Right to manage company of block cannot charge for estate-wide services (G & A Gorrara Ltd v Kenilworth Court Block E RTM Company Ltd)

Property analysis

The appeal concerned the limitations on a right to manage (RTM) company’s ability to charge leaseholders for service charge in relation to an entire estate comprising 5 individual blocks with 5 RTM companies.

G & A Gorrara Ltd and others v Kenilworth Court Block E RTM Company Ltd [2022] UKUT 90 (LC)

What are the practical implications of this case?

The case is an early practical demonstration of the effect, of the Supreme Court decision in FirstPort Property Services Ltd v Settlers Court RTM Co Ltd [2022] UKSC 1 (Settlers). An RTM company can manage its own block and (as per Settlers) appurtenant property, but that does not extend to managing other blocks without the express agreement of all lease-holders, freeholder and the individual RTM companies. Likewise, an RTM company cannot enforce obligations in relation to a different block.

The case also serves as a reminder of some of the basic tenets when construing a lease.

What was the background?

The case was an appeal to the Upper Tribunal of the Lands Chamber from a decision of the First Tier Tribunal (FTT) concerning the apportionment and reasonableness of service charges for the management of an estate that comprised 52 flats in five separate blocks.

The blocks were managed by five separate RTM companies. As was it was held in Triplerose Ltd v Ninety Broomfield Road RTM Co Ltd [2015] EWCA Civ 282, an RTM company can manage only one self-contained building. In the Supreme Court case of FirstPort Property Services Ltd v Settlers Court RTM Co Ltd [2022] UKSC 1 this was extended to include any appurtenant property.

A question in the appeal was whether the five RTM companies could nonetheless manage the entire estate. It had been noted in other cases that there could be such estate-wide management by agreement or on behalf of the freeholder. However, neither of those situations applied on the facts of this case.

The first ground of appeal concerned whether the individual leases properly construed meant that each lessee had an obligation to contribute to the costs of the entire estate or as the lessees) argued, that they were only ‘required to pay some estate-wide costs and some costs that related only to their own block’.

The lease was not well drafted, but the key argument turned on whether there was a distinction between a defined term of ‘the Buildings’ and references to the same defined term, but in the singular – ‘the Building’ (which although capitalised had no definition independent of the Buildings). This in turn involved looking at the terms and structure of the lease as a whole.

The second ground of appeal concerned whether under the Commonhold and Leasehold Reform Act 2002 (CLRA 2002), the RTM company was entitled to enforce the lessee’s obligation to pay service charges for estate-wide services.

The FTT had found that the RTM company was entitled to collect service charges by relying on the obligation to pay service charge as an ‘untransferred covenant’ which can be enforced by the RTM company pursuant to CLRA 2002, s 100.

What did the court decide?

First ground—construing the lease

The judge was not convinced of the appellant’s arguments about the terms of the lease. The lease was poorly drafted so neither construction contended for resulted in a perfect or rational construction. The judge was convinced that the undefined term ‘the Building’ was not intended to convey any different meaning than the defined term ‘the Buildings’. Perhaps predictably, the judge relied on a typical or ‘boilerplate’ saving clause that noted the ‘the singular includes the plural and vice versa’.

However, the judge also relied on a passage in the lease where the drafter had been at pains to distinguish a single building from all the buildings and had made the distinction in express terms that did not rely on a mere distinction between the Building and the Buildings. Also, the judge considered that to interpret the singular and the plural as indistinguishable gave the lease a more workable construction overall.

Second ground—collecting service charge for entire estate

Therefore, the judge allowed the lease’s appeal on the second ground.

The judge found that there were two difficulties with the approach of the FTT’s reliance on CLRA 2002, s 100.

First, the notion of an untransferred covenant related to covenants between individual leases and the freeholder, there was nothing in the pre-existing covenants that could bind individual RTM companies to each other.

Second, the covenants relied on were precisely the covenants that did transfer and were not within the scheme of CLRA 2002, s 100 which was designed to deal with residual matters outside of service charge that would not transfer.

The judge commented that ‘It would be inconsistent with the scheme of the legislation for section 100 to bear the meaning the FTT attributed to it. It is now well established that an RTM company takes on management functions in relation to one building only (Ninety Broomfield Road) and in relation to property that is appurtenant to that one building only (Settlers Court). It would make no sense at all for the RTM company to have power in addition to enforce obligations in relation to a different block. All the reasons given in those two decisions why the RTM company must be confined to a single building and its own appurtenant property are equally reasons why the RTM company should not be able to enforce obligations in relation to other blocks’.

The judge made two further practical observations:

‘68. First, in my judgment the appeal on the second point would have succeeded, and for the same reasons, even before the decision in Settlers Court , which relates to appurtenant property and does not change the established principle that an RTM company operates in relation to one block alone. The FTT relied to some extent on the then unappealed decision in Gala Unity , as the source of the idea that what cannot be achieved through sections 96 and 97 alone can nevertheless be achieved by agreement between the RTM companies; nevertheless, the agreement that it postulated could not work, for the reasons I have explained.

’69. Second, it remains the case that what the respondent and its fellow RTM companies wanted to achieve in relation to Kenilworth Court can be achieved by agreement, but only by the agreement not only of the five companies but also of all 52 lessees and the landlord (who, after Settlers Court remains responsible for any shared appurtenant areas, in particular the garden if that is shared by all the lessees). In view of the appellants’ position that is not possible at present. A different solution could be achieved without the involvement of the freeholder if the lessees were to exercise their rights to collective enfranchisement, and then transfer the freeholds of all five blocks to a singe company so that the estate could be managed as a whole.’

Case details

• Court: Upper Tribunal (Lands Chamber)
• Judge: Judge Elizabeth Cooke
• Date of judgment: 22 March 2022

Article by Lauren Godfrey – first published by LexisPSL on 6th April 2022