The new ‘estate’ of play: UK Supreme Court limits the management functions of Right to Manage companies.

Facts of the case

The case concerned a block of 76 flats known as Settlers Court, which itself formed part of the wider Virginia Quay Estate making 778 residential units in total. 

In November 2014, tenants of Settlers Court exercised their right to appoint a Right to Manage company to manage Settlers Court.

The Supreme Court was tasked with deciding whether the RTM company that had acquired the right to manage Settlers Court, had also acquired the right to manage the services/estate in relation to the Virginia Quay Estate more generally.

The Dispute

The purpose of the RTM scheme, prescribed by the Commonhold and Leasehold Reform Act 2002, is primarily to deal with the “often uncomfortable relationship” between long leaseholders of flats and the landlord or other third party responsible for the provision of services. It is an important right for leaseholders.  The 2002 Act effectively provides leaseholders with the ability to acquire all of the management functions relevant to the building/block of flats by becoming members of an RTM company, subject to certain qualifying criteria.  It is not possible for leaseholders to pick and choose which management functions they wish to be transferred and which they would prefer to remain with the landlord or other third party management company.  In other words, all management functions will be transferred to the RTM company.

The dispute arose in this case because FirstPort Property Services was named in all of the leases within the Virginia Quay Estate as the management company responsible for the management of the estate facilities. Those facilities included, for example, the maintenance of the communal areas (accessways, gardens and a river wall), CCTV installations, concierge and other management facilities. FirstPort argued that although the 2002 Act enabled the RTM Company to manage Settlers Court (together with any facilities that were exclusively enjoyed by leaseholders of Settlers Court), the 2002 Act did not give the RTM Company the right to manage the wider estate facilities relating to the Virginia Quay Estate.

The RTM Company disagreed.  It argued that it had acquired a right to take part in the management of the wider estate facilities, with the allocation of costs to be resolved by a sharing agreement between the parties.

Arguments by FirstPort

FirstPort argued that the 2002 Act operated to confer exclusive management rights upon RTM companies in relation to single buildings and not to confer a right to share the management of estate facilities use in common by the occupants of several buildings.

Practically speaking, where a block of flats forms part of an estate, the leaseholders may enjoy a number of common facilities (e.g. use of a car park).  FirstPort argued that the RTM company, in those cases, should only be responsible for the management of the individual block and not the common facilities which ought to remain as allocated under the lease.

FirstPort argued that the previous authority on this had resulted in “absurd and unworkable results” which Parliament could not have intended.

Arguments by the RTM Company

The RTM Company argued that the 2002 Act provided a statutory scheme designed to confer important rights on leaseholders.  Such rights should be widely construed to include property over which occupants enjoyed rights in connection with the use of their flats.  This was notwithstanding that such rights were in common with other occupants of the estate.

The RTM Company drew attention to the fact that tenants are often incentivised to use RTM companies because of their “long-standing dissatisfaction with the standard of service” received from the landlord, freeholder or other third party management company. The scheme provides a valuable right for leaseholders to confer management rights and responsibilities on a RTM company which is then accountable to and controlled by the very parties who will be affected by the conduct of that management.  If the management of estate facilities is carved out from the RTM company’s remit, this would undermine the very purpose of the regime.

Any absurdities, the RTM Company submitted, could be overcome by the parties simply reaching an agreement as to the provision of and allocated costs relating to the estate wide facilities under a sharing agreement.

To find otherwise, the RTM Company argued, would require a difficult boundary to be established between what constitutes individual block services and those which can be said to be estate wide services.

Judgment

The Supreme Court took an in depth look at the relevant provisions in the 2002 Act, as well as considering particular developments in case law.

Previously, the Courts had identified that the practical purpose of the scheme is protecting the interests of lessees of premises by enabling them to secure the carrying out of the management functions and that there was nothing that justified “limiting a manger’s functions to those which must be carried out on the Premises to which the Act relates”.

The Supreme Court accepted however that in previous cases, the issues of multi-block estates had not been fully argued.   

The Supreme Court found that the “unconstrained” right of an RTM company to perform its management functions runs into “insuperable problems” if those functions include management of estate-wide facilities.  That is because the landlord or third party management company will have the right and obligation to manage those facilities to a potentially very large number of leases outside of the RTM managed block.  Those other tenants will have the right under their leases to insist that the landlord/third party provider performs those obligations.  The Supreme Court could not be satisfied that an RTM Company could have the right to manage such services for all other tenants with whom they had no contractual relationship and nor would such tenants be able to hold the RTM Company to account.

Further, if the RTM Company was to be responsible for carrying out the management functions set out in the leases (including the estate facilities) then, in practical terms, it would be providing estate facilities to all other tenants within Virginia Quay Estate, but only entitled to recover the Settlers Court percentage of the service charge (in this case, amounting to just 15% of the cost) and no right to receive the service charge under leases elsewhere on the estate .

The Supreme Court was not prepared to construe the words of the legislation to produce absurd or unworkable results when there was an alternative construction which did not do so. The Supreme Court could not justify an interpretation which could lead to a situation where in a large estate, multiple RTM companies are left having to negotiate with each other to agree the management decisions for the estate. This would be unworkable for day-to-day decisions.

The Supreme Court ultimately concluded that the provisions all pointed towards confining the right to manage to premises affecting only the occupants of that building or part of it.  In other words, the right to manage is limited to the relevant building/block of flats together with any facilities used exclusively by that block and does not extend to estate wide services.

Conclusion

Whilst the judgment has provided much needed clarity in respect of the relationship between RTM companies and the provision of estate-wide services, no doubt leaseholders will be concerned about the potential impact the case will have on the standard of services provided in respect of estate-wide facilities (not to mention the costs of such services).  Further, the case will inevitably lead to more disagreement between parties around:

• the allocation of costs where parties have proceeded on the basis that the RTM company acquired the right to provide and the ability to recover costs relating to estate-wide services.
• the impact of sharing agreements already concluded and the ability to re-open/rectify such agreements.
• what constitutes an estate-wide service.

Case: FirstPort v Settlers Court RTM [2022] UKSC 1, overturning the previous authority Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] EWCA Civ 1372.

Authored by: Rachel Lindberg.