INTRODUCTION

1. This memorandum relates to the Commonhold and Leasehold Reform Bill [HL] as introduced in the House of Lords on 21 June 2001. It has been prepared by the Lord Chancellor's Department (LCD) and the Department of Transport, Local Government and the Regions (DTLR). It gives a concise account of the bill, and in particular:

• identifies provisions for delegated legislation;
• describes their purpose;
• explains why the matter has been left to delegated legislation; and
• explains the degree of parliamentary control provided for the exercise of   each power.

2. The Commonhold and Leasehold Reform Bill was originally introduced in the last Parliament and fell at prorogation. A memorandum was compiled for the Committee detailing the delegated powers in the Bill. A supplementary memorandum on Government amendments containing delegated powers, as tabled for consideration at Report Stage in the House of Lords was also provided to the Committee. This memorandum incorporates substantially the same information and argument as were contained in these documents.

OUTLINE OF THE BILL

3. Part 1 of the Bill introduces commonhold, a new way of owning property. It is designed to offer to those living in properties where they share obligations with others, such as flats, a permanent interest in the property, with no landlord and an interest in an organisation that would own and manage the common parts of the developments they live in.

4. Part 2 of the Bill makes further radical reforms to residential leasehold law. These reforms will give leaseholders brand new rights and enhance existing ones. They will help the many leaseholders who will not be able, or who may not wish, to convert to Commonhold.

5. Chapter 1 (Right to manage) introduces a new right for leaseholders to manage their own building without the need to prove fault on the part of the landlord and without the need to pay compensation. It provides for leaseholders to form a company to take over management and prescribes the constitution of that company.

6. Chapter 2 (Collective enfranchisement by tenants of flats) amends the provisions of the Leasehold Reform, Housing and Urban Development Act 1993 ('the 1993 Act') dealing with the right of leaseholders to buy collectively the freehold of their building. It simplifies the eligibility criteria and amends the valuation principles. It also provides for leaseholders to form a company to buy the freehold and manage the building along similar lines to the right to manage.

7. Chapter 3 (New leases for tenants of flats) makes similar changes to the provisions of the 1993 Act covering the right of individual leaseholders to buy a new lease.

8. Chapter 4 (Leasehold houses) makes similar changes to the rules for enfranchisement and lease extension as they apply to houses. It also provides new rights for leaseholders who have extended their leases under the Leasehold Reform Act 1967 ('the 1967 Act'). They will be able to buy the freehold after the extended lease has commenced and (if they do not) they become entitled to an assured tenancy under Part 1 of the Housing Act 1988 when their extended lease expires. It also amends the procedures under the 1967 Act for buying the freehold when the landlord cannot be found.

9. Chapter 5 (Other provisions about leases) makes a number of changes which are intended to provide greater protection for leaseholders against the making of unreasonable charges. It also extends and clarifies the grounds for seeking variations of leases, transfers jurisdiction for dealing with such cases to leasehold valuation tribunals, introduces improved accounting arrangements and makes a number of changes to Part 2 of the Landlord and Tenant Act 1987 (which provides for leaseholders to seek the appointment of a new manager where there are serious problems with the existing management of their building).

10. Chapter 6 (Leasehold valuation tribunals) consolidates and amends existing provisions governing the constitution and procedures of leasehold valuation tribunals.

11. Chapter 7 (General) makes general provisions relating to application to Wales, procedures for making orders and regulations, and interpretation.

12. Part 3 of the Bill (Supplementary) makes general provisions relating to repeals, commencement, extent and short title.

13. Full details of the Bill's provisions are contained in the explanatory notes which were published with the Bill on 21 June 2001.

DELEGATED POWERS - OVERVIEW

Simplicity

14. Commonhold is a new and untested land tenure in England and Wales. For many who want to explore alternatives to leasehold and freehold the Bill will be an introduction to commonhold. It is therefore appropriate to strive for simplicity and brevity on the face of the Bill to ensure comprehension, workability, and the familiarisation of those who may potentially have an interest, with the terms and key concepts of commonhold. Given this aim, the policy behind the content of the Bill is that it should simply set out the framework for the establishment and management of commonhold. Comprehensive coverage of the more complex and less fundamental areas will be contained in delegated legislation.

15. It is intended that much of commonhold will be based, as far as is reasonably practicable, upon relevant existing legislation rather than creating a scheme based entirely on new concepts. So, for example, the commonhold association will be a company limited by guarantee under the Companies Act 1985, subject to necessary deviations. In practical terms, this will cut down on unnecessary complexity within the Bill and will ensure that professionals will be ready to give advice on commonhold within a fairly short time of introduction. It is felt that the use of existing legislation means that it is more appropriate for commonhold legislation to be placed in delegated legislation rather than appearing on the face of the Bill. This will ensure speed and simplicity of amendment, if any of the Acts or precepts upon which Part 1 of the Bill is based, are amended or superseded.

FLEXIBILITY

16. Although commonhold is successfully used in other jurisdictions, it is possible that practical problems will arise when commonhold is first introduced to the property market place in England and Wales. In the interest of the successful adoption of commonhold it ought to be possible to respond rapidly to any such difficulties. To realise the flexibility to react efficiently with rectifying or ameliorating provisions, it is thought best for much of the regulatory regime applicable to commonhold to be contained in delegated legislation. This will allow future needs and developments to be taken into account without having to revert back to Parliament for primary legislation.

17. Consultation responses based on the experiences of other jurisdictions, particularly the United States, suggest that secondary legislation is the correct vehicle through which to address the majority of the rules and regulations. As the American experience demonstrates, dealing with the detail of commonhold through primary legislation does not provide the flexibility required, when legislating on tenure that potentially encompasses such a wide variety of schemes.

18. Experience with existing leasehold legislation has shown that flexibility is sometimes desirable to deal quickly and effectively with practical problems which emerge with the legislation. It can be the case that primary legislation fails to deal adequately with new practices that emerge or with unusual or unforeseen circumstances. For this reason, it is felt that certain matters of detail should be either prescribed in or capable of amendment by secondary legislation. Without such flexibility, it may not be possible to provide the desired protection for leaseholders until such a time as further primary legislation can be enacted. This is particularly the case for certain aspects of the right to manage, such as the definition of 'management functions' and the constitution of the company, where any deficiencies which arise could have the practical effect of preventing the right operating properly.

PARLIAMENTARY SCRUTINY

19. Subsection 62(3)(e) provides that all regulations under Part 1 shall be subject to annulment in pursuance of a resolution of either House of Parliament. The negative resolution procedure has been chosen for the commonhold delegated legislation following consideration of the recommendations in the first report of the Select Committee on the Scrutiny of Delegated Powers[4]. We have paid particular attention to the 1973 Brooke Committee Report criteria for selection of forms of Parliamentary control and we do not believe the affirmative procedure is necessary for any of the regulations under Part 1 of the Commonhold and Leasehold Reform Bill.

20. Likewise, subsection 168(5) provides that all regulations under Part 2 in respect of England shall be subject to annulment in pursuance of a resolution of either House of Parliament, with the exception of regulations made under paragraph 9(3)(b) or 10(3)(b) of Schedule 12. Regulations made under these two provisions shall be subject to approval by a resolution of each House of Parliament; this is because they would be designed to have a financial impact on those affected. Powers in respect of Wales are exercisable by the National Assembly for Wales.