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Lord Goodhart moved Amendment No. 207:

("(3) A company which is a RTM company may not become a RTE company except by a resolution passed with the affirmative vote or written consent of all its members.
(4) In this Part, "RTM company" has the same meaning as in Chapter I of Part III of the Commonhold and Leasehold Reform Act 2001.").

The noble Lord said: I think I have at last sorted out what has been happening. We have dealt earlier, and again in the last couple of amendments, with amendments which the Government have accepted which will enable RTM and RTE companies to co-exist in the same property. So a person who is a member of an RTM company does not have to choose between giving up his role in management and taking part in a collective enfranchisement process which will cost money that he does not want to spend or cannot find.

Amendment No. 207 introduces what we believe is a necessary corollary, that an RTM company cannot convert to an RTE company unless there is unanimous agreement among its members. If you start with an RTE company which includes a member who does not wish to take part in collective enfranchisement, and if that company is able to convert itself without his or her consent into an RTE company, that member would still have to opt out of that company. That member would thereby lose the right to participate in management if he or she did not wish to go ahead and take part in the enfranchisement, with all the financial implications that involves.

These are companies with different objectives. The principle, which has been accepted by the Government, that you can separate an RTM and RTE company requires this additional amendment if it is to be fully effective.

Amendments Nos. 209 and 210, which have been included in this group, refer to ground that has already been covered; that is, the exclusion of the landlord from the membership of an RTM company. I shall not repeat the arguments that were made earlier.

I intend to support strongly Amendment No. 212, tabled by the noble Lord, Lord Kingsland. Indeed, I am inclined to feel that it does not go far enough. I hope to explain why at a later stage rather than speaking to it now. I beg to move.

The Earl of Caithness: My Amendment No. 211 is grouped with this amendment. I, too, am concerned

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about the situation where somebody who is a member of the right-to-manage company and has been doing an excellent job does not, for whatever reason--it may be financial--become part of the RTE company. For those of us with experience of managing and controlling blocks of flats, to lose someone who is doing a good job and understands the block, because he cannot participate in the management if he is not a member of the RTE company seems a perverse way of tackling the situation. There must be some method by which those people who are not members of the RTE company can, if they so wish and the RTE company so wish, be used in the management of that company.

I have put forward the idea of having two classes of shares, for instance: one for those who are members of the RTE company, and a separate class of shares for those who are not members of the RTE company but are within the block and could take part in the management of that company. Good people who understand property management are few and far between. To exclude them, as the Bill does in subsection (4) of Clause 118, is rather a perverse way of tackling this problem.

My Amendment No. 211, which seeks to exclude the whole of subsection (4), does not, admittedly, give the complete solution, but I hope that the Minister will give this matter some thought.

Lord Kingsland: I am grateful to the noble Lord, Lord Goodhart, for supporting my Amendment No. 212, which seeks to increase the period of time for someone who acquires a lease from a participating member of the RTE company to indicate their own desire as to whether they wish to participate from 14 to 28 days.

It is with some trepidation that I have to inform the noble Lord, Lord Goodhart, that I am unable to support his Amendments Nos. 209 and 210. That is disappointing, but I shall attempt to change his mind by explaining why.

It seems to me that the amendments of the noble Lord, Lord Goodhart, would exclude landlords on any leases within a building from being members of an RTM company if the company was also the RTE company for the building. We believe that the landlord must always be entitled to membership of an RTM company which manages a building in which he retains an interest.

We recognise the problems which may arise if the leaseholders within a RTM company wish to enfranchise. Understandably, they would not wish the landlord to be a party to their discussions. In these circumstances, they should accept that, however awkward, it would be better to establish a separate RTE company. If they wish to use the same company to be both RTM and RTE they must accept the continuing presence of the landlord.

If the enfranchisement takes place in amicable circumstances it may well be that the landlord voluntarily agrees to absent himself from the RTE company's discussions. If the situation is not amicable, there is a greater likelihood that a separate company would be more suitable anyway.

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As far as concerns Amendment No. 214 tabled by the Minister, our Amendment No. 213 is to similar effect. We are content with the Minister's efforts.

Lord Goodhart: I support Amendment No. 212 but take the view that it does not go far enough for the following reason. I did not appreciate the problem until I started looking at the memorandum and articles of the RTE company, by which time it was too late to table an amendment of my own.

The problem is that in the case of an RTE company membership is not transferable, but anyone who ceases to satisfy the requirements of membership--namely, that he is a qualifying tenant--automatically ceases to be a member of the company. Therefore, when somebody sells the leasehold of a flat he or she will not automatically be entitled to transfer membership of the company. The next stage is that the person who is the purchaser is entitled to become a member of the company under new Section 4B(6) of the 1993 Act, the provisions of which appear at lines 15 to 19 on page 55. That fits together, but the essential stage for the new leaseholder to become a member of the RTE company is the giving of notice under new subsection (6).

It is likely that the assets of the RTE company will be of considerable value--they will include the freehold--and no doubt that value will be reflected in the price which the assignee has paid for the lease. It is essential, therefore, that in order to protect his interest the assignee should apply for a participating notice to the company within 14 days. That is a very short time. If he does not do so, he loses a valuable asset and gives a windfall to the other members of the RTE company. The consequences of that are quite unintended and wholly unfortunate, but there is no way in which the time can be extended if the assignee fails to give that participation notice to the company within the 14 days after the assignment. That can be overlooked.

Under new Section 4B(7), personal representatives become participating members unless they give a notice within 56 days stating that they do not wish to be a participating member. It would be much better if the same rule applied to an assignee, so that an assignee who is negligent--or whose adviser was negligent--and fails to give the participation notice within 14 days does not lose the right to share in a valuable asset for which he has almost certainly paid as part of the price he paid for the flat.

This is a point of some significance--admittedly, in a sense, a detail. However, it is plainly right that it should be reversed so that the assignee becomes a member automatically, unless and until he gives--as he occasionally might wish to do--a notice saying that he does not wish to be a member of the RTE company.

6.15 p.m.

Lord McIntosh of Haringey: I shall deal with the amendments in as much order as I can put them in, starting with Amendment No. 207. I shall then turn to Amendment No. 211 standing in the name of the noble

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Earl, Lord Caithness. I appreciate the concern about members of an RTM company who do not participate in a subsequent enfranchisement. The Bill provides that any such leaseholders will cease to be members of the company on completion of the enfranchisement. That is because, after enfranchisement, there might be conflicts of interest between those leaseholders who did or did not participate in enfranchisement. There might be differences of view between them about how the proceeds of the sales of leases should be used or distributed. If the non-participants were still members of the company, the company directors would find themselves in a very difficult position as a result of their accountability to the entire membership.

We have tackled this matter in a different way already. Amendment No. 99, which was agreed earlier, would remove the bar on there being separate RTM and RTE companies for the same premises. That means that, where the RTM has been exercised, and a proportion of members wishes to proceed to enfranchisement, they would now be able to set up a separate RTE company for that purpose, and non-participants would be able to continue to participate in the management of the building. Amendments Nos. 209 and 210 have already been debated. There is nothing more I should say about them.

I shall respond, first, to the noble Lord, Lord Kingsland, on Amendment No. 212 as the noble Lord, Lord Goodhart, has made quite different points on it. The noble Lord, Lord Kingsland, said that we should extend the period from 14 to 28 days for assignees to make up their minds about whether to participate in an enfranchisement bid. However, there are two difficulties with that. First, it could be inconvenient for the other members in learning whether or not the assignee was going to participate. Secondly, surely a prospective assignee would have been made aware of the pending enfranchisement bid. Indeed, that might have influenced his decision to buy. I should have thought that in many cases the decision to take part would not even be a 14-day decision but would be taken before the 14 days started. In other words, it would be an instantaneous decision.

I find the arguments of the noble Lord, Lord Goodhart, too complicated to respond to at this time. All I can do is undertake to write to him on the basis of what he has said. Amendment No. 213, which stands in the name of the noble Lord, Lord Kingsland, is not necessary. We have just agreed in advance to Amendment No. 214, which solves the problem.

On Amendment No. 214A, I share the concern of the noble Lord, Lord Kingsland, that leaseholders who agree to become participating members should not be able to walk away later and avoid their liabilities. Article 11 of the draft articles of association, which we have made, would prevent participating members from resigning. The Bill already provides that, on becoming a participating member, a qualifying tenant becomes jointly and severally liable for the landlord's costs relating to the enfranchisement, and that liability cannot be avoided

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by withdrawal from membership. I hope I have reassured the noble Lord, Lord Kingsland, on that point.

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