Right to Manage: JB Leitch Acts in Key Appeal on the Interpretation of Section 72(3) Commonhold and Leasehold Reform Act 2002

The appeal relates to claims for the right to manage three residential buildings located within a single development in Liverpool, comprising five buildings in total. JB Leitch act for the landlords of the three blocks in question.

The background and the FTT’s decision

Following the service of three right to manage (“RTM”) claims and the landlords having issued counter notices, three applications were made to the First-tier Tribunal (“FTT”) by the respective RTM company applicants. The applications sought determinations that the RTM companies were entitled to acquire the right to manage each of the three subject premises on the date specified within the claim notices.

Owing to all of the buildings at the development (including the three buildings in question) having been built into a single podium deck with an underground car park (built on a continuous basement slab) under the footprint of each, the RTM companies sought to argue that each premises was a self-contained part of a building within the meaning of section 72(3) of the Commonhold and Leasehold Reform Act 2002:

1. 72(3) A part of a building is a self-contained part of the building if-

• it constitutes a vertical division of the building,
• the structure of the building is such that it could be redeveloped independently of the rest of the building, and
• subsection (4) applies in relation to it.

1. 72(4) This subsection applies in relation to a part of a building if the relevant services provided for occupiers of it-

(a) are provided independently of the relevant services provided for occupiers of the rest of the building, or

(b) could be so provided without involving the carrying out of works likely to result in a significant interruption in the provision of any relevant services for occupiers of the rest of the building.

The first matter for the FTT in this case was to identify the premises over which the right to manage was sought, which had not been clearly defined. For each building, the FTT considered the extent of the premises potentially being claimed which were categorised into the following options:

1. The building above the ground level;
2. The footprint of the building to basement level; or
3. The footprint of the building including the whole extent of the basement car park.

Applying sections 72(3)(a) and (b), the FTT considered the vertical division of the buildings, and whether each of the three buildings may be redeveloped independently from the rest of the building.

The FTT rejected that the RTM premises for each of the three buildings could be defined as the building above the ground level (point 1 above) or the footprint of the building including the whole extent of the basement car park (point 3 above) on the basis that neither option allowed a vertical division within the meaning of section 72(3)(a).

The FTT discussed but ultimately rejected point 2 above. The rejection was owing to the FTT’s finding that the basement car park slab beneath and beyond the footprint of each premises comprises a continuous slab. The FTT found that the RTM companies in drawing a vertical line on the outermost edge of the steel frame of the buildings would bisect the basement slab where there was no division in reality.  As a result of this finding, the FTT determined that the RTM companies had not been entitled to acquire the right to manage of any of the three buildings.

Notwithstanding its decision, the FTT went on to make other findings.

In respect of one of the buildings, the landlord had made submissions in relation to protruding balconies that overhang a public pavement on the side of the building facing a main road (as opposed to the side of the building facing inwards towards the other buildings comprising the development). The FTT dismissed this argument on the basis that the balconies were capable of being disregarded as de minimis so did not play a part in the FTT’s findings under section 27(3)(a).

On another of the buildings, the other landlord had argued that there are shared services owing to the existence of an interlinked fire alarm. However, the FTT found that the system could be delinked in satisfaction of section 72(4)(b).

The appeals

The RTM companies applied for permission to appeal the FTT’s decision on the following grounds:

1. The FTT had wrongly interpreted the meaning of section 72(3)(a) on the basis that there does not need to be an identifiable physical division through the entire building in a vertical line. What is required is a vertical slice of the building which can be a notional plane running through the building.
2. If they are wrong on the first ground, the absence of a physical division between for the depth of the basement slab is de minimis and can be disregarded.
3. In respect of only one of the three buildings, there is a visible movement joint directly below the footprint of the building which creates a vertical division in the basement slab. Therefore, that the FTT were wrong to conclude the contrary in order to find that the premises did not qualify under section 72(3)(a).

The landlords sought permission to cross-appeal the FTT’s decision collectively on the following grounds:

1. In respect of the building with the protruding balconies, the FTT erred in concluding that the vertical line should be drawn along the outmost edge of the steel frame of the building without regard to the balconies on the front face.
2. The FTT erred in finding that the buildings could be redeveloped independently.
3. In relation to the building which shared an interlinked fire alarm system with another building on the development, that the FTT had been wrong to find that the service could be separated under section 74(b).

The parties were both given permission to appeal, and the matter was heard in the Upper Tribunal alongside another RTM appeal dealing with similar issues.

Both RTM appeals raised submissions in relation to what Parliament’s intention was when section 72(3) was legislated. The Tribunal was taken to caselaw where the vertical division test had been previously judicially considered (Holding and Management (Solitaire) Ltd v Finland Street 1-16 RTM Co Ltd [2008] 2 EG 152) and key authorities were relied upon including Settlers Court RTM Co Ltd v Firstport Property Services Ltd [2022] UKSC 1; [2016] 1 WLR 519.

Comment

The Upper Tribunal’s decision in both appeals and its interpretation of section 72(3) will have an industry wide impact and will deal with the scope of the FTT’s jurisdiction when deciding RTM applications. The decision is certainly one to watch out for.