The Supreme Court considered whether the statutory ‘right to manage’ under the Commonhold and Leasehold Reform Act 2002 extends to shared estate facilities used by occupants of multiple buildings. It held it does not, overruling Gala Unity, confining the right to the relevant building and exclusively used appurtenant property.
Background
The appeal concerned the Virginia Quay Estate on the north bank of the Thames, a residential development comprising ten blocks of flats and terraced houses, surrounded by communal areas including accessways, gardens, grounds and a river wall. These communal areas (‘estate facilities’) served all 778 residential units across the estate and were managed by the appellant, FirstPort Property Services Ltd, under the terms of the various leases.
Settlers Court, one of the ten blocks, contained 76 flats let on 999-year leases. The first respondent, Settlers Court RTM Company Ltd, acquired the statutory right to manage Settlers Court on 8 November 2014 under Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002 (‘the 2002 Act’). It was common ground that the RTM company had exclusive responsibility for managing the Settlers Court block itself. The dispute was whether the RTM company also had management rights over the shared estate facilities — and correspondingly, whether the Settlers Court lessees remained obliged to pay FirstPort their share of the estate service charges.
Some Settlers Court lessees denied liability to contribute to estate charges, asserting the 2002 Act removed FirstPort’s right to provide estate services to them. FirstPort continued providing those services but suffered an approximately 15% shortfall in cost recovery. The RTM company collected funds from its lessees but held them pending resolution of the dispute.
The Issue
The central question was whether the ‘right to manage’ conferred by the 2002 Act extends to shared estate facilities used in common by occupants of multiple buildings on an estate, or whether it is confined to the relevant building and facilities exclusively used by its tenants.
The lower tribunals had considered themselves bound by the Court of Appeal decision in Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] EWCA Civ 1372, which held that the right to manage did extend to shared estate facilities. This was a leapfrog appeal to the Supreme Court to determine whether Gala Unity was correctly decided.
The Court’s Reasoning
The statutory scheme
Lord Briggs, delivering the unanimous judgment, began with a detailed analysis of the statutory framework. He emphasised key differences between the 2002 Act and Part II of the Landlord and Tenant Act 1987. Under the 2002 Act: the right to manage is automatic and not subject to judicial discretion; the premises must be ‘self-contained’; only a single RTM company may manage one building; and all management functions transfer automatically — there is no mechanism to allocate some functions to different entities.
Sections 96 and 97: the right is exclusive
Lord Briggs identified section 97(2) as a powerful indicator that the right to manage was intended to be exclusive to the RTM company. He stated:
Section 97(2) makes it clear that, save in relation to insurance (see section 97(3)), the RTM company has the right to perform its allotted functions itself, to the exclusion of any participation by the landlord, third party manager or even a manager appointed under the 1987 Act, save to the extent that the RTM company agrees otherwise. In short, it has no obligation to share management with anyone. That is a very powerful pointer to a construction which confines the right to manage to that which the RTM company can manage on its own, namely the structure and facilities within the building or part of it constituting the relevant premises and, where they exist, those facilities outside it which are exclusively used by the occupants of the relevant premises.
Insuperable problems with shared management
Lord Briggs explained that extending the right to manage to shared estate facilities created fundamental difficulties. The landlord or third party manager would remain obligated to manage those facilities under the leases of flats in all other buildings. Tenants in those other buildings would have no privity with the RTM company, no right to influence it, and no mechanism to hold it to account:
Such a fundamental derogation from those other tenants’ rights in relation to the management of the estate facilities would be all the more surprising because nothing in the elaborate provisions for the giving of claim notices requires that any of them be informed of the exercise of the right to manage, either at the time when it is being claimed, or even after it has come into force.
The self-contained requirement
The court emphasised that section 72 imposed tight qualification requirements: the premises must be structurally detached or, if part of a building, vertically divided, independently redevelopable and independently serviced. Lord Briggs stated:
All these requirements point strongly towards confining the right to manage to separate premises within which the quality of the management provided by the RTM company affects only the occupants of that building or part of it.
Appurtenant property
Lord Briggs rejected the reasoning in Gala Unity that ‘appurtenant property’ under section 112(1) included incorporeal rights such as easements over estate common parts. He noted that the listed items in the definition — garage, outhouse, garden, yard — are all physical objects, and the word ‘appurtenances’ should be construed eiusdem generis so as not to include easements. He further observed that section 72(1)(a) contemplates a building ‘with or without appurtenant property’, which would be inconceivable if the phrase included all easements, since every building inevitably benefits from some incorporeal rights.
Criticism of Gala Unity
Lord Briggs noted that the reasoning in Gala Unity was heavily influenced by Cawsand Fort Management Co Ltd v Stafford, which concerned the broad discretionary jurisdiction under the 1987 Act — a fundamentally different statutory scheme. He observed:
In sharp contrast, the automatic and fixed nature of the right to manage under the 2002 Act calls for more rigorous limits, and a less generous interpretation of its boundaries, not least to protect and preserve the interests of other stakeholders in the estate (the tenants in all the other blocks) who under the scheme are not entitled to be notified or to object to the exercise of the right to manage by the tenants within only one block.
He also noted that neither specialist counsel nor the Consultation Paper (Cm 4843, paragraph 88) — which expressly stated that the RTM company would be responsible only for its own block and not common estate facilities — had been placed before the Court of Appeal in Gala Unity.
Absurdity
The court found that the construction advocated by the respondent produced genuinely absurd and unworkable results. On the Virginia Quay Estate, for example, the RTM company could only recover approximately 15% of the cost of managing the estate facilities, as it had a contractual relationship only with Settlers Court lessees. Lord Briggs noted:
Suppose that each block in the Virginia Quay Estate was the subject of a right to manage by ten different RTM companies, each controlled by the long leaseholders in their separate block. How would the ten managers, together with the Appellant representing the freehold owners of the terraced houses, be able to agree about management decisions requiring to be made on a daily basis?
The suggestion that the 1987 Act’s jurisdiction to appoint a manager could act as a tie-breaker was dismissed as ‘genuinely absurd’.
Practical Significance
This decision provides important clarity for the residential leasehold management sector. It establishes that the right to manage under the 2002 Act is confined to the relevant building (or self-contained part thereof) together with any physically appurtenant property used exclusively by its occupants. Estate facilities shared between multiple buildings remain under the management of the existing manager, and existing leasehold structures continue to govern cost recovery from all relevant tenants. The decision overrules Gala Unity, which had stood as binding authority for nine years and had caused significant practical difficulties in the sector. The intervener, ARMA, provided evidence of those difficulties, including the financially precarious position of RTM companies forced to take on shared estate management with insufficient income. The judgment also makes clear that ‘appurtenant property’ in section 112(1) of the 2002 Act refers to physical property and does not include incorporeal rights such as easements.
Verdict: The appeal was allowed. The Supreme Court held that the right to manage under Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002 does not extend to shared estate facilities. The RTM company’s management functions are confined to the relevant building and any appurtenant property exclusively used by its occupants. The decision in Gala Unity Ltd v Ariadne Road RTM Co Ltd [2012] EWCA Civ 1372 was overruled.
Source: Port Property Services Ltd v Settlers Court RTM Company Ltd and others [2022] UKSC 1
