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Lord Bach: We do not believe that Amendment No. 59 would add anything to the operation of Clause 37(1)(a). At present, that clause requires the directors to make an annual estimate of the income required to meet the expenses of the association. The new words

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which the amendment would add would require them to prepare an annual statement of projected expenses which the association might reasonably expect to incur. We believe that the added words are implicit in the clause as it stands, because without the projected expenditure, how could there possibly be an annual estimate of the income required to meet that expenditure? We need to be persuaded that the amendment, if carried, would add anything at all to the obvious meaning of the clause. I agree with the noble Baroness, Lady Gardner, that her amendment has nothing to do with the previous amendment, save that it comes in the same part of the Bill. I see the point at which the noble Baroness is driving, but I will do my best to convince her shortly that the job is already done. I invite her to look at Clause 37(1)(c) on page 16 at line 28 and onwards. Any new units in a commonhold must appear as amendments to the commonhold community statement.

The provision to which I have referred requires the CCS to specify the percentage allocated to each unit--and I emphasise those words, which are in the Bill. That will mean that, however many units there are from time to time, the allocation of the assessment must be made between all of them--always bearing in mind that it is possible to allocate 0 per cent if that is considered appropriate.

I hope that that meets the noble Baroness's point and satisfies--

The Earl of Caithness: Will the Minister give way on that point? This is crucial. He did say "any new unit" but what about a part of a unit? Like my noble friend Lady Gardner, I know a number of examples where parts of the building that were once common parts have been absorbed within a leasehold flat. They would now be absorbed within a commonhold unit, thus altering the useable square footage of that unit. Therefore the percentage of the cost payable should be allowed to be altered by any addition, whether it is a new unit or part of a new unit.

Lord Bach: I am grateful to the noble Earl. I am advised that what he suggests--taking over a part of what was common parts into a unit--could not be done without the commonhold community statement being altered. In other words, not even that can be done without the CCS being altered.

Baroness Gardner of Parkes: Despite what the Minister says, I have seen that such blocks exist. The landlord and head lessee have chosen not to allocate any costs whatever to the additional area and that has been very unfair to other people in the block. The view has been taken that if we already have 100 per cent we do not need any more. However, people should have the additional proportion taken into account. I am not entirely satisfied that the wording here will ensure that that happens.

Lord Selsdon: Perhaps I may try to help the noble Lord. This is a very complicated issue. Unfortunately, most of the service charges are based upon the old-fashioned rateable value. That often relates not to the

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size of a unit but more to the value at that particular time. It takes no account of how a particular unit within a building may have been improved dramatically and have a higher value.

There is a difficulty. If you have 10 units which contribute 100 per cent of the cost in accordance with their lease, you cannot vary their contribution without mutual agreement on every lease and it is practically impossible to achieve that. However, it was originally suggested that you just make it 104, 105 or 106 per cent, and add 6 per cent, or whatever it might be, on to each additional unit. If it were possible within the Bill to amend the historic service charges being related to rateable value, that would be a wonderful achievement--but I believe it would be nigh on impossible.

Lord Jacobs: I rise to support both amendments. I shall deal first with the Government's amendment. When we used to have rateable values, when you extended your home--and it could be an extra floor on an apartment building--someone would come along and re-rate you immediately. In other words, you had to pay a greater share of the rates because of your extension of area. There is no doubt that if in a block of flats a number of areas are either extended or taken into account, which were perhaps not used before, the share of the charges should be varied. I agree it is extremely difficult to vary them between a whole group of leases, but if this amendment enables that to be done I strongly support it.

I turn to the amendment tabled by the noble Lord, Lord Kingsland. I did not fully understand the Minister. The noble Lord said that, obviously, one prepared the estimated income required from the expenditure and that was all that was needed. As a tenant of a block of flats, when one receives the service charges one knows exactly what one is required to pay. One does not look at how the income is derived from all the tenants in the building but how the money is to be spent. If one is to examine what the directors or the management company have decided is necessary, one must look very carefully at the detailed elements of expenditure. Only in that way can one judge fairly whether the income that is required for the building is properly derived.

I agree with the Minister's statement that one cannot arrive at the income without having examined the expenditure, but the preparation of a detailed list of required expenditures which comprise the full amount of the required income is very desirable. Today, the occupiers of any modern managed block--I know several people who live in such property--receive very detailed statements every year, sometimes half-yearly, which show how the expenditures have been estimated and how they are being incurred. I strongly support the amendment.

Lord Bach: We are not persuaded by Amendment No. 59, and we believe that our reply to that is satisfactory. It is for the noble Lord to decide what to do with it.

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As to Amendment No. 60, there seems to be some feeling about it. I have tried to persuade the noble Baroness in a few words and failed, and she has not yet persuaded me that her amendment is appropriate. If the noble Baroness is good enough not to move her amendment we can perhaps arrange a meeting between Committee stage and Report to try to persuade each other of our points of view.

Baroness Gardner of Parkes: I am quite happy with that.

Lord Kingsland: The Minister said that it was for me to decide what to do with my amendment. As the Minister well knows, there is not very much that I can do with my amendment because the Government have insisted that the Committee stage of this Bill should take place in the Moses Room where we cannot put amendments to the vote.

Lord McIntosh of Haringey: The Government cannot and have not insisted; the usual channels have agreed it.

Lord Bach: As to what the noble Lord does with his amendment, I do not necessarily mean today but in the future.

Lord Kingsland: I am grateful for that clarification from the Minister, which at least gives me some hope. I was much more impressed by the reaction to my amendment from the noble Lord, Lord Jacobs. Nevertheless, since I have no alternative but to withdraw the amendment I beg leave to do so.

Amendment, by leave, withdrawn.

[Amendment No. 60 not moved.]

Clause 37 agreed to.

5.15 p.m.

Clause 38 [Reserve fund]:

[Amendment No. 61 not moved.]

The Earl of Caithness moved Amendment No. 62:

    Page 17, line 1, leave out paragraph (b).

The noble Earl said: We move on to Clause 38 which relates to the reserve fund. Amendment No. 62 requires the deletion of paragraph (b). I am very concerned about that paragraph which allows the reserve fund, into which all unit-holders have paid, to finance the repair and maintenance of commonhold units. That is not the purpose of the reserve fund. The purpose of the reserve fund is to deal with the common and structural parts of the building, including internal structural walls which might form part of a unit but which must remain the responsibility of the association. To have a provision such as this will merely encourage those bad leaseholders, as they are at the moment--in future, unit-holders--to be even more intransigent and difficult to deal with because they know that part of the reserved fund can be used for the repair and maintenance of their unit. I beg to move

Baroness Gardner of Parkes: I listened with interest to the noble Earl, Lord Caithness, but I believe that it

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is quite important to have a sinking fund or reserve fund. As I understand it, he is suggesting that there should not be one. It is an important part of any unit. When the time comes to sell the unit, whoever is buying will ask about the seller's contribution to the sinking fund or reserve fund. It is used not only for what needs to be done on a routine basis. I have already declared an interest in that I own a flat in a block. There is no reserve fund. We find that a great disadvantage and we would like to have one. The only way to have one would be by getting the agreement of every single leaseholder in the block. It cannot be included at a later stage. I believe that it is important to maintain a reserve fund.

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