Building Blocks?

The Court of Appeal has provided some welcome clarification of an issue which has caused solicitors real head-aches when advising on the Right to Manage procedure.

The owners of flats let on long residential leases have, provided they meet certain criteria, the right (under the Commonhold and Leasehold Reform Act 2002) to group together with the leaseholders in their block and form a Right to Manage Company (“RTM Co”) to acquire the right to manage their building and any related common areas.  The leaseholders and their RTM Co do not have to pay their landlord a premium, or point to a particular act of default by their landlord, in order to secure the right.  It can therefore be an attractive option for leaseholders who have concerns about the way in which their building is being managed.

One issue which was left uncertain by the CLRA was whether one RTM Co could manage several buildings and their common areas within a single estate, provided that the shareholders in the company included the requisite 50% of long leaseholders in each building.  In the case of Triplerose Limited v Ninety Broomfield Road, the Court of Appeal held that this wasn’t permissible.  One RTM Co has to be formed per block, and that company could then acquire the right to manage that block.  Therefore, an estate with common areas over which leaseholders in various blocks all have rights could conceivably have several different RTM Co.s in operation, each of which with the right (and responsibility) to manage those same common areas.

The leaseholders sought to argue that this would cause real practical difficulties in maintaining an estate with several competing RTM Co.s, but the Court of Appeal rejected these concerns, pointing out that there was nothing preventing those RTM Co.s from delegating management to one of the RTM Co.s. 

Whilst it is helpful to have some certainty on the point, one can see potential difficulties in practice.  For example, there would seem to be scope for further confusion if, in an estate with 3 blocks, two RTM Co.s exercise the right in respect of their respective blocks, but the third block remains the responsibility of the landlord.  Hopefully the three parties would cooperate, but one can see the scope for a conflict flaring up …

By Richard Housley, Associate