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Lord Kingsland: As the noble Lord, Lord Goodhart, indicated, I have four amendments in this group, of a somewhat more technical nature than his, and I crave the indulgence of the Committee to allow me to devote a little time to each of them. I accept that there are incompatibilities between my amendments and the amendment tabled by the noble Lord. I also accept that should he win the day and I lose it, I shall, of course, have to accept that. The fact that my amendments are incompatible with his amendment does not mean to say that I think his has no merit.
I speak first to Amendment No. 7. As printed on 20th December 2000, Clause 3(1) of the Bill required, in addition to the consents of those mentioned in paragraphs (a) to (d), the consent of,
- "the registered proprietor of an interest in the whole or any part of the land".
That provision was removed as a result of an amendment tabled by the noble Lord, Lord Goodhart. In Grand Committee, the noble Lord asked:
- "why on earth is it necessary to get the consent of a registered proprietor of an interest over the land if that interest is not affected?".--[Official Report, 20/2/01; col. CWH 4.]
However, there may be interests in relation to land, the subject of an application to register as commonhold, which should not be ignored, even if they are not protected by registration--such as rights of persons in actual occupation of land, which are overriding interests under Section 70(1)(g) of the Land Registration Act 1925. They may include, for example, the claim of an occupier to a beneficial interest in the land by reason of a contribution to the purchase price; or the right of the wife, prevailed upon perhaps by her improvident husband to convey or charge her interest in the matrimonial home, to set aside the conveyance or charge because of his undue influence.
It seems only right to take steps to see that such cases, which often arise in practice, are not overlooked before an application is made under Clause 2. That would seem to be especially important if Clause 6, which deals with registration in error, becomes law in its present form. Under Clause 6, the power to correct errors in registration is limited to the cases mentioned in subsection (1) and the general power to rectify under Section 82(1) of the Land Registration Act 1925 is
excluded by Clause 6(2). At the same time, I entirely accept that one does not wish it to be easy for trivial or spurious claims to block applications. I suggest that the proposed new subsection (1)(e) strikes a reasonable balance between these two considerations.The second part of the amendment adds a proviso to Clause 3(1) of the Bill. During the Second Reading of the Bill in January, and in Grand Committee on 29th February 2001, the noble Lords, Lord Goodhart, Lord Richard and Lord Williams of Elvel, the noble Baroness, Lady Hanham, and the noble Earl, Lord Courtown, expressed doubts about the requirement for 100 per cent to convert to commonhold. However, the noble Lord, Lord Bach, sought to justify it on the ground that otherwise one would have "anomalous leaseholders remaining".
Clause 3 as drafted is somewhat Delphic about that point. Subsection (1) lays down the 100 per cent requirement and subsection (2) provides that regulations may provide inter alia,
- "(e) for consent to be deemed to have been given in specified circumstances",
- "(f) enabling a court to dispense with a requirement for consent in specified circumstances".
These provisions are clearly intended--clearly intended--to allow the 100 per cent requirement to be "got round" in certain circumstances. But those circumstances are nowhere specified in the Bill; nor are they dealt with in the Explanatory Notes.
In my submission, one should take account of the criticism of the 100 per cent requirement and in clear terms reduce it in the text of the Bill to, say, 80 per cent. But 80 per cent of what? It is suggested that the total floor or surface area may be an easier-to-use and a fairer yardstick than the number of units or parcels. The latter may vary widely in size and the assortment of estates, interests, claims and rights, mentioned in Clause 3(1), may not coincide with units of accommodation. For example, they could include rights over part of a unit, or part of several units, or the common parts of a building.
I know that the noble Lord, Lord Goodhart, was concerned about the dimension of expropriation. But it is true that, for example, in the world of takeover an acquisition of 90 per cent of a shareholding is sufficient to require the other 10 per cent to yield. Has the noble Lord, Lord Goodhart, reflected carefully on that and come to the conclusion that the parallel is not an exact one in the case of leasehold property?
Lord Goodhart: Does the noble Lord agree that there is a real difference between giving up a small shareholding where 90 per cent concurred in the takeover, which has no substantial effect on the share owner, apart from converting those shares into cash, and on the other hand being forced to give up the right to a leasehold property which may well be that person's home?
Lord Kingsland: I accept that there are differences in character but I am not sure that I accept that there is a fundamental difference, provided that compensation is prompt and full.
I turn to Amendment No. 10 and I can be extremely telegraphic--to use a favourite expression of the noble Lord, Lord McIntosh. These changes supplement those proposed for subsection (1). The proposed subsection (2)(g) is intended to ensure that notice of an application comes to the attention of persons in actual occupation of land who otherwise might not find out about it. Paragraph (h) supplements the proviso to subsection (1). The power to dispense with a consent under the proviso could be exercised under subsection (2)(f).
As regards Amendment No. 19, for reasons similar to those put forward in relation to the extinguishment of charges under Clause 27, the provisions for compensation should be extended to cover any landlord, not just the landlord of an inferior lease, whose lease is extinguished on registration of a freehold estate in commonhold land.
3.45 p.m.
The Parliamentary Secretary, Lord Chancellor's Department (Baroness Scotland of Asthal): Many Members of the Committee who are present today will carry a distinct feeling of deja vu. As my noble friend Lord Williams noted, with the exception of my noble friend Lord McIntosh, who has already been through the valley of the shadow with Members during Committee and Report stages on the previous Bill, my colleagues and I on the Government Front Bench come to this topic fresh and full of what I hope will be infectious enthusiasm.
We in the government team who have been developing the Bill have come to think of a number of the amendments on the Marshalled List as old friends. I suspect that the answers which the Government give to many of them will fall into a similar category. That is not because we are being obdurate for the sake of obduracy. On the whole, we believe that the Bill as it appears is in good order and we have got it about right. That has been achieved with a great deal of help and work from all Members present through the Grand Committee and we thank them for that hard and industrious work.
It would be foolish to suggest that there is no room at all for improvement and it may be that we will be able to react positively to appropriate amendments on this occasion as we did previously. However, having accepted a number of amendments last time, the scope for further amendment now is rather more limited. The first group of amendments is a particular case in point.
We empathise with the purpose behind the amendments and the concerns of the Committee in relation to it. This issue is one over which we have struggled long and hard. The group brings together all those amendments which set out to amend the rule that the Government have developed which requires that 100 per cent of those with a substantial interest in land
to be registered as commonhold land should be required to express their consent to the registration. These would include the freeholder, who must either give consent or have his interest bought out, anyone who holds a lease granted for a period of 21 years or more and others such as those holding certain charges over all or part of the land. That is laudable, but the question for us is whether it is achievable. Our intention in imposing the rule was to ensure that the process of converting to commonhold should be as straightforward as possible and that the management of newly-established commonholds should not be complicated by the existence of more than one class of interest in the units comprising the commonhold.As I am aware that I am about to disappoint a number of noble Lords, with the indulgence of the Committee I should like to explain in some detail our thinking on this matter. We believe that we may not have articulated as clearly as we might why we are so keen to implement the 100 per cent rule and neither have we exposed our rationale in sufficient detail. This is a difficult area. We have never believed that it would be impossible to devise a system to provide for the conversion of a leasehold to commonhold with fewer than 100 per cent consents of the classes that we have specified. Indeed, the Bill developed by noble Lords opposite in 1996 when they were in government proposed just such a scheme. Today, Members of the Committee have, in varying degrees of detail, suggested ways toward that end. However, our view is that, although it is perhaps possible, such a scheme would be very complex and thoroughly undesirable, and at Second Reading my noble and learned friend the Lord Chancellor signalled as much.
I set out our reasoning. We recognise only too well that to obtain 100 per cent of the necessary consents will be difficult, notwithstanding that the courts will be able to dispense with consents where obtaining them proves to be impossible, for example where a leaseholder cannot be traced. That was the example we had in mind in relation to Clause 3(2)(f) to which the noble Lord, Lord Kingsland, referred. However, we believe that the difficulties which would follow from the alternative of allowing conversion with a margin of non-participants of whatever size would far outweigh any conceivable advantages, and that, given the content of Part 2 of the Bill, it is unnecessary.
Both this and previous governments have undertaken to provide for conversion from leasehold to commonhold, but the circumstances are now very different from those which obtained in 1996. Part 2 of the Bill makes available a much more straightforward way to achieve collective enfranchisement for those who are eager to own the freehold of their development than was available when the opposition's Bill was developed and conversion to commonhold was seen by many as the only viable alternative to being caught in the long leasehold trap.
We have given a good deal of consideration to the process of conversion to commonhold. How will it work? We believe that the urge to convert is most likely to occur among those who have not yet taken advantage of the right to enfranchise. If it proves
impossible to persuade 100 per cent of the occupants of the existing development to come on board it will be necessary for those who do consent to find the extra money needed to buy out the freeholder's interest in the non-converting units. It will then be necessary either to set up a separate company to hold the freehold of the continuing leasehold flats or, perhaps more likely, make it possible for the commonhold association to do so. The extra work and costs, including legal costs, could be considerable.Consideration would have to be given to possible amendment of the remaining leases. The memorandum and articles of association of the commonhold association would have to be altered to take account of the ownership and management of the freehold of those units and direct relations with the leaseholders thereof. The commonhold community statement would have to take into account the distinction between commonhold units and non-consenting units and the differential management tasks. To tailor-make the documents and structures that they reflected would not only add considerably to the costs of the conversion process but fly in the face of the thinking behind commonhold, which the Committee recalls is based firmly on parity of interest and uniformity of structure and standardisation, so far as possible, of the documentation.
I was much relieved and reassured that when the noble Lord, Lord Goodhart, outlined his arguments in support of the amendment he acknowledged that problems and difficulties remained to be dealt with. It should also be noted that the original consenters will no doubt expect to recoup the extra costs arising from the conversion process and that will tend to mean either that the selling price per unit is higher than is otherwise justifiable, rendering the units relatively poor value for money, or that the extra costs just cannot be recouped in the short or even medium term.
But the difficulties that arise on conversion are just the start of the potential problems. The management of the resulting organisation, which we expect to be carried out by volunteers as the Committee will recall, will become a great deal more difficult. In addition to running the commonhold association, which despite the efforts we have made to keep it simple will still be a responsible job that requires a mix of skills, including a fair degree of diplomacy, the directors will become landlords. Their leaseholders will be the continuing leaseholders who may already be disgruntled by the conversion process in which they did not take part, for whatever reason, and through which they have been dragged against their will. They may also have had to undergo amendment to their leases or entered into disputes about the value of their remaining interest, particularly if they are not allowed to apply for lease extensions at the end of the lease period.
Inevitably, they will now be in a less favourable position than the unit-holders who are part of the commonhold in terms of both the day-to-day running of the development and the sale of the unexpired portion of their leases in due course. The full members of the commonhold may well find that their own units
are worth less than those in a comparable development which does not include continuing leaseholders, and all this before the all-too-common disputes arise between landlord and tenant. Therefore, that arises even before one encounters the normal difficulties in human relationships that those of us who travel down this road know only too well. Those matters will be settled by the machinery provided for the purpose in existing leasehold law rather than the streamlined processes that we hope will apply to commonhold.
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