Registration gap issues and errors in statutory notices concerning property
The Court of Appeal has followed last year’s Supreme Court decision in A1 Properties (Sunderland) Limited v. Tudor Studios RTM Company Limited [2024] UKSC 27, about errors in statutory notices, in determining that the right to manage could not be acquired where the RTM Company had failed to serve a lessee with a notice of invitation to participate, whose lease was pending registration at the Land Registry when the claim to acquire the right to manage was made. For more on the A1 Properties decision, see our Insight: Supreme Court gives guidance on errors in statutory notices concerning property.
Right to Manage (“RTM”) is a legal process under which leaseholders of flats can acquire the management of a building (under the Commonhold and Leasehold Reform Act 2002 (“CLARA 2002”)). The leaseholders form an RTM Company to take over the management responsibilities for the building. The RTM Company must then serve a notice inviting all qualifying tenants to join the RTM Company. Only after that step has been followed can the RTM company serve a notice of claim to acquire the right to manage.
In the recent Court of Appeal decision in Avon Freeholds Ltd v Cresta Court E RTM Company [2024] UKUT 335 (LC), the RTM Company served notices of invitation to participate on the qualifying tenants, but crucially failed to serve on Ms O’Connor, a leaseholder who had been granted a new lease in 2020, but whose lease was pending registration at the Land Registry. At that stage, the lease was only an equitable lease and not a legal lease.
Avon, the freeholder, made an application to the First-tier Tribunal (“the FTT”), after it had given a counter-notice to the notice of claim to acquire the right to manage, alleging that the claim notices were invalid due to the failure to serve a participation notice on Ms O’Connor. The FTT dismissed the challenges to the claim notices and upheld their validity.
The decision was appealed by Avon, and cross-appealed by the RTM Company, to the Upper Tribunal (“the UT”). Avon appealed the decision that the claim notices were not invalidated by the failure to serve on Ms O’Connor; Cresta Court appealed the decision that Ms O’Connor was a qualifying tenant. The UT upheld both the decision that Ms O’Connor was in fact a qualifying tenant, and that the claim notices were not invalidated by virtue of the failure to serve a participation notice on Ms O’Connor.
Upon further appeal, the Court of Appeal unanimously decided that Ms O’Connor was a qualifying tenant because the definition of lease at Section 112(2) of CLARA 2002 includes an agreement for lease or tenancy and so, includes equitable leases. The Court of Appeal confirmed that where only an equitable lease exists, for instance, on the grant of a new lease (as in this case), the equitable lessee is the qualifying tenant; however, where both a legal lease and equitable lease exist at the same time, such as on assignment of an existing lease, the legal lessee is the qualifying tenant for the purposes of the RTM legislation. Therefore, in this case, Ms O’Connor was the qualifying tenant.
The failure to serve the notice of invitation to participate on Ms O’ Connor was a defect. Following A1 Properties, the Court of Appeal considered whether the legislation set out the consequences of the defect. Section 79(2) of CLARA 2002 provides a consequence, which is that no claim notice can be served where the notice of invitation to participate has not been given to all the qualifying tenants. In fact, this is the same provision which formed the subject of A1 Properties and the Supreme Court had held that Section 79(2) prevented service of a claim notice to acquire the right to manage. The notice could not be considered voidable with the possibility of it being signed off as “valid” if little prejudice was suffered by others, because Section 79(2) clearly stated that the claim notice could not be given unless a notice of invitation to participate had not been served on all qualifying tenants at least 14 days before.
This decision shows how the test for errors in statutory notices is to be applied following A1 Properties. It is quite clear that where the consequences for non-compliance are set out in the statute, as they were here, there is no wriggle room to find anything other than the claim notice was invalid and the RTM Company could not acquire the right to manage. In addition, where leases are not registered, the equitable owner can in certain circumstances be the qualifying tenant under CLARA 2002.
It seems to me, with the greatest respect to the Judge, that her reasoning might be persuasive and appropriate if the case were one where a two-stage Soneji analysis had to be undertaken, but her approach overlooks the fundamental point that this is a case where the consequence of non-compliance with the requirement to give a participation notice to Ms O'Connor is prescribed by section 79(2) of the CLRA, namely that "The claim notice may not be given", or as the Supreme Court put it in A1 Properties at [69] "no valid claim notice can be given to anyone". That simple language means what it says, and gives rise (objectively) to no absurdity, so it was the duty of the UT, as it is the duty of this court, to apply it accordingly.