FirstPort Property Services Ltd v Settlers Court RTM Company and others

Harish Kapoor

Background

FirstPort Property Services Ltd (“FirstPort”) manages an estate in East London containing ten blocks of flats. The Second to Fourteenth Respondents are leaseholders of flats in one of the blocks, namely “Settlers Court”, and have rights to access the estate’s communal areas. FirstPort provides services on the estate, including maintenance of these communal areas, for which the leaseholders must pay an estate service charge. Through the “right-to-manage” regime in the Commonhold and Leasehold Reform Act 2002, The Second to Fourteenth Respondents acquired the right to manage the block by establishing “Settlers Court RTM Company Ltd”(The First Respondent), and took on responsibility for providing services in Settlers Court.

The dispute then arose over whether members of the RTM Company ( Settlers Court RTM Company Ltd) still had to pay the estate service charge to FirstPort. The case was first considered and debated in the First-Tier Tribunal, who determined that the RTM Company had acquired the right to manage the estate lawfully through the Commonhold and Leasehold Reform Act 2002 and so the leaseholders had no need to pay the estate service charge. FirstPort then appealed the decision to the Upper Tribunal, who dismissed the appeal but issued a “leapfrog” certificate, enabling FirstPort to apply for permission to appeal directly to the Supreme Court, bypassing the courts in between.

The Supreme Court Justices presiding over the case were: Lord Briggs, Lord Sales, Lord Leggatt, Lord Burrows, and Lady Rose and after hearing the case on the 10th and 11th of November 2021, they gave a unanimous decision on in favour of FirstPort on the 12th January 2022, overturning the decision of the Gala Unity case of 2013 which was a source of binding precedent for the First-Tier Tribunal and Upper Tribunal.

Proceedings and Judgment

FirstPort appealed to the Supreme Court after receiving a “leapfrog” from the Upper Tribunal. Both the Upper and First Tier Tribunals were bound to favour the Respondents, due to the precedent set by the Court of Appeal in Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012]. And so, the prime focus of the Supreme Court in this case was whether the decision of the Court of Appeal in 2012 was correct.

The argument put forward by FirstPort was that the 2002 Act gives the RTM company an exclusive right to manage the relevant building, along with the facilities used exclusively by tenants of that building, but no right to manage the overall estate facilities. However the RTM company claims all those exclusive rights as well as a right to share in the management of the estate facilities with FirstPort, through reference of the “Gala Unity” case.

In Gala Unity, the RTM company had given separate claim notices to manage the relevant blocks of flats, and claimed to be entitled to charge a fee for estate services, winning the ensuing legal battle in all levels of the judiciary. The precedent set by the Court of Appeal was that the RTM company had the right to manage the building and as well as work with the original manager to provide estate services and charge a fee for those services, and the Court of Appeal said that the original managers and the RTM company themselves had to come to an agreement regarding the practicalities of shared management in order to effectively manage property deemed under the umbrella of both organisations, and the court did not deem this too great a possible cause of conflict.

The precedent set is that any appurtenant property (meaning property relating to a building or part of a building or a flat, including any garage, outhouse, garden, yard or appurtenances belonging to, or usually enjoyed with, the building or part or flat), is seen as part of the building itself and is included within the RTM company’s jurisdiction. And so, all of the estate common parts are seen as merely an extension of the block of flats, with the Court of Appeal arguing that the phrase “enjoyed with”, rather than just “belonging to” the building means that the appurtenant property does not have to be subject to the exclusive use of the occupants of the relevant block.

The Gala Unity case seemed to give the RTM company an unconstrained right to perform its management functions on its own, but when this happens problems arise as some of those functions overlap with that of the original manager, namely management of shared estate facilities. This is because the original manager still has the right and obligation to manage those facilities for all of the lessees of flats outside the RTM company’s allotted single block. All those tenants will have the right under their leases to insist that the original manager (and no-one else) performs those functions.

Lord Briggs believes that the analysis of the meaning and effect of “appurtenant property” in the 2002 Act by the Court of Appeal in the Gala Unity case was wrong, as the 2002 Act fails to put in place any structure of mutual rights and obligations between the RTM company and the tenants in the other blocks, which would enable them to enforce the RTM company’s management obligations or enable the RTM company to enforce payment of their share of the expenditure.

All of the problems which arise when the RTM company has the right to share in the estate services are avoided if the functions of the RTM company do not extend to the estate facilities. And so Lord Briggs decided that there should be no shared management and that estate services ought to remain under the management of the previous manager.

Lord Briggs concluded that the right to manage scheme in Chapter 1 of Part 2 of the 2002 Act makes no provision within the statutory right to manage for management by the RTM company of shared estate facilities. It is concerned only with management of the relevant premises, that is the relevant building or part of a building, as well as appurtenant property which the occupants of the relevant building have exclusive rights. He says there  is no provision made in Chapter 1 for any shared management of anything, save only where the RTM company chooses to agree otherwise. And so, with the agreement of the other justices, Lord Briggs ruled in favour of FirstPort, allowing the appeal.

Commentary

This case is significant as it develops the law to the extent that it overrules the outcome of a previous case, removing the precedent which bound lower courts. The law has changed to ensure that if an RTM company takes over the management of a property, the RTM company has no right to charge for services relating to the appurtenant property, except in the case of an agreement between the RTM company and the original manager. I agree with the ruling of the Supreme Court in this case as I believe the Gala Unity case was decided wrongly. The problems that come about as a result of sharing responsibility over estate services are impractical and so the original managers should continue to provide services for the entire estate, regardless of whether a single building has been taken over by an RTM company, unless of course a valid agreement is made between the two parties.