The REAL reason Firstport fought Settlers Court RTM

Background of the Case

• FirstPort Property Services Ltd is one of the UK’s largest residential property management companies, managing estates with multiple blocks of flats.
• Settlers Court RTM Company Ltd was formed by leaseholders of a block called Settlers Court in East London to exercise their statutory right to manage their building under the 2002 Commonhold and Leasehold reform act.
• The dispute arose because the estate contained shared facilities (gardens, car parks, access roads) used by multiple blocks and the Settlers Court RTM Company was granted the right to manage the building and the wider estate shared with nine other blocks (but not management of the other nine blocks)

Legal Journey

• First-Tier Tribunal & Upper Tribunal: Initially ruled in favour of Settlers Court RTM, relying on the earlier Gala Unity case, which suggested RTM rights could extend to shared estate facilities.
• Supreme Court Decision (January 2022):
  The Court unanimously overturned Gala Unity and ruled in favour of FirstPort:
  • RTM rights apply only to the building and any appurtenant property exclusively enjoyed by that building.
  • They do not extend to shared estate facilities used by other blocks.
  • Allowing RTM companies to manage shared facilities would create “absurd and unworkable” outcomes because other leaseholders would have no legal relationship with the RTM company managing those areas.

FirstPort will claim that they pursued this to solve the problem of a dual management position being created. It was for a far more nefarious reason.

Firstport has a number of developments tied to them by virtue of being written into lease agreements as a party (manager). Under contract law, it is only possible to assign the benefits of a contract, not its liabilities. As such, these customers are tied to Firstport unless they are able to get every leaseholder to agree deeds of release and novation. As there is little chance of this being achieved, the leaseholders have very little leverage with Firstport and have to accept whatever level of service is on offer. Even worse, if challenged, Firstport usually has the ability to claim back it’s legal costs in fighting any legal challenge via the very same lease agreements where they are named as a party.

The right to manage was designed to allow leaseholders to rid themselves of poorly performing managing agents and, prior to the Supreme Court decision on Settlers Court, estates incorporating several blocks of flats and freehold properties paying an estate charge were able to gain the right to manage for the entire estate (including appurtenant property) via a single right to manage company with the requirement that 50% of the leaseholders needed to be in favour of the right to manage.

Since the Settlers Court judgement determined that the right to manage can now only be granted at the building level, this has strengthened Firstport’s position with respect to estates where there are multiple buildings and NOT just estates where the contractual entrenchment caused by Firstport being a party to leases exists.

On multi-building estates, each building now has to set up their own right to manage company adding to both the costs of the process and subsequent running costs of each building. Worse than that, is Firstport retains the right to manage the wider estate even when every building on the estate has been granted the right to manage.

So rather than end the “dual management” situation, they have actually exacerbated it.

Additionally, this was a risk-free challenge from Firstport as the right to manage legislation allows the freeholder to recover all legal costs.

In the opinion of the author, the right to manage legislation needs to be amended to allow estates where a managing agent is a named party to be able to apply for the right to manage as a single, qualifying entity.

Furthermore, the right to manage should include freehold properties paying an estate charge. At present, these types of property have no access to the right to manage or any legal route to remove an underperforming managing written into their transfer documents as a manager.

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