Samuel Lear and Kimberley Ziya answer a question on cost apportionment for shared facilities under the right to manage
Question
We have recently obtained the right to manage our block of flats, which forms part of a wider estate containing other blocks of flats. We share facilities and other amenities with these other blocks, and these have historically been maintained by the freeholder’s management company (pursuant to the terms of our leases), which in turn charges all leaseholders their proportion of the costs.
Have we now acquired the right to manage the wider estate facilities that are shared with the leaseholders of other buildings on the estate? If not, do I have to pay these charges to the freeholder’s management company despite our right to manage?
Answer
It is likely that, without any other agreement, your right to manage will be limited to your block of flats and will not extend to facilities shared with leaseholders of other blocks. Therefore, you will still be liable for your proportion of the charges raised by the management company in relation to those facilities.
Explanation
Long leaseholders are capable of being granted the “right to manage” by virtue of the Commonhold and Leasehold Reform Act 2002. This allows the leaseholders to take over the management of the block of flats from a pre-existing manager or the freeholder (as the case may be) via a right-to-manage company. It is possible that some estates comprise multiple buildings but share services, facilities and amenities between them, which are provided by the pre-existing manager or freeholder. Uncertainty has arisen as to what happens in respect of these shared services in cases where the leaseholders of one building have acquired a right to manage that building.
Until very recently, it was the case that an RTM company in respect of a block of flats forming part of a wider estate, would (subject to an agreement to the contrary) become responsible for managing the common parts on the wider estate. The Court of Appeal considered (in Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] EWCA Civ 1372; [2012] 3 EGLR 79) that the common parts were appurtenant property under the 2002 Act and fell within the definition of “premises” over which the RTM company had statutory management rights and obligations. However, the provisions of the 2002 Act made it at least very likely that the previous management company or freeholder continued to owe obligations to the leaseholders of the other blocks on the estate (which had not exercised the right to manage) in respect of the common parts. The decision therefore caused practical difficulties where no agreement was reached in respect of how the shared estate services should be managed and charged for, including issues over the division of responsibility, disenfranchisement and solvency.
Following the recent Supreme Court decision in FirstPort Property Services Ltd v Settlers Court RTM Co Ltd and others [2022] UKSC 1; [2021] PLSCS 5, this position has been reversed. The court examined the provisions of the 2002 Act and concluded that an RTM company’s statutory rights do not extend to the management of wider estate shared facilities or amenities. The statutory rights are limited to the management of the “premises” (ie the particular building, or part thereof) that are exclusive to the leaseholders who have acquired the right to manage. In the words of Lord Briggs (giving the unanimous judgment of the court), the premises extend only to “the relevant building or part of a building, together with appurtenant property (if any) which means nearby physical property over which the occupants of the relevant building (or part) have exclusive rights”. This would likely include, for example, a bike shed that exclusively serves that particular block of flats.
Therefore, unless there is a shared management agreement providing otherwise, the position is that the pre-existing manager or freeholder would still be responsible for the provision of the shared services and that all leaseholders (including those forming the RTM company) would be liable for these charges.
A question mark remains over who is responsible for managing shared facilities within blocks (for example, a gym that is shared with other estate leaseholders), as it was not a question that was specifically addressed by the Supreme Court in FirstPort. However, it seems likely that the RTM company will acquire the right to manage any shared facilities that are located within the building over which it acquires statutory management rights.
This therefore remains a situation in which issues of dual management can arise and where the parties would be well advised to discuss how management (and the costs thereof) is to be shared early on in the process. If the parties cannot reach an agreement in relation to these matters, the dispute will need to be determined by the First-tier Tribunal.
Samuel Lear is an associate in the real estate disputes team at Charles Russell Speechlys LLP and Kimberley Ziya is a barrister at Landmark Chambers
