In sites where there is no residents’ management company and a right to manage company is not a possibility – perhaps because more than 25% of the building is commercial – two options remain for leaseholders desperate to oust an abusive landlord. Either buy the freehold, or ask for a court appointed managing agent.
The appointment of a court appointed managing agent is made under section 24 of the Landlord and Tenant Act 1987.
But leaseholders do have to demonstrate fault: the management has been incompetent. Only in these circumstances will the property tribunal agree to appoint a managing agent. It needs to be clearly understood by leaseholders that this manager is not answerable to them: s/he is an officer of the court. The process could be likened to a ward of court: a site is so delinquent for one reason or another that a court official has to be responsible for it.
Charter Quay, a £250 million prime riverside site at Kingston, in Surrey, had a court appointed managing agent, and the process led to full enfranchisement. This site’s chairman is Martin Boyd, the chair of LKP, and news archive may be a useful read.
Cabinet minister celebrates Charter Quay ‘independence day’ as it breaks free from ‘monstrous companies’: Tchenguiz and Peverel
On the other hand, at this small site in Chelsea the leaseholders could not get on or agree to anything, so the leaseholders had a court appointed managing agent imposed on them:
The managing agent took the decision to run the site as he thought best, and the leaseholders did not like that either.
LKP is at present assisting a site where the court appointed manager spent £65,000 litigating agent the freeholder, with legal fees that will have to be paid by the leaseholders on behalf of whom – by not with their consent – he initiated the litigation.
LKP is also aghast at the legal manoeuvres at the prime London Docklands site Canary Riverside, where the freeholder’s management company was replaced by the veteran manager Alan Coates, of the LKP-accredited HML group, as the court appointed manager. Mr Coates had occupied the Section 24 appointment at Charter Quay.
But since his appointment at Canary Riverside, which is now at an end owing to ill health, on-going disputes with the freeholder have resulted in 23 days in the property tribunal. The leaseholders at Canary Riverside do not feel that a section 24 appointment is much protection against a well resourced landlord determined to seize back control of the site.
This is an extreme case. For many leaseholders in sites where more than 25% is commercial a court appointed manager can be a godsend.
The property tribunal will sympathise with a site that has demonstrated mismanagement and it will accept leaseholders’ recommendations as to the appointment of a court appointed manager. This was the case with Mr Coates at both Charter Quay and Canary Riverside.
The Law Commission is carrying out a review of right to manage law, which will be published in 2020, which also address the 25% commercial property bar on RTM.
This is ARMA’s useful guide to a section 24 appointment: 2014-06_ARMA_Advice_Note_-_Appointment_of_Manager_V01
2/ Not an ordinary managing agent
A manager appointed by the First-tier Tribunal (Property Chamber) is unlike most managing agents. He or she is likely to be quite senior, for a start, and may well have carried out the role before. Whereas most managing agents work under contract to the landlord, a court appointed manager is appointed by the FTT to take over the landlord’s right to manage the building.
They are given directions by the FTT – for carrying out major maintenance work, for example – and they will be expected to follow professional codes of best practice to manage the building in the interests of all the residents and the landlord. The appointed manager should be entitled to receive all the income from the property for use in managing the block in accordance with the terms of the order of appointment. The manager carries out his functions as a tribunal appointed official and not as the manager of the landlord or the landlord’s obligations under the lease. His powers derive exclusively from the management order.
The appointment is made under section 24 of the Landlord and Tenant Act 1987. The application can be made by a single leaseholder in a building, or a group of leaseholders acting together.
3/ The technical criteria
The property must comprise the whole, or part of, a building provided that in either case it contains two or more flats.
The right to apply for the appointment of a manager is not available if the landlord is
- the Crown; or
- a local authority or other public sector body; or
- a registered social landlord or other housing association or where the premises are provided for the purposes of a charitable housing trust; or
- where less than 50% of the flats in the building are on long leases and the landlord is resident on the premises and it is a converted, not purpose-built property, and he has been resident in the flat as his only or principal residence for at least twelve month
4/ Grounds for making an application
- that the landlord is in breach of an obligation owed to the tenant, under the terms of the lease, in the management of the building; or
- that the landlord has demanded, or is likely to demand, unreasonable service charges; or
- that the landlord has failed to comply with any relevant provision of an approved code of management practice (eg. the Royal Institution of Chartered
- Surveyors’ Residential Management Code); or
- that unreasonable variable administration charges have been made, or are proposed or are likely to be made; or
- that such other circumstances exist for it to be just and convenient for an order to be made; and
- that it is just and convenient for the order to be made in all the circumstances.
- 5/ What leaseholders have to prove
To persuade the FTT to appoint a manager, the leaseholder(s) will need to prove one or more of the grounds mentioned earlier and that it is ‘just and convenient’ for a manager to be appointed. The burden is on the leaseholder to produce evidence to support the application. The evidence must directly relate to the grounds for the appointment as above, these are the only grounds on which the appointment may be made, whatever other complaints the leaseholders may have.
Read the FTT determinations on successful applications. Search for Section 24 under the 1987 Act
It is a good idea for anyone considering applying for the appointment of a manager to read through some of the decisions made by FTTs on “manager” applications and their orders appointing a manager. This will give some idea of the types of circumstances and malpractice which the FTTs consider serious and extreme enough to warrant the appointment of a manager.
For a nominal fee your local FTT can supply you with past decisions, which are public documents.
You can also view or download them from the Tribunal decisions section of this website. Potential applicants should also attend at least one “manager” hearing at an FTT.
6/ Give notice to the landlord
Before submitting an application to the FTT, the leaseholder must give a “preliminary notice” to the landlord of their intention to apply for the appointment of a manager. The notice sets out their grounds, and gives the landlord the opportunity of remedying those problems which he is capable of remedying. This formal notice is issued under section 22 of the Landlord and Tenant Act 1987 and must contain particular items of information or it will be invalid. There are a few circumstances where the leaseholder can apply to the FTT for an order to dispense with the requirement to serve this preliminary notice on the landlord, for example where the landlord cannot be found. Guidance can be found in the LEASE document, First-tier Tribunal (Property Chamber).
It is recommended that the notice is sent by either recorded delivery post or with a certificate of posting from the Post Office, so that the leaseholders have proof of posting which might need to be produced in evidence.
7/ Choosing a manager to nominate
As part of their application the leaseholders are asked to nominate their choice of manager for the property; in practice the individual appointed is likely to be a professional managing agent or the leaseholders may choose to run the building themselves.
The nominated manager will be expected to provide a brief statement of their credentials, confirmation that they understand the role they are being asked to take on and that they are prepared to do the job. The FTT will also require confirmation that they are familiar with the relevant code of management practice and will abide by it. If a professional is being nominated, they will need to supply details of their professional indemnity insurance.
8/ Can leaseholders choose to manage the building themselves?
Some leaseholders have banded together and formed their own limited company in order to manage their block, and they have nominated their own company to be appointed manager. LKP has no direct experience of this, and would suggest caution. Usually leaseholders have been highly dissatisfied with the previous management imposed by the freeholder. There may be money issues and issues with the state of the building. These are best left to a professional managing agent to act on behalf of the leaseholders.
Leaseholders determined to manage themselves, say in 1-2, 3-4 maisonettes, would have to demonstrate to the FTT that they are able and committed to managing the building properly. They should not underestimate the liability involved: ie they must insure the place.
This is a useful ruling in early 2019, reconfirming the appointment of a court appointed managing agent but asking him to encourage the creation of an RTM company of the leaseholders:
9/ What if the appointed manager also performs badly?
Richard Davidoff, of ABC Estates, ‘breached his fiduciary duties’ after disastrous performance as a court-appointed manager, rules property tribunal
After a manager has been appointed by an FTT, any interested party can apply to have the order varied or discharged. If it is discharged, the landlord will regain the management of the building.
Clearly an FTT that has removed the management from a landlord would want some clear evidence that things have changed since the order was made, for example, the freehold may have been sold to a more professional organisation.
The grounds for this kind of application are similar to those for appointing a manager in the first place: the FTT must be convinced that the appointed manager is failing to carry out their duties to a professional standard.