Failure to serve a right to manage claim notice on a landlord does not always invalidate a claim
Supreme Court clarifies approach in recent case: A1 Properties (Sunderland) Limited (Appellant) v Tudor Studios RTM Company Ltd (Respondent) [2024] UKSC 27
The background
The Supreme Court handed down judgment on 16 August 2024 on an appeal from a decision of the Upper Tribunal that the Respondent RTM company’s right to manage claim was not invalidated by failure to give the Appellant a claim notice.
The subject property is Tudor Studios which is a converted factory building in Leicester now used as student accommodation and comprises 237 self-contained bedsit style flats, three larger flats plus communal areas for use by the flat occupiers, including a common room, a communal laundry, a reception and lounge area and a gym.
The flats are let to investor tenants under 250-year leases who in turn sub-let the flats to students. The communal areas are held by the Appellant under four 999-year leases, and which are sub-let to a management company.
The Respondent is an RTM company incorporated by the tenants of the flats for the purpose of acquiring the right to manage the property under the Commonhold and Leasehold Reform Act 2002 (“CLRA”).
In March 2020 the Respondent served a claim notice under section 79 of the CLRA on the freeholder and the management company but failed to serve it on the Appellant which, as a landlord of the property, was required to be served. The management company served a counter-notice objecting to the claim on the ground that the Appellant had not been served with the claim notice.
The Respondent sought a determination from the First-tier Tribunal (“FTT”) that it was entitled to acquire the right to manage the property. The FTT held that the Respondent’s failure to serve the claim notice on the Appellant did not invalidate the claim. The Appellant appealed to the Upper Tribunal and lost. The Appellant then appealed to the Supreme Court.
The issues
- Whether a failure to serve a claim notice on a landlord as required by section 79(6)(a) will always invalidate a right to manage claim under CLRA; and
- If not, whether the failure to serve the claim notice in this case on all relevant landlords invalidated the claim.
The decision
The Supreme Court answered “no” to both issues and upheld the Upper Tribunal’s decision that the failure to serve the claim notice on the Appellant did not invalidate the Respondent’s claim to acquire the right to manage.
Appeal dismissed.
Analysis
- 81(1) CLRA shows that Parliament’s general approach included allowing some departure from strict compliance with all procedural requirements.
- The correct approach to ascertaining Parliament’s intention as to the consequences of non-compliance with a statutory procedure where the statute has not stipulated what the consequences are is the approach taken in R v Soneji [2005]. This involves an objective consideration of whether Parliament intended that total invalidity should follow from non-compliance with the statutory requirement having regard to:-
a) The particular statute,
b) The specific facts of the case,
c) Whether any, and what, prejudice might be caused if the validity of the statutory process is affirmed notwithstanding the breach of the procedural requirement, and
d) The effect which the operation of a statutory process might have on property and contractual rights,and to ask what consequence of non-compliance best fits the structure as a whole.
- The failure to give the Appellant a claim notice renders the transfer of the right to manage voidable but not void. It is voidable unless or until the tribunal approves the transfer scheme.
- It is only where a landlord or other stakeholder can show that it has lost a right to assert an objection which has substantive force that it may be inferred that the transfer of the right to manage should be voidable and capable of being set aside by the person affected.
- The test for evaluating whether a procedural failure has the effect of invalidating the process is whether a relevant party has been deprived of a significant opportunity to have their opposition to the claim considered, having regard to (a) what objections they could have raised and would have wished to raise and (b) whether, despite the procedural omission, they in fact had the opportunity to have their objections considered in the course of the process leading to the making of the order to transfer the right to manage. In either case, the focus is on the person directly affected by the failure. The omission does not give other landlords who are not directly affected a right to object to the making of a transfer order if the party who is directly affected has not sought to take the point. In this case, the Appellant was a party to the tribunal proceedings and had the same opportunity to participate as if it had been given a claim notice in the first place, and so the Court found that the Appellant not been deprived of an opportunity to have their opposition to the claim considered.
- The Supreme Court upheld the finding in the leading Court of Appeal case of Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] that a failure to serve a claim notice on a landlord will not always invalidate a right to manage claim, but went on to say that it matters not whether an attempt had been made to serve the claim notice on the Appellant in this case because the effect on the Appellant was the same as if an attempt to serve had been unsuccessful.
Comments
The decision will also make it harder for landlords to obstruct a right to manage claim on procedural grounds when there is no substantive basis for objecting to the claim.
The judgment moves away from the rigid category-based approach followed in Osman v Natt [2015] and means that in right to manage cases involving procedural failings the “substantial compliance” approach is not the correct approach to follow, and it is no longer safe to rely on Elim Court.
The decision also has much wider significance in terms of statutory construction generally and the correct approach to ascertaining Parliament’s intention as to the consequences of non-compliance with a statutory procedure where the statute has not stipulated what the consequences should be.
Speak to a specialist
If you would like to discuss any RTM issues, please contact Gabrielle Roberts, Kary Withers or Lynn James or send an enquiry
Posted:
