RTM: How do you solve a problem like Gala Unity Ltd v Ariadne Road RTM Co Ltd?

In Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] EWCA Civ 1372; [2012] 3 EGLR 79 the Court of Appeal determined that a “right to manage company acquires the right to manage the wider estate where there is more than one block in a development”. Practitioners and estate managers alike have found this decision problematic. It is said to have given rise to practical difficulties with dual responsibility for estate management. In Firstport Property Services Ltd v Settlers Court RTM Co Ltd and others [2019] UKUT 243 (LC); [2019] PLSCS 180 the Upper Tribunal (Lands Chamber) was asked to consider whether Gala Unity was decided per incuriam. Settlers Court was a block of flats situated on Virginia Quay Estate, London E14. The appellant, Firstport Property Services Ltd, was the named management company under a tripartite lease. Firstport had been responsible for providing services to Settlers Court and the wider estate and had continued to do so. In November 2014, the Settlers Court RTM Company Ltd (Settlers) acquired the right to manage the block. Upon Settlers’ acquisition of the right, an issue arose as to whether Firstport or Settlers was responsible for providing the estate services and collecting service charges for the same. In 2018, Settlers applied to the First-tier Tribunal for a determination of the payability of the service charges due from a number of leaseholders for the management of the estate. Relying on Gala Unity, the FTT determined that the service charges, including for estate management, were payable to Settlers and not Firstport. The management functions for the block and the wider estate had passed to Settlers when it acquired the right to manage in accordance with sections 96(2) and 97(2) of the Commonhold and Leasehold Reform Act 2002. Firstport appealed. To succeed, it needed to either distinguish Gala Unity or persuade the UT that is was decided per incuriam. Firstport admitted on appeal that there was no basis for distinguishing Gala Unity. In deciding if Gala Unity was decided per incuriam, the UT relied on the test in Morelle v Wakeling [1955] 2 QB 379. The UT found that Gala Unity had not been decided “in ignorance or forgetfulness of a binding authority”. Further, the reasoning of the Court of Appeal was not “demonstrably wrong”. The UT commented on the difficulties highlighted by Firstport with dual responsibility for management of appurtenant property. Yet, it found that those difficulties arose not from Gala Unity, but from the statutory provisions of the Act. The decision in Firstport Property Services continues to highlight the challenges involved when an RTM company acquires the wider right to manage appurtenant property where the block of flats is situated. In the Law Commission’s report, Leasehold home ownership: exercising the right to manage (July 2020), it recommended that RTM companies be prohibited from automatically acquiring “non-exclusive appurtenant property”. Management functions in respect of such property should only be obtained if the landlord does not object. Estate managers may not have to wait for the Law Commission’s proposals to be adopted by parliament to see the effects of Gala Unity neutralised. Firstport has obtained permission for a leapfrog appeal direct to the Supreme Court. If the Supreme Court overturns Gala Unity it will have far reaching consequences for the statutory right to manage regime. Elizabeth Dwomoh is a barrister at Lamb Chambers