Right to manage – Section 79(5) of Commonhold and Leasehold Reform Act 2002 – Sections 22 and 352 of Companies Act 1985 – Right to manage (RTM) company giving notice claiming right to manage – Company not keeping register of members – Only one leaseholder subscribing to memorandum of association – Whether absence of register precluding other leaseholders from being members of RTM company – Whether RTM company failing to meet requirements of section 79(5) of 2002 Act – Appeal allowed
The first appellant company owned the freehold of a 1930s block comprising 48 flats let on leases; a number of the leaseholders were shareholders in the company. In 2007, a the second appellant, a right-to-manage (RTM) company, gave notice, under section 79 of the Commonhold and Leasehold Reform Act 2002, of a claim to acquire the right to manage the block pursuant to that Act, as a company complying with the requirements of section 79(5). Various residents served counternotices, and the matter went to the leasehold valuation tribunal (LVT) for determination of the second appellant’s entitlement.
At the hearing, the residents contended that the RTM company did not comply with section 79(5) since, on the date of its application, its members did not comprise qualifying tenants of at least half the flats in the block. At that date, the company had not held a register of its members, and only one leaseholder subscribed to its memorandum of association, although evidence indicated that 24 other leaseholders had agreed to become members. The objecting residents contended that, by virtue of section 22 of the Companies Act 1985, the members of a company comprised only those who had: (i) subscribed to the memorandum of association; and (ii) agreed to become a member and had been entered on the register of members. The RTM company therefore had only one member at the relevant time.
Rejecting that argument, the LVT agreed that section 22 of the 1985 Act set out the rules for what constituted membership of a company, but went on to hold that the failure of the RTM company to keep a register of its members, as required by section 352 of the same Act, should not invalidate its claim notice. The LVT also determined a claim by the first appellant to be entitled to seek contributions to a sinking fund from the leaseholders; the LVT found that the terms of the leases did not permit this. The appellants appealed.
Decision: The first appeal was dismissed; the second appeal was dismissed.
(1) The LVT had erred in law in its determination of the right-to-manage claim. The question was whether the RTM company had established that, on the relevant date, its members included qualifying tenants of at least half of the flats in the block. In order for a person other than a subscriber to become a member he had to agree to become a member and have his name entered on the register of members; those requirements were cumulative: National Westminster Bank v Inland Revenue Commissioners [1995] 1 AC 119 applied. In the absence of any register, a person’s name could not be so entered and that person could not therefore be a member of the company, regardless of whether he had agreed to do so. It followed that none of the 24 people who had agreed to become members as at the date of the RTM company’s application was in fact a member at that time. The company did not fulfil the requirements of section 79(5) of the 2002 Act, its claim notice had been invalid and it was not entitled to acquire the right to manage.
(2) The LVT had correctly held that the leases did not include any provision for a contribution to a sinking fund.
Peter Ward (chairman of Southall Court (Residents) Ltd) made written representations; no other party made representations.
Sally Dobson, barrister
