QUESTION
Briefly, I am a director of a company which owns both the freehold (from 1996) and head lease (from 2010) of our block of 114 flats. Some seven years ago, when we acquired the head lease (still over 120 years to run) we wanted to change the managing agents. However, they refused to resign as they said they were one of the three parties to the tri-partite leases and had a 'beneficial interest'. At that stage we felt we had no choice but to form a Right to Manage company to enable us to force the change. All went well, and I chaired the RTMC for six years and have recently stood down, but am still a director of the leaseholder company.
We have had an ex-officio director from each board on the other company board and it has worked well.
The problem we perceive now is the issue of approvals/consents. The Landlord board is receiving S98 notices (CLARA 2002) when lease transfers take place, in order that we may object within 30 days if necessary. However the S98 appears only to relate to 'approvals' for leaseholders to assign, transfer, make alterations within their demise etc. Two leaseholders have had handrails to help their mobility installed in the common areas in spite of its being a very controversial issue with other leaseholders. Our leases have a prohibition against leaseholders making any changes to the common parts. The RTMC, separately, has some ambitious plans of its own involving the common parts and we are not sure if, and how we can object if necessary. Surely there must be some sort of effective veto for the main landlord? S98 also refers to 'other' approvals requiring a 14-day notice. We wondered what is included in this category.
A question which may arise from this situation is whether we still need the RTMC at all? However, would the management revert to the status ante, viz the old managing agent? We felt at the time that having two separate boards was a safety valve in case of small cabals, or predators trying to buy our assets. We have AGMs for both every year and most proposals and grievances are aired. The Landlord board could presumably take over as an RMC if necessary?
There are subsidiary questions deriving from this and it may be that we need a legal expert in property management to advise us formally. The present firm of solicitors who deal with the transfers etc are very good, but strictly represent the RTMC which is fine for most things. With a possible conflict of interest, however, we would probably need separate advice. Another difficulty has been enforcing the notification/consent for alterations within flats, as leaseholders claim they are just doing 'like for like', which is patently not the case. Our original MAs did nothing at all about consent for alterations over 20-odd years and our present ones are having problems changing the culture, in spite of many reminders etc.
ANSWER
There are a number of elements to this reader’s question, all very interesting and topical. I will begin with a brief summary of the law, and then address each question in turn.
From the date it acquires the right to manage the premises, all of the “management functions” which belong to any (i) landlord and (ii) third party, under any lease of the whole or any part of the premises, become functions of the RTM company (ss.96(2) and (3), C&LRA 2002). That would include the functions of the lessor and the third party management company (“RMC”, discussed below), under both the flat leases, and the head lease. It follows that the RTM company’s rights and obligations are defined, and limited, by the leases.
The term “management functions” is defined as “functions with respect to services, repairs, maintenance, improvements, insurance and management” (s.96(5), C&LRA 2002). Certain functions are excluded, including functions which relate to the right of re-entry / forfeiture; and functions which exclusively relate to units which are not let to qualifying leaseholders (e.g. commercial units). The RTM company also acquires the right to enforce certain covenants on the part of the lessees (which will include the recovery of service charges, where the lease provides for the recovery of service charges).
“Functions relating to approvals” are dealt with by sections 98 – 99 of the C&LRA 2002. A function relating to an approval is the giving of (or refusal to grant) consent by a party (e.g. a lessor, or RMC), where the lease requires the consent of that party (e.g. in relation to subletting, or alterations). Any application for consent should be given first to the RTM company, which has a reasonable period of time (Reiner v Triplark) to pass the request on to the lessor and/or management company (whoever had the power to grant consent under the lease). That party, or those parties, then have either 14 days or 30 days (see below) to respond, consenting or objecting or imposing conditions on the granting of consent, as the case may be. The RTM company may then decide whether to consent, object or impose conditions on the granting of consent; and inform the lessee of its decision. The First-tier Tribunal (Property Chamber) has the power to determine whether consent has been unreasonably withheld by a lessor or RMC.
It should be noted that where a lease contains an absolute prohibition (e.g. on subletting, or carrying out alterations), and a lessee wishes to carry out (or has carried out) the prohibited act, a breach of covenant will be (or will have been) committed unless the lessor and/or RMC, as the case may be, agrees to waive the breach, or the covenant, or the parties agree to enter into a deed of variation to modify or remove the covenant. The RTM company cannot grant consent to carry out an act which is prohibited absolutely under the terms of the lease. A function relating to an approval only exists where the lease contains a qualified prohibition, e.g. no subletting or alterations, without the prior written consent of the lessor / RMC.
Notice of Disposition
The reader correctly notes that an obligation to notify the lessor (or another party) of an assignment (sale), subletting or other form of disposition is not a function which relates to an approval (Proxima GR v McGhee). It is not necessary to seek the approval of any party prior to serving the notice. The question is whether a covenant to serve a notice of assignment or subletting is a “function with respect to ... management” which passes to the RTM company, or not. Who does the lessee serve the notice on: the RTM company, or the lessor, or both parties?
Unfortunately, the legislation is not clear, and a case is needed to decide the issue. My view is that receiving notices of assignment, subletting etc. probably is a “management function”, as it is necessary for the manager to know who owns and occupies the premises (e.g. for the purpose of sending out service charge demands).
Approvals and Alterations to the Building
The head lessee has possession of, and owns the leasehold interest in, the common parts, subject to the rights of the leaseholders. The RTM company does not have any proprietary interest in the common parts. It has simply taken over the contractual obligations of the RMC with respect to the management and maintenance of those common parts. Any alterations to the common parts which go beyond its repair and maintenance obligations (or any other statutory obligations) would amount to an act of trespass, unless the head lessee consented to those alterations. The RTM company might also find that it is unable to recover the cost of any works which amount to an “improvement” (unless the lease contains clear wording which permits the recovery of such costs).
Where the lease prohibits the carrying out of alterations by the lessee, to the demised flat, without the prior written consent of the consent of the lessor and/or management company, the lease will often state that consent cannot be unreasonably withheld. Even where it does not say that, it will be implied that consent cannot be unreasonably withheld where the alteration amounts to an improvement (s.19, Landlord and Tenant Act 1927). However, there is no requirement for the lessor to be reasonable where the alteration which is proposed is to a part of the building which is not demised to the lessee (Tideway Investment and Property Holdings v Wellwood). If the lessee is proposing to carry out work to property which does not belong to him, or her, the owner of that property is at liberty to reject the request, or seek a premium.
The period for responding to a request for an approval is 30 days in the case of “an approval relating to assignment, underletting, charging, parting with possession, the making of structural alterations or improvements or alterations of use”, and 14 days in “any other case”. The reference to “any other case” simply means any request for an approval (where the lease requires the approval of a party), which is not “an approval relating to assignment, underletting, charging, parting with possession, the making of structural alterations or improvements or alterations of use”. It only applies to a provision in the lease which requires the consent of a party. It does not create a separate power on the part of the RTM company to consent to the approval of alterations to parts of the building which do not belong to any leaseholder (as to which, see below).
At this stage, it is worth mentioning that the Equality Act 2010 creates a duty on the part of any controller of let premises (which would include flats which are let on long leases), or a controller of premises which are to be let, to make “reasonable adjustments” to assist disabled persons (s.36(1), EA 2010). This applies to persons who either let or manage premises (ss.36(2) and (3), EA 2010).
It is never reasonable for a landlord to have to take a step which would involve the removal or alteration of a physical feature (Sch.4, Paragraph 2(8), EA 2010 – there is a separate duty, which applies to requests to alter common parts, which has not yet been brought into force). However, a “physical feature” does not include furniture, furnishings, materials, equipment or other chattels in or on the premises or any items that are classified as an “auxiliary aid” (Sch.4, Para.2(9), EA 2010). Whether the hand rails mentioned in the question amount to an alteration of a physical feature, or an auxiliary aid (or similar), is probably arguable, and specialist advice should be sought. There is insufficient space in this reply to deal with this tricky topic, and to properly cover the meaning of “reasonable adjustment”, and when the duty arises.
Where the head lessee and/or the freeholder are looking to carry out (e.g. construction or development) work to the building, that work may only be carried out if the head lessee and/or freeholder takes all reasonable precautions to minimise the disruption to (i) the lessees in the building and (ii) the exercise by the RTM company of its statutory functions, failing which the head lessee and/or freeholder may be in breach of its covenant for quiet enjoyment, or in breach of an implied duty not to interfere with the exercise of the RTM company’s statutory functions (Francia Properties v Aristou– although a County Court case, it is generally considered to be correct).
Is the RTM Still Needed
I have not seen the occupational leases, but I understand from the reader that they are tri-partite, in that a residential management company (“RMC”) has entered into all of the leases, as a third party (in addition to the lessor and lessee). I assume the RMC has various contractual functions under the lease, which relate to the maintenance and management of the building and the recovery of service charges. Although the reader does not expressly say so, it would appear from the question that that this third party management company is not leaseholder owned, and may also be a professional managing agent (in which case it would be what is colloquially referred to as an “embedded” management company). If that is the case, then dissolving the RTM company would result in whatever management functions used to belong to the RMC reverting back to the RMC. Further, it would not be possible to seek to acquire the right to manage again for a period of four years, without the consent of the FTT (Para.5, Sch.6, C&LRA 2002).
Please treat the contents of this Q&A as food for thought, but don't take any action based on its contents unless you have taken legal advice.
The author cannot accept responsibility for any errors or inaccuracies, loss or damage unless we have given you, personally, specific advice relating to a matter about which you have given us full background details.
You must also bear in mind that the contents of this Q&A are based on English Law, and because it contains archival material, that material is bound to go out of date (so please bear in mind the date this was written.) Please also remember that the law may be different in Wales.
Roger Hardwick - Partner - Residential Leasehold at Brethertons Solicitors
