CHAPTER TWO – WHAT IS A MANAGER?
I think it is fair to say that most people, when asked what a manager of a block of flats was, would come up with something along the lines of a managing agent: a person who takes on the responsibility of managing the repairs, complaints and other day-to-day responsibilities of the landlord under the terms of the leases of those flats. Such a managing agent is, as the name implies, the agent of the landlord and ultimate responsibility for the discharge of the obligations remains with the landlord.
Many people may not appreciate that their leases may separate the obligations of the landlord as the freehold owner of the block from the responsibilities for repair of the block, maintenance of any estate, collection of rents and service charges and general management which are carried out by a management company as a third party to the lease. This occurs in what are known as “tripartite” leases involving (1) a lessor or landlord, (2) a leaseholder or lessee and (3) a management company. This arrangement is not quite the same as that involving a managing agent because the management company has its own specific obligations under the lease and can be sued directly by the other parties to the lease for any failure to comply.
A manager appointed by a Tribunal is more than either of these things.
The leading case on this area is that of Maunder Taylor v Blaquiere [2002] EWCA Civ 1633; [2003] 1 W.L.R. 379. In this case the lessee occupied a flat under a lease containing repair and redecoration covenants which the landlords breached. The landlords did not remedy the defects and did not appear to intend to do so; as a result, the tenant applied for the appointment of a manager. The LVT (as it then was called in England) granted the application and Mr Maunder Taylor was appointed the manager. He claimed service charges from the tenants in order to do the repair and redecoration work. The tenant counterclaimed damages to be set off against the service charges on the basis that the manager owed the tenant the same duties of repair as the landlords under the underlease. The judge at first instance held that there was no ability to set off damages for disrepair against a tribunal appointed manager because (1) the effect of appointing a manager was not that the manager stepped into the landlord’s shoes such that he assumed contractual responsibility for the performance of the landlord’s covenants under the lease; and (2) whilst the claims were sufficiently directly connected to give rise to a right of set-off in equity, it was not just and equitable to allow it in the circumstances (i.e., where a manager was appointed at tenants’ behest, to carry out the obligations of a landlord who had neglected the same, and the manager needed to call in service charges to get those obligations performed).
The Court of Appeal upheld the decision of the judge below albeit the reasons given were different. Giving the unanimous decision of the Court, Aldous LJ held the following from p.392:
“38 […] the purpose of Part II of the Act is to enable the tribunal to appoint a manager, who may not be confined to carrying out the duties of a landlord under a lease. The tribunal is enabled under subsection (1) to appoint a manager to carry out in relation to any premises to which Part II applies “such functions in connection with management” of the premises as the tribunal thinks fit. It is to be noted that the premises may be two or more (see section 21(4)) and that the manager will carry out functions of management. As subsection (11) makes clear, that includes repair, maintenance or insurance. There is no limitation as to the management functions of the manager; in particular the functions are not limited to carrying out the terms of the leases. That is not surprising as the manager will need to obtain estimates and do repairs. He need not use the landlord’s surveyor as required by the lease in this case.
39 […] [T]he tribunal is concerned to provide a scheme of management not just a manager of the landlord’s obligations […].
41 In my view the purpose of Part II of the 1987 Act is to provide a scheme for the appointment of a manager who will carry out the functions required by the court. That manager carries out those functions in his own right as a court-appointed official. He is not appointed as the manager of the landlord or even of the landlord’s obligations under the lease. That being so, Mr Maunder Taylor was a court-appointed manager appointed to carry out those duties required by the order appointing him. He did not carry on the business of [the landlord]. His claims were made in his capacity as manager.
42 […] The manager acts in a capacity independent of the landlord. In this case the duties and liabilities laid down in the order are defined by reference to the lease, but do not alter his capacity. In my view Mr Maunder Taylor’s right to the money claimed arose from his appointment not from the lease. It follows that there was no mutuality between his claim and that of [the tenant]. That being so, set-off is not possible.
43 […] Further, it must be possible for the manager to obtain funds necessary to manage the property even though the tenants, or some of them, had a right to refuse further payment, e g where they have paid and the landlord has absconded with the money. In such a case the tribunal decides the rights. Their jurisdiction is not confined to the terms of the lease. Part II envisages interim appointments, when action needs to be taken urgently. If so, the possibility of a set-off could obstruct that which Parliament intended Part II of the Act to achieve. Section 24 provides a mechanism for appointing a suitable person to manage the functions of flats when needed with the rights as needed.”
Longmore LJ added at p.393:
“50 It is clear to my mind that Parliament intended that a manager should, when appointed pursuant to section 24(1) of the Act, come in with a clean sheet and be able to collect service charges due from the tenants and use the money so obtained for repair of the premises. It would make a nonsense of the legislation if any or all of the tenants could set off, against that claim for service charges, claims that they might have against the landlord. Most tenants would have such claims. Some of those claims will have accrued before the appointment of their manager; other claims may be for continuing breaches and thus continue to accrue after the manager’s appointment. Mr Blaquiere elected to confine his claims in the present litigation to claims in the latter category. But the logic of his argument applies to claims in both categories. In my judgment, the use of such claims to prevent service charges being paid to the manager would be an attempt to thwart the plain legislative intent displayed in the relevant sections of Part II of the 1987 Act.”
So, the duties of a tribunal appointed manager are not confined to those of the landlord under the terms of the lease or statute. The tribunal’s order decides the nature and extent of the manager’s duties and powers albeit they can be defined by reference to the terms of the lease. The appointment of a manager does not have the effect of “suspending” or “disapplying” the obligations of the landlord which remain. A failure to carry out repairs would not prevent a leaseholder from suing the landlord for breach of the landlord’s covenant for repair under the terms of the lease for example.
It has been acknowledged in subsequent cases that the jurisdiction under Part II of the 1987 Act is a problem-solving jurisdiction: Chuan-Hui v. K Group Holdings Inc. [2021] EWCA Civ 403 at [29]. The aim is to put in place a properly functioning system of management and not merely to replace the landlord with someone more capable for the purpose of discharging only the landlord’s or management company’s lease obligations: see e.g., Kol v Bowring [2015] UKUT 530 (LC).
The effect of this is that the appointment of a manager can cure defects in the lease such as an inability to collect service charges for want of adequate provision in the lease, to ensure proper apportionment of service charges where the percentages do not add up or to include properties which are not demised in the contribution.
It is apparent from the above that a tribunal appointed manager is more than a managing agent or even a “substitute” landlord or management company. The manager can be monitored by the tribunal, directed to do things like repairs as specified in the tribunal’s order or – on subsequent direction from the tribunal, and expected to follow all proper professional codes of practice and use all income derived from the service charge for the management of the property.
Leaseholder nomination
When making the application for the appointment of a manager, leaseholders must complete a section of the form (detailed later) which nominates a manager for appointment. This is likely to be a professional managing agent and that agent is more likely to be appointed if they have some experience of tribunal appointment already. That said, there may be circumstances where a tribunal will appoint a manager without professional qualifications: e.g., Howard v Midrome Ltd [1991] 1 EGLR 58. That is not to say that the leaseholders themselves cannot ask to be appointed as a manager, and some do, facilitated by setting up a limited company for that purpose. That company if approved can then appoint a professional managing agent.
The manager will be expected to evidence their suitability for appointment and so leaseholders should begin an exercise of assessment of who will be nominated early on in the process. The nominated manager will need to show their credentials, understanding of the role especially as an officer of the tribunal and knowledge of all relevant codes of management practice. They will need to confirm their willingness to act in accordance with the tribunal’s direction and the codes. If they are a professional managing agent, they will also need to possess adequate indemnity insurance.
POINTS TO NOTE:
- A tribunal appointed manager does not step into the shoes of the landlord. They are a court appointed manager and their powers are freestanding and not derived from the terms of the lease. Accordingly, for example, they can make charges for services separately from the service charge mechanism in the lease.
- A manager cannot be sued in their personal capacity for the landlord’s failures under the lease whether historic or post appointment.
- The applicants for an order must be able to identify a manager they wish to nominate for appointment at an early stage (i.e., when the application is made).
- The characteristics and experience of a manager is set out in the tribunal’s helpful Practice Direction annexed to this book.