Landlord and Tenant Act 1987 – Appointment of manager – Management order extending to commercial unit in relevant premises and empowered the manager to exercise all rights and responsibilities of landlord in respect of both residential and commercial units – order directing manager to “disclaim” lease commercial unit then re-let it and receive rents and service charge – Whether exceeding proper scope of such order – Whether LVT having power to the right to disclaim a lease – Appeal allowed
The appellant was the freeholder of premises in London SW6 comprising a commercial retail unit on the ground and lower ground floors and two residential flats on the upper floors. The flats had their own communal entrance which was separate from the entrance for the retail unit. All three units were let on leases under which the appellant was the landlord; the respondent was the lessee of one of the flats. In May 2012, the respondent applied to the leasehold valuation tribunal (LVT), under Part II of the Landlord and Tenant Act 1987, for the appointment of a manager for the premises pursuant to section 24 of the Act. He complained of various matters including a general lack of communication by the appellant and a failure by it to discharge its repair and maintenance obligations. At that time, the tenant of the retail unit was in financial difficulties; it had ceased to pay rent and was trying to assign its lease.
Following an earlier stay of the application on procedural grounds, the respondent made a successful application to restore it and a hearing took place in October 2012. The appellant, which had complained that the application to restore had not been served on it and had sought to have the hearing date vacated, did not attend.
The LVT found that the restoration application had been served on the appellant. It further found that the grounds for making a management order were made out and appointed a manager accordingly. The terms of the order empowered the manager to exercise all the rights of the landlord and to discharge all its responsibilities in respect of the leases of the two flats and the lease of the commercial premises. The manager was directed to disclaim the lease of the commercial unit, to market the commercial unit and let it on commercial terms, and then to demand and receive rent and service charges under any new lease.
The appellant appealed. It contended that: (i) there had been a procedural irregularity in determining the application for appointment of a manager in its absence; and (ii) the terms of the management order exceeded the proper scope of such an order and went beyond what was reasonably necessary to secure for the residential lessees the performance of the management functions to which they were entitled to under their leases.
Meanwhile, the LVT allowed an application by the appellant to suspend the management order on conditions, until further order or agreement between the parties. The appellant nonetheless continued with its appeal.
Held: The appeal was allowed in part.
(1) There was no procedural irregularity or unfairness in the October 2012 hearing. The appellant had been informed in good time that the hearing of the respondent’s application for the appointment of a manager would take place on that date. The opportunity to make its case was available to it at that hearing. Rather than attend the hearing and submit to the LVT that the stay remained in force, or that the application was premature, the appellant had elected to absent itself. It had done so in the knowledge that its application for a postponement had not yet been acceded to, and therefore that it might be refused. The appellant had been given notice of the application in accordance with the normal rules of procedure, and the LVT had been entitled to find that the appellant had sufficient time to appear and make representations. Where a party applied in writing for the postponement of a hearing and, not having been informed of the outcome of its application, decided not to attend the hearing, fairness did not oblige the tribunal, if it refused a postponement, nonetheless to allow a further opportunity for the absent party to attend before continuing with the hearing. Fairness required only that the appellant be given notice of the hearing itself. The fact that the hearing proceeded in the appellant’s absence was the consequence of the appellant’s own choice not to be present or to be represented. No additional disadvantage was inflicted on the appellant by the hearing taking place in its absence than it had already knowingly exposed itself to by its decision not to attend.
(2) The premises were within the scope of Part II of the 1987 Act and the LVT in principle had jurisdiction under section 24(1) to appoint a manager. The power to appoint a manager went beyond simply directing the manager to step into the shoes of the landlord: Maunder Taylor v Blaquiere [2002] EWCA Civ 1633; [2003] 1 EGLR 52; [2003] 07 EG 138 applied. Moreover, an order under section 24 might appropriately provide for the manager to be entitled to recover an appropriate share of the costs incurred in managing the premises either from the landlord, or from the occupier of a commercial unit which was to benefit from the services performed by the manager.
However, the LVT had exceeded its jurisdiction by directing the manager to “disclaim” the lease of the commercial unit. Although a liquidator of a company in the course of a winding up had power to disclaim leases under the Insolvency Act 1986, and the Crown also had power to disclaim after the dissolution of a limited company where a lease had vested in the Crown as bona vacantia, disclaimer was not a procedure otherwise available. The LVT had no power to confer the right to disclaim a lease on the manager. It was not clear what the LVT had in mind when it used the language of disclaimer. It might have intended the manager to take steps to determine the lease of the commercial premises on the grounds that the lessee had stopped paying rent but, if it intended the manager to forfeit the lease with a view to re-letting it and thus generating income to fund repairs, it had not expressed that intention with precision.
Furthermore, the scope of an order under section 24 should be proportionate to the tasks which the lessee were entitled under their leases to look to their landlord to perform. While it might in some cases be appropriate to confer power on a manager to collect rents payable by lessees of commercial premises included within the scope of a management order, the circumstances in which any order directly intervening in the relationship between a landlord and a third party might be appropriate were likely to be exceptional. In the instant case, the LVT had exceeded its authority by granting greater powers to the manager over the commercial premises than were either meaningful or justified. In circumstances where there was little evidence of the extent of the remedial work required to the building, and no attempt had yet been made by the manager to collect an appropriate contribution from the landlord, it was disproportionate to empower the manager to let the commercial unit. In general terms, it would be preferable, before making such an order, first to grant to the manager a power to collect an appropriate contribution towards the cost of providing services from the landlord. The extent of that contribution was likely to vary depending on the extent to which the premises were let on terms requiring the payment of a service charge. If part of the premises was vacant or likely to become vacant, it was preferable, initially at least, for the manager to look to the landlord for a contribution in respect of that part, rather than to confer on the manager the responsibility of letting vacant premises in order to secure a further service charge.
(3) Although the management order had now been suspended, the appellant was nonetheless entitled to the removal from the original order of those parts which exceeded the LVT’s jurisdiction or were otherwise disproportionate. The simplest and most satisfactory way to achieve that objective was to confine the premises to which the management order related to the structure and upper floors of the building and the common parts leading to the upper floors, thereby altogether excluding the ground floor commercial unit, and to require that, after taking into account the contribution of the lessees, the appellant be responsible for contributing the balance of the cost incurred, or expected to be incurred, by the manager in the provision of all services.
The appeal was determined on the written representations of the parties.
Sally Dobson, barrister
