Summer 2019 has seen several court decisions being made with relation to disputes regarding residential properties, but one of the most interesting (in my opinion) has been the FirstPort Property Services v Settlers Court RTM Company Ltd case, says Laura Severn, Director at LMP Law.  

This case involved a dispute which had arisen between an estate management company and an RTM (right to manage) company of a single block within the estate.

The case had gone before a First-tier Tribunal which had decided no estate service charges would be payable to the management company. This was decided on the basis that all management functions in the residential leases became the responsibility of the Right To Manage company from the date on which their right of management was acquired. Those management functions related both to the estate services and the block itself. The management company appealed this decision, whereupon the case went before the Upper Tribunal.

Here, we take a closer look at the relevance of the Upper Tribunal’s decision in the FirstPort Property Services v Settlers Court RTM Company Ltd case.

The Case – An Overview

In 2014, an RTM company was given the right of management over an apartment block called Settlers Court. Located on London’s Virginia Quay Estate, this block of flats had been under the management of another company, known as FirstPort Property Services Ltd, up to this point. As of the November of that year, Settlers Court RTM company took over the responsibility for management services provision to the flats. However, a dispute then arose concerning the wider services and estate charges.

Several months after the RTM company took over the management of the block, FirstPort contacted Settlers Court RTM’s agents in writing to propose the following agreement: They would carry on providing estate services while also collecting service charges in respect of the block. Although no official binding agreement could be reached, FirstPort still continued to supply those estate services, not least because it held obligations to freeholders and lessees across other areas of the Virginia Quay estate.

In respect of estate services provided, FirstPort were seeking to recover their costs from lessees within the block. Settlers Court RTM company disputed their action, saying that they disputed FirstPort’s right of management for the estate as well as its right to demand and collect the service charges for those management services.

The Tribunal’s Decision

The determination of the FTT was that no service charges would be payable by the lessees of the block to FirstPort. This was because the tribunal was, in effect, bound by the decision made by the Court of Appeal in the Gala Unity case.

Essentially, all management functions as outlined under residential leases with the lessees had been transferred to the Settlers Court RTM company from FirstPort from the date on which the right of management for the block was acquired. Not only did those functions relate to the block itself, they also related to the estate services.

Despite dismissing FirstPort’s appeal in the matter, the Upper Tribunal did recognise that the case of Gala Unity v Ariadne Road implications are exceptionally far-reaching as well as highly problematic. The Court of Appeal’s decision in this matter can lead to real difficulties when it comes not only to managing estates but also in the ability to effectively implement the right of management. Yet, although the tribunal did acknowledge this point, it found that this was not sufficient reason to find that, in this case the Court of Appeal had made an error.

Settlers Court RTM company also presented a counter-notice to the tribunal, stating that FirstPort should have argued the Gala Unity case had been incorrectly decided. Again, the Upper Tribunal rejected this argument, partially because FirstPort had a legal entitlement to make submissions about payability and partially because FirstPort had not contended that the Settlers Court RTM had no entitlement to exercise their right of management.

Will The Right To Manage Scheme See Changes Based On This Decision?

Clearly, the decision in this appeal case is unhelpful and frustrating to both landlords and management companies alike. Between practical reality and legal position, there is obviously a disconnect which needs addressing.

The Law Commission at the present time is considering whether to make changes to the Right To Manage scheme. In its recent consultation paper, it has candidly admitted that managing estates that consist of multiple buildings is a challenging issue and has proposed provisionally the reversal of the Gala Unity decision.

In the meantime, the Gala Unity Ltd v Ariadne Road RTM Co Ltd decision remains good law, despite the many practical difficulties which are raised by this decision. Property practitioners must wait to learn the final outcome of the Law Commission’s consultation to see whether this will change any time soon. Until any changes are put in place, the status quo, however unsatisfactory, will be maintained.

Laura Severn is a Partner at LMP Law who act directly for investors, developers, freeholders, managing agents, residential management companies, property managers, and leaseholders.