Appointment of manager – Section 24 of Landlord and Tenant Act 1987 – Manager appointed over building owned by appellant on application of respondent tenants – Terms of management order empowering manager to receive rents from commercial unit in building and also to receive service charge contribution from appellant – Order further providing for registration of restriction against registration of dispositions of registered estate without manager’s written consent and for exercise by manager of landlord’s power to consent to alienations and works – Whether terms of management order disproportionate and going beyond what permissible under section 24 – Appeal dismissed
The appellant, a company registered in Jersey, was the freeholder of a five-storey building in W1 which contained three residential flats on the first, second and third floors with a commercial unit on the ground and lower ground floor. The flats were let on long leases at low rents while the commercial unit was let on a lease for a term of 10 years from January 2012. The lease of the commercial unit contained a full tenant’s repairing covenant and the demise included the structural parts of the property within the commercial unit, including the external walls, load bearing walls and windows. The leases of the flats contained covenants by the landlord to maintain and repair the property, including the exterior and load-bearing walls, with the tenants to contribute to the cost through the service charge.
The respondent tenants applied to the first-tier tribunal (FTT) for an order appointing a manger in respect of the property pursuant to section 24 of the Landlord and Tenant Act 1987. The FTT found that the appellant was an absentee landlord guilty of serious management failings and in serious breach of its repairing obligations and concluded that it was just and convenient to appoint a manager. It appointed the respondents’ suggested manager to manage the whole of the property, including the commercial unit.
The terms of the management order: (i) empowered the manager to receive the rent from the commercial unit, in order to avoid difficulties arising from the need to seek payment from the appellant for service charge costs attributable to the commercial unit; (ii) ordered the appellant to pay 25% of the service charge expenditure, in order to ensure that the manager would obtain a 100% service charge recovery; (iii) required the registration at the Land Registry of a restriction preventing registration of disposition of the registered estate without the written consent of the manager; and (iv) conferred on the manager the power and duty to carry out the appellant’s power of granting consent under the terms of the leases to matters such as alienation or the carrying out of works.
The appellant appealed. It did not dispute the FTT’s decision to appoint the manager but contended that the powers conferred on her by the management order were more extensive than was permissible under the Act.
Held: The appeal was dismissed.
(1) The wording of section 24 was wide: the power in section 24(1) was to appoint a manager to carry out in relation to any premises such functions in connection with the management of the premises or such functions of a receiver or both as the FTT thought fit. The functions which the manager could be appointed to carry out were functions in connection with the management of the premises, not the functions of the particular landlord under the particular lease in question: See paragraph 38 and following in the judgments in Maunder Taylor v Blaquiere [2002] EWCA Civ 1633; [2003] 1 WLR 379; [2003] 1 EGLR 52 applied.
(2) As a matter of general principle, as well as for the purpose of complying with the relevant human rights legislation, there had to be a reasonable relationship of proportionality between the terms of the management order and the aim sought to be realised, in the interests of the community, by the management order. The scope of an order under section 24 should be proportionate to the tasks which the tenants were entitled under their leases to look to their landlord to perform. Circumstances in which it was appropriate for a management order directly to intervene in the relationship between a landlord and a third party, such as a commercial tenant of part of a building, were likely to be exceptional: Sennadine Properties Ltd v Heelis [2015] UKUT 55 (LC); [2015] PLSCS 65 applied.
(3) In considering what was proportionate, it was relevant to take into account that the tenants of residential units in a building were entitled to expect that the building would be properly managed, including, in particular, that the building would be repaired, especially so as to keep it safe, and that it would be insured. Where leases were defective, it might be that the only proper solution in the long term was to seek an amendment of the terms of the leases under section 35 and following of the 1987 Act. However, that did not mean that the appointment of a manager under section 24, which might only be an appointment for a limited period, could not properly confer powers on the manager which would avoid a problem arising from any inadequate drafting of the leases. It followed that the management powers conferred by a management order should be proportionate not only to what the tenants were entitled to expect in accordance with the terms of the leases viewed on their own, but to what they were entitled to expect when those leases were read in the light of the relevant law, including the terms of the 1987 Act and the matters which parliament considered that tenants should be entitled to expect.
4) Applying those principles to the instant case, the FTT had been entitled to make a management order in the terms it did. The FTT was entitled to conclude that it was necessary in order to secure proper management of the property that all the management functions for the whole property, including the commercial parts, should be removed from the hands of the appellant, and that the management order should be drafted so as to ensure that adequate funds were available to the manager for carrying out the necessary works. It was therefore entitled in consequence to conclude that the manager should receive the rents from the commercial unit. As to the requirement for the appellant to contribute 25% of the service charge costs, the wording of section 24 was wide enough to authorise the inclusion of such a provision, so as to make the appellant liable to pay to the manager what was, in effect, a form of service charge to represent the contribution from the commercial unit, notwithstanding that the appellant was not contractually obliged to pay such moneys under the terms of the leases. The terms of the leases were such as to justify the FTT in concluding that doubt existed as to whether the manager would otherwise be able to recover 100% of certain items of expenditure. Given the existence of those doubts, and bearing in mind the urgency of the works needed and the necessity that the manager have sufficient money in hand to carry out those works, the FTT was entitled to decide that a requirement for a 25% contribution by the appellant should be included in addition to the power to receive rents from the commercial tenant.
The restriction on registration of dispositions without the manager’s written consent represented a substantial interference with the appellant’s and any mortgagee’s right to dispose of its property. However, it was justified in the exceptional circumstances of the case, where the appellant could not be relied on to comply with the terms of the lease and, on the FTT’s findings, was likely to be obstructive to the manager and to the respondents. In such circumstances, the restriction was justified so as to remove the prospect that the appellant might sell its interest without paying to the manager moneys which it owed, leaving the manager to enforce such rights, if any, as she could against the new proprietor, whoever that might be and, if a company, wherever it might be registered. Having regard to the criticisms made of the appellant by the FTT, it was also justified in including within the management order a provision that the power of granting consents was to rent with the manager, notwithstanding that the grounds for the respondents’ application had not included any complaint regarding the granting or withholding of consent by the appellant under the leases.
Overall, the terms which the FTT had imposed in the management order were within the range of reasonable terms which it was permissible for it to impose. There was a reasonable relationship of proportionality between those terms and the aim properly sought to be realised by the management order and the FTT had not fallen into any error of law.
Mark Sefton (instructed by Forsters LLP) appeared for the appellant; Justin Bates (instructed by Northover Litigation) appeared for the respondents.
Sally Dobson, barrister
