Management of Estates & Outdoor Common Areas Where RTM Companies Are Involved

Katie Edwards, Associate at JB Leitch, advises on the management of estates and outdoor common areas where RTM companies are involved.

On a development where there are estate common areas and multiple (i.e. more than one) physically/structurally detached blocks, the established setup usually involves a service charge scheme with schedules for each block “the block charges” and a contribution to the “estate charges”. When a single block transfers to a Right to Manage (RTM) company, the situation can become very complex and arguably unworkable. JB Leitch’s Legal Director Phil Parkinson and Associate Katie Edwards look at both recent case law and cases they are dealing with to provide further insight and opinion.

A fundamental question is who takes responsibility for which areas? It should be straight-forward but it is not. Surely, you may think, the ‘estate’ management company/landlord retains rights for managing the estate areas? Not always so. The Court of Appeal in Gala Unity v Ariadne Road Management Company Ltd (2012) All ER (D) 237 (Oct) determined that the parties should, in essence, work out the situation between themselves; a questionable decision which leaves little to assist parties in dispute.

In other recent case law, Firstport Property Services Ltd v Settlers Court RTM Company Ltd [2019] UKUT 243 (LC) Gala Unity was upheld but, may well be appealed to the Court of Appeal as we await further judicial intervention.

The JB Leitch litigation team are currently working on cases that further highlight some of the inherent complexities and challenges involved.

In a case where we are acting on behalf of a landlord at a mixed use development, a separate part of a block is now being managed by an RTM company. The service charge for the RTM’s part of the block is shared with the landlord’s managed part of the block. The services are split for the shared block as a whole and laterally for the internal communal areas and garages. These are further split between differing flats on each floor now resulting in a complex service charge mechanism. The estate services are further complicated by the addition of another RTM company that manages a different block within the development. When assessing the requirements for right to manage status, the division of services have not been agreed beforehand and the extent of the difficulties the parties are having in respect of the provision of services is now becoming an issue.

So, who takes precedence in respect of the estate services if an agreement cannot be reached? Is it the landlord or one/both of the RTM companies via their statutory right to manage? It currently appears safe to conclude this can only be rectified by way of agreement between the landlord and the RTM in accordance with Gala Unity or assistance from the Tribunal (by way of an application under S.27A Landlord &Tenant Act 1985) in respect of who the service charges are payable to.

We are also working on a case on behalf of a landlord concerning several blocks on an estate whereby one is separately managed by an RTM company and the others are held by differing landlords. Upon original construction of the leases the block and estate costs were collected as a whole from the development, resulting in 100% recovery. Now that the RTM company manages their block separately, the recovery of block charges from the development results in a significant shortfall in the service charge. It is also important to consider the various transfer deeds in respect of the estate services and charges or the sometimes myriad additional contracts and agreements made.

As a third and final example, we are handling a case concerning four blocks on an estate where two separate RTM companies manage two of the blocks with the remaining being managed by the landlord. The lease structure was not fully considered upon the acquisition of the right to manage and now substantial shortfalls will occur in respect of the service charges and disagreement in respect of the estate management. Lease variations may not be appropriate in the event that the RTM companies lose management and the landlord is required to take back management of the whole estate.

In summary, it is increasingly evident that the situation where one (or, indeed, any amount) of RTM companies exist on an estate the law is imperfect and, probably, does not work without leaving a multitude of opaque areas. In many instances it is leading to expensive and complex situations. Compounding this, the key Court of Appeal authority does not really help – and can cause many more questions to be raised.

Why is the area not clearer? Further case law or legislation should continue to fill the gap, but as a guiding principle, RTMs do not practically work on an estate unless there is considerable (and on-going) co-operation between the key parties including the landlords, RTM companies and the management companies.

Specialist Liverpool law firm J B Leitch delivers expert niche legal solutions for a range of commercial clients including residential freehold investment and block management companies, in particular some of the country’s largest institutional landlords. Established in 1997, the market-leading firm enjoys a strong reputation for its niche property litigation work. The team is proud to support key players in the property management sector with services including volume debt recovery, complex technical cases including forfeiture and breach of covenant cases, and with a growing portfolio of commercial property and non-contentious real estate matters.

 

Reviewed: October 2019