Recovering estate costs after RTM has been exercised
27 January 2022
Earlier this month, 12 January, the Supreme Court delivered its judgement in the eagerly awaited case of FirstPort Property Services Ltd v Settlers Court RTM Company Ltd & Ors  UKSC 1.
The appeal concerned the extent of the statutory right to manage under the Commonhold and Leasehold Reform Act 2002 (the Act).
The court was asked to consider where an RTM company, incorporated by leaseholders in a block of flats, acquires the right to manage the block under the Act, and the leaseholders also enjoy rights over the estate in which the block is situated, does the RTM Company only acquire the right to manage the block itself, or does it also acquire the right to manage the rest of the estate?
The Supreme Court held that the RTM company did not acquire the right to manage the wider estate surrounding the block of flats, the RTM company only acquired the right to manage the block itself and ‘exclusively enjoyed’ property. The Supreme Court unanimously overturned the Court of Appeal decision in the case of Gala Unity Ltd v Ariadne Road RTM Company Ltd  EWCA Civ 1372, which they held had been wrongly decided.
The appellant (FirstPort) managed an estate in east London containing ten blocks of flats. The second to fourteenth respondents were leaseholders of flats in one of the blocks, Settlers Court, and had access rights over the estate’s communal areas. FirstPort provided services on the estate, including maintenance of the communal areas, for which it levied an estate service charge. The first respondent was a company established by the Settlers Court leaseholders (the RTM Company) and which acquired the right to manage the block and started to provide services in relation to the block itself.
A dispute then arose as to whether the leaseholders continued to be obliged to pay the estate service charge to FirstPort.
On an application by the RTM Company, the First-Tier Tribunal determined that it was bound to hold that the company had acquired the right to manage the estate and that the leaseholders had no obligation to pay the estate service charge. The FTT did so by finding it was bound to follow the Court of Appeal’s decision in the Gala Unity case. The Upper Tribunal dismissed FirstPort’s subsequent appeal, holding it too was bound to follow Gala Unity, but issued a “leapfrog” certificate enabling FirstPort to apply for permission to appeal to the Supreme Court.
Supreme Court judgement
The Supreme Court unanimously ruled in favour of FirstPort and allowed the appeal. It held that RTM companies do not attain management rights over the wider estate and overturned Gala Unity, finding that the case had been wrongly decided. The Supreme Court considered the purpose of Right to Manage legislation and whether the Act intended to take away rights from those who lived in other blocks on the same estate, who for example could insist under their lease that only the landlord, or existing management company, were to manage the wider estate facilities. In its judgement, the Supreme Court stated that taking away such contractual rights of others would be a “very strong thing” to do. It considered that the right to manage scheme in Chapter 1 of Part 2 of the Act made no provision for management by the RTM company of shared estate facilities. It was concerned only with management of ‘relevant premises’, that is the relevant building or part of a building, together with appurtenant property (if any) which means nearby physical property over which the occupants of the relevant building have “exclusive rights”.
As a result, Firstport remained the managers of the wider estate and were therefore able to recoup the full costs spent on managing the estate.
The Supreme Court recognised in overturning Gala Unity that it was setting aside a decision which had created a somewhat unfathomable status quo for over nine years. However, by doing so, landlords and estate management companies now have clarity that in providing services to an entire estate they will be able to recover all of their costs through the estate charges and not only a proportion of their costs from leaseholders who had not exercised the Right to Manage. Similarly, RTM companies, such as the one in this case, are not in the uncertain position of having to manage an entire estate whilst potentially only be able to recover cost against the minority of RTM leaseholders with whom they were in a direct relationship.
How can Birketts help?
Birketts have a specialist Housing Management Team to help our clients stay ahead. Our expert lawyers can advise on all aspects of housing and asset management from complex ASB claims, Equality Act defences, building safety issues, defending disrepair claims/EPA prosecutions, subletting/housing fraud cases, service charge disputes, s.20 consultation issues, applications to vary defective leases, to name but a few of the issues we can assist with. Our experts have decades of experience acting for Registered Providers and local authorities and offer a truly ‘one stop shop’ for the issues facing the sector. We have a dedicated and specialist team that deal with Right to Manage and enfranchisement issues.
If you have any queries regarding the content of this article or wish to discuss any issue regarding the management of your tenants or stock, please contact Clive Adams, Jonathan Hulley or any member of the Social Housing Team, to see how Birketts can help you.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2022.