Leaseholders can acquire management functions of their building in place of the landlord/management company where the building qualifies and there are sufficient numbers of tenants of “flats”. A recent case shows that flats can be units that are not traditional family homes.
Background
Qualifying leaseholders in a building can take control of the management of the building (the Right to Manage “RTM”), using a company set up by them for this purpose (“RTM Company”). If successful, control of functions such as repairs, insurance and the carrying out of major works pass to the RTM Company. The right is contained within the Commonhold and Leasehold Reform Act 2002.
One the requirements for exercising the RTM is that there are long leaseholders of flats within the building. A “flat” is defined as a separate set of premises (emphasis added) which, among other things, must be constructed or adapted for use for the purposes of a dwelling. Dwelling is defined as “a building or part of a building occupied or intended to be occupied as a separate dwelling”.
The key question before the Upper Tribunal (Lands Chamber) in Q Studios (Stoke) RTM Co Ltd v Premier Grounds Rents No 6 Ltd and another [2020] UKUT 197 (LC) was what is a “flat” for the purposes of the RTM?.
Facts
The building in question was a purpose-built block of studio accommodation known as Q Studios in Stoke on Trent (“the Building”). The studios were intended for use as student bedsits, described as “studystudios”.
Each of the 292 “studystudios” contained en-suite facilities; together with a sitting area, double bed and small kitchen. The Building also included space for a ground floor common lounge/cinema area and a gym.
Long leases of the studystudios were sold to investors (the Leases), with the intention that the various studios would be sub-let to students once built.
The Leases demised the individual “studystudios”, together with a right to use the common parts of the Building, including the communal facilities (i.e. the gym and communal lounge/cinema).
The RTM Company claimed the RTM on the basis that the ”studystudios” were “flats” held by qualifying tenants. It claimed, “flat” requires consideration only of the physical character of the property when deciding whether it is occupied or intended to be occupied as a separate dwelling.
The freeholder and management company challenged the RTM claim on the basis that:
- “Dwelling” means specifically to “a separate dwelling”. If a unit has access to shared living accommodation (such as the ground floor common lounge/cinema area and gym), the dwellings are not “separate”; and
- The studios were not “dwellings” because they are not intended to be the home of the lessee (the investor) nor the occupier (who would only use the studio as a residence whilst at university).
Decision
The Tribunal decided in favour of the RTM Company. In reaching its decision, the Tribunal held that the question of what constitutes a flat is objective (namely, it matters not what the respective parties’ intentions as to use of the studystudios are) - what is important is the physical character of the unit.
The Tribunal considered that if kitchen facilities (for example) were shared between units, they would not be “flats”. Student lets of bedrooms only with other living facilities being shared have previously been held not to be “dwellings”.
Given however that there were individual kitchen and bathroom areas in each studystudio, with ample living space and that the shared facilities on the ground floor were not large enough to be shared between all occupiers, the studios were “flats” for the purposes of the RTM. Consequently, the RTM Company was entitled to acquire the RTM for the Building.
Comment
The decision is significant and extends beyond student letting accommodation. Where a purpose-built development contains so called “self-contained” living spaces this could potentially be subject to an RTM claim. The decision may affect other developments, for example, in care homes with shared facilities.
Developers of similar schemes will therefore need to be alert at design stage to ensure that, if the RTM is to be avoided, care is taken to build units which would not be sufficiently livable to constitute “flats” in themselves.
In addition, current freeholders and management companies should be alert to potential RTM claims, where previously the risk might have seemed small.
Q Studios (Stoke) RTM Co Ltd v Premier Grounds Rents No 6 Ltd and another [2020] UKUT 197 (LC)
Sarah Goodall & Ben Kelly, Shoosmiths LLP
