Can a Right to Manage Company forfeit a residential lease?

What happened in the case?

Eastpoint Block A RTM Company Ltd (Eastpoint) was a RTM that had taken over the management of a block of flats in Thamesmead from the freeholder.

In October 2021, Eastpoint lodged an application with the FTT seeking a determination that breaches of a lease had occurred. Eastpoint was alleging that one of the leaseholders, Mr Otubaga, had breached the terms of his lease by using the flat to conduct a business and by permitting a subtenant to cause nuisance to other leaseholders and occupiers in the block.

What was decided?

The FTT dismissed the application on the basis that Eastpoint was not ‘the landlord’ for the purposes of the Act. As a result, the FTT could not deal with the matter as it had no jurisdiction to consider the application. Eastpoint appealed the decision.

On appeal, the Upper Tribunal agreed with the FTT. It confirmed that only a landlord can bring such a breach determination application under the Act and an RTM is not a landlord.

Practical points to take away for this case

Whilst a Right to Manage Company has authority to manage the day to day activities of a building and has the ability to collect sums owing under the lease, when a RTM acquires the right to manage, it does not become a landlord. As such, a RTM cannot seek to bring a lease to an end by forfeiture and it does not therefore have the standing to take any procedural steps in that regard, including seeking a breach of lease determination in the Tribunal or the Court.

A Right to Manage Company does not therefore have the power to forfeit a lease. That right will solely rest with the landlord with the reversionary interest.

From a lender’s perspective, this recognition by the Upper Tribunal should be noted. Any current lender policy to interact with and respond to RTMs in relation to ‘threats’ to forfeit a leasehold security should reflect this legal position. Intervention by a lender with the aim of protecting its security will be illusory in such circumstances. If monies are paid by a lender to a Right to Manage Company and then added to the mortgage debt, a customer will have legitimate reasons to complain, in view of the lack of any actual threat to the security. This is also a view that is likely to be shared by the Financial Ombudsman, which might rule that such sums added to the mortgage debt should be credited back to the mortgage and instead be borne solely by the lender.

How we can help

At Walker Morris we have an experienced Housing Management & Litigation team which can help you with any residential landlord and tenant/threat to security queries, just give Karl Anders, Isabel Clough or Olena Jarockyj a call.

[1] Eastpoint Block A RTM Company Ltd v Otubaga [2022] UKUT 319 (LC)