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

The Judge considered this issue at [31] to [70] of the UT Decision. She began by recording the arguments for Avon, presented for the most part by Mr Bates KC but on some points by Ms Gibson. Avon emphasised the importance of the status of qualifying tenant, and of knowing how many there are. Their number has to be known in order to work out whether the right to manage is available under section 72. They also have significant rights, such as to be a member of the RTM company (section 74), to receive a participation notice (section 78) and to receive a copy of the claim notice (section 79(8)). It would be inconsistent with the policy of the legislation to narrow down the availability of qualifying tenant status, submitted Avon, because that would deprive people of a potentially valuable right. If tenants in Ms O’Connor’s position are not qualifying tenants, there is no obligation to inform them about an application to acquire the right to manage, which cannot have been Parliament’s intention. Mr Bates KC instanced the example of a new block of 10 flats, where long leases have been granted but not registered, and some or all of the registrations are delayed by administrative problems at HM Land Registry, possibly for years. Meanwhile, all the tenants pay the same rent and service charges. This state of affairs, if the respondent’s argument is correct, would initially prevent the block from being eligible for an RTM application under section 72, and later could exclude individual tenants from participation until enough flats are registered for the requirements of section 72 to be met.

Avon then pointed out that the definition of long leases in section 76 includes a number of categories of lease which are not required to be registered, for example a lease for life converted by section 149(6) of the Law of Property Act 1925 to a 90-year lease, and some categories which cannot be registered at all, such as a short shared-ownership lease under section 76(2)(e). Moreover, if an eligible “long lease” is either unregistered or unregistrable, its existence will not be disclosed on the register or discoverable by a search of HM Land Registry. This shows, submitted Avon, that equitable leases cannot be excluded simply because they are unregistered.

Avon’s next point was that equitable leases are not excluded by anything in the wording of section 75, and the express inclusion of “an agreement for a lease or tenancy” in the definition section 112(2) shows that at least some common types of equitable lease are included: see Walsh v Lonsdale (1882) LR 21 Ch D 9 (CA). It is trite law that an agreement for a lease which is enforceable by specific performance takes effect as an equitable lease, and for most practical purposes an equitable lessee has the same rights as a legal lessee. This consideration applies with particular force where the lessee has applied to register his or her lease at HM Land Registry and is caught in the “registration gap”: see RM Residential Ltd v Westacre Estates Ltd [2024] UKUT 56 (LC), [2024] L.&T.R. 19 where it was held that a landlord whose title is not yet registered is entitled to collect service charges and manage the property as its owner. By parity of reasoning, said Avon, an equitable lessee of a flat is entitled to the status of qualifying tenant if the conditions in section 76 are met.

Indeed, Mr Bates KC submitted to the UT that in all cases where there is both a legal lessee and an equitable lessee, it is the equitable lessee who is the qualifying tenant: [36] and [37].

For the respondent, Mr Jacob argued that an equitable lessee is never a qualifying tenant, and that only legal lessees are within the meaning of a “long lease” in section 75: [38]. He submitted that this was the natural interpretation of section 75, and referred to the decision of Martin Rodger QC (Deputy President) in Assethold Limited v 7 Sunny Gardens Road RTM Company Limited [2013] UKUT 0509 (LC) where he held that upon the death of a qualifying tenant the legal estate in the lease devolved on her personal representatives who then became the qualifying tenant, although this would not be visible on the register. The Deputy President therefore held that section 78(1) of the 2002 Act was not complied with because no participation notice was given to the deceased tenant’s personal representatives before the claim notice was served on the RTM company: see his decision at [33].

Mr Jacob also sought support from other statutory contexts where procedural steps must be taken by the legal lessee, unless there is an express provision including an equitable lessee. Thus, for example, under the Landlord and Tenant Act 1954 a notice terminating a business tenancy under section 25 must be served by the legal freeholder, not a beneficial owner of the freehold (Pearson v Alyo (1990) 60 P & CR 56), but contrast the Leasehold Reform Act 1967 where section 37(1)(f) states expressly that “tenancy” means “a tenancy at law or in equity”.

Mr Jacob further submitted that section 112(2) of the CLRA is qualified by the words “where the context permits” to which the FTT did not refer, and which are absent from otherwise identical provisions at section 36 of the Landlord and Tenant Act 1985, section 229 of the Housing Act 1996 and section 59 of the Landlord and Tenant Act 1987. He relied on the principle of construction against absurdity, referring to Bennion, Bailey and Norbury on Statutory Interpretation, chapter 13, where it is said that the courts “give a very wide meaning to the concept of ‘absurdity’, using it to include virtually any result which is impossible, unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief.”

Mr Jacob argued that the statutory scheme would be unworkable if an RTM company were required to serve participation notices on unknown and unidentifiable individuals. Nor could a satisfactory answer to the difficulty be found in section 82, which confers a right to obtain relevant information on RTM companies where it is reasonably required for ascertaining the particulars to be included in a claim notice. It would be impracticable, said Mr Jacob, to address a section 82 enquiry to the freeholder and to every tenant in a substantial block.

Finally, in his written submissions on A1 Properties, Mr Jacob drew a contrast between the position of landlords, who the Supreme Court accepted may often be difficult or impossible to identify, and qualifying tenants, of whom the Supreme Court said at [69] that “There will ordinarily be no difficulty in finding or identifying qualifying tenants”, adding “The absence of any saving or dispensing provisions of the type found in section 79(7) suggests that this was well understood by Parliament.” The Supreme Court must therefore have taken the view, submitted Mr Jacob, that qualifying tenants would be easily identifiable from the Land Register because their leases would ordinarily be registered. If tenants under long equitable leases were included in the definition of qualifying tenants, they would be as difficult to find as landlords, yet the statute makes no provision for dispensation when they cannot be found.

With the benefit of these submissions, the Judge began her discussion of the issue at [51] of the UT Decision. I would summarise the main steps in her reasoning as follows.

First, the Judge disagreed with Mr Jacob that the natural reading of section 75(2) of the 2002 Act (“a person is the qualifying tenant of a flat if he is tenant of the flat under a long lease”) is that it refers to legal not equitable leases: [54]. As the Judge said (ibid) “A long lease-holder is in terms of ordinary language the lessee of their flat, whether or not their lease is registered.”

Secondly, the absence of an express provision including equitable leases (such as section 37(1)(f) of the Leasehold Reform Act 1967) was not a problem in the light of section 112(2) which expressly includes “an agreement for a lease or tenancy”. Such an agreement is an equitable lease, on principles going back to Walsh v Lonsdale; and if that is so, then section 75(2) must a fortiori include equitable leases within its ambit: [55].

Thirdly, however, section 112(2) is qualified by the words “where the context permits”. Since there can only be one qualifying tenant of a flat (section 75(5)), the context clearly cannot permit the “lease” in section 75(2) to mean both a legal and an equitable lease of the same flat where that is the position: [56]. In most cases, that is not the position because, as a matter of fact, there is only one lease of a flat, and it is a legal one; but in some circumstances there is more than one lessee. For example, if a long lessee contracts to sell his flat, from the moment of exchange of contracts the purchaser falls within the scope of section 112(2) but the assignment on completion of the sale operates only in equity until the purchaser is registered as the lessee. Accordingly, from exchange of contracts to registration of the purchase there are two lessees. The question then is which of them (the registered vendor or the unregistered purchaser) is the qualifying tenant? A choice must be made: [57].

Fourthly, Avon’s proposed solution, namely that in such circumstances the equitable tenant is the qualifying tenant, is not an available construction of the statute, both as a matter of common sense and applying the principle of “construction against absurdity”: [58]. The Judge thought Avon’s construction would “make the acquisition of the right to manage well-nigh impossible”. As she explained (ibid):

“Unregistered purchasers of flats are pretty much undiscoverable unless the legal lessee chooses to disclose their existence. So are equitable owners of flats under express or implied trusts. If the position is as [Avon] argues then an RTM company must in every case as a matter of routine make a section 82 enquiry of every one of the flats, and cannot safely proceed without an answer from each of them. That is unworkable and obviously not what Parliament intended.”

The Judge therefore concluded at [59] that

“Where there is both a legal lease and an equitable lease (whether in the sense of an agreement for a lease, or of a granted lease that is registrable and has not yet been registered), the context does not permit that the equitable lessee is the qualifying tenant. In those circumstances the qualifying tenant is the legal lessee.”