How is the landlord’s liability for contributions affected by RTM?
Gibbs v Clevedon Court (Dulwich) RTM Co Ltd  concerned a property, the freehold of which had been acquired and developed by Mr and Mrs Gibbs, the landlords. Subsequently, the right to manage (pursuant to Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002) was acquired in respect of the property.
The RTM Company undertook major works at the property; this case related to external repairs and redecoration works. Under Section 103 of the 2002 Act, the landlords were liable for any difference between the service charge costs incurred by the RTM Company and the service charge costs which were recoverable (by the RTM Company) from the lessees. The landlords did not pay their contributions here, disputing their liability for a sum of approximately £25,000.
The First-tier Tribunal held that the works were needed and the landlords were liable for a shortfall of 20.09%, amounting to the full sum claimed.
On appeal in the Upper Tribunal, the Court held that the FTT had failed to assess the differences in quality and quantity of the work contracted for compared to that actually undertaken. The landlords argued that the standard of the work was poor, and did not justify the costs charged.
The Court allowed the landlords’ appeal, reaching the decision following an inspection of the property. The Court reduced the total amount payable by all parties, including both the landlords and the leaseholders, by 7.5%. The landlords total liability was calculated as £10,447.
Advice and action for landlords
Landlords must be mindful that, even where the right to manage has been acquired, under the 2002 Act they will still be liable for the difference between any service charge costs incurred by the RTM Company and the service charge costs which are recoverable from the lessees.
We recommend that landlords ensure they continue to be involved in the management of their properties, receiving notification along with leaseholders of estimates for works, monitoring the delivery of works and raising concerns where they feel there is an issue. Landlords are entitled to become members of RTM Companies on the acquisition of the right to manage and this is worthy of serious consideration. RTM Companies are advised to keep landlords notified of major works projects, in order to maintain relationships and manage projects effectively.
Landlords must be mindful that, even where rights to repair and redecorate are acquired by an RTM Company, by law they will still be liable for the difference between costs incurred for works and the service charges recoverable from lessees.