Following a recent Court of Appeal decision James Driscoll looks at the boundaries of the statutory right to manage
Key points
- An RTM company can only take over management of one block of flats
- If there are separate blocks on an estate separate claims must be made
Of all the reforms to residential long leasehold law effected by Part 2 of the Commonhold and Leasehold Reform Act 2002, the statutory right to manage (“RTM”) was the most striking. RTM is a collective right that flat leaseholders can exercise without having to establish fault on the part of the landlord. It is an alternative to buying the freehold and is often driven by a desire to take over the management of the block. As fault does not have to be proved, it might be assumed that there are few challenges to claims and few cases that reach the tribunal or the courts.
Challenges to the RTM
However, experience has shown that many RTM claims are challenged by landlords. The only way an RTM claim can proceed is if the landlord gives a counter-notice denying the claim is an application to the First-tier Tribunal (“FtT”) for a determination that it is entitled to the right to manage. It is often the case that challenges are procedural in nature: did the participating leaseholders serve the correct participation notices on all the leaseholders, for example? Or was the RTM claim notice correctly given?
Decision of the Court of Appeal
A more fundamental challenge was the subject of a recent decision of the Court of Appeal in Ninety Broomfield Road RTM Co Ltd v Triplerose Ltd and three similar appeals [2015] EWCA Civ 282; [2015] PLSCS 109. This case concerned a simple issue: can the RTM be exercised over more than one building? The answer to this question is important where leaseholders with flats in a development consisting of more than one building decide to take over the management of the estate. Must the leaseholders set up distinct RTM companies to manage the separate buildings on the estate? Or can they decide to set up one management company to manage the whole estate?
Decision of the Upper Tribunal
In Ninety Broomfield, the estate consisted of two purpose-built, structurally detached blocks of flats (six flats in one block and nine in the second) with parking spaces, garden areas, a cycle store and a bin store. (The other two appeals concerned developments with two blocks and seven blocks respectively).
The Upper Tribunal (“UT”) decided that an RTM company can acquire management of more than one set of premises so long as all the qualifying conditions are met for each set of premises. This meant that in Ninety Broomfield, for example, the company incorporated to make the claim – Ninety Broomfield Road RTM Co Ltd – would acquire the right to manage both sets of premises.
All three of the landlords concerned appealed to the Court of Appeal (with permission of the UT). Their appeals were successful, by a unanimous judgment given by Gloster LJ. First, she concluded, as a matter of the proper construction of the legislation, that an RTM company can only acquire management of one set of premises. Thus only leaseholders of one set of premises can be a member of the company. It would have been possible for the legislation to allow for a more complex membership structure under which there could be different classes of membership for different premises but “it has not done so” [46].
Reasoning of the Court of Appeal
Nor, in the court’s view, are the prescribed details of RTM companies consistent with the company acquiring management rights over more than two sets of premises. Members of one set of premises could out-vote members of a different set of premises. “There is no provision to ring fence the rights of members who are qualifying tenants of one set of premises, from the rights of those who are qualifying tenants of another set of premises” [49]. There could be conflicts of interest between leaseholders of different blocks: one block might want to increase service charges, the other might not; one block might wish to grant approvals while the other might be against this. One block might want to embark on major works against the wishes of the other. The court also gave other examples.
Consequently, the court concluded, on a proper construction of the legislation, that it is clear that an RTM company can only be incorporated for one block of flats. As a result, in all three of the appeals, the RTM company did not acquire the right to manage the premises (two blocks in Ninety Broomfield and two and seven blocks respectively in the other two cases). If there was any ambiguity, stated the court, it had regard to extracts from the Hansard record of the debates and to a consultation paper that first proposed the RTM. These materials, concluded the court, show that parliament intended that an RTM company may only be incorporated to take over the management of one block of flats.
An earlier decision of the Court of Appeal – Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] EWCA Civ 1372; [2012] 3 EGLR 79 – is a decision relating to “appurtenant property” over which one RTM company formed to deal with two separate blocks of flats could manage. But there was no challenge to using one RTM company for both blocks.
Where does this leave the leaseholders in Ninety Broomfield (13 of the 15 leaseholders supported the RTM claim, which was resisted by the landlord)? Presumably they will have to start again by incorporating separate companies (and so too in the other cases involved in the appeal). Likewise, where does this decision leave the 16 cases (referred to by the court) where the FtT decisions confirmed the RTM for multiple buildings or indeed Ariadne Road, where the use of a single company was not challenged?
James Driscoll is a solicitor and a writer
