[2024] UKUT 335 (LC)

For the respondent Mr Jacob argued that an equitable lessee is never a qualifying tenant; only legal leases are within the meaning of a “long lease” in section 75.

His starting point was the proposition that that is the natural interpretation of section 75. He referred to the decision of the Tribunal (the Deputy President, Martin Rodger QC) in Assethold Limited v 7 Sunny Gardens Road RTM Company Ltd [2013] UKUT 509 where the issue was what was to happen when the lessee of a flat died. Did she remain the qualifying tenant, despite being dead, since she remained the registered proprietor, or were her personal representatives the qualifying tenant? The Tribunal held that the personal representatives, to whom the legal estate in the lease passed despite not being visible on the register, were the qualifying tenant. At paragraph 29 the Deputy President said:

“The “tenant” referred to in section 75(1) of the 2002 Act is the person in whom, for the time being, the legal estate created by the lease is vested. As the LVT correctly observe, the 2002 Act is not concerned with beneficial interests. At the relevant time the qualifying tenants of flat 7A were therefore [the lessee’s] personal representatives (her executors or administrators of her estate) or, in the event of her intestacy, the Public Trustee.”

Mr Jacob pointed out that the Tribunal in 7 Sunny Gardens had no information about whether the tenant’s estate had been administered at the time the claim notice was served; it was possible, he said, that there was an equitable lessee because an assent had been made and not yet registered. So he took the view that the decision supported the respondent’s position even though (as Mr Bates KC pointed out) the Tribunal did not have to make a decision about any equitable interest and heard no argument about one.

Mr Jacob argued that the position mirrored that under other statutes, for example under the Landlord and Tenant Act 1954 where a notice terminating a tenancy under section 25 has to be served be the legal freeholder, not a beneficial owner of the freehold (Pearson v Alyo (1990) 60 P & CR 56). Where it is intended that a “lease” includes an equitable lease the statute says so expressly; thus section 37(1)(f) of the Leasehold Reform Act 1967 provides:

“(f)

“tenancy” means a tenancy at law or in equity”.

As to section 112(2), Mr Jacob did not accept the FTT’s reasoning. An agreement for a lease may take effect as an equitable lease; but a lease which is equitable because it has not yet been registered is not an agreement for a lease. As I said above, Ms Gibson did not take issue with that point, and so where the parties differ is in their reading of section 75 itself; Mr Jacob’s position is that had Parliament intended a “long lease” to include equitable as well as legal leases it would have said so expressly.

Moreover, section 112(2) is qualified by the words “where the context permits”, to which the FTT did not refer and which is 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. The words cannot be ignored, and the present context does not permit the inclusion of the beneficiary of an agreement for a lease as a qualifying tenant because that would be impracticable; Mr Jacob relied upon the principle of construction against absurdity, discussed in Bennion on Statutory Interpretation chapter 13 where it is said at paragraph 13.1:

“13.1(1) the court seeks to avoid a construction that produces an absurd result, since this is unlikely to have been intended by the legislature. Here, 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 pintless, 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 notices of invitation to participate on unknown and unidentifiable individuals. He was unimpressed by the suggestion that section 82 is the answer to that potential difficulty, since it would be impracticable to address a section 82 enquiry to the freeholder and every tenant in a substantial block. And the idea that a person who failed to provide information would be estopped from putting it forward later does not help; whether or not anyone was estopped, the failure to serve would – on the present state of the authorities – go to jurisdiction and the claim notice would be invalidated. The remedy for a failure to reply to such an enquiry is to apply to the County Court for an order requiring an answer to the enquiry (section 107 of the 2002 Act), which is costly and likely to set the process back by months or years.

Accordingly, Mr Jacob concluded, a “long lease” in section 75 can only be a legal lease. That is consistent with the position in other statutes, and the context does not permit the extension to include equitable leases or agreements for leases, so that section 112(2) is inapplicable. He acknowledged that there will be cases where legal leases are undiscoverable but they are outliers. A far greater mischief is created by the inclusion of equitable leases within the ambit of section 75.

Mr Jacob pointed out that the consequences of failing to serve a qualifying tenant are serious; there is a long history of landlords seeking to show that the claim notice is invalid as a result of failure to serve a qualifying tenant (a tactic that succeeded in Canary Gateway). It is no answer to the problem to say that if the RTM company misses someone it can start again; that is expensive and the RTM company may not have the funds to do so – particularly if there have been proceedings in the FTT so that the RTM company is liable for the landlord’s costs under section 88 of the 2002 Act. Accordingly the restriction of qualifying tenant status to legal lessees is in the interests of tenants generally; yes, some will be excluded, but that is the lesser of the two evils, of which the greater is to include equitable leases and frustrate the ability of the majority to acquire the right to manage.