01/01/2020

Improper purposes

First, a quick erratum to yesterday’s post on upcoming housing law. The post had wrongly stated that the 1 June 2020 Tenant Fees Act changes would mean repaying deposits of over five weeks rent on pre 1 June 2019 tenancies. That is not the case, so long as the tenancy remains in its initial fixed term, or has become a statutory periodic since 1 June 2019. If a new fixed term has been granted since 1 June 2019 then the 5 week limit applies for that new tenancy. However, all other tenant fees included in the original tenancy agreement (eg check out fees) will cease to be payable on 1 June 2020. I blame it on too much cheese.

The first report of 2020 is a bit of a curiosity, concerning the operation of lessee-owned management companies.

Houldsworth Village Management Company Ltd v Barton (2019) EWHC 3590 (Ch)

Mr Barton is a leaseholder in the Houldsworth Village development. As with all the leaseholders, he is also a member of the Houldsworth Village Management Company, which has the maintenance obligations for the development under a tri-partite lease. The Management Company is owned by the leaseholders. The directors of the Company had appointed managing agents to carry out the maintenance function.

Mr B had made a request in writing to the directors of the Management Company under s.116 Companies Act 2006, which read:

In accordance with Section 116 Companies Act 2006, I hereby request to inspect the register of members of Houldsworth Village Management Company Ltd. I hereby give you the following information: my name and address are Keith Barton, (address). The purpose for which the information is to be used: I wish to contact my fellow members with a view to seeking a general meeting of members and proposing resolutions to remove and replace the existing directors and the managing agent. The information will not be disclosed to any other person.

The Company brought a Part 8 claim under s.117 CA seeking a declaration from the court confirming that the defendant did not have a proper purpose for making the request for inspection of the register of members and that the request should therefore be refused.

The Company argued variously that removal of the managing agents was not a proper purpose, citing Morshead Mansions Ltd v Di Marco [2008] EWCA Civ 1371 (our note) on the distinction of the role of member of the Company and leaseholder. The day to day management of the Company was in the board, not the shareholders. The leaseholder’s rights to contest service charges and proper management arose under the lease (and statute) and were distinct.

The Company also relied on the finding in an earlier case concerning Mr Barton and the lessee owned management company of another unrelated development in Newcastle (Our note of that case is here). Mr B and also made a request under s.116 for that Company. That request gave as its purpose to contact the other members in order to seek their views on several matters relating to the company. The company had applied to the court under s.117, and presented evidence to the effect that Mr B was a vexatious litigator who had brought a number of largely baseless claims, that

he had failed to pay service charges on properties he had owned for years on end; that he had sought to campaign amongst leaseholders to show disaffection as to the management of the properties in which he had an interest; that his behaviour had been disruptive; and that it had caused leaseholder management companies to incur unnecessary expense and administrative effort which was largely to the prejudice of other leaseholders who were paying their service charges.

Mr B had not dealt with that evidence in his response, and the court had found an improper purpose.

However, the present court was not prepared to deal with the findings of fact in that case, and, while the company was only asking the court to accept the previous judgment’s findings on law on improper purpose, the facts in that case, the reason given by Mr B and the lack of detailed refutation of that company’s allegation all meant that the finding in that case had no direct relevance to the present one.

The court held that:

The objects of the Company were to acquire, hold and manage the property.

In my judgment, given the objects of the claimant company, it is a perfectly proper purpose for the defendant to seek to contact shareholders in the company with a view to seeking a general meeting of members and proposing resolutions to remove and replace the existing directors and the managing agent. (…)

In the light of the constitutional arrangements applicable in the present case to the claimant company, it seems to me that it cannot be said that seeking to change the board with a view to seeking a change in the identity or terms of appointment of the managing agents is nothing to do with Mr Barton’s interests as a member of the company.

While aspects of Mr Barton’s conduct may have been regrettable, this was not unqualifiedly the case. The company had not established that his purpose was to seek to harass the directors or managing agents, or to cause disruption to them, or to other leaseholders. Further Mr B had now offered an undertaking to the court that the information would only be used for the stated purpose.

 

 

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

4 Comments

  1. James

    On the Tenant Fees Act deposit issue, it seems it’s becoming more widespread for registered providers/housing associations to ask for prospective tenants to pay, for example, 4 weeks rent in advance at sign up. In addition, some are requiring a further, additional e.g. 4 weeks rent in advance becasue a term of the tenancy is that the rent account must be kept in 4 weeks rent credit at all times. To my mind, such a tenancy term would meet the Housing Act 2004 definition of a deposit (any money intended to be held (by the landlord or otherwise) as security for the performance of any obligations of the tenant) and so would have all the associated implications. Have you come accross this and would you be minded to agree?

    Reply
    • Giles Peaker

      My view on ‘rent in advance’ is that it runs the risk of being a deposit unless it is for some specified period (eg ‘first and last month’). But Johnson v Old applies – if the payment is to discharge an obligation, rather than being held as security against a potential failure to meet that obligation, it is not a deposit. (See https://nearlylegal.co.uk/2013/04/9310/ ). The payment in your example is to meet an obligation, I think (though a dubious one in my opinion).

  2. James

    Thanks Giles. I’d obviously have to have a good look at the specific term in the tenancy, but having read your Johnson v Old article (thanks again) if the term simply says ‘the rent account must be kept in 4 weeks credit at all times’ I think one would be on very shaky ground to suggest the term is to meet an obligation. Sounds like it’s to be held as assurance that the obligation or liability is to be discharged at some future time. To me anyway. As you say it’s not being held for a specied period. It’s very interesting to hear it’s there to be argued at least.

    Reply
  3. Ben Reeve-Lewis

    On fees, I came across this yesterday https://propertyindustryeye.com/some-letting-agents-pulling-a-fast-one-and-still-charging-fees-to-tenants-despite-the-ban/

    TPOS alone has received 225 complaints of agents still charging fees to tenants and the only defence ARLA can put up is that the complaints are merely the result of confusion because of the speed the law was brought in. I agree, it was fast but agents are housing professionals and should be on top of this. Rental matters is my job as well and I familiarised myself with it. I even printed off the list of permissible fees A3 size and stuck it on the office wall so the team can glance up and check when they need to. I’m not aware of a possible legal defence that a perpetrator didnt understand the law or that they were “Confused”

    Reply

Leave a Reply (We can't offer advice on individual issues)

This site uses Akismet to reduce spam. Learn how your comment data is processed.