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Lord Lea of Crondall: I wish to speak to Amendment No. 110A, which stands in the name of my noble friend Lord Richard. The thrust of the amendment is the same as the thrust of the amendment tabled by the noble Lord, Lord Goodhart. Some adjustment is needed on this issue. Looking at the practicalities of the matter, as I said at Second Reading, it would be very strange indeed if, when discussing sensitive matters, a typical RTM company--which is, to use present day language, the residents' association--must have the landlord present in the room at all times.

At Second Reading, I made a suggestion which I hope was noted. It may have been a stupid suggestion, but I have not yet heard why it is stupid and that is why I am about to repeat it. There may be a case for having a basic RTM company meeting--whether under the Companies Act or some other legislation--structured to include a part A and a part B. Part A of the meeting should be confined to the residents; this may or may not include the landlord--it would depend on whether the landlord has bought one of the flats--but that is a separate issue.

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It is highly desirable that there is some structured relationship with the landlord. I wonder, quite seriously, whether the Government could think of a route by which a statutory RTM company meeting could be held with the landlord present at a particular stage in the annual cycle; and/or a route by which the RTM company could meet as a residents' association in the normal way every three months or so. It would be for the RTM to invite the landlord to attend on such occasions, but he would have the right to attend once a year, or something like that. To say that there cannot be a properly constituted residents' association meeting--that is, an RTM company meeting--without it being mandatory for the landlord to be there, is going way beyond what is necessary to meet the Government's aims in this matter. I hope that this issue will be given further consideration.

Baroness Gardner of Parkes: I support the view of the noble Lord, Lord Lea. There has to be some means by which the landlord can be sure that the building is being maintained adequately, but it would be quite inappropriate for him to ascertain that at the residents' right-to-manage meeting.

Lord Whitty: The amendments covered in this group raise some substantial issues on the nature of the RTM company and the rights of the landlord in respect of the RTM company.

Amendment No. 95 and the associated amendments of the noble Lord, Lord Kingsland, propose that the company should be only a company limited by shares. Part of the rationale of the Bill is that it provides for three different companies: the RTM company, the RTE company and the commonhold association. We consider it important that all three should have the same structure so as to allow leaseholders who wish to move through the three types of companies to do so without other complications. Where they have acquired the right to manage, the leaseholders may wish to use the company as a vehicle to purchase the freehold, and this amendment would prevent that happening because there would be different types of company. In particular, it would mean that leaseholders would always have to set up separate companies to acquire the right to manage and then to purchase the freehold.

An even more important objection to the amendment tabled by the noble Lord, Lord Kingsland, is that it proposes that the RTM company, as a company limited by share, should have a minimum amount of share capital. Indeed, the formula proposed would suggest that it would have to have quite a considerable amount of share capital. I appreciate that the leaseholders' company which takes over the management of the property needs to have access to funds, but to stipulate that it needs to acquire at the beginning a substantial degree of share capital 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. Many leaseholders would find it hard to pay the

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service charge once, and they would find it impossible to have to put forward additional funds as share capital.

The right to manage is intended to be just that, a right. It is intended to put right the imbalance which prevents leaseholders who have a majority of the equity in a property in terms of the leasehold value having a say in the management of that property. We do not want to hedge that around by establishing a threshold whereby they have to build up a fund first. Leaseholders already have to pay the management for the running of the property, and will therefore exercise a right to manage knowing that they themselves, if they take that decision, will have to meet the costs they run up. The additional requirement is therefore an unnecessary and heavy burden.

The noble Lord also put forward an amendment regarding how the Government should set about prescribing the constitution of the company. I appreciate that we need to have some idea of what we are intending in this respect. I sent to noble Lords who had shown an interest in this at the Committee stage of this Bill a draft constitution for both the RTM and the RTE company, and those drafts go wider than we would intend in the regulations, so they cover a number of aspects. We have produced full draft constitutions for the two companies in order to make sure that our minimum requirements sit properly within the wider constitution of those companies and the intention of this Bill. We obviously intend to consult further on those drafts, but it is useful that the Committee has that information at this stage when we are dealing with the substance of the Bill. We will have draft regulations before Parliament when the constitutions of the companies come forward.

The amendment tabled by the noble Lord, Lord Kingsland, referred to the appropriate authorities. They are defined in Clause 155(4) in terms of the Lord Chancellor or the Secretary of State or the National Assembly for Wales. Subsection (1E) of Amendment No. 109 proposes that the Secretary of State should make regulations as they apply to Wales as well as England. There may be good arguments for having the same prescribed requirements, but the National Assembly has clear responsibility for secondary legislation on housing matters and I see no reason why we should change that in this particular instance. The effect of the proposed subsection (1E) would be to do that.

I hope that the noble Lord will not press that the company should either be constituted as a share company or that these other provisions in his detailed amendment should prevail.

In relation to the issue raised by the noble Lord, Lord Goodhart, and spoken to my the noble Lord, Lord Lea, that we should restrict the right of landlords to be members of the right-to-manage company, I understand the arguments about conflict of interest. I understand the concerns among leaseholders who would balk at the suggestion that the landlord should have the right to participation in the company. I recognise that that is a contentious part of the Bill.

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However, as the noble Lord, Lord Kingsland, indicated, this is a process to establish a no-fault right to manage. The landlord is not doing what was suggested by the noble Lord, Lord Goodhart, namely engaging in misbehaviour or failing to meet his obligations. The presumption is that the landlord has done nothing wrong, and it is not intended to be a vehicle to get rid of an exploitative or neglectful landlord. This is a provision to establish leaseholder rights without having to prove negligence on the part of the landlord. Hence, the landlord has forfeited no rights, except insofar as provided for in the Bill.

7.45 p.m.

Lord Goodhart: Does the noble Lord accept that, although technically it is a no-fault provision, in a high proportion of cases it is likely that dissatisfaction with the way that the landlord is managing the property will be the reason why the tenants seek the right to manage?

Lord Whitty: That may be a motivation in some cases but it will not be necessary to establish that in order to trigger the right to manage. There are existing provisions to deal with neglectful, negligent landlords or those who have ignored their legal or contractual obligations. This provision establishes an entirely new right without going through any fault procedure.

Baroness Gardner of Parkes: Is the noble Lord able to clarify whether "landlord" in this sense can be either a head lessee or the owner of the property? Are they both covered by "landlord"? Is it either/or?

Lord Whitty: That is so in this case, although there may be points in the Bill where that does not apply. We do not intend to have a procedure that is either anti-landlord or pro-landlord. There is a balance of rights here, and the landlord cannot be entirely cut out of the equation. The landlord has an ongoing interest in the management of the property. At the very least, the landlord has a legitimate reversionary interest; in some cases he will have a greater interest because he may have some flats which are not let on a long lease, or there may be a non-domestic unit within the building.

In deciding the balance, therefore, we have to take account of the fact that the landlord will have an interest in management, and in practice it is sensible that that is de facto equity in the company.

Lord Jacobs: I thank the noble Lord for giving way. Does that mean that where the present leasehold system continues and the management is the landlord it is proper for the tenants to have the right to be on the management committee or team? If the landlord is allowed to sit with the tenants under the right to manage, is it not equally fair that where there is no right to manage tenants should have a say about the landlord's decisions in managing the block?

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