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Lord Kingsland: My Lords, it is clear from what the noble and learned Lord has said, not only today but in Committee, that he believes that the solutions I sought to the problem have proved unworkable. Perhaps I may ask him a further question. Does he believe that there is a problem? It is clear that a central feature of town and country planning policy is the promotion of mixed development. It must follow that it is highly desirable to co-ordinate the law so that it assists mixed developments to be built around the country. Does the
noble and learned Lord believe that the proposals in the Bill will inhibit mixed developments in the future? If he does, does he have a better solution than the one I have proposed?
Lord Falconer of Thoroton: My Lords, no, I do not believe that it would inhibit mixed developments. The noble Lord, Lord Kingsland, is right to say that, looking at developments as a whole, we would in planning terms want to encourage mixed development. We believe that it is an important policy aim.
We do not believe that the legislation would remotely discourage mixed development. It is an issue with which we have all wrestled during the course of the Bill. The department, the noble Lord and we believe that it is the best solution that can be devised.
Lord Kingsland: My Lords, I thank the noble and learned Lord for that reply. I am surprised that his department has concluded that the proposals will not inhibit mixed development. It is an area on which I have been most substantially and intensively lobbied by various interests. All of them take the view that the proposals will indeed inhibit mixed developments; but we shall see what happens. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 6 [Premises excluded from right to manage]:
Lord Falconer of Thoroton moved Amendment No. 25:
- Page 33, line 26, leave out "for the purposes of this Chapter"
On Question, amendment agreed to.
The Deputy Speaker (The Viscount of Oxfuird): My Lords, in calling Amendment No. 26, I must advise the House that "(2)(c) above" in the proposed new subsection (2B) as it appears on the Marshalled List should read "(2A) above".
Lord Kingsland moved Amendment No. 26:
- Page 33, line 31, at end insert—
The noble Lord said: My Lords, the purpose of the amendment is to ensure that RTM companies have sufficient working capital to meet the day-to-day problems faced by a management company. The Government propose that RTM companies should be companies limited by guarantee with each member of the company liable to contribute £1 to the company in the event of insolvency. In other words, RTM companies have effectively no start-up capital at all.
The problem to which I have adverted on previous occasions is that, like any small business, an RTM company needs some capital. If, for example, repair works exceed their estimate, the RTM company will need to be able to pay the builder. If a recalcitrant lessee refuses to pay his service charge, the RTM company will need to bring legal proceedings for recovery of the service charge. Without any capital, an RTM company will be inhibited by these everyday problems of property management.
In Committee, the noble and learned Lord, Lord Falconer, said that he could well appreciate concerns that the leaseholders who take over the management of the property should have the necessary funds behind them to do the job properly. That, I thought, was a promising observation. The noble and learned Lord continued by saying that the Government agreed and strongly encouraged them to do so. "Better and better", I thought! But the noble and learned Lord then brought me back to earth by saying that it was a matter for guidance and not for the face of the Bill.
The problem for this side of the House is to identify how guidance can actually assist in ensuring that RTM companies have sufficient capital to operate. The only way in which working capital can be assured is for members of the company to be under some legal obligation. The classic form of legal obligation would be for the members each to have a shareholding obliging them to put up a certain amount of capital. The Government, however, have set their face against RTM companies being companies limited by shares and insist that RTM companies must be companies limited by guarantee.
The reason, the Government say, is so that RTM companies can simultaneously be RTE companies. This amendment seeks to avoid that difficulty—if difficulty it really is—by making RTM companies those limited by guarantee. The other advantage of the amendment I propose is that the tenants will not, actually, have to put their hands in their pockets when they set up RTM companies. The obligation entered by a member of the company limited by guarantee is an obligation to pay in the event that the company becomes insolvent.
When the matter was originally debated, the noble Lord, Lord Whitty, was very concerned at lessees being priced out of the RTM market. This amendment avoids that risk. What the noble Lord, Lord Whitty, never addressed was the real problem of how to ensure adequate working capital for RTM companies. Neither has the noble and learned Lord, Lord Falconer, indicated what guidance may be forthcoming.
Both the noble Lord, Lord Whitty, and the noble and learned Lord, Lord Falconer, seem to want to appear in the somewhat unaccustomed role of good fairies who can wave their wands and ensure that all is sweetness and light, with RTM companies able to manage buildings without any need for capital reserves. While no doubt that will find them favourably placed when the auditions for the next "Harry Potter" film are held, for the rest of us, who have no hotline to the ministry of magic, I commend the amendment. I beg to move.
Lord Monson: My Lords, the noble Lord, Lord Kingsland, has not spoken to Amendment No. 29, which is grouped with Amendment No. 26. Am I right to assume that Amendment No. 29 has been mistakenly grouped with Amendment No. 26, with which it appears to have no affinity, and should be in the next group which comprises Amendments Nos. 27, 28 and 65?
Lord Kingsland: My Lords, I am very grateful to the noble Lord. I had intended to speak later to that amendment and failed to spot that it was grouped as it is. Perhaps the noble and learned Lord will allow me to speak to it in the next grouping.
Lord Falconer of Thoroton: My Lords, of course. The point that the noble Lord raises in Amendment No. 26 is that people who wish to become members of an RTM company must agree to give a guarantee to the company that is equivalent to two years' worth of service charges. As ever, quite fairly the noble Lord referred to the argument advanced by my noble friend Lord Whitty. The answer is that it would price very large numbers of people who would want to join such a company—and, therefore, discourage RTMs—out of the market. We believe that that factor is sufficient to indicate that this is a bad proposal.
Perhaps we may look at the actual sums that would face those who wished to join RTM companies. We understand that the Association of Residential Managing Agents carried out a survey of its members three years ago to find out what might be considered to be a typical annual service charge. That survey found that a reasonable estimate for outside London was £800 a year and for inside London about £1,200 a year. While those are estimates, it means that the guarantee which would have to be provided by an individual before he could become a member of an RTM company would be approximately £1,600 to £2,400. Furthermore, if the noble Lord's amendment was accepted he would be asked to agree that this liability should be left to hang over him, with no indication of when, or even if, it would be called upon and how it would fit into the cycle of paying the mortgage and bills, feeding the family and so on.
Frankly, we believe that the prospect of such a liability would put all but the hardiest and wealthiest off the prospect of exercising the right to manage. We fully appreciate that the proposal of the noble Lord,
The right to manage is granted on the basis that the leaseholders already hold the majority share in the property and, therefore, should be able to control how their assets are managed. As such we are allowing people to manage their own homes. We believe that that should be done in the same way as any other person is allowed to manage his own home, be it leasehold or freehold. We trust leaseholders as home owners to take sensible and informed decisions about how the block should be managed. Guidance will make clear to them that that will involve finding the money to look after their homes, and that may include the need for some kind of start-up capital for the RTM company. We are even prepared to look at that issue as part of the work on the company constitution, albeit without any commitment as to what may come out of it. But we cannot agree to the introduction of what is effectively a requirement on leaseholders to pay or undertake a liability to manage their own homes.
I hope that in the light of what I have said the noble Lord, Lord Kingsland, is prepared to withdraw his amendment.
"(2A) The sum to which each member of an RTM company undertakes to contribute to the company's assets if it should be wound up whilst he is a member, or within one year after he ceases to be a member, for payment of the company's debts and liabilities contracted before he ceased to be a member, and of the costs, charges and expenses of winding up and for the adjustment of the rights of the contributories among themselves shall be the minimum sum, as defined in subsection (2B) below.
(2B) The minimum sum mentioned in subsection (2)(A) above shall be the following amount, namely the greater of—
(a) the total service charge and rent payable by tenants in respect of the premises in the two years prior to the acquisition date, or
(b) twice the average service charge and rent payable in respect of the premises in the five years prior to the acquisition date,
in each case divided by the number of members of the RTM company."
5 p.m.
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