Brady Solicitors’ property management expert Adam Fotiou explains how a landmark Right to Manage case that has caused extensive practical difficulties for RTM claims in multi-block estates could potentially be overturned in the Supreme Court.
To say that the Right to Manage regime introduced by the Commonhold and Leasehold Reform Act 2002 has not been without its difficulties is perhaps an understatement! The Court of Appeal decision in Gala Unity v Ariadne Road has proved to be one of more problematic in terms of the practical implications for both freeholders or management companies, and the RTM companies themselves, in multi-block estates.
Gala held that the management functions over an estate (as set out in the occupational leases) that are passed to the RTM company on acquisition were not confined to land or rights appertaining exclusively to the block that is the subject of the RTM claim – it therefore sought to bring clarity to what is ‘appurtenant property’ for the purposes of Section 72(1)(a) of the 2002 Act.
The practical difficulties caused by this decision has been experienced in multi-block estates where a single block is subject to a successful RTM claim; what then happens to management of the wider estate enjoyed by leaseholders of the other blocks who, for all intents and purposes, have nothing to do with the RTM company and still look to their freeholder or management company to fulfil their obligations under the lease to manage the estate?
Gala sought to resolve this question in favour of the RTM company as having acquired management over the wider estate.
Freeholders and management companies have grappled with the practical difficulties this has created, namely in the risk of dual management over the estate between the RTM company and freeholder or management company.
A ‘Shared Services Agreement’ between the RTM Company and freeholder/management has been a tool commonly deployed to demarcate between the parties the extent of the estate that will come under their respective responsibilities, in order to help avoid the risk of duplication in estate services between them (and leaseholders consequently paying twice for the same service).
FirstPort Property Services v Settlers Court RTM Company incapsulated the practical difficulties referred to above. The case centred on a challenge by the RTM company of the payability of service charge demanded by FirstPort from leaseholders for the management of the estate (for the period since the RTM claim went through).
The Upper Tribunal upheld the decision of the lower tribunal which found that the estate service charge was not payable to FirstPort by virtue of the binding effect of Gala i.e. the wider estate was not FirstPort’s to manage when the management of the block known as Settlers Court was acquired under the 2002 Act.
Unfortunately, although a Shared Services Agreement was discussed at the time of acquisition, it was not finalised and FirstPort went on to comply fully with its obligations under the leases to manage the estate. Brady Solicitors’ Head of Litigation, Jeremy Weaver, provided an excellent summary of the Upper Tribunal’s decision here.