Property litigation weekly update – 21 January 2022

21 January 2022

In this week's round up we consider recent cases involving the scope of a right to manage company's remit in relation to estate services; interpretation of the user clause in a hotel lease; and the availability of final injunctions against 'persons unknown'. As always, we conclude with some positive news together with insight from around the firm.

The right to manage estate services – case update

A common issue on estates where the right to manage is exercised by flat owners is: what do they acquire management rights over? This long running issue is usually resolved by agreement between the parties but there can be complications where management responsibilities are blurred between a single block and shared services on a larger estate. The Supreme Court case of FirstPort Property Services Ltd v Settlers Court RTM Company and others [2022] UKSC 1 has now provided welcome clarification.

The right to take over the management by long leaseholders in a block of flats is commonly exercised, requiring no premium payment to the landlord nor any fault to be proved in the current management. The right is a good alternative to enfranchisement where leaseholders want to take some control over their building. Although the exercise of the right has been fraught with technicalities and hurdles, the process can be simple and effective.

The main issues concern the practicalities upon the acquisition of management. The Commonhold and Leasehold Reform Act 2002, which contains the right, has a lack of detail when it comes to what exactly the leaseholders obtain management rights over. Where there is a single block of flats with all services and facilities within or around the premises, there is usually little to dispute; the management of the whole is taken over by the newly formed right to manage company.

However, where there is a single block on an estate which includes facilities and services that cater for multiple blocks, there can often be disputes over who manages those shared services following an acquisition of management. It is usually left to the parties to agree on a practical solution, but this can cause further problems.

FirstPort Property Services Ltd v Settlers Court RTM Company and others [2022] UKSC 1 addressed this issue; the parties were not able to agree how the estate facilities should be managed, the estate charges levied, and to whom charges were payable.

The Supreme Court's decision

The Supreme Court decided that it was not for right to manage companies to acquire management of shared estate facilities and services. The reasoning was that other blocks of flats would be effectively disenfranchised by having shared estate services provided by an entity with which they had no legal relationship. Conversely, the right to manage company would have no recourse to recover estate charges from anyone other than the leaseholders of the block who exercised the right to manage. Extending the right to manage to shared estate services would be unworkable and would not provide equality for leaseholders across a wider estate.

This decision provides welcome clarification, although may frustrate some leaseholders who have issues with the provision of estate services. Proposed reforms to the right to manage process may address this further with options to create estate rights to manage, although the extent and enactment of these reforms remains to be seen.

If you would like further information about the right to manage or enfranchisement, please contact William Bethune.

Dhadwal v Heathrow Inn Hotel Ltd [2021] 12 WLUK 211

What is permitted by a user covenant?
A recent case has considered the proper interpretation of a user covenant in a lease which required the tenant not to use the premises other than as a hotel.

The tenant had carried out works to refurbish the existing hotel restaurant, turning the restaurant's outside smoking area into a shisha lounge.

The landlord issued forfeiture proceedings, on the basis that the shisha lounge was said to constitute a breach of the user covenant in the lease and that the shisha lounge was a separate business generating its own revenue.

At first instance, the judge dismissed the claim on the basis that the shisha lounge was simply another activity available to hotel residents and used the analogy of a cigar lounge.

The landlord appealed.

Appeal dismissed
The landlord's appeal was unsuccessful.

On appeal, the Court held that the meaning of "hotel" in the lease had to be considered in the context of the circumstances at the time the lease was granted (in 2014) and on the evidence available. At the time the lease was granted, the demised premises consisted of a hotel with a restaurant (which was clear from the lease wording) and at that time the restaurant had a designated outside smoking area. In this particular lease, the word "hotel" was therefore to be construed more expansively than its simple meaning might suggest.

It was noted that the shisha lounge was in fact used by customers eating at the hotel restaurant, and generating revenue did not make it a separate business. The first instance judge had not erred in law, and this was therefore not a breach of the user covenant in these circumstances.

The take away point from this decision is that permitted uses may be wider (or for that matter narrower) than the explicit wording in the lease suggests, when the context and circumstances at the time the lease was granted are taken into account. In other words, context is everything!

Barking and Dagenham London Borough Council v Persons Unknown [2022]

The Court of Appeal has analysed the case law relating to the grant of final injunctions against persons who were unknown and unidentified, and who might in the future set up unauthorised encampments on land.

Background
The Court was asked to consider issues in relation to wide injunctions granted to local authorities against "Persons Unknown", barring unauthorised occupation or use of land. Many local authorities which had been granted an injunction sought to extend or renew them. A hearing in relation to one such local authority identified a number of issues that were likely to arise in other cases.

The Judge had highlighted concerns that the Canada Goose case had established that final injunctions against persons unknown did not bind newcomers, which created issues that were likely to arise in other cases. He decided that whilst interim injunctions could be made against persons unknown, final injunctions could only be made against parties who had been identified and had an opportunity to contest the final order sought. He therefore discharged the final injunctions granted against persons unknown.

Appeal
Fifteen local authorities appealed against the discharge of final injunctions preventing persons who were unknown and unidentified from occupying and trespassing on local authority land. The appellants argued that, even if the court had properly interpreted Canada Goose, its decision on that point was not part of its essential reasoning, and was distinguishable on the basis that it applied only to so-called protester injunctions.

In allowing the Appeal, the Court of Appeal held that:

There was no difference between the grant of an interim and a final injunction, and the judge went too far in stating that final relief could never be granted against unidentified persons who were unknown at trial.
Injunctions could validly be granted against newcomers.
In explaining the consequences of his decision, the judge had provided guidance which required reconsideration. There were safeguards applicable to injunctions sought against persons unknown in unauthorised encampment cases, but those safeguards were not based on the artificial distinction the judge had drawn between interim and final injunctions. There was no rule that interim injunctions could only be granted for a particular period of time.
Whilst the procedure adopted by the judge, namely to call in final orders for revision, was unusual, no actual harm had been done. The orders provided for review or permission to apply and the process had resulted in clarification of the applicable law.
Whilst it was the court's proper function to give procedural guidelines, the court could not and should not limit in advance the types of injunction that might in future cases be held appropriate to make against the world.

In short, the Court of Appeal has clarified that (in appropriate circumstances) a final injunction can be obtained against persons unknown which will be binding on newcomers.

Insights from around the firm

Positive news

Young boy's trumpet tour of hospital raises thousands – 8 year old trumpet player Nelson decided to raise money for children's charity Barnardo's by playing his trumpet at hospitals over the 12 days of Christmas. Nelson raised more than £2,000 for the charity and put a smile on people's faces.
Animal shelters have been flooded with donations in honour of Betty White's hundredth birthday as a result of a social media campaign called the Betty White Challenge. White was a staunch animal activist and board member of the American Humane Society and the challenge was a fantastic way to honour her birthday.
After a 10 year wait, two mandrill babies were born in Chester Zoo 5 weeks apart. The babies will spend a few months at their mothers' sides before going on to explore the rest of the group. They will be key to helping conservation efforts for the species.