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Lord Whitty: We dealt in part with the issue of retaining the residence qualification earlier. The deletion of this clause would effectively restore the residence qualification. I have indicated both now and earlier in the Bill that the requirement under Section 13(2) of the 1993 Act, which would be removed by this, has been shown to be a substantial obstacle to the enfranchisement under that Act. Many leasehold flats change hands frequently. Leaseholders may own a home in London which they retain while they are working abroad or elsewhere and sublet to members of their family or to others. They are in fact the owners of those flats, however, and they retain a similar right over those flats to the other leaseholders in all other attributes of law. If we are putting a residence requirement on them, as distinct from investors who are attempting to acquire the totality of the property, which was the original concern behind introducing a residence qualification, we are inevitably going to restrict the situations under which a right to enfranchisement would apply.

I referred earlier to the discussions at Second Reading, when it was clear that our procedures do not allow investors and speculators to take advantage of the enfranchisement proceedings. To try to define, as

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the previous Act did, the situation where somebody is resident and therefore has rights and, as soon as they are no longer resident, (despite the fact that to all other intents and purposes they are carrying out the leasehold) they lose those rights, is a severe break on the process of enfranchisement. Certainly, there is evidence that under existing provisions that is the case. There is no reason for it to be different--in fact, it is more likely to be the case--when we are dealing with lots of flats under these provisions. We would therefore hope to retain that deletion and, therefore, retain Clause 116.

Lord Kingsland: As Members of the Committee will see from the Marshalled List, I had imagined that I would have the robust support of the noble Lord, Lord Goodhart, and the noble Baroness, Lady Hamwee, in my quest to delete the clause. So far they have not found voice. In anticipating the Report stage, it would have made a great deal of difference to me if I had had the support of the Liberal Democrat party.

Indeed, I feel rather as Sir Henry Newbolt declared in one of his most famous poems,

    "The Gatling's jammed and the colonel's dead".

Your Lordships can make up your mind as between the noble Lord, Lord Goodhart, and the noble Baroness, Lady Hamwee, as to which is the colonel and which is the Gatling.

I shall pay the closest possible attention to the Minister's speech. I put him on notice that I shall return to the matter on Report with as much vigour as is at my disposal.

Clause 116 agreed to.

Clause 117 agreed to.

Clause 118 [RTE companies]:

Lord Goodhart moved Amendment No. 205A:

    Page 54, line 16, at beginning insert ("Subject to subsection (1A),").

The noble Lord said: Perhaps I may describe the noble Lord, Lord Kingsland, as the subaltern whose voice rallied the ranks and said,

    "Play up, play up! and play the game!"

Amendment No. 205A stands in my name and I wish to speak also to Amendment Nos. 205C, 215A and 215B.

There has been a good deal of concern expressed during the passage of the Bill about the use of a corporate structure for commonhold associations, RTM companies and RTE companies. I think that in fact the corporate structure is necessary and correct, but we need a body which has legal personality, because without legal personality you cannot hold property, enter into contracts and so on. It would therefore be necessary in the absence of a corporation of this kind to have to hold property or enter into contracts through a nominee or trustees, which is not a satisfactory way of going about it.

It would, of course, have been possible to have created a new corporate body for the purposes exclusively of commonholds, RTM and RTE

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companies, but that would have been an unnecessary complication. Companies limited by guarantee are the appropriate form of corporate structure for larger blocks, which need a formal structure, with memorandum and articles of association, directors, annual general meetings and so on, but this structure is too elaborate and bureaucratic for small blocks.

The Limited Liability Partnerships Act 2000 created a new form of corporate body; that is, the limited liability partnership. That is suitable for running a business where all the members of the LLP participate. It is simple in form with no directors, everybody takes part in the running of the business and there is a flexible agreement between the members instead of a memorandum and articles of association. That structure is potentially more suitable for small blocks of flats.

The amendment relates only to RTE companies, not to commonhold associations or RTM companies. The only reason for that is that I decided to table this group of amendments at a stage after we had already passed discussion of the commonhold associations and the structure of RTM companies. I thought that it would be useful, nevertheless, to raise the issue for debate now and, if necessary, to table an amendment at the Report stage not only for RTE companies but for commonhold associations and RTM companies.

Amendment No. 205C gives the option for the qualifying tenants in any block with not more than 10 flats to form an RTE, which is a limited liability partnership, rather than a company limited by guarantee. I have chosen 10 because that is the maximum number where it is reasonable to expect that all lessees could participate in the decision-making powers of the company. Perhaps even 10 is too many but, if you are looking at smaller blocks with perhaps four or five flats, it seems that an LLP would be much more appropriate than a company limited by guarantee.

Amendment No. 215B authorises the Secretary of State to make regulations as to the form and content of a members' agreement before the LLP would take the place of a memorandum and articles.

I believe that LLPs are much more suitable for small groups wanting to exercise the rights of collective enfranchisement. These groups should be given the option to set up an LLP. I recognise that this may need some time to consider but, in the event of the Bill not getting through Parliament before dissolution, I would very much hope that the Government, if re-elected, would reconsider this before coming back with a revised Bill in due course. I beg to move.

5.45 p.m.

Lord Lea of Crondall: The amendment puts forward an interesting suggestion. Is the logic of 10 that, in the Limited Liability Partnerships Act, there is a concept of 10 partners? Can KPMG not be a limited liability partnership? What, exactly, is the logic of 10?

Lord Goodhart: Of course KPMG and many other organisations--solicitors firms and so on--have

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hundreds of members and, in the case of some of the big accountancy firms, probably thousands, rather than 10.

The KPMG model is not the model for collective enfranchisement companies. The reason why they are partnerships which continue nominally as partnerships rather than companies as companies is a different matter, for both historical and tax reasons. It simply seemed to me that once you get beyond 10 you need the sort of management structures which are equivalent to those of having a board of directors of a company.

If one is looking at LLPs, as one normally should, as being a group of people who are all collectively involved in the running of the business, then 10 is perhaps a maximum number before you would need some kind of management or executive committee to handle the conduct of the business.

Lord Hodgson of Astley Abbotts: As Amendment No. 205B is in this group, perhaps I may speak briefly to that now. I view the issue of flexibility in much the same way as the noble Lord, Lord Goodhart, but my wish is that we should have flexibility on the other side as well. I should like to explore the Government's thinking on why we have restriction to the company limited by guarantee.

I understand that this is the simplest of the corporate structures and, therefore, the easiest to understand. It is the right structure to have if you are seeking to encourage enfranchisement. That seems perfectly worthwhile. However, I am not sure why it has to be prescribed in that sense. There are, or could be, cases--how many I do not know--where the company limited by guarantee structure would not be appropriate. As I understand it, from the companies limited by guarantee with which I have had experience, they are of course restricted as to dividend and capital distribution. If you had an RTE company, a company limited by guarantee, which had a capital profit--perhaps by having done some extensions or some developments within the enfranchised block-- the profit on that would not be able to be distributed to the participants. It could be defrayed and paid out over a period of years by reduction of charges, but it could not be paid out as a dividend or capital distribution. That seems to me to be an unnecessary inhibition on the operation of RTE companies. I am not saying that we should eliminate a company limited by guarantee; indeed, it is likely that most RTE companies will be of that form. However, there may be some which would like to have a more sophisticated, complex and demanding form of corporate structure--a company limited by shares--and I am not quite clear why they should not be able to do so.

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