Case No. UKUT-27-(LC)-UTLC-Case-Numbers:-LC-2022-425

RTM Company Limited v Avon Freeholds Limited [2017] EWCA Civ 89Natt v Osman [2014] EWCA Civ 1520Q Studios (Stoke) RTM Company Limited v Premier Ground Rents No 6 Limited [2020] UKUT 197 (LC)Spire House RTM Company Limited v Eastern Pyramid Group Corpn SA [2021] EWCA Civ 1658Introduction1.This is another appeal arising out of what the Court of Appeal called the “melancholy fact that whenever Parliament lays down a detailed procedure for exercising a statutory right, people get the procedure wrong” (Elim Court RTM Company Limited v Avon Freeholds Limited [2017] EWCA Civ 89, Lewison LJ at paragraph 1).2.The issue the Tribunal has to decide is whether the respondent company is entitled to acquire the right to manage Tudor Studios, a large block of student accommodation in Leicester, pursuant to Part 2 of the Commonhold and Leasehold Reform Act 2002 despite the fact that it failed to serve a claim notice on the appellant, A1 Properties (Sunderland) Limited, which is an intermediate landlord of parts of the building but has no management responsibilities.3.Mr Justin Bates and Mr Winston Jacob, both of counsel, represented the appellant and the RTM company respectively, and I am grateful to them both.The factual background and the statutory provisions4.The appeal concerns a former factory in Leicester now converted into student accommodation, mostly in the form of “study studios”, together with some communal areas. The freehold is owned by Premier Ground Rents No 3 Limited, which purchased the property from the developer. The study studios are held by investor tenants on 250-year leases in tripartite form between the freeholder, the lessee and Tudor Studios Management Company Limited (“the management company”). Each study studio was then sub-let to A1 Alpha Properties (Leicester) Limited (“A1 Leicester”) for ten years at a fixed rent; the idea was that A1 Leicester would then sub-underlet to students on an annual basis for a market rent. A1 Leicester went into administration in February 2019 and has now been placed in creditors’ voluntary liquidation, so that the investor tenants are letting the study studios direct to students.5.None of the persons mentioned in the paragraph above is a party to the appeal.6.The appellant holds four 999-year leases of parts of the building – the common room, the laundry, the gym and the reception area. None of those areas are let either to investor tenants or to student tenants. The appellant has sub-let each of its four areas on 10-year leases to the management company; rent is payable to the appellant under those four leases in a total sum of £30,600 per annum.7.The management company, the developer of the building, the appellant and A1 Leicester were all originally owned by the same shareholders, but the investor tenants now own the shares in the management company. 8.So the investor tenants control the management of the building. Nevertheless they have exercised (or rather, pending the outcome of this appeal they have endeavoured to exercise) their statutory right to manage to manage the building under Part 2 of the Commonhold and Leasehold Reform Act 2002.9.The Commonhold and Leasehold Reform Act 2002 enabled lessees who hold long leases of flats in a self-contained building to acquire the right to manage the building on a no-fault basis; there is no need for the leaseholders to prove that there was anything wrong with the landlord’s management of the block. All the leaseholders have to do is to follow the correct procedure. It is not in dispute that the study studios are flats as defined in section 112(1) of the 2002 Act (Q Studios (Stoke) RTM Company Limited v Premier Ground Rents No 6 Limited [2020] UKUT 197 (LC)) and that the investor tenants are qualifying leaseholders.10.The right to manage is exercised for qualifying leaseholders by an “RTM company” formed in accordance with the provisions of the 2002 Act. Section 79 makes provision for the RTM company to give notice of its claim to be entitled to acquire the right to manage:“79(1) A claim to acquire the right to manage any premises is made by giving notice of the claim (referred to in this Chapter as a “claim notice” )…(6) The claim notice must be given to each person who on the relevant date is—(a) landlord under a lease of the whole or any part of the premises,(b) party to such a lease otherwise than as landlord or tenant, or(c) a manager appointed under Part 2 of the Landlord and Tenant Act 1987 (c. 31) …”11.The respondent gave the claim notice to the freeholder and to the management company, but not to the appellant. 12.The management company gave a counter-notice. Section 84 of the 2002 Act provides:“(1) A person who is given a claim notice by a RTM company under section 79(6) may give a notice (referred to in this Chapter as a “counter-notice” ) to the company no later than the date specified in the claim notice under section 80(6).(2) A counter-notice is a notice containing a statement either—(a) admitting that the RTM company was on the relevant date entitled to acquire the right to manage the premises specified in the claim notice, or(b) alleging that, by reason of a specified provision of this Chapter, the RTM company was on that date not so entitled.”13.The management company’s counter-notice stated that the respondent was not entitled to acquire the right to manage because it had not complied with a number of the provisions of the 2002 Act, including section 79(6) by virtue of its not having served the appellant. Section 84(3) of the 2002 Act enables the RTM company, when a counter-notice has been served, to apply to the FTT for a determination of whether it has on the relevant date acquired the right to manage; section 87 provides that if it does not make that application within a specified time the claim notice is deemed withdrawn. The respondent applied to the FTT, and the appellant was joined as an additional respondent alongside the freeholder and the management company.14.Those are the relevant statutory provisions and the facts in this case. We need now to look at the Court of Appeal’s decision in Elim Court, which forms another important aspect of the legal background to this appeal; the essence of the present appeal is whether the circumstances can be distinguished from Elim Court so as to justify a different outcome, and so I consider in some detail the reasoning of Lewison LJ in that case (with whom Proudman J and Arden LJ agreed) because it will be necessary to decide if there is a relevant distinction in the present facts.The Court of Appeal’s decision in Elim Court15.Elim Court is a block of flats in Plymouth, and in 2012 Elim Court RTM Company Limited began the process of acquiring the right to manage. Notices of invitation to participate were sent to qualifying tenants and then the claim notice was given to the freeholder. The freeholder served a counter-notice and an application was made to the FTT; the freeholder argued that the RTM company was not entitled to acquire the right to manage on three grounds, including that it had not complied with section 79(6)(a) of the 2002 Act because the claim notice should have been given to the intermediate landlord of one of the flats and was not. It had been sent to the flat, but not to the company’s registered office. In the summary that follows I deal only with that issue because the others are not relevant to the present appeal.16.The FTT (then the Leasehold Valuation Tribunal) held that the claim notice had not been received by the intermediate landlord but commented that it had been a reasonable assumption that the occupant of the flat would have passed the notice on to its landlord, and found that the failure to serve the intermediate landlord did not invalidate the claim to have acquired the right to manage. In the appeal to the Tribunal the Deputy President, Martin Rodger QC, held that the failure to serve the intermediate landlord was fatal to the RTM company’s claim.17.In the Court of Appeal Lewison LJ began his analysis of the issue by looking back at Natt v Osman [2014] EWCA Civ 1520, where Sir Terence Etherton C explained that the courts have moved away from characterising statutory requirements as mandatory or directory. Instead he distinguished two categories, at paragraph 28:“ (1) those cases in which the decision of a public body is challenged, often involving administrative or public law and judicial review, or which concern procedural requirements for challenging a decision whether by litigation or some other process, and (2) those cases in which the statute confers a property or similar right on a private person and the issue is whether non-compliance with the statutory requirement precludes that person from acquiring the right in question.”18.In the first category, he said, substantial compliance could be good enough. In the second it is not. However, where the statutory requirements have not been complied with, it is then necessary to decide what was the intention of the legislature as to the consequences of non-compliance: should it render the notice or other step in the proceedings invalid or not?19.Lewison LJ at his paragraph 52 then gave some guidance as to how the intention of the legislature in those circumstances might be discerned. One factor is the importance of the notice or of the information missing from it; another is whether the requirement is in primary or secondary legislation; another is whether it is possible, if the notice is invalid, for the server of the notice immediately to serve another one.20.Lewison LJ then determined at paragraph 53, unsurprisingly, that the claim notice falls within the second of the two categories to that Sir Terence Etherton C identified; it is not a challenge to a decision of a public authority, and although it does not involve the acquisition of a property right the second category extends to “similar” rights. At paragraph 56 he observed that nevertheless it does not follow that every defect in a notice or in the procedure, however trivial, invalidates the notice. And although the prejudice caused to an individual in a particular case is not relevant (Natt v Osman paragraph 32), that does not mean that prejudice in a generic sense is irrelevant.21.Turning to the defect in procedure in Elim Court, Lewison LJ noted at paragraph 58 the submission of Mr Jacob, who represented the RTM company, that the persons who are required by section 79(6) to be given the claim notice are those that are likely to have management responsibilities: landlords, a party to a lease who is neither landlord nor tenant (usually a management company) and court appointed managers. He acknowledged at paragraph 59 the force of Mr Bates’ argument for the freeholder that landlords need certainty, but observed that it cannot be taken too far because it is clear from Natt v Osman that not every failure to follow the statutory procedure will invalidate the notice.22.After considering the other issues in the appeal in paragraphs 60 to 68 he noted that the statute itself contemplates circumstances where not all landlords are given the claim notice. Sections 79(7) and 85 provides that a landlord who cannot be found or whose identity cannot be ascertained need not be given a claim notice, but that where the RTM company cannot find or cannot identify anyone at all to whom notice has to be given under section 79(6) then it may apply to the FTT for an order that it is to acquire the right to manage. At paragraph 71 he said that those provisions in the statute demonstrate that:“the mere fact that a claim notice was not given to all those entitled to receive one would not invalidate the claim notice without more.” 23.At paragraph 73 Lewison LJ accepted Mr Jacob’s submission that the primary persons affected by the acquisition of the right to manage are those with management responsibilities. Landlords with no management responsibilities will still be affected because they will no longer have the sole right to give consents under the lease, but that is “ancillary to the primary objective of the legislation which is to enable an RTM company, simply and cheaply, to acquire the right to manage.” At paragraph 74 he said:“I would hold that a failure to serve a claim notice on the intermediate landlord of a single flat with no management responsibilities (as defined) does not invalidate the notice.”24.In the present appeal the RTM company failed to serve the claim notice on the intermediate landlord, not of a single flat but of four different communal areas in the building, with no management responsibilities. The failure to serve was found by the FTT to have been inadvertent, but unlike in Elim Court there was no attempt to serve the appellant and no evidence was given by way of explanation for the failure to serve.