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Lord Bach: I would not agree with the way in which the noble Lord puts that question. There may well be some conversions, particularly where there are a small number of leaseholders. But the Government believe, as I think I made clear in what I said in discussing the amendments, that the future for commonhold will be more in new developments than it is in converting existing leaseholds. I have to make that clear so that there is no misunderstanding about it. It is certainly not to preclude it from happening where it does.

Lord Williams of Elvel: I am grateful to my noble friend the Minister for his extended reply. I have only two or three comments. First, I invite my noble friend in future discussions in the Committee not to go into too much detail on the drafting of amendments. We are not parliamentary draftsmen. If he could cut down that section on his brief which refers to the drafting, I am sure the Committee would be grateful.

Secondly, the Minister made clear that the object of the exercise is for new builds. He made it clear that he expected limited, if any, conversions. I would expect no conversions on existing properties. If that is the Government's intention, why do they not say so in the Bill, rather than wrapping it up with the idea of having to have the consent of this, that and other. Why not simply say that this is for new builds? We would then be much clearer. My noble friend had an uncharacteristic failure of logic. He said that it is question of new builds but that he was responding to questions of old builds and existing properties. That seemed to be an odd stance for my noble friend to take.

It has been a good debate. Together with other Members of the Committee, I shall have to study my noble friend's response rather carefully. In response to

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the noble Lord, Lord Goodhart, and to my noble friend, I do not see a particular problem about leaseholders who have not joined in commonhold being leaseholders under commonhold. Nevertheless, we will leave that aside for a moment and we will all have to look at this carefully before Report stage. I am not entirely convinced by my noble friend's argument; nor are my advisers likely to be. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 2 not moved.]

Lord Goodhart moved Amendment No. 3:

    Page 2, line 19, leave out paragraph (b).

On Question, amendment agreed to.

[Amendments Nos. 4 to 12 not moved.]

Clause 3, as amended, agreed to.

Lord Goodhart moved Amendment No. 13:

    After Clause 3, insert the following new clause--

(" .--(1) Commonhold land may consist of, or include, a building, or part of a building, which is above or below other land.
(2) Where subsection (1) applies, a positive covenant relating to the commonhold or the other land entered into between the commonhold association and the registered proprietor of an estate in the whole or part of the other land shall be enforceable by and against their successors in title if the covenant so provides.").

The noble Lord said: In moving Amendment No. 13, I ask the leave of the Committee to speak also to Amendment No. 14. With these two amendments, I have grouped Amendments Nos. 196 and 220, which are from a later part of the Bill and cover more or less the same subject. They relate to the question of the flying freehold.

Having been somewhat sceptical on the subject of anything less than 100 per cent agreement for conversion to commonhold, I am happy that on this occasion I am proposing a group of amendments which should facilitate the conversion or development of properties as commonhold. Briefly, a flying freehold is a part of a building in freehold ownership that is above another part of the same building in different freehold ownership. Flying freeholds exist but are notoriously unsatisfactory, particularly because of the inability of one freeholder to enforce positive covenants against another.

To some extent, albeit limited, the role of positive covenants can be replaced by easements. Flying freeholds can offer the benefit of a right of support--an easement of support--from the freehold underneath them. In this way, the lower freeholder cannot knock down the walls and leave the upper part of the building to float in the air. Unfortunately, however, there is no corresponding easement of shelter which would entitle the owner of the lower part of the property to insist that the owner of the upper part maintains the roof and stops the water dripping through.

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At present, it is not possible to use the powers of collective enfranchisement to create flying freeholds, because you can enfranchise part of a building only if it is a self-contained, vertical part thereof, as provided by Section 3 of the Leasehold Reform Act 1993. It is intended that it should not be possible to have a flying commonhold because of paragraph 1 of Schedule 2.

Perhaps rather curiously, however, it seems possible to have a commonhold situated below someone else's flying freehold. Provided the problem of positive covenants can be overcome, I can see no reason why there should not be a flying commonhold of a self-contained part of a building. For example, in a new development such as a block of flats with shops at street level and a separate entrance for flats, so that no common parts are shared between shops and flats, it should be possible to have the flats forming part of the commonhold. There could, of course, be a mixed commonhold to include both the shops and the flats but that is likely to be difficult to run and to lead to continuous tensions between the shop units and the residential units. It seems to me, therefore, that it is a better solution to have a commonhold for the flats and a separate freehold ownership for the shops.

The same principle applies to the collective enfranchisement and that is why I have tabled Amendments Nos. 196 and 220, which are intended to give a right of collective enfranchisement to what could be called a flying freehold. Why does the building have to be vertically divided into separate parts in order to enfranchise that part? Collective enfranchisement and commonhold are closely linked, because, as we have already discussed, in existing properties collective enfranchisement is almost certainly going to be a necessary prelude to conversion to commonhold. However, I accept that those two must operate in tandem.

The key feature in ensuring that you can have a flying commonhold or flying collective enfranchised property is to ensure enforceability between the upper and lower owners of the kind of positive covenants for repairs and maintenance that are normally contained in leases. Amendment No. 13 provides for the enforceability of covenants that are entered into by agreement. That can apply in a number of circumstances. New build developers may want to sell the flats as commonhold but to retain the commercial premises or sell them on separately.

Amendment No. 14 removes from Schedule 2 the legal prohibition on flying commonholds. Amendment No. 196 allows collective enfranchisement on the basis of acquiring a flying freehold, and Amendment No. 220 adopts a different and perhaps better solution to the problem of covenants by allowing positive covenants to be prescribed by regulation and then made enforceable between the parties.

I believe there is no great difficulty in prescribing standard forms of covenant as between the upper and lower parts of the property. Something very like it, for example, is set out in Part IV of Schedule 9 to the 1993 Act. I believe that this is a useful, though perhaps not

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central, addition to the ways in which it will be possible to create commonholds. As I have already made clear, we strongly support that objective. I beg to move.

Baroness Gardner of Parkes: As my Amendment No. 15 is grouped with the amendments tabled by the noble Lord, Lord Goodhart, I shall speak briefly to it now. I presume that it is in this group because I, too, support the idea of flying freeholds, or commonholds, above other property. While I agree with many of the points made by the noble Lord, Lord Goodhart, in particular his comment about enforcing the positive covenants, there seems to be a failure to understand the way commonhold works in Australia.

The commonhold title of a building which has, say, shops, commercial premises, a restaurant on the ground floor and residential commonhold above would have two separate management companies. The noble Lord, Lord Goodhart, said how difficult that would be to manage but the residents would not be managing the commercial element, and the commercial element would not be managing the residential element. Indeed, it would be very unfair to the residents to burden them with the management of the commercial element where there were very high costs of fire insurance, particularly if there is a restaurant or premises of that type. It could be quite beyond the means of the residents, particularly if the moment came when the shop or restaurant was producing an unfavourable rent.

The way in which this system operates is that the strata title holders, the bodies corporate, own and manage the residential unit and the commercial element manages the other unit. There is an overall joint management company which controls both the commercial and the residential side of it. Each group accounts separately and then jointly to the strata title, that being the equivalent of commonhold. That system would work well.

There are other situations where the shop at the bottom may remain freehold. It may be leasehold or just let, or it may be the commonhold to which I have just referred. But that is a way of giving the people in the residential element every right to their commonhold, irrespective of the property below them. For that reason, I support the idea of a flying freehold which is covered by Amendment No. 15.

4.45 p.m.

Lord Selsdon: At Second Reading I raised the problem that, as the 1993 Act currently applies, it is possible to end up with a house that is not a house--because it includes part of another building--and a flat which is not a flat. These amendments help to solve that problem. We should remember that sometimes in inner cities there are groups of dwellings that in the past may have been individual houses in the ownership of grand noble Lords but have been converted laterally. In some lateral conversions it is not possible to have all from heaven above to hell beneath, and therefore I support these amendments. This is an anomaly which can be corrected very simply.

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