Appointment of a Manager

What is the appointment of a manager?

This right is available to one or more leaseholders under the Landlord and Tenant Act 1987, as amended by the Commonhold and Leasehold Reform Act 2002. It allows for an application to be made to a First-tier Tribunal (FTT) for the appointment of a new manager. If successful, the landlord remains the same and a new manager will be appointed by an order made by the FTT.

In what circumstances might a leaseholder consider the appointment of a manager?

Where any aspect of the management of a property by the landlord or the appointed manager might be regarded as very unsatisfactory by one or more leaseholders, an application could be made to a FTT for the appointment of a manager.

It is the leaseholder who will need to prove serious fault at the FTT and evidence suggests that this is extremely difficult to achieve, especially to remove the manager on a permanent basis. A far more effective way of gaining control of the management, if eligible, is by exercising the Right To Manage (RTM) or, if the finance or a loan can be raised, by collectively buying the freehold. (Please see the LA Information Sheets 111 Right to Manage and 113 Enfranchisement).

Members of the Leaseholder Association (LA) should seek advice before applying for appointment of a manager and any leaseholder proceeding with this action is advised to instruct a solicitor with the relevant experience and to approach a professional manager who they would like to be appointed.

Are any landlords exempt from the appointment of a manager?

There is no right to apply to the FTT for the appointment of a manager where the landlord is:

a local authority;
a registered provider of social housing (formerly a housing association);
a fully mutual housing association or a charitable housing trust; or
resident on the premises and it is a converted property, that is not purpose-built, and less than half of the flats have long leases.

Does the building qualify for appointment of a manager?

An application must cover the whole, or part of, a building containing two or more flats that are held on long leases.

What are the grounds for a leaseholder to exercise appointment of a manager?

Unlike the exercise of RTM, the leaseholder has to prove fault at an FTT for an order granted for the appointment of a manager. The FTT should be expected to make an order if it is just and convenient in all of the circumstances and at least one of the following applies:

The landlord or current manager has breached an obligation to the leaseholder under the lease with regard to the management of the building.
The landlord or current manager has demanded, or is likely to demand, unreasonable service charges or unreasonable administration charges. This includes where service charges are unreasonably high in relation to works, that the works have been carried out to an unnecessarily high standard, or that the work is sub-standard with the result that additional charges are or may be incurred by leaseholders. It is not necessary for the service charges or administration charges to have been previously determined as unreasonable by a FTT, although this should prove to be useful evidence.
The landlord has failed to comply with a relevant provision of a Government approved management code of practice such as the Association of Retirement Housing Managers (ARHM) code of practice, the Royal Institution of Chartered Surveyors (RICS) Service Charge Residential Management Code; the RICS code is followed by members of the Association of Residential Managing Agents (ARMA).
There are any other circumstances which might make it just and convenient to appoint a new manager.

Is there any qualification for someone to apply for the appointment of manager?

Yes, they must be a long leaseholder. This is a leaseholder with a lease which was originally granted for longer than 21 years.

If the lease has three parties which would usually be the leaseholder, a freeholder and a separate managing agent, can an application still be made for the appointment of a manager?

Yes, as under the Commonhold and Leasehold Reform Act (CLRA) 2002, appointment of a manager can be exercised in respect of leases with three parties, often called tripartite leases. Leaseholders should be aware that in these circumstances all notices required by the CLRA must be served on the manager who is a party to the lease.

How many leaseholders can join an application for the appointment of a manager?

It can be exercised by one or more leaseholders however it may be more effective if a group of leaseholders take this action collectively.

If a lease is held by joint tenants i.e long-leaseholders, must all of them agree to an application for the appointment of a manager?

No, although it may be preferable for all of the joint leaseholders to join the application it can be made by just one of the joint leaseholders.

If there are several blocks of flats on an estate can an application for appointment of a manager be made in relation to the entire estate?

Yes, as long as at least one leaseholder from each block joins in the application to the FTT.

How does the procedure for the appointment of a manager begin?

The leaseholder must serve a Preliminary Notice under Section 22 of the Landlord and Tenant Act 1987 on the landlord or manager before any application to the FTT can be made for the appointment of a manager, The Notice is to clarify that the appointment of a manager is being applied for and it must state:

the name and address of the leaseholder making the application (and an address for the service of Notices if different);
that the leaseholder intends to seek an order, but also that they may agree not do so if the requirements set out in the Notice are complied with;
the grounds on which the order will be requested, and the matters that will be relied upon in establishing those grounds; and
those matters that are capable of being remedied, and that they should be remedied within a reasonable time period, specified in the notice.

Once the reasonable time period has expired, if the leaseholder is not satisfied that the issues have been remedied or if there are other grounds the leaseholder can then proceed with an application to the FTT for a manager to be appointed. At this stage, the leaseholder has to nominate a new manager which could be an individual, a resident management company or a professional manager.

Is it always necessary to serve a Preliminary Notice?

The leaseholder may apply to the FTT for an order to dispense with the Preliminary Notice. This would only be appropriate if there are circumstances where the FTT might be satisfied that it would not be reasonably practicable to serve it. The FTT may direct the leaseholder to another course of action, such as seek conflict resolution, before considering the application for the appointment of a manager.

The Preliminary Notice notifies the landlord at an early stage of the leaseholder’s intention to replace the management and provides an opportunity for the landlord or the appointed managers to rectify the alleged deficiencies. A leaseholder applying for dispensation will need to produce evidence to convince the FTT that it would not be practical to serve the Preliminary Notice on the landlord.

What happens at the hearing?

At the hearing the leaseholder or their representative has to convince the FTT that it is ‘just and convenient’ to appoint a manager. There will be directions requiring the leaseholder to submit evidence of the alleged breaches, and directions for the landlord or current manager to reply. It must be emphasised that, unlike RTM, appointment of a manager is a fault based procedure and the FTT must be satisfied not only that breaches have taken place but that it is just and convenient to make an order.

The FTT will need to be satisfied that the current manager has not been complying with the lease, the relevant legislation and/or the approved codes of practice and that it was not just a one-off discrepancy. The FTT will also take into account the views of other leaseholders, the landlord and the current managers. The FTT will consider all of the evidence to try to determine if a new manager would significantly improve the management of the building.

Who should be nominated to manage?

The leaseholder taking the action will need to nominate a person or organisation of their choice that they wish to be appointed as manager. However, it should be noted that the appointment will be entirely at the discretion of the FTT. This does not have to be a professional manager but LA would recommend the selection of a manager who is a member of an approved trade body, such as ARMA or the ARHM. If an appointment of a manager is successful, that person or organisation will be required to manage the premises in accordance with the order made by the FTT.

The regulations state that the qualifications of the nominated manager must be disclosed. Whilst any relevant qualifications are likely to be looked upon favourably by the FTT a lack of qualifications will not necessarily prevent a manager from being appointed.

Unlike the usual situation where the manager is instructed by the landlord, whoever the leaseholder proposes must be willing to accept instructions from the FTT of how to manage the building and any grounds. The proposed manager will normally be required to attend any FTT hearing and to respond effectively to questioning by the FTT in order to show they will be suitable. The FTT will issue directions to the proposed manager and these will require them to:

clarify that they agree to being appointed;
confirm the terms upon which they would be appointed; and
provide details of their management experience.

Experience suggests the FTT will prefer to appoint professional managers who show they;

entirely understand what is required of them;
agree to follow one of the government approved codes of practice;
have sufficient professional expertise; and
hold the appropriate insurance.

The reason for this is that the new manager, who might also have to act as a receiver, is appointed by the FTT and accountable to them rather than to the landlord or the leaseholders.

What order might be granted?

The FTT has wide discretion in the making of an order, the matters to be included and the conditions to be imposed. The order may make specific directions in certain matters or provide procedures for subsequent applications by the new manager to seek directions.

The management order will usually set out in detail the terms of appointment and may include provision for:

the appointment of a manager to be for a temporary period, such as two years, or without a time limit;
the level of the manager's costs and fees to be paid by the landlord, the leaseholders, by any relevant person, or by a combination of these parties;
the new manager to be entitled to pursue claims relating to actions prior to their appointment; and
the new manager to take responsibility for contracts even though they will not be party to them.

The order will also give the new manager a level of authority that the FTT decides is appropriate to enable control of the management of the building. The new manager will be accountable to the FTT and is not required to seek or accept instructions from the landlord or from the leaseholders. The new manager must ensure that they comply with all of the provisions of the lease and the legislation and will usually be expected to manage in accordance with one of the approved codes of good practice.

The FTT can go further than the terms of the lease in terms of the powers they give the new manager. For example, if the lease does not allow for the payment of service charges in advance the FTT might permit a new manager to set a budget and demand a reasonable service charge in advance.

If it is considered that anything is not covered by the order or if difficulties arise, any party, including the new manager, can then apply to the FTT for further directions. Typically an appointment of a manager will initially be for two or three years and before the order expires it is possible for any of the parties to apply for an extension.

Once the new manager is appointed, the landlord will no longer have control of the management of the building as this will be determined by the order issued by the FTT. The FTT has the power to instruct the landlord to provide all of the financial documents, such as accounts and other supporting information to the new manager that they would need to effectively manage the building.

This new manager need not be a managing agent, but could be a leaseholder or other responsible person. The new manager could delegate some or all of the tasks to a managing agent, but the ultimate responsibility remains with the manager appointed by the FTT.

What happens where the Right To Manage has already taken place?

Where the RTM has already been exercised but where a leaseholder or the landlord considers the management is proving to be unsatisfactory, an application may be made to a FTT for the appointment of a manager, which, if successful, would bring RTM to an end.

If the FTT is satisfied that a case of this type merits such action, it may make an order to remove the control of the RTM company and transfer this to a manager named by the FTT.

Can the order be varied or discharged?

If there is an application by any interested party (including the landlord or the leaseholders, and including any leaseholders who were not party to the original application) the FTT may vary or discharge an order for the appointment of a manager. If the order is discharged, the management will revert to the landlord or whoever they wish to appoint. When deciding to vary or discharge an order, the FTT will need to be satisfied that by taking this action it will not result in the inadequate standard of management that led to the original order and that it is just and convenient in all of the circumstances to do so.

What is a compulsory Acquisition Order?

Where a landlord is in breach of an obligation under the terms of the lease and it appears that this is likely to continue, or where premises have been subject to the appointment of a manager under Section 24 of the Landlord and Tenant Act (LTA) 1987, the qualifying leaseholders may make application to the High Court or County Court for an Acquisition Order to acquire the landlord's interest. Where the application is based upon a manager having been appointed under Section 24 of the LTA, the manager must have been appointed for no less than two years on the date of application to the FTT for acquisition.

The leaseholders must serve a Preliminary Notice on the landlord before an application can be made to the court, unless the court has agreed that this notice can be dispensed with. Any Order for Acquisition is subject to the following conditions, that:

there are two or more flats;
at least two-thirds of the flats in the building are held by qualifying leaseholders, and
the required majority of qualifying leaseholders make the application.

If the order is made by the court, it will be referred to the FTT to determine the terms and the price on which the landlord's interest may be acquired, unless this has already been negotiated and agreed between the landlord and the leaseholders making the application.

The LA would advise its members to request further advice before seeking a compulsory acquisition order, as it is a complex process and there are other exceptions to the above.

Conclusion

The appointment of a manager is difficult to achieve but it is an alternative where a majority of the leaseholders will not support RTM, because the action can be taken by just one leaseholder in a block. There may be buildings where the leaseholders are not eligible for RTM or where the exercise of RTM would be problematic i.e mixed schemes or where there a large number of absentee leaseholders, and the appointment of a manager would be the only alternative to remove under-performing or over-charging managers.

Appointment of a manager can ensure that a building is efficiently managed particularly when the leaseholders are satisfied that it is not being carried out properly but they do not want to become involved in the management or they cannot agree on exactly how the building should be managed. Another benefit of appointment of a manager is that an entirely independent manager is appointed who is personally accountable to the FTT as the order always names a specific individual.

There are situations where leaseholders have taken over management, either as a result of enfranchisement or RTM and conflict regarding the management sometimes arises. In these circumstances the imposition of a manager by a FTT may prove to be effective. Leaseholders who succeed in an action for the appointment of a manager will have no liability for the management. When forming and setting up an RTM company there will be costs and responsibilities which the participating leaseholders are jointly and severally liable for. In addition to this, the leaseholders who become directors of an RTM company must follow rules and regulations governing the activities of companies.

Please see the LA information sheet 101 Glossary for a precise explanation of the terms used in this information sheet. The LA recommends that if there is dissatisfaction with the level of charges and standards of management that members contact the LA to seek advice, as it may be possible to resolve these problems though conciliation. Where these problems cannot be easily resolved and there is wider discontent, leaseholders may wish to consider RTM, which does not require evidence of any fault, before the appointment of a manager.

Disclaimer: This is a very general explanation of the subject. Where issues are not governed by statute the information is our opinion or best practice. You are advised to seek professional advice before acting on the guidance contained herein. Whereas The Leaseholder Association endeavours to ensure that published information is correct, it does not warrant its completeness or accuracy. The Leaseholder Association assumes no responsibility or liability for any injury, loss or damage incurred as a result of any use or reliance upon the information and material contained herein.