Leasehold enfranchisement – Right to manage – Qualifying tenants – Appellant freeholder appealing against decision of First-tier Tribunal that respondent companies entitled to acquire right to manage blocks of flats – Whether lessees with less than 100% shared ownership leases and intermediate landlords with sub-let flats on short leases were qualifying tenants – Whether failure to give notices of invitation to participate in acquisition of right to manage to each qualifying tenant invalidating claim notice – Appeal allowed
The appellant was the freehold owner of two self-contained blocks of flats in St Anne Street, London E14. A number of flats were held by MHT under two separate headleases. MHT then sublet some flats on individual shared ownership leases and others to social rent tenants on short leases. The respondent companies wished to acquire the right to manage the blocks pursuant to chapter 1 of part 2 of the Commonhold and Leasehold Reform Act 2002.
Under section 74(1) of the 2002 Act, those entitled to be members of a right to manage (RTM) company were: (a) qualifying tenants of flats contained in the premises; and (b) from the date on which it acquired the right to manage, landlords with underleases of the whole or any part of the premises. Section 75 provided that a person was a qualifying tenant if he was tenant of the flat under a long lease, defined in section 76 as a shared ownership lease, where the tenant’s share was 100%. Under section 78, before making a claim, an RTM company had to give notice to each qualifying tenant who neither was already, nor had agreed to become, a member of the RTM company.
The First-tier Tribunal (FTT) determined that the respondents were entitled to acquire the right to manage the flats on the basis that the appellant had correctly served notices of invitation to participate under section 78 on the various tenants who occupied flats under shared ownership leases. The appellant argued that notices should have been served on MHT, the landlord under those leases, and that the respondents’ failure to do so invalidated the claim notices.
The FTT decided that MHT was not a qualifying tenant within the 2002 Act because it was a landlord; and even if it was, the respondents’ failure to give it notice did not invalidate their notice of claim. The appellant appealed.
Held: The appeal was allowed.
(1) Under section 76(2)(a) of the 2002 Act, as amended, a lease was a long lease if it was granted for a term of years certain exceeding 21 years, whether or not it was (or might become) terminable before the end of that term by notice given by or to the tenant, by re-entry or forfeiture or otherwise.
Section 76(2)(e) made express provision for “shared ownership leases” which included a lease where the lessee paid a premium for a percentage share, typified by shared ownership leases under the Housing Act 1985, where the tenant bought an initial share and paid rent for the landlord’s share, with the ability to “staircase” up to a 100% share by buying further tranches of ownership during the lease.
If a shared ownership lease was granted for a term of years certain exceeding 21 years and came under (a), it was a “long lease”. It did not also have to qualify under (e) which did not operate to exclude a shared ownership lease that would otherwise have qualified under (a). It was enough to pass through any of the gateway definitions in section 76(2)(a)-(f) to qualify as a “long lease”.
Accordingly, long shared ownership leases were “long leases” for the purposes of the 2002 Act, where the tenant’s share was less than 100%, if they fell within the language of section 76(2)(a) as leases granted for a term exceeding 21 years. Here, each of the shared ownership lessees was a qualifying tenant, since their interests were granted for a term exceeding 21 years. As they were the qualifying tenants of their flats, it followed that MHT, 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): Corscombe Close Block 8 RTM Co Ltd v Roseleb Ltd [2013] UKUT 81 (LC); [2013] PLSCS 60 followed. Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney-General [1983] Ch 159 and Brick Farm Management Ltd v Richmond Housing Partnership Ltd [2005] 3 EGLR 57 considered.
(2) However, MHT was the qualifying tenant of each of the flats that were sublet to social rent tenants. It should therefore have been given a notice of invitation to participate at least 14 days before the claim notices were served. There was no doubt that MHT was a tenant of each of those flats under a long lease. The fact that each long lease was of more than one such flat was irrelevant: section 112(4). None of the disqualifications in section 75 applied and so, according to that section, which specified whether there was a qualifying tenant of a flat and who it was, MHT was the qualifying tenant.
(3) The right approach in deciding whether failure to comply with a procedural requirement invalidated the step taken, where a statute conferred a property or similar right, was to identify parliament’s intention as to the consequences of non-compliance, as an exercise of statutory interpretation; that involved, amongst other things, an assessment of the purpose and importance of the requirement in the context of the statutory scheme as a whole, and did not turn on the particular circumstances of the parties, such as whether any prejudice was actually caused: Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89; [2017] PLSCS 46 and Osman v Natt [2014] EWCA Civ 1520; [2015] EGLR 11 applied.
The starting point was to ask whether it was a purpose of the legislation that an act done in breach of a provision should render a step taken invalid. If on its true interpretation the statute specified the consequence of non-compliance, then effect had to be given to that provision.
Overall, it appeared that parliament intended failure to give section 78 notices, as required, to invalidate a claim notice and that section 79(2) should not be interpreted as merely a stipulation as to when a claim notice might be served. The natural and ordinary reading of section 79(2) was that a purported claim notice that was served otherwise than in accordance with its terms would be invalid. In the context of the statutory scheme as a whole, and giving the provision its ordinary and natural meaning, it was wrong to construe it as only performing a more limited function.
Justin Bates (instructed by Scott Cohen Solicitors Ltd) appeared for the appellant; Mark Loveday (instructed by Jobsons Solicitors Ltd) appeared for the respondents.
Eileen O’Grady, barrister
