The Supreme Court has held that leaseholders exercising their rights to manage a building do not acquire the right to manage the surrounding estate, overturning a prior Court of Appeal decision.

Background

In 2012, the Court of Appeal in Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] EWCA Civ 1372 (Gala Unity) decided that leaseholders exercising their rights to manage pursuant to the Commonhold and Leasehold Reform Act 2002 (the Act) also acquired the right to manage the estate in which their building was situated.

In many cases, this left competing rights and obligations to manage between the Right to Manage (RTM) Company and the landlord or estate management company. A dispute arose at Settlers Court regarding these competing obligations and the costs of management that has now been determined by the Supreme Court.

Facts

The tenants of Settlers Court acquired the right to manage pursuant to the Act. In line with the Gala Unity judgment, they also acquired the right to manage the surrounding estate areas where there were other buildings of leaseholders not subject to the right to manage. FirstPort Property Services Limited (FirstPort) were a party to each of the leases on the estate as estate managers and retained estate management obligations to the tenants of other buildings on the estate. Accordingly, there was an overlap of management responsibilities. When FirstPort sought to recover estate management costs from the Settlers Court residents, a dispute arose.

Settlers Court RTM Company Limited successfully argued in the tribunal and upper tribunal that it had no liability to pay FirstPort for the estate charges as the management functions in respect of the estate had been acquired by them. Given the Gala Unity decision, the case went straight to the Supreme Court when FirstPort appealed.

Decision

The Supreme Court allowed the appeal holding that Gala Unity was wrongly decided.

The implication of the Gala Unity decision led to unworkable and sometimes absurd results. The statutory language of the Act was such to point away from estate functions becoming part of the functions carried out by an RTM Company.

A more sensible interpretation was that the RTM acquires the right to manage its block and any surrounding land exclusively in its use. It does not acquire the right to manage appurtenant rights over the remainder of the estate that are shared by tenants of different buildings on the estate such as management of estate roads, landscaped areas and other areas forming common parts estate.

Comment

The Gala Unity decision has been causing issues with the practical operation of the right to manage on estates since it was decided.

The Act simply does not provide for management on large estates, meaning it was up to the parties to agree who would manage what. This was working on some estates, but inevitably causes issues where the parties cannot agree and have no recourse under the Act to have the issue determined.

The result of the Settlers Court decision will be welcomed by the property management sector. Indeed, the Association of Residential Managing Agents intervened in the appeal and gave evidence as to the practical difficulties caused by the Gala Unity decision.

There is of course a question of those developments which have been operating under the Gala Unity ‘structure’ in the time between the decisions - those where the scheme was working well will likely have shared service agreements between them, which may not change the position, but it is possible that landlords and management companies that have relinquished control of management in respect of estate areas might now wish to consider regaining it.

FirstPort Property Services Limited v Settlers Court RTM Company Limited [2022] UKSC 1