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By J
15/01/2022

Settled by Settlers

FirstPort Property Services Ltd v Settlers Court RTM Co Ltd [2022] UKSC 1 is a big deal in the world of residential leasehold property disputes. Whilst I can’t say that the result is particuarly surprising, I imagine it has sent lawyers, RTM company directors and the Law Commission into a bit of a spin.

By way of background, the Commonhold and Leasehold Reform Act 2002 allows leaseholders of flats to set up an RTM company which – assuming sufficient support and membership of the company – then takes over the “management functions” (ss.96 and 97, 2002 Act) under the leases (usually from a freeholder, but equally applicable to a tri-partide lease with a mangement company, or a s.24 LTA 1987 Manager or, if you’ve got a really old lease, a Maintainance Trustee). The management functions are, in effect, the service chargeable matters. The idea is that the people who pay the charges (the leaseholders) should have the final say on what services are provided and at what cost (subject to the terms of the lease).

Now, if you’ve got (say) a house which has been converted into flats, then those management functions will likely be quite easy to delimit and define. It’ll be the internal common parts cleaning, repairing the roof, insuring the building etc. But where you have a single block of flats on a wider estate, things get harder. In that case, you’re likely to have two different kinds of management functions under the leases. The first will be “block” functions (cleaning the internal common parts, repairing the lift, maintaining the roof etc). The second will be the “estate” functions. These are likely to affect leaseholders beyond those contained in one block, e.g. cleaning a communal carpark over which the leaseholders of multiple blocks have rights; maintaining a common garden etc.

In the converted house example, no problem arises. The leaseholders of the flats in that house don’t share services with anyone in any other block. But in the “wider estate” example, it gets messy. The effect of a decision called Gala Unity (our note on the UT here and CA here) is that, in these “wider estate” cases, the RTM company gets the block functions for the block containing its own leaseholders and it also gets the wider estate functions but only insofar as those relate to its block; the existing manager also has to continue to provide those estate functions to the remaining blocks. So, in the case of a communal garden, the RTM company has to arrange for the grass to be cut because it now has that duty vis a vis its own leaseholders and the freeholder also has to cut the grass because it has that duty vis a vis the other leaseholders in the other blocks.

If you think that sounds like a potential for disaster, then I’d agree (and it seems I thought that when I wrote about the UT and the CA). There is no sensible reason for two bodies to perform the same function on the same land. And neither of them can recover all their expenditure (because the RTM Co can only charge its leaseholders and the other manager can only charge the non-RTM leaseholders).

Which brings us to the Settlers Court case. One block on an estate had gone down the RTM route. The other blocks had not. FirstPort (as named manager under the leases) considered that it had to keep providing “estate” services to the other blocks and also considered that it should provide those services – and recover a contribution to the costs – from the Settlers Court leaseholders. But Gala Unity was an obvious problem with that argument. It tried to persuade the UT that Gala Unity  was per incuriam (see note here) and failed. The UT granted permission to appeal and sent the appeal directly to the Supreme Court.

The SC allowed the appeal. First, the RTM was about gaining rights over the block, not the wider estate. Secondly, the 2002 Act made no provision for how you would share services or resolve any disputes about those services and that was a pretty firm indication that the RTM company was not supposed to get the estate functions. Thirdly, the decision in Gala Unity had led to absurd results (especially on the financial issues). Appeal allowed. Result is that RTM companies get the “block” functions and any functions relating to land which is exclusively used by that block (e.g. a private garden) but not any land over which there are any third party management rights.

For my part, I think the decision is right and its welcome to see the SC correct an error in the law. That said, quite a few questions now arise:

(a) what next for the Law Commission RTM reform proposals? Does this change matters? Does it give the government a reason to delay or further consult?

(b) what happens to RTM companies who have been performing estate functions for the past several years? They, presumably, need to stop ASAP (absent agreement with the freeholder/other manager). Can anyone ask for their money back? Are we looking at disputes around restitutionary remedies for payments made under a mistake, met with change of position defences? Are RTM companies in a position to terminate any relevant “estate services” contracts?

(c) are freeholders happy about this? On an estate like the one in this case, I suspect they are  happy. But what if *all* the blocks go RTM? Does the freeholder want to be left managing a rump external common part? How many freeholders are in a position to just resume management?

(d) how do you identify where a block ends and an estate starts? I’m not being flippant. Imagine, if you will, that you have a block of flats built over a car park. The carpark is the foundation of the block and provides structural support for the residential parts. The actual car parking spaces are accessed by the leaseholders of the RTM block *and* all the other blocks. The maintenance of the car park is now a matter for the freeholder. But where does that stop and where does maintenance of the foundations begin? I’m not sure I’d want to answer that without some input from a structual engineer.

(e) Can you now write a lease so as to make a building incapable of being RTMd? Just make sure no building has any stand-alone rights (even over internal or external repairs – make the whole estate pay for each building and have rights over each building)?

 

J is a barrister. He considers housing law to be the single greatest kind of law known to humankind and finds it very odd that so few people share this view.

4 Comments

  1. AndrewM

    One option of course is in reducing the scope of the RTM that they notify the estate holder and if they are reluctant that they may need to consider appointing an FTT manager. Even acquring it is no bed of roses in one case where the two blocks formed a third company and negotiated transfer it created all manner of new arguments. this is where the work is needed on any reform. Where it involves staff, entry systems or utilities street lights etc this is not simply cancelling the cleaner, and can openand RTM to all manner of litigation local authority enforcement or even criminal action ( say health and safety)

    We might see the “estate holder” e.g. freeholder seeking recompense for lost management income and fees. Perhaps RTMs shut up shop ( with perhaps catastrophic implications for the directors who just volunteered to see the garden was mowed properly) and then enfanchise or seek manager appointment….

    On point d this was the orginal dilema , common to most legislation, that the exceptions and head scratchers would be solved by agreements and courts with detailed rules then, hopefully set out e.g. the appeal on Philips v Francis.
    on point c yes this is what has and does happen, If ground rents are to dissappear there is potentilal that no freeholder will have any interest what so ever in retention or as we see in some schemes a complex set up arises for asset managers to buy and and restrictions on title and deeds of covenant to milk.
    on e those of us drafting the lease structure for the lawyers to draw up have made them capable of RTM to minimise problems e.g. as chedule of block A and estate A and Estate Road/ street lights main gate etc which serves everybody not jsut the rtm blocks . In practise it is very hard as the existing arrangements cease unless they are incapable of division so it is limited to structure and services and any rights which impede this.

    Frankly it creates more problems than it solves and the decision wrong in that it is contrary to whole direction of leasehold reform and public policy

    Reply
  2. Julie Wilson

    How do you get on if you have baught your parking spot with your apartment and not much land that sarrounds us and we are in a cul de sac

    Reply
  3. Julie Wilson

    Does the settles court ruling only refer to shered land rather then a property who use is only used by one block is the ruling relefent to this

    Reply
    • Giles Peaker

      “RTM companies get the “block” functions and any functions relating to land which is exclusively used by that block (e.g. a private garden) but not any land over which there are any third party management rights.”

      Reply

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