| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Lord Kingsland: My Lords, I thank the Minister for his comprehensive reply. I feel a little like I did when responding to the debate on the previous amendment. I believe I am right in saying that the noble and learned Lord recognises that there is a problem here. I discern from his reply that he believes at least a partial solution to the problem may be found at a later stage in the making of the regulations. If I am right about that, the Minister is saying, yes, I have identified a problem but the solution that I propose is unacceptable.
I do not propose to take this amendment to a vote; but I hope that when the Minister's department comes to draft the regulations which touch on this matter it will give serious consideration to what lies behind my decision to table the amendment in the first place; namely, that sometimes RTM companies will have substantial financial responsibilities. One of the consequences of setting up such a company could be very substantial financial outgoings in future. Bearing that in mind, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 72 [RTM companies: membership and regulations]:
Lord Goodhart moved Amendment No. 27:
- Page 34, line 5, leave out paragraph (b).
The noble Lord said: My Lords, in moving Amendment No. 27 I shall speak also to Amendment No. 65 which is consequential. There is a difference of principle between ourselves and the Government. We believe that leaseholders and a landlord may have conflicting interests, particularly at times when leases are reaching the end of their lives. In that situation the
landlord will be concerned to maintain the capital value of the property, whereas the leaseholders will be concerned relatively to reduce their liability for maintenance of the building which they may not continue to enjoy.We believe that these conflicting interests should be represented by having the leaseholders and landlord deal with each other at arm's length. After all, an RTM company will usually be formed because of dissatisfaction with the landlord. Under the existing legislation it must be shown that the landlord has misbehaved. Under this Bill it will not be necessary to prove any misconduct on the part of the landlord, but in practice that is likely to be the trigger. One of the objectives of the Bill is to spare leaseholders the necessity of proving misconduct which can be difficult and expensive. If they are unhappy with the management by the landlord they can take over the management themselves without having formally to prove misconduct. But it remains likely that a landlord who is looking after the premises properly and requires the payment of reasonable service charges will be left to run the building. After all, that is a time-consuming obligation and no doubt most leaseholders are perfectly happy to leave it to the landlord.
We believe that an RTM company should be a collective body for the leaseholders. The landlord, if he is not a member of the RTM company, will still have rights against the company if, for example, it fails to ensure proper maintenance of the building: even if the landlord is a member of the RTM company that will still be the case. The RTM company would then be at arm's length with the landlord. But we believe that formally it is better to have the landlord at arm's length with the RTM company, because if the landlord is a member of the RTM he will be able to interfere in the running of the company. A landlord who is a member of an RTM company and wants to be obstructive can easily take technical points on the internal management of the company—for example, the shortness of the notice of a meeting, the absence of a quorum, and so on—which he would not be in a position to take if he was not a member of the RTM company.
We accept that a landlord who is also a leaseholder of a lease under the property must be a member of the RTM company, but except in those circumstances the landlord should not have a right to be a member of the RTM company. That is likely to make the RTM company less efficient as a vehicle for management of the property on behalf of the lessees, which we believe is what it should be. That applies not only to the internal management of the company. It is possible that a particularly obstructive landlord might threaten to take proceedings for defamation about what was said in a meeting of the company. We believe that the company should not be inhibited by that kind of risk. I beg to move.
Lord Kingsland: My Lords, I rise to speak to Amendments No. 28 and 29. Amendment No. 29 was not included in this group, but the noble and learned Lord agreed that it could be.
The question of the involvement of a landlord in the continuing management of the block is one where, when the matter was previously debated, your Lordships' House divided in three ways. We consider that a landlord who wants to exercise the right should have one seat on the board of directors. The Liberal Democrats take the view that a landlord should have no involvement in the management or in the RTM company. The Government suggest that the landlord should be a member of the RTM company but should not have an automatic right to a place on the board.
We consider that it cannot be right to exclude the landlord altogether. The landlord, after all, has some interest in the block. Where leases have only a short time to run, a landlord's interest in the building may be greater than that of the lessee. That interest should be expressed by giving the landlord some formal role in the management of the block.
The Government's position recognises the landlord's interest but seeks to meet it in an unsatisfactory manner. The Bill, as presently formulated, gives the landlord membership of the RTM company but gives him no further rights. Membership of the RTM company gives the member a right to attend the annual general meeting of the company and any extraordinary general meetings which may be held. It gives a right to receive the accounts. They would be available from Companies House in any event. It also gives him the duty to contribute the sum of £1 to the RTM company on its insolvency.
We do not consider that those provisions adequately recognise the landlord's interest in ensuring the proper maintenance of the block of which he owns the reversion. When the matter was in Committee the main philosophical difference discussed was an issue as to residence requirement. We suggested then that the right to manage was one which should be given to residents and not to non-residents. The Government's response was that it was illogical to give non-resident landlords the right to take part in the management of a block. We have now dropped our support for a residence requirement for tenants who wish to exercise the right to manage. Accordingly, this illogicality—if such it was—drops away.
The only issue then is whether mere membership of the RTM company gives the landlord sufficient status. It seems to us that it does not. Landlords who want one should be entitled to a place on the board of directors. Many, particularly where the reversion will not fall in for many years, will not want to take up that right. Your Lordships will note that a directorship is unpaid unless a service contract is entered into between the company and the director. Thus a landlord would have no immediate financial incentive to take up a directorship.
Baroness Hamwee: My Lords, we cannot support Amendment No. 29, to which the noble Lord, Lord Kingsland, has just spoken, for the reasons given by my noble friend with regard to shareholders. Indeed, it would compound the position. That concerns us. As my noble friend said, there is a relationship between
the landlord and the RTM company which is quite separate from that of co-shareholders in a company and that among a board of directors and between directors and shareholders.We expressed our concern that as shareholders at meetings would be able to use procedural matters to more than procedural advantage, that would be available, perhaps in spades, to an unco-operative, unhelpful landlord by using his position as director. Can the Minister confirm that a landlord who, as an individual—I am not quite sure how the amendment works where the landlord is not an individual, but that is perhaps being picky—is helpful and constructive and can make the RTM company work well, will be eligible to be elected as a director by the shareholders?
5.15 p.m.
Lord Falconer of Thoroton: My Lords, under the present arrangements, yes, he could be. It would be a matter for members to decide who they want as a director. If the members want the freeholder, assuming he is an individual, to be a director, it would be open to them to elect him. The noble Lord, Lord Kingsland, did not deal with Amendment No. 28. Amendment No. 27, tabled by the noble Lord, Lord Goodhart, takes away the right of landlords to be members of the RTM company. Amendment No. 65, which is in the same group, does likewise for a company which is both an RTM and an RTE company.
We have listened carefully to the arguments put forward by the noble Lord, Lord Goodhart, today and in both previous Committee stages. For the reasons that we gave on both those occasions, unfortunately, we remain unpersuaded by his arguments. The right to manage is intended to redress the imbalances caused by the leasehold system. We do not want to create one imbalance while seeking to remedy another. That is precisely what the amendment of the noble Lord, Lord Goodhart, would do.
The arrangements for membership of the RTM company are based on the principle that everyone who has a significant stake in a property should be able to have a say in its collective management. That means that a landlord with a minority stake in the property will no longer be able to exercise a monopoly control over its management. However, it also means that we cannot disregard that minority stake. To do so would be to move from an unjustified monopoly on the part of the landlord to an equally unjustified monopoly on the part of the leaseholders.
The noble Lord, Lord Goodhart, argued in Committee that the landlord is likely to be a disruptive member of the RTM company. He repeated that argument today. He frequently said that the circumstances in which the right to manage would be exercised would be where there was difficulty or problems with the landlord. We believe that that presumption is both an unfair generalisation and inappropriate in this context. This is, as the noble Lord knows, a "no fault" right. There is nothing which requires the acquisition of the right to be in any way
tied to the previous or projected future conduct of the landlord. To suggest, as is implicit in this amendment, that the landlord cannot ever be trusted is effectively to pronounce him guilty from the start, and guilty without any opportunity to be proved otherwise. We recognise that any member of the RTM company may want to try to be obstructive. That needs to be taken account of in the overall RTM framework. It is for that reason that we intend to make voting rights in the company properly proportional to interest in the property, as embodied in the draft constitution which noble Lords have already seen. That will stop any obstructive minority from being able to block the working of the company. We cannot accept the amendment and therefore we ask the noble Lord to withdraw it.Amendment No. 29 was spoken to by the noble Lord, Lord Kingsland. It allows the freeholder to appoint at least one of the directors of the RTM company. The noble Lord referred to the circumstances in which the freeholder might have a substantial share in the property. He said that that was the way that those interests can be safeguarded. He will, of course, be aware that for the right to manage to be acquirable for a property, the freeholder of the property will necessarily have a minority interest in the property. We are therefore somewhat confused as to why that minority interest should enjoy special treatment through being able to appoint a director. Why, for example, are the individual leaseholders not also able to appoint a director each in the interests of safeguarding their own individual interests? What about intermediate landlords? Surely if the noble Lord wishes to ensure that everyone's interests are properly looked after, he should extend the amendment to allow every person who has an interest in an RTM property to appoint at least one director. As I am sure the noble Lord recognises, that would be unworkable, but at least it would be fair and equitable under this proposed approach.
We acknowledge, of course, that the freeholder will be only one RTM company member against many. If he or she holds a minority view, he or she will lose a vote. The same will, of course, apply to an individual leaseholder who holds a minority view. That is democratic property management. As I have said, we can see no reason why a freeholder with a minority view is deserving of preferential treatment when compared to a leaseholder with a minority view.
That said, it is important that everyone—including the freeholder—has proper rights to safeguard their interests. As has been explained on a number of occasions, the Bill already provides for that. All affected parties can challenge mismanagement and can seek to have the RTM company removed as manager. Amendment No. 55, which we shall come onto later, supplements that.
We therefore do not agree that Amendment No. 29 is either justified or necessary. We hope that the noble Lord will not press the amendment.
Next Section
Back to Table of Contents
Lords Hansard Home Page