[2024] UKUT 59 (LC)

While I do not agree with the whole of the FTT’s analysis of Part 4, I have no doubt that it was correct when it determined that the Manager is not an accountable person for the purpose of Part 4, 2022 Act. That conclusion seems to me to reflect the clear intention of Parliament and the proper construction of section 72.

Before considering the key definition of “relevant repairing obligation” in section 72(6) it is helpful to look first at the structure of section 72 as a whole. It begins in sub-section (1) by identifying two circumstances in which a person will be an accountable person; they must either be a person who holds a legal estate in possession in any part of the common parts, or they must be a person who does not hold a legal estate, but who is under a relevant repairing obligation in relation to any part of the common parts. A third category is identified in sub-section (5), almost as an afterthought: a commonhold association will be the accountable person for a higher-risk building on commonhold land. Section 72 does not provide for any other person to be an accountable person.

Section 72(2) then identifies two exceptions to section 72(1)(a). A person who would otherwise fall within section 72(1)(a) is not an accountable person if someone else, who does not have a legal estate, is under a relevant repairing obligation in relation to all of the relevant common parts, or if all repairing obligations relating to the relevant common parts have become functions of an RTM company. The first of these exceptions is apt to cover a management company or other third party whose status is conferred by the occupational leases in the building; it cannot have been intended to refer to a tribunal appointed manager (nor was that suggested) because the relevant obligation must be included “in each long lease of which the estate owner is lessor”. The second exception is self-explanatory and is limited to the case of an RTM company, but it should be noted that the requirement is that the RTM company has “all repairing obligations”, and not “all relevant repairing obligations”.

Section 72(3) and (4) go together and provides a further exception by means of a statutory deeming, the effect of which is that the estate owner with relevant repairing obligations who is furthest up a chain of leases is treated as holding the legal estate in possession in the common parts.

No other exception to section 72(1) is identified; in particular, an estate owner who falls within section 72(1)(a) is not prevented from being an accountable person by the fact that a manager has previously been appointed under section 24 to carry out all of the estate owner’s obligations. Thus, if a tribunal appointed manager can be an accountable person, it will be in addition to the freeholder or other estate owner, not in substitution for them. That contrasts with the other circumstances where a third party has the relevant repairing obligations and for which specific exceptions are made in section 72.

In this case it is agreed that section 72(1)(a) does not apply to the Manager, because he does not hold a legal estate. If the Manager is an accountable person, it can only be because he falls within section 72(1)(b), which requires that he be under a relevant repairing obligation. A person is only under a relevant repairing obligation if they are required, “under a lease or by virtue of an enactment”, to repair or maintain the subject of the obligation.

The Manager is under extensive repairing obligations in relation to the common parts of the Estate. By paragraph 4(e) of the FTT’s management order (the most recent iteration of which is dated 16 September 2019) he was given “the power and the duty to carry out the obligations of the Landlord contained in the Leases … and in particular … the Landlord’s repair and maintenance obligations”. By paragraph 5(b) the Manager was directed by the FTT “to manage the premises in accordance with … the respective obligations of all parties – landlord and tenant – under the Leases and in particular with regard to repair, decoration, provision of services to the Premises …”. The order also includes a schedule of functions which includes, at paragraph 16, undertaking major works required under the terms of the leases. The occupational leases themselves require the Landlords to “maintain” the common parts (which includes improving, rebuilding, renewing and replacing them), and to maintain fire alarms and fire-fighting equipment.

The determinative questions are therefore whether these obligations of the Manager are either “under a lease” or “by virtue of an enactment”.

The expression “under a lease” seems to me to refer to an obligation imposed by a lease, whether by the contract itself or by the acquisition of the estate created by the contract or the reversion to it, and not to extend to obligations imposed or assumed by some other less direct route. It may be that the meaning depends on the context in which it is used, and in different contexts the words “under a …” might signify a tighter or a looser connection. It is used here specifically of repairing obligations (“a person is under a relevant repairing obligation in relation to anything if the person is required, under a lease ... to repair or maintain that thing”). In that context it is obvious the obligations being referred to are obligations imposed by the lease itself and the definition is not apt to describe the obligation of a tribunal appointed manager to comply with the terms of the order appointing them. That view is, as the FTT pointed out, consistent with the operation of the statutory scheme, as explained by the Court of Appeal in Maunder Taylor v Blaquiere.

In Maunder Taylor the issue was whether the manager’s claim to recover service charges was impeached by the leaseholder’s right to set off a claim for damages he had against the landlord. Aldous LJ explained the statutory scheme at [41]:

“In my view the purpose of Part II of the 1987 Act is to provide a scheme for the appointment of a manager who will carry out the functions required by the court. That manager carries out those functions in his own right as a court-appointed official. He is not appointed as the manager of the landlord or even of the landlord’s obligations under the lease. That being so, Mr Maunder Taylor was a court-appointed manager appointed to carry out those duties required by the order appointing him.”

He continued, at [42]:

“In this case the duties and liabilities laid down in the order are defined by reference to the lease, but do not alter his capacity. In my view Mr Maunder Taylor’s right to the money arose from his appointment not from the lease. It follows that there was no mutuality between his claim and that of Mr Blaquiere. That being so, set off is not possible.”

The same understanding of how section 24 is intended to operate is implied in the drafting of section 47A(3), 1987 Act, inserted by section 113, 2022 Act.

I therefore do not accept Mr Dovar’s characterisation of the effect of an appointment under section 24. He submitted that “the manager is inserted into the lease” and the obligations contained in the lease become those of the manager. That is not how section 24 operates. The functions which are taken on by the manager are those and only those which the FTT determines the manager should have. Section 24(5)(a), to which Mr Dovar referred, provides only that an order “may provide – (a) for rights and liabilities arising under contracts to which the manager is not a party to become rights and liabilities of the manager; …”. It is the FTT, through the order it considers it just and convenient to make, which imposes obligations on the manager, not the lease. Nothing said by Henderson LJ in K Group v Chuan-Hui about the source of the tenant’s underlying obligation to pay for services provided by the manager detracts from that analysis.

The FTT would therefore be perfectly entitled to confer functions on the manager which are different from those conferred on the landlord by the lease. But in view of the statutory objective of ensuring that each higher-risk building has a clearly identified duty holder in relation to building safety matters, it is very unlikely that the status of accountable person can have been intended to turn on the precise terms of an order under section 24 appointing a manager.

Mr Rainey KC referred to Royal Borough of Kensington & Chelsea v Lessees of 1-124 Pond House [2015] UKUT 395 (LC), a case under section 20ZA, Landlord and Tenant Act 1985, in which the question was whether costs of work had been incurred by a local authority “under” a framework agreement or “under” subsidiary “call-off contracts”. The Tribunal (Judge McGrath, Chamber President FTT) accepted that the costs of work were incurred “under” the framework agreement after considering whether there was a “sufficient factual nexus between the subject matter of the agreement and the works themselves”. There was a “sufficient nexus” as the various agreements could not be viewed in isolation. The Pond House case supports the view that context is important, but it is not otherwise of assistance. The requirement that there must be a “sufficient nexus” does not help in determining what is or is not sufficient in this context.

Nor can the repairing obligations conferred on the Manager by the FTT’s order be said to be obligations arising “by virtue of an enactment”. Once again, it is the order and not either the lease or the Act which imposed duties on the Manager. The order itself is clearly not an enactment (by section 23(2), Interpretation Act 1978 an “enactment” means primary or secondary legislation). I agree with Mr Morshead KC that this is mainly a reference to repairing obligations implied by statute into certain leases or tenancies of residential property, such as section 11, Landlord and Tenant Act 1985, which requires a landlord to maintain the structure and exterior of the property. It is also apt to refer to the position of an RTM company.

No tribunal order or judicial decision is required for an RTM company to acquire the right to manage under the Commonhold and Leasehold Reform Act 2022. It is conferred by the statute on completion of the qualifying steps. As Lord Briggs JSC explained in Settlers Court, at [17]: “… a qualifying RTM company is entitled to acquire the right to manage the relevant premises (i.e. the qualifying premises within which at least half its members are qualifying tenants), provided only that it follows the specified procedure …”. That is a good example of a repairing obligation acquired “by virtue of an enactment” and is fundamentally different from position of a manager appointed under section 24 by the FTT. The analogy drawn by Mr Rainey KC with the route by which an RTM company acquires the status of an accountable person is not persuasive.

Mr Upton suggested that the correct question to ask in this context was “by virtue of what is the manager obliged to repair the common parts”. That enquiry was modelled on a question asked by Peter Gibson LJ in Moore v Gad [1997] BCC 655 when considering whether money which a company director was liable to pay for wrongful trading under a discretionary order made under section 214, Insolvency Act 1986, was “a sum recoverable by virtue of an enactment” within the meaning of section 9, Limitation Act 1980. If the question to be asked in this context is “by virtue of what is the Manager liable to repair the common parts”, the answer to my mind is “by virtue of the order of the FTT” and not “by virtue of section 24, 1987 Act”.

I do not think there is any doubt about the meaning of section 72(6), but were there to be, I agree with the submission of Mr Morshead KC that the principle against doubtful penalisation would justify a narrower rather than a wider interpretation of “accountable person”. I do not agree with Mr Upton’s submission that, in the absence of some specific exclusion, an unrestricted interpretation of the phrase is appropriate. The applicable principle is explained in Bennion, Bailey and Norbury on Statutory Interpretation, 8th ed, (2020) at section 26.4 as follows:

“It is a principle of legal policy that a person should not be penalised except under clear law. This principle forms part of the context against which legislation is enacted and, when interpreting legislation, a court should take it into account.”

The main argument advanced by Mr Dovar in support of treating the Manager’s obligations as arising either under the leases or by virtue of the 1987 Act was the improbability that Parliament intended “at a stroke” to strip tribunal appointed managers of their existing responsibilities for maintaining the common parts of higher-risk buildings and to cause building safety responsibilities to revert immediately on the commencement of the 2022 Act to the delinquent landlord whose past default had led to the making of a section 24 order. That was an absurd and unworkable result and compelled a wider interpretation of the expression “relevant repairing obligation” in section 72(6).

Mr Morshead KC disputed that there was anything improbable, let alone absurd, in Parliament having intended that (to the extent of any overlap) the new regime of building safety obligations should entirely replace any former scheme of management. He nevertheless agreed with Mr Dovar that the consequence of a section 24 manager not being an accountable person within section 72 was that, from the commencement of the 2022 Act on 6 April 2023, building safety functions ceased to be functions of the Manager and reverted to the Landlords in their capacity as accountable persons.

If Mr Dovar and Mr Morshead are right that, if a section 24 manager cannot be an accountable person, responsibility for building safety matters reverts “at a stroke” to the landlord whose default led to the making of the section 24 order, there would be something to be said for viewing that outcome as absurd. But neither of them was able to point to any provision of the 2022 Act which has the suggested effect on existing orders.

Part 4 was clearly drafted with some appreciation that managers may in the past have been appointed by the FTT under section 24 to undertake functions which, after the commencement of the 2022 Act, have become functions of the accountable person. Section 110 deals specifically with the division between the existing and new regimes as far as the future is concerned. By the new section 24(2ZA) any breach of a building safety obligation may not be relied on as a ground for the appointment of a manager under section 24. By the new section 24(2E) an order under section 24 may not confer functions on a section 24 manager where Part 4 provides that those functions are to be carried out by an accountable person. But neither section 24(2ZA) nor section 24(2E) purports to have any effect on orders which have already been made. No order made before the commencement of Part 4 could have been based on a breach of a “building safety obligation” as that expression is defined in section 24(ZZC). Nor does section 24(2E) rewrite existing orders or cause them no longer to apply. It is directed solely to the content of orders which have not yet been made and is concerned only with what they may not contain.

Any possible doubt about the restricted application of section 24(2E) is dispelled by paragraph 8(2) of Schedule 7. As discussed above (paragraphs 50 and 57-58), this presupposes the continued effectiveness of section 24 orders made before the commencement of the 2022 Act, and the inclusion in them of functions which can be conferred on a special measures manager by a special measures order made under paragraph 4 of Schedule 7. If section 24(2E), or anything else in Part 4, had the effect of depriving a section 24 manager of building safety responsibilities conferred by an order made before 6 April 2023, why would it have been necessary for paragraph 8(2) to authorise the FTT to amend the original section 24 order when appointing a special measures manager to ensure no overlap in their functions? Section 24(2E) has prevented any such overlap since it came into force, so any section 24 order which the FTT may wish to amend under paragraph 8(2) can only be an order made before the commencement of the 2022 Act. The only functions that a special measures manager may be required to carry out are functions which Part 4 imposes on an accountable person. It follows that, insofar as functions conferred on a manager by a section 24 order made before the commencement of the 2022 Act became functions of an accountable person when the Act came into force, nothing in the Act took those functions away from the section 24 manager “at a stroke” or within any specified period.

The FTT dismissed an argument by Mr Upton, which he repeated in his written submissions and which Mr Rainey KC supported, that the 2022 Act does not affect existing management orders. The FTT rejected that argument on the grounds that “nothing in section 24(2E) suggests that it only prohibits new section 24 orders from requiring a manager to carry out building safety functions which are functions of an AP”. I disagree that that is the effect of section 24(2E), because it would be inconsistent with paragraph 8(2) of Schedule 7.

In my judgment the coherent operation of Part 4 is not interfered with, and no intolerable result is produced, if the definition of “relevant repairing obligation” in section 72(6) is given the straightforward, unforced meaning attributed to it by the FTT. On that basis a section 24 manager is not an accountable person and is not required by Part 4 to carry out the duties of an accountable person. That is why section 72 does not excuse the estate owner from being an accountable person where there is already a tribunal appointed manager, as it does in 72(2) where a management company or an RTM company is responsible for all repairs. But for so long as an order made by the FTT before the commencement of the 2022 Act continues in force, the manager remains obliged to comply with it, including by the performance of any functions which Part 4 confers on the accountable person which are already functions of the manager under the order. When the order expires responsibility for all management functions will return to the landlord. If an application is made to vary or extend the order, any new order the FTT may make will take away from the manager those functions which Part 4 confers on the accountable person and these will then revert to the landlord. This is the third way, to which Mr Morshead KC took such exception, but which seems to me to be the correct construction of Part 4.

I acknowledge that, on this construction, for a period of time a manager may be required to carry out functions concerning the maintenance of the building and compliance with statutory obligations concerning health and safety, which are also building safety obligations of the accountable person within Part 4. There is nothing new in those functions, as the manager will have been carrying them out since the management order was made. It cannot have been intended that the manager should stop doing so straightaway, rather than arranging an orderly handover to the accountable person. But nor does this interpretation make the manager an accountable person or require him to discharge any of the obligations in Part 4 which are not already provided for by the management order (the order will not, for example, have required the manager to register the building with the Regulator, as section 78 requires the accountable person to do). From the commencement of the 2022 Act the landlord or other estate owner who satisfies section 72(1) will have become an accountable person and will be required to comply with the obligations which that status imposes (breach of which is an offence).

It is possible, as in this case, that the section 24 order may prohibit the estate owner from carrying out functions which the order confers on the section 24 manager, but even if it does not do so expressly, there is potential for an uncomfortable and impractical overlap between the responsibilities of the manager and the landlord. Some simple transitional provisions could have avoided the uncertainty which will inevitably be created by this overlap, but none have been provided. I recognise that the objective of a clear division of responsibility and a single route for enforcement of building safety obligations is not achieved for so long as this overlap exists. But the overlap is temporary and will continue only until management orders which pre-date the 2022 Act expire or the FTT makes another order in relation to the same building, which it may do either on the application of the manager, or of the landlord, or of another interested person.

Section 24(9A) requires that, on an application by a landlord, the FTT may not vary or discharge a management order unless it is satisfied that that will not result in a recurrence of the circumstances which led to the order being made, and that it is just and convenient to do so. Thus, if a manager does not apply to the FTT for directions, the onus will be on the landlord to satisfy the FTT that it can be trusted to perform the obligations of which it may previously have been in breach. On such an application it will be relevant that for so long as the landlord is prevented by the terms of the order from complying with its Part 4 obligations it is at risk of prosecution, except to the extent that the management order itself provides it with a reasonable excuse for not doing so. That factor will have to be taken into consideration when determining whether it is just and convenient to vary the existing order.

I recognise that there is a potential impasse between section 24(2E) and section 24(9A), the first prohibiting any new or modified order which has the effect of conferring building safety functions on the manager, and the latter preventing the FTT from modifying or discharging an order on the application of the landlord unless it is satisfied that the circumstances which led to the making of the management order will not recur. In the absence of transitional provisions, and for so long as the FTT is not satisfied that the section 24(9A) conditions for modification or discharge are met, the only way to resolve this impasse may be for the FTT to make no order on an application by the landlord, leaving the manager to continue to perform the functions originally conferred by the order until either the manager themselves or another interested person applies for discharge or modification free of the section 24(9A) restrictions.

When a management order expires no new order made by the FTT may require the manager to perform functions which Part 4 imposes on the accountable person. Mr Dovar hinted that at Canary Riverside, because the FTT is being asked to vary the existing order (by extending it), rather than make a new order, it might be possible to avoid the restrictions in section 24(2E). Although I heard no argument on that proposition, the FTT will not be able to confer functions on the Manager which Part 4 provides are to be carried out by an accountable person and it appears to me to be far-fetched to suggest that it has power, by extending the Manager’s term, to continue functions falling into that category which the Manager already has.

In this case the FTT is due to hear an application to vary or continue the management order in a few weeks’ time, so it is not necessary to consider whether a manager whose appointment predates the 2022 Act and whose functions overlap with those of the accountable person for the purposes of Part 4 should make their own application to the FTT for further directions. That question will only be of concern to section 24 managers of higher-risk buildings whose appointment is due to continue. I doubt that there is any obligation on a manager to make their own application to the FTT, but practical considerations may make it impossible for them to continue without seeking further directions. In this case, for example, the Manager’s application to the Building Safety Fund for financial assistance in carrying out remedial work to the exterior cladding of the buildings was unsuccessful because the manager is not an accountable person. Whatever course a manager decides to take, it is likely to be prudent to inform the Regulator (notwithstanding that they have no jurisdiction over tribunal appointed managers) and the landlord (who will have functions to perform under Part 4).