Picking holes in notices with a view to defeating right to manage claims has become something of a cottage industry. The complex statutory procedure in the Commonhold and Leasehold Reform Act 2002 provides numerous traps for unwary leaseholders.
As the Law Commission said in its summary of the report on “Leasehold home ownership: Exercising the right to manage” in July 2020: “Some details of this procedure are opaque even to well-advised leaseholders, and minor technical errors can be used (by some landlords) as an avenue for obfuscation and delay.”
The Law Commission made no fewer than 101 detailed recommendations for reform which received widespread support. Sadly, the new Leasehold and Freehold Reform Act 2024 makes no procedural changes to the existing law. However, the Supreme Court has come to the aid of leaseholders in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co Ltd [2024] UKSC 27; [2024] PLSCS 148.
The right to manage in outline
The right to manage was introduced as an alternative to collective enfranchisement. In simple terms, it allows the requisite majority of leaseholders in a predominantly residential block to form an RTM company and take over the management of the block from the landlord. There is no need to prove fault and the original intention was that the procedures should be as simple as possible in order to reduce the potential for challenge from an obstructive landlord – they have proved to be anything but. The prevalence of prescribed forms has proved particularly problematic.
The first stage of the procedure is to set up an RTM company. Thereafter, a notice inviting participation must be served on every long leaseholder of a flat in the block. Once the requisite number of participants has joined the RTM company, the company can serve a claim notice.
Section 79(6) provides that the claim notice must be given to each person who is:
- (a) landlord under a lease of the whole or any part of the premises (ie the block);
- (b) party to such a lease otherwise than as landlord or tenant (for example, a management company or guarantor); or
- (c) a manager appointed under Part 3 of the Landlord and Tenant Act 1987.
The Supreme Court’s ruling
In A1 Properties, the RTM company failed to serve the claim notice on the appellant, who was the long leaseholder of the communal parts of a block containing student bedsits. The issue for the Supreme Court was whether this omission invalidated the acquisition process.
In considering the proper approach to validity, the court took the case of R v Soneji [2005] UKHL 49, as its starting point. The House of Lords said in Soneji that the focus should be:
- (a) on the purpose served by the requirement as assessed in light of a detailed analysis of the particular statute; and
- (b) the specific facts of the case, having regard to whether any (and what) prejudice might be caused or whether any injustice might arise if the validity of the statutory process is affirmed notwithstanding the breach of the procedural requirement.
The 2002 Act does not require proof of fault. So the question to be addressed was whether a relevant party had been deprived of a significant opportunity to have their opposition to the acquisition of the right to manage considered, having regard to:
- (a) what objections they could have raised and would have wished to raise; and
- (b) whether, despite the procedural omission, they in fact had the opportunity to have their objections considered in the course of the process leading to the making of the order to transfer the right to manage.
In reality, there was no substantive objection that A1 Properties could have raised, so they had lost nothing of significance as a result of the omission to serve them.
The Supreme Court said the legal effect of its approach was that a procedural failure renders a transfer of the right to manage voidable, at the instance of the relevant landlord or other stakeholder who was entitled to, but had not been given, a claim notice.
Perhaps of more general assistance to leaseholders is the Supreme Court’s assertion that the relevant “omission” does not give persons who are not affected by that omission a right to object to the making of a transfer order if the party affected has not sought to complain about it.
In the majority of cases, it is the landlord who is relying on some omission on the part of the RTM company which only affects the leaseholders. For example, in Elim Court RTM Co Ltd v Avon Freeholders Ltd [2017] EWCA Civ 89; [2017] PLSCS 46, the landlord sought to rely on the fact that the articles of association were not available for inspection by leaseholders on a Saturday or Sunday as required by section 78(5)(b) of the 2002 Act.
The Supreme Court chose to side-step the question of whether landlords can challenge the right to manage on the grounds that a leaseholder has not been invited to participate in the scheme. The complication here is that section 79(2) imposes a clear consequence of failure by providing that a claim notice may not be given unless each person required to be given a notice inviting participation had been given such a notice at least 14 days before. As it is invariably landlords who challenge the validity of the claim notice on this ground, the new approach suggests that such challenges may not be successful in the future.
Implications
It is unfortunate that parliament has failed to adopt the Law Commission’s recommendations for simplifying the process for acquiring the right to manage. One of those proposals was that the RTM company would only be required to serve the freeholder with the onus being on the freeholder to pass the notice on to any intermediate landlords.
Such a reform would have rendered the A1 Properties dispute unnecessary. However, the case provides useful guidance on the approach the tribunal will take to unmeritorious procedural challenges and should reduce the number of disputes.
Nicola Muir is a barrister at Tanfield Chambers
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