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In this post, Jen Knibbs, an associate at CMS, comments on FirstPort Property Services Ltd v Settlers Court RTM Company Ltd and others [2022] UKSC 1, an important judgment providing much needed clarity on the extent of the statutory right to manage under the Commonhold and Leasehold Reform Act 2002.

On 12 January 2022, the Supreme Court unanimously allowed FirstPort’s the appeal from the Upper Tribunal (Lands Chamber), and overruled the decision of the Court of Appeal in Gala Unity Ltd v Ariadne Road RTM Co Limited [2012] EWCA Civ 1372.

The issue for the Supreme Court was whether a right-to-manage (“RTM”) company, set up to manage a single residential block on a multi-block development pursuant to the provisions of the Commonhold and Leasehold Reform Act 2002 (the “2002 Act”), acquires the right to manage common areas on the estate which are shared with leaseholders from other non-right-to-manage blocks.

Background

FirstPort is the named management company in the leases of certain flats at the Virginia Quay Estate (the “Estate”) in London. The Estate comprises many properties, including several freehold houses and nine other blocks of flats, as well as certain common property such as gardens and accessways. Settlers Court RTM Company Limited (the “RTM Company”) acquired the right to manage Settlers Court, one of the blocks forming part of the Estate.

After successfully acquiring their statutory right to manage Settlers Court, the RTM Company took over FirstPort’s responsibility for providing services at Settlers Court. FirstPort continued to provide services to the whole Estate, including Settlers Court, as per its responsibilities in terms of the lease, and continued to collect fees for the services rendered.

An issue then arose when a number of lessees refused to pay their portion of the fees charged by FirstPort notwithstanding the fact that they had had the benefit of the services. The lessees argued that they were no longer obliged to pay FirstPort, as the right to collect fees had passed to the RTM Company. Under s 97(2) of the Act, a landlord or management company cannot carry out the management functions that have been acquired by the RTM company unless otherwise agreed.

Decisions of the lower courts

First instance decision

The RTM Company applied to the First-Tier Tribunal for a determination as to whom the service fees relating to the management of the Estate appurtenant property were payable.

The Tribunal held that service charges were payable to the RTM Company and not to FirstPort, finding that the right to provide all management functions and services at Settlers Court, including its appurtenant property, passed to the RTM Company when the right to manage was acquired. Reliance was placed on the Court of Appeal decision in Gala Unity Ltd v Ariadne Road RTM Co Limited [2012] EWCA Civ 1372 (“Gala Unity”) where it was found that the right to manage extended to “non-exclusive” parts of a wider estate, e.g. car parks, gardens etc.

“Appurtenant property”, defined at s 112 (1) of the Act, means property “in relation to a building or part of a building or a flat, means any garage, outhouse, garden, yard or appurtenances belonging to, or usually enjoyed with, the building or part or flat”, or, in other words, the property surrounding the building.

The Upper Tribunal

FirstPort appealed to the Upper Tribunal and argued that Gala Unity had been wrongly decided. The Upper Tribunal found that whilst the outcome in Gala Unity created many difficulties in wider estate management, the decision was not made in error, nor was the Court’s reasoning leading to the final decision demonstrably wrong.

The Upper Tribunal did however issue a “leapfrog” certificate which enabled FirstPort to apply for permission to appeal directly to the Supreme Court and to bypass the Court of Appeal.

The Supreme Court decision

In a unanimous judgment, the Supreme Court agreed with FirstPort’s arguments that Gala Unity produced “absurd and unworkable” results in allowing the RTM Company to acquire management rights over non-exclusive estate property. The Supreme Court closely considered the true construction of the 2002 Act in their judgment, stating that the appeal turned upon the interpretation of the relevant provisions of the legislation.

In his judgment, Lord Briggs stated that in reaching the decision to overrule Gala Unity, he bore in mind that the case “has stood as binding authority for several years, and that estate facilities in many estates may at present be being managed under sharing agreements made by RTM companies and others on the assumption that the law was as set out in that case,” but “that is not, however, 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” .

The court placed great significance on the construction of the 2002 Act and the definition of the “premises”. They found that managing shared estates did not fall into this definition, and therefore the right to manage could not extend to those parts.

In conclusion, Lord Briggs said “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.”

Ultimately, the Court accepted the appellant’s argument that the Court of Appeal’s construction of the legislation produced an “absurd and unworkable” result which could not have been what Parliament intended.

Comment

It was widely acknowledged that Gala Unity created practical difficulties for estate management; the Law Commission proposed overruling the decision in their July 2020 report on the right to manage. The Supreme Court’s decision will no doubt be welcomed by all those involved in the management of multi-block developments as it clarifies the extent of this important statutory right.