159167 Prince of Wales Road RTM Company Ltd v Assethold Ltd

Hearing dates: 19 and 20 November 2024

Approved Judgment

This judgment was handed down remotely at 10.00am on 13 December 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Introduction and factual background

This appeal concerns the right to manage (“RTM”) legislation contained in the Commonhold and Leasehold Reform Act 2002 (the “CLRA”). The Appellant, 159–167 Prince of Wales RTM Company Limited (“RTM Co”), is a company that was formed in May 2021 by some of the leaseholders of flats at a property in North London with a view to taking over its management. The Respondent, Assethold Limited (“Assethold”), is a company that on 10 October 2019 had purchased both the freehold and a 999-year headlease of the property from, respectively, Millcastle Properties Limited and Millcastle (POFW) Limited (together, “Millcastle”).

The dispute arises from the fact that, when RTM Co served its claim notice under s.79 of the CLRA in June 2021, it was still Millcastle rather than Assethold that was the registered owner of the freehold and the headlease. Assethold has subsequently become the registered owner of the freehold pursuant to an application apparently made in 2022, but not of the head lease, the registered owner of which (Millcastle (POFW) Limited) was dissolved in September 2021.

RTM Co addressed its claim notice to both Assethold and Millcastle Properties Limited. Assethold served a counter-notice contending that the requirements of the legislation had not been met. RTM Co applied to the First-tier Tribunal (“FTT”) seeking a determination that it had met those requirements, but a day before the hearing it applied to withdraw its application, which was then dismissed by consent.

Assethold then submitted a costs application under s.88(4) of the CLRA, seeking the costs both of its initial assessment and response to the RTM claim and of the proceedings in the FTT. The total sum claimed was £14,747.22. In response to that application RTM Co asserted that Assethold was not a “landlord” as s.88(1) required, because it had no legal interest in the property.

The FTT determined the application on the papers. It accepted RTM Co's argument that Assethold was not a “landlord” and that RTM Co therefore had no liability for its costs.

Assethold's appeal to the Upper Tribunal (“UT”), which was also determined on the papers, was allowed. Judge Elizabeth Cooke (the “judge”) concluded that RTM Co was estopped from denying that Assethold was the landlord for the purpose of recovering costs under s.88. The judge awarded costs of £11,747.22 and Tribunal fees of £495.

RTM Co now appeals with the permission of the UT, and with the benefit of a costs capping order made by this court. For the reasons which I will explain, I would allow the appeal.

We are grateful for the assistance provided by the parties' representatives in determining this appeal. In particular, we are very grateful for the provision of pro bono representation by Mr Venkatesan and Mr Neris for RTM Co and for the very thorough manner in which the appeal was prepared by them, which was of significant assistance to the court. We would also wish to commend not only the oral advocacy of Mr Venkatesan and Mr Bates KC but also the oral submissions that Ms Gibson made at Mr Bates' invitation in response to questions from the Bench, which were delivered with notable clarity and skill.

The legislation

The RTM legislation is contained in Chapter 1 of Part 2 of the CLRA. Its provisions were described in detail in the recent Supreme Court decision in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co Ltd [2024] UKSC 27, [2024] 3 WLR 601 (“ A1 Properties”). The most relevant provisions for present purposes are set out below.

Section 71 introduces the Chapter as follows:

“ 71. The right to manage

(1) This Chapter makes provision for the acquisition and exercise of rights in relation to the management of premises to which this Chapter applies by a company which, in accordance with this Chapter, may acquire and exercise those rights (referred to in this Chapter as a RTM company).

(2) The rights are to be acquired and exercised subject to and in accordance with this Chapter and are referred to in this Chapter as the right to manage.”

The legislation goes on to specify the circumstances in which the RTM can arise and the process for obtaining it. This involves an initial stage in which a company is formed for the purpose and qualifying tenants (broadly, tenants under long leases) are invited to participate in it, followed by the service by the company of a “claim notice”. Section 79(6) provides that the claim notice must be served as follows:

“(6) The claim notice must be given to each person who on the relevant date is—

(a) landlord under a lease of the whole or any part of the premises,

(b) party to such a lease otherwise than as landlord or tenant, or

(c) a manager appointed under Part 2 of the Landlord and Tenant Act 1987 (c. 31) (referred to in this Part as “the 1987 Act”) to act in relation to the premises, or any premises containing or contained in the premises.”

By s.79(1) the “relevant date” is the date of the claim notice. Under s.79(8) a copy of the claim notice must also be given to the qualifying tenants.

Section 84 enables a person “given a claim notice by a RTM company under section 79(6)” to serve a counter-notice which may challenge the company's entitlement to acquire the RTM. It also provides a procedure for the RTM company to apply under s.84(3) to the appropriate tribunal (for present purposes, the FTT) for a determination that it was in fact entitled to acquire the RTM.

Section 88 provides as follows:

“ 88. Costs: general

(1) A RTM company is liable for reasonable costs incurred by a person who is—

(a) landlord under a lease of the whole or any part of any premises,

(b) party to such a lease otherwise than as landlord or tenant, or

(c) a manager appointed under Part 2 of the 1987 Act to act in relation to the premises, or any premises containing or contained in the premises,

in consequence of a claim notice given by the company in relation to the premises.

(2) Any costs incurred by such a person in respect of professional services rendered to him by another are to be regarded as reasonable only if and to the extent that costs in respect of such services 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.

(3) A RTM company is liable for any costs which such a person incurs as party to any proceedings under this Chapter before the appropriate tribunal only if the tribunal dismisses an application by the company for a determination that it is entitled to acquire the right to manage the premises.

(4) Any question arising in relation to the amount of any costs payable by a RTM company shall, in default of agreement, be determined by the appropriate tribunal.”

It can be seen that the list of persons in s.88(1) is identical to that in s.79(6). The effect of s.88 is that such persons (and only them) can claim costs incurred in consequence of a claim notice. This will include costs of the initial consideration of a claim and costs of an unsuccessful application by the RTM company to the FTT. The FTT's role is to determine the amount of the costs in the event of a dispute.

Section 89 deals with withdrawn claims. Section 89(2) provides that the RTM company's liability under s.88 is for costs incurred up to the time of withdrawal.

Section 90 deals with the RTM acquisition date where a claim is successful, which in the case of an opposed claim is three months after the FTT's determination becomes final.

Sections 96 to 103 apply where the RTM has been acquired. The RTM company takes over functions previously undertaken by a landlord both as to management and the grant of approvals, and it may enforce tenant covenants. Certain statutory functions are also transferred. See generally A1 Properties at [42]–[44]. Most relevantly here, s.96(2)-(5) provide:

“(2) Management functions which a person who is landlord under a lease of the whole or any part of the premises has under the lease are instead functions of the RTM company.

(3) And where a person is party to a lease of the whole or any part of the premises otherwise than as landlord or tenant, management functions of his under the lease are also instead functions of the RTM company.

(4) Accordingly, any provisions of the lease making provision about the relationship of—

(a) a person who is landlord under the lease, and

(b) a person who is party to the lease otherwise than as landlord or tenant,

in relation to such functions do not have effect.

(5) “Management functions” are functions with respect to services, repairs, maintenance, improvements, insurance and management.”

Section 112 contains definitions. It relevantly provides:

“(2) In this Chapter “lease” and “tenancy” have the same meaning and both expressions include (where the context permits)—

(a) a sub-lease or sub-tenancy, and

(b) an agreement for a lease or tenancy (or for a sub-lease or sub-tenancy),

but do not include a tenancy at will or at sufferance.

(3) The...