Commonhold & Leasehold Reform Bill [Lords]

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Mr. Cash: I remind the Committee that, on Second Reading, Labour Members expressed serious reservations about the arrangements in the Bill with

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regard to unanimity. I cannot remember the views expressed by each individual, but many of them stated vehemently that the Bill, and especially the provisions on unanimity, should be subject to a more relaxed and flexible arrangement than the prescription of unanimity. I hasten to add that I do not know whether those who expressed that view are present, but I am sure that they will rise to speak if they disagree with me.

Paragraph 12 of the explanatory notes makes the matter abundantly clear, when it states:

    ''It will be possible to convert from leasehold to commonhold but only if certain criteria are met. Details will be contained in Regulations, but it will be necessary to obtain the consent to conversion of 100% of the existing leaseholders and /or other owners of what would become units in the commonhold.''

I have already made my point about the draft regulations, which were not made available until 7 pm last night, but the Minister was gracious enough to apologise for that.

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I recall raising the subject on Second Reading, and I think that I can say that the answer was rather hesitant. It was thought that the regulations had already been published, but I assured the Minister that, so far as I knew, they had not been—that indeed transpired to be the case. We then found that the regulations were made available only last night. The explanatory memorandum says that details will be contained in regulations, but it might have been helpful if the Committee had had more notice of what the regulations would contain, particularly as the criteria to be met are crucial to the conversion from leasehold to commonhold.

It will be observed, however, that many of the matters that we are dealing with today were debated no less than five times in the other place. They were dealt with on Second Reading, in Committee, in Grand Committee and on Report and then, because of the general election, they were revised. So it went on. Many of the matters that are to be discussed today have been extensively considered not only in the other place but by Ministers in that House.

On Second Reading, I alluded to the fact that Lord Irvine, the Lord Chancellor, had attempted to arrive at a solution on displacing the unanimity rules and that if agreement could be achieved, the Government would give it a fair wind. They would consult on it, and if an implicit desire were expressed to move to something less than unanimity, it could be achieved in Committee—or, in the other place. I do not know where the Minister stands on that question, but he has copious notes and he will doubtless deal with it in his reply.

As I said, the amendments moved in the other place were discussed on a number of occasions, but it seems to me that we should try another amendment, which is what we are debating now, that ties the provisions to the regulations. I hope that we might arrive at a point where the template would be the principle that unanimity should not apply but that it would be left

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to the Government to make arrangements in the regulations—hence our concern about the regulations being somewhat late. None the less, if it is possible for the principle to be conceded that unanimity is not in the interests of the public as a whole, I hope that the Minister will give us that assurance.

As I pointed out on Second Reading, this is not a minor question. It is has been estimated that as many as 4 million people will be affected by these arrangements. For instance, it seems highly unlikely that unanimity could be achieved in a block of flats in any part of the country. Many people would be involved, some of whom would be mortgagees, while others would have cautions or overriding interests. Questions could arise about disputes between neighbours. Dare one suggest that some people might even say they did not want a conversion just to be awkward? Such things do happen.

The questions that arise about the principle of displacing the unanimity rule are immensely important. I put the test as high as this: the Government have produced a Bill, which we support in principle, which has received enthusiastic support outside the House and which would affect a huge number of people. If the only obstacle is the fact that the Government are being obstinate or opaque and unprepared to displace the unanimity rule, and if, once enacted, the Bill collapsed for lack of take-up, would not that be a tragedy?

It might be argued that there would be new developments and that in that respect the unanimity rule would not be so important. However, a huge number of people who hold leases want to convert. The points that I have identified are critical. Under the Government's proposals, it would be possible to convert an existing block of flats into a commonhold only if everyone with an interest in the property consented. The stringency of that provision must be recognised. One lessee could veto a conversion—not only a lessee, as a mortgagee and a freeholder would also have a veto.

Dr. Julian Lewis (New Forest, East): I declare an interest as someone who lives in a leasehold flat and owns a lease on a leasehold flat that is let.

In addition to allowing landlords to prevent conversion if they own a lease in the block, will not the unanimity rule create an incentive for future landlords to retain such an interest in any block of flats where they own the freehold as an insurance, so that they can never be forced by the Bill to allow a conversion? Will not the numbers affected increase even above my hon. Friend's estimates?

Mr. Cash: Indeed. I know the Minister to be a reasonable man and I shall listen with interest to his answer, because it seems extraordinary that the Government should have taken such a restricted view. In the other place, the Government accepted that the veto would make a conversion of an existing block virtually impossible. The Government were alone in the other place in thinking that their approach was the best. I am not aware of their having had support from any other quarter, including law lords or other political parties.

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Judging from the Second Reading remarks of hon. Members who are absent but who one might have hoped would be on this Committee, the same applies to this House. It remains to be seen whether there is enough enthusiasm for the requirements of the Whip to ensure support for the Minister, if he proposes—I have not yet heard whether he does—to stand by the unanimity rule in all circumstances. I shall be fascinated to see whether the common sense of Labour Members, which I take for granted, can prevail against the unanimity rule. Peers from all parties, including those on the Government Benches, were united in their view that the 100 per cent. requirement was an unnecessary fetter on the availability of this new form of tenure. The provision is very important, so let us try to make it work. I appeal to the Minister to abandon the resolution so far shown by the Government and to show a degree of flexibility along the lines that I am about to suggest.

I was pleased to see that the same position as applied in the other place obtained in this House on Second Reading. The Opposition very much agreed with remarks made by Labour Members then. The object of the legislation is to provide a vibrant alternative to the current much-disliked leasehold system. However, to limit commonhold to new developments will be to stultify it. The effect would be to stymie the wishes of the many lessees who want to escape leasehold tenure. Such people should have the freedom to choose a modern, commonhold system for their homes without giving single individuals veto rights.

Why do the Government insist on unanimity? The most comprehensive explanation of the Government's thinking is in a long speech given by the Baroness Scotland of Asthal in Committee in the other place on 16 October 2001. The noble and learned Lady said:

    ''We recognise only too well that to obtain 100 per cent of the necessary consents will be difficult . . . However, we believe that the difficulties which would follow from the alternative of allowing conversion with a margin of non-participants of whatever size would far outweigh any conceivable advantages, and also that, given the content of Part 2 of the Bill, it is unnecessary.''—[Official Report, House of Lords, 16 October 2001; Vol. 617, c. 488.]

She refers to conceivable advantages. I have already said that in my judgment it is inconceivable that the Government should effectively be seeking to destroy their own Bill. The unanimity rule is a Trojan horse, which would prevent the Bill from being effective except in relation to new developments. I am not saying that that would apply in every case, but I have already shown how difficult it would be to get the consent of every single person.

Baroness Scotland went on to explain that commonhold would be attractive only to those who had not exercised the right to enfranchise. She pointed out that if some leaseholders refuse to become unit-holders in a commonhold, their leases would have to continue and that that would complicate the administration of a commonhold because there would be some common unit-holders and some continuing long leaseholders. The commonhold association would need to collect service charges from the continuing long leaseholders and would need to prepare accounts and demands in accordance

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with the obligations under the leases held by those leaseholders.

In a nutshell, the Government oppose a reduction in the unanimity requirement solely because it would entail a continuation of long leases in commonhold blocks of flats. That, say the Government, is a bad thing. The Opposition understand what the Government are saying. In an ideal world it would be nice if a commonhold block consisted solely of commonhold unit-holders, with no leaseholders at all. None the less, it seems to many Opposition Members that the Government are going too far in insisting on the matter being an insuperable hurdle to conversion.

Baroness Scotland referred to ''conceivable advantages''. We should consider the practical effect of allowing a minority of long leaseholders to refuse to participate in a conversion to commonhold. Those long leaseholders would continue to have their leases and the commonhold association would become their landlord. The commonhold association would demand service charges, calculated in the usual way. If the long lease came to an end, the commonhold association would have the reversion. That may be disadvantageous for the long leaseholder, but it would be the result of their choice not to participate in the conversion to commonhold.

Lady Scotland seemed to suggest that the commonhold association would have to draw up two sets of accounts to demand service charges from the remaining leaseholders. Frankly, I cannot understand that. The commonhold association would need to draw up a budget for works, which would form the basis of the service charge demands on both the unit-holders and the long leaseholders. There would be no need for separate accounts.

On the precise wording of amendment No. 23, numerous proposals were made in the other place in Committee and on Report and amendments were proposed with cross-party support—the Liberal Democrat Lord Goodhart tabled one. I am not sure what has happened to it—it seems to have disappeared. I made a conscious decision to produce a different wording on the basis of the consultation to which I alluded, in the hope that the Government would agree to come up with a solution to the problem. Lord Goodhart's amendment was extensively discussed in the other place, but was rejected and I thought that we should try to find another solution.

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In Committee and on Report the amendments, including Lord Goodhart's, enjoyed cross-party support. The Lord Chancellor said that such support would enable us to arrive at a solution, but the Government have said no. Any of the amendments would have found favour with the Opposition if the Government could have been persuaded to support them. Instead, they have made various technical objections. They have said that a detailed scheme would be required to allow leaseholders to co-exist with commonholders.

The amendments are intended to overcome those technical objections by giving the Government the

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power to make regulations. I am not generally in favour of giving extensive regulation-making powers to Ministers. However, the reason for so doing in this instance is to demonstrate our flexibility and to put the Government in a position in which they can no longer claim that it is too complicated for leases to continue alongside commonhold units. The Government can overcome any of the problems in the detail by drafting appropriate regulations. I invite them to consider the amendment as a viable alternative.

Amendment No. 23 begins with a reference to the Leasehold Reform, Housing and Urban Development Act 1993, which allows long leaseholders in a block of flats to enfranchise by creating a power to buy out the freeholder. The Bill amends those provisions to make it easier for leaseholders to do that. The amendment refers to the 1993 Act because converting to commonhold should, in our view, be a straight alternative to enfranchisement. If the conditions for enfranchisement are set out, the conditions for converting to commonhold should be too. That means that, in blocks let on long leases, the lessee will have a choice. The only major exception would be small blocks of four flats or less with a residential landlord. Such blocks would be excluded from both enfranchisement and conversion to commonhold unless the residential landlord consented.

The amendment proposes that the freeholder should be the subject of a compulsory buy-out. Regulations would provide for the calculation of the amount payable by way of compensation. There may be a few cases of a residential freeholder living in a block with more than four flats in it. In those cases, the freeholder could, by regulation, be given a choice between having all his interest bought out or being given a commonhold unit—his flat—with compensation for the value of his freehold. Amendment No. 23 proposes that a conversion could not be vetoed by less than a quarter of the leaseholders. Regulations will provide for the future modus vivendi between the refusenik lessees and the commonhold association. Equally, mortgagees and other charge holders will have a veto only if more than a quarter object.

That is the essence of the argument, so the amendment would help the Government. The regulations have been made public in only the past 12 hours or so, and much depends on careful consideration of such matters. We have the rest of our proceedings in Committee to go through and then the near certainty of a Report stage, so I adopt an open-door policy. It is frightfully important that the Government remember that many of the arguments involve technical questions on which there could be debate. There could be a contest between lawyers as to what way would be best in each case.

The amendment is on a matter of principle and whether we can make the Bill work. We want it to work and we want the help of Government to make it do so. I cannot be clearer than that. The Liberal Democrats want it to work, as do some Government Back Benchers in Committee. On the Floor of the

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House, other Labour Members made it clear that they would be glad to make it work. My question is asked in the most reasonable fashion. The amendment is by far the most important that we have tabled. We are trying to create opportunities for the Government, not difficulties, which is a fair way to approach the matter.

We are not making a great hoo-hah about the regulations, although we may want to return to them later. I urge the Minister to take what I have said on board in the constructive spirit in which it was given. As I said on Second Reading, amending the Bill would be in the national interest. He should remove the block on its capacity to be as successful as we would all like.

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