The Supreme Court has unanimously dismissed an appeal in a landmark ruling in the case of A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27 (‘the Appeal’). The decision holds that the respondent’s failure to serve a claim notice on the appellant did not invalidate the transfer of the Right To Manage, in a judgment that will provide helpful clarity to leaseholders, freeholders and all stakeholders operating in the leasehold sector.
Philip Rainey KC and Mark Loveday of Tanfield Chambers were instructed by Mark Chick and Matthew Davies of Bishop & Sewell LLP on behalf of the Intervener, the Association of Leasehold Enfranchisement Practitioners Ltd (‘ALEP’).
Factual Background
The Appeal concerned the operation of the regime in the Commonhold and Leasehold Reform Act 2002 (the “CLRA”) under which qualifying tenants may acquire the right to take over the management of their block of flats through the formation and interposition of a Right To Manage (“RTM”) company. The acquisition process requires the RTM company to serve a claim notice to acquire the right to manage their block on each person who is a landlord under a lease of the whole or any part of the premises under section 79(6)(a). For more statutory and factual context of the appeal, you can read further here.
The dispute in this appeal concerned the right to manage Tudor Studios, a former factory in Leicester now converted into student accommodation. The investor tenants had sought to acquire the right to manage Tudor Studios through the respondent RTM company. The respondent gave the claim notice required by section 79(6)(a) to the freeholder and to the management company, but not to the appellant. The management company served a counter-notice pursuant to section 84(1) stating that the respondent was not entitled to acquire the right to manage Tudor Studios because it had not complied with section 79(6)(a).
The Appellant, which has no management function, appealed to the Supreme Court on the basis that failure to serve an RTM claim notice on an intermediate landlord invalidated the transfer of management.
Outcome
The Judgment, handed down on 16 August, dismissed the appeal. In dismissing the appeal, the Supreme Court accepted arguments advanced by ALEP that the judgment in Natt v Osman (summarised in our article accessible here), was inconsistent with the revised framework for assessing compliance with statutory requirements as the Supreme Court has determined that the decision in Natt v Osman should be qualified such that landlords are not afforded unwarranted opportunities for obstruction of the transfer of the right to manage who they themselves have not been significantly affected by any particular omission with legislative requirements.
The Supreme Court has held that to impose on an RTM company an obligation to re-start the process of an RTM claim if it happens to omit to comply with any procedural requirement would tend to undermine to an unwarranted degree the ability of tenants and RTM companies to pursue the remedy in respect of problems regarding the management of their building which Parliament intended should be available to them. 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 in the context of the legislative scheme 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.
In their judgment, which unanimously dismissed the appeal, Lord Briggs and Lord Sales observed that: “The transfer of the right to manage to an RTM company should not be invalidated for the purely procedural reason that a landlord was deprived of the valueless opportunity to make a hopeless objection to the validity of a scheme which has in fact been tested by a tribunal and found to be compliant.”
The landmark judgment sets an important precedent for how the courts will determine the implications of statutory non-compliance when such implications are not specified within the statute itself. Going forward, when dealing with such issues of non-compliance with statutory procedure, where such non-compliance is immaterial to the outcome, the courts will take a less harsh and more forgiving path.
As experts in the right to manage process and case law, Bishop & Sewell acted on behalf of the Intervener, ALEP. The Supreme Court decided to proceed with the rare step of inviting an Intervener, ALEP, to provide oral submissions at the in-person hearing on this matter on 08 February 2024. Significant value was attributed to ALEP’s intervention on this landmark ruling. Lord Justice Briggs credited the “scholarly and helpful intervention” of ALEP and the “carefully prepared and very helpful submissions on this difficult piece of legislation” made on ALEP’s behalf.
The success of ALEP’s intervention rested on case law from an earlier House of Lords decision in the public law judgment of R v Soneji [2005] UKHL 49, which established a test for prejudice. In the case before the Supreme Court, ALEP was able to show that non-service of the notice on the appellant did not meet the definition of prejudice. The Supreme Court gave particular weight to the fact that the Appellant had been joined to the proceedings by the FTT and had already had an opportunity to object to the acquisition of the right to manage notwithstanding they were not served with the notice of claim. Therefore, A1 Properties had not suffered any prejudice as they’d had the opportunity to participate and there was no substantive objection which they could have raised. The Justices were swayed by this line of argument: “The appellant had in fact been joined to the FTT proceedings and therefore had the same opportunity of participation which it would have had if it had been given a claim notice in the first place in accordance with section 79(6)(a).”
Addressing ALEP’s intervention directly, Lord Briggs and Lord Sales observed that: “the legal question is whether the service of the claim notices on the Freeholder and the Management Company was a sufficient foundation for the commencement of the statutory procedure for the transfer of the right to manage.”
Dismissing the appeal, the judgment explained: “There is no good reason to suppose that Parliament intended that a person which has not itself been affected by a procedural omission in relation to another should acquire, by a windfall, a power to thwart the operation of the statutory process which it would not otherwise have enjoyed.”
Implications
The ruling provides helpful clarity to all stakeholders operating in the leasehold sector and sets a significant precedent for the future in cases of procedural non-compliance. The decision is helpful in providing a test to be applied where there are errors in a statutory notice concerning property. The courts will no longer take the view that all procedure needs to be complied with in matters where compliance is immaterial to the outcome, offering greater assurance that procedural non-compliance will not lead to harsher implications.
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The above is accurate as at 03 September 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 Right To Manage, then please contact our expert Landlord & Tenant team by emailing leasehold@bishopandsewell.co.uk. For property dispute queries, please contact our expert Property Litigation & Dispute Resolution team via email to: litigation@bishopandsewell.co.uk.
