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Lord Grocott: My Lords, I beg to move that the House do now adjourn during pleasure until 8.40 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 8.37 to 8.40 p.m.]

Commonhold and Leasehold Reform Bill [H.L.]

House again in Committee on Clause 71.

[Amendments Nos. 92 and 93 not moved.]

Clause 71 agreed to.

[Amendment No. 94 not moved.]

Clause 72 [RTM companies: membership and regulations]:

[Amendment No. 95 not moved.]

Lord Goodhart moved Amendment No. 96:

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The noble Lord said: The purpose of the amendment is to remove paragraph (b) from Clause 72(1) of the Bill. That provision defines the membership of an RTM company which consists under paragraph (a) of,

    "qualifying tenants of flats",

and under paragraph (b) of,

    "landlords under leases of the whole or any part of the premises".

The purpose of the amendment, which runs contrary to those moved by the noble Lord, Lord Kingsland, prior to the adjournment, is to remove landlords from membership of RTM companies except in cases where they are lessees of flats as well as freeholders. In that case they are entitled to remain in their capacity as lessees.

We strongly believe that it is inappropriate for a landlord to be a member of an RTM company. In many cases the RTM company will have been formed because of dissatisfaction with the landlord. Under the existing legislation where tenants are entitled to take over management on the proof of the improper behaviour or defects of the landlord, the landlord does not participate in the management. However, that is because the landlord has clearly been behaving improperly in the conduct of the management.

In the case of an RTM company, it is possible that the landlord has not been behaving improperly because proof of any such misconduct is in no way necessary for the formation of an RTM company. None the less, it is likely that in a high proportion of cases the RTM company will have been formed because of a degree of dissatisfaction with the way in which the landlord has managed the property.

If the landlord has managed it well and at a fair cost, the chances are that the tenants will be happy to spare themselves the burden of management and will allow the landlord to continue. If the landlord has caused dissatisfaction, there almost certainly would be a desire to use the new route of forming an RTM company rather than using the existing legislation in order to avoid the need to have to prove misconduct on the part of the landlord.

In many cases, because the whole desire to move to an RTM company has been instigated by the landlord's misconduct, it would seem to be wholly inappropriate for a landlord to be a member of the RTM company. Furthermore, in cases where the landlord has not misconducted himself in the management, his interests and those of the leaseholders are likely to be at arm's length. We believe that in that case it is inappropriate for the landlord not only to be representing his own position but also to have a position in the management company.

We believe that there should be an arm's-length relationship between the RTM company and the landlord. Of course the landlord would be, and under the legislation is, entitled to require the RTM company to carry out its obligations to him as well as to the leaseholders. We do not therefore see that there is any unnecessary suffering on the part of the landlord by his being excluded from the RTM company. We believe that allowing the landlord as of right to be a member

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of the RTM company is a recipe for confusion and for mixed signals. We believe that if the landlord is always there making his points in company meetings as well as in arm's-length negotiations with the company as manager of the property, the RTM company will be more difficult to run adequately.

We believe that if the RTM system is to work, it is a matter of considerable importance that the landlord should not be a member of it and should deal with it at arm's length in the protection of his own interest as landlord. Furthermore, we do not envisage any likelihood of any such rule being held inconsistent with Article 1 of the first protocol to the European Convention on Human Rights. I beg to move.

8.45 p.m.

Lord Kingsland: My Amendments Nos. 97 and 100 are part of this group. Earlier I spoke in substance to Amendment No. 97 and shall therefore address my remarks to Amendment No. 100. The whole rhetoric of the Bill is to give individuals who live in their blocks of flats a right to manage them. The amendment gives effect to that principle. There is no reason to give the right to manage to individuals who have bought flats for investment purposes only.

The objection made to the amendment in Committee by the noble Lord, Lord Whitty, was that "resident" is extremely difficult to define. The noble Lord did not suggest that my proposition about limiting the rights to residents was wrong in principle. With respect to the noble Lord, Lord Whitty, similar tests apply to vast swathes of housing law. It is, for example, a test as to whether a dwelling house is subject to a Rent Act controlled tenancy or to an assured tenancy under the Housing Act 1988.

The noble Lord, Lord Whitty, went on to suggest that landlords might start detailed investigations into tenants' private lives in order to discover whether or not they were resident. I suggest that that approach tilts at windmills. Normally, it is very easy to say whether or not someone is living in a property. The idea of a landlord setting up 24-hour surveillance of a flat to establish how often the particular tenant occupies it is, frankly, absurd. Therefore, I believe that the issue is not the practicality of the residence test--because such difficulties as there may be can be met--but whether the principle is correct. I draw comfort from the words of the noble Lord, Lord Whitty.

However, I recall that the noble Lord, Lord Goodhart, having tabled amendments similar to this one, resiled from that position--I say that in the nicest possible way--and gave a very compelling explanation of why in Grand Committee. Having tabled this amendment, I nevertheless understand the point of view expressed by the noble Lord, Lord Goodhart. I wonder whether tonight the noble Lord is inclined to go in to bat again or is content to leave it to the noble and learned Lord to bat on his behalf.

Lord Falconer of Thoroton: I am only sorry that I did not hear the argument of which I am to be deprived. I deal first with the suggestion of the noble Lord,

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Lord Goodhart, that the landlord should not have the right to be a member of the RTM company. Our proposed right for landlords to become members of the RTM company was the subject of some dispute when this Bill was previously before the House. Leaseholder representatives have expressed considerable concerns about it, and I appreciate that many of them are genuine. However, correspondence received by my officials on this issue suggests that a good many of those concerns are based on a misunderstanding of what is being done in this Bill. I believe that it is important, therefore, to make our intentions clear.

It is true that, put in simple terms, the right to manage is a right to allow leaseholders of flats to gain management control of their block. What it is not, however, is a right to kick out the landlord. Many Members of the Committee who recall the previous Committee stage of this Bill will remember my noble friend Lord Whitty emphasising on a number of occasions that this was a "no fault" right to manage. That point has been acknowledged by the noble Lord, Lord Goodhart, in moving the amendment. That remains a key point which will continue to be stressed on our side throughout the passage of the Bill. Our emphasis on no fault is not intended to be a convenient smokescreen behind which to hide. The landlord will continue to have a legitimate property interest in the building once RTM is acquired. By the same token, the landlord will have an ongoing interest in its management.

Furthermore, because the acquisition of the right is not linked to any process of proving that the landlord has been a bad or negligent manager--hence "no fault"--there is nothing which justifies our ignoring that interest and cutting the landlord entirely out of the management process. The noble Lord, Lord Goodhart, seeks to circumvent that point by saying that frequently bad management will provoke the process by which RTM is instituted. With the greatest respect to the noble Lord, that is not a sufficient answer. There is a no-fault process here. The landlord retains an interest in the property and, as a member of the RTM company, he is entitled to have that retained property right respected.

I believe that there is much common ground between ourselves and the noble Lord. We disagree over how best to ensure that the landlord's legitimate interests are safeguarded. Our view is that the best way to provide for this is to allow the landlord to be a member of the RTM company. That will put him or her on a similar footing to any one of the qualifying leaseholders, with the same rights to receive information and to suggest the best way forward for the management of the property. I suspect that this may be seen as somewhat heretical, but it would even allow the landlord and leaseholders to work together in managing the block in which they all have a property interest.

At Second Reading--or, as the noble Lord, Lord Goodhart, labelled it, Fourth Reading--the noble Lord suggested that the RTM company should deal

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with the landlord at arm's length. The noble Lord has repeated that suggestion tonight. Our view is that that would be a more complicated and, in many ways, less satisfactory way to address the problem. As the Bill stands, it is his membership rights which provide for a proper relationship between the landlord and the RTM company. There is certainly nothing in the Bill as it stands which would properly provide for an arm's length approach. If the noble Lord's amendment were accepted, therefore, under the Bill there would not be any structured relationship between the landlord and the RTM company. In effect, he would be excluded from the process. The question of how he became involved in the process would be a matter to be determined ad hoc in the particular case. Our view remains that the Bill is right as it stands.

I move to the amendment in the name of the noble Lord, Lord Kingsland. As the noble Lord pointed out, the noble Lord, Lord Goodhart, had suggested at Second Reading that it would be wrong to allow a non-resident landlord to be a member of the company. I understand from the noble Lord's closing remarks that the noble Lord, Lord Goodhart, resiled from that position for reasons very persuasively put but not set out by either noble Lord. I hope that the noble Lord, Lord Kingsland, will not mind my noting that in Amendment No. 100 he proposes that a leaseholder who is not resident in the property should not enjoy any membership rights. The two noble Lords have taken the same principle, albeit at different times, and each has applied it to one of the groups that the Bill permits to be a member of the company.

I believe it is clear from what has been said that the noble Lord, Lord Goodhart, would not support the noble Lord, Lord Kingsland, in his amendment, and I assume that the noble Lord, Lord Kingsland, would not support the current position of the noble Lord, Lord Goodhart, although he might have supported the noble Lord's previous position. The noble Lord nods his head.

Our view on this matter is governed by two principles. First, we cannot agree that different eligibility rules should apply to different people. I believe that both noble Lords agree with that. We believe that there should be one governing criterion, namely whether a person has a significant stake in the property in question. The Bill already enshrines that principle. We believe that that is the principle, not residence. Secondly, we are generally of the view that any form of residence test is undesirable. It exists in other housing legislation but, as the noble Lord, Lord Kingsland, is aware, experience has shown that tests of this nature are open to abuse and confusion. There is contention about what constitutes residence. It is for such reasons that our Bill generally takes the approach of removing or replacing residence tests. That is also the reason why we do not favour the creation of another one here. That is the problem in applying the residence test.

But I make clear that the principle on which membership rests is whether or not the person has a significant stake in the property in question. We remain of the view that that is the correct approach

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and, therefore, we cannot agree that the approach in Amendments Nos. 96, 100 and 145 is correct. The right to manage is neither pro-landlord nor anti-landlord; rather, it is a measure to ensure that management rights balance property interests. As a holder of a stake in the property, the landlord is a part of that balance.

Perhaps I may deal very briefly with Amendment No. 97 to which the noble Lord, Lord Kingsland, referred in the debate on the previous group of amendments but did not repeat in relation to this matter. The right granted to landlords to be a member of the RTM is a qualified one. A landlord may become a member of an RTM company only after the date on which that company acquires the right to manage that property, whereas the amendment would allow him to become a member at any time. The qualification that he gets that right only after the company acquires the right to manage is there for a sensible, practical reason. Before it can acquire the right to manage the RTM company is required to serve a claim notice on a range of existing management parties, including all of the landlords. That allows the recipients to satisfy themselves that the leaseholders are properly entitled to the right to manage.

If any of the landlords were to be a member of the company at that stage they would be both the people being notified of a claim and a part of the body which notified them. To our minds, that would not make sense. It would also give unscrupulous landlords a double opportunity to cause problems and delay. Not only would they be able to dispute the entitlement of the RTM company; they would also be able to try to slow down the process from within the company. We do not want to open up that eventuality. For that reason, we cannot allow any of the landlords, including the freeholder, to become members of the RTM company before it acquires the right to manage.

As I have said, our Bill already strikes a sensible balance. It allows the landlords to protect their legitimate interests once the right is acquired but prevents them interfering before that date. We believe that that is the right solution.

In the light of the remarks that I have made, I hope that the noble Lord, Lord Goodhart, will withdraw his amendment and that the noble Lord, Lord Kingsland, will not move his.

9 p.m.

Lord Kingsland: Before the noble and learned Lord sits down, my view has always been that the right ought to belong to residents who can be proved to be residents. I had thought that the noble Lord, Lord Whitty, agreed with me when the matter was discussed in Grand Committee but said that it will not work because defining in the Bill exactly who is a resident is too difficult. I think now that the Government are saying that the real test is not the residence test but--I might almost say a stakeholder test--it is whether or not one has a stake in the property.

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All my instincts have been against that. However, by far and away the greater number of leaseholders who have lobbied me during the passage of the Bill have taken the Government's view and not mine. So I shall not be tabling the amendment on Report.

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