Replacing Leasehold Management Through the FTT
The Landlord & Tenant Act Act 1987 gives leaseholders the right to replace management via the First Tier Tribunal Property Chamber. This is a fault-based process (unlike Right to Manage, which isn’t) and is available to either a single leaseholder or a group when they believe that the requirements of the lease and statutory laws are not being met. The right is not available to any leaseholder with a lease granted of less than 21 years.
It is usually taken when not only has mediation failed but when Right to Manage, collective enfranchisement (group action to purchase the freehold) and compulsory acquisition of the freehold (when the current freeholder has failed to meet their legal obligations or is deemed ‘absent) cannot be met.
Note: This also applies to where RTM has been exercised but there has been no improvement in the standard of management. Applying for an LVT-appointed manager effectively brings RTM to an end.
Notice to Freeholder
A Notice on the freeholder can be served under s22 of the Landlord & Tenant Act 1987 (preliminary notice by tenant), giving details of what the breaches are and suggest how they they can be remedied. If such breaches are not remedied within a reasonable time frame this is when an application to the FTT can be made to ask them to appoint a manager.
There has to be a least one of the following that applies:
A breach of obligations to the leaseholders;
- Unreasonable service charges have been demanded, or proposed;
- Unreasonable variable administration charges have been demand or proposed;
- There are breaches of the relevant codes of practice (the RICS and AHRM Codes) under s87 of the Leasehold Reform Housing and Urban Development Act 1993 (aproval by Secretary of State of codes of management practice);
- There has been failure to comply with s42 of the Landlord and Tenant Act 1987 (service charge contributions to be held in trust) and;
- Any other circumstances where it is just and convenient for the order to be made.
Nominating a Manager
The leaseholder who submits the application has to also nominate their choice for who is to be appointed as Manager. It doesn’t necessarily have to be another managing agent so it could be a leaseholder or any other responsible person. If it is the latter then they could choose to delegate tasks to a managing agent.
The form and regulations require the qualifications of the nominated manager to be stated. This doesn’t mean that the nominee must be a qualified property manager although it is often appropriate. However, the absence of qualifications is not necessarily an obstacle to appointment, although each case will depend on its own circumstances.
Generally the Tribunal will want to appoint a professional who can demonstrate that they:
- Fully understand what is required of them;
- Will follow one of the approved statutory codes of management (such as the RICS Residential Service Charge Code);
- Will have sufficient professional expertise and hold insurance.
The proposed manager will normally be required to attend any hearing and in effect will be interviewed by the Tribunal to satisfy them as to a) suitability and b) that it is ‘just and covenient’ to replace existing management. Generally the Tribunal will want to be satisfied that the current appointee has not been complying with the lease and statute. The Tribunal will also take account the views of other leaseholders and the freeholder and determine whether placing a manager will improve the situation.
Making the Order
Once the FTT has decided whether the nominee is suitable and an appointed them accordingly, that person or company will manage the property in accordance with the Order. The FTT not only has wide discretion in the making of the Order, but also the matters to be included and the conditions to be imposed. The Order may make specific directions in certain matters or provide procedures for subsequent applications by the new manager to seek directions.
The Order may include provision for:
- The appointment to be temporary or without a time limit;
- The manager”s costs and fees to be paid by the landlord, the tenants, by any relevant person, or a combination of these parties;
- The manager to be entitled to pursue claims relating to actions prior to his appointment;
- The manager to assume rights and liabilities relating to contracts even though he is not party to them;
- Prescribing the fees the manager can charge;
- The length of the appointment;
- Any other rights given to them.
The Order will in effect provide the Manager with the level of authority that the FTT considers appropriate to enable taking control of the management of the building. The Manager is an appointee of the Tribunal and responsible to the FTT in the first instance and is not required to seek or accept instructions from the freeholder or from the leaseholders.
If anything is not covered or difficulties arise, any party (including the manager) can then apply to the Tribunal for further directions. Typically an appointment will initially be for two or three years and before the Order lapses it is possible for the parties to apply for an extension of the Order if they are happy to do so.
Once the new Manager is appointed, the freeholder ceases to have management control over the building to the extent set out in the Order. The LVT can require the Landlord to provide all necessary documentation, accounts and other information to the new Manager as is necessary for the management of the building.
The new managing agent is deemed an agent of the Tribunal and as such is independent of both the freeholder and the leaseholders. They will approach the Tribunal for directions if any difficulties arise. If leaseholders remain dissatisfied with the performance of the agent they can apply to the Tribunal for a variation of that order but the involvement of the Tribunal will invariably raise the cost of management.
Variation of the Order
The FTT may, on the application of any interested party (including the Landlord or the leaseholders, and including those leaseholders who were not party to the original application) vary or discharge an Order of Appointment. If the Order is discharged, the management will revert to the Landlord. In varying or discharging an Order, the FTT will need to be satisfied that by doing so it will not lead to a recurrence of the circumstances that led to the original Order, and that it is just and convenient in all the circumstances to do so.