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Right to manage

Introduction

A right to manage was given to long leaseholders by ss71 to 113 of the Commonhold and Leasehold Reform Act 2002. The basic concept is that if half or more the qualifying tenants want to take over the management of the property they are able to do so without the need to show any fault on the part of the landlord. The property will be managed by the tenants through the vehicle of a Right to Manage Company (RTM). So long as the procedural requirements are complied with the landlord cannot object and is not entitled to any compensation. However, it is only the right to manage that is acquired; not the property itself.


Whether part of a building a vertical division

In The Matter Of Holding & Management (Solitaire) Ltd (2007)
Lands Tribunal (George Bartlett QC, President)
LRX/138/2006
26 October 2007

Summary

The right to manage under s71 of the Commonhold and Leasehold Reform Act 2002 arises where the premises consists of a self-contained building or part of a building (s71(1)(a)). A part of a building can only be self-contained if "it constitutes a vertical division of the property" (s72(3)(a)). In determining whether or not the test has been satisfied it is wrong to use a test of materiality. The part of the building under discussion either is or is not vertically divided from the rest; although truly de minimis parts can seemingly be ignored.

This case

In this case there was some horizontal severance. The entrance to the parking area ran under one of the town houses in the block. The roller shutter, security door and the two nearest parking spaces were also under the town house. The Tribunal concluded that the area within the deviation was approximately 2% of the floor area subject to the Notice of Claim. This seemed a minimal amount in the context of the notice, and that it was not material for the purposes of the Act.

The appeal

On appeal the Lands Tribunal held that the LVT was wrong to import a test of materiality. Unless the part of the building under discussion can be divided vertically from the rest of the building it is not self-contained for the purposes of the section. The President at paras 8 and 10
    "The requirement that, to be a self-contained part of a building, a part of a building must constitute 'a vertical division of the building' is unqualified. Deviations from the vertical that are de minimis could no doubt be ignored for this purpose. The LVT concluded that the area within the deviation, as it put it, was approximately 2% of the floor area subject to the notice of claim, that this seemed minimal in the context of the notice and was not material for the purpose of the Act. The question, however, it seems to me, is, not whether the area outside a line drawn vertically through the building is minimal in the context of the notice, or very small in relation to the total floor area, but whether, including the area in question, the part of the building was, physically, a vertical division of the building."

    On the facts that it had found the LVT was clearly right to conclude that there was 'mostly vertical severance' but that 'there was also some horizontal severance.' The building as described was divided down one vertical plane at the ground and upper three floors and down a different vertical plane in the basement. No question properly arose for consideration as to whether the difference in the planes was 'material', and it is clear that it was not de minimis. The part of the building in respect of which the claim was made did not constitute 'a vertical division of the building'. Accordingly it was not a self-contained part of the building for the purpose of Chapter 1 of Part 2 of the Act, and the RTM company was not entitled to the right to manage it. The appeal must therefore be allowed."

Exception - more than 25% non-residential

Gaingold Ltd v WHRA RTM Company Ltd
Land Tribunal (LRX/19/2005)
22 September 2005

Many thanks to Julia Gardner of Guy Clapham & Co who made me aware of and provided me with the details of this case

There are exceptions to the right to manage. One of them is where the non-residential part of the premises exceeds 25% of the internal floor area of the building. A part of premises is a non-residential part if it is neither (a) occupied, or intended to be occupied, for residential purposes, nor (b) comprised in any common parts of the premises (2002 Act, Sched 6, para 1(2)).

In this case the building comprised a basement, ground and six upper floors. It contained 13 purpose-built, self-contained residential apartments, a retail unit on the street and a restaurant on the apex of the block. The lease of the restaurant included a basement, which contained five-bedsitting rooms, a communal kitchen, a bathroom and a room used as an office. The landlord argued that because the basement was included in the lease of the restaurant it was to be treated as part of the commercial part of the premises. If it was so included, the non-residential part would be great than 25%.

Held: The argument was rejected by the Lands Tribunal. The Act is simply concerned with whether or not the premises are being occupied for residential purposes. As a matter of fact they were, even though they formed part of the lease of the restaurant. An unlawful use should be ignored in determining whether or not the occupation was for residential purposes but in this case the occupation was not unlawful.


Forms

Claim form

Assethold Ltd v 14 Stansfield Road RTM Co Ltd
[2012] UKUT 262 (LC)

A notice under the s79 of the Commonhold and Leasehold Reform Act 2002 containing a claim to acquire the right to manage premises was valid notwithstanding that it was in the form prescribed by out of date regulations. Since there was no material difference between the prescribed forms, the errors were properly to be regarded as inaccuracies for the purpose of applying s.81(1) of the Act.

Counter-notice - service by mortgagee

Alleyn Court RTM Company Limited v Abou-Hamdan
[2012] UKUT 74 (LC)

A freeholder’s mortgagee could serve a counter-notice to an RTM claim notice. The mortgage deed appointed the mortgagee to be the attorney of the Borrower and allowed the mortgagee “to execute seal and deliver and otherwise perfect and to do all such assurances instruments deeds acts matters and things as the Lender or such receiver shall in their or his absolute discretion think fit” was sufficient wording.


RTM Company

The RTM company is required to be a company limited by guarantee (s73). These regulations prescribe the contents and form of the memorandum and articles of association of the RTM.

The RTM Companies (Model Articles) (England) Regulations 2009 (2009/2767).

These regulations contain new model articles of association for right to manage companies. In force on 9 November 2009. The regulations only apply to England and transitional provisions allow RTM companies, incorporated in England before 9 November 2009, until 30 September 2010 to adopt the new articles.

RTM Companies (Memorandum and Articles of Association)(Wales)Regulations 2004(WSI 2004/675. W64). Welsh regulations in force from 31 March 2004.


Costs


Liability for landlord’s costs

Fairhold Mercury Ltd v Merryfield RTM Co Ltd
[2012] UKUT 311 (LC)

Summary

By s88 of the Commonhold and Leasehold Reform Act 2002 an RTM company is liable to pay the landlord’s reasonable legal costs. In this case the landlord had employed a company (E&M) to prepare counter notices. The LVT disallowed the fees charged by E&M as they were not a firm of solicitors. The Upper Tribunal (Lands Chamber) allowed the landlord’s appeal against that decision.

More detail

The President, George Bartlett QC, said:
    “The LVT was in my judgment wrong in saying that the accounts could not lawfully be payable. The appellant had contracted with E&M for the work that had been done and was contractually liable to pay for it. The fact that the work had been done by a solicitor employed by E&M does not affect this contractual liability. The work done was not a reserved legal activity under s12 of the Legal Services Act 2007”.
He also chided the LVT for taking this point of its own initiative and failing to give the respondent landlord the chance to make submissions on the point.


Accrued uncommitted service charges

Duty to pay - s94 of the 2002 Act

OM Ltd v New River Head RTM Co Ltd
[2010] UKUT 394 (LC)

Summary

The tribunal construed s94 of the Commonhold and Leasehold Reform Act 2002, identifying the proper intention of the provision and determining what was meant by "accrued uncommitted service charges".

Facts

A RTM company acquired the right to manage a block of long-leasehold flats. After the acquisition of the right to manage, some of the tenants made an application against the former management company under s27A of the Landlord and Tenant Act 1985 for a determination whether service charges collected in the years prior to the acquisition were properly payable. Following an appeal to the Lands Tribunal, the total amount disallowed in favour of the tenants was £121,742.39.

The RTM company then brought an application against the former management company arguing that the whole of the £121,742.39 was to be interpreted as an "accrued uncommitted service charge" within the meaning of s94 of the 2002 Act. The RTM company also claimed interest on that sum.

Held

(1) The sum of £121,742.39 was not an amount of accrued uncommitted service charges. The legislative intention was that the relevant person is obliged to hand over to the RTM company whatever he holds on the acquisition date, meaning whatever is either in one or more bank accounts set up by that person or in any investment which represents such sums. It is confined to those sums "held by" the landlord or manager at the acquisition date. The natural meaning of those words is what the landlord or manager has actually got; not what he was entitled to have but failed to get or had at one stage but does not have now.

(2) Section 94(2)(b) does not confer a power on the LVT to award interest.

Comment

Quite how broadly “held by him” should be interpreted in any particular case will depend upon the facts of that case. In dealing with an argument raised in the LVT, HHJ Mole QC stated that he would have little hesitation in deciding that such charges were “held by him” within the section in a case where a manager had for his own reasons, dishonest or not, decided to put the service charges in cash in a box under his bed.


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