Right to Manage Case Success for JB Leitch

On behalf of our landlord client, JB Leitch has this week succeeded at trial in Fairhold Homes (No.14) Limited v Heritage Court RTM Company Ltd (County Court at Central London, Recorder Padley, 27 June 2023) in a further development of the law in this little understood area.

The Background:

Central to the case, in which we worked alongside Cecily Crampin of Falcon Chambers, was a claim for a declaration that a Right to Manage Company (RTM) had no right to use a flat in the development they manage (shown on the other flat lease plans as “house manager’s flat”) by reason of their right to manage, and were obliged, as per the lease, to agree a tenancy or licence with the freeholder to use it.

In this case, the flat leases had no express obligation on the landlord to provide a resident house manager, or to use the so named flat for house manager accommodation.

The RTM company argued that the references to the house manager’s flat in the flat leases were enough for the court to conclude that the flat must be so used, and hence the RTM company had a statutory right to use the flat without payment (even though the service charge provisions in the lease allowed recovery of rent for the flat if it was used for a house manager).

The Outcome:

Recorder Padley disagreed. The lease was clear: there was no such obligation and hence no basis to imply such a statutory right to use the flat. The parties had for some years post the acquisition of the RTM charged and paid rent for the flat respectively. She concluded that this had created a licence for its use at a reasonable market rent.

Owing to the landlord’s overall success in the proceedings, the RTM Company now faces significant costs which could have been avoided.

Comment:

The acquisition of the right to manage did not give the RTM company a statutory right to possession simply by transfer of the management functions under the Commonhold and Leasehold Reform Act 2002 (CLRA 2002).

Having been acutely aware of the probable outcome of the case and the potential cost consequences, the landlord had written to the directors of the RTM Company on several occasions, both before and throughout the proceedings, encouraging early settlement and participation in Alternative Dispute Resolution.

The RTM Company, whose spokesperson in the proceedings was Dudley Joiner of the Right to Manage Federation, failed to engage in relation to settlement which left the landlord with little alternative but to continue with the proceedings.

In addition to providing clarity as to the extent of the implied rights granted to RTM Companies under CLRA 2002, from a cost perspective, this case highlights the consequences of a failure to take stock and seek legal advice from a competent and independent legal professional early on in proceedings, and also showcases why leaseholders should scrutinise the actions of their RTM directors.

Katie Orr of JB Leitch’s litigation team who successfully worked on the case, comments further: “With this successful decision, we again see that the specific and literal interpretation of the lease is the critical factor, and that assumption or subjective interpretation of the obligations does not confer additional rights or responsibilities.”