Right to Manage: Decision Handed Down in Key Appeal on the Interpretation of Section 72(3) Commonhold and Leasehold Reform Act 2002 for the Purposes of an RTM Claim

The Upper Tribunal has handed down its decision in the following two important appeals (heard together), carrying industry-wide interest as to the application of the statutory test under section 72(3) of the Commonhold and Leasehold Reform Act 2002.

(1)The Courtyard RTM Co Limited, (2) The Studios RTM Co Ltd, (3) X1 The Terrace RTM Co Limited v (1) Rockwell (FC103) Limited, (2) Grey GR LP; and

(1) 14 Park Crescent Limited, (2) PC Investments Ltd v 14 Park Crescent RTM Co Ltd [2025] UKUT 39 (LC)

In the first appeal, JB Leitch acted for the two landlords of three residential blocks located within a single development named Plaza Boulevard in Liverpool (referred to as “PB” in this article). This appeal was heard together with an appeal by the landlord of 14 Park Crescent and 8 Park Crescent Mews located in central London (referred to as “PC”).

This report updates our previous commentary following the appeal hearing in this matter.

The background

In all cases, claim notices had been issued by the respective RTM companies for the right to manage the residential blocks.

Our earlier report details the First-tier Tribunal proceedings, relating to PB, further, and the grounds of the Upper Tribunal appeal and cross-appeals.

Specifically, in relation to the PB premises, the three subject buildings were part of the PB complex of five apartment blocks. Each block was built in a separate phase, but each phase is structurally attached to a central podium spanning the area between each building. Beneath that podium is a large underground shared car park which serves all five buildings.

In the FTT proceedings relating to the PB premises, the parties agreed that the three subject properties were not self-contained buildings and did not satisfy section 72(1)(a) of the 2002 Act. It was argued that the buildings were self-contained parts of a building under section 72(3).

The First-tier Tribunal (“FTT”) held that none of the three buildings satisfy the “vertical division” test at section 72(3)(a) and therefore that none of the buildings were entitled to acquire the right to manage. The three RTM companies appealed to the Upper Tribunal (“UT”).

The PC premises comprises a 19^thcentury terrace of grand houses. Over the intervening years, the buildings were redeveloped as offices with a restored façade, supported by steel and concrete frames, before a further restoration back to residential use. 14 Park Crescent underwent almost total demolition and redevelopment, including the excavation of the foundations to the party walls and the implementation of new foundations to create a basement level. The FTT agreed with the RTM company that the PC premises was a self-contained part of a building. The immediate and superior landlords appealed to the UT.

The UT’s decision

The issues relating to vertical division

There is an absence of established common law on the issue of vertical division, which is recognised within the UT’s decision.

The UT needed to consider how to apply section 72(3)(a), and what that vertical division should look like. In particular, this question gave rise to specific issues:

1. Whether it is necessary to consider the face of each building, or whether the test of vertical division related only to the connection between the premises and the rest of the building;

2. If it is determined that the focus should be only on the area where the subject premises are connected to the remainder of the building, does it matter if any part of the premises overhangs airspace above the rest of the building;

3. Can a notional line dividing the premises from neighbouring premises intersect with a solid building component such as a basement slab or foundation;

4. Does vertical division from the rest of the building need to comprise a straight line passing laterally from the front to the back of the building;

5. If part of the premises is undivided from the remainder of the building, can the premises constitute a “vertical division of the building”.

Depending on the outcome of these points, further issues in the PB appeal may then arise such as the extent to which a deviation from the vertical division requirement could be regarded as de minimis (trivial or minor, so as not to require further consideration), whether a movement joint in the basement slab was of significance, and whether the outer face of the steel frame constituted the limit of the premises, and therefore whether cladding was outside of the boundary line.

The UT held that vertical division only applies at the points where the ‘part” immediately adjoins the rest of the building to which it is attached. It also found that the requirement that the notional dividing line must pass through a solid structure perpendicular to it does not prevent the premises from serving as a vertical division of the building

In his decision, Deputy Chamber President Martin Rodger KC discussed not only the conditions required to determine a self-contained part of a building, but what those conditions are intended to define: a “self-contained part of a building”.

The open underground car park, with no division in reality, was a key obstacle for the appellant RTM companies in the PB appeal.  The UT held that it seems unlikely to have been intended by Parliament that the management of what is in practice an undivided space would be divided between the building owner and an RTM company. To bolster this finding, the Judge relied upon the Settler’s Court decision.

As to the PC appeal, the UT found that it was irrelevant that the foundations of 14 Park Crescent went underneath neighbouring properties because foundations on one side of a party wall cannot “belong” to another building. On the basis that each owner owns up to the midpoint of the party wall and the foundations beneath it, a vertical line could be drawn between number 14 and number 12 Park Crescent. The UT further held that nothing in the legislation requires a perfectly straight boundary and so arguments raised by the appellant landlords regarding movement joints and “dog-legs” were dismissed.

Independent redevelopment

Further, in addressing the issue of independent redevelopment under section 72(3)(b), the UT held that this did not need to constitute total demolition; and Martin Rodger KC stated that “something well short of complete demolition is likely to suffice”. The UT rejected the argument that the independent redevelopment test would not be satisfied where adjoining structures required support.  Accordingly, the UT held that the PB blocks and the PC premises could be redeveloped independently.

Shared services

In respect of one of the PB Blocks, The Studios, the UT considered whether a shared interlinked fire alarm would prevent the test under section 72(3)(c) and 72(4) from being met. The UT rejected this argument and found that the FTT was entitled to reach the conclusion that it did (that the fire alarm would be delinked and provided independently).

Decision

The PB appeal was dismissed, the UT finding that the appellants were not entitled to acquire rights to manage on the relevant dates. In respect of the PC appeal, the RTM Company was found to be entitled to acquire rights to manage.

Wider impact

In its decision, the UT noted that similar definitions of a “self-contained part” are contained in other legislation, in particular the Leasehold Reform, Housing and Urban Development Act 1993 referring to rights of collective enfranchisement, as well as the Building Safety Act 2022. Therefore, the decision is of wide implication across the sector.

Further appeal

Permission has now been granted by the UT to the RTM Companies in the PB matter for a second appeal to the Court of Appeal.

JB Leitch will continue to report on this case as it progresses.