[2024] UKUT 335 (LC)

The FTT in its decision on this point distinguished the Tribunal’s decision in Canary Gateway, which was binding on it, on the basis that Ms O’Connor’s lease was not one that could readily have been discovered. But the Tribunal in Canary Gateway decided what section 79(2) means, and the section does not appear to set out any exceptions on the basis of individual circumstances. So it is difficult to see how the FTT’s decision could have been upheld on the authorities as they stood at the time of its decision.

However, the outcome of the appeal obviously cannot turn on that point in light of the way the authorities have now moved on. I have to decide what is the effect of A1 (Sunderland) on this issue. Does Canary Gateway remain definitive of the position, in which case although I am not bound by it I should follow it unless I am persuaded that it is wrong? Or has the law changed?

A number of general points are abundantly clear from the Supreme Court’s decision. One is that their lordships endorsed the continuing authority of Soneji, with its twin focus in cases of procedural failure on both an examination of the statute and a consideration of the individual circumstances of a case. They were therefore unhappy with the reasoning in Natt v Osman and in Elim Court with their focus on statutory construction to the exclusion of consideration of the facts of the individual case.

Another is that Parliament did not intend landlords and other persons to be able to thwart the acquisition of the right to manage on the basis of procedural objections that had not done them any harm, for example where the person potentially offended by that failure (for example an intermediate landlord who had not been given a claim notice) had no objection to the RTM company’s proposal. That does not sit happily with the outcome in Canary Gateway (which was cited to the Supreme Court, but to which its decision did not refer).

With an apology for making a long decision even longer, I set out paragraph 69 of the Supreme Court’s decision again for ease of reference, again with the added emphasis:

“69.

Section 78 requires the RTM company as promoter of the scheme to give a participation notice to all qualifying tenants who have not agreed already to become, or not actually become, members of the RTM company. Section 79(2) provides that until 14 days after that has been done, a claim notice may not be served at all. There will ordinarily be no difficulty in finding or identifying qualifying tenants. The absence of any saving or dispensing provisions of the type found in section 79(7) suggests that this was well understood by Parliament. Section 79(2) imposes a clear consequence of failure in good time to give participation notices: no valid claim notice can be given to anyone. For present purposes we leave aside the difficult question whether this has the further consequence that, if a document purporting to be a claim notice is nonetheless given to another stakeholder, such as a landlord, the landlord could rely upon the failure to give a participation notice to a qualifying tenant in order to object to the validity of the purported transfer of the right to manage which followed, even though that tenant might not in fact have any objection to the scheme which is being promoted which they wish to maintain. We were referred to a decision of the Lands Tribunal in Sinclair Gardens Investments (Kensington) Limited v Oak Investments RTM Co Ltd [2005] RVR 426 and a decision of the Upper Tribunal in Avon Freeholds Limited v Regent Court RTM Co Ltd [2013] UKUT 213 (LC); [2013] L&TR 23 which discussed the consequences of a breach of the procedural requirement in section 79(2) and held in each case that such a breach did not in the circumstances invalidate the transfer of the right to manage which followed, and it was not suggested that they should be overruled; but this was a peripheral part of the debate before us and we prefer to reserve our opinion on whether they were correctly decided.”

I take the view that in light of these obiter dicta the Tribunal has three options. None of them is prevented by authority, because the Tribunal is bound neither by its own decisions nor by the obiter dicta of the Supreme Court; but if the two conflict I prefer to go with the Supreme Court.

One option is to stop at the emboldened words and follow Canary Gateway, not only as to the meaning of section 79(2) but also as to its consequences, namely that the claim notice is totally invalid and that anyone can assert its invalidity. I regard that as untenable in light of the discussion that follows those words in paragraph 69. The Supreme Court clearly did not regard that consequence as inevitable, because it described as “difficult” the question whether a landlord would be able to challenge the acquisition of the right to manage on the basis of failure to give a notice of invitation to a qualifying tenant. And there is ample indication in the judgment that it was not the intention of Parliament for a landlord to be able to thwart a right to manage scheme on the basis of the windfall presented by a procedural failure that did not directly affect it. My decision should be consistent with the Supreme Court’s thinking, even though that means that I will not follow Canary Gateway as to the consequences of section 79(2).

A second way forward is to follow the decisions in Sinclair Gardens 2005 and in Regent Court. There is at least a heavy hint in paragraph 69 that the decisions in Sinclair Gardens (2005) and in Regent Court were regarded by their lordships as correct. That would be consistent with the Supreme Court’s preference for the reasoning in Soneji, but would require me to ignore what it said about the meaning of section 79(2). I would have to regard section 79(2) as merely a stipulation about time, and then undertake the same sort of analysis as did the Tribunal in those earlier decisions, asking whether there had been substantial compliance with the procedure required by the statute in circumstances where the failure complained of had in the circumstances of the case caused no prejudice.

I regard that as untenable too. Obiter though it be, the Supreme Court has said “Section 79(2) imposes a clear consequence of failure in good time to give participation notices: no valid claim notice can be given to anyone.” Both parties accepted the authority of that statement, and therefore the Tribunal should make a decision that is consistent with that construction of section 79(2). The Tribunal in Sinclair Gardens 2005 and in Regent Court analysed the statute and the facts of the case in order to determine what is the consequence of failure to comply with section 79(2) in that case, which is not consistent with the Supreme Court’s view that section 79(2) itself sets out the consequence of failure.

Is that the end of the road? Mr Bates KC says that it is; the claim notice is invalid and the respondent must start again. But that would give rise to all the consequences that the Supreme Court deplored, and said were not Parliament’s intention, in the context of section 79(6). As I said above, I am not prepared to regard the rest of paragraph 69 as futile.

So the third way is to seek for a solution that is consistent with the principles expressed in A1 Properties. That is what Mr Jacob sought to do in his written submissions, and the analysis that follows is a development of his suggestions.

The starting point is therefore to look in detail at the statutory scheme, and ascertain the purpose of the scheme as a whole and of the procedural requirement complained of. The requirements of section 78 are obviously intended to protect qualifying tenants, to ensure that they cannot be ignored or side-lined, and to give them the opportunity to become members of the RTM company at the earliest possible stage so that they can take part in its decision-making before the claim notice is served.

There is an important difference in function between section 78 and section 79(6). The latter requires the claim notice to be served on landlords and other stakeholders and is tightly linked to section 84: only those required to be served with a claim notice under section 79(6) can serve a counter-notice. But a qualifying tenant who is not a member of the RTM company, who is entitled to a notice of invitation to participate, nevertheless cannot give a counter-notice. That is at first sight rather odd. It means that however flawed the scheme – perhaps the RTM company is improperly constituted, or it does not have enough qualifying tenants, or the premises are not self-contained as required by section 72 – a qualifying tenant cannot raise the problem before the FTT because it cannot serve a counter-notice. If all the landlords within section 79(6) are content with the RTM company’s proposal, and do not serve a counter-notice, then the scheme takes effect pursuant to section 90 even if there are substantive objections to the scheme that a qualifying tenant would have liked to raise.

Therefore the situation is not directly comparable to that of a landlord who is entitled to be given a claim notice and is not given one. There is no question of the over-riding of a right to have a substantive objection heard by the FTT. Equally there is no way for a qualifying tenant who has not had a notice of invitation to participate, and therefore has a procedural objection, to bring that to the attention of the FTT.

I do not think that it can have been Parliament’s intention that the landlords and other stakeholders within section 79(6) should be relied upon to raise the matter on behalf of a tenant who cannot do so. That would be a perverse and ineffective way to protect tenants, since landlords will only raise points in their own interest. If they are content for the right to manage to go ahead there is no reason for them to serve a counter-notice on the basis of failure to serve a tenant; by contrast, a landlord who objected to the RTM company’s proposal would raise this point despite the fact that the qualifying tenant in Ms O’Connor’s position did not want him to. The Supreme Court’s objections to the landlord taking advantage of a windfall are as applicable here as they are to the failure to comply with section 79(6) and I infer that that cannot have been Parliament’s intention.

Yet section 79(2) sets out a consequence of non-compliance: the claim notice, according to the Supreme Court, is not valid. I adopt the Supreme Court’s solution as one that does not thwart Parliament’s purpose; I take “not valid” to mean that it is neither wholly valid nor wholly invalid, but voidable at the instance of the tenant. She can ask the court for a declaration that the notice is invalid; if she is in communication with a landlord who has served a counter-notice she may be able to be joined in proceedings before the FTT so that she can raise the problem. Or she can seek judicial review of an FTT decision in the RTM company’s favour. But unless she takes one of those courses of action, no-one else can take advantage of the procedural failure; only the tenant directly affected by it can do so.

I do not need to decide what happens if the tenant applies for a declaration, or raises her challenge as an interested party in the FTT. It may be that the difference between sections 79(6) and 79(2) is that in the latter case there is no room for argument as to whether substantial compliance is acceptable in light of the absence of prejudice (as described in paragraph 91), because the statute has set out the consequences of non-compliance. If so, then if the tenant takes the point section 79(2) is indeed the end of the road and the notice is invalid. But that argument is not available to anyone else.

I regard paragraph 69 as an invitation to adopt this solution (which is essentially the solution for which Mr Jacob argued). It means that although no valid claim notice can be served if the qualifying tenants have not all been given the notice of invitation 14 days beforehand, the notice if served in spite of the requirement is not wholly invalid. Instead it is voidable. And the person entitled to have been served with the notice is the one who can have it declared void, and no-one else.

That that is an appropriate solution is indicated first by its consistency with the Supreme Court’s decision on the different but undeniably analogous point in A1 (Sunderland). It is also indicated by the purposes of the statute in requiring the notice to be given; the notice is overwhelmingly for the tenant’s benefit and the purposes of the statute in facilitating the acquisition of the right to manage will be frustrated if anyone else complains of the procedural failure. True, there may be an advantage for other tenants in ensuring that all entitled tenants are included, and perhaps too for the landlord in potentially increasing the number of tenants who will bear his costs under section 88 if an application to the FTT fails. But those are insignificant points in the face of the fact that the primary and predominant purpose of the requirement is to benefit a qualifying tenant.

Nothing is achieved by allowing landlords to challenge the right to manage on the basis of failure to comply with section 79(2), and much would be lost in terms of the time and resources of the tenants which should be employed in the management of the building rather than in paying the landlord’s costs and starting the procedure all over again. To do so would be especially futile in the present case where the very procedural requirement complained of would no longer be a requirement if the RTM company had to start again, because Ms O’Connor is now a member of the RTM company and so there is no need for her to be given a notice of invitation to participate.

It is to be hoped that such windfall challenges will, if mounted in the future despite the change in the law heralded by A1 (Sunderland), be disposed of at an early stage.