Recent Supreme Court ruling

Written by Jonathan Wragg on Monday, April 4, 2022

FirstPort Property Services Limited v Settlers Court RTM Company Ltd: The recent Supreme Court ruling

The Right to Manage (“RTM”) was introduced by the Commonhold and Leasehold reform Act 2002 (‘CLARA 2002’) giving leaseholders the right to manage their building taking over the management functions from the landlord or existing manager.

RTM can be acquired over premises if ‘they consist of a self-contained building or part of a building, with or without appurtenant property’ (Section 72 (1) (a) of CLARA 2002)

S112 (1) CLARA 2002 defines appurtenant property as “…any garage, outhouse, garden, yard or appurtenances belonging to, or usually enjoyed with, the building or part or flat”.

The RTM company acquires the building with appurtenant property. The extent of the appurtenant property has been disputed for some time.  This is due to the practical difficulties that arise when the wider estate is shared between the RTM building and other buildings managed by the Landlord or existing manager.

Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] (‘Gala Unity’)

The Court of Appeal determined that appurtenant property extended to the wider estate shared with other buildings. The Landlord argued that the estate would be managed by the RTM company as well as the Landlord pursuant to the leases of the remaining buildings. The Landlord had no right to invoice the leaseholders in the RTM building and the RTM Company had no right to invoice the leaseholders in the remaining buildings, leading to duplicated management. Both parties would incur a service charge shortfall due to their inability to recover all of the service charges.

The Court of Appeal’s solution was that in such circumstances the parties should try and reach agreement.

This decision created practical difficulties for Landlords and Managing Agents who were not able to reach agreement with RTM Companies. Where agreements were reached it often involved carving up the estate, or one party managing the entire estate. Where agreement could not be reached, it created duplicated management, and service charge shortfalls.

FirstPort Property Services Limited v Settlers Court RTM Company and other [2022] UKSC1

The Settlers Court decision has bought an end to this period of duplicated management.

Background:

Settlers Court RTM Ltd (‘the RTM Company’) acquired the right to manage  Settlers Court in November 2014. FirstPort continued to be responsible for managing the other buildings and the estate after the RTM was acquired. FirstPort invoiced all leaseholders at the estate including those at Settlers Court for estate charges. Leaseholders at Settlers Court disputed these costs and applied to the First-tier Tribunal.

Tribunal proceedings

The Ft-T determined that it was bound by Gala Unity, and FirstPort was not entitled to receive service charges relating to the estate.

Upon appeal the Upper Tribunal issued a ‘leap frog’ certificate for the first time in its history, allowing FirstPort to appeal directly to the Supreme Court.

The Supreme Court overturned Gala Unity, referring to such an arrangement as being “absurd and unworkable”.

The Supreme Court ruled that the RTM is limited to the building and only to appurtenant property over which the leaseholders have exclusive rights. The existing manager in this case was solely responsible for providing estate services and was entitled to invoice all of the leaseholders including those at Settlers Court.

Moving forward

This decision has provided much needed clarity as it provides clear guidance on the separation of responsibilities between the parties.  Landlords and existing managers can now manage the wider estate and invoice for those service charges. Parties may still need to reach agreement on what parts of the estate are used exclusively by the leaseholders of the RTM building.

What is less clear is what happens where agreements have already been reached following Gala Unity, and the Landlord wishes to take back management of the estate. There is uncertainty around recoverability of service charges incurred during that period. In such cases parties may wish to come to a practical arrangement between themselves.