2022 has started off with a hugely important decision and some much welcomed clarity from the Supreme Court on the issue of right to manage claims in the context of shared estates.

The right to manage, introduced by the Commonhold and Leasehold Reform Act 2002 (“the Act”), was not intended to be an overly technical or difficult process, with procedures and forms prescribed by legislation to enable leaseholders (with or without representation) to follow a fairly straight forward process where they wish to take control of the management of their building. Unfortunately, however, in the time since the inception of the Act, the process has (or is seen to have) become more overly complicated, with challenges by landlords often making their way up through the ranks of the judicial system and establishing various (often confusing) legal precedents.

Background - Shared estates under Gala Unity

One such case was Gala Unity v Ariadne Road RTM Co Limited [2012] EWCA Civ 1372, which was (until now) the leading cases on claims exercised over share estates. Here we are talking about estates where a number of blocks/other properties enjoy rights over, for example shared roads, garden areas and other communal space. The issue for the Court of Appeal in Gala Unity was the extent of the RTM company’s management functions where you have a shared estate.

“Appurtenant property”

Under Section 72 of the Act, the right to manage can be exercised over a self-contained building or part of a building, “with or without appurtenant property”.

Appurtenant property is defined by Section 112 as “any garage, outhouse, garden, yard or appurtenances belonging to, or usually enjoyed with, the building or part or flat”.

Under Section 96, the RTM company acquires the management functions under the lease in respect of those appurtenant premises and, under Section 97, the landlord or management company who otherwise has those functions under the lease is not entitled to do anything which the RTM company is empowered to do, except with the agreement of the RTM company (although the landlord/management company can still insure, at their own cost, in addition to the RTM company).

In the context of a single block of flats on an estate with such appurtenant property, the situation is straightforward - the RTM company acquires the right to manage all parts of the estate that the landlord (or management company, in the context of a tri-partite lease) otherwise manages under the lease. The issue is that where a number of other properties also have the right to use that appurtenant property in addition to the block being RTM’ed, who is to manage that appurtenant property? Does the RTM company acquire the right to manage the entirety of the estate, only part of the estate, or does the landlord/management company retain the right to manage the estate?

The Court of Appeal’s decision

In Gala Unity, the Court of Appeal (agreeing with the earlier decision of the Upper Tribunal) disagreed with the landlord’s argument that Section 72 only applied to appurtenant property that was appurtenant to one flat or building, so a shared estate is not “appurtenant property” within the meaning of the Act. Instead, the Court of Appeal held that the definition of “appurtenant property” was not limited to what was exclusively used for the building in question, and extended to all such parts of the estates that the leaseholders of the building being RTM’ed have the right to use or enjoy.

However, this interpretation created a problem of ‘dual management’ on shared estates - the RTM company has obligations to manage the estate insofar as it acquires the management functions under the leases of the building which has been RTM’ed, but the landlord/management company retains those same functions insofar as the other owners on the estate are concerned, those not within the block subject to the RTM.

The solution suggested to get around this issue was that the RTM company and the landlord/management company would have to agree between them who would manage which parts of the estate; a solution often unrealistic in practice, particularly where the motivation for the RTM claim is a breakdown of the relationship/trust between the landlord/management company and the leaseholders.

A change of perspective - Settlers Court

Thankfully, the Supreme Court has now restored some common-sense and practicality to this issue.

Settlers Court is a block of 76 flats at the Virginia Quay Estate, on the north bank of the Thames opposite the O2, containing some 778 units made up of 10 blocks of flats and rows of three-storey freehold houses. The development is surrounded by communal areas including accessways, gardens, parking spaces and grounds together with a river wall separating the Estate from the Thames, all maintained by the management company, FirstPort, under the terms of the leases and transfers because the facilities that serve or are used by all the residential occupiers of the blocks of flats and houses.

The requisite majority of the leaseholders of Settlers Court exercised their right, through a RTM company, to acquire the right to manage their building on 08 November 2014. The dispute arose as to who had the right to provide the estate services and levy a service charge for the same. Despite the Court of Appeal’s decision in Gala Unity, FirstPort considered it was obliged to provide those services and charge the leaseholders of Settlers Court (as well as the other leaseholders/owners of the freehold houses on the estate) as a service charge.

The Supreme Court agreed and decided that Gala Unity was wrongly decided, such that the RTM company does not acquire the right to manage the estate where appurtenant property is shared with other residents. In other words, appurtenant property is concerned with property rights which are exclusively used by the leaseholders in the building being RTM’ed. The Supreme Court stressed that the purpose of and the rights introduced by the Act were concerned with acquiring rights over a building. The Act did not prescribe how the parties were to deal with a ‘dual management’ situation as created by the Gala Unity decision, which was said to be a “compelling signpost” that the rights acquired following a right to manage claim were limited to those exclusively enjoyed by the building.

Giving the leading judgment, Briggs LJ said, having recognised the “insuperable problems” where a ‘dual-management’ situation otherwise arises on shared estates as envisaged by Gala Unity :

“61. All these absurdities are avoided if the functions of the RTM company do not extend to the estate facilities. On this construction there is no shared management. Estate services remain under the management of the previous manager, and the existing leasehold structure makes continuing provision for that manager to recover the full cost from all relevant tenants.

62. I consider that the right to manage scheme in Chapter 1 of Part 2 of the 2002 Act makes no provision within the statutory right to manage for management by the RTM company of shared estate facilities. It is concerned only with management of the relevant premises, that is the relevant building or part of a building, together with appurtenant property (if any) which means nearby physical property over which the occupants of the relevant building (or part) have exclusive rights. The right to manage is an exclusive right in the RTM company to manage the relevant premises, and no provision is made in Chapter 1 for any shared management of anything, save only where the RTM company chooses to agree otherwise”.

Conclusion

The Supreme Court’s decision is clearly the right one in practical terms. However, 10 years on from Gala Unity, one wonders how landlords/management companies should deal with situations where shared estates are currently being managed (in part or in full) by RTM companies because, in light of the Settlers Court decision, Gala Unity was wrongly decided.

One can foresee disputes vis-à-vis RTM companies and leaseholders, insofar as service charges have been levied for services the RTM company does not acquire the right to provide under the Act following the Settlers Court decision, and as between RTM companies and landlords/management companies to regularise management going forward. Indeed, the Supreme Court recognised that many estates may have been managing under shared agreements for many years on the basis of Gala Unity, but said that that was not a sufficient reason to “perpetuate an interpretation which is not merely causing practical difficulties but, more fundamentally, is contrary to the purpose of the statute”.

Where existing shared arrangements exist, competent legal advice should be taken as to what should and can be done, if anything, following the Settlers Court decision.

For more information on the right to manage see our guidance here.

If you have any queries at all, please do get in touch with a member of team on 01435 897297 or info@kdllaw.com.

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