Commonhold and Leasehold

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Mr. Cash: It does not sound to me as though the Minister is in any way likely to give way on the matter. She has made that clear and the Bill has been through many stages in the other place as well. We are up against it and we have no alternative but to divide the Committee. The Liberal Democrats may wish to say something about that, but I will leave that to them.

The Chairman: Are you seeking leave of the Committee to withdraw the amendment?

Mr. Cash: No, certainly not; I wish to divide the Committee, but I am waiting to see whether the hon. Member for Torbay wants to say anything.

Mr. Sanders indicated dissent.

The Chairman: In that case, I will put the question.

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 12.

Division No. 1]

Cash, Mr. William Doughty, Sue Lewis, Dr. Julian Sanders, Mr. Adrian
Selous, Andrew Taylor, Mr. John Wiggin, Mr. Bill

Crausby, Mr. David Hendrick, Mr. Mark Hepburn, Mr. Stephen Iddon, Dr. Brian Keeble, Ms Sally McIsaac, Shona
Marsden, Mr. Gordon Moffat, Laura Stringer, Mr. Graham Thomas, Gareth Woolas, Mr. Phil Wright, David

Column Number: 70

Question accordingly negatived.

Clause 69 ordered to stand part of the Bill.

Clause 70 ordered to stand part of the Bill.

Schedule 6 agreed to.

Clause 71

Miscellaneous enactments

Mr. Cash: I beg to move amendment No. 48, in page 34, line 7, at end insert—

    '(2A) The sum to which each member of an RTM company undertakes to contribute to the company's assets if it should be wound up whilst he is a member, or within one year after he ceases to be a member, for payment of the company's debts and liabilities contracted before he ceased to be a member, and of the costs, charges and expenses of winding up and for the adjustment of the rights of the contributories among themselves shall be the minimum sum, as defined in subsection (2B) below.

    (2B) The minimum sum mentioned in subsection (2)(A) above shall be the following amount, namely the greater of—

    (a) the total service charge and rent payable by tenants in respect of the premises in the two years prior to the acquisition date, or

    (b) twice the average service charge and rent payable in respect of the premises in the five years prior to the acquisition date,

    in each case divided by the number of members of the RTM company.'.

Again, this matter was extensively discussed in the other place. It is important for the Committee to realise that an RTM company is a small business. Its business is the management of a block of flats. It is impossible for any business to run without adequate working capital. Let us imagine that some developers or builders are engaged to do some building work and, as often happens, the work turns out to be greater than was originally thought and the costs overrun the estimate. We are all familiar with that scenario. Personally, I have never come across an original estimate for a building contract that has not been totally inconsistent with the final bill.

Where will the RTM company get the money from to pay the excess amount? It will only have raised the money to pay the original sum by way of service charges. That is an important point, which I am sure the Committee will appreciate. Money cannot be raised from service charges at the drop of a hat. It is probably impossible and certainly unlikely that a bank would lend money, because the RTM company would have nothing to offer by way of security. We propose that RTM companies should have some share capital.

In the other place, the Minister, Lord Whitty, said:

    ''I appreciate that the leaseholders company which takes over the management of the property needs to have access to funds''.

The Government accepted in principle that RTM companies needed to have money. We seemed to be making some progress. However, nothing was done about the issue. Lord Whitty went on to say that acquiring share capital from the start

    ''would price a lot of leaseholders out from the start and create far too great a threshold for them to pass through into the right-to-manage company.''—[Official Report, House of Lords, 27 February 2001; Vol. 622, c. CWH125.]

Column Number: 71

We are not convinced by that, but I will wait to hear what the Minister has to say. That is the answer that we received in the other place, but it is not a proper one. If an RTM company needs money to operate, it needs it. Going through the motions and saying that such arrangements are difficult for the tenants is simply not good enough. The RTM companies run a great risk of failure unless they have adequate working capital.

Our proposal was meant to keep RTM companies as companies limited by guarantee, but with a substantial guarantee to be given by the tenants. Under the Bill, each member of an RTM company would have to contribute £1 to the company in the event of its being wound up. On that basis, the company would effectively be worthless. Under our proposals, the guarantee given by each tenant would be, in broad terms, the equivalent of two years' service charges.

The advantage of the proposal is that an RTM company would have some borrowing capacity from the start, so it would be able to obtain working capital from the bank, but the tenants would not have to part with the money at that time. I hope that the Minister will seriously consider the amendment.

Mr. Sanders: There is some merit in this amendment. It focuses on what could be a major problem for a group of tenants who formed a right-to-manage company. I am not sure whether it is the right solution, but I do not have an alternative proposal and I shall go along with the hon. Gentleman and treat it as the best that can be devised. The danger, as I mentioned before, concerns the barriers that already exist for people—particularly small groups—who combine to take responsibility for a company limited by guarantee. The amount of funds that they would need to gather would be an important consideration alongside their other responsibilities. I am reluctant to create further complications, but on the other hand, the hon. Gentleman has raised an important issue, which could set back some right-to-manage companies, particularly small ones, if they had financial difficulties.

Ms Keeble: Clearly, it would be important for right-to-manage companies to have ensured that they had made proper financial arrangements before embarking on work. We shall make it clear in guidance that they would have to have adequate funds before doing so. However, the need would depend on particular circumstances. Our objection to the amendment is that it would act simply as a barrier preventing a number of leaseholders from acquiring the right to manage.

The right to manage is an important provision, which should provide an effective remedy for a number of leaseholders who want a major role in running their property. We see it as a solution that people might find preferable to enfranchisement. A number of leaseholders are concerned about the management of their properties. Often, in the first instance, they want the right to manage. However, the amendment would necessitate individual members

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taking on a high minimum personal liability. The suggested formula would effectively price many leaseholders out of exercising the right to manage.

While I appreciate the good intentions behind the amendment—it is intended to ensure that the company has effective financial arrangements—the practical effect would be to make the right to manage inaccessible to the vast majority of leaseholders. That is contrary to our intentions. Where small leaseholders are concerned, an onerous burden would be the most unjustifiable barrier of all. The amendment would create an incentive for landlords to set the highest service charges possible. We cannot agree to the creation of such a glaring opportunity for landlords to undermine the right to manage. That said, I appreciate that leaseholders who take over the management of properties should have the necessary funds to be able to do the job properly. We agree and will strongly encourage them to do so in guidance; it is not a matter for the Bill.

Leaseholders already have to pay for the management of the property. They therefore exercise the right to manage knowing that they will have to meet that cost if they run it themselves. The additional requirement is an unnecessary and heavy burden. In many cases, the necessary funds will be available through the service charges and in the sinking funds. We are aware of at least one financial institution that is developing tailor-made packages to support resident management companies. On that basis, I ask that the amendment be withdrawn.

Mr. Cash: I am afraid that I find the Minister's arguments unconvincing. This is an important issue and we shall press the amendment to a Division. I look to the Liberal Democrats for support and to see whether they have anything to say about our amendment and the Minister's reply.

Mr. Sanders: I was grateful for the Minister's reply. She is right that this provision could cause a further complication. However, she did not deal with the more serious point of what happens if a small RTM company gets into financial difficulties. That point overrides her argument about difficulty. On that basis, we shall support the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 12.

Division No. 2]

Cash, Mr. William Doughty, Sue Lewis, Dr. Julian Sanders, Mr. Adrian
Selous, Andrew Taylor, Mr. John Wiggin, Mr. Bill

Crausby, Mr. David Hendrick, Mr. Mark Hepburn, Mr. Stephen Iddon, Dr. Brian Keeble, Ms Sally McIsaac, Shona
Marsden, Mr. Gordon Moffat, Laura Stringer, Mr. Graham Thomas, Gareth Woolas, Mr. Phil Wright, David

Question accordingly negatived.

Clause 71 ordered to stand part of the Bill.

Column Number: 73

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