Service Charges & Estate Management January 2014 Update

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RTMs, SERVICE CHARGES AND ESTATE MANAGEMENT

JANUARY 2014 UPDATE

Ninety Broomfield Road RTM Co Ltd v Triplerose Ltd [2013] UKUT 606 (LC)

Summary: A single RTM company can exercise the right to manage more than one self-contained building.

Facts: The UT heard four cases together, all of which concerned one or more of the following issues:

  1. Whether an RTM company may seek and acquire the right to manage in respect of more than one self-contained building;
  2. If so, must the RTM company serve separate notices in respect of each self-contained building and must each building have the requisite number of qualifying tenants who are members of the company?
  3. If an RTM company does not need to serve separate notices in respect of each self-contained building but can seek the right to manage a number of buildings in a single notice, how is the requisite number of qualifying tenants and members of the company to be identified and counted?

Decision:  The UT (Siobhan McGrath, President of the FTT, sitting as a judge of the UT) held:

  1. A single RTM company can exercise the right to manage more than one self-contained building;
  2. Each set of premises must satisfy all of the conditions in s.72: in addition to being self-contained, they must contain two or more flats held by qualifying tenants and the total number of flats held by such tenants must be not less than two-thirds of the total number flats contained in the premises.
  3. A single notice will suffice in respect of a number of properties.

Comment:  This is a very important decision and, because of the drafting of the legislation, it poses a number of practical difficulties.  It is very likely to be subject to an appeal to the Court of Appeal.  The most obvious difficulty is that the language of s.72 (by the use of the pro-noun “a”) only permits the right to manage to extend to an individual building.  This is reinforced by other sections in Part 2 of Chapter 1 of the 2002 Act.  The President of the FTT’s purposive construction to the statutory provisions is logical but not without difficulty.  The decision also means, in theory, a single RTM company can acquire the management functions of multiple blocks in different estates many miles apart and apparently without any connection.  This cannot have been the intention of Parliament.  Qualification to exercise the right to manage must, however, be achieved on a block by block basis so the right to exercise the right to manage in respect of a number of blocks cannot be achieved without the consent of qualifying tenants in smaller blocks.  It was also held (arguably obiter) that the fact that one RTM company is exercising the right over property where there are shared rights between the RTM and the freeholder (see Gala Unity Ltd v Ariadne Road RTM Company Ltd [2012] EWCA Civ 1372) does not prevent another RTM company exercising the right over the same shared property (e.g. roads, paths, gardens and car parking spaces).  Thus, a claim to RTM is not invalidated by the specification of premises which include shared appurtenant property rights, already the subject of another RTM.  This means that multiple RTMs may have to share management functions; this will not be a happy prospect for any leaseholder who was sufficiently motivated to acquire the right to manage in the first place.

 

No.1 Deansgate (Residential) Ltd v No.1 Deansgate RTM Co Ltd [2013] UKUT 580 (LC)

Summary: Whether a self-contained building is not “structurally detached” within the meaning of s.72 of the 2002 Act is a question of fact and degree.

Facts:  No 1 Deansgate was constructed as a stand-alone building before the surrounding properties were built at a later date. Therefore, when No.1 Deansgate was originally constructed, it did not touch any other properties.  It was built as a structurally detached development (in that it did not and does not derive any structural support or lateral stability from (or give any such support to) the adjoining properties). When the surrounding properties were built, weathering features were introduced to cover the gaps between No.1 Deansgate and those other properties in order to prevent the water ingress that would otherwise have occurred because the later properties had been constructed alongside No.1 Deansgate. As a result, No.1 Deansgate is now connected to the adjoining properties – but only by the weathering features.  The weathering features have no structural element and do not provide structural integrity to No.1 Deansgate.  The LVT held that No 1 Deansgate, was a self-contained building within s.72(2) of the 2002 Act so that the RTM company was entitled to acquire the right to manage the building.  The freeholder appealed relying on what Lord Wilberforce said at  439 C to D in Parsons v Gage (Trustees of Henry Smith's Charity) [1974] 1 WLR 435 (a case on the proper construction of the words “structurally detached” in s.2(2) of the Leasehold Reform Act 1967): “As a matter of ordinary English, I should regard the meaning as reasonably plain. “Structurally detached” means detached from any other structure. If it is said that this would be the meaning of “detached” alone, and that “structurally” is, on this view, superfluous, I would reply that the adjective is a natural addition because of the following reference to “the structure”. The two words complement each other.”.

Issues: (1) What is required for a building to be “structurally detached” within the meaning of s.72(2) of the 2002 Act; and, (2) does No.1 Deansgate meet that requirement?”

Decision on appeal: The UT (HHJ Huskinson) dismissed the freeholder’s appeal.  The meaning of the words “structurally detached” in the 1967 Act as construed by Lord Wilberforce was not determinative of the meaning of those words in s.72(2) of the 2002 Act.  Whether a self-contained building is “structurally detached” within the meaning of s.72 of the 2002 Act is a question of fact and degree.  The freeholder’s argument, if correct, would lead to absurd results.  It may be that a string of bunting or a washing line joining two buildings could be accommodated on the basis that the attachment was de minimis but a more substantial connection such as a triumphal metalwork arch connecting two otherwise entirely self-standing and separate buildings could not.   

Avon Freeholds Ltd v Regent Court RTM Co Ltd [2013] UKUT 213 (LC); [2013] L. & T.R. 23

Summary: The RTM was entitled to acquire the right to manage despite a failure to serve a notice inviting participation under the s.78 of the 2002 Act on the tenant of one flat.

Comment: The UT (Sir Keith Lindblom, President) directed itself in accordance with Ex p. Jeyeanthan7 Strathray Gardens Ltd, and R. v Soneji.  In Soneji (a case on confiscation orders that may have escaped L&T practitioners’ notice) Lord Steyn acknowledged (at p.350C) the emergence of “a more flexible approach of focusing intensely on the consequences of non-compliance, and posing the question, taking into account those consequences, whether Parliament intended the outcome to be total invalidity”. From his review of relevant authority in several jurisdictions Lord Steyn drew the conclusion “that the rigid mandatory and directory distinction, and its many artificial refinements, have outlived their usefulness. Instead . . . the emphasis ought to be on the consequences of non-compliance, and posing the question whether Parliament can fairly be taken to have intended total invalidity” (p.353E).  In Avon the President, it is considered correctly, held that the right approach was to consider whether the statutory provisions had been substantially complied with, and whether such prejudice had been caused as to undermine the right to manage process as a whole.    There had been substantial compliance with the statutory requirements and the consequences of non-compliance were not such as to justify denying the respondent the right to manage the premises.

The Court of Appeal (Lewison LJ) has recently granted permission to appeal on the issue of the validity of a s.13 notice.  In granting permission, Lewison LJ said “There is some divergence of approach between a number of decision: Sinclair Gardens v Poets Chase and Siemens Hearing v Friends Life.  The question what consequence follows from a failure to comply with a statutory requirement about the form of notice is worthy of consideration by the full court.” (Thanks to Piers Harrison, Tanfield Chambers – counsel for the appellants in that case.)

Assethold Ltd v 13-24 Romside Place RTM Co Ltd [2013] UKUT 603 (LC)

Summary: A notice of invitation to participate in the RTM was invalid because it incorrectly named the landlord (the freehold title had been transferred and the notice named the former freehold owner).  It followed that, as a claim notice can only be given if a valid notice of invitation to participate has first been served as required by subsection 79(2) of the 2002 Act, the RTM company was not entitled on the relevant date to acquire the right to manage the premises.

Assethold Ltd v 7 Sunny Gardens RTM Company Ltd [2013] UKUT 509 (LC)

Summary: No notice of invitation to participate in the RTM was served on a deceased leaseholder’s personal representatives in accordance with s.78 of the 2002 Act.  The RTM had failed to adduce any evidence that the defect in compliance with the statutory procedure had not caused prejudice so its claim was dismissed.

Facts: The appellant was the freeholder of a building which had been converted into three flats. The flats were held under long leases. The leaseholders of the three flats wished to acquire the right to manage the building under the provisions of Pt 2, Ch 1 of the 2002 Act. They each agreed to become directors and shareholders of the respondent RTM company, which was to be formed to acquire the right to manage. In September 2011, one of the leaseholders died. The RTM company was not incorporated until April 2012. No notices inviting participation, under s.78 of the 2002 Act, were served by the RTM company. A notice claiming to acquire the right to manage was served on 27 April 2012. The RTM company then applied to the LVT for a determination that it was entitled to acquire the right to manage.

First instance: The freeholder contended that, following her death, the deceased leaseholder was no longer a qualifying tenant. The LVT rejected this argument.

Decision on appeal:  The UT (Martin Roger QC, Deputy President) allowed the freeholder’s appeal.  By virtue of s.1(1) and s.9(1) of the Administration of Estates Act, the leasehold interest had passed on death to either the executors of the former leaseholder’s will or to the Public Trustee if there was no will. At that point they became the qualifying tenant for the purposes of s.75 of the 2002 Act. Section 78 requires a notice inviting participation to be served on qualifying tenants. No such notice had been served on the former leaseholder’s personal representatives. Applying Avon Freeholds Ltd v Regent Court RTM Co Ltd [2013] UKUT 0213 (LC), the critical question was whether this failure had caused prejudice to the qualifying tenant. Neither party had adduced any evidence on this issue before the LVT. The UT considered that the burden of satisfying the LVT that a defect in compliance with the statutory procedure had not caused prejudice fell on the party claiming the right to manage. The RTM company had not taken the opportunity to adduce any evidence, so its claim was dismissed.

Comment: The UT’s recent approach had been to disapprove of technical points taken in opposition to claims to acquire the right to manage: see Avon Freeholds Ltd v Regent Court RTM Co Ltd [2013] UKUT 0213 (LC) and Fairhold Mercury Ltd v HQ (Block 1) Action Management Company Ltd [2013] UKUT 487 (LC).  While this case should probably not be seen as a retreat from this approach, the UT has now made clear that it is for the RTM company to show that a failure to comply with the statutory procedure has not caused prejudice to a qualifying tenant.

Southern Land Securities Ltd v Hodge [2013] UKUT 480 (LC)

Summary: Whether a stage 1 s.20 notice sufficiently describes in general terms the works proposed to be carried out is a question of fact and degree to be determined in the circumstances of each case.

Facts: In October 2008 the landlord’s managing agents served a stage 1 s.20 notice on each of the lessees notifying them of their intention to carry out “external repairs and redecorations which are due under the terms of your lease”. In February 2009 the managing agents then provided the lessees with a specification for the external repair and redecoration works which had been prepared by the landlord's surveyors.  The work then went out to tender.  In April 2009 the managing agents notified each lessee that they proposed to accept the estimate of the lowest contractor, who had quoted the sum of £37,553 plus VAT. The works were then carried out. During the course of carrying those works out the landlord's engineer informed the managing agent that additional works were required.  In December 2009 the managing agents wrote to the lessees on informing them of this.  Shortly thereafter, they notified the lessees that the cost of the additional works would be £5,500.  The invoice for additional works was for £7,735.00 plus VAT.  The lessee obtained an estimate from an alternative contractor which put the costs of the additional works at £1,510.

First Instance:  The LVT found that the additional works did not fall within the ambit of “external repairs and redecorations” and therefore a second round of consultation was required in respect of those additional works. In the event that that was wrong the £7,735.00 was an unreasonable sum and that was reduced to the £1,510 plus surveyor’s and engineer’s fees.

Decision on Appeal:  The UT (HHJ Gerald and Mr P McCrea FRICS) held that whether a stage 1 s.20 notice sufficiently describes in general terms the works proposed to be carried out is a question of fact and degree to be determined in the circumstances of each case.  In the instant case, the additional works were of such a nature that they did not fall within the stage 1 notice. Whilst they were “external repairs” in the sense that they were repairs to the exterior, as a matter of fact there was no proposal at the time when the notice was served for these works to be carried out.  Also, as a matter of fact they were not works which had to be done in order for the contract to be completed.  As regards the cost of the additional works, the LVT had done the best it could based upon its own knowledge and expertise but without first ventilating what its own knowledge was for comment by the parties.  It had reached a decision which was unsupported by the evidence before it and was procedurally unfair because the parties had not been told and given an opportunity to make observations upon what knowledge or information the LVT were actually basing it on.  (See Arrowdell Limited v Conistion Court (North) Hove Limited [2007] RVR 39 and Wales and West Housing Association Limited v Paine [2012] UKUT 732 (LC)).  The appeal was dismissed.

Comment: This decision appears to suggest that a landlord must contemplate the general nature of the works that are carried out at the date of service of the notice of intention in order for those works to fall within the ambit of the description given in the notice.  This is so, even if the works carried out would otherwise be capable of coming within the description of works given in the notice.

Waverley Borough Council v Arya [2013] UKUT 501 (LC)

Summary: Indirect management and administration expenses were recoverable in principle through the service charge but not central management and administration costs of providing services to the estate as a whole when the local authority landlord provided no services to the building of the individual lessee.

Facts: The lessee applied for a determination as to whether two charges levied by the local authority landlord were payable.  The first charge was £30 per year from 2004 to 2007, which increased to £35 per year until 2010, for administering the local authority’s leasehold services.  The second charge was £17.50 per year for managing and administering the insurance of the property. The charges were flat rate charges applied to all of the local authority’s 408 leasehold residential properties.  No work to the building was required in the period under consideration and there were no communal facilities so no services were provided to the property during the years in question.  The lease made no express provision for the recovery of management and administration expenses through a service charge.

First Instance: The LVT determined that the local authority was not entitled to recover the cost of providing services to its estate as a whole when it provided no services to the building of the individual lessee who was disputing his liability.  The local authority appealed.

Issue: Whether the costs of administration and management may legitimately be the subject of a charge where no other service is delivered to the lessee in the period covered by that charge.

Decision on appeal: The UT (Martin Roger QC, Deputy President) held that the only services to which the lessee could be required to contribute under his lease were those provided for the benefit of the building of which his flat forms part. The LVT was right to refuse to permit recovery of the central management and administration costs unrelated to the delivery of a service to the building of which the flat forms part.   Accordingly, the administration charges of £30 and £35 in years when no other service was provided were not recoverable.  The administration charges for arranging the insurance for the building was, however, recoverable.

Comment: This case is unusual because the local authority sought to recover the central management and administration costs of providing services to its estate as a whole when it provided no services to the building of the individual lessee.  Each case will turn on its own facts and, in particular, the terms of the lease. 

MacGregor v BM Samuels Finance Group Ltd [2013] UKUT 471 (LC)

Summary: The UT’s decision on an appeal from the determination of an application made under s.27A of the 1985 Act only affected those parties to the appeal, not other leaseholders who were a party to the LVT proceedings.

Facts: The LVT determined charges payable at a building on an application made by the landlord pursuant to s.27A of the LTA 1985.  All 9 leaseholders at the building were named as respondents before the LVT.  Only one of the leaseholders appealed.  At the hearing of the appeal, the respondent landlord conceded that administration charges, which concerned the costs of a debt collection agency, were not payable because they had not been properly demanded.  The appellant leaseholder contended that the ambit of the appeal should extend to the reimbursement of all monies that were shown not to have been reasonably incurred.

Decision on appeal: The UT (A J Trott FRICS) held that its decision could only affect the parties to the appeal. Its jurisdiction was limited by s.27A of the LTA 1985, so it could not consider the effect of its decision on other leaseholders.

JONATHAN UPTON

TANFIELD CHAMBERS

JANUARY 2014