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Lord Hunt of Kings Heath: I confirm that in the year 2000-01, the current financial year, the three direct payments made were all publicly announced.

Baroness Carnegy of Lour: I apologise to the Committee for intervening. Those announcements were general and about the whole health service. There was no question of fairness between different parts. If people hear that their trust has received extra money to make their hospital cleaner and the one next door has not, a lot of trouble will be caused. I do not think that we can compare that. I am concerned about the matter. It is a peculiar way to manage fairly.

Lord Hunt of Kings Heath: Perhaps I may respond to the noble Baroness. I refer to the hospital cleaning programme, which I had the pleasure of launching at the Whittington Hospital in August. The public announcement gave details of how much money every NHS organisation received. That was based on a fair formula.

Baroness Cumberlege: Does the Minister not appreciate that there is a lot of frustration in the health service because allocations are pre-empted by top slicing? Many of the managers who spoke to me said, "We would have sparkling clean wards if we had the amount of money to spend that we want". However, as I explained earlier in Committee, so much has been top sliced. There is no room to manoeuvre and the frustration is enormous.

Lord Hunt of Kings Heath: Even with top slicing the health service is receiving huge amounts of additional resources--record amounts. There will always be a balance between the allocation made to the NHS locally and the retention of money at central government level to give particular impetus to core national priorities. I accept that there is a debate as to how that balance should fall. However, I do not think that we will ever get away from retention of some moneys at national level.

Earl Howe: As the Minister indicated, this will be a running theme, not only throughout the Bill but, I suspect, for as long as the Session lasts. It is a fascinating topic. I am grateful to all noble Lords who contributed to this short debate. I beg leave to withdraw the amendment.

15 Mar 2001 : Column 1100

Amendment, by leave, withdrawn.

[Amendment No. 23 not moved.]

Lord Hunt of Kings Heath moved Amendment No. 24:

    Page 3, line 29, at end insert--

"( ) In section 97D of the 1977 Act (financial duties of Primary Care Trusts), in subsection (1)(b), after "section" there shall be inserted ", apart from subsection (5A)"."

The noble Lord said: This is the first of a number of government amendments which have been tabled. I regret that we have to do this. However, I believe we have done rather better than with the NHS Bill we took through the House last Session.

This is a technical amendment, purely consequential to the 1997 Act. Although the new subsection (5A) of Section 97C of the 1997 Act enables the Secretary of State to make supplementary payments direct to a primary care trust, Section 97D of that Act did not allow for such payments to be taken into account when determining the primary care trust limit on expenditure for the financial year in question. In other words, the primary care trust could receive the extra payments but could not increase its expenditure for that year by an equivalent amount.

Section 97D of the 1977 Act sets a limit on the annual expenditure of a primary care trust. It provides that in any financial year a primary care trust may not spend more than the aggregate of the various types of income it receives in that year. Paragraph (a) refers to sums allocated to the trust by the health authority. Paragraph (b) refers to sums received under the 1977 Act other than the sums received under Section 97. Those words exclude the income from health authority allocations, but unfortunately they would also exclude supplementary payments from the Secretary of State which would be paid under the new paragraph 5A of Section 97.

This amendment resolves the problem by excluding supplementary payments under Section 97C(5A) from the ambit of the words

    "other than sums received by it under that section."

Supplementary payments will therefore be added to the aggregate amount which the PCT is permitted to spend in the financial year in which the payment is made. I beg to move.

On Question, amendment agreed to.

[Amendment No. 25 not moved.]

Clause 3, as amended, agreed to.

Lord Carter: I beg to move that the House do now resume.

Moved accordingly and, on Question, Motion agreed to.

House resumed.

        House adjourned at nineteen minutes before eleven o'clock.

15 Mar 2001 : Column CWH187

Official Report of the Grand Committee on the

Commonhold and Leasehold Reform Bill [H.L.]

Thursday, 15th March 2001.

The Committee met at four of the clock.

[The Deputy Chairman of Committees (Lord Ampthill) in the Chair.]

Clause 94 [Management functions: supplementary]:

Lord Goodhart moved Amendment No. 169:

    Page 44, line 15, at end insert--

("( ) Where under subsection (1) the RTM company owes to a person who is landlord under the lease with respect to repairs, the company shall (except in relation to any right of re-entry or forfeiture) be deemed to be a lessee of that person for the purposes of the Leasehold Property (Repairs) Act 1938.").

The noble Lord said: I come to kick off the fourth day of this marathon--if "kick off" is the right term. It is possible that landlords will try to harass right-to-manage companies by taking them to court to maintain standards of repair at a higher level than is in fact needed. That actually happened with residential leases in the 1930s. The result was the Leasehold Property (Repairs) Act 1938.

The Act stated that landlords could not take actions to enforce repairing covenants in a lease with more than three years to run without obtaining the leave of the court. They could obtain the leave of the court only on specified grounds, such as damage to the value of the reversion, or the fact that works carried out at the present time would be a great deal cheaper than if the property were allowed to deteriorate.

We believe that right-to-manage companies should be in the same position as they would be if they were tenants and should have the benefit of the Leasehold Property (Repairs) Act 1938. I beg to move.

Lord Kingsland: The noble Lord, Lord Goodhart, may be surprised to hear that we support his amendment.

Lord McIntosh of Haringey: We certainly support the intention behind the amendment because we do not want there to be oppressive legal challenges against the right-to-manage company by unscrupulous landlords based on spurious grounds. However, we are not convinced that going back to the 1938 Act is the best way forward. Questions as to whether a failure to repair had damaged the landlord's reversionary interest are likely to increase the scope for disputes and litigation rather than reduce them. If we try to qualify the duty owed to particular parties, we are likely to run into the same problem, and that may also lead to unintended omissions.

The main sanction against a right-to-manage company under the Bill would be the appointment of a new manager under Part II of the Landlord and

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Tenant Act 1987. I can assure the Committee that leasehold valuation tribunals view this power as an extreme sanction. Appointments are made only if there is clear evidence of persistent and serious shortcomings. We expect the tribunals to take a similar approach to applications to remove a right-to-manage company.

I should also add, if it is of any comfort, that we are providing tribunals with additional sanctions to deter frivolous and vexation applications, including a limited power to award costs against the party concerned. I hope that that will reassure the noble Lord, Lord Goodhart.

Lord Goodhart: That provides some reassurance. I shall consider what the Minister has said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 170 and 171 not moved.]

Clause 94 agreed to.

Lord Kingsland moved Amendment No. 171A:

    After Clause 94, insert the following new clause--

(" .--(1) Notwithstanding the specific terms of any lease of the whole or part of the building, any person responsible for management functions in relation to the premises shall ensure that the entire building is insured under a single insurance policy.
(2) Any person responsible for arranging an insurance policy under subsection (1) shall be under a duty to obtain best value for the service charge payers in procuring a suitable policy.
(3) If, in the opinion of any party to a lease, the insurance policy arranged in accordance with subsection (1) does not represent best value for the service charge payers, they may refer the matter to the leasehold valuation tribunal for determination.
(4) Any reference of an insurance policy to a leasehold valuation tribunal under this section shall be supported by an alternative quotation for insurance cover from a recognised and reputable supplier to support the case; and the leasehold valuation tribunal shall not consider any such reference unless it is supported by such an alternative quotation.
(5) The duty to arrange insurance under subsection (1) applies notwithstanding the existence of a dispute which has been referred to the leasehold valuation tribunal.
(6) In determining any dispute referred to it under subsection (3), the leasehold valuation tribunal shall take into account--
(a) the extent of cover procured, and
(b) the level of premium payable by individual service charge payers.").

The noble Lord said: This amendment requires the building to be covered by a single insurance policy, regardless of who arranges it. It requires whoever arranges that policy to provide best value for the service charge payers. The policy may be challenged on the grounds that it does not offer this value but there must always be a policy in place, even if it is subject to challenge. Any challenge must be supported by an alternative quote.

As drafted, the Bill transfers the right of the landlord under the lease to arrange insurance for the building but does not prevent anyone insuring the whole or any part of the building at their own expense. The importance of having a single building insurance policy cannot be overstated.

15 Mar 2001 : Column CWH189

The impact is perhaps best illustrated by the example of Rose Court in Putney, which was destroyed by a gas explosion in 1985. It transpired that the individual leaseholders were responsible for insuring their own flats and that many had failed to make adequate arrangements for the restitution of the building. The consequence was that the insurance cover could not meet the cost of reinstating the building, so leaving leaseholders with the problem of finding new accommodation while still retaining an outstanding mortgage liability.

The purpose of the amendment is to go beyond the parallel right of the landlord to challenge the RTM's choice of insurers by adding an obligation for there to be a single building policy in force at all times, and to require that this policy represents best value rather than only the cheapest option. The courts have confirmed in the past that freeholders are not required to opt for the cheapest insurance quotation but, rather, are obliged to obtain the best deal available.

There is no requirement that the RTM company make insurance arrangements separate from those which existed when the management was undertaken by the landlords. Many landlords use bulk purchasing power to provide the best deal that they can for their tenants. It may not be possible for a single building to obtain such favourable terms. This amendment provides a mechanism for the landlord, or any other party to the lease, to challenge an insurance arrangement on the grounds that it does not represent best value to the service charge payers and to offer an alternative and possibly a better deal.

Indeed, it is possible that, if a sufficient number of buildings were withdrawn from the landlord's collective arrangements, the landlord would not be able to obtain such favourable terms for those buildings which remain within his portfolio, thus prejudicing the interests of others.

Many freeholders, as Members of the Committee are well aware, are concerned that one of the effects of leaseholders claiming the right to manage will be to disrupt insurance arrangements. For many of those landlords whose portfolios are made up primarily of ground rent investments, the right to earn commission from the provision of buildings insurance represents a principal element of value. They are, therefore, understandably worried that the effect of a claim, or even the prospect of a claim, for the right to manage could result in those portfolios being devalued.

I am, of course, only too well aware that there are freeholders who exploit the right to provide insurance by charging commissions which can only be regarded as excessive. I wholeheartedly condemn that practice wherever it occurs.

Finally, one aspect of insurance in mixed use buildings where the right to manage has been exercised, is the risk of double insurance by both the landlord and the RTM company as each seeks to fulfil its obligations. Most business leases include an obligation on the landlord to insure the building and then to charge back the premium as an insurance rent.

15 Mar 2001 : Column CWH190

The landlord may not be in a position to vary the terms of the arrangement with the tenant and so may remain contractually bound to insure the building.

That can be avoided only if there is a single insurance policy for the whole building, which may, in itself, be achieved only by establishing mutual enforceability of covenants via a separate management agreement. Permitting each to insure their own interest is simply not practicable. If the landlord insured the ground floor commercial elements on which he had long-standing leases, and the RTM company insured the remaining residential elements above and a fire in the commercial units destroyed the building, it is unlikely that the landlord's insurance for those parts would cover the damage to the residential parts. It may even be that the leaseholders were no longer able to enjoy beneficial occupation; but the landlord would have had no interest to insure and so there would be no consequential loss to recover the material damage. I beg to move.

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