FirstPort Property Services Ltd v Settlers Court RTM Company and others [2022] UKSC 1

Summary

The Supreme Court has recently overturned the previous decision of the Court of Appeal in Gala Unity Ltd v Ariadne Road RTM Company Ltd [2012] EWCA Civ 1372 and held that a right to manage company did not acquire the right to manage the estate surrounding the block of flats which was the subject of the original right to manage application. 

The facts

This case concerned an estate in East London containing 10 blocks of flats (the Estate). The leaseholders of one of the blocks, Settler's Court, had previously incorporated a company known as Settlers Court RTM Company Ltd (the RTM Company) to acquire the right to manage their block under the regime under the Commonhold and Leasehold Reform Act 2002 (the Act).

In addition to the blocks of flats, the Estate contained communal areas enjoyed by all tenants of the Estate. The maintenance of these areas was undertaken by the appellant in this case, FirstPort Property Services Ltd (FirstPort), which was the management company named in the leases.

FirstPort continued to maintain the communal areas after the establishment of the RTM Company and sought to recover service charges for these services. However, several leaseholders of Settlers Court refused to pay these charges on the basis that the maintenance of the common areas were "management functions" which passed to the RTM Company once it had acquired the right to manage and, therefore, the service charges were payable to the RTM Company and not FirstPort.

Previous decisions

The RTM Company and the leaseholders succeeded at both first instance and before the Upper Tribunal. However, in reaching their judgments, both the First-Tier Tribunal and the Upper Tribunal considered themselves bound by the previous decision in Gala Unity Ltd v Ariadne Road RTM Company Ltd [2012] EWCA Civ 1372 in which the Court of Appeal held that the terms of the Act did entitle an RTM Company to acquire rights to manage the common parts of an estate.

Supreme Court decision

The Supreme Court unanimously allowed FirstPort's appeal and held that:

• Granting the RTM Company the right to perform the management of shared estate would produce "absurd and unworkable" results. In particular, the leaseholders of all blocks other than Settlers Court would have no formal legal relationship with the RTM Company providing the shared services which could produce practical difficulties. 
• The Act provides that a right to manage company can obtain exclusive rights to manage a "premises" which means the building in question and any nearby property over which the occupants have exclusive rights. It follows that the right to manage does not extend to shared estate facilities as these would not fall within the meaning of "premises" for these purposes. 
• The Gala Unity case was wrongly decided and should be overruled. The Supreme Court recognised that, as a result of the Court of Appeal's decision in that case, there may be many estates being managed under a sharing arrangement. However, that is not a good enough reason to follow the same interpretation of the Act given the practical difficulties doing so would cause.   

Our comment 

The Court of Appeal's decision in Gala Unity has caused significant confusion over the management of larger estates where the right to manage scheme has only been in respect of part. The Law Commission proposed overruling the decision in a previous report on right to manage. In such circumstances, this ruling will undoubtedly be welcomed by parties on both sides as providing much needed clarity and a means of avoiding practical difficulties associated with a shared management arrangement.

A clear takeaway from this judgment is that leaseholders in large estates may be unable to sever ties with the former management company by utilising the right to manage scheme. This will be a disappointment to many leaseholders whose motivation to seek the right to manage is often driven by a desire to gain greater control over the costs levied as part of their service charge. Nevertheless, the clear demarcation of rights and responsibility arising from this decision will hopefully lead to a more seamless management of large multi-block estates going forward.