Following the outcome of the recent appeal in the Upper Tribunal (Lands Chamber) in Assethold Limited v. Eveline Road RTM Company Limited (“Assethold”), this Legal Update looks at how the right to manage (“RTM”) provisions of the Commonhold & Leasehold Reform Act 2002 (“CLRA”) are to be applied to houses in a terrace that have been converted into flats. In particular, how the “Qualifying Premises” test should be applied in a scenario where the premises constitute two adjacent buildings, each of which contain flats, separated from each other by a party wall. 

UPDATE - Since first publishing this article in February 2023 the Landlord appealed to the Court of Appeal and on 27 February 2024, almost exactly a year after from the decision in the first appeal to the Upper Tribunal on which this article was a report, the Court of Appeal handed down its judgment. The Court of Appeal affirmed the decision made (in favour of the RTM Company) but the Upper Tribunal and soo the outcome of this article is unchanged. See here the decision of the Court of Appeal on 24 February 2024.

Now, back to the original article.....

The premises forming the subject of this action are at Eveline Road in Mitcham. They are two adjacent houses in a terrace, each of which contain two flats. The houses are separated by a party wall. The terrace is “air gapped” from any other building, and therefore structurally detached.  The leases of the four flats in the two houses set a unified service charge regime and scheme of management (including for insurance) across the two houses and so, from the perspective of the management provisions of the leases, the two houses worked as one unit. The practical and cost-effective approach to the RTM was therefore to set up a single RTM company and for that RTM company to run both houses as a “single” unit.

The Qualifying Premises Test

Under Section 72 of CLRA the requisite proportion of qualifying leaseholders of flats can form an RTM company to acquire the right to manage any “self-contained building or self-contained part of a building” containing two or more flats held by qualifying tenants (the “Qualifying Premises” test). The eligibility of the property is subject to a further requirement that the qualifying tenants hold not less than two-thirds of the flats in the property.

The issue raised in Assethold was whether the qualifying premises must be limited to the smallest part of the building that satisfies the qualifying criteria, in this case, whether each of the two adjacent houses in the terrace must be treated separately. The landlord argued that two RTM companies (one for each of the two houses) would be required. The landlord’s case was that once the RTM had been acquired for each of the two houses, a unified management across the two houses would be reliant on voluntary co-operation between the two RTM companies.

However, given that the leases for the four flats established a unified service charge regime and scheme of management, which included insurance, across the two houses Eveline Road RTM Company argued that it was clearly most cost effective and practical to establish one RTM company to manage both houses.

The Decision

The judgment of the Upper Tribunal (Lands Chamber ) is an important one, as it provides clarity for those living in converted terraced houses when considering an RTM claim. However, it is worth noting that it does not apply only to terraced houses, as it can also be applicable to a row of structurally attached mansion blocks and other similar configurations.

The judgment sets out that:

1. The terrace as a whole (in this case the two adjacent houses) is a “self-contained building” and compliant with the Qualifying Premises test, as long as it is not structurally attached to another building.

2. A smaller self-contained part of the building (in this case, two flats in one of the houses) satisfies the Qualifying Premises test. The implication of this is that the owners of the flats in the smaller self-contained part of the building could make an RTM claim of their own, or they could make a single RTM claim by a single RTM company to acquire the right to manage both houses, i.e. the “self-contained building”, as they did in this case.

Conclusion

The Judgment in this case will provide useful guidance to leaseholders in terraced buildings contemplating an RTM claim. It gives leaseholders the freedom to make that claim either as a self-contained part of the building, or to make an RTM claim to acquire the RTM of the whole self-contained building.

Those looking into exercising the right to manage should seek advice from experts in the field before setting up the RTM company or serving notices.  Whilst the RTM process was intended to provide to the lay person an easy way of taking control of the management of their building the process is fraught with legal potholes which can easily upset or delay the process and ultimately increases cost.  Accordingly, seeking good quality advice from suitable experts from the start is often a money saving route to take.

For more information, please feel free to contact a member of the team on 01435 897297 or info@kdllaw.com.

Disclaimer

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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