Lee Stafford, Partner with the Dispute Resolution department at Bishop & Sewell, talks us through this important case.

This case is likely to be of particular interest to tenants of leasehold properties who are contemplating acquiring the right to manage a residential block which is already the subject of an order appointing a manager. It is also relevant to managing agents and tenants who have already acquired the right to manage their building.    

Introduction

This was an appeal concerning the interplay between the provisions of the Landlord and Tenant Act 1987 (“the 1987 Act”) for the appointment of a manager, and those of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) for the acquisition of the right to manage by a company formed by qualifying leaseholders. More specifically, the Upper Tribunal (Lands Chamber) (“the UT”) was tasked with addressing the question of whether or not the First-tier Tribunal (Property Chamber) (“the F-tT”) has jurisdiction to vary an order appointing a manager pursuant to Section 24(9) of the 1987 Act, such that the amended order would be capable of overriding a successful claim for acquisition of the right to manage made pursuant to Part 2 of the 2002 Act.

The Facts

Lindsay Court is a residential development in the seaside town of Lytham St. Annes in Lancashire. The development comprises ninety-six flats across sixteen blocks and has been the subject of an order appointing a manager pursuant to section 24(9) of the 1987 Act since 2014. 

The manager, Mr David Bentham (who is also referred to as Mr Bentham in the judgement), was initially appointed for a term of three years. In 2017, Mr Bentham successfully applied for his term of office to be extended until March 2020, by way of a variation to the original order appointing him as manager.

Mr Bentham applied for a further 3-year extension in January 2020, but before the F-tT could determine his application, Lindsay Court (St Annes) RTM Company Ltd (“the RTM Company”) gave notice of its claim to be entitled to acquire the right to manage Block 1 at Lindsay Court. Consequently, the F-tT proceeded to extend Mr Bentham’s appointment until further order, so as to facilitate the resolution of the RTM Company’s claim before any decision was taken about Mr Bentham’s position.

Following a dispute concerning the validity of notices, the F-tT determined that the RTM Company was entitled to acquire the right to manage Block 1, and that it would do so on 22 January 2021. Mr Bentham responded by varying his January 2020 application and seeking an order that his management powers would continue to extend to Block 1 regardless of the RTM Company’s successful right to manage claim. The practical effect of such an order would have been that, immediately upon its acquisition of the right to manage Block 1, the RTM Company would be forced to cede all of its management functions back to Mr Bentham.

The Decision at First Instance:

At first instance, the F-tT decided that it did not have jurisdiction to grant the order sought by Mr Bentham in respect of the right to manage claim. Counsel for the appellants summarised the decision as follows:-

“a) It is not possible to apply under the 1987 Act for an order which removes the right to manage from an RTM company until after the RTM company has acquired the management.

(b) In particular, s.105(4), Commonhold and Leasehold Reform Act 2002 was not broad enough to achieve this result.

(c) The only remedy for the landlord/manager was to make a further application under the 1987 Act (i.e. serving a new notice, proving fresh grounds for appointment etc).”

The Appeal:

On appeal to the UT, it was argued by the appellants that the F-tT had erred in its decision because the power conferred upon it by section 24(9) of the 1987 Act (being the power to vary an existing management order) was very broad to the point of being essentially limitless, and also capable of being exercised prospectively. 

The appellants’ primary justification for their position was that, when considering the variation of an order appointing a manager, the F-tT need not satisfy itself that any of the ‘fault based’ conditions set out in section 24(2) of the 1987 Act have been met (Orchard Court Residents Association Limited v St Anthony’s Homes Limited [2003] EWCA Civ 1049). 

Instead, the F-tT need only have regard to the provisions at section 24(9A) of the 1987 Act, and also the proviso that an order cannot be varied once it has expired (Eaglesham Properties Limited v Jeffrey [2012] UKUT 157 (LC)).

The appellants also posited that further authority for the F-tT’s power to terminate a right to manage by varying  a pre-existing order appointing a manager can be found in section 105(4) of the 2002 Act, which is reproduced below:-

“(4)      The right to manage the premises ceases to be exercisable by the RTM company if a manager appointed under Part 2 of the 1987 Act to act in relation to the premises, or any premises containing or contained in the premises, begins so to act or an order under that Part of that Act that the right to manage the premises is to cease to be exercisable by the RTM company takes effect.”

The Decision of the UT:

Whilst Judge Elizabeth Cooke acknowledged that the power conferred upon the F-tT by section 24(9) of the 1987 Act was indeed far-ranging, she did not agree that it could be stretched to the extent proposed by the appellants. More specifically, Judge Cooke stated that it was not possible for an order appointing a manager to be varied so as to bring a third party within its scope. Such a variation would amount to a fresh order made against a person who was not party to the original order, and to impose a pre-existing management order upon a third party without first repeating the exercise of discharging the substantive requirements of the 1987 Act would be to go against the spirit of both statutory schemes. Judge Cooke went on to suggest that, had the legislature intended for variations of this nature to be possible, the power to make them would have been expressly conferred.

Judge Cooke also clarified the purpose of the second limb of section 105(4) of the 2002 Act, stating that it exists solely to provide a mechanism whereby a freeholder can bring an RTM company’s right to manage to an end on the basis that is has breached its obligations but without the need to appoint a third party as manager.

Comment:

The outcome of the appeal is good news for tenants contemplating a right to manage claim in relation to premises where an order appointing a manager is already in place. 

It means that an incumbent manager will not be able to frustrate the objectives of a right to manage claim by applying to vary the order which appointed them. Whilst it is perfectly possible for a F-tT appointed manager and a RTM company to co-exist, the manager’s powers will be limited to those specified in the order which were not acquired by the RTM company following a successful claim under Part 2 of the 2002 Act.

What the decision does not mean is that RTM companies are immune to the provisions in Part II of the 1987 Act. In her judgement, Judge Cooke made it plain that where, following an application pursuant to section 21 of the 1987 Act,  the F-tT is satisfied that an RTM company’s conduct has been such that any of the substantive grounds set out at Section 24(2) have been met, it has the same powers as against the RTM company as it would against a freeholder or third-party manager in the same position.

The above is accurate as at 20 January 2020. The information above may be subject to change during these ever-changing times.

The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.