Landlord and tenant – Right to manage – Appurtenant property – Respondents exercising right to manage block of flats – Appellant continuing to provide estate services to wider estate – First-tier Tribunal determining service charges not payable to appellant – Upper Tribunal dismissing appellant’s appeal – Appellant making “leapfrog” appeal to Supreme Court – Whether respondents continuing to be obliged to pay estate service charge – Appeal allowed
The appellant was a company which managed an estate in East London containing ten blocks of flats. The second to fourteenth respondents were leaseholders of flats in one of the blocks known as Settlers Court, with rights to access the estate’s communal areas. The appellant provided services on the estate, including maintenance of the communal areas for which it was entitled to levy an estate service charge.
The respondents exercised the right to manage, under the Commonhold and Leasehold Reform Act 2002, in respect of the block and took on responsibility for providing services to the block itself via an RTM company (the first respondent). A dispute arose whether the respondents continued to be obliged to pay the estate service charge.
The First-tier Tribunal determined: that the service charges were not payable to the appellant; that it was bound by the Court of Appeal decision in Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] EWCA Civ 1372; [2012] 3 EGLR 79 that the management functions under the residential leases had passed from the appellant to the respondents on the date the right to manage was acquired; and that those functions related to both block and estate services.
The Upper Tribunal dismissed the appellant’s appeal on the basis that, amongst other things, it too was bound by Gala Unity but issued a “leapfrog” certificate enabling it to apply for permission to appeal to the Supreme Court: [2019] UKUT 243 (LC); [2019] PLSCS 180.
Held: The appeal was allowed.
(1) Section 97(2) of the 2002 Act made it clear that, save in relation to insurance, the RTM company had the right to perform its allotted functions itself, save to the extent that the RTM company agreed otherwise. The apparently unconstrained right of the RTM company to perform its management functions on its own ran into insuperable problems if those functions included management of shared estate facilities. The landlord or third party manager would have the right and obligation to manage those facilities under the potentially very large number of leases of flats outside the RTM company’s allotted single block. All those tenants would have no reason to acquiesce in the management of those estate facilities by an RTM company owned and controlled solely by what might be a bare majority of the long lessees of the flats in the relevant block, and they had no privity of contract or estate with the lessees who owned the RTM company, or with the RTM company itself, which would enable them to exercise any influence on how that management was conducted, or to hold the RTM company to account.
Nor did the 2002 Act provide that, in the management of shared facilities, the RTM company owed any obligation to those tenants. Sections 96 and 97(1) provided only for an obligation by the RTM company to the landlord and to the tenants of flats in the relevant premises.
Further, such a fundamental derogation from the other tenants’ rights in relation to the management of the estate facilities would be surprising because nothing in the provisions for giving claim notices required that any of them be informed of the exercise of the right to manage, either at the time when it was being claimed, or after it had come into force.
(2) The particular facts of Gala Unity largely obscured the very real problems of making workable a shared management concept in relation to estate facilities. The problems thrown up by the extension of the right to manage to shared estate facilities were so great as to amount to absurdity if the 2002 right to manage was construed in the way that it was in Gala Unity.
The central problem with a construction which entitled the RTM company to manage, or even share in the management of, estate facilities was that the 2002 Act failed to put in place any structure of mutual rights and obligations between the RTM company and the tenants in the other blocks, which would enable them to enforce the RTM company’s management obligations or enable the RTM company to enforce payment of their share of the expenditure.
It was preferable to interpret the Act, if possible, in a way that did not create a regime which was unworkable unless and until the parties were able to devise and reach an agreement which neither of them had any legal obligation to make.
(3) It was well established that the court would lean against a construction of legislation which produced absurd or unworkable results, if there was an available alternative construction which did not. A construction of the 2002 Act which either conferred sole management of estate facilities on the RTM company with a right to manage one block or, on a more realistic view, forced the RTM company and the former manager or the RTM companies managing other blocks into a shared management relationship was both absurd and unworkable. By contrast a right to manage the premises, which extended only to the relevant building, and to facilities exclusively used by its occupying tenants, avoided those difficulties.
(4) The right to manage scheme in Chapter 1 of Part 2 of the 2002 Act made no provision within the statutory right to manage for management by the RTM company of shared estate facilities. It was concerned only with management of the relevant premises, that was the relevant building or part of a building, together with appurtenant property (if any) which meant nearby physical property over which the occupants of the relevant building (or part) had exclusive rights. The right to manage was an exclusive right in the RTM company to manage the relevant premises, and no provision was made for any shared management of anything, save only where the RTM company chose to agree otherwise. The Gala Unity case was wrongly decided and should be overruled.
Simon Allison and Kimberley Ziya (instructed by FirstPort Ltd Legal Services) appeared for the appellant; Mark Loveday and Amanda Gourlay (Instructed by Lazarev Cleaver LLP) appeared for the first respondent; the other respondents appeared in person; Rupert Cohen (instructed by Property Management Legal Services Ltd) made written submissions for the intervener (Association of Residential Managing Agents Ltd).
Eileen O’Grady, barrister
