Don’t Think Twice, It’s All Right (To Manage)

Fairhold Mercury Ltd v HQ (Block 1) Action Management Co Ltd [2013] UKUT 487 (LC)
Fairhold (Yorkshire) Ltd v Trinity Wharf (SE16) RTM Co Ltd [2013] UKUT 502 (LC)
Assethold Ltd v 7 Sunny Gardens RTM Co Ltd [2013] UKUT 509 (LC)
No.1 Deansgate (Residential) Ltd v No.1 Deansgate RTM Co Ltd [2013] UKUT 580 (LC)
Pineview Ltd v 83 Crampton Street RTM Co Ltd [2013] UKUT 598 (LC)
Assethold Ltd v 13-24 Romside Place RTM Co Ltd [2013] UKUT 603 (LC)
Ninety Broomfield Road RTM Co Ltd v Triplerose Ltd (& 3 other cases) [2013] UKUT 606 (LC)

The right to manage provisions in Commonhold and Leasehold Reform Act 2002 have been an incredibly fertile source of litigation. Thanks Parliament. No, really, thanks a lot. One reason might be the drafting of the legislation itself (as J has said, you could never accuse it of being user friendly) The challenges have focused on the two key elements – the qualifying criteria (or what I am loosely calling “qualifying criteria”) and the procedural requirements. The judicial trend in respect of both has been in favour of allowing the right to manage to be acquired, so far as possible (Exhibit 1 for qualifying criteria: Gala Unity v Ariadne Road; Exhibit 2 for procedure: Avon Freeholds v Regent Court RTM).

I now present for your delectation a veritable plethora of decisions of the Upper Tribunal (Lands Chamber), of varying degrees of freshness, addressing both the qualifying criteria and the procedural requirements (sometimes both in the same issue, making me wonder whether my two category system actually works…). A couple off them are even in favour of the landlord. I know, lawks alive.

Before we delve into our magnificent seven, a brief overview of the RTM legislation.

The 2002 Act “makes provision for the acquisition and exercise of rights in relation to the management of premises to which [2002 Act, Pt 2, Ch.1] applies by a company which … may acquire and exercise those rights”: s.71(1). That company is known as an RTM company.

The right to manage may be exercised over premises falling within s.72:

“(1) This Chapter applies to premises if—

(a) they consist of a self-contained building or part of a building, with or without appurtenant property,

(b) they contain two or more flats held by qualifying tenants, and

(c) the total number of flats held by such tenants is not less than two-thirds of the total number of flats contained in the premises.

(2) A building is a self-contained building if it is structurally detached.

(3) A part of a building is a self-contained part of the building if—

(a) it constitutes a vertical division of the building,

(b) the structure of the building is such that it could be redeveloped independently of the rest of the building, and

(c) subsection (4) applies in relation to it.

(4) This subsection applies in relation to a part of a building if the relevant services provided for occupiers of it—

(a) are provided independently of the relevant services provided for occupiers of the rest of the building, or

(b) could be so provided without involving the carrying out of works likely to result in a significant interruption in the provision of any relevant services for occupiers of the rest of the building.

(5) Relevant services are services provided by means of pipes, cables or other fixed installations.”

Some premises are excluded from the right to manage by s,72(6) and Sch.6.

Section 73 tells us what an RTM company is:

“(1) This section specifies what is a RTM company.

(2) A company is a RTM company in relation to premises if—

(a) it is a private company limited by guarantee, and

(b) its articles of association state that its object, or one of its objects, is the acquisition and exercise of the right to manage the premises.”

Two types of people can be members of an RTM company, as set out in s.74(1):

“(a) qualifying tenants of flats contained in the premises, and

(b) from the date on which it acquires the right to manage … landlords under leases of the whole or any part of the premises.”

Section 75 defines who “qualifying tenants” are. Basically, it is someone who is a tenant of a flat under a long lease.

Before an RTM company can make a claim to acquire the right to manage, it must give a notice inviting participation to anyone who is a qualifying tenant who is not a member of the RTM company: s.78(1). After at least 14 days, the RTM company can serve a claim notice under s.79. That claim notice must be given to, amongst others, the landlord: s.79(6)(a). Section 80 sets out what the claim notice must contain. The landlord can give a counter-notice disputing the RTM company’s entitlement: s.84 (various other people also can, but in reality it is landlords who do this). Where a counter-notice is given, the RTM company can apply to the Elveety or Futpuck for a determination that it is entitled to acquire the right to manage. If there is no counter notice, the RTM company automatically acquires the right to manage after a period of time: s.90(3)(a).

When a RTM company acquires the right to manage it takes over any management functions (i.e. “functions with respect to services, repairs, maintenance, improvements, insurance and management”) from the landlord: s.96.

We’ll be returning to some of these provisions and introducing others as we go along, but that is more than enough to be getting on with, so with that introduction out of the way, let us gleefully turn to the first of our seven cases (Seven! It’s going to be a long night).

Fairhold Mercury Ltd v HQ (Block 1) Action Management Co Ltd

You may have noticed that this case name is missing three letters that all the others have – “RTM”. That was the key issue in this case.

I have already mentioned s.73 on RTM companies. Section 74(2) provides that regulations may be made about the content and form of the articles of association of RTM companies. Those regulations are the RTM Companies (Model Articles) (England) Regulations 2009 and the RTM Companies (Model Articles) (Wales) Regulations 2011. Regulation 2(1) states that:

“The articles of association of a RTM company shall take the form, and include the provisions, set out in the Schedule to these Regulations.”

The Schedule provides, amongst other things, that “The name of the company is [name] RTM Company Limited.” A provision of the articles of an RTM company has no effect to the extent that it is inconsistent with the Regulations: s.74(5).

Residents of a block formed a company, intending it to acquire the right to manage. They called it HQ (Block 1) Action Management Company Ltd, missing out the “RTM”. D’oh!

The LVT held that the company was an RTM company and could acquire the right to manage. The LVT, however, granted permission to appeal.

The Deputy President of the Upper Tribunal (Lands Chamber) dismissed the appeal. Section 73 was, effectively, all that mattered when deciding whether a company was an RTM company. Provided a company met the requirements of that section it was an RTM company. Even if the Regulations had not been complied with, s.74(5) came to the company’s rescue. The Deputy President ended with some words of warning to first instance tribunals deciding whether to grant permission to appeal:

“[24] … No criticism can be directed at the appellant for applying for permission to appeal and pursuing the appeal once permission had been granted; it was entitled to do both. Nonetheless, it is unfortunate that the important and valuable right conferred by the 2002 Act has been kept in abeyance for so long on such relatively flimsy grounds.

“[25] When permission to appeal is requested in a case such as this, raising a discrete question of the interpretation of a statutory provision, the first-tier tribunal should consider whether there is a reasonable prospect of the applicant demonstrating that the tribunal has wrongly interpreted or applied the relevant law. The first-tier tribunal should ask itself whether the appeal has a real or realistic prospect of success, as opposed to only a fanciful prospect. If the first-tier tribunal, having heard the argument and made its own decision, is satisfied that there is no real prospect of the Upper Tribunal coming to a different conclusion, it should refuse permission; if it considers that the point in issue remains fairly arguable, it should grant permission. If the point on which permission is sought is a purely technical one, as it was in this case, the first-tier tribunal should be slower to grant permission than in cases of more substance.”

Fairhold (Yorkshire) Ltd v Trinity Wharf (SE16) RTM Co Ltd

The RTM company served a claim notice on the freeholder. The freeholder served a counter notice under s.84, setting out various reasons why it disputed the RTM company’s entitlement to acquire the right to manage. Battle was commenced and an application was made to yonder LVT. In its statement of case to for the LVT, the freeholder raised a new objection. The LVT refused to consider this new objection, saying that the only grounds that can be relied upon are those set out in the s.84 counter notice.

The freeholder appealed to the UT, where the appeal was heard by the President. He allowed the appeal, saying that s.84 did not limit the tribunal’s jurisdiction to the matters raised in a counter notice. The tribunal’s statutory remit was to determine whether the RTM company was entitled to acquire the right to manage.

The matter was therefore remitted back to the FTT(PC), for it to consider and determine the new objection.

This is, I think, quite an important case. It is not uncommon for landlords to come up with new objections (quite often because they have gone to seek legal advice, but there are other reasons). The approach of tribunals to this has not been consistent (I still look regretfully back at the tribunal which took a lot of persuading to let me run my new points, only to completely ignore them in its determination). The result of this decision must be right, as these are issues that go to the heart of the determination that the tribunal has been tasked with making. What, though, of that trickier case where, for whatever reason, no-one responds with a counter-notice so that the RTM company automatically acquires the right to manage? That may be fine in some cases, but what about those where the qualifying criteria are not met, but no-one noticed?

Assethold Ltd v 7 Sunny Gardens RTM Co Ltd

The building in question had been built as a house, but was later converted into three flats. They were all held under long leases. The flats were known as 7A, 7B and (wait for it) 7C. The lessees each agreed to become directors and shareholders of an RTM company, which was to be formed to acquire the right to manage and was to be known as 7 Sunny Gardens RTM Co Ltd. In September 2011, one of the leaseholders died. The RTM company was not incorporated until April 2012. No notices inviting participation were served. A notice claiming to acquire the right to manage was served on 27 April 2012.

In the LVT, the freeholder said that the deceased leaseholder could no longer be a qualifying tenant after her death. The LVT was unpersuaded, so the freeholder appealed to the UT, where the case was heard by the Deputy President. He allowed the freeholder’s appeal.

The effect of Administration of Estates Act, ss.1(1) & s.9(1) was that the leasehold interest had passed on death to either the executors of the will or, if there was no will, to the Public Trustee. So far as s.75 was concerned, either of those then became the qualifying tenant. As no notice under s.78 had been served on the personal representatives, the procedure had not been complied with.

The question that the Deputy President then turned to was whether this had caused any prejudice to the personal representatives or to the other leaseholders (see Avon Freeholds at [39] & [47]). No evidence had been presented to the LVT on this point. Importantly, the “burden of satisfying the LVT that a defect in compliance with the statutory procedure laid down by the 2002 Act has not caused prejudice falls on the party asserting that the right to manage has successfully been acquired” ([40]). As that had not been done, the claim was dismissed.

No.1 Deansgate (Residential) Ltd v No.1 Deansgate RTM Co Ltd

This is a very important decision on when a building is structurally detached. You may recall that premises can satisfy the qualifying criteria in one of two ways – either by being a self-contained building or by being a self-contained part of a building. A self-contained building is one that is “structurally detached”.

The building in question is a relatively well-known mixed-use development in Manchester. When it was built, between 1999 and 2002, it was a stand-alone building. Since that time, other buildings have been built up around it, although none of those buildings get (or give) any structural support from (or to) No.1. It had, however, become connected to the surrounding buildings by weathering features that had been introduced to prevent water ingress that would otherwise have occurred.

An RTM company was formed and claimed to be entitled to acquire the right to manage. The freeholder resisted this, saying that the building was not structurally detached. The LVT said that it was and that the RTM company could acquire the right to manage.

The freeholder appealed to the UT, where the appeal was heard by HHJ Huskinson. The freeholder argued that the building was not structurally detached, because it touched other buildings. There is some fairly high authority in support of this proposition. Lord Wilberforce said in Parsons v Gage [1974] 1 WLR 435, that, in relation to the Leasehold Reform Act 1967:

“As a matter of ordinary English, I should regard the meaning as reasonably plain. ‘Structurally detached’ means detached from any other structure. It it (sic) is said that this would be the meaning of ‘detached’ alone, and that ‘structurally’ is, on this view, superfluous, I would reply that the adjective is a natural addition because of the following reference to ‘the structure.’ The two words complement each other.”

Several commentators have assumed that Lord Wilberforce’s definition is to be imported into the 2002 Act. HHJ Huskinson disagreed, saying that Lord Wilberforce had not been intending to lay down that the words “structurally detached” should always be construed in the manner set out above. What was actually required was “that there should be no structural attachment (as opposed to non-structural attachment) between the building and some other structure” ([30]).

I do not think that the UT’s decision will be the last word on this point. I don’t find the approach to distinguishing Parsons to be all that convincing. Some reference was made to the 1965 and 1972 Building Regulations (where the phrase “wholly detached” was used), to show that where Parliament meant a complete absence of touching, it was able to say so. While that is clever, it doesn’t settle the point – that is completely different legislation, while there is quite a degree of similarity with the 1967 Act (although I accept that there are some differences too). Moreover, the approach adopted by the UT might possibly complicate the Tribunal’s task, requiring it to resolve a tricky factual dispute. The fact that a building is not a self-contained building because it is not structurally detached is not fatal to the right to manage being acquired over it – it may still qualify under the detailed provisions defining a self-contained part of a building. That surely points towards a relatively restrictive and bright line approach to s.72(2). Hopefully the Court of Appeal will reconsider this issue.

Pineview Ltd v 83 Crampton Street RTM Co Ltd

This is another judgment of the Deputy President. Two questions arose for the consideration of the UT in this case (whittled down from 7 that had been before the LVT). First, is a claim notice defective if it is signed by the RTM company’s solicitors, rather than an authorised member or officer of that company? Secondly, is a claim notice defective if it does not specify whether the premises do or do not include appurtenant property (recall that s.72(1)(a) refers to self-contained buildings or parts of buildings, “with or without appurtenant property”)?

So far as the signature was concerned, the UT had already said in Assethold Ltd v 14 Stansfield Road RTM Company Ltd that it was fine for someone with delegated authority to sign a claim notice, even if they were not a member or officer of the company (see 14 Stansfield Road at [17]-[18]). While the freeholder’s argument was a more fully developed and sophisticated argument, the UT was still not persuaded. So signature by solicitors is fine.

So far as appurtenant property is concerned, the UT had already dealt with this point in Gala Unity (our note here – this particular point did not arise in the Court of Appeal), holding that a claim notice did not need to specify whether or not it was made in respect of appurtenant property. The Deputy President agreed with the UT’s earlier decision.

Assethold Ltd v 13-24 Romside Place RTM Co Ltd

The freeholder was a company called Bermac Estates Plc. On 24 January 2012, Assethold Ltd acquired the freehold interest. The RTM company served notices inviting participation, under s.78, on 20 February 2012. Those notices incorrectly identified the landlord as being Bermac. The LVT decided that, although the error in the s.78 notice meant that it breached the Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2010 (which set out that a notice under s.78 shall contain, amongst other things, the landlord’s name), that did not invalidate the claim notice (which did not contain any errors).

The freeholder’s appeal to the UT was allowed by HHJ Huskinson. The notice inviting participation under s.78 was invalid due to non-compliance with the 2010 Regulations. There had to be a valid s.78 notice before there could be a s.79 claim notice. It followed that the claim notice was invalid and the RTM company was not entitled to acquire the right to manage at that time.

Ninety Broomfield Road RTM Co Ltd v Triplerose Ltd

Finally (phew), can a RTM company acquire the right over more than one building and, if so, how (i.e. does there need to be separate claim notice for each building, or will one compendious notice suffice, and does each individual building need to meet the qualifying criteria)? This, like No.1 Deansgate, is an important decision. The Chamber President of the FTT(PC), Siobhan McGrath, had to decide these issues in the Upper Tribunal. She was faced with 4 cases. There were 3 appeals and one application that was transferred to the UT to be dealt with together with the other cases.

The facts of the cases are quite different (see [13]-[33]), but, in essence, each case involved an RTM company claiming the right to manage over more than one building in an estate. Those of you who have assiduously followed my many links to Gala Unity may think that this has already been resolved, as in that case the RTM company was found to be entitled to acquire the right to manage and it did so over two separate buildings. That case is not, however, determinative as it simply proceeded on the assumption that the right to manage could be acquired over more than one building by the same RTM company.

The UT therefore had to tackle this issue and decided that the assumption in Gala Unity was correct – an RTM company can acquire the right to manage over more than one building. An objection by some of the freeholders that this could lead to RTM companies acquiring the right over various widespread properties was dismissed as “fanciful” ([89]).

As to the how: each block must satisfy the qualifying criteria ([88] & 94); only one claim notice is required, but a pointer was given to RTM companies that they may still be better off serving separate notices ([94]).

Interestingly, this result appears to be at odds with the present Government’s understanding of the legislation, which was noted recently by J:

“The right was designed for use on a block-by-block basis. Applying the legislation to estates is complex and might result in the right becoming less, rather than more, accessible” (HC Deb 4 December 2013, col 571, col 328WH)

Again, as with No.1 Deansgate, there is plenty for the Court of Appeal to tuck into here, should they be so minded.

 

Congratulations if you made it all the way down here. Your love of all things RTM is applauded by a (surprisingly youthful) chief.

About chief

chief is a barrister in the big city. he specialises in public law, landlord & tenant, football and rock 'n' roll (the last two are only when his clerks aren't watching). he sometimes pops by here, but not as often as he'd like. he will occasionally eschew capital letters. the reasons for this odd affectation are lost in the mists of time.
Posted in Housing law - All, Leasehold and shared ownership and tagged , .

4 Comments

  1. And, as it seems only I care about this, the CA today overturned the 90 Broomfield Road case. One RTM Co for one block is the only way.

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