Important new decision on the Right to Manage

The Supreme Court recently provided guidance on the extent of leaseholders’ rights under the Right to Manage (RTM) in the context of leaseholders exercising an RTM for a block within a larger estate. 

Given blocks within a larger estate is a common scenario for housing associations, this is important guidance.

What is the Right to Manage?
Under the Common Law Reform Act 2002 (CLRA 2002), qualifying leaseholders of leasehold flats are entitled to establish and join an RTM company, through which they can take over the management of their building. Section 95 of the CLRA 2002 lists which management functions may be transferred from the landlord (or another party) including:

• services;
• repairs;
• maintenance;
• improvements;
• insurance; and
• management.

The RTM only applies to some ‘premises’ where:

• the premises consist of a self-contained building or part of a building, with or without appurtenant property;
• the premises contain two or more flats held by qualifying leaseholders; and
• the total number of flats held by qualifying leaseholders is not less than two-thirds of the total number of flats contained in the premises.

Whilst this option may initially seem attractive to leaseholders, many issues can arise from RTM schemes. Complications surrounding the meanings of the qualification criteria above, with case law attempting to define terms such as ‘self-contained’, ‘part’ and ‘appurtenant property’, may cause disputes. Further, the extent of the RTM, particularly on an estate with several separate blocks, can complicate matters.

FirstPort Property Services Ltd v Settlers Court RTM Co Ltd [2022] UKSC 1
Settlers Court was one of ten blocks of flats on the Virginia Quay Estate, which contained common parts serving all blocks on the estate. FirstPort was the management company responsible for providing services to both the blocks and the wider estate in accordance with the leases of all flats on the estate. 

In this case, the lessees at Settlers Court formed an RTM company and were granted the RTM in respect of Settlers Court.  

FirstPort continued to provide services to the estate and sought to levy a service charge from all leaseholders for maintaining the shared estate facilities. The RTM company disputed FirstPort’s right to collect service charges, asserting that it had taken over both the management of the block and estate services from FirstPort.

FirstPort, disputed this, arguing that the RTM company had only acquired the management of the block services under the RTM and therefore that the management of the estate services remained its responsibility.  

Initially, the First Tier Tribunal and Upper Tribunal felt bound to decide in favour of the RTM company finding that the service charges were not payable to FirstPort, citing the case of Gala Unity Ltd v Ariadne Road RTM Company Ltd [2012] EWCA Civ 1372, which held that the management functions under the leases relating to both block and estate services passed from the management company to the RTM company on acquiring the RTM. The Upper Tribunal however gave permission to FirstPort to appeal to the Supreme Court.

The Supreme Court allowed the appeal for the following reasons:

• The CLRA 2002 contains several indications against shared estate facilities forming part of the ‘premises’. The Consultation Paper which accompanied the draft bill confirmed this approach.
• To extend the RTM to shared estate facilities would mean that management services would be provided by RTM companies to leaseholders of other buildings with whom they share no formal legal relationship, which would be contrary to their leases and the purpose of the RTM. This would also cause difficulties in terms of recovering service charges.
• To operate the RTM, as set out in Gala Unity, would lead to ‘insuperable and absurd’ results. Both the RTM company and management company would be responsible to different groups of lessees for providing the same services. The RTM company would only be able to recover service charges for its own building, causing significant solvency issues for the company. Conversely, the management company would be unable to recover service charges from leaseholders exercising the RTM and would also suffer a loss.

Therefore, the Supreme Court held that the appurtenant property must be enjoyed exclusively by the self-contained building for the purposes of the RTM and confirmed that the judgment made in Gala Unity was wrong.

What this means
To avoid disputes and financial loss for all parties involved, RTM companies, landlords and management companies must be clear as to what property the RTM extends to, particularly whether the appurtenant property is enjoyed exclusively by a building.

This concept is likely to cause difficulties, with questions remaining as to the practicalities of operating such a scheme. For example, when does one block end and another start, what happens when two blocks both have RTM companies and shared facilities and what the position is of RTM companies who have been operating contrary to the above?

An analysis of any RTM models in place, alongside current case law, is likely to be required in order to ascertain each party’s true position with regard to the RTM.

For more information

For more information please contact Penny Bournes.

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