Residential case law round-up – September 2019

There have been a number of decisions relating to residential property disputes over the summer; these cover various areas including management, enfranchisement and the ability to recover possession.

The decisions range from helpfully providing further guidance on statutory provisions related to the right of first refusal, to confirming that the existing legal status quo relating to right to manage companies has difficulty correlating to reality. This update provides an overview of the key issues arising from these decisions.

Firstport Property Services Ltd v Settlers Court RTM Company Ltd & Others [2019] UKUT 243 (LC)

This case concerned a dispute between the management company (ManCo) of an estate and a right to manage (RTM) company of one block within that estate.

The First-tier Tribunal had previously decided that service charges for the estate were not payable to ManCo because the management functions under the residential leases had passed from ManCo to the RTM company on the date the right to manage was acquired and that those functions related to both block and estate services. This decision was appealed by ManCo.

The Upper Tribunal dismissed the appeal and confirmed that a RTM company acquires the right to manage the wider estate where there is more than one block on a development. This is despite the practical difficulties of trying to reconcile a situation where there is no basis for the RTM company to recover service charge contributions from leaseholders of flats in other blocks and the fact that the RTM company may be unable to manage the wider estate.

This decision will no doubt be frustrating and unhelpful to both management companies and landlords as there is a disconnect between the legal position and the practical reality. The Law Commission is aware of this and has proposed allowing a RTM company to manage more than one block in its 2018 consultation paper, Leasehold home ownership: exercising the right to manage.

However, until any such changes are put into effect, we are stuck with the unsatisfactory status quo.

Key takeaway: Particular attention should be given to the division of responsibility between management companies and right to manage companies, to ensure that services can be provided and service charges recovered. Legislative reform is needed.

York House (Chelsea) Ltd v Thompson and another [2019] EWHC 2203 (Ch)

This case concerned a situation where two freeholders (husband and wife) granted 14 leases of various parts of a block of flats to each other. The leases included parts of the courtyard, subsoil, airspace and internal corridors and were granted in response to an awareness of an impending collective enfranchisement claim from the leaseholders.

The High Court held that:

• The granting of the leases constituted a gift to a member of the landlord's family and were not a relevant disposal, therefore being exempt from the procedural requirements associated with the right of first refusal under the Landlord and Tenant Act 1987. The argument that it is conceptually impossible to describe the grant of a tenancy as the making of a gift was rejected, as was the argument that the granting of the leases could not be a gift due to the motivations behind their grant.
• The granting of the leases constituted a disposal by way of transfer by two or more persons who are members of the same family to fewer of their number, therefore being exempt from the procedural requirements associated with the right of first refusal. The argument that a transfer doesn't include the granting of a lease was rejected.
• Although the granting of the leases were not relevant disposals due to the above exemptions, the High Court went on to determine that the leases affect premises to which the Landlord and Tenant Act 1987 applies. This means that, if the exemptions hadn't applied, the right of first refusal would have applied. The High Court went on to consider whether each of the 14 leases related to appurtenances or common parts.

Freeholders are understandably keen to try and retain any potential future development opportunities where they are aware that the leaseholders are considering a collective enfranchisement claim. In certain circumstances, steps can be taken without triggering the right of first refusal.

However, leaseholders may be able to acquire these leases as part of the collective enfranchisement claim where they are considered to be appurtenances or part of the common parts.

Key takeaway: Freeholders should review their portfolios to assess whether strategic steps can be taken to protect development value. Leaseholders considering a collective enfranchisement claim should ensure that they have up-to-date information before commencing their claim.

Notting Hill Finance Ltd v Sheikh [2019] EWCA Civ 1337

This case concerned whether a defendant to possession proceedings should be granted an appeal to raise new points of law. A possession order and money judgment had been granted against the defendant at a seven-minute hearing, in favour of the claimant lender.

The Court of Appeal upheld the decision of a circuit judge to allow the defendant to raise new points of law. These points related to the arguments that a provision for default interest in the underlying loan agreement was an unenforceable penalty and that the relationship between the claimant and defendant was an unfair relationship within the meaning of section 140A(1) of the Consumer Credit Act 1974.

Whilst I do not propose to delve any further into the facts or reasons behind the Court of Appeal's decision, it is useful to be aware that the summarily granting of a possession order does not necessarily mean that possession will in fact be obtained.

Although it was expressly stated that the fact that the defendant was a litigant in person carried little weight behind the Court of Appeal's decision, a situation where a defendant subsequently becomes aware of new points of law is more likely to arise in these circumstances.

Key takeaway: Be wary with possession proceedings where litigants in person are involved.