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Lord Jacobs: I want to speak briefly to the noble Earl's amendment, which has much in its favour. If one wishes to improve the situation of leaseholders, I have always wondered why, instead of offering leases for 90 years or whatever, we do not offer 999 years. It has been my view that landlords rapidly lose interest in the property once the lease is effectively nearly 1000 years.

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I also argued--unsuccessfully--with the previous government that in dealing with this matter one should separate the residential from the commercial. I was going to do it the other way round: give the commercial a 999-year lease and then subleases out. The tenants do not want to be involved with the commercial side if they can help it. The investment point that has been made is a very important one. We want to encourage mixed developments. This is an interesting solution.

Lord Whitty: We all recognise that this is a difficult area, and a certain amount of ingenuity has been applied by both the noble Earl, Lord Caithness, and the noble Lord, Lord Goodhart. The noble Earl's amendment is effectively applying for those who are excluded--presumably as the result of a 25 per cent threshold--an alternative to enfranchisement. When served with a claim notice, the landlord would simply serve a counter notice offering a 999-year lease with the right to manage those parts and covenants to ensure that all the parties to the different part of the building contributed to the effective maintenance of the building as a whole.

I can see that that might work in certain circumstances, but I am not quite clear whether that is a mandatory alternative or an optional alternative to circumstances where the leaseholders would otherwise be excluded. If it is a mandatory alternative, which could spill over into areas where the leaseholders might be entitled, then that could represent a weakening of the leaseholders' rights and could enable the landlords to retain a substantial degree of management where the non-residential element was relatively small. This is not a perfect solution, but I do not have a better one at this stage. As the Committee will know, we have consulted widely and have received a number of proposals on this front. We ourselves are not yet in the position where we have an ideal solution to the problem.

As regards the noble Earl's point about discouragement of development, the essential point here is that we are all trying to find a way of converting existing properties into commonhold. When it comes to new development--even if it is the conversion of an existing building--presumably one is talking about a new structure of tenure entirely. We would hope that developers, seeing the new opportunity, would want to ensure that commonhold was built into the new building, or the newly converted building, in a way that mixed use properties as well as those that are solely residential could be carried out on a commonhold basis. I do not see that the exclusion discourages new development or conversion of existing conversion with re-negotiation of leases for existing premises. However, there remains a problem in relation to existing blocks. Our measures should not therefore discourage new developments.

The amendment tabled by the noble Lord, Lord Goodhart, would insert a new section into the 1993 Act, so as to deal with the concern that leaseholders may be unable to afford the cost of buying out the

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landlord's interest where we are dealing with a very large, or significant, commercial element. He is seeking to do that by requiring the landlord to take a mandatory lease-back of the non-domestic part. In those circumstances, one would be tying the landlord's hands in the property in which he would otherwise cease to have a day-to-day interest. It is not really desirable or reasonable to force the landlord to take a leaseback in all such circumstances, just because the other leaseholders are not able to raise the money to fund the purchase.

The only equivalent that my advisers have been able to find is the mandatory leaseback provisions in the 1993 Act, which applies solely to social landlords. They are designed to ensure that, where there are renting tenants of social landlords, their immediate landlord and tenancy arrangements are not altered detrimentally as a result of enfranchisement. That deals with a rather different situation and a different kind of tenant. In this situation, however, it is difficult to have a mandatory requirement for the landlord to engage in a leaseback provision when faced with an application for enfranchisement.

What I am saying may appear to be negative to these particular solutions. It is not entirely negative, but the amendments do not give a complete solution. We are still looking at this area but it is unlikely that, in the course of the proceedings on the Bill, we will be able to come up with a satisfactory provision. As I said during the discussion on clause stand part, we wish to ensure that at least a significant proportion of those leaseholders within mixed use dwellings would have a right of enfranchisement. How we deal with the rest, none of us has yet satisfactorily addressed.

The Earl of Caithness: I am grateful for what the Minister has said. I am particularly grateful for the support that I received for my amendment. The reason I introduced development into my argument is that it is not requisite on a developer to build for commonhold. When we discussed Part I of the Bill, the option was still there for a developer to let the building as leases. That is why I mentioned the development aspect. It may be that the developer goes for commonhold, or it may be that he keeps it in the traditional form of leases that he has been used to all of his life. He may find that easier.

I was slightly disturbed when the Minister said that, although he was still looking at this problem, he did not believe that a solution was likely to arise during the passage of the Bill. We do not know how long we are going to be able to keep talking about the Bill, but something should be done during the passage of the Bill. We do not get many bites of the cherry of legislation, and this is an important point. The noble Lord, Lord Goodhart, tackled the problem one way; I am trying to tackle it another.

Some severe problems are building up. If one allows tenants to enfranchise where there is a high mixed-use value--25 per cent is a high percentage in my book--one has to think of all the consequences: the investment of the tenants trying to buy the units; the position of the landlord; and the commercial element.

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It is not beyond our wit to devise a scheme which, although not perfect--nothing will be perfect in a situation like this--will encourage enfranchisement, will allow that to go forward in the best possible way and separate out the commercial element.

Obviously I must withdraw the amendment, but between now and the next stage--if there is to be a next stage--I would be happy to discuss the matter with the Minister and his advisers. However, I take issue with him that a solution is not likely; a solution must be found.

Lord Lea of Crondall: Before the noble Earl sits down, perhaps I may say that it would be useful to explore the matter further. I hope that the Minister will silently note the offer of many Members of the Committee to be party to a further discussion as to whether this ingenuous solution is relevant to the problem--even below the 25 per cent of people not wanting to be involved in the management of the commercial parts. That is a much more general solution to the Minister's problem than he has so far admitted.

The Earl of Caithness: I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.30 p.m.

Clause 113 [Qualifying leases]:

[Amendment No. 200 not moved.]

Clause 113 agreed to.

Clause 114 [Premises with resident landlord]:

[Amendments Nos. 201 to 205 not moved.]

Clause 114 agreed to.

Clause 115 agreed to.

Clause 116 [Abolition of residence condition]:

On Question, Whether Clause 116 shall stand part of the Bill?

Lord Kingsland: The Bill proposes the abolition of the requirement that the qualifying tenant of a flat should have occupied the flat for the 12 months prior to the claim to enfranchise being made, or for three years in the previous 10.

Collective enfranchisement is a right given to the residents of the building. We believe that this link should be maintained. After all, we are talking about a form of compulsory purchase, and it is an important principle that buildings subject to this right are sold to the people who live in them, and will continue to be so.

We are not convinced that the existing law offers adequate protection against predatory purchasers. There needs to be a residence test in some form to prevent blocks being sold to profiteering investors. The long-standing concern has been that predatory purchasers would seek to put themselves in a position to purchase the freehold, using company vehicles to cover their tracks.

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However, under the Bill as proposed, anyone buying a flat as an investment, using a buy-to-let mortgage for example, will qualify for enfranchisement. That means that the Bill gives one investor a right of compulsory purchase over another investor's investment and the means to enforce that right against the latter's will.

Our instinctive preference is for the leaseholder to be living in the flat at the time of the claim. However, we accept the arguments that have been put forward regarding expatriate workers and, to a lesser extent, those who have been unable to sell their flats for whatever reason. It is difficult to establish clear rules if one then introduces too many exceptions. This reinforces our belief in the need for a clear definition. At the very least there should be a requirement that any participating leaseholder should have held the lease for at least two years. This would coincide with the requirement proposed for lease extensions and the requirement that the lessee should have occupied the premises for at least 12 months during the course of his ownership--to ensure that this remains a right granted primarily to those who live in the properties, rather than to third party investors.

Taken to its extreme, the Government's proposal that the residence test should require at least half of the enfranchising group to occupy their flats as their only or principal dwelling on the date that the initial notice was served would produce bizarre results. For example, could an individual enfranchise if he moved in on the Monday, the notice was served on the Tuesday and he moved out on the Wednesday?

Finally, we are conscious that the Government are keen to harmonise the rules and procedures relating to enfranchisement for both houses and flats. It is therefore all the more important to retain the residence test for the enfranchisement of houses, so the principle must be maintained.

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