Nat Duckworth & John Summers

Transcription

1 The Right to Manage and the Appointment of a Manager: An introduction to the ways and means of ousting an unsatisfactory landlord from Active management of the building 1. This paper is intended to provide an introduction to both the right to manage ( the RTM ) under the Commonhold and Leasehold Reform Act 2002 ( the 2002 Act ) and the appointment of a manager under the Landlord and Tenant Act 1987 ( the 1987 Act ). 2. It is appropriate at the outset to briefly consider the utility of these regimes. It might be thought that both these regimes are of somewhat subsidiary importance, having regard to the existence of the right to collective enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 ( the 1993 Act ). If lessees can acquire the freehold interest of their building with a consequential right to manage it, why should they be interested in simply acquiring the right to manage or having a manager appointed? 3. We suggest that these regimes retain a useful place in the lessees armoury notwithstanding the existence of the right to collective enfranchisement. Moreover, it would seem likely that in the current economic climate, lessees will be increasingly minded to consider exercising the RTM or alternatively the right to have a manager appointed instead of exercising the right to enfranchise. The reasons for this include the following: (1) Lessees may no longer be able to afford to pay the premium associated with the right to collective enfranchisement. Appointment of a Manager and the Right to Manage 1

2 (2) Enfranchisement is less attractive in an uncertain property market. By exercising the right to collective enfranchisement, a lessee will in the end acquire a longer lease (usually a 999 year term) and his interest in the property and its saleability will be consequentially increased. In a falling property market lessees may reasonably take the view that it is no longer prudent to invest money in their properties in this way. (3) Cash-strapped lessees may not be in a position to fund litigation. Lessees on a collective enfranchisement claim run the risk of that the purchase price cannot be agreed and that the matter falls to be determined in proceedings before the Leasehold Valuation Tribunal ( the LVT ). The RTM under the 2002 Act is a no-fault based right and the risk of becoming embroiled in expensive litigation is correspondingly reduced. 4. In difficult economic times, the right to control the management of the building or alternatively to ensure that the building is properly and independently managed will be of ever greater importance. In particular, lessees will be anxious to ensure that the amount payable by them in respect of major works and other service charge items is kept to a manageable minimum. Similarly, lessees may well find that the performance of their landlord deteriorates as a result of the latter's financial difficulties. 5. One advantage of applying for the appointment of a manager under the 1987 Act is that it may ultimately pave the way for the acquisition of the freehold interest in the building by means of an acquisition order under the 1987 Act. An acquisition order under the 1987 Act may be made, inter alia, where there has been a manager appointment in force on the date of the application and Appointment of a Manager and the Right to Manage 2

3 throughout the period of two years prior to the application being made 1. Assuming that an acquisition order is made, the matter is then referred to the LVT for a determination of the price payable. It is noteworthy that the valuation basis prescribed by section 31(2) of the 1987 Act is more favourable than the valuation basis prescribed by the 1993 Act in that it does not include any element of marriage value. This distinction is now of greater relevance following the House of Lords in Earl of Cadogan v Sportelli (2008) UKHL 71 that on a collective enfranchisement under the 1993 Act hope value is payable in respect of flats held by non-participating tenants. 6. But before considering the two regimes in detail, it is appropriate to note the relationship between the two. The RTM under the 2002 Act does not replace the right to have a manager appointed under the 1987 Act. The two regimes exist independently of one another. A RTM company which is not performing well may be replaced by a manager appointed under the 1987 Act being made. By the same token, if a manager appointed under the provisions of the 1987 Act proves unsatisfactory, the lessees may choose to replace him by means of the exercise of the RTM. The Right to Manage under the 2002 Act Qualification Criteria 7. The provisions of the 2002 Act confer a right on long lessees to forcibly acquire the right to manage their building from their common landlord. Unlike the provisions of the 1987 Act, the RTM is a no-fault based regime. Assuming that the RTM is exercisable by lessees in the building, they need only follow the procedure required by the 2002 Act in order to acquire the RTM. The prospect 1 It should, however, be noted that even aware a manager has been in place throughout the period of two years prior to the application, there is no automatic right on the part of the lessees to be granted an acquisition order. This remains a matter of the court's discretion. Appointment of a Manager and the Right to Manage 3

4 of being divested of the right to manage his own property is likely to be an unattractive one from the landlord s point of view. Those advising the lessees should be aware that landlords will scrutinise procedural steps taken by the lessees with a view to taking technical points of objection - even if this only serves to delay the inevitable. It is, therefore, important for lessees and their advisers to take care to follow the statutory procedure correctly. 8. The qualification criteria for the RTM are found in section 72 of the 2002 Act and are substantially the same as that the qualification criteria for enfranchisement under the 1993 Act, namely (i) that the premises consist of a self-contained building or part of the building 2, (ii) that they contain two or more flats held by qualifying tenants and (iii) the total number of flats held by such tenant is not less than two thirds of the total number of flats contained in the premises 3. In Dawlin RTM Limited v Oakhill Park Estates (LVT 21/9/05) the LVT held that one RTM company can make a claim in respect of two blocks provided that the qualifying criteria are met in respect each. However, this decision would not be binding in any future case and, in the view of the authors, should be treated with a degree of caution. 9. The definitions of qualifying tenants and long leases put up are contained in sections of the 2002 Act. The definitions are substantially the same as those used in the 1993 Act. For present purposes it suffices to say that the holder 2 A part of the building is a self-contained part of the building if (a) it constitutes a vertical division of the building, (b) the structure of the building is such that it could be redeveloped independently of the rest of the building, and (c) services to that part of the building are provided independently of services provided for the occupiers of the rest of the building or could be so provided without carrying out works likely to result in significant interruption in the provision of any relevant services for occupiers of the rest of the building (s.72(3) and (4)). 3 By section 7(2)(6) and schedule 6 of the 2002 Act certain premises are excluded from the RTM despite otherwise meeting the qualifying criteria. These premises include (a) premises with more than 25% non-residential parts, (b) premises with resident landlords containing no more than four units, (c) premises with an immediate landlord which is a local housing authority, (d) premises where there is already a RTM company. (e) premises where the RTM has been acquired but ceased within the past four years. Appointment of a Manager and the Right to Manage 4

5 of a lease of a residential flat for a term exceeding 21 years which is neither a business tenancy within the meaning of Part II of the Landlord and Tenant Act 1954 nor an unlawful sub-tenancy will be a qualifying tenant for the purposes of the 2002 Act. Formation of the RTM company 10. The first stage in the process is for participating lessees to set up an RTM company. Section 73(2) of the 2002 Act provides that a RTM company must be a private company limited by guarantee the memorandum of association of which states that its object or one of its objects is the acquisition and exercise of the right to manage the specified premises. The prescribed form of Memorandum and Articles of Association for RTM companies is contained in the RTM companies (Memorandum and Articles of Association) (England) Regulations Although a claim notice under section 79 of the 2002 Act can only be validly served if a minimum of half the qualifying tenants are members of the RTM company, the RTM company itself can be incorporated without waiting for the necessary numbers of lessees to become members of it. For the avoidance of doubt, once the RTM has been acquired, the membership requirements cease to apply and it is therefore matters not if the number of qualifying tenants who are members of the RTM company falls below the 50% needed to exercise the RTM. 12. It should be noted that once the RTM has been acquired by the RTM company the landlord is himself entitled to become a member. The landlord will be entitled to attend the AGMs of the RTM company and will have an opportunity to make representations about the company's affairs. However, in real terms the landlord s ability to influence the RTM company will be limited since, by Appointment of a Manager and the Right to Manage 5

6 necessity, the landlord will only be a minority shareholder. Third parties to the flat leases, being neither the landlord nor a lessee (e.g. management companies and sureties), are not entitled to be members of the RTM company. Notice of invitation to participate 13. In contrast to collective enfranchisement claims where the participating tenants are not required to extend an offer of participation to all qualifying tenants, section 78 of the 2002 Act requires that a notice of invitation to participate be served on all qualifying tenants who are not already member of the RTM company prior to service of a claim notice on the landlord. The notice of invitation to participate must be in the form of to the Right to Manage (Prescribed Particulars and Forms) (England) Regulations By section 78 (4) of the 2002 Act the notice must either be accompanied by a copy of the memorandum of association and articles of Association of the RTM company all include a statement about inspection and copying of the same. 14. It is tolerably clear from the wording of section 78(1) that in the case of joint lessees, the notice of invitation to participate should be served on each. However, in Sinclair Gardens Investments (Kensington) Ltd v Oak Investments RTM Company Ltd (1/3/05), a decision of the Lands Tribunal, it was held that the obligation to serve on all non-member qualifying tenants was a "directory" requirement, and that the consequences of non-compliance depended on whether there was any real prejudice. Clearly, the counsel of perfection is to treat the obligation as being mandatory. 15. It is clear that a failure to comply with the obligation to serve a notice inviting participation in accordance with section 78 and the Regulations will render any subsequent notice of claim under section 79 of the 2002 Act invalid. Section 78(7) provides that a notice inviting participation is not invalidated by any Appointment of a Manager and the Right to Manage 6

7 inaccuracy in any of the particulars required by or by virtue of section 78. However, it is tolerably clear that a failure to include any of the statements required by section 78(2) of the 2002 Act or a failure to include either a copy of the memorandum of association and articles of association or statement about inspection of the same will invalidate any subsequent substantive claim. 16. Once notices inviting participation have been served on all of the non-member qualifying tenants, a further period of 14 days must be allowed before a notice of claim under section 79 of the 2002 Act may be served. In order to avoid the possibility of a dispute as to whether the 14 day minimum period had elapsed before service of the claim notice, practitioners would be well advised to allow one or two to further days by way of margins for error. The Claim Notice 17. A notice of claim under section 79 of the 2002 Act must be in the prescribed form contained in schedule 2 of the Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2003 and otherwise comply with the requirements contained in section 80 of the 2002 Act. These requirements include an obligation to specify the date by which any counter-notices must be served (which must be at least one month after service of the claim notice) and a date upon which the RTM company intends to acquire the right to manage the premises (which must be at least three months after the expiry of the one-month period the service of a counter-notice). Section 82 of the 2002 Act entitles the RTM company to serve notice on any person requiring him to provide any information which the RTM company reasonably requires to be included in a claim notice. 18. As previously indicated, the qualification criteria for the exercise of the RTM must be met as at the date of service of the claim notice. The claim notice itself Appointment of a Manager and the Right to Manage 7

8 must be served on anyone who is a landlord under a lease of the whole or part of the premises, any party to a lease otherwise than as landlord and tenant (e.g. a management company or surety) or a manager appointed under the 1987 Act (s.79(6)). A copy of the claim notice must also be given to all qualifying tenants. 19. As in the case of notices inviting participation, the claim notice will not be invalidated by any inaccuracy in any of the particulars required by or by virtue of section 80. Similarly, section 81(2) provides that where a claim notice wrongly includes a lessee who was not a qualifying tenant on the relevant date the notice will nevertheless be valid provided that the RTM company would otherwise have been entitled to serve a claim notice. However, failure to comply with any of the mandatory requirements of section 79, 80 and the Regulations will result in the claim notice being invalid. For example, in 23 Albert Road RTM company Ltd v Oasis Properties Ltd (LVT 15/10/04) a claim notice was served without any of the supporting notes and the notice was therefore held to be invalid. 20. Section 84 on contains provisions to deal with the situation that arises where the RTM company is unable to find or identified any of the individuals on whom the claim notice is to be served pursuant to section 79(6) of the 2002 Act. In short, the RTM must apply to the LVT for an order that the company is to acquire the right to manage the premises. Position following service of the claim notice 21. Faced with service of a valid claim notice, the recipient must first decide whether to serve a counter-notice 4. The right to serve a counter-notice may be exercised by not just the landlord, but by any recipient of the claim notice (other 4 In order to assist with this decision provision is made in section 83(1) of the 2002 Act entitling the recipient of the claim notice to have access to any part of the premises if that is reasonable in connection with any matter arising out of the claim to acquire the right to manage. Appointment of a Manager and the Right to Manage 8

9 than the lessees themselves). It is not mandatory for a counter-notice to be served. Although section 84(2)(a) of the 2002 Act contains provision for service of a counter notice admitting that the RTM company was on the relevant date entitled to acquire the right to manage, in practice there is little point in serving a counter-notice of this kind since failure to serve a counter-notice within the prescribed time limit will automatically result in the RTM company acquiring the RTM. 22. A counter-notice must be in the form prescribed by schedule 3 to the Right to Manage (Prescribed Particulars and Forms) (England) Regulations A counter-notice denying the RTM must do so by reference to the specific provision within the 2002 Act relied upon. In Dawlin RTM Limited v Oakhill Park Estates (LVT 21/9/05) the LVT held that it was not sufficient for a counter-notice to simply identify the relevant section or sub-section in respect of which it was contended that there had been non-compliance, it was necessary for the counter-notice to explain why it was contended that the provisions of the 2002 Act had not been complied with. Finally it should be noted that there is no saving provision for counter-notices any material failure to comply with the Regulations will invalidate the counter-notice. 23. If a counter notice disputing the RTM is served, the RTM company has a period of two months beginning with the day on which the counter-notice is served in which to apply to the LVT for a determination that it was on the relevant date entitled to acquire the right to manage the premises under section 84(3). This time limit must be strictly observed failure to make the necessary application within the time limit will result in a deemed withdrawal of the claim notice pursuant to section 87(1) of the 2002 Act. Section 84(3) applications Appointment of a Manager and the Right to Manage 9

10 24. Where an application under section 84(3) of the 2002 Act is made, the LVT will determine whether the RTM has been acquired. There is a suggestion in Dawlin RTM Limited v Oakhill Park Estates (LVT 21/9/05) that the landlord (or indeed any other person who gives a counter-notice) is limited to arguing points referred to in the counter-notice. The decision in Dawlin is not binding and the LVT in any subsequent case might decline to follow it. However, again the counsel of perfection is to assume that this decision is correct and to ensure that the counter-notice refers to all points on which the landlord might wish to rely. 25. If the LVT determines that the RTM company was not entitled to exercise the RTM on the relevant date, the application will be dismissed and the claim notice will cease to have effect. If the LVT determines that the RTM also entitled the date of acquisition of the RTM will be three months after the LVT s determination becomes final (s. 90(4)) 5. Costs 26. The provisions on the costs are contained in sections 88 and 89 of the 2002 Act. Section 88(1) provides that an RTM company is liable for reasonable costs incurred by a landlord, a third party to the lease or a manager appointed under the 1987 Act in consequence of the claim notice given by the company in relation to the premises. Section 88(2) of provides a cost cap in respect of costs incurred in respect of professional services these are only reasonable if and to the extent that these costs might reasonably be expected to have been incurred by him if the circumstances had been such that he was personally liable for all such costs. 5 A determination of an application under section 84(3) becomes final at the end of the period for bringing an appeal all or if an appeal is made, at the time when the appeal or any further appeal is disposed of. Appointment of a Manager and the Right to Manage 10

11 27. In practice, the LVT tends to treat section 88(2) as imposing a significant limit on the quantum of costs that may be recovered by landlord and other relevant person in respect of an RTM claim. In the majority of the cases decided by the LVT the landlord has recovered very modest sums indeed, usually of the order of 1,000-2,000. As far as litigation costs are concerned, section 88(3) provides that costs incurred by a landlord or other relevant person in proceedings before the LVT are only recoverable if the Tribunal dismisses an application by the RTM company for a determination that it is entitled to acquire the right to manage the premises. This provision is entirely logical since it discourages landlords from pursuing unmeritorious objections in LVT proceedings. 28. By section 89 of the 2002 Act costs are also payable in the event that the claim notice is withdrawn, whether expressly or by means of a deemed withdrawal. Section 89(3) provides that each person who is or has been a member of the RTM company is jointly and severally liable with the RTM company for such costs. 29. In Plintal SA v 34 48A Edgewood Drive RTM Company Ltd LTL 8/4/2008 an application under section 84(3) failed because it was established at trial that the claim notice, although received by the landlord, had not been properly served. The LVT determined that costs were not payable under section 88 of the 2002 Act because the jurisdiction to award costs arose only in consequence of a claim notice given. However, the landlords successfully appealed to the Lands Tribunal which held that although as a matter of construction the jurisdiction under section 88 was not engaged, the RTM company, having pursued its application on the basis that a valid notice of claim had been served, was estopped from denying that costs were payable up until that point when the RTM company ceased to assert that a valid notice of claim had been served. Appointment of a Manager and the Right to Manage 11

12 Position following acquisition of the RTM 30. Upon the acquisition of the RTM "management functions", the management functions of a person who is a landlord or another party under a lease of the whole or any part of the premises become functions of the RTM Company (section 96(2) and (3)). "Management functions" is defined in section 96(5) as meaning functions with respect to services, repairs, maintenance, improvements, insurance and management. However, the landlord (or other relevant party ) is not entirely excluded from the management of the building and retains a role in a number of respects: (1) The RTM company does not acquire the rights to manage any premises consisting of a flat or other units not held under a lease by qualifying tenants. (2) It is clear that it is open to the RTM company to delegate back to the landlord or other relevant party certain of the management functions transferred to it pursuant to section 96. Clearly, the RTM company will not wish to delegate all management functions back to the landlord or other relevant party, since otherwise there would be no point in exercising the RTM. However there may be certain specific matters in respect of which the landlord s performance is satisfactory. One obvious example is insurance where the landlord may be in a position to obtain a premium on better terms than the RTM company. (3) The definition of "Management functions" in section 96 is not apt to cover all of the covenants contained in the lease. This is made plain from section 100 of the 2002 Act which deals with the enforcement of "untransferred tenant covenants" and provides that these are enforceable by Appointment of a Manager and the Right to Manage 12

13 both the RTM company and the landlord or other person entitled to enforce them under the lease. (4) One significant aspect of management over which the RTM company does not acquire complete autonomy is approvals which lessees may be required to obtain under their lease. An application for an approval must be made by the relevant lessees to the RTM company (s.98(2)). The RTM Company must then give notice of the application to any person who is a landlord under the lease. If the landlord then objects to the grant of the approval within the required time limit, the RTM may only grant the approval if either (a) the object subsequently agrees in writing or (b) the LVT determines that the approval should be granted (s.99(1)). (5) The RTM company does not acquire the right to exercise a right of reentry or forfeiture. This right remains exercisable by the landlord. Moreover, by section 101(2) of the 2002 Act the RTM company is obliged to keep under review whether tenant covenants in the leases are being complied with and to report any failure to comply to the landlord. The 2002 Act does not provide any sanction for a failure to report. However, if the landlord were to suffer loss as a result of a failure to report, it would seem likely that the failure to report would sound in damages. 31. The 2002 Act makes provision for the position of management contracts in existence at the date on which the RTM company is acquired. By sections 91 and 92 of the 2002 Act the person who is the existing manager of the building is required to give notice of the exercise of the RTM to any party to a management contract following service of the notice of claim. A "management contract" is a contract entered into between the existing manager of the building and another Appointment of a Manager and the Right to Manage 13

14 party by which the latter agrees to provide services, or do any other thing, in connection with any matter relating to the function which will be a function of the RTM company when it acquires the right to manage. 32. Although, somewhat curiously, the 2002 Act does not spell out in terms the effect that the acquisition of the RTM has on management contracts, it is tolerably clear that unless the RTM company agrees to adopt the relevant contract, management contract will be frustrated and section 1(2) of the Law Reform (Frustrated Contracts) Act 1943 applies. 33. The position in respect of the service charge following the acquisition of the RTM is as follows. The landlord remains entitled to collect service charges in respect of costs incurred prior to the acquisition date (s. 97(5)). Section 94(1) provides that any landlord third party to a lease or manager appointed under the 1987 Act must pay to the RTM company the "accrued uncommitted service charges" held by him on the acquisition date. Lessees will often find to their dismay that between the date on which notice of claim is served and the acquisition date the landlord has taken steps to commit substantial portions of the service charge funds being held by him. There is no way of preventing this from happening. 34. After the acquisition date the RTM company will collect service charge contributions in accordance with its management functions. Where there are units in respect of which the RTM company does not enjoy the right to manage (e.g. flats held by non-qualifying or commercial lessees) and the amount due from the qualifying tenants is less than 100% of the total service charge, the 2002 Act makes provision relating to the excluded units (s.103). These provisions apply irrespective of whether or not service charge is recoverable under the relevant leases. Appointment of a Manager and the Right to Manage 14

15 Cessation of the RTM 35. The RTM is not limited in time and, unless it ceases in accordance with section 105 of the 2002 Act, it will continue indefinitely. Section 105 provides that the RTM may be brought to an end (a) by agreement with every landlord under a lease within the premises, (b) if the RTM company becomes insolvent, (c) if the RTM company is struck off the register of companies, (d) is a manager under the 1987 Act is appointed or (e) if the RTM company ceases to be a RTM company in respect of the premises. Although not expressly stated in the 2002 Act, it is tolerably clear that upon the cessation of the RTM company the management functions in respect of the premises revert to the landlord. Appointment of a Manager under the 1987 Act Introduction 36. The law relating to the appointment of a manager is substantially contained in Part II of the 1987 Act as amended (including, very significantly, by the Housing Act 1996). References to the 1987 Act in this paper are to be understood accordingly. 37. This paper gives a broad and outline introduction to the structure and operation of the 1987 Act. 38. It should be noted that the High Court has a general statutory power to appoint a receiver or manager whenever it is just and convenient to do so: see section 37(1) Supreme Court Act Appointment of a Manager and the Right to Manage 15

16 39. However, by section 21(6) of the 1987 Act no application is to be made to the court for it to exercise any jurisdiction for the appointment of a receiver or manager where a tenant is making an application in his capacity as such and could apply for an order section 24 of the 1987 Act. Section 24 of the 1987 Act is therefore of crucial importance. 40. The court will not normally exercise its jurisdiction to appoint a manager or receiver where Parliament has provided that a particular body should manage a business, e.g. a local housing authority (Parker v. Camden London Borough Council [1986] Ch 162). Premises and parties etc to which the 1987 Act applies 41. The 1987 Act contains a detailed statutory procedure which a tenant of a flat must follow in seeking the appointment of a manager for the block of flats in question. Jurisdiction in applications under Part II of the 1987 Act is vested in the leasehold valuation tribunal ( LVT ) with all the usual consequent procedural advantages and disadvantages. Premises/flats 42. The applicant tenant must be a tenant of premises to which the 1987 Act applies. This means premises consisting of the whole or part of a building if the building contains two or more flats (section 21(2)) and flat means a separate set of premises, whether or not on the same floor, which (a) forms part of a building, (b) is divided horizontally from some other part of that building and (c) is constructed or adapted for use for the purposes of a dwelling (section 60(1)). Tenants 43. Where the flat is held by joint tenants, any one or more of them may apply (section 21(5)) and an application can be made jointly by the tenants of different flats, even if the flats are in different buildings (section 21(4)). Appointment of a Manager and the Right to Manage 16

17 44. A tenant who enjoys a tenancy protected under Part II of the Landlord and Tenant Act 1954 (i.e. what are colloquially known as business tenancies ) cannot make an application for the appointment of a manager under the 1987 Act (section 21(7)). This is an example of where the court s general jurisdiction to appoint a manager or receiver (see above) is important and can be engaged. Landlords 45. Certain classes of landlord are immune from applications under the 1987 Act: exempt landlords and resident landlords (section 21(3)(a)). 46. Exempt landlords are listed in section 58(1) and include local authorities and registered housing associations. See section 58(1) for the full list. 47. Resident landlords are defined in section 58(2). A landlord or premises is a resident landlord for the purposes of Act at any time if (a) the premises are not and do not form part of a purpose built block of flats, (b) at that time the landlord occupies a flat contained in the premises as his only or principal residence and (c) has so occupied such a flat throughout a period of not less than 12 months ending with that time. 48. The resident landlord exception does not apply if at least half of the flats in the premises are held on long leases which are not tenancies to which Part II of the Landlord and Tenant Act 1954 applies (section 21(3A)). Long leases are defined in section 59(3) and include leases granted for a term certain exceeding 21 years. 49. Neither can applications be made under the 1987 Act where the premises are within the functional land of a charity (section 21(3)(b)). A charity in this context is a charity within the meaning of the Charities Act 1993 and functional land means, in this context, land occupied for the charity or by its trustees, and Appointment of a Manager and the Right to Manage 17

18 wholly or mainly used for charitable purposes, i.e. the charitable purposes of that charity or of it and other charities (section 60(1)). Crown tenancies 50. NB that the application of the various Parts of the 1987 Act to tenancies involving Crown interests is dealt with in section 56. The preliminary notice 51. The first step is the service by the tenant of a notice on the landlord and any person other than the landlord who owes obligations relating to the management of the building to the tenant under his tenancy (section 22(1)). 52. Essentially the notice outlines the tenant s intentions in relation to the application and gives the recipient notice of the basis on which it will be pursued. The content of the notice is prescribed by section 22(2). 53. The tenant must: (1) state his name, the address of flat and an address in England and Wales at which the recipient may serve notices, including notices in proceedings, on him in connection with this Part of the 1987 Act; (2) state that the tenant intends to make an application for an order under section 24 in respect of the specified premises but (if section 22(2)(d) applies) that he will not do so if the requirement specified in relation to that subsection is complied with; (3) specify the grounds on which the tribunal would be asked to make the order and the matters which would be relied on by the tenant for the purpose of establishing those grounds; Appointment of a Manager and the Right to Manage 18

19 (4) if those matters are capable of being remedied by a recipient of the notice (i.e. section 22(2)(d)), require that person, within such reasonable time as is specified in the notice, to take such steps for the purposes of remedying them as are so specified; and (5) contain any information prescribed by the Secretary of State. 54. The notice must be in writing and may be sent by post (section 54(1)). 55. If the landlord s interest in the premises is subject to a mortgage the landlord must serve a copy of the notice on the mortgagee as soon as reasonably practicable after receiving it (section 22(4)). 56. The tribunal may dispense with the requirement for the service of the preliminary notice if it is satisfied that it would not be reasonably practicable to serve such a notice on the relevant person. In making such an order the tribunal may direct that such other notices are served, or such other steps be taken, as it thinks fit (section 22(3)). 57. Where an application for an order under section 24 is made and follows the service of a notice under section 22, section 24(7) contains an important power on the part of the tribunal which may, if it thinks fit, make such an order notwithstanding (a) that any period specified in the notice in pursuance of subsection (2)(d) of that section was not a reasonable period or (b) that the notice failed in any other respect to comply with any requirement contained in subsection (2) of that section or in any regulations applying to the notice under section 54(3). For an example, see Howard v. Midrome Ltd [1991] 1 EGLR 58. Procedure following service of the preliminary notice 58. Where a notice under section 22 has been served, no application for an order under section 24 can be made unless either (a) the period specified in the notice Appointment of a Manager and the Right to Manage 19

20 for remedying the matters complained of has expired without the recipient having taken the required steps or (b) the matters complained of were not capable of remedy, as appropriate, (section 23(1)(a)). 59. If the requirement to serve notice under section 22 has been dispensed with, no application may be made to the tribunal unless either (a) any notices which the tribunal required to be served have been served, or any steps which were required to be taken have been taken, or (b) no direction was made by the tribunal in making the dispensing order, as appropriate, (section 23(1)(b)). The application: section Section 24(1) provides that, A leasehold valuation tribunal may, on an application for an order under this section, by order (whether interlocutory or final) appoint a manager to carry out in relation to any premises to which this Part applies (a) (b) such functions in connection with the management of the premises, or such functions of a receiver, or both, as the tribunal thinks fit. 61. Before the tribunal can make an order under section 24 it must be satisfied: (1) that any relevant person (see section 24(2ZA)) is either in breach of an obligation owed by him to the tenant under his tenancy and relating to the management of the premises in question or any part thereof or (where the obligation in dependent on notice) would be in breach of any such obligation but for the fact that it has not been reasonably practicable for the tenant to give the appropriate notice, and in either case that it is just and convenient to make the order in all the circumstances of the case (section 24(2)(a)); or Appointment of a Manager and the Right to Manage 20

21 (2) that unreasonable service charges have been made, or are proposed or likely to be made, and that it is just and convenient to make the order in all the circumstances of the case (section 24(2)(ab)) [nb for these purposes a service charge shall be taken to be unreasonable if (i) the amount is unreasonable having regard to the items for which it is payable, or (ii) if the items for which it is payable are of an unreasonably high standard, or (iii) if the items for which it is payable are of an insufficient standard with the result that additional service charges are or may be incurred (section 24(2A))]; or (3) that unreasonable variable administration charges (see paragraph 1 of Schedule 1 to the Commonhold and Leasehold Reform Act 2002) have been made, or are proposed or are likely to be made, and that it is just and convenient to make the order in all the circumstances of the case (section 24(2)(aba)); or (4) that any relevant person has failed to comply with any relevant provision of a code of management practice approved by the Secretary of State under section 87 of the Leasehold Reform, Housing and Urban Development Act 1993 and that it is just and convenient to make the order in all the circumstances of the case (section 24(2)(ac)). 62. The tribunal also has a power to make the order where it is satisfied that other circumstances exist which make it just and convenient to do so (section 24(2)(b)). Subject matter of the order 63. The general principle is found in section 24(1) (see above). The order made by the tribunal may be given subject to conditions and may be suspended on terms fixed by the tribunal (section 24(6)). Appointment of a Manager and the Right to Manage 21

22 64. The tribunal may make the order in respect of premises which are either more or less extensive than the premises specified in the application. 65. In Cawsand Fort Management Company Ltd v. Stafford [2008] 1 WLR 317 a company was responsible for the management of buildings subject to long leases and also a defined common area of amenity land over which the tenants enjoyed recreational rights. The company was not active in carrying out its repair and maintenance obligations in respect of the amenity land. Tenants applied for the appointment of a manager under the 1987 Act and the issue was the extent of the land over which the manager should be able to exercise his functions. The company argued that the LVT had no jurisdiction to make an order under section 24 in relation to anything other than the buildings containing the leasehold flats and their curtilages. 66. Mummery LJ noted that section 21 contains a requirement that an applicant under Part II of the 1987 Act must be a tenant of premises to which Part II applies: that this was satisfied in this case was not disputed. The second question was whether the tribunal could properly exercise its discretion to make an order and this was also not controversial. The third stage in the enquiry concerned the proper scope of the order the tribunal could make: section 24(1) refers to the appointment of a manager to carry out functions in relation to premises to which Part II applies. This, said Mummery LJ at para. [31], requires a causal link or nexus between the functions to be carried out by the manager and the premises defined in section 21(1), but it does not confine the manager s functions to buildings and their curtilages. The power of the tribunal is broader than simply appointing a manager of or over the premises as a building or part of a building.... it is an accurate use of language to describe the rights granted over the amenity land as being in relation to the premises consisting of the building which contains the lessees flats. The fourth step requires the tribunal to consider what management functions should be carried out by the manager in Appointment of a Manager and the Right to Manage 22

23 relation to the premises. Mummery LJ concluded at para. [34], The practical purpose of Part II is to protect the interests of lessees of premises, which form part of a building, by enabling them to secure, through the flexible discretionary machinery of the appointment of a manager, the carrying out of the management functions which they are entitled to enjoy in relation to the premises of which their flats are part. 67. The order may make provisions with respect to such matters relating to the exercise by the manager of his functions under the order and such incidental or ancillary matters as the tribunal shall think fit (section 24(4)). 68. In particular, the order may provide for: (1) rights and liabilities arising under contracts to which the manager is not a party to become rights and liabilities of the manager; (2) the manager to be entitled to prosecute claims in respect of causes of action (whether in contract or tort) accruing before or after the date of his appointment; (3) remuneration to be paid to the manager by any relevant person or by the tenants of the premises in respect of which the order is made, or by all or any of those persons; 6 (4) for the manager s functions to be exercisable by him either during a specified period or without limit of time. (section 24(5)). 6 The appointed manager justifies the charges he levies by reference to the terms of the order appointing him and section 24 and he need not show that they are charges which the landlord himself could have recovered under the service charge provisions of the lease. An application for directions can be made to the tribunal in relation to charges made by the manager and the way in which he is carrying out his duties. See Maunder Taylor v. Joshi, Lands Tribunal, August 2006, LRX , His Honour Judge Huskinson (where the nature of the relationship between charges made by a court appointed manager and the provisions of sections Landlord and Tenant Act 1985 was raised but, on the facts, not decided). Appointment of a Manager and the Right to Manage 23

24 69. The manager may apply to the tribunal for directions (section 24(4)). 70. It should be noted that the manager is not a surrogate landlord and there is no privity of estate between him and the tenants. 71. In Maunder Taylor v. Blaquiere [2003] 1 WLR 379 a tenant applied for the appointment of a manager under section 24 after problems arose in his flat attributable to the breach of repairing etc covenants by the landlord. A manager was duly appointed and, pursuant to the terms of the order which appointed him, he carried out major works to the premises containing the flat and sought payment accordingly from the tenant in respect of his share of the costs incurred. The tenant argued that the manager owed him the same duties of repair as the landlord did under the lease and that as a result of breaches of those obligations the tenant had suffered loss and that these losses could be set off against the sums claimed by the manager. 72. Aldous LJ noted that the manager appointed under section 24 is appointed, to act in relation to the premises and is not said to act in the carrying on of the business of the landlord (para. [36]). He concluded that the purpose of Part II of the 1987 Act is to enable the tribunal to appoint a manager who may not be confined to carrying out the duties of a landlord under a lease. The tribunal has power to make an order in relation to such functions in connection with the management of the premises as it thinks fit and the circumstances (listed in subsection 24(2)) in which the tribunal may make an order are widely framed. 73. As he said at para. [41], the purpose of Part II of the 1987 Act is to provide a scheme for the appointment of a manager who will carry out the functions required by the court. That manager carries out those functions in his own right as a court-appointed official. He is not appointed as the manager of the landlord Appointment of a Manager and the Right to Manage 24

25 or even of the landlord s obligations under the lease. In this case, the fact that the order appointing the manager defined the duties and liabilities of the manager by reference to the terms of the lease could not change the fact that the manager was acting in a capacity independent of the landlord. As a result, the tenant was not entitled to set off claims he had against the landlord against claims made by the manager acting as such. 74. Agreeing, Longmore LJ said at para. [50], It is clear to my mind that Parliament intended that a manager should, when appointed pursuant to section 24(1) of the 1987 Act, come in with a clean sheet and be able to collect service charges due from the tenants and use the money so obtained for repair of the premises. It would make a nonsense of the legislation if any or all of the tenants could set off, against that claim for service charges, claims that they might have against the landlord. Most tenants would have such claims.... In my judgment, the use of such claims to prevent service charges being paid to the manager would be an attempt to thwart the plain legislative intent displayed in the relevant sections of Part II of the 1987 Act. Registration 75. The Land Charges Act 1972 and the Land Registration Act 2002 apply to orders made under section 24 in the same way as they apply to an order appointing a receiver or a sequestrator of land (section 24(8)). Variation and discharge of the order 76. On an application by an interested person the tribunal may vary or discharge the order and this may be done either conditionally or unconditionally. If the order has been protected by an entry registered under the Land Charges Act 1972 or the Land Registration Act 2002 the tribunal may by order direct that the entry shall be cancelled (section 24(9)). Appointment of a Manager and the Right to Manage 25

26 77. The tribunal shall not vary or discharge the order unless it is satisfied that this will not lead to a recurrence of the offending circumstances and that it is just and convenient to do so (section 24(9A)). It will not be discharged merely because by virtue of section 21(3) the premises cease to be premises to which Part II of the 1987 Act applies (section 24(10)). 78. The tribunal may also vary or discharge a conditional or suspended order and in exercising a discretion to vary an order the tribunal does not have to reconsider all the grounds in section 24(2) for making the order in the first place (Orchard Court Residents Association v. St Anthony s Homes [2003] 2 EGLR 28). Nathaniel Duckworth John Summers Appointment of a Manager and the Right to Manage 26