12.6 Management Company as a Party to the Lease
The involvement of a management company in the deed of surrender and regrant arises particularly in tripartite leases, where the management company is an original party alongside the landlord and tenant. The core principle is that the management company must execute the deed if it remains a party to the original lease, ensuring continuity of covenants and obligations. However, exceptions apply where the company is dissolved or where management responsibilities have been transferred, such as through a right to manage (RTM) claim or a deed of assignment. This section of our Knowledgebase examines these scenarios in detail, drawing on statutory provisions to guide solicitors, surveyors, and advisors through the process, while also addressing the related issue of costs that management companies may seek to recover and the consequences of non-compliance by management companies.
The Nature of Tripartite Leases
Tripartite leases, also known as three-party leases, involve the freeholder (or superior landlord), the management company, and the leaseholder. These structures are common in blocks of flats where the management company enforces service charge covenants, maintenance obligations, and other communal responsibilities. Under such leases, the management company typically holds rights to collect service charges, insure the building, and enforce lease terms against individual leaseholders.
In a lease extension, the new lease must replicate the terms of the original as far as practicable, pursuant to section 57 of the 1993 Act. This includes preserving the management company's role if it was integral to the original demise. Failure to include the management company where required can lead to issues with enforceability and registration at HM Land Registry, as outlined in Practice Guide 28, which emphasises that lease extensions are effected by surrender and immediate regrant, necessitating all original parties' involvement unless circumstances dictate otherwise.
Statutory Framework under the 1993 Act
The 1993 Act provides qualifying leaseholders with the right to extend their lease by 90 years, reducing the ground rent to a peppercorn under section 56. The process begins with the tenant serving a section 42 notice on the competent landlord and any other relevant parties, including, where applicable, the management company if it holds an interest (section 39). The notice must specify all parties to the original lease to ensure proper service.
Section 57 requires the new lease to be on substantially the same terms as the original, save for modifications to reflect the extension and rent reduction. In tripartite arrangements, this means the management company retains its covenants unless its role has been superseded. The Commonhold and Leasehold Reform Act 2002 (the 2002 Act) intersects here, particularly with RTM provisions under sections 71 to 113, where an RTM company assumes management functions without altering the underlying lease structure.
HM Land Registry's Practice Guide 64 on prescribed clauses leases further stipulates that if a management company is a party, its full details must be included in the deed, ensuring clarity on capacities and addresses. This framework underscores the need for precise drafting to avoid requisitions during registration.
When the Management Company Must Sign the Deed
The management company must sign the deed of surrender and regrant if it is a party to the original lease. This obligation stems from the need to release and reimpose covenants mutually. For instance, in a tripartite lease, the management company often covenants directly with the leaseholder regarding service provision and enforcement, making its execution essential to bind it to the extended term.
Practical advice for professionals: Review the original lease meticulously. If the management company is named as a party with enforceable rights, insist on its signature to prevent future disputes over service charge recovery or maintenance. In cases where the management company is still active and holds no transferred interests, its absence could render the deed incomplete, potentially leading to challenges under section 48 of the 1993 Act for counter-notices or tribunal applications.
Where the lease is silent on the management company as a party, no signature is required. This distinction is critical in bipartite leases, where only the landlord and tenant are involved, simplifying the process.
Circumstances Exempting Signature
Certain scenarios exempt the management company from signing. Foremost, if the company is dissolved under the Companies Act 2006, it ceases to exist and cannot execute documents. In such cases, no signature is needed, but professionals should verify dissolution via Companies House records to evidence this in the deed recital. Restoration under section 1024 of the 2006 Act is possible but rarely pursued for lease extensions unless significant assets are at stake.
Another exemption arises if management responsibilities have been transferred. For example, a completed RTM claim under the 2002 Act shifts functions to the RTM company, which may then need to be substituted or joined as a party. Guidance from sources like Practical Law indicates that the RTM company should execute the deed in place of the original management company to reflect the current management regime.
Similarly, a deed of assignment transferring rights requires evidential support. This could include the assignment document itself or confirmation from the assignee. Without such evidence, the original company might still be required to sign, risking delays.
Professionals should note that even in exemptions, the new lease must adapt terms to the current reality, potentially modifying clauses under section 57(6) of the 1993 Act to omit redundant references to dissolved entities.
Evidence of Transfer of Management Responsibilities
Proving transfer is pivotal to avoid unnecessary signatures. For RTM claims, obtain the notice of claim and acquisition date under section 90 of the 2002 Act, confirming the RTM company's takeover. This evidence supports substituting the RTM company in the deed, as seen in advisory notes where RTM entities must join variations or extensions to enforce ongoing covenants.
For deeds of assignment, require the original deed, stamped if necessary, detailing the assigned rights. Chain of title searches at HM Land Registry can corroborate this, especially if the assignment affects registered interests.
In complex cases, such as where an RTM company exists but the original management company retains residual rights, dual signatures may be prudent. Actionable tip: Draft recitals in the deed explicitly referencing the transfer evidence, mitigating risks of future litigation.
Statutory Basis for Recoverable Costs
The primary framework governing costs in lease extensions is section 60 of the 1993 Act, which mandates that the tenant bears the reasonable costs incurred by "relevant persons" in connection with the claim. Subsection (1) specifies liability for costs incidental to:
- (a) Any investigation reasonably undertaken of the tenant’s right to a new lease;
- (b) Any valuation of the tenant’s flat for fixing the premium or other amounts under Schedule 13;
- (c) The grant of a new lease under section 56.
Crucially, subsection (6) defines "relevant person" to include not only the competent landlord and any other landlord (per section 40(4)), but also "any third party to the tenant’s lease." In tripartite leases, where the management company is an original party, it qualifies as such a third party. Consequently, if the management company incurs costs in pursuance of the section 42 notice, such as instructing solicitors to review the deed for compliance with ongoing covenants, it may seek recovery, provided those costs are reasonable and directly linked to the extension process.
However, section 60(2) limits recoverability: Costs for professional services are reasonable only to the extent they would be expected if the relevant person were personally liable. Moreover, subsection (5) excludes costs from tribunal proceedings, shifting the focus to pre-tribunal activities like deed execution. Professionals should note that while the statute enables recovery, it does not compel the management company to incur costs; if no separate review is necessary, charges may be avoided altogether.
When Management Companies May Charge Fees
Management companies typically become involved where they hold enforceable rights under the original lease, such as service charge collection or maintenance enforcement. In such cases, their execution of the deed ensures these covenants bind the extended term, as required by section 57. If the management company engages solicitors to verify this continuity, those fees may be recoverable under section 60 as incidental to the grant.
Practical data indicates variability: In many instances, management companies, especially resident management companies (RMCs) or right to manage (RTM) companies under the Commonhold and Leasehold Reform Act 2002, forgo separate charges, recognising minimal additional work beyond the freeholder's review. However, some impose fees, with anecdotal evidence suggesting amounts around £450 plus VAT for solicitor involvement. This practice is more common with third-party management companies unaffiliated with leaseholders.
Where an RTM company has assumed management functions per sections 96 to 103 of the 2002 Act, it may substitute for the original management company. Here, costs could still be claimed if the RTM company incurs them, but section 88 of the 2002 Act restricts RTM companies from recovering litigation costs through service charges, though this does not directly apply to extension-related fees under the 1993 Act.
Reasonableness and Challenges to Fees
The cornerstone of recoverability is reasonableness, assessed under section 60(2) and broader principles in section 19 of the Landlord and Tenant Act 1985 (applicable via analogy to administration charges). Fees must reflect work actually and necessarily performed; duplication with the freeholder's solicitor could render them unreasonable. For example, if the freeholder's legal team comprehensively checks the deed, a management company's separate instruction might be deemed excessive, especially absent complex issues like transferred rights or ongoing disputes.
Leaseholders can challenge via application to the First-tier Tribunal (Property Chamber) under section 27A of the 1985 Act, which determines payability of service or administration charges, including those arising from extensions. Tribunal scrutiny focuses on whether the work was proportionate: Basic deed review for a straightforward extension might justify modest fees (£400 to £600 plus VAT), but "hefty" amounts exceeding this could be reduced if evidencing overreach.
Consequences of Non-Compliance by Management Companies
Under section 48 of the 1993 Act, if a management company, as a required party to the lease extension deed, fails to sign and return the document within a reasonable timescale, the leaseholder may apply to the county court for an order compelling compliance. This provision ensures that the leaseholder is not unduly prejudiced by delays, which could otherwise lead to the withdrawal of the section 42 notice under section 42(7) if terms are not agreed or determined within the statutory period (typically two months from the counter-notice under section 45, extendable by agreement).
The leaseholder is effectively forced into this application to protect their claim, as failure to progress the deed could result in the notice lapsing, requiring a new application and potential additional costs. Such court applications typically incur costs of approximately £1,000, including court fees and legal representation, though this varies depending on complexity and jurisdiction. Section 48 empowers the court to order the management company to execute the deed and, in some cases, to award costs against the non-compliant party, providing a mechanism to mitigate the leaseholder’s financial burden.
Professionals should advise leaseholders to document all correspondence with the management company, setting clear deadlines for deed execution to strengthen a section 48 application. Proactive engagement can sometimes avert litigation, but where delays persist, swift court action preserves the leaseholder’s rights and maintains pressure on the management company to comply.