Qualifying tenants under shared ownership leases and notices of invitation

Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Company Ltd and another [2020] UKUT 358 (LC) provides useful guidance in relation to who is considered a qualifying tenant for the purpose of exercising the right to manage a self-contained building where some of the flats are occupied by shared ownership lessees who have not acquired a 100% beneficial interest in their flats and others occupied by social tenants. The First-Tier Tribunal (FTT) held that the respondent right to manage companies were entitled to acquire the right to manage two self-contained building owned by the appellant freeholder. The buildings comprised seven blocks of flats. One block was occupied by tenants under a shared ownership lease whose intermediate landlord was a housing association. Another two blocks of flats were let to the housing association, which in turn underlet them to social tenants. Relying on Corscombe Close Block 8 RTM Co Ltd v Roseleb Ltd [2013] UKUT 81 (LC); [2013] PLSCS 60, the FTT found that the tenants under the shared ownership leases were qualifying tenants for the purposes of the Commonhold and Leasehold Reform Act 2002 (the 2002 Act) and had been properly served with notices to participate. Additionally, the FTT held that the housing association was not a qualifying tenant within the meaning of the 2002 Act in respect of the socially rented flats because it was a landlord. If it had reached the wrong conclusion and the housing association was a qualifying tenant, the FTT determined that the RTM companies’ failure to serve the notice of invitation on it did not invalidate their notices of claim. The freeholder appealed. It argued that Corscombe Close Block 8 RTM Co Ltd was wrongly decided because, on a natural reading of section 76(2)(e) of the 2002 Act, only shared ownership leases where the tenant’s interest had “staircased” to 100% were long leases for the purposes of the 2002 Act. In practical terms, it was unheard of to have a shared ownership lease of 21 years or less. The Upper Tribunal (Lands Chamber) (UT) rejected this construction. It found that Corscombe Close Block 8 RTM Co Ltd had been correctly decided. A lease qualified as a “long lease” so long as it fell within any of the definitions set out in section 76(2)(a)-(f). It did not have to satisfy them all. Each of the shared ownership lessees were qualifying tenants because their interests were granted for a term exceeding 21 years. As qualifying tenants, it followed that the housing association, as the owner of a long lease in reversion on inferior long leases, could not be the qualifying tenant of any of those flats: section 75(6) of the 2002 Act. On the issue of whether the housing association was a qualifying tenant under the 2002 Act in respect of the socially rented flats, the Upper Tribunal agreed with the freeholder that it was. The housing association held a long lease in respect of those flats. The mere fact that it was also a landlord did not disqualify it from being a qualifying tenant and the 2002 Act did not prohibit the same. The RTM companies should have served a notice of invitation to participate on the housing association in its capacity as a qualifying tenant of the socially rented flats. The mere fact that it would later have to serve a claim notice on the same person, as a landlord, did not preclude this step. The Upper Tribunal also determined that the failure to serve the notice of invitation on the housing association did render the claim notice invalid. Given its natural and ordinary meaning, section 79(2) of the 2002 Act rendered invalid a claim notice that was served otherwise than in accordance with its terms. One such requirement was for a notice of invitation to participate to be given to each person who it was required to be given before a claim notice was served.   Elizabeth Dwomoh is a barrister at Lamb Chambers