Key points
- Residential leaseholders can seek the appointment of a manager
- But only in cases where the landlord has mismanaged a building
- A manager can be appointed for a mixed-used building
When the right to manage (“RTM”) was enacted in 2002, some thought this would spell the end of applications to the first-tier tribunal (“F-tT”) to appoint a manager. The latter requires proof of default by the landlord and the necessity of litigation to have a manager appointed. Why bother with this when flat leaseholders can resolve to take over management by exercising the “no fault” RTM?
One reason may be that the tribunal has wide powers when appointing someone to take over management. The limits over these powers (contained in Part II of the Landlord and Tenant Act 1987 (“the 1987 Act”) may be a complicated matter where the premises are in mixed residential and commercial use.
Queensbridge
A recent illustration is a landlord’s appeal in the case of Queensbridge Investments Ltd v Lodge (and others) [2015] UKUT 635 (LC); [2015] PLSCS 347, a decision of the Upper Tribunal (“UT”). There was no challenge to the F-tT’s decision to appoint a manager, nor to the grounds on which it was made. What the landlord argued was that the F-tT should not have given the appointed manager the extensive powers that it did.
This litigation concerned a building in mixed use with three residential flats and a commercial unit occupying the ground and lower ground floors of the building. Under the commercial lease, the tenant was responsible for the structural parts demised by that lease and was also required to contribute to the landlord’s costs of insuring the building. In the normal way, the residential leaseholders were required to contribute to the landlord’s costs of managing and insuring the building.
According to the F-tT, the landlord (a company registered in Jersey) and its agents failed to repair the property such that some of the structural problems were of serious concern, potentially dangerous and so required urgent attention. In short, the landlord had failed to discharge its responsibilities under the leases so there was little alternative but to appoint a manager.
The powers conferred by the F-tT on the manager were very broad in an order that occupied some 12 pages. The most salient feature of the order was that the manager was given the power to receive rent payable by the commercial tenant to help defray the costs of repairs and maintenance. Other powers included the right to collect 25% of the costs from the landlord to ensure that the manager recovered as service charges 100% of its costs (that is over and above the 75% recoverable from the residential leaseholders). Also included was the right to apply to the Land Registry to restrict a sale of the property and the power to grant consents to such matters as subletting or carrying out works.
Appeal
Essentially, the landlord argued, while the F-tT was entitled to appoint the manager, it should have restricted the terms to those necessary to ensure that the residential leaseholders would receive what was due to them under their leases. Putting it another way, the tribunal should not give powers to an appointed manager which are disproportionate to what has gone wrong. In as much as some of the problems might be caused by deficiencies in the leases, the proper course, argued the landlord, was to apply under the 1987 Act for a variation of the leases. It was also claimed that the fetter on the landlord disposing of the property amounted to a serious interference with the right of the landlord, as owner of the freehold, to dispose of its interest in the property.
In response, the leaseholders argued that the terms of a management order were primarily a matter for the F-tT in the exercise of its discretion and that in the circumstances the terms of the appointment were justified. They also said that events post the F-tT decision (the landlord failing to pay a contribution to the service charges and having taken steps to show breaches of leases by leaseholders, which proved to be groundless) confirmed the wisdom of the order.
Decision
Dismissing the appeal, the UT accepted that, as it was by way of a review, it should not consider whether it might have made an order on different terms; it should only interfere if it was persuaded that the way the F-tT arrived at its decision was wrong in principle. In this case the F-tT concluded, among other things, that the landlord:
- behaved like an absentee landlord;
- was responsible for serious management failings;
- had been obstructive in the proceedings; and
- was a landlord in whom the F-tT had no confidence.
The F-tT was therefore justified in making the order in the wide terms it did and this was a proportionate decision and therefore compliant with Article 1 of the European Convention on Human Rights. The UT expressed some concerns over the restrictions on the landlord’s power to dispose of the freehold but concluded that this was necessary to guard against the possibility that the landlord might sell without paying the manager what was owed.
The decision of the F-tT and dismissal of the appeal are bold decisions in a case which is by any standards extraordinary. It might be contrasted with a UT decision last year in Sennadine Properties Ltd v Heelis [2015] UKUT 55 (LC); [2015] PLSCS 65 where it was held that the decision to allow the manager to let a commercial unit and to collect the rent was not justified. In that case the deputy president stated that such an order could in principle be justified but only in an “exceptional” case [51]. The decision in Queensbridge is, perhaps, an illustration of such an exceptional case.
James Driscoll is a solicitor and a writer
