Whether the failure to serve a claim notice to all landlords involved necessarily invalidates an RTM claim…
The team at specialist property solicitors examine the question further drawing in a recent Supreme Court decision
The Supreme Court case A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27 addresses a key issue of statutory interpretation in the context of procedural requirements under the Commonhold and Leasehold Reform Act 2002 (CLRA) (“the Act”) for Right to Manage (“RTM”) companies, specifically whether the failure to serve a claim notice to all landlords involved necessarily invalidates an RTM claim. This decision has significant implications for landlords facing RTM claims, offering guidance on when procedural errors can or cannot be used to challenge an RTM application. Importantly, and of even wider implication, the Court also considered the correct approach in a case where there is no express statement of the consequences of non-compliance with a statutory requirement.
Serving RTM Claim Notices
Under the CLRA, as well as service upon any party to a lease other than the landlord or tenant and any tribunal appointed manager, by Section 79(6)(a) an RTM company must serve a Notice of Claim to acquire the right to manage to each person who on the relevant date is a landlord under a lease of the whole or part of the premises. Service of the Notice of Claim triggers the acquisition process, placing the burden on the landlord (or other entitled party) to oppose the right of the tenants to take over the management of the property (by service of a counter notice within a limited period of time). In the absence of opposition, the acquisition of the right to manage applies by default, enabling the RTM company to take over management duties from the date specified on the Claim Notice.
Facts of the Case
The property in issue was a student accommodation building in Leicester. The appellant, A1 Properties (Sunderland) Ltd (“A1 Properties”), held intermediate leases for the communal areas within the property, but did not have management responsibilities under the leases.
Tudor Studios RTM Company Ltd (the Respondent) (“Tudor Studios”) was formed by tenants aiming to take over management responsibilities under the CLRA’s RTM regime.
When Tudor Studios served a claim notice to acquire management rights, it notified the freeholder and the primary management company but failed to notify A1 Properties, the intermediate landlord.
The FTT initially allowed Tudor Studio’s claim for the RTM, noting that A1 Properties’ management role was limited. In doing so, the Tribunal relied upon the decision of the Court of Appeal in Elim Court RTM Company Limited v Avon Freeholds Limited [2018] QB 571 (“Elim Court”) (discussed in more detail below), where a failure to serve notice on the appellant intermediate landlord with no management responsibilities did not invalidate the RTM claim.
A1 Properties continued to argue that this failure invalidated the RTM claim and sought permission to appeal from the Upper Tribunal. The Upper Tribunal ultimately dismissed the appeal as it too was bound by the Court of Appeal’s decision in Elim Court but granted a “leapfrog” certificate to the Supreme Court.
Previous Decisions and the Elim Court Case
In Elim Court, the Court of Appeal suggested that Parliament did not intend that minor procedural errors, such as failing to serve a notice on intermediate landlords without management responsibilities, would invalidate an RTM claim. In that case, the court held that the procedural lapse did not compromise the tenants’ substantive right to manage owing to the lack of management responsibilities of the omitted landlord. The court found that the transfer of important non-management functions / rights of a landlord is ancillary to the primary objective of the Act.
However, A1 Properties argued that Elim Court was wrongly decided and sought to have it overturned.
The Decision
The Supreme Court dismissed the appeal, ruling that the failure to notify A1 Properties was a procedural flaw, but did not invalidate Tudor Studios’ acquisition of the right to manage under its interpretation of the Act. Whilst the Supreme Court found Elim Court to be correct, it found flaws with some of its reasoning. The Supreme Court confirmed that while an intermediate landlord, or one who lacks any management responsibilities (as was the case for A1 Properties), cannot be disregarded under the RTM claim process, the court must consider in cases where statute does not provide a specific consequence for non-compliance, the effect of that failure from the perspective of the prejudice or loss of opportunity caused to the affected party by noncompliance. The Supreme Court relied on the approach set out by the House of Lords in R v Soneji [2005] UKHL 49 as a starting point, in which Lord Steyn said that “the emphasis ought to be on the consequences of non-compliance and posing the question whether Parliament can fairly be taken to have intended total invalidity.”
Importantly, the Supreme Court found that failure to fully comply procedurally would not automatically make the claim void, but rather voidable until such time as the court or tribunal was satisfied to approve it notwithstanding the error.
Implications for landlords
This decision clarifies that landlords should not assume that procedural lapses, where there are no statutory consequences for non-compliance, will invalidate an RTM claim. Instead, a more flexible judicial approach will apply, where the Courts weigh the significance of the omission. Some key take aways for landlords are:
- Assess the Impact of Procedural Errors: If a procedural error (such as a failure to serve claim notice) does not affect a landlord’s substantive rights or management responsibilities, it is unlikely to void the RTM claim. Counter-notices based on technicalities may not succeed unless, on the facts of the case, it can be shown that the omission deprived a landlord of the opportunity to meaningfully contest the RTM application (thus causing it prejudice).
- Assess each case on its own facts: Each case ought to be considered on its own merits and against theanalysis carried out in theSoneji case.The Supreme Court here found that whether there has been a “substantial compliance” is not relevant to the approach in determining what Parliament intended should follow from a failure to strictly comply.
Landlords facing RTM claims should now focus on the impact of an RTM transition on their interests rather than any procedural missteps by the RTM company. If an RTM claim is uncontested on substantive grounds, it is likely to proceed even with minor procedural errors.
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