Before making a claim to acquire the right to manage under the Commonhold and Leasehold Reform Act 2002, the RTM company must serve a “notice of invitation to participate” on all qualifying tenants of the building who are not members of the RTM company: section 78(1).
A qualifying tenant is defined as a tenant of a flat under a long lease: section 75(2). There can only be one qualifying tenant of a flat at any one time: section 75(5). If a flat is let under two or more long leases, the tenant holding the inferior of those leases will be held to be the qualifying tenant: section 75(6). If there are joint tenants of a flat held under a long lease, they are regarded as jointly being the qualifying tenant.
A long lease is defined as a lease granted for a term certain of 21 years: section 76(2)(a). A shared ownership lease, where the tenant owns a 100% beneficial interest, falls in the definition of a long lease: section 76(2)(e).
Have you been served?
In Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Company Ltd and another [2020] UKUT 358 (LC); [2020] PLSCS 235 the Upper Tribunal (Lands Chamber) was asked to consider first whether a shared-ownership tenant who had not staircased their interest to 100% could be a qualifying tenant. Secondly, whether the intermediate landlord of a non-qualifying tenant could himself become a qualifying tenant. Lastly, whether the failure to serve a notice of invitation to participate on an intermediate landlord, who was also a qualifying tenant, rendered the claim notices invalid.
Avon Ground Rents Ltd was the freeholder of seven blocks of flats in St Anne Street, London, E14. Canary Gateway (Block A) RTM Company Ltd and Canary Gateway (Block B) RTM Company Ltd sought to acquire the right to manage the blocks.
For the purposes of the Act, the blocks were deemed to be two self-contained buildings. Four of the blocks were let to qualifying tenants on long leases. One block, comprising 17 flats, was let under a single headlease to Metropolitan Housing Trust Ltd, a housing association. Metropolitan underlet those flats on individual shared ownership leases. Only two of the shared-ownership tenants had staircased their beneficial interests to 100%. Two other blocks were let to Metropolitan under separate headleases. Metropolitan underlet 56 of those flats to social rent tenants.
On 19 March 2019, the two RTM companies purported to serve the notice of invitation on all qualifying tenants who were not members. It did not serve Metropolitan. On 6 April 2019, the RTM companies served their claim notices on Avon. Avon contended the claim notices were invalid because the notice of invitation had not been served in accordance with section 78(1).
Shared ownership leases
Relying on Corscombe Close Block 8 RTM Co Ltd v Roseleb Ltd [2013] UKUT 81 (LC); [2013] PLSCS 60, the First-tier tribunal determined that the tenants under the shared ownership leases were qualifying tenants, and had been properly served with the notice of invitation.
On appeal by Avon, the UT rejected its argument that on a natural reading of section 76(2)(e), a shared ownership lease could only become a long lease if the tenant had staircased its beneficial interest to 100% and that, accordingly, Corscombe Close was wrongly decided. The UT disagreed – the shared ownership tenants were long leaseholders. Their respective interests were granted for a term exceeding 21 years, which met the “gateway” requirement of section 76(2)(a). Under section 75(6), Metropolitan as the owner of a long lease in reversion on inferior long leases could not be a qualifying tenant of those flats.
The FTT had found Metropolitan could not be a qualifying tenant of the flats underlet to its social rent tenants. The status of landlord and qualifying tenant were inherently opposed under the Act. A landlord could not become a member of a RTM company until after the right to manage had been acquired.
The UT disagreed with the FTT’s analysis. The socially rented flats were occupied on a short-term basis. The purpose of the Act was to permit those with the largest capital stake in a building the right to control it. There was nothing in section 75 that disqualified a landlord, who was also a tenant, from becoming a qualifying tenant. The RTM companies should have served Metropolitan with a notice of invitation in respect of the socially rented flats. The failure to do so was detrimental to their claims. Section 79(2) required a notice of invitation to be given to the persons required before the claim notice was served.
Light ahead?
The Law Commission has recommended the abolition of notices of invitation on the basis that they serve little purpose and give freeholders the opportunity to defeat a claim on a technicality.
Elizabeth Dwomoh is a barrister at Lamb Chambers
