CA-2024-002828 - [2025] EWCA Civ 1016

In his written and oral submissions to us on this issue, Mr Jacob in substance repeated the arguments which he had unsuccessfully advanced to the UT, while Avon supported the Judge’s analysis and conclusion. Avon wisely did not attempt to resurrect the argument, rejected by the UT, that in all cases where both a legal lease and an equitable lease are in existence, the equitable lessee must be the qualifying tenant.

In my judgment, the UT came to the right conclusion on this issue, and I would respectfully endorse most aspects of the Judge’s reasoning. Her solution seems to me to strike an appropriate balance between the starting point that qualifying tenancies should normally be ascertainable by a simple search of the Land Register, which implies that they will normally be legal tenancies registered as such, and the need to cater for at least some categories of equitable tenancies if an unreasonable result is to be avoided. Section 112(2) is important, because the express inclusion of agreements for a lease shows that one of the commonest types of equitable tenancy (an agreement for a lease which is capable of specific performance) may in principle qualify. And if that is right, it would in my view be irrational to exclude another common type of equitable tenancy exemplified by Ms O’Connor’s case, where a long lease is granted for the first time to a purchaser and it will take effect at law when it is registered, but it can only take effect in equity during the “registration gap”. By any normal metric, a tenant under such a lease who has taken possession of the flat on completion and lives there, or perhaps sub-lets it if authorised to do so, is for most practical and economic purposes the owner of the flat and would naturally so describe himself of herself. Equally, such a tenant is clearly within the class of residential long-leaseholders whom the RTM regime enacted in 2002 was intended by Parliament to benefit. If, however, such tenants are excluded from qualifying for a period of arbitrary, and perhaps considerable, length until the formalities of registration are completed by HM Land Registry, the statutory scheme is at risk of being frustrated (as the example given by Mr Bates KC well shows: see [36] above).

The absurdity of such a result may be further illustrated by assuming that, in the present case, the grant of Ms O’Connor’s lease had been preceded by a contract between her and Avon for the grant of the lease. We do not know whether this is what in fact happened, but in principle it could well have done. In that situation, she would have had the benefit of an agreement for a lease within section 112(2), and thus would have been a qualifying tenant, between the date of contract and the date of completion; but if the respondent’s construction of the legislation is correct, she would then have lost that status upon completion of the contract, and would only have regained it when registration of her lease was finally effected.

Nor is there any risk, in my view, of the Judge’s construction of section 75 causing confusion, precisely because during the pre-registration period there is no legal lease of the flat in existence. The Judge rightly went out of her way to emphasise this point when rejecting Avon’s argument that the equitable tenancy should always prevail in cases where both a legal and an equitable tenancy co-exist, and she reiterated it when stating her final conclusion at [69].

I would add that the suggestion by Mr Jacob that the existence of Ms O’Connor’s unregistered tenancy would cause significant practical difficulties for the respondent in making its application is in my view far-fetched. It is common ground that there was a note on the register of a pending application at the critical time, 14 days before the claim notice was given. The total number of flats contained in the Property was only 20, and in order to comply with section 79(5) at least 10 of the qualifying tenants (other than Ms O’Connor) must by then have become members of the respondent. Moreover, a simple search of the register would have revealed the identity of any other registered long leases of the flats then in existence, and it may well be the case that it would then have been apparent that the pending application related to Flat 17, or at least that the number of flats to which it might relate was very small. In those circumstances, it should not have been difficult for the respondent to use its information gathering powers under section 82 and/or to make a few simple enquiries on the ground in order to ascertain the true position. After all, Ms O’Connor was living in Flat 17, and there is nothing to suggest that she would not have responded to a simple enquiry, not least because we know that she supported the application. Yet the respondent did nothing, and thereby ran the risk that it might fail to comply with section 78 if there was a qualifying tenant of Flat 17 in existence upon whom a participation notice had to be served.

Accordingly, there is nothing in the facts of the present case which to my mind casts any doubt on the view expressed by the Supreme Court in A1 Properties at [69] that there will “ordinarily be no difficulty in finding or identifying qualifying tenants”.

The one aspect of the Judge’s reasoning about which I have some reservations is her apparent readiness to accept in [58] that the construction of section 75 then advanced by Avon “would make the acquisition of the right to manage well-nigh impossible”. I think there may be an element of exaggeration here, although I would not wish to differ from the view of an expert tribunal on a matter of this nature. But for present purposes the point is immaterial, because Avon no longer relies on the construction which elicited the Judge’s comment, and there was in my opinion ample other justification for her rejection of Avon’s then submission.

Before I leave this part of the case, there is one recent authority in this court to which I need to refer, and which post-dated the hearing in the UT. The case in question is 159-167 Prince of Wales Road RTM Company Ltd v Assethold Ltd [2024] EWCA Civ 1544, in which judgment was handed down on 13 December 2024 following an oral hearing on 19 and 20 November 2024. The lead judgment was given by Falk LJ, with whom King and Nugee LJJ agreed. The case concerned an application for costs made under section 88 of the CLRA which, as in force at the material time (the section has since been repealed), provided by subsection (1) that:

“A RTM company is liable for reasonable costs incurred by a person who is –

(a)

landlord under a lease of the whole or any part of the premises,

…

in consequence of a claim notice given by the company in relation to the premises.”

The point in issue was whether the respondent, Assethold, was a landlord within the meaning of section 88(1), and thus entitled to seek its reasonable costs of an aborted RTM application by the appellant RTM company, at a time when Assethold had no legal interest in the property. The FTT accepted the RTM company’s argument that Assethold was not a “landlord” and that the RTM company therefore had no liability for its costs. This decision was reversed by the UT (Judge Elizabeth Cooke), who held that the RTM company was estopped from denying that Assethold was the landlord for the purposes of section 88; but this decision was in turn reversed by this court, which reinstated the decision of the FTT.

Assethold’s case, as recorded by Falk LJ at [27], was that a buyer of property in the “registration gap” between completion of a purchase and its registration at HM Land Registry is a landlord for the purposes of section 79(6) and 88 of the CLRA. Mr Bates KC, appearing for Assethold, submitted that equitable ownership of the freehold and headlease interests in the property had passed to Assethold in October 2019 when it had purchased them from two related entities called “Millcastle”, and that this was enough to make Assethold a landlord at the date of the claim notice even though Millcastle had remained the registered, and therefore the legal, owner of both interests at that date.

This submission was rejected by Falk LJ, who said at [28]:

“I do not agree that an equitable landlord can be a ‘landlord’ for the purposes of ss. 79(6) and 88 of the CLRA. In its ordinary and natural meaning, a ‘landlord under a lease’ means the landlord as a matter of law. Both the freehold and headlease interest were existing registered estates. Their legal owners at the relevant time were the two Millcastle entities, not Assethold, because under s.27(1) of the Land Registration Act 2002 the transfers did not operate at law unless and until they were completed by registration. Until Assethold became the registered owner the legal estate remained vested in Millcastle. It could not therefore be said that Assethold was a landlord under any lease of the premises.”

Falk LJ then reviewed the case law and the legislative scheme of the CLRA, including at [41] to [43] the then “very recent” decision of the UT in the present case. After explaining that Ms O’Connor had been in a registration gap, but following the grant of a new lease rather than a sale of an existing interest, Falk LJ continued:

“41.

… The freeholder challenged the proposed acquisition of RTM on the basis that Ms O’Connor had not been served with an invitation to participate in the RTM company.

42.

As the UT held, at the relevant time no legal lease was in existence. Rather, Ms O’Connor held an equitable lease. The UT concluded that this was sufficient to require notice to Ms O’Connor, albeit that the effect of A1 Properties was that the claim notice was not invalid on the facts.

43.

Cresta Court is clearly distinguishable. The UT relied on the specific inclusion of agreements for lease in s. 112(2)(b), and reasoned that because agreements for lease are equitable leases (if specific performance would be available) it would be incomprehensible if other forms of equitable lease were not also included ([55]). The UT’s conclusion therefore related (a) to an interest in land which existed only in equity, and (b) in the context of the specific provision for agreements for lease. In contrast, in this case there are existing legal interests that were vested in Millcastle and there is no equivalent to s. 112(2)(b) that applies to an agreement to transfer them.”

I agree with Falk LJ that the present case is clearly distinguishable from the Prince of Wales Road case for the reasons which she gave at [43]. Accordingly, her reasoning on the meaning of “landlord” in sections 79(6) and 88 of the CLRA is not directly applicable to the different question of the meaning of “qualifying tenant” in relation to an equitable lessee in the position of Ms O’Connor. And to the extent that the respondent may seek to rely on paragraph [28] of Falk LJ’s judgment to argue by analogy that in its ordinary and natural meaning a tenant under a lease means the tenant as a matter of law, I would observe that the solution adopted by the Judge in our case does indeed give primacy to the legal lessee in any case where there are both legal and equitable leases of a flat in existence at the same time.

I therefore find nothing in the Prince of Wales Road case which requires me to change or modify the reasons which I have given for upholding the decision of the Judge on the first issue.