Commonhold & Leasehold Reform Bill [Lords]

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Mr. Sanders: I rise to support the amendment moved by the hon. Member for Stone (Mr. Cash) and our amendments on the same subject. I declare an interest, as I own a leasehold in my constituency. I agree that this group of amendments is the most important that we are likely to debate. It is ironic that Conservative and Liberal Democrat Members are trying to make a Bill work in the way that the Government intend, given how they have publicised and proposed it.

The clause is about ensuring that all those with a legitimate interest in the land that is proposed to be registered as commonhold consent to the change of status. The key word is consent. We all work for consensus, even in a Committee such as this. We do not expect it to be 100 per cent. and we expect compromise, but there will ultimately be a vote to separate a majority and minority. Consensus cannot always be reached, but we seek it. It cannot be imposed without denying someone a right, which is what is wrong with the Bill. The clause enshrines in law a right of veto by a minority of people who would deny the majority their conversion to commonhold.

The Bill requires that there must be consent from all lessees for conversion of a block from leasehold to commonhold. However, it is recognised that procurement of such consent is unlikely in the case of large blocks. The result will be the creation of a two-tier market. New blocks are likely to be sold off on a commonhold basis and existing blocks may remain leasehold for many years. The Government have offered various arguments as to why things should remain as they are and no doubt the Minister will repeat them. They have included the undesirability of a dual regime in which the obligations of some people are governed by their leases and of others by commonhold rules, and interference with existing rights if lease extensions are prevented.

The Government have also relied on the argument that, in the case of non-consenting lessees, other lessees could exercise the alternative right of collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 and extend their leases. It has been argued that that position is unsustainable. Clause 3(2)(f) provides that a court ought to be allowed to dispense with consent in cases to be prescribed. It has been suggested that that provision is intended to apply when a lessee cannot be found. Whatever rules are made to deal with absent lessees can equally be applied to other non-consenting lessees.

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The refusal to allow conversion without unanimous agreement will, in addition to being liable to create a two-tier market, afford obstructive lessees the ability to exact ransom payments from their neighbours as the price of giving their consents to conversion. The hon. Member for Stone did not mention that a door would be opened whereby an unreasonable neighbour who was the last person withholding consent could extract a monetary payment from others.

The argument that a dual regime would follow conversion is not convincing. There would still be such a regime if the alternative were followed and there were collective enfranchisement. Participating lessees would hold a freehold and extend their leases, whereas non-participating lessees would continue to have the obligations contained in their original leases. Moreover, even if conversion without unanimous consents were not as good as conversion with them, why should conversion be prevented if the overwhelming majority desired it?

It will be impossible to change to commonhold other than in exceptional circumstances in which unanimity is obtained. Therefore, it is likely that only new developments will become commonhold. As believers in commonhold and supporters of the Government's desire to create it in law, we genuinely want it to work and be a success. The provisions seem the one aspect of the Bill in which the Government propose a good measure, but place a restriction on it that will make it unsuccessful.

If the Government want conversion as a result of the Bill, what assessment has the Minister done of the number of possible conversions? Will he give a percentage of existing properties or an actual number? If such an estimate can be made, I suspect that the number will be extraordinarily low unless the amendments are accepted.

We want commonhold on the statute book. We want it to work so that people have the choice to convert if they so wish. We do not want commonhold to die a death through lack of interest simply because the conversion rules are too difficult. We do not want people to use their consent to hold others to ransom. We want the Bill to be a success and it is bizarre that the Government should object to moves to achieve that.

11.15 am

Andrew Selous (South-West Bedfordshire): Is there not a parallel between our proposal and the Government's legislation on the conversion of mutual building societies to non-mutual status? They recently introduced the 75 per cent. rule, under which 75 per cent. of members must agree to convert from mutual to non-mutual status. They were happy to accept 75 per cent. in that context, so I support the proposals of my hon. Friend the Member for Stone on the Front Bench and of the Liberal Democrat spokesman, the hon. Member for Torbay (Mr. Sanders). Is 75 per cent. not the appropriate figure in this context, too?

Mr. Wills: Before I speak to the amendments, I remind the Committee of the declaration of interest in

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long leasehold commercial property that I made on Second Reading.

In various ways, the amendments all relate to the so-called 100 per cent. rule and I shall briefly remind the Committee of what they do. Amendment No. 1 would remove the requirement for all leaseholders with a substantial interest in the property to consent to the conversion of an existing leasehold. It paves the way for amendment No. 2, which would reduce to a bare majority the threshold for the leaseholder consents that were required to convert to commonhold. Those are important matters and I shall discuss at some length why we must, I am afraid, maintain the 100 per cent. requirement and disappoint all those who tabled amendments.

Amendment No. 22 paves the way for alterations to the 100 per cent. consent rule by making the consent requirements of clause 3(1) subject to proposed new subsections (2A) and (2B). Amendment No. 23 would supplant the regulations arising from the consent criteria in clause 3. It would replace them with regulations that would bite where the criteria for enfranchisement were met in a development to which they applied. It would also provide for the enfranchisement criteria to apply to conversions to commonhold.

The scheme in new clause 5 for overcoming the 100 per cent. rule refers to

    ''no less than 50 per cent. of the long leaseholders''

and would, therefore, allow conversion without a majority being in favour of it. It would provide for just 50 per cent. of existing long leaseholders to carry the other 50 per cent. into commonhold. I suspect that that is not what the Opposition intended, but it is certainly what the new clause does.

The new clause also gives any number of objectors above 10 per cent. of the total an effective veto by allowing them to take their objections to court. Even if their challenge was not successful, both sides would face the inevitable costs. The scheme poses the greatest potential difficulty in terms of the conversion process and future management. It is also far from clear how it would relate to amendment No. 23, which could also cover the conversion of existing buildings, but which applies different thresholds and procedures.

I will explain why we must resist all the amendments. In another place, much time was spent on a series of attempts to persuade the Government that the 100 per cent. rule would strangle commonhold at birth. Much of the debate was based on the erroneous assumption that the Government believed that it was impossible to devise a scheme to provide for conversion with a threshold of less than 100 per cent. agreement. Despite the fact that we have said on many occasions that that was not the case, we continue to be accused—the hon. Member for Stone has repeated the accusation this morning—of dogmatically holding to a line that is not feasible and does nothing but guarantee that our policy will not work.

The arguments will be familiar—the hon. Member for Stone has already rehearsed some of them. However, because they have not been heard with the care and attention that they merit, I shall go over them

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again. The Government do not argue now, nor ever have argued, that it would not be possible to devise a scheme to arrange for conversion with a threshold lower than 100 per cent. Our view has been the pragmatic but entirely principled one that—in the national interest, which we all want to pursue—we should protect people buying into commonhold from the possibility of being landed with a scheme that is both difficult to operate and, in the end, difficult to manage, in both cases unnecessarily so.

The amendments omit any consideration of how one might deal with different classes of people who would have to co-exist both during the conversion process and in the resultant scheme, which would not, whatever else it was, be commonhold, as it would exist in new builds or in 100 per cent. conversions. We have also argued, and will continue to do so, that that is not, as has been alleged, a fatal flaw in the Bill.

Part II of the Bill, as we have said on several occasions, allows for enfranchisement with a threshold below 100 per cent. and for the management of the resulting scheme. We heard much on Second Reading, and again today, about the comments of my noble and learned friend the Lord Chancellor in his Second Reading speech in another place on 5 July 2001, and the fact that he said that the Government would listen carefully to well-judged amendments to the 100 per cent. rule. His remarks were then, and have been consistently since, taken out of context and apparently misunderstood by the hon. Member for Stone this morning. I am about to help the hon. Gentleman, however, by reminding him of what the Lord Chancellor said. I shall add some stresses and emphases to help him, and I shall then be happy to give way if he still needs further assistance. My noble and learned Friend said:

    ''Let me stress that the Government are taking careful note of all the arguments put against the rule which requires the consent of 100 per cent of the prospective unit holders for conversion from leasehold to commonhold. We doubt that allowing long leaseholders to continue physically within, but legally at least semi-detached from, the commonhold arrangement would be a sensible way through. The only alternative, which would bring a non-consenting minority within the new arrangements, might be characterised as expropriation.

    However, if a well-judged amendment were put forward, for which there was substantial cross-party support, the Government would listen to the debate and consider it very carefully. That said, the position which the Government have hitherto maintained, and to which they still adhere unless persuaded to the contrary, is that, although there is undeniable merit in not allowing one person out of step with the proposed new regime to obstruct the entire commonhold arrangement agreed upon by the others, the sensitivities inherent in expropriating that one person may be an overriding consideration the other way. But the Government will listen.''—[Official Report, House of Lords, 5 July 2001; Vol. 626, c. 887.]

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