Yashmin Mistry, Partner at JPC Law highlights an area of law of interest to tenants when they are fed up with poor management and the building does not comply with the criteria required to purchase the freehold or exercise the right to manage – The Right to Appoint a Manager and/or Receiver.
A common complaint of tenants is that their property has been badly managed and/or the landlord is collecting excessive amounts of service/administration charges. To deal with these problems, the First Tier Tribunal (FTT) has the power to appoint a manager and/or receiver to manage the property instead of the landlord or his agent. The right can be exercised pursuant to Section 24 of the Landlord and Tenant Act 1987.
The Role of the Manager
An important point to note with applications such as these is that the manager appointed by the FTT is not appointed to favour the tenants, nor is the manager appointed to favour the landlord. The manager is appointed to oversee a scheme of management and acts independently of the parties. Effectively the manager is a servant of the FTT. The manager’s powers are derived from the order appointing him/her and can therefore allow for powers that are not in the lease. For example, the order appointing the manager may be worded to allow the manager to recover costs or fees which the lease does not permit recovery off, or the order may be drafted to allow the manager to manage the whole of a mixed development/estate rather than just the residential parts.
Who can be a Manager?
Although there is no requirement that an FTT appoint a professional manager, FTT’s are not usually keen to appoint tenants who suggest that one of their own number be appointed. It is therefore advisable that tenants propose a professional management company as one of the most common grounds for rejecting a proposed manager is a deemed lack of experience. Hopefully this should not be a problem with a professional management company!
Remuneration of the Maanger
The FTT has the power to provide for remuneration of the manager to be paid by either the landlord or the tenant or to be shared. The starting point however should be that the landlord will pay the costs of the manager which are not recoverable from the tenants under their leases.
In either case, it is important to ensure that the terms of the order are clear as to who is to pay the manager and what the manager’s fees should be. If the order merely refers to “reasonable” fees, then it goes without saying that in the event of a dispute over what is deemed to be “reasonable”, either party may apply to the FTT for a determination on the issue.
Pre-application Procedure
The FTT regards the appointment of a manager against the wishes of the landlord to be a draconian step and will usually require certain preliminary stages to be completed.
The first step is for the tenant(s) to give a ‘preliminary notice’ to the landlord and to any other person who has management duties under the lease i.e. a management company. A manager whose duties are not due under the lease, for example a managing agent, will not need to be served with the notice.
The notice must set out certain information such as:
(i) a statement that the tenant(s) intend to make an application for an order that a manager be appointed;
(ii) the grounds on which the tenant will ask the FTT to make the order;
(iii) a statement requiring the landlord or manager to remedy the problems complained of, giving a reasonable time for this to take place.
In exceptional circumstances, the FTT may waive compliance with this preliminary stage, but tenants will need to show good reason(s) for doing so.
There are a number of limits on the right to apply to an FTT. The most important of these are (i) “resident landlords” who live in the property and manage it themselves (ii) exempt landlords (local authorities, housing corporations, charitable housing trusts etc) (iii) business tenancies and (iv) property subject to a Crown Interest. Such groups are usually exempt from having applications made against them.
Grounds
In order to exercise its powers of appointment, the FTT must be convinced that it would be just and convenient in all the circumstances to do so and:-
- that the person complained about is in breach of an obligation under the lease relating to the management of the property; or
- unreasonable service charges have been made or are proposed or are likely to be made; or
- unreasonable variable administration charges have been, or are proposed or likely to be made; or
- that there have been breaches of the relevant codes of practice.
The FTT also has power to make an order if other, undefined circumstances exist which make it just and convenient for the order to be made.
Orders
There is no limit on the management functions that can be conferred. As mentioned above, the FTT is not limited to order the manager to discharge the management functions under the terms of the lease.
In general terms, an order will usually provide for things such as:
- Rights and liabilities arising under contracts to which the manager is not a party;
- The right for the Manager to bring claims in respect of causes of action accruing before the date of the Manager’s appointment;
- Remuneration details of the manager;
DID YOU KNOW?
Where a landlord is in breach of an obligation under the terms of the lease and it is likely to continue, or where a building has been subject to the appointment of a manager pursuant to Section 24 LTA 1987, the qualifying tenants may make application to the High Court or County Court for an Acquisition Order to acquire the landlord's interest.
Where the application is based on a manager having been appointed under Section 24 of LTA 1987, the manager must have been appointed for no less than two years on the date of application to the court.
A Preliminary Notice must be served on the landlord by the tenants before an application can be made to the court, unless the court agrees to dispense with the notice. The court's Order for Acquisition is subject to conditions that, amongst other things, there are two or more flats, that at least two-thirds of the flats in the building are held by qualifying tenants, and that the requisite majority of qualifying tenants make the application. There are however further exemptions that also need to be considered.
If the Order is made by the court, the FTT will determine the terms on which the landlord's interest may be acquired (including the purchase price) unless they have been agreed between the parties involved.
HEALTH WARNING!
As mentioned previously, the FTT regard the appointment of a manager against the wishes of the landlord to be a draconian step and the tenants should make sure certain preliminary stages are completed. Further, although there is no requirement that a professional manager be appointed, the FTT would prefer this to be case.
Yashmin Mistry, Partner at JPC Law
