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Lord Kingsland: The noble and learned Lord will not be surprised that I am exceedingly disappointed. Mixed-development buildings form a central part of the Government's thinking for 21st century urban development. It is crucial that the people who inhabit those developments can enjoy the right blend of legal rights and duties to ensure that they have the incentive to maintain the fabric of those buildings properly. If the Government's town and country planning philosophy in relation to mixed development is to succeed, it is vital that the Government find the appropriate legal framework.
I accept entirely the Minister's assurance that much cerebration took place over the summer to find a better balance. I am despondent that--despite the intellectual resources that the department has at its disposal, which are considerable and renowned--a solution cannot be found. I will reflect on the Minister's response. It is likely that I shall return on Report with a modified proposal. Meanwhile, I beg leave to withdraw the amendment.
Amendment by leave, withdrawn.
Schedule 6 [Premises excluded from right to manage]:
On Question, Whether Schedule 6 shall be agreed to?
7.15 p.m.
Baroness Gardner of Parkes: I refer to those tenants who have enfranchised their properties and now find themselves under a management scheme over which they have no control and the terms of which are harsher and more expensive than a leasehold. Will tenants who enfranchise any property under the
scheme find themselves more adversely affected? I was telephoned on that subject and have been promised chapter and verse. Why does the Bill not help freeholders of houses in a mews or other location? If the landlord applies for and secures a management scheme, that could have a dramatically adverse effect on the former leaseholders.Apparently, different policies apply to different major estates. With some, as soon as the property has been enfranchised and is freehold, those concerned are told, "You are on your own. It is up to you what to do". Other estates insist on major repair obligations. In one case quoted to me, the tenants have to pay for a warden to patrol the mews. Can anything be done by amending Schedule 6 or could the issue be dealt with at a future stage?
Lord Falconer of Thoroton: I am not sure that this is the appropriate schedule, but the debate gives me the opportunity to acknowledge the problem that the noble Baroness identified. We are reflecting on the correct approach. I cannot guarantee at the moment that the correct approach is to amend the Bill but we will let the noble Baroness know how we intend to deal with the issue.
Lord Kingsland moved Amendment No. 88:
- Page 33, line 26, leave out "a" and insert "an"
The noble Lord said: The phrase "a RTM company" is shorthand for "a right-to-manage company" but the Bill does not define an RTM company as a right-to-manage company. In other words, "a RTM company" is, as a matter of statute, simply an RTM company--not shorthand for a right-to-manage company. I beg to move.
Lord Goodhart: This can be described as an Earl Ferrers amendment. Late one evening during the progress of the House of Lords Bill, we had an extensive debate and a Division on whether the reference should be to "a hereditary peer" or "an hereditary peer". On that occasion, I disagreed with the noble Earl but I think that the noble Lord, Lord Kingsland, is right. The Bill ought to be drafted in a way that reads the same as it will be pronounced. I do not imagine that even anybody on the Government Benches would talk about "a RTM company".
Lord Falconer of Thoroton: Everyone had the same thought. Maybe it is a blast from the past. I am told it is simply a matter of drafting convention. I am informed that where a Bill creates a new entity such as the RTM company, the standard practice is to refer to it as "a". That does not take the matter much further forward but clearly parliamentary counsel proceed on the basis of convention. I do not feel remotely confident to intervene. Throughout the progress of the Bill, I will force myself to refer to "a RTM company"--and respectfully ask the noble Lord to withdraw the amendment.
Lord Kingsland: If that is so, drafting conventions are hardly ambassadors for the English language.
It seems to me that this is an opportunity for the Minister to create some constitutional law. He can exploit the opportunity by making a distinction here between abbreviations that are abbreviations of a full statutory definition and abbreviations that are not. In other words, it might be understandable if "RTM company" had been defined somewhere in the Bill as a right-to-manage company in full. But in this case it has not been so defined.
"An RTM company" is, as a matter of statute, simply an RTM company. In those circumstances, to describe it as "an RTM company" is not only an abuse of the English language; it also makes any convention that insists that that be the case seem absurd. I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 89 and 90 not moved.]
Lord Kingsland moved Amendment No. 91:
- Page 33, line 28, leave out "guarantee" and insert "shares with at least the minimum paid up capital, divided into "A" shares and "B" shares"
The noble Lord said: This grouping includes Amendments Nos. 92 and 93. I shall speak, first, to Amendment No. 92, and then deal with Amendments Nos. 91 and 93. In saying that this amendment is an important one, one has to acknowledge that every amendment is, in a sense, an important amendment when one is addressing a legislative document.
We believe that this amendment is essential in order to make the right to manage workable. The proposal put forward here is a modification of what we proposed when the Bill was last in Committee. The proposal that we made on the previous occasion was that RTM companies should be ordinary limited companies with a share capital. The reason for that proposal is simple: it is important to realise that an RTM company is a small business. Its business is the management of blocks of flats. No business can be run without some working capital.
In Grand Committee, I gave what I thought to be some simple examples in that respect. Let us suppose that a contract for works is let to builders. As not infrequently happens, the works prove more extensive than anticipated and the costs overrun the estimate. Where will the RTM get the money to pay for the overrun? It will only have raised the estimate by way of service charges; and getting in more service charges cannot be done that quickly. No bank will lend money because the RTM company has nothing to offer by way of security. Hence my proposal that RTM companies should have some share capital.
Noble Lords may wonder what response the Government gave to this point in Grand Committee. The noble Lord, Lord Whitty, said:
- "I appreciate that the leaseholders' company which takes over the management of the property needs to have access to funds".
- "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".--[Official Report, 27/2/01; col. CWH 125.]
On behalf of the Liberal Democrats, the noble Lord, Lord Goodhart, said that even if tenants did raise share capital in order to start an RTM company--I trust that I am not misinterpreting him here, though I am sure that he would be the first to point that out to me if that were the case--the first thing that the new RTM company would do is give all the tenants a year's service charge holiday. The directors of any RTM company that did any such thing might well find themselves the subject of directors' disqualification proceedings if the RTM did, in consequence, fall into financial difficulties.
None the less, we on this side of the Committee sought to modify our proposal in order to make it more attractive to the Government. The proposal put forward in the amendment now before us is that RTM companies remain companies limited by guarantee but with a substantial guarantee given by the tenants. Under the Bill as currently formulated, RTM companies will be formed with each member having to contribute £1 to the company in the event of the RTM company being wound up. On that basis an RTM company is effectively worthless.
Under my proposal, the guarantee given by each tenant would, in broad terms, have to be the equivalent of two years' service charges. The advantage of this proposal is that an RTM company would have a borrowing capacity from the start to enable it to obtain some working capital from a bank. Yet, at the same time, the tenants would not actually have to part with money at the start. As I understand it, that was the main objection to the original proposal. Thus our amendment would lead to RTM companies being much better able to cope with the demands that they are likely to face from the outset. I commend it to the Committee.
I turn now to Amendments Nos. 91 and 93. We believe that these amendments are essential in order to make the right to manage workable. There are two aspects involved: the first is to ensure that RTM companies are adequately capitalised, which I have just discussed; and the second is to recognise the landlord's important interest in the RTM company.
The Bill proposes that landlords should be members of the RTM company with one vote. The landlord would have no right to sit on the board. The extent of the landlord's rights would be to attend general meetings of the company and be out-voted every time by the tenant members of the RTM company.
I understand that the Liberal Democrats propose that the landlord should have no involvement at all in RTM companies. I have to say that I find that position difficult to understand. In any event, I am not sure that it would be compliant with the Human Rights Act because the landlord would be deprived of an involvement in a property in which he has an interest.
The only way properly to recognise the landlord's legitimate interest in the property is to allow him to sit on the board of directors. The technical way in which that can be done is to create two classes of shares--A shares, which are held by the tenant, and B shares, which are held by the landlord. I beg to move.
7.30 p.m.
Lord Goodhart: Our amendment, as the noble Lord, Lord Kingsland, said, would remove the landlord from membership of the RTM company. However, that amendment is the first amendment of the next group, so I shall not speak to it now, although the subject has been raised.
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