Section 24 court appointed manager orders can be the last resort for leaseholders, but beware messing them up

By Peter Cobrin

Going to the Property Tribunal to have a manager appointed under section 24 of the Landlord and Tenant Act 1987 is often the last throw of the dice for leaseholders fed up with intractable disputes with game-playing landlords. It places control of a property into the hand of a manager accountable only to the Tribunal – and not to the landlord or leaseholders — and removes control from the landlord.

But leaseholders will only secure this result if they demonstrate that management has been incompetent and that appointing a manager is ‘the right and proper” thing to do. They must understand this manager is an officer of the court, and that they can be likened to a ward of court, in need of protection as the previous ‘regime’ has become so delinquent that ‘guardianship’ is necessary.

At the heart of this process is the management order, the document that provides the structure, framework and principles under which all parties must operate, but above all, the manager. This is an order of the court, to be treated with respect and strictly adhered to, or else!

Sadly, these orders can, and do, go wrong, and when they do, it’s bad and expensive news for all parties. Two comments I have heard in the last two days, after writing the rest of this article, reinforce the point I will be making about poorly drafted management orders. The first came from a leading property barrister who wrote to me saying “that many management orders are very flimsy indeed.”

The second came from a lay tribunal member questioning a putative manager about the management order that was put before this particular tribunal.

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Some background reading on The Grand, Folkestone:

Buyer Beware!

Any lingering doubts about the survival of Michel Stainer’s Grand empire disappeared on Saturday afternoon. For two hours, process servers acting for the administrators of Hallam Estates Ltd, who now own the entire freehold, trudged up and down the staircases, hand delivering envelopes to every flat.

A Grand Failure and a Grand Fantasist

The Grand, Folkestone, Insolvency, Arrest, HMRC, Robert Richardson, Michael Stainer, Doris Stainer, Debt, Hallam Estates,

The lay member stated that there was an attempt to bring some “standardisation” to management orders.
In confirmation of this, it appears the tribunals are sending out “precedent management orders” for adaptation by applicants.

On the other hand, I understand that Martin Rodger QC, Deputy President of the Upper Tribunal (Lands Chamber), has been critical of “off the shelf” management orders and their provisions. In other words, unsurprisingly, they have to be fit for the specific situation.

For my part, I wear two hats when it comes to management orders. First is a result of my own experience in this minefield area, and trust me, I carry the battle scars!

In 2016 I became the chairperson of the residents’ association at the Grand in Folkstone.

This building has been in and out of court since 1985, invariably over the conduct of the freeholder, both as an individual and later as director of the landlord company, in relation to unpaid service charges and lack of maintenance.

As far back as 1985 he was fined in the magistrates’ court for not complying with numerous leaseholder requests for the summary of costs for service charges.

After 10 years of battling leaseholders, he ended up insolvent and entered into an IVA (Individual Voluntary Arrangements). The Grand was repossessed, only for him to buy it back through a company he controlled.

Finally, in near desperation, in 2014 a group of residents secured a tribunal-appointed manager.

Sadly, the management order failed to provide the manager with the powers to rein in the landlord or to enforce leasehold covenants that were being breached daily by the landlord, and its directors, in their personal capacity.

This is the key point: management orders issued under the Landlord and Tenant Act are intended to provide a tribunal-appointed manager with the legal framework and the tools to do the job of:

• Stepping into the shoes of a landlord
• Resolving the issues that brought this case in front of the Tribunal
• And, hopefully, to then stepping aside to allow good practice to prevail for the benefit of all parties, without the need for further legal intervention.

Fast forward to 2017, we gained formal recognition as a residents’ association in the teeth of bitter opposition.

Within months, we also secured a determination that found the landlord’s directors (same people) liable in their personal capacity for over £170,000 of unpaid service charges on their 19 flats. Finally, in July 2018, we secured a new management order which I initially drafted and which the tribunal then tweaked.

This gave the new manager real powers, described repeatedly as ‘draconian’ in subsequent failed appeals against the order, right up to Judicial Review.

For example, the order had a penal notice attached to it which stated:

“‘If you the within-named, XXX do not comply with this Order you may be held in contempt of the Tribunal which made the Order and fined or your assets be seized.”

It also gave the manager the right:

“The manager is permitted to revoke consents and licences previously granted … ”

In other words, our manager had enforceable powers written into the management order, and believe me, they have been exercised.

Illegal subletting of flats as holiday lets stopped, and in pursuit of over £200,000 in service charges owed under the new order, the landlord was put into administration and its directors face eviction and fresh bankruptcy proceedings for the second time in 20 months.

However, in sharp contrast, I have seen two orders submitted in other equally disputatious cases, drafted by lawyers, which frankly are as much use as a fig leaf in a sandstorm.

Any manager accepting an appointment under these orders is frankly doomed to fail and the hopes of the applicants shattered – along with their bank balances! A typical application to appoint a manager can cost £30-£50,000.

This would be in contested section 24 actions in large blocks, not resolving disputes at dysfunctional smaller sites where management needs to be removed from a landlord. But here is the example of the war of attrition at Canary Riverside with its court appointed manager: https://www.leaseholdknowledge.com/category/news/canary-riverside/

And to my second hat: I am now a senior property manager – gamekeeper turned poacher? – and I read the decisions of the First and Upper Tier Tribunal decisions with great interest. I am still surprised at the number of times applicants are making return visits, because something has gone wrong and applicants think a change of manager will solve the problem. Wrong!
 
So here’s my guide for the perplexed and puzzled, so that if you have go down this route, you will get it right the first time. It should also be helpful to would-be tribunal appointed managers:

• Leaseholders: make sure your proposed new manager carries out a thorough investigation of all the issues in advance
• Expect to pay a reasonable fee for the would-be manager to undertake that work
• Would be managers: see the above!
• Make sure all of applicants’ support both the new proposals and the choice of the manager
• Enlist as many additional leaseholders as possible to support the application
• Make sure there a realistic Management Plan for the new regime
• It’s essential that a draft Management Order is prepared for the Tribunal otherwise it will be “here’s one we prepared earlier” that fails to address all issues
• The would-be Manager must be satisfied that he or she can operate successfully under that order
• Expect it to be tweaked by the Tribunal
• Safeguard your new manager, especially in contested applications, by provision of an indemnity in the event of an adverse cost awards
• If there is a risk that the previous Managing Agent or Landlord may refuse to cooperate, you can ask for a Penal Notice to be attached to the Management Order, but be warned, the Tribunal will not enforce this Order if violated, so a trip to the County Court will be necessary.

All of the above are based on direct personal and professional experience and should be the Ten Commandments for a successful management appointed under the Landlord and Tenant Act.

peter.cobrin@westburyresidential.com

Website: www.westburyresidential.co.uk