Property Litigation Column: Applications to appoint a manager under Part II of the Landlord and Tenant Act 1987

Articles
15 Mar 2022

John Beresford considers the steps involved in making an application to the First-tier Tribunal to appoint a manager under section 24 of the Landlord and Tenant Act 1987, and the evidence that should be provided in support. First published for Practical Law.

Part II of the Landlord and Tenant Act 1987 (LTA 1987) empowers the First-tier Tribunal (Property Chamber) (Tribunal) to appoint a manager of a premises which consists of the whole or part of a building which contains two or more flats (section 21(2), LTA 1987). Save for very rare cases, the manager will be a property professional.

Preliminary notice

Applications for the appointment of a manager may be made by a tenant. However, before an application is made the tenant must serve a “preliminary notice” on the landlord and any other person by whom obligations relating to management of the premises are owed (such as management companies).

Section 22(2) of the LTA 1987 sets out the information that must be included in a preliminary notice:

(2) A notice under this section must:

(a) specify the tenant’s name, the address of his flat and an address in England and Wales (which may be the address of his flat) at which any person on whom the notice is served may serve notices, including notices in proceedings, on him in connection with this Part;

(b) state that the tenant intends to make an application for an order under section 24 to be made by the appropriate tribunal in respect of such premises to which this Part applies as are specified in the notice, but (if paragraph (d) is applicable) that he will not do so if the requirement specified in pursuance of that paragraph is complied with;

(c) specify the grounds on which the court would be asked to make such an order and the matters that would be relied on by the tenant for the purpose of establishing those grounds;

(d) where those matters are capable of being remedied by any person on whom the notice is served, require him, within such reasonable period as is specified in the notice, to take such steps for the purpose of remedying them as are so specified; and

(e) contain such information (if any) as the Secretary of State may by regulations prescribe. (At the time of writing, no such regulations have been made.)

The Tribunal has the discretion to make a management order where the notice fails to comply with section 22(2) or where the notice fails to allow a reasonable period of time for breaches to be remedied (section 24(7), LTA 1987). The Tribunal also has the power to dispense with the service of a preliminary notice but only “where it is satisfied that it would not be reasonably practicable to serve such a notice on the landlord”.

Grounds for appointment

A management order can only be made in the circumstances set out at section 24(2) of the LTA 1987:

(2) The appropriate tribunal may only make an order under this section in the following circumstances, namely:

(a) where the tribunal is satisfied:

(i) that any relevant person either is in breach of any obligation owed by him to the tenant under his tenancy and relating to the management of the premises in question or any part of them or (in the case of an obligation dependent on notice) would be in breach of any such obligation but for the fact that it has not been reasonably practicable for the tenant to give him the appropriate notice, and

(iii) that it is just and convenient to make the order in all the circumstances of the case;

(ab) where the tribunal is satisfied:

(i) that unreasonable service charges have been made, or are proposed or likely to be made, and

(ii) that it is just and convenient to make the order in all the circumstances of the case;

(aba) where the tribunal is satisfied:

are proposed or likely to be made, and

(ii) that it is just and convenient to make the order in all the circumstances of the case;

(ac) where the tribunal is satisfied:

(i) that any relevant person has failed to comply with any relevant provision of a code of practice approved by the Secretary of State under section 87 of the Leasehold Reform, Housing and Urban Development Act 1993 (codes of management practice), and

(ii) that it is just and convenient to make the order in all the circumstances of the case; or

(b) where the tribunal is satisfied that other circumstances exist which make it just and convenient for the order to be made.

The grounds relied upon by the applicant will need to be evidenced before the Tribunal.

The Tribunal will scrutinise the appointment of a manager very carefully. This is unsurprising given that a manager will be acting as an officer of the Tribunal and that the appointment will necessarily interfere with the proprietary rights of the landlord who will be unable to exercise certain functions that fall within the scope of the management order.

The terms of the management order

The purpose of a management order is to create a coherent scheme of management. Managers may therefore be given powers or duties that go beyond the landlord’s rights and obligations under the leases (see Maunder Taylor v Blaquiere [2003] 1 W.L.R. 379 at paragraphs 31 to 44). Advisors need to carefully scrutinise the terms of the proposed management order to ensure that the manager has the necessary powers to deal with any particular leasehold management issues that led to the application being made in the first place. The starting point is the draft management order appended to the recent HMCTS, Practice Statement: Appointment of Managers under Section 24 of the Landlord and Tenant Act 1987 (Practice Statement) which may need to be amended as required.

Managers do not simply step into the shoes of the landlord. They derive their powers solely from the terms of their management order. The recent decision of Maharaj & Lo Porto v Davidoff LON/00AL/LSC/2020/0111 is an example of where a manager failed to have “sufficient regard” to the terms of their management order. In that case, the management order had been made for the purpose of the manager executing various works. The Tribunal found that the management order had failed and that this was primarily the fault of the manager. The Tribunal found that the manager’s actions “led to inflated and wholly unreasonable sums being demanded” and that the manager had “failed to fulfil his duties as the tribunal would expect from a tribunal appointed manager who acts as an officer of the tribunal.” On 19 November 2021, an Early Day Motion was tabled in the House of Commons concerning the actions of this particular manager.

The Practice Statement

The Practice Statement is essential reading for legal advisors and prospective managers alike.

Paragraph 9 states that the Tribunal will usually require a proposed manager to show the following prior to any appointment:

(a) Membership of a professional body at a level of seniority commensurate with the responsibilities of a Tribunal appointed manager;

(b) An understanding of the duties of a Manager set out in the Service Charge Residential Management Code (“the Code”) (3rd Edition);

(c) A reasonable period of experience as a manager, an understanding of the RICS code and (if relevant) demonstrable experience of dealing with large scale projects or difficult buildings;

(d) Professional indemnity insurance which is appropriate having regard to the nature of the subject premises and extensive enough to include tasks undertaken during appointment. The PI insurance may be held by the proposed Manager’s firm as long as it expressly covers the additional risks/ burdens which may affect an appointed Manager;

(e) A complaints procedure in accordance with, or substantially similar to, the requirements of the Royal Institution of Chartered Surveyors;

(f) Membership of a client money protection scheme or an alternative reputable scheme for the same purpose.

All of the above matters will need to be dealt with in the proposed manager’s witness statement. Sub paragraph (d) is particularly important and simply providing a copy of an insurance policy will be insufficient unless it specifically shows that the policy covers the liabilities of a Tribunal appointed manager. A Tribunal will likely delay any appointment until it is satisfied that the appropriate cover is in place.

Paragraph 10 provides that the Tribunal will expect any prospective manager to have:

(a) Inspected the premises;

(b) Read the Tribunal papers to understand the problems that are required to be addressed;

(c) Familiarised themselves with the leases;

(d) Produced a management plan (see below); and

(e) Have read the annexed draft Management Order.

A prospective manager should expect the Tribunal to ask them questions about their knowledge of the property in question as well as their experience and qualifications. Property professionals who are used to giving evidence before a Court or Tribunal in different contexts are often surprised by the intensity of the Tribunal’s questioning of them when considering whether to appoint them as a manager.

A well drafted management plan is essential which should include (as relevant):

(a) A timetable and plan for handover from the current manager. This should include a list of essential documents such as service charge statements, accounts (audited if required), details of relevant contracts concerning the management of the property, schedules of service charge payments and arrears and budgets which are to be delivered to the Manager;

(b) Details of accounts into which service charge funds are to be transferred;

(c) Details of a plan to implement all Health and Safety and fire safety measures, including procurement of all relevant records and documentation;

(d) Description of resource that will be allocated to management (number and qualifications of staff and time to be spent on property);

(e) Description of tasks for day to day running of property;

(f) Prioritisation of remedial tasks;

(g) Proposals for collection of arrears;

(h) Proposals for collection of additional funds (may depend on Tribunal order);

(i) Details of professional contacts: lawyers, accountants, surveyors;

(j) Proposals for communications with leaseholders and landlord(s);

(k) Details of proposed remuneration.

A Tribunal will also be assisted by sight of a carefully prepared capital expenditure plan.

Duration of the order

Whilst the Tribunal has the power to make a management order of unlimited duration, this is rare. The length of an order is always context specific. For instance, if the primary motivation for the appointment is to enable the manager to carry out major works then the appointment will have to be for a sufficient period to allow the manager to raise the necessary funds via the service charge, carry out any section 20 consultation and then carry out the works themselves.

Varying the management order

Applications to vary the terms of existing management orders are governed by section 24(9) and (9A) of the LTA 1987:

(9) The appropriate tribunal may, on the application of any person interested, vary or discharge (whether conditionally or unconditionally) an order made under this section; and if the order has been protected by an entry registered under the Land Charges Act 1972 or the Land Registration Act 2002, the tribunal may by order direct that the entry shall be cancelled.

(9A) the tribunal shall not vary or discharge an order under subsection (9) on the application of any relevant person unless it is satisfied—

(a) that the variation or discharge of the order will not result in a recurrence of the circumstances which led to the order being made, and

(b) that it is just and convenient in all the circumstances of the case to vary or discharge the order.

In Orchard Court Residents Association v St Anthony’s Homes Ltd [2003] EWCA Civ 1049 the Court of Appeal confirmed that in determining an application made under section 24(9) of the LTA 1987 the Tribunal did not need to satisfy itself that one of the thresholds set out in section 24(2) had been met as there was a clear distinction between section 24(2) and section 24(9). Section 24(2) was concerned with creating new management orders where none existed before and had quite explicit criteria that had to be met before an order could be made. Section 24(9), on the other hand, was concerned with management orders which already existed and had thus already satisfied the requirements of section 24(2). Be that as it may, applications to extend a manager’s
tenure are not rubber-stamping exercises. The Tribunal will want to see the progress the manager has made to date. If they have been unable to achieve a particular objective of the management order, the Tribunal will likely want an explanation for why.

Where an application is made to vary or extend a management order by the existing manager they need to apply their mind to whether the costs of making that application are recoverable from the lessees / landlord under the terms of the existing management order. If not, provision for reimbursement of those costs ought to be made in the terms of the varied / extended management order.

Author

John Beresford

Call: 2012

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