Landlord and tenant – Right to manage – Service charge – Untransferred covenant – Appellant lessees challenging service charge demands – First-tier Tribunal (FTT) determining preliminary issues in favour of respondent RTM company – Appellants appealing – Whether appellants liable to contribute to landlord’s costs on estate-wide basis – Whether FTT misconstruing section 100 of Commonhold and Leasehold Reform Act 2002 – Appeal allowed in part
The appellants were the current and former lessees of flat 3 in Block E, one of five blocks in Kenilworth Court, Hagley Road, Birmingham, built in the 1950s. There were 52 flats altogether, held on long leases. The respondent was the lessee-owned company exercising the lessees’ statutory right to manage their block. The second and third appellants bought their flat in 2004, and in 2016 assigned their lease to the first appellant, their family company.
The lease imposed maintenance and other obligations upon the landlord and required the lessee to pay a proportion of the cost to the landlord of complying with its obligations under the fifth schedule of the lease as a service charge. The appellants challenged the reasonableness and payability of service charges demanded for the years 2012-13 to 2019-20.
Issues arose about the construction of the lease and some provisions of the Commonhold and Leasehold Reform Act 2002. The FTT determined, as preliminary issues, that: (i) each lessee was to contribute to all the landlord’s costs on an estate-wide basis, as Kenilworth Court was a common venture entered into by all 52 lessees who were to share all the costs rather than splitting them between blocks; and (ii) the lessee’s covenant to contribute to the cost of maintenance expenses was an obligation to pay a proportion of the cost of maintaining the fabric of all the blocks. The collection of funds to meet the first obligation was a management function transferred to the respondent by sections 96 and 97 of the 2002 Act. The covenant to pay for repairs to the other blocks was an “untransferred covenant” which the respondent could enforce by virtue of section 100. The appellants appealed.
Held: The appeal was allowed in part.
(1) The FTT’s preferred reason for deciding that the lessee had to contribute to estate-wide expenses did not work. If the singular “building” was read as referring to one building only, then the lessees of that building only were required to contribute to the maintenance of the structure and the landlord would have a shortfall. It was not the case that because everything was part of the maintained property, to which all 52 lessees had to contribute, they would all contribute to everything.
However, “the building” in the lease meant “the buildings” as defined in the recitals. The lessee was obliged to contribute to the cost of all the landlord’s obligations in the fifth schedule on an estate-wide basis. The use of the singular seemed to be an error, for which the draftsman made provision by stating that the singular included the plural; so, the construction that the FTT adopted was consistent with the plain words of the lease. The correct construction of the fifth schedule was that all costs for all five blocks were to be included within the definition of maintenance expenses.
(2) The FTT had misconstrued section 100 of the 2002 Act. “Untransferred covenants” were covenants such as the obligation not to cause a nuisance, or not to use the premises for anything except a private residence. The purpose of section 100 was not to provide a mechanism for the enforcement of inter-RTM company agreements to recover costs incurred across a multi-block development. The FTT’s construction of section 100 could not achieve the result it intended and was, in any event, incorrect and inconsistent with the policy of the legislation.
Section 100 could not enable the management of the estate as a whole by agreement. Untransferred covenants were owed to the landlord and not to another RTM company. Even if the lessees’ obligation to contribute to estate-wide costs was one that the respondent could enforce by virtue of section 100, none of the other four RTM companies was a person by whom that obligation was “enforceable apart from this section”, and so one RTM company could not make an agreement with another to enforce it, as the FTT’s reasoning required.
(3) In any event, the obligation to contribute to estate-wide covenants was not an untransferred covenant within the scope of section 100. It would be inconsistent with the scheme of the legislation for section 100 to bear the meaning the FTT attributed to it. It was well-established that an RTM company took on management functions in relation to one building only and in relation to property that was appurtenant to that one building only: Triplerose Ltd v Ninety Broomfield Road RTM Co Ltd [2015] EWCA Civ 282; [2015] EGLR 51 and FirstPort Property Services Ltd v Settlers Court RTM Co Ltd [2022] UKSC 1; [2022] PLSCS 5 applied.
It would make no sense for the RTM company to have power in addition to enforce obligations in relation to a different block. All the reasons given in Triplerose and Settlers Court why the RTM company had to be confined to a single building and its own appurtenant property were equally reasons why the RTM company should not be able to enforce obligations in relation to other blocks. The RTM company for one block acquired the right to manage without notice to any of the lessees in the other blocks, and those other lessees had no control over it. There was no judicial discretion in the scheme of the 2002 Act to which those other lessees could appeal. The RTM company’s own members from its own block had control over it and they owed to that RTM company alone the obligations they would otherwise have to the landlord, or to a management company that was party to the lease, in relation to their own block. The RTM company’s field of operations was confined to its own block. The powers that it could delegate related only to its own block.
(4) What the respondent and its fellow RTM companies wanted to achieve could be achieved by agreement, but only if all 52 lessees and the landlord agreed. A different solution could be achieved without involving the freeholder if the lessees exercised their rights to collective enfranchisement, and then transferred the freeholds of all five blocks to a single company to manage the estate as a whole.
Amanda Gourlay (instructed by Direct Access) appeared for the appellants; The respondents did not appear and were not represented.
Eileen O’Grady, barrister
