Right to manage company permitted to recover damages for losses caused to leaseholder by former owner's works

News  |   14 January 2025

Written by
Andrew Harbourne, Consultant

A recent High Court judgment[1] has held that an RTM, acting as nominee for leaseholders in the acquisition of the freehold of a block of flats, could also recover damages for the leaseholders from the former owner in relation to water ingress and fire safety and structural issues caused by the former owner’s development works.

The RTM company was set up to acquire the freehold. It entered into a freehold purchase agreement (FPA) with the then owner (the Former Owner), which also permitted the Former Owner to build additional flats on the roof and take a long lease back from the RTM of those flats.

The woks to create the new flats resulted in the water, structural and fire issues mentioned above. The Former Owner then “rescinded” the FPA and argued that, because of that “rescission”, it was no longer liable to the RTM for its obligations in relation to the construction of the new flats, such as to carry out the works in a good and workmanlike manner and make good any damage caused. The court had none of that: in this case, “rescission” meant merely termination of the agreement to sell the freehold to the RTM – that termination did not release the Former Owner from its obligations in relation to the standards required for its development works.

The RTM separately acquired the freehold, despite the termination of the FPA.

The leaseholders were not parties to the FPA. Despite that, the judge held that the RTM could, under the FPA, recover from the Former Owner (and the Former Owner’s parent, which guaranteed its obligations in the FPA) the losses caused to the flat owners by the problems which arose.

This was because, once the RTM acquired the freehold, it would be liable as landlord to the lessees for the damage done to the flats and structure by the construction of the new flats on the roof. By law, that liability would cover breaches by the Former Owner (as the landlord at the time) and losses suffered by the leaseholders in the period before the RTM acquired the freehold, as well as after. That was something that the Former Owner should have realised and so it was reasonable for the RTM to recover from the Former Owner its own and the leaseholders’ actual, reasonable and foreseeable losses.

The Court also briefly considered potential claims for the leaseholders under the Defective Premises Act 1972 and in nuisance and negligence and the possibility of obtaining a Building Liability Order. Because the claim under the FPA succeeded, there was no need to go into these in detail. It is important to remember, however, that there can be a number of grounds that may hep recover losses.

[1] 381 Southwark Park Road RTM Company Ltd and others v Click St Andrews Ltd and another [2024] EWHC 3179 (TCC) (11 December 2024


For help on legal issues relating to fire safety, property damage or other leaseholder issues, please contact Vikki Herbert, David Gibson, Mustafa Sidki or Andrew Harbourne on 020 8290 0440.


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