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Lord Goodhart: My Lords, as a member of the Bar, I cannot speak on behalf of the Law Society. However, speaking for myself—and I am sure that the Law Society would concur—we are grateful that the noble Lord and the department concerned have given favourable consideration to at least a significant number of the amendments proposed by the Law Society. Therefore, I welcome the proposed amendments in this group standing in the name of the Lord Chancellor.

On Question, amendment agreed to.

Clause 85 [Deemed withdrawal]:

Lord Bassam of Brighton moved Amendment No. 43:

"( ) Subsection (1) does not apply if the person by whom the counter-notice was given has, or the persons by whom the counter-notices were given have, (before the time when the withdrawal would be taken to occur) agreed in writing that the RTM company was on the relevant date entitled to acquire the right to manage the premises.".

The noble Lord said: My Lords, I beg to move.

On Question, amendment agreed to.

Clause 90 [Duties to give notice of contracts]:

Lord Kingsland moved Amendment No. 44:

    Page 46, line 8, at end insert—

"(8) Unless the contractor party and the RTM company otherwise agree in writing within a period of 28 days after service of a contract notice, the management contract shall continue in full force and effect from the acquisition date as if it had been

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made between the contractor party and the RTM company and not with the manager party, save that the RTM company shall have no liability under it for breaches on the part of the manager party occurring prior to the acquisition date.".

The noble Lord said: My Lords, I rise to move Amendment No. 44 but shall not say anything about it because the matters to which it relates have already been covered as a result of the noble and learned Lord's response. However, it is important that the noble Lord, Lord Goodhart, has an opportunity to speak to his Amendment No. 45.

Lord Goodhart: My Lords, I am not sure whether or not the noble Lord moved Amendment No. 44.

Lord Kingsland: My Lords, I did not speak to Amendment No. 44, but I beg to move.

Lord Goodhart: My Lords, now that it is clear that that amendment has been moved, I speak to my Amendment No. 45 without, of course, moving it. The proposal within it is substantially to the same effect as Amendment No. 44 moved by the noble Lord, Lord Kingsland.

He took the view that his alternative suggestion—that the one-month notice period between the RTM becoming entitled to take over management and its actually doing so should be increased—was satisfactory. I see that it is in some sense an improvement. However, our proposal, which is basically for a statutory novation of existing contracts, is preferable. That is partly because there may be several contracts that are unjustifiably destroyed or frustrated because they run for longer than three months, or whatever the period that the Government eventually choose.

Our proposal is also preferable because it is undesirable for there to be any significant delay between the RTM company becoming entitled to exercise its powers and its actually doing so. Once the RTM company becomes entitled to exercise the powers of management, the relevant time should be kept at a minimum, subject to the RTM company's power to extend it if it is, for example, having difficulty finding a suitable managing agent. As soon as the RTM company is ready to go, it should be allowed to do so.

The proposal that contracts should be frustrated is seriously damaging to the RTM company and in many cases to contractors. We can envisage various possible scenarios. I am grateful to a correspondent company for raising in a letter to me the examples that I am about to give. The first example is that of a lift maintenance contract. Such a contract is required under safety legislation to be enforced at all times. The RTM company may be unaware of the need to ensure that the lift maintenance contract is in force; it may accidentally fail to renew it because it is concerned with other problems. It therefore seems to us that that is a clear example in which it would be desirable for an existing contract to be preserved for the benefit of the RTM company.

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Another example is that of a contract gardener who was not previously an employee of the landlord but, because he looks after two or three blocks—he does so in the course of his business—he may look after the gardens of the particular block that the RTM company is taking over. Suppose that the gardener has a contract that lasts for a year at a time. He will lose a significant part of his rights, without any right to compensation, if the RTM company decides not to offer to renew his contract. It might decide instead to use the voluntary work of tenants, not to maintain the garden or to employ another contractor to do the work. Again, we think that that would be inappropriate. In such a case, the RTM company should be bound by the existing contract.

I turn to perhaps the most significant example. Substantial works, which may take several months, may have to be done on the property. They may involve a major operation such as re-roofing the building. Depending on the timing, there is a significant possibility that the contract would be determined half-way through the roofing work. In such circumstances, the roofing contractor might be in a position to insist on a renegotiation of the contract, which would give him substantially greater payment than he was entitled to under the original contract.

We believe that it is plain that there should be a statutory novation of existing contracts relating to the management of the property. There should be limited exceptions to that. They are set out in paragraph (3) of the amendment as being circumstances in which the RTM company should be entitled to cancel the contract. They would arise out of what was essentially misconduct by the landlord, who may have entered into contract with a company that was, for example, associated with him or his friends. That might require payment that was in excess of the proper market price, it might require work to be done that was not genuinely needed for the benefit of the property or it might involve a contract with a person who was unfit to provide the work or services that were contracted for.

In those cases, the RTM company should have the right to cancel the contract. Failing those circumstances, we believe that the arrangement is in the interests of both the RTM company and the contractor—admittedly, however, in some cases it may be in the interests of one rather than the other. The roofing contractor would no doubt be rather pleased if he was in a position to insist on substantially higher payment. It is right and proper that contracts should continue, except in the special circumstances that are outlined in paragraph (3) of the amendment.

6.15 p.m.

Lord Falconer of Thoroton: My Lords, I shall speak, if I may, only to the unmoved amendment of the noble Lord, Lord Goodhart, on the basis that, in view of what I said in relation to the previous group of amendments, the noble Lord, Lord Kingsland, said that he had not spoken to Amendment No. 44.

13 Nov 2001 : Column 508

We have grave concerns about Amendment No. 45 for several reasons. First, it would not give contractors the right to decide whether they would or would not wish to work for an RTM company. We have grave concerns about that. I acknowledge that the noble Lord is seeking to be helpful to the RTM company by ensuring that it is supported by some contracts from the start. That is obviously commendable. However, we believe that binding the contractor into working for the RTM company against his will will cause more harm than good. We are extremely concerned that some contractors, particularly those who are linked to the landlord, would deliberately fail to provide a proper service. They could even be actively disruptive. I do not think that leaseholders would thank us for that.

The amendment of the noble Lord, Lord Goodhart, is specifically designed to avoid the problems that are associated with sweetheart contracts. Under that approach, all contracts would carry over, but the RTM company, as the noble Lord said, would then have rights to terminate individual contracts on specified grounds.

Even if one got to that point, we still have considerable concerns about the noble Lord's suggestion. While we accept that Amendment No. 45 is reasonably fair to the RTM company, we believe that it is fundamentally unfair to the contractors. To our mind, the grounds for the termination of contracts—those in paragraph (3) of the amendment—are somewhat vague and subjective. We believe that it would be open to an RTM company to terminate almost all transferred contracts. There is certainly nothing in the amendment that would stop them.

I turn to the examples that were suggested to the noble Lord by a correspondent company and in particular to that involving the lift maintenance contract. It is not clear under the amendment what would stop the RTM company, if it wanted, from cancelling that contract—that also applies to the contracts in the other examples. As I understand it, the amendment in effect says, "You can determine if, in the opinion of the directors of the RTM company, the charges were excessive, the services were inappropriate or the supplier of the services was not fit or proper to provide those services". That is not a matter of objective assessment; it involves the opinion of the directors. It is hard to imagine them not being able to say, in relation to practically any contract, "I think that that is too expensive; let us try and do better", or, "We, the RTM company, think that those services are not appropriate; let us get them from somebody else". We believe that it would be open in those circumstances to terminate practically all transferred contracts.

It could of course be argued that the RTM company may act reasonably in order to avoid being taken to court by the contractor. But what is to stop unscrupulous contractors such as those who have been set up under earlier contracts threatening to take the RTM company to court anyway, even if the termination was justified?

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On the one hand, therefore, we could have arbitrary termination with no recourse for the contractor. On the other, we could have the RTM company unprepared to terminate any contracts because of the risks, no matter how unhappy it is with the contract. We do not think that either outcome is desirable.

We appreciate the concern underlying the amendment but we do not think that the amendment achieves the right outcome. We therefore continue much to prefer the approach taken in the Bill. This will allow the RTM company and the contractors to work matters out by negotiation. No one is forced to work for anyone else against his will. We accept that in some cases that may mean that the RTM company loses the benefit of existing contracts. That is no different from the situation an RTE company would be in when it starts to manage after enfranchisement. And we believe that it is infinitely preferable to trampling over the rights of either party.

However, as was said when I spoke to Amendment No. 39 we believe that a longer time period is needed than is provided for currently. We need to give all parties, in particular the RTM company, a decent amount of time to prepare for management and to make sure that the right contracts are in place from the outset. As I said earlier, we see on reflection that one month is not long enough for that. We have undertaken, therefore, to consider and bring forward an appropriate amendment on that issue in another place. As we do that we shall take into account the concerns expressed by noble Lords today and on earlier occasions. But we cannot agree to the amendment of the noble Lord, Lord Goodhart. We hope that he will not press it.

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