The Supreme Court of The United Kingdom is to hear the case of A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd on 8 February 2024 (“the Appeal”). The Appeal is only the second case where The Supreme Court has granted permission to appeal in a “leapfrog appeal” from the Upper Tribunal (Lands Chamber). Bishop & Sewell are acting on behalf of the Intervener, the Association of Leasehold Enfranchisement Practitioners Ltd (“ALEP”).
The judgment is eagerly anticipated, as it will establish whether a failure to serve a claim notice on an intermediate landlord with no management responsibilities – contrary to section 79(6)(a) of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) – would render a right to manage claim as invalid. The Appeal further raises the broader point of how the consequences of procedural non-compliance are to be determined, where a statute concerning the acquisition of rights relating to property and similar rights is silent as to the effects of such non-compliance. In this aspect, the judgment is likely to have wider and more general importance.
The Right to Manage Process
A statutory right is afforded to leaseholders to take over the management of their building through a right to manage company (“RTM company”) under the provisions of the Commonhold and Leasehold Reform Act 2002 (‘the 2002 Act’). While the exercise of those rights are transferred to the RTM Company, title to the premises remains vested in the landlord. An RTM company will take over all the management functions previously afforded to freeholders or landlords in the leases including maintenance and repairing obligations, services such as heating, lighting and cleaning the building, demanding and collecting service charges and insurance. In large blocks, it would often be prudent for the RTM company to appoint a professional agent to be responsible for the day-to-day management.
The basic procedure for the acquisition of the right to manage as outlined in the 2002 Act is as follows:
- The RTM is available to specified descriptions of qualifying buildings and leaseholders: ss. 72 and 75-77.
- Having established an RTM company, any leaseholder who is not a member must be given a notice of invitation to participate: s. 78.
- The claim to acquire the right to manage is commenced by serving a “claim notice” on specified persons: s. 79.
- Persons served with a claim notice can either admit or dispute the claim: s. 84(1)-(2).
- Any dispute as to whether or not the claim has been acquired is determined by the appropriate tribunal: s. 84(3).2
- Upon acquisition of the right to manage, the landlord’s management functions under the lease are transferred to the RTM company: s. 96.
As is the case with lease extensions and freehold purchases, a freeholder is entitled to recover costs which it has incurred in the RTM process. The legislation refers to costs in respect of professional services for which the freeholder was personally liable. This includes professional legal services in respect of the service of the notice, any accountancy costs arising from provision of accounts and any managing agent costs associated with the hand-over of management functions and records. It is important for the RTM process to be steered by specialist solicitors, as leaseholders would still be liable for the freeholder’s recoverable costs if the RTM process was not successfully navigated.
The right to manage is a ‘no fault’ right which leaseholders can exercise without having to demonstrate any complaint against their freeholder or managing agent. Strict eligibility criteria will apply in respect of the building and the leaseholders. The right is exercised by way of service of a formal notice on the freeholder and before the management of the building is transferred to the RTM company, a series of formalities would have to be met. The narrower issue at the heart of the Appeal is whether non-compliance with the strict requirements of section 79 of the 2002 Act to serve a claim notice to acquire the right to manage on an intermediate landlord without management responsibilities would render an RTM Claim as invalid.
The Appeal
The Appeal involves Tudor Studios, a former factory in Leicester which has been converted into student accommodation. The Appellant, A1 Properties (Sunderland) Ltd, is an intermediate landlord which holds four 999-year leases in respect of the reception area, common room, the laundry, and the gym in the building.
Long leasehold owners of flats in Tudor Studios sought to acquire the right to manage the building through the Respondent, Tudor Studios RTM Company Ltd. The respondent gave the claim notice required by Section 79 of the 2002 Act to the freeholder and to the management company, but not to the Appellant. The management company therefore served a counter-notice stating that the Respondent was not entitled to acquire the right to manage Tudor Studios because it had not complied with the procedure set out in the 2002 Act.
The Respondent applied to the First-tier Tribunal (Property Chamber) for determination of the issue. The First-tier Tribunal referred to the decision made by the Court of Appeal in Elim Court RTM Company Limited v Avon Freeholds Limited [2017] EWCA Civ 89 and held that the failure to serve notice on the Appellant did not invalidate the Respondent’s right to manage claim because the Appellant has no management responsibilities. The Elim Court judgment also concerned the validity of an RTM claim where statutory requirements under the 2002 act were not complied with due to the claim notice having not been served on an intermediate landlord. The intermediate landlord in question owned a single ‘reversionary’ head lease over one flat only. This secured an equity release scheme. Accordingly, because the intermediate landlord had no direct management responsibilities, the court decided that service could be dispensed with.
The Elim Court decision referred to the prior judgment of Natt v Osman [2015] 1 WLR 1536, an enfranchisement case which considered the issue of non-compliance with the requirement in section 13 of the 1993 Act to identify one of the qualifying tenants and give particulars of her lease, because it was disputed whether the lease was of a “flat”. The qualifying tenant was the daughter of the landlord and therefore the landlord knew the information which should have been included and had suffered no prejudice by the omission to include the relevant information. The Court of Appeal affirmed in Natt v Osman that where non-compliance with a statutory requirement precludes a party from acquiring or resisting the acquisition of property rights, then the court will decide on whether the notice is wholly invalid or not as a matter of statutory interpretation, where the intention of the legislature as to the consequence of such non-compliance is to be ascertained in the light of the statutory scheme as a whole.
In the prior Appeal to the Land Chamber of the Upper Tribunal, the Appellant contended that the Elim Court decision was incorrect and “confined to its own facts” and therefore not applicable to the case of Tudor Studios. The Appellant argued that the Appeal before the Upper Tribunal (“UT”) differed from the Elim Court matter, for the Elim Court judgment was made on the basis that the RTM Company attempted – but failed – to serve the landlord with a claim notice, but the Respondent’s failure to serve the Appellant was deliberate. The UT dismissed the appeal – also applying Elim Court – the UT found that the intention of the RTM Company for not having served the notice was irrelevant in concluding whether the RTM company could exercise its right to manage.
The Appeal therefore considers the narrower issue in respect of whether an intentional failure to serve a claim notice on an intermediate landlord with no management responsibilities invalidates an RTM Claim. The broader issue of the Appeal is one of statutory interpretation, i.e. where a statute which concerns the acquisition of property rights prescribes a procedure governing the acquisition of the right, but does not specify a consequence of non-compliance with that procedure, how should the court ascertain the consequences of non-compliance in relation to the acquisition of the right without impermissibly re-writing the statute.
ALEP’s Intervention
Any official body or non-government organisation seeking to make submissions in the public interest can apply to intervene in The Supreme Court pursuant to Rule 26 of The Supreme Court Rules 2009.
The Supreme Court granted ALEP permission to intervene in the Appeal. ALEP is the leading body of practitioners for leasehold enfranchisement and many of its members also practice in the field of right to manage under the 2002 Act. Philip Rainey KC and Mark Loveday of Tanfield Chambers are instructed by Mark Chick and Matthew Davies of Bishop & Sewell LLP on behalf of ALEP, all of whom are acting on a pro bono basis.
As ALEP is entirely neutral when it comes to landlords, tenants or RTM companies, its written and oral submissions should assist The Supreme Court in addressing the difficulties of landlords, leaseholders, management companies and their advisors strictly complying with notice requirements in modern complex legislation and regulation.
Contact our Landlord & Tenant team
The above is accurate as at 30 January 2024. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
If you have a query concerning the acquisition of the right to manage of a building, then please contact our expert Landlord & Tenant team by emailing leasehold@bishopandsewell.co.uk.
