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Buyer of residential building takes free of management order not showing on the register

The Upper Tribunal has held that, on registration, a buyer of property for valuable consideration took free of an order appointing a manager made under the Landlord and Tenant Act 1987.

Facts

In Urwick v Pickard, a listed building containing twelve flats was let to tenants on 999 year leases. The flats shared communal grounds and gardens with six freehold houses. The estate was owned and managed by Ditton Place Management Company Ltd (DP) but after complaints about the way it managed the estate, the tenants of three of the flats applied to appoint a manager under Part II Landlord and Tenant Act 1987 (LTA 1987).

The First Tier Tribunal (FTT) made an order appointing a manager, stating that the order applied to DP and any successor in title. DP was directed to register the management order against its freehold title but did not do so.

The tenants later exercised their right of collective enfranchisement and, having set up a company to purchase the property, the freehold of the building containing the flats was transferred to it. The company’s title was registered at the Land Registry.

Subsequently, the tenants applied to the FTT to vary the management order to ensure it covered the company’s registered property but excluded the communal land. The manager also applied to the FTT, seeking clarification as to whether he was still required to manage the whole estate or just that part of it that had been purchased by the tenants.

The FTT varied the management order by changing the definition of the premises to include a reference to the company’s title. It also required the tenants to procure that the company would observe and perform the terms of the management order.

The tenants appealed to the Upper Tribunal (UT), arguing that DP’s failure to register the original management order meant that the order was now void, and the FTT was not entitled to vary it in the way it had.

The question the Upper Tribunal had to decide was: if a management order is not mentioned on the title of a property, does a purchaser of that property for valuable consideration acquire it free of the effect of the order?

Decision

The Upper Tribunal held that the company purchaser was not bound by the management order because it was not protected on the land register.

It said the LTA 1987 contained no particular provisions concerning the effect of a change of ownership of premises that had been made the subject of a management order. Instead, s.24(8) stated that the Land Registration Act 2002 (LRA) applied in relation to a management order as it applied to an order appointing a receiver or sequestrator of land. Under s.87 LRA, the only way of protecting an order appointing a receiver or sequestrator (and therefore a management order) was by the entry of a restriction.

A restriction does not protect the priority of an interest affecting a registered title but it does prevent the registration of a disposition affecting that title unless the terms of the restriction have been observed.

Under s.29(1) LRA, unprotected orders are postponed to a new purchaser if a registrable disposition is made for valuable consideration. Therefore, the result of registering the transfer of the flats and portion of the grounds to the tenants' nominee company was that the management order was postponed to the nominee's interest under the disposition, and the nominee was not bound by the order.

So, DP’s failure to register the management order as a restriction meant that the nominee purchaser took free of it. The manager was also no longer able to discharge his management functions under the order.

As a result, the FTT should not have made the variation. Some additional mechanism was needed whereby any future owners (including the nominee) would have had to be joined to the initial FTT proceedings to make them subject to the order. The FTT could therefore have made a new management order but could not vary the existing order to make the nominee subject to it.

The Upper Tribunal pointed out that the management order could have contained more effective provisions that could have avoided the difficulties that ensued. For example:

  • the manager could have been made responsible for entering the restriction rather than DP
  • the FTT could have been more specific in its direction to register the order forthwith. It could have set out the wording of the restriction needed, a timeframe for registration and penalties for non-compliance
  • Had it been registered, the restriction could have been more proscribed as to what was needed from any new purchaser before a sale could be registered, such as the manager having to reasonably consent to any sale -although this may well be too restrictive in some cases).

Comment

This case is distinctive as it involved the same tenants first applying for a management order, and then purchasing the freehold themselves such that they wanted the management order to apply following the purchase. More commonly a buyer will be entirely separate from the existing parties. Nevertheless, the case is a good demonstration of the need to carefully consider how the management of estates will function if and when ownership changes hands.

Urwick and another v Pickard [2019] UKUT 365 (LC) (22 November 2019) (Martin Rodger QC).

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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