Expert Insight: The right to manage
Increasingly, flat owners are seeking to overcome the problems of rising service charges and declining standards of maintenance by taking over the responsibilities themselves by exercising the Right to Manage (RTM) granted to them by the Commonhold & Leasehold Reform Act 2002. However, flat owners contemplating embarking on the RTM journey should be warned that there could well be storms ahead. Many landlords strenuously oppose the exercise of the right by seeking out any minor infringement of the set up procedures and as a recent case shows, even when the right has been successfully exercised, landlords can still sometimes cause problems.
Gibbs v Clevedon Court (Dulwich) RTM Co Ltd  UKUT 0411 (LC)
This case involved a dispute between the flat owners and Mr and Mrs Gibbs, the landlords of a block of flats but was unusual in that the flat owners, through the RTM company, were claiming service charge payments from the landlords. This came about because the landlords had retained possession of seven flats which were let out on short term tenancies. Under s 103 of the Act the landlords were obliged to pay what was in effect a service charge in relation to these flats. The RTM company had undertaken extensive works to the property but the landlords had refused to pay their contributions amounting in total to £55,000. They claimed that the works had not been carried out to a reasonable standard. The First Tier Tribunal (FTT) determined that although some of the works had not been completed at all and some not to a reasonable standard, the full amount claimed from the Landlords was still payable. Mr and Mrs Gibbs appealed.
The first issue for the Upper Tribunal (UT) to decide was whether the FTT actually had jurisdiction to hear the dispute. Under s 27 of the Landlord & Tenant Act 1985, the Tribunal has the jurisdiction to determine the amount of a ‘service charge’ payable. But ‘service charge’ is defined by s 18 of that Act as being an amount payable by a tenant – and here the amount being claimed was payable by the landlord. The UT made it clear that it did have jurisdiction. The amounts that the flat owners were obliged to pay were service charges, so by determining what those amounts were, what was left was then due from the landlords. The Tribunal thus had the power “at least, to make a determination of the components which enable the appellants’ liability to be determined”.
The UT allowed the appeal and was very critical of the FTT’s reasoning. The UT stated that “The task of the FTT was to determine the reasonable cost of the work that had been undertaken to a reasonable standard…. In the absence of such consideration we think [Mr and Mrs Gibbs] are justified in their complaint that they do not understand what the FTT made of their criticism that the standard of work had been very poor and did not justify the sum charged so that some reduction ought to be allowed against it”.
The Upper Tribunal then, with the agreement of the parties, undertook a re-hearing of the matters in dispute. It undertook a site inspection in September 2017 when the works had been completed, except for the repainting of the entrance doors to the flats in relation to which there was a retention of £1,500+VAT. It found that some of the works had not been carried out to a reasonable standard. Doing the best it could in the light of the evidence and its viewing of the building, the amount recoverable was reduced by 7.5%. After making an allowance for the retention, the reduction thus totalled £4,216.
One noteworthy aspect of the case was the problems caused to the RTM company in carrying out the necessary works by poor cash flow caused at least in part by the landlords’ failure to pay their contributions. Of course, most RTM companies will not have to seek payment from a landlord, but it is not unknown for flat owners to disagree amongst themselves about the nature and costs of works needed to the block. Tenants falling into arrears with payments will almost certainly cause the RTM company problems in paying for works already commissioned. Flat owners should be warned to ensure that RTM companies only enter into contracts for works for which they are already in funds.