Landlord and tenant – Right to manage – Notice – Investor tenants seeking to exercise right to manage building through respondent – Respondent failing to serve notice on appellant intermediate landlord – First-tier Tribunal holding right to manage not invalidated by failure to serve notice on appellant – Appellant appealing – Whether failure to serve right to manage claim on all relevant landlords automatically invalidating claim – Appeal dismissed
Tudor Studios was a former factory in Leicester, converted into student accommodation. The building mainly comprised “study studios”, with some communal areas which were held by investor tenants on 250-year leases between the freeholder, the investor tenant and the management company. The investor tenants let the study studios to students directly. The appellant held communal areas on four 999-year leases which it underlet to the management company at market rents.
The investor tenants sought to exercise their right to manage the building through the respondent RTM company which gave the notice required by section 79(6)(a) of the Commonhold and Leasehold Reform Act 2002 Act to the freeholder and to the management company, but not to the appellant which was an intermediate landlord of parts of the building but had no management responsibilities. The appellant served a counter-notice under section 84(1) stating that the respondent was not entitled to acquire the right to manage because it had not complied with section 79(6)(a).
The respondent applied to the First-tier Tribunal to determine the issue. In Elim Court RTM Co Ltd v Avon Freeholders Ltd [2017] EWCA Civ 89; [2017] PLSCS 46, the Court of Appeal held that the failure to serve a claim notice on the intermediate landlord of a single flat with no management responsibilities did not invalidate the notice. The FTT therefore ruled in the respondent’s favour. The Upper Tribunal dismissed the appellant’s appeal: [2023] UKUT 27 (LC). As Elim Court was binding on the Court of Appeal, the appellant was granted a “leapfrog” certificate to appeal directly to the Supreme Court.
Held: The appeal was dismissed.
(1) The correct approach in a case where there was no express statement of the consequences of non-compliance with a statutory requirement was first to look carefully at the whole of the structure within which the requirement arose and ask what consequence of non-compliance best fitted the structure as a whole. In each case, the focus was on (i) the purpose served by the requirement as assessed in light of a detailed analysis of the particular statute; and (ii) the specific facts of the case, having regard to whether any (and what) prejudice might be caused or whether any injustice might arise if the validity of the statutory process was affirmed notwithstanding the breach of the procedural requirement: R v Soneji [2006] 1 AC 340 and Osman v Natt [2015] EGLR 11 considered.
The simplest way to provide a legal formula to give effect to parliament’s intention as to the consequences of the failure to give a claim notice to a visible landlord or other stakeholder under section 79(6) was that the failure rendered the transfer of the right to manage voidable, at the instance of the relevant landlord or other stakeholder who was entitled to, but not given, a claim notice. But it was not void. It was voidable unless, or until, the tribunal approved the transfer scheme, as the outcome of the resolution of the dispute as to entitlement caused by a counter-notice by a person actually given a claim notice, or as the result of an application by the RTM company under section 85. If the scheme was disapproved by the tribunal, the RTM company would have to start again in any event.
(2) In evaluating whether a procedural failure under the regime had the effect of invalidating the process, the question was whether a relevant party had been deprived of a significant opportunity to have their opposition to the making of an order to transfer the right to manage considered, having regard to what objections they could have raised and would have wished to raise; and whether, despite the procedural omission, they in fact had the opportunity to have their objections considered in the course of the process leading to the making of the order to transfer the right to manage. If their objection had in fact been considered in the process, even though the claim notice was not served at the proper time, they had lost nothing of significance so far as the regime was concerned and the inference as to parliament’s intention was the same.
The focus was on the position of the party directly affected by the procedural omission. There was no good reason to suppose that parliament intended that a person which had not itself been affected by a procedural omission in relation to another should acquire, by a windfall, a power to thwart the operation of the statutory process which it would not otherwise have enjoyed.
It followed that the result in Elim Court was correct. In that case it was a landlord who had been served with the claim notice who sought to rely on a procedural omission in relation to another, intermediate, landlord in order to undermine the transfer of the right to manage. That intermediate landlord, that was the person whose procedural rights had been affected, had not sought to be joined in the proceedings to assert their rights.
(3) However, the approach of the Court of Appeal in Elim Court should not be endorsed in full. It was usually to be inferred that parliament intended that there should be a reasonable degree of certainty regarding property rights and contractual rights; and that a person should not be deprived of property or contractual rights without being afforded a fair opportunity to enter objections. That inference was reinforced in the present context by the requirement of service of a claim notice on the wide range of persons identified in section 79(6).
Where the right to manage was transferred to an RTM company, the effect was that an existing sophisticated contractual regime with multiple aspects and ramifications was subject to significant disruption (hence the complexity and comprehensiveness of the statutory regime).
(4) The ordinary expectation was that persons whose property or contract rights were to be taken away, or subject to significant qualification, should have a fair opportunity in the course of the procedure to be followed before that occurred to raise any arguments of substance they might have to oppose that outcome. Contrary to the view taken in Elim Court, it was not sufficient to say that their right to participate might be ignored if they were an intermediate landlord with no power of management.
Justin Bates KC and Harley Ronan (instructed by Brethertons LLP, of Rugby) appeared for the appellant; Winston Jacob (instructed by Direct Access) appeared for the respondent; Philip Rainey KC and Mark Loveday (instructed by Bishop & Sewell LLP) appeared for the intervener.
Eileen O’Grady, barrister
Click here to read a transcript of A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co Ltd
