December 4, 2022

Court of Appeal throws right to manage law into chaos

RaineyBatesLKPUPDATED with analysis of the decision below

Right to manage legislation is in chaos following Friday’s Court of Appeal decision to prevent RTM companies from managing more than one building at a site.

The decision drives a hole through current RTM legislation and, in LKP’s view, can only be addressed with primary legislation.

It means that any detached buildings on a site cannot be managed by the same RTM company.

The victory of the landlords – who included Vincent Tchenguiz and Israel Moskovitz – came about with the combined efforts of barristers Phillip Rainey QC (above, left) assisted by Justin Bates (right).

In another example of “harakiri” leaseholder litigation, residents of the two of the three RTM companies appeared in person with minimal legal representation, proving yet again that those who represent themselves in court have a fool as a client.

Curiously, Phillip Rainey QC had been rather sniffy about the “cottage industry” of lawyers blocking RTM applications at the LKP Commons briefing in January, but has now demonstrated he does not mind visiting the cottage himself on occasion.

The Court of Appeal ruling means only a self-contained building can achieve right to manage.

The actions were between Triplerose (Israel Moskovitz) and Ninety Broomfield Road RTM Co Limited; Freehold Managers (Nominees) Limited and Garner Court RTM Co Limited; and Proxima GR Properties Limited (Tchenguiz) and Holybrook RTM Co Limited.

Only Garner Court RTM Co Limited had counsel representation.

Full analysis later. The ruling is here

Time for Parliament to stop the lawyers thwarting right to manage

The decision of the Court of Appeal now opens the appalling prospect that sites of multiple blocks that have won right to manage – often after years of blatant ripping-off – could find landlords coming back to court to reverse the decision.

It will also almost certainly prove a smart-alec’s charter with lawyers pointing that as there is a garage or a garden shed somewhere on site the leaseholders can’t take control.

The decision is also a painful rebuff for Judge Siobhan McGrath, president of the residential property tribunal, whose Upper Tribunal ruling in favour of the right to manage in these cases has just bitten the dust.

Her ruling is here

The only positive note is that this victory makes an overwhelming case for revisiting RTM with primary legislation.

As we see a number of RTMs fail in the courts in the next few months, it will reinforce the point to politicians – and, more importantly, the wider government – that the legal set-up and management of flats needs attention.

Owners of flats should not be going through this nonsense to take control of the management of their property, and all new flats should be built with resident management companies to avoid the need for RTM.

For the moment, though, the lawyers can applaud their cleverness and count their winnings.

Bates has been an unashamed toady to the commercial interests in leasehold for some years now, and seems to be the go-to guy if you want an RTM derailed.

Rainey, on the other hand, is more detached, fully acknowledging the unfairnesses facing leaseholder litigants.

“There is currently a cottage industry in resisting RTM because acquisition of the right is beset by technicality and because, if the landlord wins, he gets his costs, but if the tenants win, they don’t,” Rainey observed at the Leasehold Knowledge Partnership’s round table held at the Houses of Parliament on January 29.

A point all politicians – and civil servants – should ask is why are landlords so desperate to hold on to the management of a site, given that their only legitimate sources of income – ground rents, reversionary values of leases, development potential – are unaffected by the process.

While a few landlords do allow their sites to choose RTM, many more have a range of strategies – spreading division among leaseholders being the obvious first step – to subvert the process before its gets to court.

Until late last year, the government also had no real information on how effective the RTM legislation has been.

The Competition and Markets Authority strongly acknowledged that RTM sites have more harmony and fewer management problems.

But the number of RTM companies is disappointingly small: only 4,500 since the 2002 Act came into force.

Legal measures to resist it have gathered pace over the years, creating the “cottage industry” for the legal profession that Phillip Rainey noted.

The Court of Appeal decision is a blow to the property tribunal’s attempts to deal with a multiblock site opting for RTM.

The president Siobhan McGrath thought it important enough to sit herself in the Upper Tribunal to consider the issue.

She concluded that RTM was valid, saying an application should “not limit the number of self-contained buildings or parts of self-contained buildings to which the right will apply. Its purpose is to define self-containment”.

She also noted that the leaseholders might still choose to serve separate RTM notices for each block “for the sake of clarity”.

The Court of Appeal ignored this.

Phillip Rainey’s assessment of the Court of Appeal can be read here

Justin Bates’s assessment is a little less cautious and some of his close followers may recognise a familiar hyperbole

“If it was permissible for an RTM company to acquire the management of more than one building, it could lead to absurdities whereby the RTM company managed different blocks on different estates in different parts of the country,” he says.

Such “absurdities” seem to be a figment of a barrister’s imagination.

As far as we know, no RTM has ever applied to run disparate sites in different parts of the country nor can we think of any reason why they would.

There has, however, always been a clear logic to why they would want to run a single RTM to cover multiple blocks in a single development, which is how the site would run under the control of either a landlord or an RMC.

The key paragraph of the Court of Appeal decision is 57, where the judge concludes from Hansard there never was an intention to allow multiple blocks in an RTM application.

What the judgment does not mention was that there had been amendments proposed to address this failure in the legislation. Unfortunately, it seems those amendments were never adopted.

Perhaps this is why more than 10 years has past with the courts trying to make up for the weakness in the legislation.

Within the decision, Lord Justice Pattern, Lady Justice Gloster and Sir David Keene go on to consider why a multiblock RTM would be a problem.

Paragraph 52 states:

“There was obvious potential for conflict of interest between the leaseholders of different blocks on a range of matters.”

It then sets out the examples of when this could occur such as “one block might wish to undertake major works (e.g. at a particular time) whereas the other might not.”

To a lay person, these arguments seem no more than speculation. It is the leaseholders who have asked to create a single RTM in the first place.

The residents want no more, or less, control over a site that that which exists under the landlord’s management. In many cases, residents already have management over a multiblock site owing to a residents’ management company (RMC) having been set up at the start by the developer.

Why should an RTM be different in only being able to manage a fragment of a site? Why should there be “obvious potential for conflict”, which is somehow unique to RTM but accepted as perfectly normal in an RMC?

The lease determines the apportionment of costs, so why is it “likely that the members belonging to the larger block would dominate decisions referable also (or even solely) to the smaller block”, as one of the examples given by Philip Rainey QC?

Even if one block were somehow to seek an advantage, the leaseholders still have the full protection of s19 to determine that costs are reasonable and reasonably apportioned.

The judges then go on to accept the suggestion from Mr Rainey “from a practical point of view there would be nothing to prevent two or more RTM companies, which were established in relation to separate blocks on the same estate, from entering into an agreement to delegate management to one of the RTM companies, or indeed a third party manager, to act on behalf of both or all: the articles explicitly provide for delegation; RTM companies can also appoint agents.

At 54 of the decision records “Moreover in my judgment the Upper Tribunal’s conclusion (viz. that a composite right to manage a number of separate premises could be acquired by an RTM company) wrongly paid no regard to the consequential dilution of the rights of members who were qualifying tenants of individual premises.

“Such dilution was simply not justified by the relevant provisions of the Act or the Regulations.”

Practically, this suggestion seems some distance for the real world.

On a large development with 10 blocks, that would somehow mean 10 different RTM companies with ten boards of directors. Ten sets of meetings to consider ten sets of issues for every item that impacted on the site.

The poor managing agent would be required to issue ten sets of accounts and make ten separate s20 consultation processes for each bit of major works and then face dozens of nominated contractors for every project.

The Tribunal could be burdened with ten s20ZA applications for dispensation in the case of emergency works. Then the site will need 10 audits.
It is possible the residents would not get on, as the Judges suggest, which could give rise to a situation where ten different managing agents were running the ten blocks and spending their time cross-charging each other.

Far from producing an ideal solution, as the judges seemed to believe, this would be a bureaucratic nightmare.

RTM company 1 might agree to manage the site overall, with the consent of companies 2-10, but if a leaseholder in the block managed by company 7, say, defaulted on service charges would the property tribunal accept that RTM 1 could be deemed entitled to act against leaseholders in RTM7?

And who would be liable for the costs if the landlord lost and would there be any means to recover funds from the nine unaffected RTM companies?

The decision seems to reinforce the misconception that leaseholders should not really be trusted to know what’s best for them and even if they ask for a single RTM what they need is something else.

All in all, the decision leaves a mess that government will have to address.

The 2002 Act could and should have covered both estate and multiple blocks.

It clearly never has addressed the alternative world now proposed of a site with multiple RTM’s.

Comments

  1. The name of the “RTM company ” usually incorporates the “street address” or “name of estate if the site estate comprises several blocks” where the service charge is under the same managing agent and appointed by the same freeholder company.

    No RTM director for one address or estate would attempt to use the same RTM company to claim the administration of service charge for a totally different address or different estate site as it would be automatically rejected by the freehold company at that different address.

  2. I see the IRPM are having Justin Bates as a speaker at their Annual Seminar in May.

    He will no doubt be crowing about his recent victory.

  3. Michael Epstein says

    And don’t forget ARMA (who have leaseholders interests at heart) are using Justin Bates to educate property managers so that they can be more effective at Upper Tribunals?.

  4. A Reviewer says

    Put simply, Lord Denning must be turning in his grave at such a remarkably stupid decision.

    It is contrary to the Human Rights of the people who have their own RTM company.

    • Unfortunately its the right decision all be it that it may well be unjust. The problem is the law has always been at fault and the courts have tried to work their way round the issue for many years. Now the Court of Appeal has gone back to the law as it was written even if it was written badly.

      The issue will be now what happens to correct the law. We know a number of RTM’s in prospect have had their decision held pending the outcome of this decision. Those cases will now collapse. A number of existing RTM’s may be challenged and a number of multi block sites may now decide they have no chance and never bother to even start the process.

      With just 4500 sites the law has never worked well even for single block sites. Too many technical obstacles, too many incentives for the landlord to ensure leaseholders are often dissuaded before they even start. Too many landlords who have an open purse to stop RTM simply becasue they think the law is wrong.

      We have a growing number of landlords who pick up a freehold reversion at auction and then see the building as their own even though their investment will be less than the cost of a single flat. They pay maybe 20 or even 25 times the ground rent income and have to keep control of the site to recover their costs. This money is sometimes made from insurance commissions or by appointing their own managing agent or by paying themselves to oversee major works. An RTM takes away many of the landlords profit opportunities.

      • Martin I believe you have opened a can of worms that will break residents hearts even though what you have stated is probably correct.

        What will happen to the Peverel Companies now that they have changed to Freeport? Further to comments by Michael and others I think we need to add the facts of what was happening when Peverel Retirement was trading.

        When a company like Peverel Management Services Ltd who traded as Peverel Retirement, and was wholly owned by Peverel Services Ltd, now claims to be FirstPort Retirement Property Services Ltd.
        What happens to the Peverel Companies that had been responsible for cheating and taking advantage of Elderly Pensioners because it was so easy to get away with?

        What does the simple change of name mean to Peverel Companies?

        It does not remove any of the sad facts that from early 2004/05 Peverel Management Services Ltd now using the name FirstPort Retirement Property Services (note not mentioning they are a Limited Company, WHY

        The change of name does not change the deep rooted corruption that was Peverel Retirement(now FirstPort)and Cirrus Communications Services Ltd (now Appello).
        Peverel made £1.4 million pounds whilst Colluding with a Sister Company Cirrus. They cheated some 2,000 Pensions in a 5 year period when they Price Fixed 65 Retirement Developments?
        That is what they wish to bury by changing names?

        Don’t forget they also made a mistake in paying the £40,000 Exit Fees to the Freeholder instead of the Service Charge. How many further MISTAKES have the existing Senior Management made that is yet to come to light?

        • Michael Epstein says

          Chas,
          I think you meant a change to Firstport (not Freeport, which as far as i remember is a discount shopping village in Braintree).
          That said, I do not see this as a name change. If that were the case, their would not be a new company number. ie a new company has been created. What happens to the obligations of the old company?
          It has been argued that the fact leaseholders have a right to manage offers protection to leaseholders against freeholders. That a coach and horses has been driven through this protection, shows that the law as it stands is not fit for purpose. I trust the CMA will take notice of the judgement.

          • A Reviewer says

            Martin

            The difference with Lord Denning is that he could recognise an unjust law, and always found a way round it.

            A badly worded law ought always to be challenged

            Denning would problay have referred the matter to the Privy Council or Lords for them to override a law somehow ……. he did this so often.

            He was a just judge not just an applicator of often wrong law …

  5. Michael Epstein says

    Leaseholders are under an obligation to maintain a property according to the terms of a lease.
    All RTM seeks to do is to allow leaseholders to have the right to choose who to appoint in order to comply with the lease. Apart from a freeholder’s wish to monetise their property i can see no rational explanation for seeking out every possibility and loophole to keep control of the appointment of a managing agent?

  6. Michael,
    The term of a lease allow for changes in Owners and Managing Agents so why has the new Freeholder at Ashbrook Court refused to communicate the change which occurred on 31/10/2014.

    I have attempted to obtain a phone number or email for Greenmount Securities but the owner Landmark has informed me that if I wish to know these contacts, I should check out Companies House Website?

    Why are they so rude and defensive, reminds me of Peverel Retirement.

  7. Greenmount Securities Ltd ( Co. No. 08752135) has company address in Bolton and is declared as dormant company ?.

    You should buy a copy of the freehold title from Land Registry to identify the name of the title holder and any charges registered by mortgage lender . Then your MP can complain to the bank lender about not being offered RFR before sale of freehold title.

  8. The RTM company is usually set up by leaseholders to remove a Management Company which is found to be NOT trusted with handling the collection and spending of service charge moneys levied from leaseholders.

    Has the Court of Appeal ( the judges are the pillars of our legal system and all are funded by the tax payers ) done its proper due-diligence of the Appellant Companies ?

    1. Triplerose Ltd ( No. 03161763) and Freehold Managers (Nominees) Ltd ( 02686761) are just companies with paid up capital of 2 Pounds. Whereas the leaseholders have paid a national average of 200K pounds for their leasehold properties from earnings after paying to HMRC, income tax charged at 20% , 40% and 45-50% rates ?

    What is the social justice of giving custody of the service charge funds and administration to those companies capitalised at only 2 pounds?

    2. The annual filings to Companies House show that F M ( Nominees) Ltd has declared itself as a “dormant company” since 2007. Companies House definition of “Dormant” is a company which has no reportable income. So it must be concluded that FM ( Nominees ) is not declaring its ground rent income and not paying any tax .

    So what is social justice for COA to give judgement in favour of a freehold company when its not declaring its taxable income from ground rent receipts ?

    3. The year end annual accounts to Dec 31st filed at Companies House by Proxima GR Properties Ltd show their valuation method of freehold assets is based on actuarial valuation projected on rising ground rent income over many years ( possibly up to 80 years ). The proper method of valuation should be based on Accounting Standard AS 40 i.e “market sale value at Dec 31st” which normally would be assessed by Surveyors .

    So what is social justice for COA to give judgement in favour of a freehold company which is not presenting its true accounts in filings to Companies House ?

    Please can Campaign against retirement leasehold exploitation submit a formal complaint on the COA judgement to Minister for Justice and HMRC. ?