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Managing expectations: Upper Tribunal refuses to discharge misleading manager
Introduction
For disenchanted leaseholders whose landlords or managing agents are breaching their lease, failing to repair the property, or demanding unreasonable service or administration charges, the appointment of a manager under Part II of the Landlord and Tenant Act 1987 (LTA 1987) is an ostensibly attractive option. If the First-tier Tribunal (FTT) considers that one of the grounds in section 24(2) of the LTA 1987 is satisfied and it is just and convenient to make an order, some or all of the management functions of the landlord or managing agent can be transferred to the manager, and the leaseholders’ problems have ended.
That is the theory. In practice, leaseholders can feel that service charges are still high and that maintenance and repairs are taking too long, which will usually be a symptom of historic poor management or unrealistic expectations rather than any fault of the manager. Managers are also human and can make mistakes. What should the FTT do, however, when the leaseholders are so dissatisfied that they make an application to discharge the manager’s appointment on the basis that they are, in essence, just as bad as the landlord or managing agent whom they displaced?
The Upper Tribunal (UT) considered this issue in Orchard & Orchard v Mooney & Orkin [2023] UKUT 78 (LC). The case followed the unfortunately common pattern of warring leaseholders deadlocking a freehold company of which they are joint directors and provides a salutary warning about leaseholder expectations of managers.
The First-Tier Tribunal Proceedings
The building was a Victorian house converted into three flats. Ms Orkin lived on the first floor. Her flat had suffered from water ingress for some twenty years, the cause of which was unknown but was suspected to be in the rear mansard roof. Mr and Mrs Orchard were the leaseholders of the top floor flat, and responsibility for the leak was either theirs or the freeholder’s, G Ltd, but the leaseholders could not agree who should pay. Mr and Mrs Lambert lived in the third flat and appear to have taken no active part in the proceedings.
In August 2018, Ms Orkin applied to the FTT for the appointment of a manager and also commenced county court proceedings against Mr and Mrs Orchard and G Ltd for damages and specific performance of repairing obligations. Mr and Mrs Orchard consented to the appointment of a manager but proposed a different manager, Mrs Mooney, who was appointed in February 2019 for a term of three years, which was later extended.
Mrs Mooney obtained expert evidence about the leak from Mr Pendle, who concluded that Mr and Mrs Orchard were responsible for the works. She served a works notice on them on 30 March 2021, while the county court proceedings were ongoing. Predictably, this incensed Mr and Mrs Orchard, and they applied to the FTT to discharge Mrs Mooney’s appointment the same day on the basis that she had failed to act in accordance with the management order and the RICS code and that it was just and convenient to do so.
The FTT gave directions, and Mr and Mrs Orchard were to file evidence on 11 July and Mrs Mooney on 11 August. On 30 July, Mr Pendle produced an updated expert report which concluded, contrary to what he had said earlier, that responsibility for the work was the freeholder’s and not Mr and Mrs Orchard’s.
An important aspect of Mr and Mrs Orchard’s case was their allegation that the manager, Mrs Mooney, was acting with partiality and had failed to be as transparent with them as she had been with Ms Orkin. It is therefore unfortunate that the manager disclosed Mr Pendle’s updated report to Ms Orkin only, described Mr and Mrs Orchard as “rogue freeholders”, and failed to pass the report to Mr and Mrs Orchard despite requests from Ms Orkin’s solicitor to do so. Worse still, the report was not disclosed to the FTT and she made no reference to the same in her witness statement, instead presenting Mr Pendle’s previous conclusion as his present.
On 22 October 2021, the FTT dismissed the application to discharge and made a rule 13 costs order against Mr and Mrs Orchard on the basis they acted unreasonably in making their application. When Mr Pendle’s 30 July report was disclosed during county court proceedings, Mr and Mrs Orchard appealed to the UT. Before the appeal was heard, the county court proceedings concluded. The decision was that the freeholder was responsible for the works.
The Upper Tribunal Appeal
Mr and Mrs Orchard, who were now represented by Counsel, relied on three grounds of appeal, the most material of which was the first: on the basis of fresh evidence, the FTT had been given materially inaccurate evidence by the manager and had been misled.
The UT considered that the principles set down in Ladd v Marshall [1954] 1 WLR 1489, for whether an appeal court should allow fresh evidence on appeal, continued to apply to appeals to the UT and that the criteria were satisfied in this case such that Mr Pendle’s 30 July report should be admitted. In the light of that evidence, the UT concluded that Mrs Mooney had misled the FTT with her witness statement, in that she had communicated preferentially with Ms Orkin and misrepresented Mr Pendle’s conclusions about the leak.
The UT considered the status of a manager. A manager appointed pursuant to Part II of the LTA 1987 is an officer of the tribunal and is accountable to the FTT. Similar to other officers of the court and tribunal, including solicitors, managers are to be held to the “highest professional standards” and criticisms of their conduct will be carefully investigated; criticism of the manager is really criticism of the FTT. In this case, the UT concluded that the manager had fallen below that standard in her conduct during the proceedings.
That was enough, in the UT’s opinion, to conclude that a tribunal with access to Mr Pendle’s 30 July report “would have been more likely than not to have found that the Orchards’ case had been made out and that the manager could not continue in post”. Yet the UT, in remaking the decision, did not discharge Mrs Mooney’s appointment. The reasoning is instructive and will be of general applicability in applications to discharge managers.
First, the UT disagreed with Mr and Mrs Orchard that the FTT had applied the wrong test. The FTT concluded that the application could only succeed if Mrs Mooney was “performing her duties so badly that even their proposed alternative is better”. The proposed alternative was the restoration of management functions to G Ltd, which was deadlocked.
The FTT’s language mirrored section 24(9A) of the LTA 1987, which provides that an application to discharge a manager made by a “relevant person” will not succeed unless the FTT is satisfied that the discharge “will not result in a recurrence of the circumstances which led to the order being made” and it is just and convenient to do so. A leaseholder, however, is not a “relevant person; the term refers to a potential recipient of a section 22 notice, that is the landlord or a party to the lease with management functions. Mr and Mrs Orchard argued, therefore, that that provision did not apply.
The FTT disagreed. In Orchard Court Residents Association v St Anthony’s Homes Ltd [2003] EWCA Civ 1049, the Court of Appeal decided that, on an application to discharge a manager, the grounds in section 24(2) of the LTA 1987 did not need to be satisfied; the sole criterion was whether granting the application would be just and convenient. While the factor in section 24(9A)(a) of the LTA 1987 was not statutorily prescribed for applications to discharge made by leaseholders, the consequences of the management order being discharged was within the wide range of matters which the FTT should assess in considering the just and convenient test.
Conclusion
To be fair to Mrs Mooney, the UT were sympathetic to the difficult situation in which she found herself and her extenuating circumstances, in that around the time she signed her witness statement she was in pain from a knee operation. Mrs Mooney was in an invidious position: Ms Orkin and Mr and Mrs Orchard’s relationship was, as the FTT described, “toxic”; there were only two possible conclusions about the leak, each being unacceptable to one or other party; and, therefore, whatever her course of action, she would upset a leaseholder and likely be accused of partiality.
The case is of interest because the practical consequences of discharging the manager, the duration of their appointment, and their progress or otherwise with their management functions are confirmed to be within the just and convenient test. The practical lesson for managers is to consider the relationship between the leaseholders and ensure as far as possible that existing problems are not exacerbated. Leaseholders should be encouraged to manage their expectations. Of course, the best solution would have been for the leaseholders to have set aside their differences, agreed a compromise, and commenced the work; but, if they could have done that, they would not have needed to appoint a manager in the first place.
This article first appeared in the Property Litigation Column in Practical Law in May 2023.
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