What Happens When a Right to Manage Company Takes Over the Management of a Building?

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I look at the recent case of FirstPort vs Settlers Court Ruling and what it means for Right to Manage companies

When a Right to Manage company takes over the management of a building, this does not transfer the right for the company to manage estate facilities shared with other buildings which are not managed by the same company, according to a recent Supreme Court judgement in the case FirstPort Property Services Ltd v Settlers Court RTM Company Ltd & Ors [2022] UKSC 1.

The judgment relates to an appeal taken to the Supreme Court in connection with the statutory right to manage under the Commonhold and Leasehold Reform Act 2002. The court was asked to consider whether a Right to Manage company that has acquired the right to manage a single block of flats on a multi-block development also acquires the right to carry out the management of the wider facilities on the development.

What was the dispute at the centre of the FirstPort vs Settlers Court case?

The case centred around Virginia Quay Estate in East London. The estate is managed by FirstPort, the named management company in all of the estate leases. However, the leaseholders of one of the blocks of flats on the estate, Settlers Court, exercised the right to manage in 2014. This led to the dispute as to who was responsible and entitled to manage the shared estate facilities.

Settlers Court RTM company considered that, by exercising their right to manage, they also had a right to manage the estate facilities which their block shared with other blocks on the estate.

FirstPort’s case was that the RTM company had only acquired the right to manage their block and any facilities used exclusively by the tenants of their block, not those shared with other blocks on the estate.

Why did this case come before the Supreme Court?

The First-tier Tribunal and Upper Tribunal both found in favour of Settlers Court RTM company, with reference to the Court of Appeal’s decision in the landmark case Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] EWCA Civ 1372. This led to case of dual management, where FirstPort and Settlers Court RTM company would need to share management of the shared estate facilities.

FirstPort were able to obtain a ‘leap-frog’ certificate from the Upper Tribunal, appealing directly to the Supreme Court, as a central issue that would need to be considered was whether the decision in the Gala Unity was correctly decided.

What was the outcome of the Supreme Court case?

The Supreme court decided the appeal in FirstPort’s favour, with the court’s judgment stating:

“I consider that the right to manage scheme in Chapter 1 of Part 2 of the 2002

Act makes no provision within the statutory right to manage for management by the

RTM company of shared estate facilities.”

The judgement also stated:

“In my view the Gala Unity case was wrongly decided and should be overruled” and that the ruling in the Gala Unity case was “contrary to the purpose of the statute”.

What does the Supreme Court ruling on the FirstPort vs Settlers Court mean for RTM companies?

First and foremost, the outcome of the case provides much more clarity over how far the right to manage extends. A precedent has now been set that RTM companies only have the right to manage their own block and facilities exclusively used by residents of that block.

The overruling of the Gala Unity judgment may also have significant repercussions for existing arrangements between RTM companies and other management companies over shared estate assets.

The Supreme Court’s ruling on the FirstPort vs Settlers Court case states:

“Estate facilities in many estates may at present be being managed under sharing

agreements made by RTM companies and others on the assumption that the law was

as set out in [the Gala Unity] case”.

This ruling may, therefore, impact not only new RTM companies but also those with existing arrangements for shared management of shared estate facilities. It is important to note that RTM companies are unlikely to have the legal right to demand service charges relating to management of shared facilities that, following FirstPort, they are not entitled to manage.

How should management companies respond?

In response to the ruling, it is important for RTM companies to review their current arrangements if an agreement has been made on the basis of the Gala Unity case. It may be that an RTM company has existing responsibilities that do not fall within its legal remit and this will need to be addressed.

It is likely to be advisable to complete these reviews with the assistance of a specialist property management expert, who will be well placed to provide carefully tailored advice specific to your current situation.

Here to Help

If you need advice on Right to Manage, please contact John Wagstaffe, Partner and Head of Property Litigation.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.