Danescroft RTM Co Ltd v Inspired Holdings Ltd and another

Right to manage – Commonhold and Leasehold Reform Act 2002 – RTM company – Applicant RTM company applying to acquire right to manage residential estate on behalf of tenants of flats – Whether precluded from qualifying as RTM company on ground that prior RTM company formed by first respondent landlord already in existence in relation to the premises – Section 73(4) of 2002 Act – Application allowed The applicant was a RTM company formed in August 2012 for the purpose of acquiring the right to manage a residential estate on behalf of the tenants of flats pursuant to Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002. The estate comprised 65 flats in five blocks. The first respondent owned the freehold of the entire estate, save for some garages that were owned by the second respondent.In October 2012, the applicant served five separate notices, one for each of the five blocks, under section 80 of the Act claiming to acquire the right to manage. By its counternotice, the first respondent asserted that the applicant was precluded, under section 73(4) of the Act, from qualifying as a RTM company within section 73(2) since another RTM company already existed in relation to the relevant premises. The other company in question was connected to the first respondent and had been formed by it in April 2013 with the object, under its articles of association, of acquiring the right to manage the estate.The applicant applied for a determination of its right to manage the estate. It contended that section 73(4) should be construed purposively to apply only where there was a genuine prior RTM company formed to enable tenants to acquire the right to manage; it claimed that the company formed by the first respondent was merely a device to defeat the tenants’ entitlement to acquire the right to manage and that the relevant parts of its articles of association were a sham.The first respondent argued that section 73(4) should be construed literally and that it did not prevent a landlord from forming a RTM company, which it might legitimately wish to do in order to relieve itself of the burden of managing a property.Held: The application was allowed. The purpose of the legislation was to enable tenants to become “enfranchised” by acquiring the right to manage. The language of Chapter 1 of Part 2 to the 2002 Act was solely concerned with the mechanics by which tenants could acquire that right. It made no mention of the landlord also being able to acquire the right to manage. The landlord would invariably already have that right by virtue of the relevant lease. Further, an application to acquire the right to manage was frequently based on the dissatisfaction of tenants with the landlord’s management of the property. Where an RTM company was already in existence in relation to premises, section 73(4) acted as an absolute bar to any other RTM being recognised as such under section 73(2) of the 2002 Act. Thus, it were construed literally, section 73(4) would enable an offending landlord to form a RTM company before the tenants did so, in order to defeat the tenants’ claim to acquire the right to manage. That would lead to an absurd result and could not have been the purpose of the legislation.That conclusion was not altered by the possibility that one or more tenants could theoretically apply to become members of a landlord’s RTM company. That was unrealistic and did not accord with the practical reality of the landlord-and-tenant relationship. No landlord would voluntarily relinquish the management of a property. The legislation was intended to provide tenants with a form of “compulsory acquisition” of the right to manage. If a landlord were entitled to rely on section 73(4), it could simply ignore any application by a tenant to become a member; alternatively, there might be insufficient tenant members to exercise control over the management of the property.It followed that section 73(4) should be construed purposively to give effect to the legislation and its purpose of enabling tenants to acquiring the right to manage. It could not have been intended that a landlord could take advantage of section 73(4) with a view to defeating a claim by tenants to acquire the right to manage.  The company formed by the first respondent had been intended for the sole purpose of defeating the applicant’s claim to acquire that right. Accordingly, the first respondent could not rely on section 73(4) to defeat the applicant’s application. The applicant was entitled to acquire the right to manage.Per curiam: It was arguable that no RTM company formed by a landlord could ever be an RTM company within the meaning of section 73(2) of the 2002 Act. The situation envisaged by section 73(4) was the prevention of multiple and competing claims by rival RTM companies formed by tenants in properties that were subject to extensive leasehold interests.Mr Nathaniel Duckworth (instructed by Dean Wilson LLP, of Brighton) appeared for the applicant; Simon Serota, of Wallace LLP, appeared for the respondents.Sally Dobson, barrister