A recent Upper Tribunal (Lands Chamber) decision is a sharp reminder to landlords and management companies alike of the practical difficulties surrounding the current legislation regarding Right to Manage (RTM) companies.
By way of background, under the Commonhold and Leasehold Reform Act 2002, leaseholders of an apartment block have the right in certain situations to acquire the right to manage a self-contained building or part of a building, together with certain "appurtenant property".
In the recent case of Firstport Property Services Ltd v Settlers Court RTM Company Ltd & Others [2019] UKUT 243, a RTM company was successful in acquiring the right to manage the wider estate around a block of apartments which was the subject of a RTM application.
This latest case follows a 2012 Court of Appeal decision in Gala Unity Ltd v Ariadne Road RTM Company Ltd [2012] EWCA Civ 1372 (Gala Unity Ltd) which upheld that RTM companies are entitled to manage common parts within a wider estate, as well as common parts enjoyed exclusively by the apartment block in question. In other words, the Court of Appeal construed the concept of "appurtenant property" widely.
As the Upper Tribunal in this case was unable to distinguish the facts from the decision in Gala Unity Ltd, landlords and management companies now face the risk and uncertainty of similar RTM applications being progressed. For example, if a RTM company successfully acquires rights to maintain common parts within a wider estate:
- the current legislation prevents the landlord or management company from subsequently managing such areas, unless agreement is reached between the parties - even if the landlord or management company in question has accepted such management obligations within the apartment leases;
- as a result, this leads to the bizarre position that if the RTM company subsequently fails to carry out its maintenance responsibilities under the leases, this could still lead to a claim for breach of contract by the owner of the relevant lease against the landlord/management company in question; and
- the RTM company will not necessarily have the right to collect the appropriate service charges from the owners of the other apartment blocks within the scheme.
The courts envisage that, in reality, RTM companies and property management companies will reach agreements between themselves to overcome these conflicts, but of course this cannot be guaranteed.
The Law Commission is currently reviewing responses to a consultation on how RTM schemes operate. In the meantime, landlords and management companies will be left in a state of flux.
If you are impacted by the RTM scheme and have any questions then please get in touch with Ed Colreavy to discuss further.