[2024] UKUT 335 (LC)

Was Ms O’Connor a qualifying tenant?

Mr Bates KC prefaced his argument with a reminder of 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; qualifying tenants have significant rights, such as to be a member of the RTM company (section 74), to receive a notice of invitation to participate (section 78), to receive a copy of the claim notice (section 79(8)) and so on. Therefore it would be inconsistent with the policy of the legislation to narrow down the availability of qualifying tenant status, because that would deprive people of a valuable right. If tenants in Ms O’Connor’s position are not qualifying tenants then they can lawfully be kept in the dark about an application to acquire the right to manage, which was not Parliament’s intention. It is possible to imagine a new block of, say, ten flats where leases have been granted but none have yet been registered, and administrative problems may delay some or all the registrations for years. All pay the same rent and service charges yet some or all the lessees, depending on timing, may not be qualifying tenants for a long time. That would initially prevent the block from being premises for which the right to manage is available under section 72 of the 2002 Act, and later could exclude individuals from participation once enough flats are registered for the requirements of section 72 to be met. Neither result furthers the purpose of the statute.

Mr Bates KC then turned to section 75 which provides that “a person is the qualifying tenant of a flat if he is tenant of the flat under a long lease”, and to section 76 which sets out a broad definition of that term by reference to a number of different kinds of lease (see paragraph 6 above). Importantly, not all of them are required to be registered (for example a lease for life, converted to a 90 year lease by section 149(6) of the Law of Property Act 1925, which is a long lease under section 76(2)(c)) and some cannot be registered (for example, a short shared ownership lease, section 76(2)(e)), and if unregistered they are not discoverable by a search of HM Land Registry. Accordingly, there is nothing in section 75 and the following sections to prevent a “long lease” from being unregistered, and section 76 expressly catches circumstances where there will not be registered. So equitable leases cannot be excluded simply because they are unregistered.

The next point in the appellant’s argument was presented by Ms Gibson. She argued that lessees under equitable leases are clearly included, because that follows from section 75 where there is nothing to exclude an equitable lease. Section 112(2) puts it beyond doubt by adding that a “lease” includes “an agreement for a lease or tenancy (or for a sub-lease or sub-tenancy)”. It is trite law, derived from Walsh v Lonsdale (1882) LR 21 Ch D 9 CA, that an agreement for a lease is an equitable lease and section 112(2) makes it clear that such leases are included. Ms Gibson acknowledged that – as argued for the respondent –the converse may not be the same: an equitable lease is not necessarily an agreement (or contract). Indeed, she agreed with the respondent that the lease in question here, which does not operate at law until registered, is simply an equitable lease rather than an agreement for a lease. Such leases are nevertheless within the meaning of a long lease in section 75.

Mr Bates KC then presented the next of the appellant’s points, which is that to deprive Ms O’Connor of the status of qualifying tenant is to fail to appreciate the status of the holder of an estate in land during the “registration gap”. The Tribunal had to consider the effect of the registration gap in its decision in RM Residential Ltd v Westacre Estates Ltd [2024] UKUT 56 (LC), and pointed out that a landlord whose title is not yet registered is entitled to collect service charges and manage the property as its owner.

Consistent with that, an equitable lessee of a flat is entitled to the status of qualified tenant if the conditions in section 76 are met.

The difficulty with regarding equitable lessees as qualifying tenants is that they are not obvious on inspection of the register; if equitable lessees are qualifying tenants then an RTM company’s task in identifying them and serving them with notices of intention to participate is difficult and may in some cases be impossible. Nevertheless Mr Bates KC insisted not only that Ms O’Connor is a qualifying tenant but 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. That means that whenever the owner of a flat contracts to sell it, the purchaser is the qualifying tenant from the point when contracts are exchanged, despite being undiscoverable by anyone else; the assignee is the one who is going to live there and pay the service charges so it makes sense for him or her to be the one to have the opportunity to participate in the process of acquiring the right to manage.

Mr Bates KC was undismayed by the difficulty of discovering equitable lessees. He pointed out that section 82 enables the RTM company to get all the information it needs. The consequence of the appellant’s position is that in every case before serving a claim notice an RTM company must make a section 82 request of the landlord (in case any new leases have been granted and are not yet registered) and of all the leaseholders (in case any have contracted to sell their flat and are therefore no longer the qualifying tenant, or hold their flat on express or implied trust so that the beneficiary is the qualifying tenant). If any of the recipients failed to reply Mr Bates KC suggested that they would be estopped from challenging the RTM company on the basis of information that they should have provided but did not do so.