Landlord and tenant – Right to manage – Qualifying tenant – Respondent RTM company seeking to acquire right to manage building and serving notice of invitation to participate on qualifying tenants – Appellant freeholder appealing against finding that failure to give notice to leaseholder not invalidating claim notice – Whether tenant under long equitable lease qualifying tenant – Whether failure to serve equitable lessee invalidating claim notice – Appeal dismissed
The appellant was the freehold owner of Cresta Court, London W5. In January 2022, the respondent RTM company gave the appellant notice under section 79 of the Commonhold and Leasehold Reform Act 2002 that it intended to acquire the right to manage the property.
The appellant challenged the claim notice on the basis that no notice of invitation to participate (NIP) had been given to the leaseholder of flat 17 (who was a qualifying tenant and entitled to receive that notice), and that failure to serve meant that the claim notice was invalid. The lease had been granted in 2020 but the leasehold title was not registered until after the service of the claim notice.
The First-tier Tribunal found that the leaseholder was a qualifying tenant, on the basis that section 112(2) of the 2002 Act defined “lease” as including an agreement for a lease. However, on the facts before it, the FTT decided that the failure to give NIP to the leaseholder did not invalidate the notice. The appellant appealed.
The questions for determination were: (i) whether the lessee under a newly granted long lease, not yet registered and therefore effective in equity but not at law, was a qualifying tenant within the 2002 Act; and (ii) whether the failure to serve such a lessee with a NIP invalidated a claim notice served by the RTM company under section 78 of the 2002 Act.
Held: The appeal was dismissed.
(1) Section 75(2) of the 2002 Act provided that a person was the qualifying tenant of a flat if he was tenant under a long lease as defined in section 76. A long leaseholder was in ordinary language the lessee of their flat, whether or not their lease was registered. The absence of an express provision for the inclusion of “equitable leases” or a “tenancy in equity” was not problematic in view of section 112(2), which expressly included “an agreement for a lease or tenancy”. Such an agreement was an equitable lease, on principle going back to Walsh v Lonsdale (1882) LR 21 Ch D 9. If a “lease” in section 75(2) included an agreement for a lease or tenancy then a fortiori it had to include equitable leases. Therefore, a “long lease” in section 75(2) was capable of including both legal and equitable leases.
(2) Where, as in the present case, a lease was granted out of a registered freehold and had not yet been registered, that lease took effect at law, but if it was not registered within two months of completion then “the grant or creation has effect as a contract made for valuable consideration to grant or create the legal estate concerned” (section 7(2)(b) of the Land Registration Act 2002). Section 112(2) expressly retained the status of qualifying tenant for the lessee in that case, unless the context did not permit it. The context did not permit section 75(2) to mean both a legal and an equitable lease of the same flat, because there had to be one qualifying tenant (section 75(5)). Where there was both a legal lease and an equitable lease (whether in the sense of an agreement for a lease, or of a granted lease that was registrable and had not yet been registered), the context did not permit that the equitable lessee was the qualifying tenant. In those circumstances the qualifying tenant was the legal lessee.
Accordingly, where a flat was let on an equitable lease, and there was no legal lease of the flat, the lessee was a qualifying tenant if the statutory definition of a “long lease” was met: where there was both a legal and an equitable long lease, the legal lessee was the qualifying tenant. Therefore, the leaseholder was a qualifying tenant at the relevant time in the present appeal, and was a person on whom section 78 required a notice of intention to participate to be served.
(3) Section 78 stated that an RTM company “must give” a notice of invitation to participate to all qualify tenants. That was intended to protect qualifying tenants, to ensure that they could not be ignored or side-lined, and to give them the opportunity to become members of the RTM company at the earliest possible stage so that they could take part in its decision-making before the claim notice was served. Section 79(2) then said: “The claim notice may not be given unless each person required to be given a notice of invitation to participate has been given such a notice at least 14 days before”.
Section 79(2) set out a consequence of non-compliance: the claim notice was not valid. The words “not valid” meant that it was neither wholly valid nor wholly invalid, but voidable at the instance of the tenant. She0 could ask the court for a declaration that the notice was invalid; if she was in communication with a landlord who had served a counter-notice she might be able to be joined in proceedings before the FTT so that she could raise the problem. Or she can seek judicial review of an FTT decision in the RTM company’s favour. But unless she took one of those courses of action, no-one else could take advantage of the procedural failure; only the tenant directly affected by it could do so. The person entitled to have been served with the notice was the one who could have it declared void, and no-one else.
(4) The claim notice served by the respondent in this case did not comply with section 79(2) because the leaseholder had not been given a notice of invitation to participate. It was therefore voidable, but only at the leaseholder’s instance. She had not sought to challenge the claim notice; and it could not be challenged by anyone else. The FTT’s reasoning could not stand, but the outcome was correct: the failure to give a notice to the leaseholder had not invalidated the claim notice and the right to manage was not prevented: A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co Ltd [2024] PLSCS 148; [2024] 3 WLR 601 applied.
Justin Bates KC and Sophie Gibson (instructed by Scott Cohen Solicitors) appeared for the appellant; Winston Jacob (instructed by Direct Access) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Avon Freeholds Ltd v Cresta Court E RTM Co Ltd
