James Driscoll welcomes an important decision that could dissuade landlords from bringing procedural challenges to right to manage claims
Key points
- Not every defect will invalidate a right to manage claim
- A distinction should be drawn between jurisdictional and purely procedural factors
- The decision may discourage landlords from challenging on the basis of trivial defects
“It is a melancholy fact that whenever parliament lays down a detailed procedure for exercising a statutory right, people get the procedure wrong.” So begins Lord Justice Lewison’s judgment in Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89; [2017] PLSCS 46 – which may prove to be the most important decision yet on how to determine challenges to the right to manage (RTM). It should have a major impact on how the First-tier Tribunal (Property Chamber) (FTT) and, on appeal, the Upper Tribunal Lands Chamber (UT), deal with RTM disputes.
The right to manage
RTM is a no-fault based right for qualifying leaseholders. It allows them to take over management of their block. The qualifying conditions are, broadly speaking, the same as they are for a collective enfranchisement claim. Part 2 of the Commonhold and Leasehold Reform Act 2002 contains the main provisions. Much of the procedural detail, such as the claim and participation notices, and the constitution of an RTM company, are in regulations made under the Act.
Before making a claim, the RTM company formed on behalf of the leaseholders must serve participation notices on any leaseholder who is not already a member. A landlord served with an RTM claim may serve a counter-notice if it considers that the claim is ill-founded. If this happens the company must apply to the FTT to determine whether it is entitled to the RTM.
The court in Elim Court identified two procedural errors (and rejected a third challenge) but decided that none of them invalidated the claim. In doing so, it allowed an appeal from the decision of the UT.
Consequences of non-compliance
In an earlier decision in Natt v Osman [2014] EWCA Civ 1520; [2015] EGLR 11 (an enfranchisement case) the court considered the consequence of failing to comply with statutory requirements. A distinction was drawn between public body cases and cases where a private person exercises a statutory right. In the latter case, unlike the former, substantial compliance is not enough.
But one has to examine the consequences of non-compliance in light of the statutory scheme as a whole.
In Elim Court, the court decided (not surprisingly) that this case was an example of a private person (the RTM company) exercising rights. That said, it does not follow that every defect, however trivial, invalidates the claim. Even though prejudice does not have to be shown, this does not mean that it is irrelevant. An illustration of this point is 7 Strathray Gardens Ltd v Pointstar Shipping and Finance Ltd [2004] EWCA Civ 1669, where it was held that a landlord’s failure to state in its counter-notice to an enfranchisement claim whether or not the property was included in an estate management scheme did not invalidate the notice.
Other cases show that not all non-compliances invalidate a claim: one has to examine the statute in its context. A distinction may be drawn between jurisdictional and purely procedural factors. The fact that it is the landlord who challenges the validity of such matters as the participation notices is also relevant – a landlord who fiercely resists a claim is not realistically “the guardian angel” of the leaseholders (Lewison LJ, Elim Court, paragraph 63).
Effects of non-compliance in this case
There were three challenges. First, that the participation notices failed to state that the RTM’s constitution could be inspected by a non-member leaseholder on a Saturday or a Sunday. The court wondered about the purpose of this as any leaseholder can seek a copy on payment of a small fee. It also wondered what difference it made to the landlord (who was the only one objecting) whether or not this had been mentioned. Even if a leaseholder has not been given a participation notice in the correct form, there is a statutory right to apply to become a member. The court decided that this was a “trivial failure of compliance” (paragraph 66).
Secondly, the court agreed with the UT that the objection to the signature on the claim notice was unfounded. But even if there was an error (the signatory was not a member of the RTM company) this did not invalidate the claim (the signature was authorised by the company).
Thirdly, an intermediate landlord of one of the flats (possibly involved as a result of an equity release arrangement by the leaseholder) was not given a copy of the claim notice. As this landlord had no management responsibilities (these lay with the head landlord) this failure to give notice to an intermediate landlord of a single flat did not invalidate the claim.
The future?
It took the leaseholders in this case five years (on their third attempt) to establish their RTM. At no point does it appear that the landlord challenged the claim on the ground that the building was ineligible or that an insufficient number of leaseholders supported it. The challenges were made because of mistakes made in the procedures.
It is hard to believe that mistakes will not continue to be made in RTM claims. But the Elim Court decision may discourage landlords from challenging claims when trivial defects are uncovered.
Longer-term, perhaps the procedures should be simplified. For example, why not give the FTT power to excuse procedural inadequacies where it is just and equitable to do so?
James Driscoll is a solicitor and a consulting editor to Halsbury’s Laws
