Settlers Court: for the first time the Supreme Court considers right to manage. The result? Leaseholders get a battering over communal area management

By Harry Scoffin

Leaseholder empowerment took a battering in the Supreme Court this week after it ruled that the right to manage should only apply to individual blocks and not shared spaces or common parts of a wider estate.

This is a reversal of the legal position established in the Court of Appeal in 2012 in a decision commonly known as “Gala Unity”.

FirstPort v Settlers Court RTM (“Settlers Court”) marks the first time in its almost 20-year history that the right to manage has been considered by the Supreme Court.

Settlers Court, which has 76 flats, is an RTM site that is part of Virginia Quay, a Barratt development located in Blackwall, east London, that has views over the Thames to the O2 Arena. The sprawling site of 778 homes, built between 1999 and 2002, consists of ten blocks of between five and 11 storeys, and rows of three-storey freehold terraced houses.

Communal areas that surround Virginia Quay’s leasehold and freehold properties involve accessways, gardens and grounds, together with a river wall, which Supreme Court judges categorised as “estate facilities” on the basis that all residents across the development had access to them.

When the RTM was secured by Settlers Court in 2014, a row broke out over who would be responsible and legally entitled to manage shared estate facilities that the leaseholders enjoyed.

FirstPort, the country’s largest block manager, which is written into every residential lease at Virginia Quay as an embedded management company, won the case against the RTM.

“It is a disappointing result for leaseholders,” said barrister Mark Loveday, who with Amanda Gourlay, represented the leaseholders. “It is going to create a number of loose ends. There is no mechanism to go to a court or tribunal to determine the extent of these rights.

“You also have the problem of what do you do with the dozens and dozens of decisions that have been reached [between RTM companies and freeholders over who manages the shared estate facilities].”

Mr Loveday did, however, say that the decision has some “positive sides” because it now “creates some clarity because it was a difficult position with RTM companies being at loggerheads with freeholders as to what agreement should be made over the management of common parts”.

“In some cases, those common parts were [previously] taken over by the RTM company and, in others, by the freeholder. Now the law says that the common parts are to be managed by the freeholder, and the RTM company restricted to the curtilage of blocks.”

Fortunately, this blow to leaseholders will likely be made an irrelevance when the government’s upcoming second leasehold reform bill is enacted, based on the Law Commission’s extensive reports, becomes law within the next two years.

FirstPort initiated the Supreme Court challenge, with the case having ‘leap-frogged’ from the upper tribunal because of its implications for public policy.

The managing agent was represented by barristers Simon Allison, who in 2020 wrote in Estates Gazette opposing the government’s anticipated move to commonhold and other systems of resident-controlled flat management.

Simon Allison’s article ‘Is commonhold really in the public interest?’ published in Estates Gazette – Landmark Chambers | Barristers Chambers London

Simon Allison has produced a property-related article, published in Estates Gazette. The Law Commission’s proposals to “reinvigorate” commonhold, published over the summer, are of much interest to the property industry. They set out a vision whereby, if the government decides to do so, commonhold might become the only option for new developments – and, at the very least, measures are to be put in place to incentivise its use.

He was assisted by Kimberley Ziya. Both did a glitzy explainer video to publicise their role in the case, which provoked much leaseholder debate (and amusement) on social media preceding the one-and-a-half day hearing in November:

The Association of Residential Managing Agents (ARMA) also played a role in the case, acting as “intervener” and supplying “expert” opinion as the largest trade body for the country’s managing agents. (It is also the paid lobbyist of freehold owners, who are also members.)

ARMA CEO Nigel Glen submitted to the Supreme Court concerns of RTM solvency, together with what the ruling described as “the practical challenges that have been experienced in the sector because of the ‘dual responsibility’ for the management of shared facilities”.

Mr Glen suggested that while co-operation between an RTM company and a freeholder and his agent can smooth out issues relating to the management of a leasehold development’s shared premises, ARMA is understood to believe that the “necessary goodwill, co-operation and shared vision” is, in his words, “likely to be in short supply” in many cases.

Mr Loveday, for the Settlers Court RTM, countered by arguing that in instances where there is no consensus over the shared estate premises and its management, leaseholders still have the right to apply for a tribunal-appointed manager under section 24 of the 1987 Landlord and Tenant Act, as a backstop for RTM-freeholder conflict.

It was suggested that while section 24 is largely about finding fault against a freeholder landlord, “the tribunal’s jurisdiction to appoint a manager under the just and convenient ground in section 24 would come to the rescue” even where no one party was to blame for the lack of agreement over the right to manage the communal areas of estates which are shared between others on a development”.

Judge Briggs rejected this reasoning:

“In my view it is genuinely absurd to think that the 2002 Act was framed with that route in mind as a tie-breaker solution in default of a sharing agreement between multiple managers of estate facilities. That jurisdiction is primarily, although not exclusively, fault-based. It can only be triggered by a tenant serving a notice under section 22. The whole thrust of the jurisdiction is to give relief to tenants who are dissatisfied with the management services provided by their existing manager. It contains no mechanism by which one or more RTM companies could apply to the court to resolve a disagreement about shared management.”

LKP understands that ARMA’s evidence authored by Mr Glen, who has in the past likened lay directors of RTM and RMC companies to Dad’s Army figures:

Leaseholders are apathetic, apart from the Dad’s Army figures running RTMs and RMCs, says the sector

and been critical of the widespread adoption of commonhold in England and Wales

ARMA on commonhold: Falling leasehold values. Zombie apartment blocks. Plenty of scrapping. Lack of interest. But good business for professional managers …

was prepared by lawyers at Landmark Chambers, the home of Justin Bates, the right to manage demolition barrister who helped the Law Commission produce a package of reforms to make right to manage “simpler, quicker and more flexible” for leaseholders, submitted to government in July 2020.

This formed the basis of a consultation launched by ministers on Wednesday, the same day the Settlers Court decision was handed down by the Supreme Court.

Law Commission: no problem employing barrister Justin Bates to reform right to manage, while he sets about stuffing another one …

This Supreme Court battle concerning whether the Commonhold and Leasehold Reform Act 2002 allows leaseholders of the individual RTM block to manage areas of the development that are not exclusively in use by the occupiers of that property recalls past lawfare over whether policymakers had intended the right to manage to allow leaseholders across multiple buildings of a whole estate to team up through a solo RTM company to take over management functions in a single claim to replace the agent and achieve democratic control of the service charges.

Indeed, much of Wednesday’s Supreme Court decision concerns the “absurdity” of having multiple stakeholders with different, and possibly conflicting, interests and viewpoints over how a development should be managed being allowed to agree on the upkeep of shared estate areas, which chimes with the legal position in favour of a “restricted scheme” that was arrived at by a 2015 Court of Appeal decision (“Triplerose”), which had found in favour of barristers Justin Bates and Philip Rainey QC for Israel Moskovitz’s freehold-owning entity Triplerose Limited.

Right to manage in chaos after Court of Appeal decision

“Suppose that each block in the Virginia Quay Estate was the subject of a right to manage by ten different RTM companies, each controlled by the long leaseholders in their separate block. How would the ten managers, together with the Appellant representing the freehold owners of the terraced houses, be able to agree about management decisions requiring to be made on a daily basis?,” questioned Judge Briggs.

Triplerose has had the effect of preventing subsequent RTM leaseholders from wrestling control of a site from a controversial freeholder and its appointed agent at one fell swoop. Instead, the decision forces aggrieved lessees to “go it alone” on a block-by-block basis: difficult to achieve in terms of securing 51% leaseholder support and more expensive in legal and professional fees.

In its right to manage recommendations, the Law Commission has proposed RTM be redesigned to ensure a multi-building approach as “it seems clear that, in some cases, multi-building RTM is the best way to facilitate giving leaseholders more control over the management of their homes”. If enacted, this will scrub away the legacy of the 2015 Court of Appeal Triplerose decision.

On the issue of so-called non-exclusive appurtenant property, the key concern of Gala Unity and now Settlers Court, the highly anticipated shakeup of RTM is, according to the Law Commission, “designed to ensure that either the parties or the Tribunal will have set out how dual management will be carried out, if the RTM company is to acquire management functions in respect of it”.

Simon Allison who, with Kimberley Ziya, won Settlers Court for FirstPort on Wednesday, took to LinkedIn to celebrate the Supreme Court decision:

“From my perspective it is enormously satisfying to see this result; the Gala Unity decision has felt obviously wrong to me since made in 2012 and has caused chaos and confusion at a good number of estates.”

The full decision can be found here:

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