to consult before carrying out works if the amount payable by any tenant through service charges exceeds an amount prescribed by regulations. If they fail to do so, they will be unable to recover any amount payable by a leaseholder which exceeded the prescribed amount. This requirement is additional to any requirement to consult before entering into a contract of 12 months or more.

246.     It provides a power to make regulations specifying detailed consultation requirements. It also provides that a leasehold valuation tribunal may dispense with any of the requirements, if the tribunal is satisfied that the landlord acted reasonably.

Clause 149: Statements of account

247.     Clause 149 substitutes a new section for section 21 of the 1985 Act (which gives tenants the right to request a summary of the costs on which their service charge is based).

248.     The new section 21 will instead require landlords to provide annual accounting statements. The statements will include information about monies paid into a service charge fund, or standing to the credit of the service charge fund, as well as costs incurred by the landlord. Statements will have to be certified by a qualified accountant, except where exempted by regulation (this is similar to the existing requirement to have summaries certified, except where they relate to a service charge paid by the tenants of four or fewer dwellings). Landlords will also have to provide leaseholders with a summary of their rights and obligations in relation to service charges.

249.     The form and content of statements, accountants' certificates and summaries of rights and obligations will be prescribed by regulation. Different provision could be made for different cases - for example, special provision could be made for landlords of smaller properties. The regulations will be subject to annulment by either House.

250.     Statements of account will have to be provided no later than six months after the end of an accounting period. The first accounting period will begin on the day on which the new clause 149 came into force or, if later, on the first day on which service charges become payable by a tenant under a lease of any of the dwellings. The landlord will choose the last day of the accounting period, subject to the requirement that no accounting period should be more than 12 months long. Subsequent accounting periods will be consecutive.

251.     This clause also introduces a new section 21A. This will allow tenants to withhold payments where landlords fail to provide documents which exactly or substantially meet the relevant requirements. The sum that they will be able to withhold will be equal to the sum standing to their credit at the beginning of the accounting period in question, plus any charges that they had paid during that particular accounting period. However, the right to withhold will not apply where a Leasehold Valuation Tribunal determines that the landlord has a reasonable excuse for his failure. The right to withhold ceases once satisfactory documents are provided, even if these are provided after the relevant deadline.

252.     In interpreting the new sections 21 and 21A, it should be noted that section 30 of the 1985 Act defines a "landlord" as including any person who has a right to enforce payment of a service charge.

Clause 150: Inspection etc. of documents

253.     Clause 150 substitutes a new section for section 22 of the 1985 Act (which allows tenants to inspect documentation which supports a summary of costs). The new section 22 will give tenants the right to inspect documentation relevant to their accounting statements within 21 days of their request. They will also be able to take copies of that information, or have copies provided to them, on payment of a reasonable fee. The right to inspect documents ends six months after they are provided with the corresponding statement of accounts or, if later, six months after the deadline for providing that statement.

Clause 151: Liability to pay service charges: jurisdiction

254.     Subsection (1) inserts new section 27A into the 1985 Act. Subsection (1) of the new section provides that landlords or tenants may apply to a LVT for a determination as to whether service charges are payable and, if they are payable, by whom they are payable, to whom they are payable, the amount which is payable, the date they are payable and the manner in which they are payable. Subsection (2) enables landlords or tenants to apply for such a determination before relevant costs are incurred.

255.     Subsection (3) provides that an application cannot be made to a tribunal under this section if the matter in question has been agreed or admitted, if it has already been determined elsewhere, or if it is subject to a 'post-dispute arbitration agreement' (see below). Subsection (4) makes clear that a matter has not been agreed or admitted for these purposes by virtue of a person having paid all or part of the sum in question.

256.     These provisions replace and extend the existing provisions under section 19(2A) to (3) of the 1985 Act (which enable LVTs to determine the reasonableness of service charges) which are repealed by Schedule 14. Subsection (5) now provides that arbitration agreements are void unless arbitration is agreed to after a particular dispute has arisen. Previously LVTs were unable to hear disputes where leases contained a clause requiring the use of arbitration. Subsection (6) provides that this new jurisdiction for LVTs is in addition to any existing jurisdiction of the courts.

257.     Subsections (2) and (3) of this clause define 'post-dispute arbitration agreement' for the purposes of the 1985 Act.

Clause 152: Service charge contributions to be held in separate account

258.     Clause 152 amends the 1987 Act. It introduces a new section 42A which will require payees to hold service charge funds from separate groups of service charge payer in separate accounts. Payees are defined in section 42 of the 1987 Act as "the landlord or other person to whom any such charges are payable under the terms of their leases". Certain classes of landlord are exempt from section 42 - these exemptions also apply to new section 42A.

259.     The new section 42A will also require payees to notify the relevant financial institution, in writing, that sums standing to the credit of a trust fund are to be (or are) held in it. Regulations under section 42A(2) and 42A(10) will prescribe the type of account in which service charge funds can be kept (for example, this might include an interest-bearing account) and the sort of financial institution that can be used (for example, these might include recognised banks and building societies). The regulations will be subject to annulment by either House.

260.     Tenants will have the right to ask for proof that the relevant requirements have been complied with. Payees will have 21 days in which to provide such proof. In addition, tenants will be able to withhold service charges where they have reasonable grounds for believing that section 42A has not been complied with.

261.     Clause 152 also inserts a new section 42B into the 1987 Act. This makes it an offence for any person to fail to comply with section 42A without reasonable excuse. On conviction, they would be liable to a fine not exceeding level 4 on the standard scale (currently £2,500).

Clause 153:     Service charges: minor and consequential amendments

262.     Clause 153 gives effect to Schedule 10 to the Bill, which makes a number of minor, consequential amendments. The changes are described in detail in the notes on Schedule 10 below.

Clause 154:     Administration charges

263.     Clause 154 gives effect to Schedule 11. The changes are described in detail in the notes on Schedule 11 below.

264.     Manager appointed by leasehold valuation tribunal

Clause 155:     Third parties with management responsibilities

265.     Clause 155 corrects a defect in the appointment of a manager procedures under Part 2 of the 1987 Act. By virtue of the amendments made by this clause leaseholders will be able to apply to a leasehold valuation tribunal for the appointment of a new manager where a lease provides for management functions to be carried out by a third party manager rather than the landlord. At present, leaseholders with such leases do not have the same rights as other leaseholders to apply for a new manager where the existing one is failing to manage the building properly. The grounds for appointment are extended by this clause to cover acts or omissions by a third party manager as well as a landlord.

Clause 156:     Restriction of resident landlord exception

266.     Clause 156 restricts the current exemption from the provisions of Part 2 of the 1987 Act for resident landlords in converted houses. The exemption will not apply if at least half of the flats in the building are held on long leases which are not business tenancies under Part 2 of the Landlord and Tenant Act 1954.

Variation of leases

Clause 157: Grounds for application by party to lease

267.     Clause 157 extends and clarifies the grounds for applying for a variation of a lease under section 35 of the 1987 Act. New subsection (2)(b) of section 35 of the 1987 Act is intended to make it clear that a lease of a flat which does not require the building as a whole to be insured under a single policy does not make satisfactory provision for insurance. New subsection (2)(g) of that section provides a power to specify further grounds by regulations. New subsection (3A) of that section makes it clear that in considering whether a lease makes satisfactory provision for the recovery of expenditure incurred, the factors include whether the lease makes provision for interest or other charges in the event of late payment.

Clause 158: Transfer of jurisdiction of court to tribunal

268.     Clause 158 transfers jurisdiction for applications to vary leases under any of the grounds in Part 4 of the 1987 Act from county courts to leasehold valuation tribunals.

Ground rent

Clause 159: Requirement to notify long leaseholders that rent is due

269.     Clause 159 provides that a residential long leaseholder is not liable to pay rent unless the landlord has issued a notice in accordance with the requirements of this clause.

270.     Subsection (2) provides that the notice must specify the amount of the payment, the date on which the leaseholder is liable to pay it and (if different) the date on which it would have been payable under the terms of the lease. It also provides that it should contain such further information as may be prescribed (by regulations - subsection (9)).

271.     Subsection (3) provides that the date on which the payment is due must be at least 30 days and not more than 60 days after the day on which the notice is given, and not before the date it would have been due under the terms of the lease.

272.     Subsection (4) provides that where the due date under the notice is later that that specified in the lease, any provisions in the lease which enable the landlord to impose a charge or take other action for late or non-payment will not apply until after the due date in the notice.

273.     Subsection (5) provides that the notice must be in the form prescribed (by regulations - subsection (9)) and may be sent by post.

274.     Subsection (6) provides that a notice sent by post must be sent to the leaseholder at the dwelling in question unless the leaseholder has notified the landlord in writing that it should be sent to another address.

275.     Subsection (7) provides that rent does not include a service charge or an administration charge within the meaning of this Chapter.

276.     Subsection (8) provides that the requirements of this clause do not apply to a business tenancy or an agricultural tenancy.

Clauses 160 to 162: Forfeiture of leases of dwellings

277.     Clause 160 places restrictions on the service of notices under section 146(1) of the Law of Property Act 1925 in respect of breaches of covenants or conditions in a residential long lease. Subsection (1) prohibits the serving of a notice unless the provisions of subsection (2) are satisfied. These are:

    a)     that on an application to a LVT it has been finally determined that a breach has occurred;

    b)     the breach has been admitted;

    c)     a court in any proceedings, or arbitral tribunal in proceedings pursuant to a post dispute arbitration agreement, has finally determined that a breach has occurred.

278.     Subsection (3) provides that a notice cannot be served until 14 days after a final determination has been made under (i) or (iii) above.

279.     Subsection (4) provides that a landlord may apply to a LVT for a determination that a breach of covenant or condition has occurred but subsection (5) precludes this where the matter is to be referred to arbitration under a post dispute arbitration agreement (see clause 150(5)) or where the matter has already been determined by a court or arbitral tribunal pursuant to such an agreement.

280.     Clause 161 makes supplementary provisions to clause 160.

281.     Subsection (1) provides that certain agreements providing for determination of questions under a lease in a particular manner are void. Subsections (2) and (3) provide that where a decision is appealed against, the matter has finally been determined when the appeal or challenge has been decided and the period for making a further appeal has expired.

282.     Subsection (6) provides that section 146(7) of the Law of Property Act 1925 applies for the purposes of this clause. Subsection (7) provides that this clause does not apply to the service of a notice under section 146(1) of the 1925 Act for non payment of service or administration charges (covered by clause 162).

283.     Clause 162 amends section 81 of the Housing Act 1996 (which places restrictions on forfeiture for non-payment of service charges).

284.     Subsection (5) inserts new subsection (4A) which provides that restrictions on the exercise of a right of re-entry or forfeiture include the service of a notice under section 146(1) of the Law of Property Act 1925.

Clause 163: Application to Crown

285.     Clause 163 applies various provisions of the 1985 Act, 1987 Act, 1993 Act and the Housing Act 1996 relating to payment and holding of service charges, appointment of replacement managers, and variation of leases, to the Crown Estate, Duchies of Cornwall and Lancaster and Government departments. It also applies the new provisions on administration charges, ground rent and forfeiture of leases to those authorities. Tenants of those authorities will therefore be able to exercise or enjoy the benefit of the rights, and those authorities as landlord will be bound by the requirements contained in those provisions.

286.     Subsection (3) provides that the Crown authorities will not be subject to any criminal prosecution for a failure to comply with any of the provisions, but will be subject to a declaration of unlawful behaviour in the High Court. This is required because the Crown is unable to prosecute itself. Subsections (4) and (5) allow the Duchies of Cornwall and Lancaster to make any payments required of them under the provisions applied to it by this clause out of either revenue or capital funds.

Chapter 6: Leasehold Valuation Tribunals

287.     This Chapter consolidates and amends existing provisions relating to the jurisdiction and procedures of leasehold valuation tribunals. Consolidated provisions are repealed by Schedule 14.

Clause 164:     Leasehold Valuation Tribunals

288.     Clause 164 provides that a rent assessment committee constituted in accordance with Schedule 10 of the Rent Act 1977 shall carry out any functions conferred on a leasehold valuation tribunal under any legislative provisions, and that a committee performing such functions shall be known as a leasehold valuation tribunal.

Clause 165: Procedure

289.     Clause 165 gives effect to Schedule 12 which sets out procedures for LVTs. These are described in detail in the notes on Schedule 12 below.

Clause 166: Appeals

290.     Clause 166 provides for appeals against LVT decisions. Any party to proceedings before a LVT will be able to appeal to the Lands Tribunal. The existing requirement that the person must have appeared before the LVT is removed. But in all cases permission must be obtained from the LVT in the first instance or, if permission is refused, from the Lands Tribunal. Existing provisions which prohibit an appeal against a LVT decision to the High Court and prevent a LVT from appealing against a Lands Tribunal decision are retained.

Clause 167: Consequential amendments

291.     Clause 167 gives effect to Schedule 13 which makes a number of minor and consequential amendments as a result of this Chapter. Details of these changes are set out in the notes on Schedule 13 below.

Chapter 7: General

Clause 168: Wales

292.     Clause 168 has the effect of ensuring that any powers to make regulations inserted into the 1985 Act, the 1987 Act or the 1993 Act are exercisable by the National Assembly for Wales as they apply in Wales. (The existing powers to make regulations in those Acts are already exercised by the National Assembly for Wales by virtue of the National Assembly for Wales (Transfer of Functions) Order 1999.)

Clause 169: Orders and regulations

293.     Clause 169 provides that any orders or regulations made under Part 2 of this Bill may make different provisions for different circumstances. It further provides that regulations under Schedule 12 (procedure regulations for LVTs) may make different provisions for different areas. In England, orders or regulations will be made by statutory instrument subject to annulment by Parliament, except those made under paragraphs 9(3)(b) or 10(3)(b) of Schedule 12, (setting a fee for application to a LVT, or a limit for the award of costs by a LVT, exceeding £500) where a draft of the instrument must be laid before and approved by a resolution of each House of Parliament. A separate procedure for making statutory instruments applies for the National Assembly for Wales.


Schedule 1: Application for registration: Documents (clause 2)

294.     Clause 2 provides for the applicant for the registration of commonhold land to submit documents to the Registrar in support of the application and Schedule 1 sets out what those documents should be.

Schedule 2: Land which may not be commonhold land (clause 4)

295.     Paragraph 1 forbids the development of commonhold land at first floor level or above unless all the land below it and down to the ground is subject to the same application. This is to avoid the risk which attends 'flying freeholds' at the moment, particularly the problems of enforcing any covenants relating to access and support.

296.     Paragraph 2 relates to the development of agricultural land and paragraph 3 prevents commonhold land being created out of land which is held contingent on external events. In the first instance, land which is held subject to a grant under the Schools Sites Act 1841 reverts to the grantor when the land in question ceases to be used for a school, and in the second, the ownership of the land is contingent on some future event. For example, the land may be held by A until B reaches the age of 25, when it passes to B.

Schedule 3: Commonhold association (clause 33)

Memorandum and articles of association

297.     Paragraph 1 defines 'memorandum' and 'articles' for the purpose of the Schedule. Paragraph 2 requires regulations to be made providing for the form and content of the memorandum and articles of association of the commonhold association (M&As) and further requires that the M&As must comply with those regulations. Paragraph 3 provides for the alteration of the M&As and paragraph 4 provides for the disapplication of parts of the Companies Act 1985 relating to the M&As. Paragraph 5 provides for the membership of the company prior to the coming into effect of the commonhold and paragraph 6 provides for membership during the period of transition, if there should be one. Paragraph 7 defines who should be entitled to be entered into the register of members. Paragraph 8 defines how joint unit-holders will be entered onto the company register. Paragraph 9 specifies that a commonhold association may not be a member of itself. This covers the position where an association owns a unit, and in effect prevents the association from using the votes associated with the unit. Paragraph 10 provides that no one may be a member of an association on any terms other than those in the Schedule; in effect, this means unit-holders or, in the early days, company subscribers. Paragraph 11 provides that membership of the commonhold association begins only with registration in the company register and paragraph 12 provides for termination of association membership on ceasing to be a unit-holder or joint unit-holder. Paragraph 13 makes provisions in relation to the register of members and paragraph 14 makes certain provisions in relation to the Companies Act.

Schedule 4: Development rights (clause 57)

298.     Schedule 4 sets out the various activities which are to be considered as development business for the purposes of clause 57. These are set out under four headings; Works, Marketing, Variation and Commonhold Association (in this later case, specifically, the appointment and removal of directors of the commonhold association).

Schedule 6: Premises excluded from right to manage (clause 70)

299.     Paragraph 1 excludes premises where more than 25% of the internal floor area is in non-residential use. This mirrors the exclusion from the right to collectively enfranchise.

300.     Paragraph 2 excludes premises which contain separate self-contained parts where the freehold of those parts is owned by different persons.

301.     Paragraph 3 excludes converted premises which consist of no more than four units where either the landlord or an adult member of the landlord's family occupies one of those units as their only or principal residence.

302.     Paragraph 4 excludes premises where a local housing authority is the immediate landlord of any of the qualifying tenants.

303.     Paragraph 5 excludes premises where the right to manage has already been acquired and continues to be exercisable. Where a RTM company ceases to be responsible for the management of the premises, it will not be possible for any party to acquire the right for those premises within four years of that event except with the agreement of a leasehold valuation tribunal. (This bar does not apply, however, if the right to manage has ceased for the property as a result of a RTM company being used to acquire the freehold.)

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Prepared: 20 November 2001