Right to manage: does compliance with the statutory requirements actually matter?

The provisions of the Commonhold and Leasehold Reform Act 2002 give leaseholders the statutory right (subject to meeting certain qualifying criteria and following the correct process) to assume the management functions in relation to their building.

The procedure to be followed is prescriptive, and the general view held is that deviation from the process was likely to be fatal to any claim to acquire the right to manage.

The decision of the Court of Appeal in Elim Court RTM Company Limited v Avon Freeholds Limited [2017] EWCA Civ 89 is therefore a little surprising. In Elim Court, the Court of Appeal considered the consequences of a failure by the right to manage company to comply with the statutory requirements.

 

Details of the Failures

Part of the process to acquire the right to manage by an RTM company involves the giving of a notice inviting participation to each person who:-

  1. Is the qualifying tenant of a flat contained in the building; and
  2. Is not already a member (or agreed to become a member) of the RTM company.

There are various requirements about the information that must be contained within a notice inviting participation. One of those requirements is that the notice must either be accompanied by the Memorandum and Articles of Association of the RTM company, or, alternatively, specify times when the RTM company’s Memorandum and Articles of Association can be inspected. Section 78(5)(b) of the 2002 Act is clear that the times available for inspection must be on at least three days (including a Saturday or Sunday, or both) for at least two hours on each day. The days must fall within seven days from the day after the notice has been given.

The notice inviting participation failed on this ground, because it said that the Articles of Association would be available for inspection on Monday, Tuesday and Wednesday.

This failure was referred to as the “Saturday/Sunday issue”.

The second failure on the part of the RTM company related to the persons to whom the claim notice had been given.

Again, the legislation is specific in that it requires the RTM company to give a claim notice to each person who is “a landlord under a Lease of the whole or any part of the premises”.

This requirement gave rise to the so called “intermediate landlord” issue, because the RTM company had failed to serve a claim notice on an intermediate landlord of one of the flats.

The third “signature of the claim notice” issue relates to the signing off of the notice. So far as the signature of the claim notice was concerned, the document had been signed by an individual, who signed the document as “RTMF secretarial, company secretary”. The company secretary was itself a company, and this gave rise to the landlord’s argument that in order for the company secretary to sign those claim notice, it should not have been signed by the individual, rather than having been signed as the corporate entity.

 

Decision of the Court of Appeal

Given how pernickety the Courts and Tribunals have been in adhering to the mandatory requirements set down by the Commonhold and Leasehold Reform Act 2002, I had expected the Court of Appeal in this case to hold that a failure to adhere to the statutory requirements invalidated the right to manage claim.

However, that was not the decision reached by the Court.

 

Saturday/Sunday Issue

The Court agreed that the RTM company had departed from the requirements under the Act. It agreed that there was no justification for this.

But nonetheless found that the failure to comply precisely with the requirements did not invalidate the notice as a whole.

Landlord 0 – 1 RTM company

 

Intermediate Landlord

Although there had been a failure on the part of the RTM company to serve a claim notice on an intermediate landlord of a single flat, the Court found that this failure did not invalidate the claim. Reference was made to the fact that the intermediate landlord was only the intermediate landlord of a single flat, and held no management responsibilities.

Landlord 0 – 2 RTM company

 

Signature of the Claim Notice

The Court of Appeal were in complete agreement with both the LVT and Upper Tribunal that the signature has not invalidated the claim notices.

The general remarks of the Court when considering this issue are of perhaps greater interest. Comment was made that where a provision could be interpreted two different ways, the preferred interpretation is the one which concludes that the notice is valid. Interesting comment….

Landlord 0 – 3 RTM company

 

Comment

Does this decision signal a more generous approach by the Courts than has previously been the case so far as compliance with the strict statutory requirements are concerned? There were breaches of the requirements, but the Court of Appeal didn’t find these fatal to the claim for the right to manage.

What is clear, and what was commented on at the end of the judgment by Lewison LJ is that the procedure for the acquisition of the right to manage is in dire need of simplification. Simplifying the processes and procedures will give greater clarity for the benefit of both landlords and RTM companies, and in doing so reduce the ever present threat of technical challenges.

 

 

 

31 May 2017

Cassandra Zanelli

Widely recognised for her expertise in the industry, and listed among the 100 most influential people in residential leasehold management, Cass heads the team at PM Legal Services. Passionate about education and sharing knowledge, she's a regular speaker at conferences, events and seminars, having worked with leading organisations in the property management industry.

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