Can a RTM Company grant consent under a lease?
28th July 2023
28th July 2023
In this Legal Update, we look at an issue that is commonly faced by right to manage companies in circumstances where:
The RTM Company has acquired the right to manage a building; and
A leaseholder of a flat within the building wishes to do something which requires the consent of the Landlord or Management Company under the lease. That “something requiring consent” might be to make alterations to the flat, assign the lease, have a pet or anything else in the lease for which consent of the Landlord/Management Company is ordinarily required.
The question then is, can and should the RTM Company grant such consent and if so, what is the process that it must go through in order to lawfully do so?
In summary, the RTM Company is the party (in place of the Landlord or Management Company) to grant consent but it must NOT, without first giving notice to the Landlord or Management Company, as the case may be, of their intention to do so.
In reaching the above conclusion, it is important to consider the statutory position in respect of the functions relating to approvals, or, in other words, consents.
The statutory position
Under Section 98(2) of the Commonhold and Leasehold Reform Act 2002 (“the Act”), upon the RTM Company acquiring the management of a building, the functions under a lease in favour of the Landlord or Management Company relating to approvals, instead, become functions of the RTM Company.
Accordingly, where a leaseholder wishes to do something that requires consent, they must first approach the RTM Company for that consent and not the Landlord or Management Company. Proceeding otherwise without consent would amount to a breach of lease enforceable by the RTM Company under s.100 of the Act and in contemplation of the Landlord’s right of forfeiture.
However, by Section 98(4) of the Act, the RTM Company cannot grant consent without having first given the Landlord or Management Company notice of their intention to do so. The period of notice that must be given is subject to the specific type of approval being sought and which are:
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, 30 days’ notice is required; or
In any other case, 14 days’ notice.
“Any other case” would include say, a leaseholder seeking consent to have a pet in their property.
Upon notice being given to the Landlord or Management Company, they will either:
Allow the applicable time period to lapse; or
Object to the approval.
Should no objection be raised or the time period lapses, the RTM Company may grant the consent on whatever terms it sees fit.
However, the Landlord or Management Company can raise an objection to the grant of the proposed consent. An objection might be total or merely because the Landlord or Management Company wish to impose conditions beyond those within the form of consent proposed by the RTM Company.
If the Landlord or Management Company chooses to object, they must notify the RTM Company and the leaseholder of their reasons. In these circumstances, the RTM Company cannot grant the consent otherwise than in accordance with the terms Landlord’s or Management Company’s written agreement or upon a determination under Section 99(1) of the Act by the First-Tier Tribunal enabling the grant of the licence.
Practice and procedure
So, when an RTM Company is faced with an application for consent under a lease, what must it do in practice in order to consider it and, if appropriate, grant consent.
Upon receipt of the application by the leaseholder for consent and prior to undertaking any work on the consent requested, the RTM Company (or its lawyers) should obtain from the requesting leaseholder fees on account* or, a the leaseholder’s solicitor’s undertaking to pay such costs, in respect of the RTM Company’s administration, legal and, if appropriate, surveyor’s fees to consider the application and, if consent may be approved, to draft a consent agreement with the leaseholder;
Following the above and upon the terms of the consent being agreed between the leaseholder and the RTM Company, the RTM Company then needs to provide 30 or 14 days’ notice, subject to the type of consent being sought (see above), to the Landlord or Management Company of their intention to grant consent upon the terms set out in the consent agreement. A copy of the proposed form of consent must accompany the notice;
Should the Landlord or Management Company respond to confirm that they do not object to the RTM Company granting consent on the terms set out in the draft, or the applicable notice period lapses, the consent may be completed on those terms proposed by the RTM Company; however
If the Landlord or Management Company objects to the grant (wholly or on the specific terms proposed), the RTM Company may only grant consent on the terms set out with the Landlord or Management Company’s agreement or, an application must be made by the RTM Company** or leaseholder to the First-Tier Tribunal for a determination under S99(1) of the Act to overrule the Landlord or Management Company’s decision.
* In terms of point 1 above, the RTM Company is entitled to seek the payment of administration charges under paragraph 1(1)(a), Schedule 11 of the Act as this covers those costs incurred for or in connection with the grant of approvals under a lease or to consider applications for such approval. Also, as a matter of general law, the RTM Company is entitled to require the payment of a reasonable sum in respect of any legal or other expenses it may incur in relation to granting consent. Note that this is not a premium but merely a reimbursement of reasonable costs likely to be incurred.
It is worth noting that it is settled law that where a leaseholder refuses to pay the costs to be incurred in considering an application for consent, it is not unreasonable for the Landlord, Management Company or RTM Company to refuse to progress the request and so consent is not granted.
** Whilst the application to the FTT can be made by either the leaseholder or the RTM Company where the Landlord or Management Company object to the grant of the consent, it is difficult to imagine a circumstance where the RTM Company would actually make that application (and thus incur costs in doing so) instead of just leaving it up to the leaseholder. The usual position will be to ensure that the requesting leaseholder is aware of the objection, and thus the inability of the RTM Company to complete the consent request, and then direct the requesting leaseholder to their own advisers and leave it to them to take whatever steps they wished to take.
Where an RTM Company exists at a building, the initial application for consent should be directed to, and is progressed only by, the RTM Company. However, in the event that an RTM Company is content to grant consent, they must not do so without first giving the requisite notice to the Landlord or Management Company.
Our firm advice to RTM Companies and their agents is not to agree to grant any form of consent to a leaseholder in the absence of full and competent advice from both the RTM Company’s lawyers and, in the case of alterations, their surveyors. Upon receipt of an application for consent, an RTM Company and their agents alike are advised that they, themselves, should not grant any consent but simply hand the matter to the RTM Company’s lawyers to oversee the process. Doing so will avoid the perils of getting things wrong and because it is generally the case that the leaseholder is liable in any event for the RTM Company’s costs. See here and here for some guidance as to the issues that can be missed where a consent request is not dealt with by professional advisers.
From experience, RTM Companies and their agents, are often unaware of the requirements under the Act in respect of consents and willingly grant them without first placing the Landlord or Management Company on notice. Proceeding without giving notice, places the RTM Company in a difficult position in circumstances where the Landlord or Management Company may have otherwise refused. That may put the RTM Company at risk of a damages claim from the Landlord or Management Company and which may lead to their insolvency, placing the management of the building in a very precarious position indeed. The “golden rule” of - if in doubt ask before acting - therefore applies.
Please feel free to contact a member of the team on 01435 897297 or firstname.lastname@example.org should you have any queries whatsoever.
This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above. The Legal Update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.
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