Landlord and Tenant Act 1987 – Management order – First-tier tribunal appointing manager of building pursuant to section 24 of 1987 Act – Application by freeholder and former management company for stay of management order and permission to appeal – Challenge to terms of management order – Application allowed in part
The respondents were the leaseholders of flats in a building at Canary Wharf, London, E14, of which the first applicant was the freehold owner. The second applicant, as the management company for the building, was a party to the respondents’ leases and was obliged to provide services for which it was entitled in return to collect a service charge.
In 2014, the respondents commenced the statutory process for replacing the second applicant with a manager appointed by the first-tier tribunal (FTT) pursuant to section 24 of the Landlord and Tenant Act 1987. They served a preliminary notice under section 22 of the 1987 Act, identifying various breaches of the second applicant’s obligations; they then allowed a period of one year to elapse to enable the applicants to remedy those breaches.
In a decision issued in August 2016, the FTT found that there had been little or no activity by the applicants prior to the service of the section 22 notice but that, thereafter, there had been some activity towards properly managing the building. However, it found that the changes were not sufficient to prevent a finding that it was “just and convenient”, within the meaning of section 24, to appoint a manager.
The applicants applied to stay the FTT’s order and sought permission to appeal on various grounds. Those grounds included challenges to the terms of the management order so far as they: (i) permitted the manager to borrow sums which he might reasonably require for the performance of his functions, and to secure such borrowing, if necessary, on the interests of the landlord in the premises, or any part of the premises, by a notice against the landlord’s registered estate; and (ii) directed the manager to register a restriction at the Land Registry against the landlord’s leasehold estate, and against the interests in the building held by a hotel company, so preventing any disposition of the estate by the proprietor without the manager’s consent. The applicants contended that they would be by an order in those terms, which would be contrary to the lending covenants in the loans which they had used to acquire the property, leading to a risk that the lenders would call in the loans.
Held: The application was allowed in part.
A management order under section 24 of the 1987 Act was not intended to punish a landlord. The policy of the Act was to place the management of the premises in the hands of an independent person, better able than the landlord to manage the property in the interests of all of those with an interest in it. If the effect of the order would be to jeopardise the applicants’ interest in the property, that would be a matter of legitimate concern to them on which it would be appropriate for them to seek the assistance of the FTT by making an application, under section 24(9) of the Act, for the FTT to modify its own order.
The purpose of the two disputed terms of the management order was not immediately clear, nor was it clear why it should be thought appropriate for the landlord’s interests to be charged with the borrowings of the manager, or for the landlord to be prevented from disposing of its interest, especially where there was no evidence that the landlord was liable to contribute to the service charge on account of flats which it owned. Whether the presence of those terms was necessary required a fuller consideration of the matter than could appropriately be provided on an appeal to the Upper Tribunal.
The applicants had not previously focused sufficiently on the detailed terms of the order, with the result that the FTT had made the order on the assumption that its terms were uncontroversial. That fact did not preclude an application to amend the order on grounds on which the applicants had not previously relied. It did not require an appeal to the Upper Tribunal, let alone a stay of the management order, for the applicants’ position to be sufficiently protected. An application to the tribunal which made the order, and which was responsible for supervising its implementation, was the speedier, cheaper and more appropriate course.
In the instant case, the proper course was to suspend the disputed terms of the order for a period of 28 days to enable the applicants to make such application as they might wish to make to the FTT, under section 24(9), in order to procure any change that the FTT might consider to be appropriate. If such an application was made, then the stay would continue until the application was determined. The stay would also continue for as long as both parties agreed that it should continue, so that, if there were ongoing discussions between the parties about any other amendments to the order, it would not be necessary for the applicants to make a premature application to the FTT. If the parties agreed to any amendments, then they should seek the views of the manager before making a joint application to the tribunal under section 29(4) to vary the terms of the order.
Justin Bates (instructed by Trowers & Hamlins) appeared for the appellants; Amanda Gourlay (instructed by direct access) appeared for the respondents.
Sally Dobson, barrister