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Commonhold and Leasehold Reform Bill [HL]

5.27 p.m.

The Lord Privy Seal (Lord Williams of Mostyn): My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Commonhold and Leasehold Reform Bill, have consented to place their prerogatives and interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Bill read a third time.

Clause 3 [Consent]:

The Parliamentary Secretary, Lord Chancellor's Department (Baroness Scotland of Asthal) moved Amendment No. 1:

The noble Baroness said: My Lords, it may be convenient if I speak also to Amendments Nos. 2 and 3.

While developing the policy underlying the Bill, one of the important matters that we considered was the extent of the interest that a leaseholder should have in a property before their consent to conversion should be required. It was decided that a lease granted for 21 or more years was substantial enough. That period was not chosen at random—as your Lordships will be aware, it is at present the period that renders a lease subject to registration at Land Registry. Of course, the period still to run might well be less than 21 years at the time of the application to convert. Indeed, the leaseholder might have bought only the last 10 years of a 21-year lease. It seemed a reasonable limit to us. We expressed that limit simply enough by saying in Clause 3(1)(a) that consent should be required from registered proprietors

    "of an estate in the whole or part of the land".

That has the virtue of catching freeholders and leaseholders of registered leases without having to go into what would have been unnecessary definition. However, as many of your Lordships will know,

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Chapter 1 of Part 2 of the Land Registration Bill provides that leases should be registered if they are for seven or more years.

The first amendment in this group amends Clause 3(1)(a) which now refers exclusively to freeholders. The second amendment introduces a new paragraph which refers specifically to proprietors of leases purchased for a period of 21 or more years, thus leaving our policy as we had at first intended. Finally, the third amendment in the group inserts a new Clause 10 to clarify two points which were the subject of helpful comment from members of the commonhold working group. Clause 10 makes provision for dealing with liability for extinguished leases.

New Clause 10(2) puts it beyond doubt that, where there is more than one leaseholder who is required to consent under Clause 3 and does so, it is only the consenting leaseholder most proximate to the extinguished leaseholder to whom the extinguished leaseholder can look as being liable for any loss.

The way Clause 10 is drafted at present leaves some doubt as to who would be responsible for compensating a leaseholder whose lease was extinguished if there were no superior leaseholder but a consenting freeholder. The new Clause 10 makes it clear, in Clause 10(4), that the holder of the extinguished lease would look to the freeholder as the person liable for loss. I beg to move.

Lord Goodhart: My Lords, we have no objection to these amendments, but I take the opportunity briefly to raise a concern which has been communicated to me by a member of the Bar who was, I believe, a member of the leasehold working party; namely, that under the Bill the rights of some people can be extinguished as a result of consents that are given by others and then compensation is payable. But the problem is that the Bill gives no security to ensure that compensation will in fact be paid as the person who is due to pay it may be insolvent; for instance, where the person who is supposed to pay the compensation is a company in receivership and the receiver is the person who gives the consent. In that case the receiver gives the consent as agent for the company and the benefits from the conversion accrue to the debenture holder who appointed the receiver, but the liability for payment of the compensation is an unsecured liability of the company in receivership. That could, among other things, give rise to problems under the Human Rights Act because the Act is presumably not satisfied by a paper right to compensation but requires an effective right.

I am not suggesting that there is anything that can be done now, but I hope that the Minister will ask her officials to look into the matter before it goes to the other place as the rule surely ought to be that if rights are to be extinguished, before they are extinguished compensation should either actually be paid or should be secured.

Baroness Scotland of Asthal: My Lords, I am certainly happy to do that. Any consenting leaseholder

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might, of course, consent without the funds to compensate. The position of the extinguished leaseholder will be that of an unsecured creditor in each case. However, it ought not to be the case that a professional such as a liquidator or receiver should exercise the right to consent when there is a chance that he will be unable to fulfil his obligations to pay. However, we believe that this issue will need looking at. I am happy to consider it further and, if appropriate, for it to be dealt with in another place.

On Question, amendment agreed to.

Baroness Scotland of Asthal moved Amendment No. 2:

    Page 2, line 23, at end insert—

"( ) is the registered proprietor of a leasehold estate in the whole or part of the land granted for a term of more than 21 years,"

The noble Baroness said: My Lords, I have already spoken to Amendment No. 2. I beg to move.

On Question, amendment agreed to.

Clause 10 [Extinguished lease: liability]:

Baroness Scotland of Asthal moved Amendment No. 3:

    Leave out Clause 10 and insert the following new Clause—

(1) This section applies where—
(a) a lease is extinguished by virtue of section 7(3)(d) or 9(3)(f), and
(b) the consent of the holder of that lease was not among the consents required by section 3 in respect of the application under section 2 for the land to become commonhold land.
(2) If the holder of a lease superior to the extinguished lease gave consent under section 3, he shall be liable for loss suffered by the holder of the extinguished lease.
(3) If the holders of a number of leases would be liable under subsection (2), liability shall attach only to the person whose lease was most proximate to the extinguished lease.
(4) If no person is liable under subsection (2), the person who gave consent under section 3 as the holder of the freehold estate out of which the extinguished lease was granted shall be liable for loss suffered by the holder of the extinguished lease."

On Question, amendment agreed to.

Clause 36 [Enforcement and compensation]:

Baroness Scotland of Asthal moved Amendment No. 4:

    Page 17, line 20, leave out "in regulations or in a commonhold community statement"

The noble Baroness said: My Lords, in speaking to Amendment No. 4, I shall speak also to Amendment No. 5. These amendments to Clause 36 are minor in nature and are simply intended to ensure consistency of terms across the Bill.

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The first removes the reference to compensation made by virtue of this section,

    "in regulations or in a commonhold community statement"

in Clause 36(3) as it is redundant to specify where the provision will be contained because the entirety of the clause concerns the content of regulations on enforcement of commonhold duties and compensation.

The second modifies subsection (3)(a) of Clause 36 so as to permit rather than require the inclusion of a provision conferring jurisdiction on a court in provisions which determine the amount of compensation to be paid. I beg to move.

On Question, amendment agreed to.

Baroness Scotland of Asthal moved Amendment No. 5:

    Page 17, line 22, leave out "including" and insert "which may include"

On Question, amendment agreed to.

Clause 37 [Commonhold assessment]:

Baroness Scotland of Asthal moved Amendment No. 6:

    Page 17, line 31, after "required" insert "to be raised from unit-holders"

The noble Baroness said: My Lords, in speaking to Amendment No. 6, I shall speak also to Amendments Nos. 7 and 8. Amendments Nos. 6 and 7 amend Clause 37 which concerns the commonhold assessment. At present Clause 37 requires the directors to make an annual estimate of the entirety of the income required to meet the expenses of the commonhold association. This is then split between the units according to the unit percentages specified in the commonhold community statement.

However, there is arguably a missing step in the calculation. The amendments will add the stipulation that the directors must make an annual estimate of the amount which is actually to be raised from payments made by the unit-holders. We believe that this is necessary because there may be cases in which a commonhold association is able to meet some of its annual expense from other sources (for example, where a commonhold association has an income stream from rented commonhold units) so that the initial estimate is only part of the story, and it is a percentage of the amount to be raised from unit-holders that has to be allocated to each unit.

Without this amendment there will arguably be no leeway to take into consideration any other sources of income which could be used to meet the initial overall estimate because subsection (2) of Clause 37 provides that the percentages of the estimate made under subsection 37(1)(a) and (b) and allocated among the units must amount in aggregate to 100 per cent of the estimate. The amendment removes any room for argument.

I turn now to Amendment No. 8. Noble Lords should know that this minor drafting amendment was inspired by an amendment the noble Lord, Lord Kingsland, tabled in Committee but did not move. The

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amendment removes the reference to Clause 38(2)(c) from subsection 38(3) and replaces it with reference to 38(2)(b). This will clarify that the link is between the requirement for the directors to specify the percentage of the reserve levy to be allocated to each unit and subsection 38(3) which makes further provision concerning these percentages. I beg to move.

On Question, amendment agreed to.

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