Improvement notice relating to apartment block should have been served on tenants

Where an apartment block is managed by a Right to Manage (“RTM”) Company who can a local housing authority serve an improvement notice on requiring work? Can an improvement notice still be validly served on the landlord under paragraph 4(2) of Schedule 1 to the Housing Act 2004 (“the Housing Act”)?

In the Upper Tribunal (Lands Chamber)case of Hastings Borough Council v Braear Developments Ltd [2015] Hastings Borough Council served an improvement notice requiring work to the common parts on Braear Developments Limited, the freeholder, and on the RTM Company.

Previous freeholders had granted long leases of the five first, second and third floors flats in the building, for a term of 99 years. The leases of the flats granted rights over the only means of access. Four of the five flats in the building were sublet on assured tenancies by the lessees. The fifth flat was not let, but if it were, the recipient of the rack-rent would be the lessee.

The Tribunal said looking at the building as a whole, the “person in control”, in the statutory sense of the person(s) in receipt of the rack rents, were the lessees of the five flats.

It would be wrong to ascribe a notional rack-rent to the common parts of the building, when there is no realistic possibility of such a rent being received.

The persons in control of the building were the lessees of the five flats.

Collectively they received the rack-rent of the building. So they satisfied the description in section 263(1) of the Housing Act.

Neither the respondent, as freeholder, nor the RTM Company could be served with an improvement notice in relation to any part of the building.

The freeholder did not qualify to receive the notice as the “person in control” of a House in Multiple Occupation (“HMO”) because it did not receive the rack-rents of the premises and so did not match the description in section 263(1) of the Housing Act. The RTM Company was in the same position.

Nor were either of the freeholder or the RTM a “person managing the building” within section 263(3) of the Housing Act. The respondent received a ground rent from the lessees, but no rent from persons who were in occupation as tenants or licensees of parts of the premises. The RTM Company received no rent at all.

So, in relation to the building as a whole, paragraph 2 of Schedule 1 to the Housing Act required the improvement notice to be served on the lessees collectively, and, to the extent that work was required within any individual flats, it required each lessee of those flats to be served with the notice requiring that work.

Paragraph 2 of Schedule 1 to the Housing Act applies only to HMOs which are not licensed. So where a building is an HMO subject to licensing it would normally be expected that an improvement notice would be served on the person holding the licence.

This building was subject to licensing as an HMO but it was not licensed.

Had the RTM Company obtained an HMO licence under Part 2 of the Act, as it should, it would have been the appropriate person on whom an improvement notice ought to be served under paragraph 1 of Schedule 1. As it had failed to do so the notice was to be served on the lessees collectively under paragraph 2.

There may be circumstances where a local housing authority could, and might have to, serve an improvement notice in relation to common parts either on the freeholder or on some or all of the lessees of flats. Each case would turn on which of those owners “ought to take the actions specified in the notice” in the circumstances. For example, where an RTM company has the management the freeholder would have no power to undertake works and no entitlement to recoup the costs of works from lessees.

Here, the better course would be to direct any improvement notice at those lessees who are members of the RTM company and who are therefore collectively able to control the RTM company’s decisions. Usually the RTM company would be able to carry out the works and to recoup their costs under service charges.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.