Leasehold and Freehold Reform Bill

Committee (4th Day)

Amendment 92

92: After Clause 95, insert the following new Clause— “Requirement to establish and operate a management company under leaseholder control(1) The Secretary of State may by regulations make provision—(a) requiring any long lease of a dwelling to include a residents management company (“RMC”) as a party to that lease, and(b) for that company to discharge under the long lease such management functions as may be prescribed by the regulations.(2) Regulations under subsection (1) must provide—(a) for the RMC to be a company limited by share (with each share to have a value not to exceed £1), and(b) for such shares to be allocated (for no consideration) to the leaseholder of the dwelling for the time being.(3) Regulations under subsection (1) must prescribe the content and form of the articles of association of an RMC.(4) The content and form of articles prescribed in accordance with subsection (3) have effect in relation to an RMC whether or not such articles are adopted by the company.(5) A provision of the articles of an RMC has no effect to the extent that it is inconsistent with the content or form of articles prescribed in accordance with subsection (3).(6) Section 20 of the Companies Act 2006 (default application of model articles) does not apply to an RMC.(7) The Secretary of State may by regulations make such provision as the Secretary of State sees fit for the enforcement of regulations made under subsection (1), and such provision may (among other things) include provision—(a) conferring power on the First-Tier Tribunal to order that leases be varied to give effect to this section;(b) providing for terms to be implied into leases without the need for any order of any court or tribunal.(8) The Secretary of State may by regulations prescribe descriptions of buildings in respect of which regulations may be made under subsection (1).(9) In this section—“dwelling” means a building or part of a building occupied or intended to be occupied as a separate dwelling, together with any yard, garden, or outhouses and appurtenances belonging to it or usually enjoyed with it;“long lease” has the meaning given by sections 76 and 77 of the Commonhold and Leasehold Reform Act 2002;“management function” has the meaning given by section 96(5) of the Commonhold and Leasehold Reform Act 2002.(10) The Secretary of State may by regulations amend the definition of “management function” for the purposes of this section.”Member's explanatory statement This new Clause would ensure that leases on new flats include a requirement to establish and operate a residents’ management company responsible for all service charge matters, with each leaseholder given a share.

My Lords, I will speak to Amendment 92 on behalf of my noble friend Lady Taylor of Stevenage. This new clause would ensure that leases on new flats included a requirement to establish and operate a residents’ management company responsible for all service charge matters, with each leaseholder given a share. The amendment has dual purposes. It would remedy two significant current flaws in the leasehold system that the Bill does not address, and it would provide a step forward to commonhold, without doing so in a piecemeal way.

I turn to the current flaws. First, unless leaseholders in blocks of flats acquire the right to manage, collectively enfranchise and then establish a residents’ management company, or buy a property in a development where a residents’ management company has already been set up, they have no control whatever over how their money is spent. This is despite having to pay all the costs to maintain and manage their buildings. Secondly, the rights that leaseholders do have to exercise control over how their buildings are managed—whether through a tribunal, the appointment of a manager or the right to manage—are locked behind difficult and often costly legal processes to which many will not have access.

Our amendment would address both these problems by requiring that when a new residential block of flats was constructed and its units sold the development should be a three-way lease between the freeholder, the leaseholder and the new residents’ management company. Each leaseholder in the block would then own a share of the residents’ management company, and it would be under their exclusive control, giving them full responsibility for services, repairs, maintenance, improvements, insurance and the cost of managing their building. This would give them control over how their money was spent. This ability to influence the management of their building would come at no additional cost.

My Lords, I support Amendment 92 in the name of the noble Baroness, Lady Taylor of Stevenage, and explained so well by the noble Lord, Lord Khan of Burnley. The right to manage was first introduced in the leasehold reform Act of 2002. From the start, it was, as the noble Lord said, intended as a simple and cost-effective alternative to collective enfranchisement, but, despite the happy intentions of that Act, the reality was quite different. Take-up has not been what we would all have hoped for or expected, because the right to manage has proved incredibly problematic in practice.

These problems culminated in the Law Commission’s final report in 2020—time has marched on—on exercising the right to manage. It summarises the difficulties as follows:

“The ‘simple’ RTM process envisaged in the original consultation which led to the 2002 Act has not come to pass. The requirement for strict compliance with the statutory procedures, such as the service of certain notices on particular parties, can be unforgiving to leaseholders. In many cases, small mistakes made by the RTM company have afforded landlords opportunities to frustrate or delay otherwise valid claims. The Court of Appeal has noted that while the procedures ‘should be as simple as possible to reduce the potential for challenges by an obstructive landlord’, in fact they ‘contain traps for the unwary’”.

This is not a good advert for anyone seeking to exercise the right to manage, which we believe is fundamental to the change we need. The Law Commission subsequently made 101 recommendations, of which the then Government adopted two.

Whole swathes of actions could be happening to make this process simpler and to encourage residents to take this up. We have no doubt that the process is not an easy one and that the provisions in the Bill as it stands are actually quite limited. The uplift from 25% to 50% is welcome, as are the beneficial changes in cost provision, and minor changes to courts and tribunals. They are all positive but underwhelming—a far cry from the 101 recommendations.

My Lords, I thank the noble Lord, Lord Khan of Burnley, for speaking to Amendment 92 in the name of the noble Baroness, Lady Taylor of Stevenage, and I am grateful for both contributions in this brief discussion.

The amendment seeks to require the establishment of leaseholder-owned management companies for all leasehold flats. I understand the intention to ensure that, by default, all leaseholders of new flats would be responsible for the management of their buildings. The Government support the desire to give more home owners control over the management of their buildings. This Bill is intended to do just that, and will make it cheaper and easier for more leaseholders to own and manage their homes should they wish to.

In some cases, developers have voluntarily set up residents’ management companies to transfer management responsibility to leaseholders. We welcome this, and encourage the industry to adopt this model where appropriate. However, we believe that the best way in which to achieve resident-led management for new buildings is not for government to mandate change to leasehold but to reinvigorate and improve the uptake of commonhold. Commonhold does not require involvement from a third party.

We will reinvigorate commonhold so that it is a genuine alternative to leasehold for new flats. However, there are limitations in the current legal design of commonhold which can limit its use in some settings. We must get any changes right, and preparing the market for the widespread uptake of commonhold will take time. Existing leaseholders can already use the right to manage to take over management responsibility for their building. This is an established, no-fault right that allows leaseholders to take over management responsibility when a majority of leaseholders wish to do so.

There are some situations where the right to manage is not available because leaseholder-led management is not considered appropriate—for example, in largely commercial buildings or where there are social tenants. We believe that it would not be appropriate to apply a blanket provision requiring residents’ management companies for all new buildings without considering where equivalent protections should apply.

I am acutely aware that, before and during the passage of this Bill, there has been much debate about commonhold across the House. We fully support a move to commonhold and, while we cannot go as far as many noble Lords would like, it is a journey. With that, I humbly request that the noble Lord withdraw the amendment.

My Lords, I thank the Minister for his response, although it does not satisfy exactly the issues that we have raised. I thank the noble Baroness, Lady Thornhill, for saying that this

“draws a line under the past”

and is a

“step in the right direction”.

It is a fairer process when those who are paying the bills have control of the bills.

We would not need this amendment if the Government had followed the Law Commission recommendations to move to a commonhold system now. This is a missed opportunity. That is why we have argued that this is a limited Bill. I wish that the noble and Lancastrian Lord had gone for the Lancastrian approach and been absolutely candid and answered the questions. In the meantime, I accept his reasoning and beg leave to withdraw the amendment.

Amendment 92 withdrawn.

Amendment 93 not moved.

Clause 96: Part 5: Crown application

Amendment 93A not moved.

Clause 96 agreed.

Clauses 97 to 103 agreed.

Schedule 11 agreed.