A recent case examined the conflict between a freeholder proposing to develop its building and a Right to Manage company, run by the leaseholders, trying to ensure its smooth management.

Recently, in Francia Properties Ltd v Aristou, a County Court considered for the first time the relationship between a freeholder’s right to develop its property and the rights of a Right to Manage (RTM) company. The basic facts were that the landlord of a block of 8 flats in Battersea wanted to construct a new flat on the roof of the building. An RTM Company had already been established, and both the company and the tenants of the top flat objected to the landlord’s plans. They alleged that the construction of the new flat would unlawfully interfere with the management functions exercised by the RTM Company.

The Right to Manage was introduced by the Commonhold and Leasehold Reform Act 2002 (the “CLRA 2002”) and allows leaseholders to take over the management of their building collectively, without having to prove fault on the part of their landlord, as long as least half of them participate. As the leaseholders do not acquire ownership of any part of the building containing the flats, they are not required to pay compensation to the landlord; the management functions are simply transferred to the RTM Company, with the landlord retaining its rights to receive ground rent and any lease extension premiums, for example.

Where the Right to Manage has been exercised, the RTM company assumes the management functions in respect of the property (those relating to services, repairs, maintenance, improvements, insurance and management). A landlord is not entitled to do anything that the Right to Manage company is required or empowered to do, except where otherwise agreed with the RTM company.

In this case, the leaseholders argued that the landlord was prevented from developing any part of the building in respect of which the RTM company had a management function, which of course included the roof and roof space. The landlord argued, however, that the CLRA 2002 was not intended to deprive the landlord of its property rights in this way.

Although he appreciated that there was a conflict of interests between the parties which would need to be carefully managed during the works, the judge concluded in favour of the landlord. The fact that the management of the building is transferred to a RTM company without the landlord being compensated was seen as evidence that Parliament had not intended to compromise landlords’ ability to develop their properties. This development was not something which the RTM company was “required or empowered” to do, meaning that the landlord was not prohibited from doing so itself, despite the fact that the works would change both the size of the building and the extent of the management responsibilities.

Nevertheless, the judge made it clear that his decision was on the basis that the landlord must take all reasonable steps to minimise the disturbance to the management functions during and after the works. He was also careful to point out that the extent of a development and its effects on an RTM company should be considered on a case-by-case basis; landlords should not necessarily take this decision as “carte blanche” to allow them to carry out any kind of development, however extensive.

There are many unanswered questions in the Right to Manage legislation, particularly regarding the relationship between the landlord and the RTM’s rights and responsibilities and this decision attempts to provide some clarity for both parties. The judge clearly sympathised with the landlord; where a landlord has retained all the property interests in a building, it will still be keen to maximise its potential. However, for leaseholders trying to manage their building, such a development could cause chaos and conflict.

The courts are clearly aware of this, as permission has been granted to the RTM company to appeal directly to the Court of Appeal.

The Takeaways

  1. Taking over the management of a block does not always mean absolute control.
  2. Conflicts of interest between a landlord and a RTM company can arise.

This article originally appeared on the LEASE website, which can be accessed on the following link: http://www.lease-advice.org/article/right-to-manage-management-v-development/