Losing control: Tenants’ right to manage

Leaseholders can acquire management functions of their building from the landlord/management company where the building qualifies and there are sufficient numbers of tenants or “flats”.

What is a flat?

However, a recent case shows that “flats” can be units that are not traditional family homes. Ordinarily, qualifying leaseholders in a building can take control of the management of the building through the Right to Manage (RTM) using a company set up by them for this purpose (RTM Company). If successful, control of functions such as repairs, insurance and the carrying out of major works pass to the RTM Company. The right is contained within the Commonhold and Leasehold Reform Act 2002.

One of the requirements for exercising the RTM is that there are long leaseholders of flats within the building. A “flat” is defined as a separate set of premises which, among other things, must be constructed or adapted for use for the purposes of a dwelling. Dwelling is defined as a building or part of a building occupied or intended to be occupied as a separate dwelling.

The key question before the Upper Tribunal (Lands Chamber) in Q Studios (Stoke) RTM Co Ltd v Premier Grounds Rents No 6 Ltd and another [2020] UKUT 197 (LC) was what is a “flat” for the purposes of the RTM?

Facts of the case

The building in question was a purpose-built block of studio accommodation known as Q Studios in Stoke on Trent (“the Building”). The studios were intended for use as student bedsits, described as “studystudios”.

Each of the 292 “studystudios” contained en-suite facilities, together with a sitting area, double bed and small kitchen. The building also included space for a ground floor common lounge/cinema area and a gym.

Long leases of the studystudios were sold to investors (the Leases), with the intention that the various studios would be sub-let to students once built.

The leases demised (transferred) the individual “studystudios”, together with a right to use the common parts of the building, including the communal facilities (i.e. the gym and communal lounge/cinema).

The RTM Company claimed the Right to Manage on the basis that the “studystudios” were “flats” held by qualifying tenants. It claimed that, to be deemed a “flat”, consideration of the physical character of the property was the only criteria to use when deciding whether it is occupied or intended to be occupied as a separate dwelling.

The freeholder and management company challenged the RTM claim on the basis that:

• Dwelling means specifically “a separate dwelling”. If a unit has access to shared living accommodation (such as the ground floor common lounge/cinema area and gym), the dwellings are not separate
• The studios were not dwellings in this case because they were not intended to be the home of the lessee (the investor) nor the occupier (students who would only use the studio as a residence whilst at university)

Tribunal Decision

The Tribunal decided in favour of the RTM Company. In reaching its decision, the Tribunal held that the question of what constitutes a flat is objective. It does not matter what the respective parties’ intentions as to use of the studystudios are or were. What is important is the physical character of the unit.

The Tribunal considered that if kitchen facilities (for example) were shared between units, they would not be “flats”. Student lets of bedrooms only with other living facilities being shared have previously been held not to be “dwellings”.

Given however that there were individual kitchen and bathroom areas in each studystudio, with ample living space and that the shared facilities on the ground floor were not large enough to be shared between all occupiers, the studios were “flats” for the purposes of the RTM. Consequently, the RTM Company was entitled to acquire the RTM for the Building.

Implications of the Tribunal’s decision

The decision is significant and extends beyond student letting accommodation. Where a purpose-built development contains so called “self-contained” living spaces this could potentially be subject to an RTM claim. The decision may affect other developments, for example, in care homes with shared facilities.

Developers of similar schemes will therefore need to be alert at design stage to ensure that, if the RTM is to be avoided, care is taken to build units which would not be sufficiently liveable to constitute “flats” in themselves.

In addition, current freeholders and management companies should be alert to potential RTM claims, where previously the risk might have seemed small.