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Lord Kingsland: My Lords, I supported the residency test until the Committee stage a few weeks ago. I gave my reasons during the previous proceedings as to why I would not table those amendments again at Report stage. However, I share, entirely, the concerns expressed by the noble Earl, Lord Caithness, and other noble Lords, as regards the powers which are seen to accrue to the head lessee in the Bill as now drafted. I shall be extremely interested to hear what the Minister has to say.
Lord McIntosh of Haringey: My Lords, there are two issues here which are related but not the same. The first is the residence test and the second is about head lessees. The noble Earl, Lord Caithness, asked me to deal with the residency point as a matter of principle rather than criticising the wording of the amendments. I am not doing that. As far as I can see they would achieve their intention. But the noble Earl referred to causes of discontent about the residency test and that is the point.
It is not an issue of principle, but it has been a cause of considerable discontent. Those tests have been open to abuse and confusion over many years. We firmly believe that it is right to base eligibility on whether or not the leaseholder has a significant stake in the property. We are confirmed in that view by the fact that the noble Earl is on his own now. The noble Lords, Lord Williams of Elvel, Lord Goodhart and Lord Kingsland and the noble Baroness, Lady Gardner of Parkes, have peeled off. There are no other supporters for that view.
However, the noble Earl raised a point on which he has a great deal of support; namely, the issue of head lessees. We are aware of the concerns which he
expressed at Second Reading and now that the head lessee of a house converted into flats may be able to enfranchise under the 1967 Act and then receive a substantial profit if the under-lessees of the flat collectively are enfranchised under the 1993 Act. We are not certain that that is the effect of the Bill. We are currently considering the position. It is not our intention that head lessees should be put into that position. If we are convinced that that is the effect of the Bill, we shall certainly consider introducing amendments to prevent the problem. That would have to be done in another place rather than at Third Reading in view of the complexity of the argument. We certainly recognise that genuine concerns have been expressed on the matter.
The Earl of Caithness: My Lords, I am very grateful for that reply. There is genuine concern on this matter which needs urgent attention. I am very grateful that the Government are considering it. If there is a chance of consultation with the Minister I shall be very happy to join in. I thank those noble Lords who supported me on the principles I raised, including the noble Lords, Lord Williams of Elevel, Lord Goodhart, Lord Monson and my noble friends Lady Gardner of Parkes and Lord Kingsland.
The noble Lord, Lord McIntosh of Haringey, said that I was totally against the abolition of the residency test. I am not. If the noble Lord reads with care what I said, he will see that I did try to come forward with a solution to the company's problem. That was also addressed by my noble friend Lady Gardner of Parkes. There has been abuse. I was trying to help the genuine resident. What I am not trying to do is to help the intermediary property companies some of which none of us would want to see owning blocks in our cities. I am extremely grateful for what the noble Lord, Lord McIntosh, said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Goodhart moved Amendment No. 64:
- Page 59, line 14, at end insert—
The noble Lord said: My Lords, this amendment deals with the problem of what happens to an RTM company when some of the leaseholders in the property decide to proceed to enfranchisement. There may be members of the RTM company involved in the management who do not wish to proceed to enfranchise because they are unable or unwilling to commit themselves to spending what could possibly be quite a substantial sum of money to buy out the freehold.
Under the Government's original proposals it was possible for an RTM company to convert to an RTE company, but one could not have both in the same
The Government moved part of the way to deal with the problem by saying that an RTM and an RTE company could co-exist in the same property. That would make it at least possible for those who wish to enfranchise to set up a separate company and proceed to enfranchise. But where there was a clear majority of the members of the RTM company, it would still be possible for them, as the Bill now stands, to proceed to convert into an RTE company.
We believe that that would put anyone who did not wish to enfranchise into a position where they would either have to find the money, which they might be unable to do, or give up their membership of the RTM company and their involvement in management. We believe that is unfair. What we propose in this amendment is that the RTM company should not be able to convert to an RTE company without the unanimous consent of all its members. That would mean that if someone wanted to stay and be involved in management, but not to enfranchise, they could block the converging of the existing company. But there would be nothing to stop those wishing to enfranchise to proceed to do so by way of setting up a separate RTE company. The purpose of the amendment is to ensure that the rights of those who want to continue to be involved in management but do not want to proceed to enfranchisement are preserved, whatever the views of the other members of the company. I beg to move.
Lord Falconer of Thoroton: My Lords, we appreciate the concerns about members of an RTM company who do not participate in a subsequent enfranchisement. The Bill provides that any such leaseholders will cease to be members of the company on completion of the enfranchisement. The reason for that is that after enfranchisement conflicts of interest might well arise between those leaseholders who respectively did and did not participate in the enfranchisement. For example, there might be differences of view between them as to how the proceeds of sales of leases should be used or distributed. If the non-participants were still members of the company, the company directors would find themselves in a very difficult position as a result of their accountability to the entire membership.
As the noble Lord, Lord Goodhart, pointed out, since the original Bill was introduced we have removed the bar on there being separate RTM and RTE companies for the same premises. This will mean that where RTM has been exercised and a proportion of the members wish to proceed to enfranchisement, they would now be able to set up a separate RTE company for the purpose and non-participants would be able to continue to participate in the management of the building.
It is correct that a non-participating minority would not be able to force the participating members to take that approach, although in many cases doing so would clearly promote harmonious relations for the future management of the building. But we are not convinced that forcing the participants to use a separate company would be justified. That would be the practical effect of the amendment. Securing unanimous support for any proposition can be difficult. Given that the landlord is entitled to membership of the RTM company, unanimous support may prove to be impossible. The noble Lord, in nodding, indicates his earlier amendment. I recognise the noble Lord's view that a landlord should not be a member of an RTM company, but, as he knows, for the reasons we have given we are unable to accept that.
One of the reasons we have proposed the use of prescribed companies is to make it easy for leaseholders to progress from the right to manage to enfranchisement. Furthermore, if a majority are forced against their wishes to set up a separate company, there would be nothing to prevent them winding up the RTM company once enfranchisement had taken place.
Non-participating leaseholders would still have the benefit of general rights under leasehold law, including the right to be consulted on major works and the right to challenge unreasonable service charges. These rights are being strengthened by other provisions in the Bill.
I hope that in the light of what I have said the noble Lord will feel able to withdraw his amendment.
Lord Goodhart: My Lords, I have not been persuaded but I do not intend to press the amendment further today. I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Lord Goodhart moved Amendment No. 66:
The noble Lord said: My Lords, the amendment is intended to ensure that where there has been an enfranchisement by lessees, where a lessee who is a member of the RTE company signs the lease, the assignee will become a member of the RTE company. Membership of the company, and therefore ownership of the property, will not become separated from the right to hold a lease on the property. It is essential that once there has been an enfranchisement, it and the leases of those who are participating in it should remain permanently linked together. If not, we shall ultimately have a body of absentee landlords with an interest in the freehold but no leasehold interest in the property. That would be undesirable.
I understand that the Government may be prepared to deal with the matter in a different way. Instead of putting such a provision on the face of the Bill it would be included in the model memorandum and articles of an RTE company. The Government will take the point, which is legitimate, that in such circumstances one cannot force someone to become a member of a company, although it is inevitable that he will want to do so.
If that is the Government's intention, I should be willing to accept it as a way of achieving my objective; that is, to ensure, one way or another, the permanent linkage between ownership of the freehold through an RTE company and the holding of a lease in the property in question. I beg to move.
"(4) A company which is a RTM company may not become a RTE company except by a resolution passed with the affirmative vote or written consent of all its members.
(5) In this Part, "RTM company" has the same meaning as in Chapter 1 of Part 3 of the Commonhold and Leasehold Reform Act 2001."
Page 60, line 17, at end insert—
"4BA RELEVANT CONVEYANCE TO RTE COMPANIES
(1) In this section—
(a) "relevant tenancy" means the tenancy of a flat contained in premises which were the subject of a relevant conveyance (as defined in section 4B) to a RTE company; and
(b) "relevant tenant" means a person who at the time of the relevant conveyance was a participating member by virtue of holding a relevant tenancy and includes any successor in title of that person.
(2) After the executions of the relevant conveyance to the RTE company, on the assignment of a relevant tenancy by a relevant tenant—
(a) the assignor (unless he is also a relevant tenant under a relevant tenancy of another flat in the same premises) ceases to be a member of the RTE company; and
(b) the assignee (unless he is already a member of the RTE company) shall become a member of the RTE company."
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