First-tier Tribunal Amends Management Order for Surplus Funds Disposal

OUTCOME: Allowed

FIRST-TIER TRIBUNAL PROPERTY CHAMBER (RESIDENTIAL PROPERTY)

Case Reference

: LON/00AK/LVM/2016/0019 P PAPERMOTE Property : 1-63 [NAME_1], LONDON [POSTCODE] Applicant :

[redacted] (tribunal appointed manager) Representative :

In person

Respondents : [redacted] :

In person

Types of Application : Variation of Management Order Tribunal Members :

Judge Tagliavini

Date and venue of hearing

: 1 June 2020 PAPERMOTE

Date of Decision

1 June 2020

DECISION _________________________________________________

2 The tribunal’s summary decision

I. The tribunal makes the following Addendum to the Management Order dated 1 May 2014 (as amended)

A. The Managers shall on the expiry of this Management Order on 5 June 2020, transfer all surplus funds collected under the provisions of this Order to the managing agent [COMPANY_3] or such other managing agent as may be designated by [COMPANY_1].

B. The Managers are to prepare a statement of income and expenditure which specifies both the sums collected as annual service charges and those sums collected as reserve funds and include a balance sheet as at 5 June 2020 and shall provide these to [COMPANY_1] and its appointed agent on or before 5 August 2020.

1. This has been a remote hearing on the papers which has not been objected to by the parties. The form of remote hearing was P: PAPERMOTE. A face to face hearing was not held because it was not practicable and all issues could be determined on paper. The documents that the tribunal was referred to were not placed in a single bundle but sent piecemeal to the tribunal by both parties. The order made is described at the end of these reasons and repeated in the tribunal’s summary decision above.

The application

2. This is an applications under the provisions of the Landlord and Tenant Act 1987, seeking the tribunal’s further directions in respect of a Management Order made by the tribunal with effect from 1 May 2014 for a period of three years. Subsequently, this Order was extended by the tribunal in its decision dated 26 June 2017 and is now due to expire on 5 June 2020 (“the Order”). As the Order made no provision for the handover of surplus funds held by the Managers on the expiry of the Order, the applicant now seeks the tribunal’s further direction as to the disposal of these surplus funds.

Background

3. In a decision dated 16 April 2014 the tribunal appointed [NAME_2] and [NAME_2] as joint managers of the property known as 1-63 [NAME_1], [ADDRESS] [POSTCODE] (“the Premises”) for a period of 3 years commencing on 1 May 2014 in the terms of the Management Order annexed to the decision.

4. At paragraph 12 of this Order it was specified that;

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“The Managers may apply to the First-tier Tribunal (Property Chamber) for further directions in accordance with s. 24(4) Landlord and Tenant Act 1987. Such directions may include, but are not limited to:

a. Any failure by any party to comply with an obligation imposed by this Order;

b. For directions generally;

c. Directions in the evet that there are insufficient sums held by them to discharge their obligations under this Order and/or to pay their remuneration.

The applicant’s case

5. In a letter dated 6 April 2020 from the directors of [NAME_1], the Managers were informed that a decision had been taken to employ the services of [COMPANY_3] management agents to provide future services to the Premises. This letter went on to request that;

“In order to ensure the estate is in a healthy financial situation going forward the directors request that all monies in the [NAME_1] are not returned to those who have contributed to it but remain in the bank account to be handed over at the end of your term.”

6. As the Managers had received an email from a lessee of the Premises asking for the reserve fund to be re-distributed to all lessees on expiry of the Order and in light of the decision in [NAME_4] v [NAME_5] and [NAME_6] v [COMPANY_7]. as well as the absence of provision in the Order for the disposal of surplus funds, this application had been made to the tribunal.

7. The Applicant proposed that surplus funds held at the date of the expiry of the Order should be handed over to [COMPANY_3] on 5 June 2020. The applicant also sought a direction that the Managers should prepare a statement of income and expenditure including a balance sheet as of 5 June 2020 and account to [COMPANY_1] within two months of the date of the expiry of the Order.

The respondent’s case

8. The tribunal was provided with a letter of objection to the application dated 21 April 2020 from [NAME_8], the long leaseholder of Flat 46. Under a tripartite lease dated 20 October 1960 (sic) made between the lessor [COMPANY_9] and the lessees Marshall & [COMPANY_1] “the Company,”

4 a term of 99 years from 29 September 1968 was granted to the lessees. Of flat 46. Subsequently, [NAME_8] entered into a new lease of Flat 46 for a term of 999 years from 25 March 2011 and made between [COMPANY_10] and [NAME_8] and [COMPANY_1] on terms referable to the earlier lease .

9. In her letter of 21 April 2020, [NAME_8] objected to the transfer of surplus funds by the Managers to the new managing agent [COMPANY_3]. [NAME_8] stated that the directors of [COMPANY_11] (“the Company”) had made this request to the Managers based on an invalidly passed Special Resolution amending the Memorandum and Articles of Association of the Company. As this Resolution had not complied with section 25 of the Companies Act 2006 it was invalid and therefore, this application is outside of the jurisdiction of the tribunal.

9. In an extract of the Articles of Association provided to the tribunal the disputed resolution at Article 55 stated;

“The Directors may establish and maintain capital reserves, management funds and any form of sinking fund in order to pay or contribute towards all fees, costs and other expenses incurred in the implementation of the Company’s objects, may require the Members to contribute towards such reserves or funds, at such time in such amounts and in such manner as the Members shall approve by ordinary resolution passed in general meeting and may invest and deal in and with such monies not immediately required in such manner as they shall from time to time determine.”

10. In a further letter to the tribunal dated 14 May 2020 from [NAME_8] asserted the lease made no provision for the collection of a reserve fund and that there is no provision for the Company to retain a service charge surplus. Paragraph 1 (j) of the Management Order had made provision for the collection of a reserve fund, but on expiry of the Order, it (the Company) could not continue to withhold any surplus from the lessees as they are service charges paid on account for the financial year ended 31 March 2020. [NAME_8] also stated that the Upper Tribunal had held that the sums paid under a Management Order do not displace the lease covenants or the protections contained in the 1985 Landlord and Tenant Act.

11. [NAME_8] asserted that section 25 of the Companies Act 2006 which states, as set out in her letter;

“(1) A member of a company is not bound by an alteration to its articles after the date on which he became a member, if and so far as the alteration-

5 (b) in any way increases his liability as at that date to contribute to the company’s share capital or otherwise to pay money to the company.

(2) Subsection (1) does not apply in a case where the member agrees in writing, either before or after the alteration is made, to be bound by the alterations.

12. [NAME_8] submitted that as there had not been unanimous consent to the Special Resolution altering the Articles of Association, it was invalid and not binding on the Members of the Company or the lessees. In support of her case [NAME_8] provided the tribunal with a number of statements from various other members at Flats 1, 3, 20, 23, 25 50 and 56 of the Company, stating that they had not consented to the (proposed) amendment of the Memorandum and Articles of Association of the [COMPANY_1].

The tribunal’s decision and reasons

13. The tribunal determines that it has jurisdiction to determine this application as it is made under the provisions of section 24(4) of the Landlord and Tenant Act 1987 and with express reference to the provisions made in its Management Order. The tribunal finds that this application is not made due to the disputed amendment to the Articles of Association but simply as a result of the Management Order coming to an end.

14. Further, having regard to the decisions of the Upper Tribunal in Kol v Bowring [2015] UKUT 530 (LC) and Oung Lin Chaun-Hui & Ors v K Group Holdings Inc & Ors [2019] UKUT 0371 (LC), the tribunal determines that it does have jurisdiction to consider alterations and additions to a Management Order where no provision had been made as to the disposal of surplus funds collected under that Order.

15. The tribunal determines that in this application it is being asked to consider solely the orderly disposal of funds previously collected by the Managers under the terms of the Management Order and that the tribunal is not being asked to consider, either the collection of further (reserve fund) sums, or their disposal under the provisions of the Landlord and Tenant Act 1985.

16. The tribunal finds that these funds have been referred to by the Respondent as “surplus reserve funds” and by the Applicant simply as “surplus funds.” In the absence of any detail or account as to the specific nature of these funds, the lessee from which they were collected or their amount the tribunal finds that it must adopt a pragmatic approach and for practical purposes, treat all of these monies simply as “surplus funds.” The tribunal does not consider that for the purposes of this application, that their designation as “service charges”, whether by way of annual charges or by way of reserve funds, to be material to its determination.

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17. In all the circumstances and in light of the appointment of a new managing agent in [COMPANY_3], the tribunal determines that the Management Order dated 1 May 2014 (as amended) should be further amended to include provision of the disposal of the surplus funds collected by the Managers under the terms of the Order.

18. Therefore, the Order of 1 May 2014 is further amended under the heading “Addendum” to include the following provision:

Addendum to the Management Order of 1 May 2014 (as amended by the tribunal decision dated 26 June 2017)

B. The Managers are to prepare a statement of income and expenditure which specifies the sums collected as annual service charges and those sums collected as reserve funds, including a balance sheet as at 5 June 2020 and shall provide these to [COMPANY_1] and its appointed agent on or before 5 August 2020.

Signed: Judge Tagliavini

Dated: 1 June 2020

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Rights of Appeal

By rule 36(2) of The Tribunal Procedure (First-tier Tribunal( ( Property Chamber) Rules 2013, the tribunal is required to notify he parties about any right of appeal they might have.

If a party wishes to appeal this decision to the Upper Tribunal (Lands Chamber), then a written application for permission must be made to the First-tier Tribunal at the regional office which has been dealing with the case.

The application for permission to appeal must arrive at the regional office within 28 days after the tribunal sends written reasons for the decision to the person making the application.

If the application is not made within the 28 day time , such application must include a request for an extension of time and the reasons for not complying with the 28 day time limit; the tribunal will then look at such reason(s) and decide whether to allow the application for permission to appeal to proceed, despite not being within these time limits.

The application for permission to appeal must identify the decision of the tribunal to which it relates (i.e. Give the date, the property and the case number), state the grounds of appeal and state the result the party making the application is seeking.

If the tribunal refuses to grant permission to appeal, a further application for permission may be made to the Upper Tribunal (Lands Chamber).