Commonhold and Leasehold Reform Bill [Lords]

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Mr. Wills: As the hon. Gentleman will be aware, the amendment would introduce into commonholding a form of fundholding that was developed for leasehold funds by section 42 of the Landlord and Tenant Act 1987. The purpose of section 42 was to establish the rule that funds for future works held by the landlord or his agent should be held in trust for the lessees. That was introduced to improve and standardise the manner in which service charges and sinking funds were managed while they remained in the hands of the landlord. The statutory trust fund for leasehold service charges in section 42 has two clear benefits. Money paid by tenants to the payee of the fine in subsection 42(1) will be safe from creditors in the event of the payee's bankruptcy or liquidation. That is especially important because, in the majority of cases, the payee will be the landlord. It is evident that any wrongdoing or mismanagement of funds by him or her should not result in financial hardship to tenants. Secondly, section 42 ensures that the payee is subject to the duties of trustees and will therefore be liable for breach of trust if the money is misappropriated and not adequately safeguarded or invested. The trust set-up also enables the tracing of service charge funds under the arrangements for trust funds.

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Such considerations do not apply within commonhold. The commonhold association is a company whose members are those who paid the money into the funds. They appoint and dismiss the directors of the company; they approve the objects of expenditure and the setting of budgets, and have absolute control over all aspects of the company under company law. The directors who act on their behalf are bound by their fiduciary duty to act honestly and bona fide in the interests of the company and are also subject to the sanctions available under both the Companies Acts and the general criminal law. They must produce accounts and answer for their contents. Commonhold association funds are funds of the company, not of the directors. Clearly, the purposes for which section 42 was included in the 1987 Act do not apply in commonhold. It is not necessary for the directors of the commonhold association to be placed under trustee duties in relation to reserve fund moneys. I hope that my explanation will reassure the hon. Gentleman and that he will now withdraw the amendment.

Mr. Cash: I am not persuaded by the Minister's argument. That there happen to be distinguishing features between the provisions of the Law of Property Act 1925 to which the hon. Gentleman referred and the Bill does not alter the fact that there could be breaches of trust, malfeasance and breaches by virtue of default. It seems extraordinary that there is resistance to requiring arrangements that would effectively protect the very people whom we are seeking to protect.

I refer the Committee to the commonhold community statement. For example, article 48 provides for indemnities and states:

    ''Without prejudice to any other remedy to which the Commonhold Association or any other Unit-holder may be entitled, any Unit-holder who is in breach of any provision of the Articles or the Rules or any statutory requirement (the 'defaulter') shall indemnify and hold harmless the Commonhold Association and any other Unit-holder against any costs arising from such breach, including, if appropriate, the costs of remedying the breach''.

Each time we consider whether there may be default or a disturbance in the relationship between the parties, we are driven back to the common form that provides, in theory, for such eventualities. In that particular, instance, it would be far more appropriate for proper provision to be made to protect the interests of those involved under the terms that I have described in my amendment. It is clear that the Minister is not interested in adopting such proposals. I believe that his answer was somewhat misconceived. However, if necessary, I am sure that we can consider such matters at another stage in our proceedings. I shall not press the amendment to a Division, but the hon. Gentleman's argument was not adequate and I reserve my position until we discuss the Bill on Report. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 38 ordered to stand part of the Bill.

Clauses 39 to 41 ordered to stand part of the Bill.

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Clause 42

Winding-up resolution

Sue Doughty (Guildford): I beg to move amendment No. 6, in page 21, line 9, at end insert

    'in person, by secret ballot'.

This is a small amendment. It would be desirable for voting on this important matter to take place in secret so that people were not left open to all sorts of pressure, which would be wrong.

5.45 pm

Mr. Wills: I cannot be quite as brief as the hon. Lady. She raised an important point, but we shall resist the amendment because insisting that a vote on a winding-up resolution be cast in person would exclude the possibility of proxy and postal voting.

What reasons might outweigh the right of a member of the commonhold association to vote on a matter of such importance? What principles should override that right? Such a vote will be one of the most important in the life of a commonhold association, although it is to be hoped that the vast majority will exist quite happily without ever having to consider one. Why should a member who is unable to attend not be entitled to a proxy vote if they have sufficient faith in a friend or neighbour to listen to the arguments and vote accordingly? They should not be disenfranchised or, where they do not have a trusted friend, deprived of a postal vote.

Having said that, the voting process is a matter for the memorandum and articles of association, which already contain items on voting regulations. Provision is not currently made for specific ballots, but I am happy to reassure the hon. Lady that we shall consider how to deal with the issue and include it in our next round of consultation because we recognise its importance. I hope, therefore, that she can accept that reassurance and withdraw the amendment.

Sue Doughty: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 42 ordered to stand part of the Bill.

Mr. Graham Stringer (Lord Commissioner to the Treasury): On a point of order, Mr. Hurst. For the sake of your voice and in the interests of the Committee, may I suggest that we take schedule 4 and the 23 clauses up to clause 66 together, if there is no objection?

The Chairman: Subject to the Committee's agreement, I intend to take all the provisions up to clause 58 together and to take those thereafter individually because there will be amendments.

Clauses 43 to 57 ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 58 ordered to stand part of the Bill.

Clause 59

Compulsory purchase

Amendment made: No. 18, in page 28, line 19, leave out subsection (3) and insert-

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    '(3) The requirement of consent under section [Part-unit:interests](2)(c) shall not apply to transfer to a compulsory purchaser.'.-[Mr. Wills.]

Clause 59, as amended, ordered to stand part of the Bill.

Clauses 60 to 66 ordered to stand part of the Bill.

Schedule 5

Commonhold: consequential amendments

Mr. Wills: I beg to move amendment No. 21, in page 96, leave out lines 27 to 32.

The Chairman: With this it will be convenient to take Government new clause 4-Advice.

Mr. Wills: An explanation of the history behind new clause 4 and amendment No. 21 might be in order, so I hope that hon. Members will bear with me.

On Report in another place on 10 April 2001, the Government amended schedule 5, which now contains those amendments. Changes were made to section 94 of the Housing Act 1996, which, before those amendments, provided for the Secretary of State to give financial assistance for any person for the provision of legal advice about landlord and tenant law in relation to residential tenancies.

That led to the recreation on a new and permanent basis of the Leasehold Advisory Service, which began life in January 1994. It was funded partly by the Government and partly by the private sector. Its remit, which has been extended over the years, covers not only enfranchisement issues but aspects of the law on landlords and tenants as it relates to residential tenancies more generally. The officers of the organisation have been most helpful in the preparation of the Bill over a long period. We were told that the service was approached for advice about commonhold, despite its being at an early stage.

It was always our intention to provide independent advice on commonhold.

Gareth Thomas (Clwyd, West): Before we move away from part 1 of the Bill, which my hon. Friend will agree has been dealt with speedily, I have a point to which he could respond. If a sunset clause is not to be introduced in relation to leasehold for new developments, does he agree that the need for advice will be somewhat limited? He might want to reflect on the fact that there was considerable disquiet on Second Reading, not only about unanimity. I understand much about the Government's position and that they have a rooted objection to concessions to it, although I welcome the suggestion of a concession on cautions this morning.

If commonhold is to be the standard form of tenure for new developments, many of my hon. Friends will feel the need for a sunset clause so that commonhold effectively displaces leasehold. I am sure that others will agree.

Mr. Wills: I recognise the strength of feeling, which was made very evident on Second Reading and I heard the response to the remarks of my hon. Friend just now. I can only undertake at this stage to consider the matter and to return to it at a later stage if we can.

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We were going back into the history of the amendments and the new clause. The organisation, LEASE, has been very helpful. We were told that at a relatively early stage it was being asked for advice about commonhold. It was always our intention to provide independent advice on commonhold, and there seemed to us to be no advantage in reinventing the wheel when there was an organisation working as well as this one does. New subsection (1)(c) was therefore added to section 94. The new subsection enabled the Secretary of State to give financial assistance to any person in relation to the provision by that person of general advice about any aspect of the law of commonhold relating to residential matters. In the light of the interest that the organisation had already received from the public about commonhold, the ''person'' to whom such financial assistance was to be given was that body. The effect of the subsection is to extend its remit.

The whole of the Housing Act 1996 is devolved. That means that the National Assembly for Wales provides funding for advice in Wales. When we made the amendment in another place we had thought that because commonhold, as an addition to land law, is not a devolved matter, the Lord Chancellor, via the Secretary of State, would be able to make payments to the organisation in England and Wales. However, by using a devolved Act as a vehicle for the financial assistance, we have arrived at a situation in which the Secretary of State would not be able to make payments to anyone for the provision of commonhold advice in Wales. Without the amendment, funding of the commonhold advice in Wales will become a matter for the National Assembly for Wales. The problem with that is, as I have mentioned, that land law, as distinct from housing law, is not devolved and the Assembly would have no locus for involvement in the funding of general advice on commonhold law. Regrettably, under the present provisions, it is doubtful that any funding from anyone would be able to be provided for advice in Wales-at least, not without considerable additional administrative difficulty. That was certainly not our intention when attempting to provide reliable advice to the public on the law relating to commonhold.

To correct that anomaly, the Government have tabled the amendment to delete paragraph 9 of schedule 5 and, in its place, to make a provision in the body of the Bill that would give to the Lord Chancellor in respect of commonhold law the powers given to the Secretary of State by section 94 of the 1996 Act. On that basis, I commend the amendment.

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