Right to manage still extends across shared estate, despite practical difficulties
30th August 2019
FirstPort Property Services v Settlers Company RTM Limited  UKUT 243 (LC)
Property analysis: A right to manage (RTM) company succeeded in its claim in the First-tier Tribunal (FTT) that the tenants of a block of flats which was part of a larger estate no longer had to pay an estate charge to the management company of the estate because the RTM company had already acquired the right to manage the estate as appurtenant property. The freeholder appealed to the Upper Tribunal and unsuccessfully sought to persuade it that the 2012 Court of Appeal Gala Unity decision on this point was wrong.
Jonathan Upton comments on what lessons can be learned from this case for property practitioners.
What are the key take-aways for property practitioners from this decision?
The decision in Gala Unity Ltd v Ariadne Road RTM Co Ltd  EWCA Civ 1372,  All ER (D) 237 (Oct) (Gala Unity) in relation to an RTM company’s right to acquire the right to manage appurtenant property is, for the time being, still good law, notwithstanding the very real practical difficulties caused by the decision.
What are the facts of the case?
In November 2014, Settlers Court RTM Company Limited (RTM company) acquired the right to manage a block of flats known as Settlers Court (the Block) which is situated on the Virginia Quay Estate, London. FirstPort Property Services Limited (FirstPort) is the named management company under a tripartite lease of flats in the blocks on the estate and was responsible for performing the management functions prior to the acquisition of the right to manage in November 2014.
The RTM company assumed responsibility for providing services to the Block at Settlers Court. The dispute concerns the wider estate services and charges. The impact of the Court of Appeal decision in Gala Unity was that the right to manage extended across the wider estate. In early 2015, FirstPort wrote to the agents for the RTM company proposing an agreement whereby it would continue to provide the estate services and collect service charges for the same, but no binding agreement was reached. FirstPort continued (and still continues) to provide these estate services. It has little choice but to do so because of its obligations to lessees and freeholders in other parts of the estate.
FirstPort sought to recover estate service charge costs from the lessees in the Block. The RTM company indicated that it disputed the right of FirstPort to continue to manage the estate and to demand or collect service charges in respect of those services. As a result, the RTM company applied to the FTT for a determination of the payability of services charges said to be due from a number of leaseholders for the management of the estate.
The FTT determined that:
- the service charges were not payable to FirstPort
- it was bound by the prior Court of Appeal decision in Gala Unity
- the management functions under the residential leases had passed from FirstPort to the RTM company
- on the date the right to manage was acquired, and
- those functions related to both block and estate services
In granting FirstPort permission to appeal to the Upper Tribunal, the Deputy President made this observation:
‘The proposed appeal is arguable for the reasons given in the applicant’s grounds and has a realistic chance of success. If Gala Unity cannot be distinguished or be said to be per incuriam and so is a bar to the prospects of success of the appeal in this Tribunal, the issue raised by the appeal is nevertheless one of considerable practical importance which requires to be resolved definitively at a higher level.’
On appeal, FirstPort accepted that its case could not be distinguished from the Gala Unity case on its facts but argued
that Gala Unity had been decided through a want of care and was a decision ‘per incuriam’.
What did the Upper Tribunal decide? What ruling did the Upper Tribunal make on the submission that Gala Unity was wrongly decided?
Dismissing the appeal, the Upper Tribunal recognised that the implications of Gala Unity are far-reaching and can cause real difficulties in the management of estates and in the effective implementation of the right to manage itself. That, however, was an insufficient reason to say that the Court of Appeal was in error. The Upper Tribunal held that Gala Unity was not decided in ignorance or forgetfulness of a binding authority. Moreover, the decision in Gala Unity or the reasoning leading to that decision could not be said to be demonstrably wrong.
What ruling did the Upper Tribunal make about the freeholder’s counter-notice?
The RTM company also argued that FirstPort ought to have argued that Gala Unity had been wrongly decided when it served its counter-notice to the right to manage claim notice. The Upper Tribunal considered this argument as a preliminary issue and rejected it for two reasons. Firstly, it was not contended by FirstPort that the RTM company was not entitled to exercise the right to manage and so it was not a matter that it ought to have raised when it served its counter-notice. Secondly, these proceedings concern the payability of estate service charges and the points in issue were raised as a defence to that claim. FirstPort was entitled to make submissions in law about payability.
What are the Law Commission’s proposals for reform in this field?
The Law Commission is currently considering the right to manage scheme generally. In January 2019 it issued its consultation paper ‘Leasehold home ownership: exercising the right to manage’. The Law Commission candidly
admits that the management of estates with more than one building is a ‘difficult issue’ and has provisionally proposed that the decision in Gala Unity should be reversed. Its final recommendations in relation to Gala Unity and the management of estates more generally are eagerly anticipated.
Jonathan Upton specialises in property disputes. He has been recognised as a leading junior for property litigation in the legal directories for several years. He has particular expertise on matters relating to mixed-use developments. He regularly advises land owners, developers, institutional lenders and indemnity providers on matters such as easements, restrictive covenant, tenants’ rights of first refusal, development agreements, commercial lease interpretation, collective enfranchisement, variation of leases and service charges.
This article was published in LexisNexis on the 19th August 2019