RTM: are procedural slips fatal to the acquisition of the right to manage?

Subject to meeting certain qualifying criteria, and getting the documentation and processes right, leaseholders have a statutory right to acquire the right to manage their building.

But acquisition of the right to manage is often fraught with technicalities and difficulties.

Part of the acquisition process involves the service of a claim notice. Section 79 of the 2002 Act specifies that the claim notice must be given to each person who (on the relevant date) is:

(a) a landlord under a lease of the whole or any part of the premises;

(b) a party to such a lease otherwise than as landlord or tenant; or

(c) a manager appointed under part 2 of the Landlord and Tenant Act 1987.

In Lexham House RTM Company Ltd v European Investments & Development (Properties) Ltd [2019] UKUT 390 (LC), the Upper Tribunal grappled once again with the issue of landlords who have little or no input in the overall management of the building.

 

Relevant facts

The premises comprised 24 flats. The leases of three flats on the top floor of the block gave those lessees the exclusive right to use the roof space above their flat. This, of course, amounted to an easement to make use of the roof space, and was not a demise of the roof.

In 2015, the freeholder granted a rooftop lease of the roof of the property, including the roof space over which the lessees of the top floor flats held easements.

The rooftop lease appears to have been granted with a view to the construction of two additional flats at roof level.

Following this, the RTM company was incorporated, and began its journey to acquisition.

As part of that journey, it served a claim notice on the landlord, but did not serve a claim notice on the rooftop lessee.

The landlord denied that the RTM was entitled to acquire the right to manage.

 

Decision of the FTT

On the basis the right to manage was disputed, the RTM company applied to the FTT for a determination that it was, on the relevant date, entitled to acquire the right to manage.

The FTT decided that the rooftop lessee was a landlord of part of the property, and that the failure on the RTM’s part to serve a claim notice upon the rooftop lessee was fatal to the validity of the procedure.

Accordingly, the FTT decided that the RTM company was not entitled to acquire the right to manage the premises on the relevant date.

 

Issues for appeal

The RTM company appealed the FTT’s decision. There were two key issues before the Upper Tribunal on appeal:

1. whether the rooftop lessee was a landlord of part of the premises and, therefore, whether it was necessary for the RTM company to give the claim notice to the rooftop lessee; and

2. even if there had been a failing, would it render the claim notice invalid?

Dealing with each of those issues in turn.

Section 79(6) requires service of the claim notice on each landlord under a lease of the whole or any part of the premises.

The Upper Tribunal looked at any “overlapping” over what had been demised by the rooftop lease and the leases of the top floor flats.

The Upper Tribunal found that the rooftop lessee was a landlord in respect of the top floor flats as it held the reversion to the easements appurtenant to the three top floor flats.  On that basis, the rooftop lessee was a landlord within the meaning of section 79(6), and should have been served with a claim notice.

But, was the failure to serve a claim notice on the rooftop lessee fatal to the claim?

The Upper Tribunal considered the Court of Appeal authority in Elim Court, and the consequences of the failure to serve the claim notice on an intermediate landlord in Elim Court.

The Upper Tribunal acknowledged that the rooftop lessee had no practical involvement in the property, and was “quite simply not affected at all” by the RTM’s assumption of the right to manage.

Accordingly, the Upper Tribunal found that the RTM company had complied with the requirements of section 79(6), notwithstanding the RTM’s failure to give it claim notice to all landlords.

 

Commentary

This decision demonstrates the approach the Tribunal will take to questions of non-compliance with procedure under the 2002 Act.

Whilst this may provide a “get out” where there have been procedural slips and non-compliance, isn’t it easier just to serve a claim notice on all landlords, and avoid potentially expensive litigation to decide the level and extent of any management responsibilities etc?

 

 

16 January 2020

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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