This article is an overview of the recent Supreme Court decision FirstPort Property Services Ltd (Appellant) v Settlers Court RTM Company Ltd and others (Respondents) [2022] UKSC 1 (“Settler’s Court”). This case addresses the scope of Right to Manage (“RTM”) rights. This case takes on the previous controversial case of Gala Unity Ltd v Ariadne Road RTM Co Ltd[2012] EWCA Civ 1372 (“Gala”).

What is RTM?

In 2002, Parliament passed the Commonhold and Leasehold Reform Act 2002 which gave leaseholders who met a specific set of criteria, the right to manage premises if they consist of a self-contained building or self-contained part of a building. The leaseholders exercise this right by forming a company, namely an RTM company, and serving a notice on the freeholder of their intention to acquire the RTM.

Once that notice expires, the RTM company becomes responsible for the services, repairs, maintenance, improvements, insurance and management of their building, unless an agreement states otherwise.

When an RTM has been successfully created, they are not only responsible for the leaseholders building, but also property exclusively used by the leaseholders of that building.

Practical confusion

The operation of RTM’s has led to practical problems, especially in estates with several blocks of flats on it. In these situations, there are often parts of the estate which are not exclusive to any specific block – things like gardens, car parks, garages etc.

For leaseholders who are managed by an RTM company the case of Gala held that the RTM company is not only responsible for the management of their specific block of flats, but they automatically become responsible for the wider estate.

However, for the blocks of flats which are not under the management of an RTM company, the existing landlord or existing management company still have management obligations to service the wider estate on behalf of those leaseholders. What this meant is, there was an obvious risk of duplication.

Settler’s Court

This case set out to address this issue, among others, of whether the existing management company still retained the right to manage the wider estate. If so, whether they could demand service charges from RTM leaseholders.

The case can be summarised as follows:-

  • In November 2014, an RTM company known as Settlers Court RTM Company Ltd (the respondents) acquired the rights to manage a block of flats known as Settlers Court.
  • The appellants are a management company called Firstport Property Services Limited (Firstport) who managed a block of flats on the same estate and provided the wider estate services as well.
  • Despite the establishment of an RTM, Firstport continued to provide wider estate services as they were obliged to do so for the other blocks on the estate. They sought to recover service charges from the RTM leaseholders for this.
  • Several leaseholders at Settlers Court disputed the costs of those services, and refused to pay (which led to substantial arrears), on the basis that the RTM company were responsible for the management of the wider estate, not the appellant.

The matter then went to the First-tier Tribunal, who decided that:-

  • It was bound by the Court of Appeal case of Gala, which concluded that RTM companies also received the right to manage the wider estate.
  • As such, the managing functions no longer sat with Firstport. Therefore, they could not recoup service charges from leaseholders who were managed by an RTM company.

Following this decision, the matter went to the Upper Tribunal, who decided that:-

  • Firstport conceded that they could not distinguish their case from that of Gala. So, they attempted to argue that Gala was per incuriam (decided with a lack of regard to the law or the facts).
  • Although the Upper Tribunal accepted that Gala created practical difficulties for those involved in estate management, it nonetheless ruled that the ruling in Gala was not demonstrably wrong.
  • Significantly, although the Upper Tribunal dismissed the appeal, they did issue a ‘leapfrog’ certificate allowing the appellants to appeal directly to the Supreme Court. This was the first ‘leapfrog’ certificate issued in the history of the Upper Tribunal.

Then came the Supreme Court decision, where the judgment handed down can be summarised as follows:-

  • The Supreme Court unanimously ruled in favour of Firstport and allowed the appeal. It was held that RTM companies do not attain management rights over the wider estate, and thereby overturned Gala.
  • It held that the RTM scheme was developed so that the RTM could have exclusive rights to manage the premises (namely, the block and any property serving only the block). Managing shared estate facilities did not fall into the “premises” in which an RTM could be exercised. If management rights were extended to include estate services, practically, this would force (and has forced) the RTM company to share managing estate services with another manager and doing so would go against the spirit of the Act.
  • The Supreme Court concluded that “these absurdities are avoided if the functions of the RTM company do not extend to the estate facilities” (para [61]). They thereby ruled that the management functions of the wider estate do not pass on to the RTM company, and therefore Firstport remain the managers and are able to recoup the full costs spent on managing the wider estate.

What now?

The Settlers Court case has given much needed clarity to the RTM scheme and will go a long way to sorting out all of the confusion that exists when blocks on wider estates wish to acquire the RTM.

Whilst the Court has remained silent on what happens to agreements that freeholders or management companies have already entered into with RTM companies and how they should proceed in light of the ruling. However, those who have continued to maintain the wider estate despite Gala, will now be on firmer footing to continue. It is important, though, to be clear about specifically what property the RTM company will acquire the right to manage on exercise of the right – namely the block and any property which exclusively serves the block. It is important that the RTM company and the freeholder co-operate to ensure that their respective management areas are clear.

It is accepted, though, that this does mean leaseholders who acquired the RTM due to concerns over management are, to an extent, still subject to their freeholder or management company’s rule.

If you are a leaseholder and you wish to explore acquisition of the RTM to manage your block, or you are a freeholder who has received a claim notice, please do get in touch with our Property Litigation team by contacting either Joe Brightman or Molly Frankham.