The Court of Appeal therefore decided that the RTM did extend to facilities on an estate which were shared between the block of flats over which the RTM had been exercised and other dwellings, even though this would potentially leave both the RTM company and the pre-existing manager responsible to different groups of lessees for providing the same services simultaneously.
Proceedings in the FTT and Upper Tribunal
Because the parties were unable to reach agreement as to how the estate facilities should be managed and the estate charges levied, in December 2017, FirstPort applied to the First Tier Tribunal (Property Chamber) to determine whether it was entitled to levy estate charges from the lessees of the flats in Settlers Court.
The FTT found against FirstPort, considering itself bound by the decision of the Court of Appeal in Gala Unity.
The Upper Tribunal dismissed the FirstPort’s appeal on the basis that, amongst other things, it too was bound by Gala Unity. The UT did however issue a leapfrog certificate for an appeal directly to the Supreme Court. This was the first time that the UT has issued such a certificate.
Decision of the Supreme Court
The Supreme Court unanimously allowed the appeal and, in doing so, held that Gala Unity was wrongly decided.
The right to manage grants the RTM company the right to perform the relevant management functions over “the premises” to the exclusion of any other person such as the existing manager.
The Court recognised that treating the right to manage as applying to shared common facilities raised insuperable problems. The lessees of flats in blocks other than that over which the RTM has been exercised would be effectively disenfranchised by having shared estate services provided by an RTM Company with which they had no formal legal relationship. This would also be contrary to the terms of their leases and was the opposite of what the RTM under the 2002 Act was supposed to achieve.
The statutory language in the 2002 Act, which had to be construed in light of the context and purpose of the Act, included numerous signposts pointing against the estate facilities forming part of the “premises” over which the RTM was exercisable. As such, the RTM could not grant the RTM company the right or obligation to provide the Estate Services. That construction of the 2002 Act was confirmed, but no more than that, by the Consultation Paper which accompanied the draft bill which later became the 2002 Act.
The particular facts of Gala Unity had served to obscure the real difficulties created by the Court of Appeal’s decision in that case and the existence of overlapping rights to provide the Estate Services between a manager and an RTM Company.
It was recognised that, if the RTM company were correct in their argument that they acquired management of the estate facilities, it would lead to outcomes which were both absurd and unworkable.
If the RTM company was responsible for the estate services, it would be entitled to recover estate charges only from the lessees of the building in respect of which it had been set up.
In this case that would mean only 15% of the costs of providing the estate services could be recovered by the RTM company. This would likely pose insurmountable solvency issues for it.
Conversely, if FirstPort retained responsibility for providing the estate services, as it was bound to do under the terms of the leases held by the lessees of buildings other than that over which the RTM had been exercised, it could not recover the costs of doing so from the lessees who had exercised the RTM.
In this case, that meant that, absent some agreement with the RTM company, FirstPort could recover only 85% of the costs of providing the estate services to the estate as a whole. Whilst in some cases the RTM company and the manager might reach agreement, there was no obligation on an RTM company to do so. The Court made clear that it was obviously preferable to interpret the 2002 Act in a way which did not lead to an unworkable situation absent such agreement.
For those reasons, the Supreme Court found that the right to manage does not therefore extend to the RTM company managing the shared estate facilities, which do not form part of the “premises” over which the RTM is exercisable.
The Court found that FirstPort remains the sole party responsible for providing the estate services to all lessees on the estate and entitled to levy estate charges accordingly, including from the lessees of flats in Settlers Court.
As the Court explained: