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Lord Lea of Crondall: My question is not really answered in that way. I am asking whether it is not within the scope of the commonhold association to agree restrictive covenants about various things that people can do. Is that right?
Lord Kingsland: Clause 17 imposes restrictions on a residential unit-holder's right to create a lease of his unit. According to the Explanatory Notes, the intention is that regulations made under Clause 17(1) set down that no premium should be payable for a lease, and that it should be at a rack rent, and also that the maximum period for a single term of lease should be restricted to seven years.
As Members of the Committee are well aware, criticism was made of this clause at Second Reading. The noble Lord, Lord Goodhart, and the noble Lord, Lord Richard, thought that some restriction would be appropriate but that the present proposals were too restrictive. My noble friend Lady Gardner of Parkes, as we have just heard, drawing on her own immense experience of strata titles in New South Wales, strongly and persuasively opposed any restriction as she has done today. The noble Baroness, Lady Hamwee, suggested that tight restrictions would hamper the reinvigoration of the rental market.
Since the principal intent behind the proposal for commonhold is to place unit-holders as nearly as possible into the same position as though they were outright freeholders-- that is, with as few restrictions as possible on their powers of disposition and alienation--the presumption should be against any restriction unless clearly justified. As far as I am aware, no such justification has been given; hence this clause should be omitted in its entirety.
If the concern is that problems may arise if some unit-holders are absentee landlords, those problems are more properly to be treated as problems of management to be dealt with in accordance with the CCS or the M&A rather than by regulation. However, in the case of a new development, the intending purchaser for a commonhold unit would know before he contracted to buy the unit just what restrictions on his powers of disposition and alienation are imposed by the CCS and/or the memorandum of association and will be able to take those into account when deciding whether or not to buy the unit and, if so, at what price.
In case of a conversion from leasehold, the question of whether or not there should be any such restrictions would have to be debated and agreed upon before an individual leaseholder decided whether or not to consent to the proposed application.
In any event, the proposed restrictions are far more restrictive than those imposed by, for example, Section 41 of the Settled Land Act 1925, where the basic maximum term for a lease by a tenant for life is
The Bill does not deal with the leasing powers of trustees of land, nor does it spell out the consequences of granting an invalid lease for an instant purchaser. If it be intended that such matters shall be dealt with by regulation to be made under Section 19, these are all matters of fundamental importance which should be debated and form part of the primary legislation and not left to delegated legislation.
Lord McIntosh of Haringey: I was going to wait until the disputes on the other side of the room had died down and hoped to pick up the pieces with the maximum disagreement of those who were proposing these amendments. I cannot quite do that, so let me remind Members of the Committee from the Explanatory Notes what we are doing in Clause 17.
Clause 17 places one of the few restrictions that the commonhold scheme requires on the ability of a unit-holder to treat his unit as though freehold. It is government policy that residential commonhold units should not be let for long, unbroken periods. The only purpose of that is that we should not be returning to long leaseholds by the back door. That is why Clause 17(1) provides that,
Amendment No. 28 seeks to bring some of those matters onto the face of the Bill by prescribing a period not exceeding seven years and eliminating the possibility of the payment of a premium or other lump sum. It is legitimate to bring matters onto the face of the Bill. After all, the whole of this part of the Bill contains matters that may or may not, or must or must not, be included in the memorandum and articles or the CCS. We believe that it is necessary to give statutory force to the CCS to ensure that commonhold is as close as is humanly possible to freehold and that we do not slip back to long leasehold.
As a member of the Delegated Powers and Deregulation Committee, the noble Lord, Lord Goodhart, has failed to recognise that that committee did not object to this degree of delegation to regulation. Although I was not privy to its debate, I hope and believe that it recognised that our intention here was to do only the absolute minimum to stop commonhold being frustrated and slipping back into the creation of long leasehold. We do not wish to interfere any more than is necessary with the use to which unit-holders put their units, but we want to ensure that long leasehold cannot be reintroduced.
The amendment would put on the face of the Bill the terms on which the Government intend to allow letting. I reiterate the need for flexibility, and I believe that this is a good example of that need. I acknowledge that our original intention was to impose very tight controls on the letting of residential units. It was impressed on us from a number of quarters that tight regulation would tend to make commonhold developments unpopular as buy to let would be next to impossible. We were told that a significant part of the market in flatted properties was buy to let. We have considered that advice and decided to take it. The amendment sets out the terms at which we have arrived on that advice.
This is a matter of reacting to the market. If in due course there is a change in circumstances and it is necessary to alter the regulations--perhaps there is a new attack on commonhold from those who wish to weaken it as a concept--we need to be able to react. That is why it is dealt with in regulation.
Baroness Hamwee: Before my noble friend responds, does the Minister really mean that in a system that he supports as being as close to freehold as possible, regulations to react to the market, not on a day-to-day but certainly on a fairly frequent basis, are appropriate?
Lord Goodhart: I am not sure that I should disclose what happened in the Delegated Powers and Deregulation Committee. Owing to the timescale the committee had very little time to consider this matter. I was deputed to have a look at it and make recommendations. I am afraid that in the time available I was unable to spot what I subsequently thought were all the possible points that might be made. So it is my fault.
On the substantive question, it seems that there is a fundamental difference, particularly between the noble Baroness, Lady Gardner, and myself, as to what commonhold is really for. The noble Baroness sees it as dividing up a block of flats into what are basically a number of completely separate freeholds, with unit holders having complete freedom to do pretty much what they like with them. I hope I speak for my noble friends as well as for myself, but we feel that it is much
Lord Goodhart: Yes. I agree it is not as restrictive as a co-operative. I am not suggesting that we should go the way of New York co-operatives, where all the members have to agree and where you can say that you do not want Bill Clinton coming in as a tenant because you do not like him.
If you have the freehold with power to create long leases, you will end up with a separation between the management and the people who are really interested in maintenance. For example, let us say that someone does let a unit off as a leasehold, for a premium, over a long period of time. It will be the landlord who will be the member of the commonhold association and it will be the landlord who decides what is to be done. However, if the lease has been granted at a relatively low rent and a substantial premium, the landlord or unit holder will have no particular interest in having the building properly looked after.
If this system is to work, unit holders must have a real interest in the building as a place in which to live. Perhaps they may not wish to live there immediately--I can quite imagine that some people may not wish to live there for some years; they may go abroad for some years--in which case they could let it on a tenancy, which could be renewed from time to time.
There is no reason why a seven-year tenancy could not be renewed and then renewed again. However, there seems to be a philosophical problem here. In a sense, as this debate has shown, what matters more than whether it goes into regulations or on the face of the Bill is that there should be restrictions which--while giving flexibility to enable people to derive an income from the building while they are not living there--will ensure that the tenants are not simply investors who let their units off for long periods, with no right of recovery, and who therefore have no interest in the building at all. I beg leave to withdraw the amendment.