RTM Company Bound by Terms of Existing Lease

The Right to Manage (RTM) is a method by which leasehold property owners can take over the management of the building they live in. However, an RTM company is bound by the terms of leases that existed before it was set up, as demonstrated by a recent case in which a leaseholder of a flat successfully challenged elements of her service charges.

The leaseholder brought an application under Section 27A of the Landlord and Tenant Act 1985 for a determination of liability to pay service charges. An RTM company, of which she was not a member, had taken over management of the building in 2016. The First-tier Tribunal (FTT) decided that the RTM company was the appropriate party to respond to her claim.

The RTM company’s managing agent was charging her just over 3.7 per cent of the total service costs although her lease specified an apportionment of 1.04 per cent. The RTM company claimed that the amount of 1.04 per cent related to the service charge for the landlord’s entire estate, rather than the building itself, and the FTT should instead consider whether an apportionment of 3.7 per cent was reasonable. Alternatively, if the lease provided for an apportionment of 1.04 per cent, that provision should be set aside on the basis that circumstances had radically changed since the lease was entered into.

The FTT noted that there was no reference to a figure of 3.7 per cent in the lease. Rejecting the suggestion that the creation of an RTM was a radical change, the FTT concluded that the apportionment should have been 1.04 per cent.

The leaseholder also claimed that she had continued to make monthly payments as required under her lease, but the managing agent had sent her demands for the whole year, imposing penalty fees for non-payment. The RTM company asserted that, having taken over, it could agree with the managing agent to do things differently. However, the FTT observed that the leaseholders had not been party to such an agreement and payment conditions could not be imposed on them. The penalty fees were therefore not payable.

In respect of charges for parking spaces, the FTT rejected the RTM company’s argument that these were not service charges and therefore not within the FTT’s jurisdiction. They plainly met the definition of service charges contained in Section 18 of the Act. However, the FTT considered that they were reasonable.