Out-Law Analysis | 21 Jan 2014 | 2:02 pm | 5 min. read
The issue is a serious one for landlords, whose property values can be detrimentally affected by successful attempts by tenants to take over a building's management.
Residential long leaseholders have a statutory right to collectively take over management of their blocks of flats under the Commonhold and Leasehold Reform Act. This right is usually exercised when tenants believe that their landlord has failed to properly manage a residential estate or its finances, though mismanagement is no longer a precondition for the exercising of the right.
The tenants are able to set up a right-to-manage (RTM) company which takes over the landlord's management rights, duties and liabilities. Having acquired the landlord's day to day management functions the tenants, via the RTM company, are able to control repairs, major works, provision of services and the budgets for them.
The process of exercising the right-to-manage is not straightforward and there are many pitfalls for unwary or ill-advised tenants and their representatives. However, recent cases have demonstrated the increasing willingness and flexibility of the Upper Tribunal of the Lands Chamber, on appeals from the Leasehold Valuation Tribunal, to overcome existing procedural and legal issues in order to allow tenants to acquire the right-to-manage.
This trend is helpful to tenants but, naturally, not necessarily welcomed by landlords, who face possible declines in property values as a result of successful claims.
This movement in the Tribunal's approach is most evident in its treatment the validity of tenants' Notices of Claim and, in particular, the nature and description of the property which is the subject of it.
A case involving Ninety Broomfield Road RTM Company and Triplerose (28-page / 127KB PDF) concerned the question of whether a single Notice of Claim could be served in relation to multiple self-contained buildings in an estate. Market practice, up until this case, was for separate notices to be served in relation to each building. However, the Tribunal decided that a single notice was sufficient provided that it clearly evidenced that each building met the eligibility requirements.
Those requirements are that each building must contain two or more flats held by qualifying tenants and the total number of flats held by such tenants is not less than two-thirds of the total number of flats in the building. Despite this helpful clarification in the law, practitioners are likely to continue to serve separate Notices of Claim in relation to separate buildings to avoid the risk of the right-to-manage for all the buildings in an estate being delayed by disputes concerning the eligibility of a single building.
The right to manage only applies to premises that consist of a "self-contained building", which is defined as one that is "structurally detached", with or without appurtenant property. These requirements are set out at section 72 of the Commonhold and Leasehold Reform Act.
In a dispute between No.1 Deansgate (Residential) and No. 1 Deansgate RTM the Tribunal had to decide whether a building connected to neighbouring ones by weathering features was a self-contained building for right-to-manage purposes. The Tribunal held, to the tenants' benefit, that the features were non-structural in nature and. as a result, the building was structurally detached and self-contained. The tenants qualified for the collective right of management. It is likely that this will be appealed further given that a House of Lords decision was called into question.
The right to manage applies to a building "with or without appurtenant property". In a dispute between Pineview Ltd and 83 Crampton Street RTM Company the RTM company had served a Notice of Claim which failed to specify any appurtenant property. The Tribunal, finding in favour of the tenants again, came to a decision that the notice did not need to identify the appurtenant property at all and it was sufficient that the building was specified.
The Tribunal in this case also demonstrated its desire to validate the Notice of Claim by deciding that a solicitor acting for the RTM company could sign the notice on its behalf. This is despite the fact that the prescribed form of claim notice provided for signature by "authority of the company" and referred, albeit in square brackets, to the signature of an "authorised member or officer".
The Tribunal is demonstrating a tendency to overlook procedural and legal errors in Notices of Claim, but this only goes so far. Tenants and their RTM companies should still exercise great care because the Tribunal has, in two recent cases, decided that mistakes concerning the Notices of Invitation to Participate (NIP) to tenants have invalidated attempts to take over management.
The Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2010 require the NIP to contain certain prescribed information, including the landlord's name. Section 78(7) of the Commonhold and Leasehold Reform Act provides that the NIP is not invalidated by any inaccuracy in the prescribed particulars.
Nevertheless, in a dispute between Assethold Ltd and 13-24 Romside Place RTM Company Ltd a NIP stating the former, rather than current, landlord's name was held to be invalid. The RTM company was unsuccessful in praying aid of the section 78(7). The Tribunal, probably to the surprise of the tenants, said that an entirely incorrect name for the landlord was a complete failure to give the prescribed information rather than an inaccuracy which could be saved by section 78(7).
The Tribunal took a similarly rigid approach in a case involving Assethold Ltd and 7 Sunny Gardens Road RTM Company Ltd. The case involved a building consisting of three flats where all the qualifying tenants had agreed to form a RTM company and serve a Notice of Claim.
However, there was a seven month delay between this agreement and the service of the notice. During this period, one of the tenants died. However, the tenants' advisors were unaware of the death and served the Notice of Claim and subsequently issued proceedings against the landlord to take over management.
On appeal to the Tribunal it was decided that the RTM company should have served a NIP on the personal representatives of the deceased tenant. Despite the tenant remaining the flat's registered proprietor, title had passed, by operation of law, to the personal representatives. As a consequence of this failure the Notice of Claim was invalid and the attempt to take over management failed.
Long residential leaseholders, RTM companies and their advisors may gain some comfort from the Upper Tribunal's increasingly flexible approach in recent months to questions around the validity of Notices of Claim exercising the right to manage. This does seem to demonstrate a trend towards supporting tenants' attempts to take over management of their blocks of flats.
However some recent cases, particularly ones concerning Notices to Participate, have shown that the Tribunal's flexibility is not limitless. Tenants and RTM companies should not be complacent and would be well-advised to continue to be mindful of the importance of strict statutory compliance.
Dev Desai is a property dispute resolution expert at Pinsent Masons, the law firm behind Out-Law.com