We look below at the Supreme Court decision in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] which confirms the approach that courts and tribunals should take where a party
fails to comply with a requirement under a particular statutory framework, but where the statute does not stipulate what the consequences of that failure should be.
Although this case involved a right to manage claim, the decision will be relevant to statutory procedures under other legislation.
WolfBite - the key takeaways
• The Commonhold and Leasehold Reform Act 2002 (CLRA 2002) gives long leaseholders the right to manage their block of flats.• The RTM company that leaseholders set up must serve a claim notice on all landlords under a lease of any part of the premises.
• The CLRA 2002 does not, however, expressly say what should happen if a claim notice is served on some, but not all, landlords.
• The RTM company in A1 Properties served the claim notice on the landlord under the leases of the flats, but failed to serve a landlord under leases of the communal areas.
• The Supreme Court held that the right to manage claim was still valid, but for different reasons than earlier cases.
• The correct approach where a statute does not expressly stipulate the consequences of non-compliance is to consider the statutory framework in which the requirement arises and ask what consequence best fits that structure.
• In the context of the CLRA 2002, the failure to comply with the service requirement rendered the transfer of the right to manage voidable, but not void.
• The Supreme Court determined that the transfer of the right to manage was effective in this case notwithstanding the failure to serve one of the landlords. The tribunal had sanctioned the transfer knowing about the objections available to that landlord, which had also been joined to the proceedings. That landlord had lost nothing of significance by having not been served.
• The approach the Supreme Court has set out will be relevant to other legislation where the consequences of non-compliance are not expressly stated.
What is the right to manage?
The CLRA 2002 sets out a procedure that long leaseholders can use to take over the management of their block of flats from their landlord, collectively, through a right to manage (RTM) company.The RTM procedure does not require the leaseholders to show that the landlord is at fault in any way or to pay any compensation. So long as there are enough qualifying long leaseholders who want to participate, and they follow the procedure correctly, they will acquire the RTM.
If the claim is successful, the RTM company will take over the management functions for the premises on a specified date.
There are certain functions that the RTM company will not acquire, notably relating to the right to forfeit a long residential lease, but for most practical purposes the RTM company will step into the shoes of the landlord.
Accordingly, from the acquisition date, the RTM company will assume responsibility for providing the services and dealing with repairs, maintenance, improvements, insurance and the general day-to-day management of the building.
The RTM company does not have to manage the building itself though. RTM companies can, and often will, appoint managing agents to actually carry out the management functions on their behalf.
The RTM procedure
The procedure requires the long leaseholders to form an RTM company.The RTM company then needs to give a notice to all the other leaseholders who have not already agreed to become a member of the company, inviting them to participate.
After 14 days have passed from serving the notice of invitation to participate, and so long as at least one-half of the long leaseholders in the building are members of the RTM company, the RTM company can then serve a claim notice.
Under section 79(6) of the CLRA 2002, the claim notice has to be served on each person who is at that time a landlord under a lease of any part of the premises, a third party to the lease (such as a management company or guarantor), and any manager that may have been appointed by the tribunal.
A copy of the claim notice has to be given to all of the long leaseholders and, if a manager has been appointed by the tribunal, to that tribunal.
There is no requirement for anyone that is served with a claim notice to serve a counter-notice. If no counter-notice is served, the RTM company will take over the management. This might, for example, be because the landlord and everyone else that has been served are content for the RTM company to take over.
However, it is open to any person who has been given a claim notice to serve a counter-notice disputing the claim, specifying the grounds on which they say the RTM company is not entitled to acquire the right to manage.
There are very limited grounds for opposing a RTM claim. Such grounds go to the entitlement to acquire the RTM to begin with. An objection cannot therefore be made on the basis, for example, that the RTM company doesn’t have the management skills needed to run the building. Rather, the grounds are restricted to whether the building satisfies certain qualifying criteria, whether the RTM company complies with specific statutory requirements, and whether a sufficient number of long leaseholders are participating in the claim.
If a counter-notice is served disputing the claim, the RTM company can, within the following two months, apply to the tribunal for a determination that it was entitled to acquire the RTM.
A1 Properties v Tudor Studios
This case involved student accommodation in Leicester containing 237 self-contained bedsit style flats, and three larger flats (Flats).
In addition to the Flats, there was a common room, a communal laundry, a reception and lounge area and a gym (Communal Areas).
Each of the Flats were held under 250-year leases between the freeholder, long leaseholders and a management company.
The Communal Areas were held under four separate 999-year leases between the freeholder and a company called A1 Properties which had then sublet those areas to the management company. Under the terms of the subleases, A1 Properties did not retain any management responsibilities for the Communal Areas.
The long leaseholders set up an RTM company in early 2020.
In March 2020, the RTM company served a claim notice on the freeholder (as the landlord under the flat leases) and on the management company (as a third party to the Flat leases).
Crucially, however, the RTM company did not serve the claim notice on A1 Properties.
A1 Properties was, however, a landlord of part of the premises for the purposes of section 79(6) of the CLRA 2002, because it was the landlord under the leases of the Communal Areas. The claim notice should therefore have been served on it.
In May 2020, the management company served a counter-notice objecting to the claim, requiring the RTM company to provide evidence that the claim notice had been served on A1 Properties.
In July 2020, the RTM company applied to the tribunal for a determination that it was entitled to acquire the RTM of the premises.
The tribunal joined A1 Properties to the proceedings at an early stage.
First-tier Tribunal and Upper Tribunal decisions
The CLRA 2002 does not set out the consequences of a failure to serve a claim notice on an other landlord such as A1 Properties.The question for the tribunal was, therefore, whether the failure to comply with the requirement to serve A1 Properties under section 79(6) was fatal to the right to manage claim.
The First-tier Tribunal (FTT) held that the failure to serve the claim notice on A1 Properties did not invalidate the RTM claim. It followed the reasoning in an earlier Court of Appeal case called Elim Court.
In that case, the failure to serve a claim notice on the intermediate landlord of a single flat that had no management responsibilities was held not to invalidate the notice. The FTT in the current case concluded that the failure to serve A1 Properties was not fatal because A1 Properties similarly did not have any management responsibilities under the terms of any of the leases.
A1 Properties appealed to the Upper Tribunal (UT). However, the UT considered that it too was bound by the decision in Elim Court, and dismissed the appeal.
Ordinarily, appealing a decision of the UT would next go to the Court of Appeal. However, because the Court of Appeal would have been bound to follow its own earlier decision in Elim Court, the UT granted what is called a “leapfrog” certificate so that A1 Properties could appeal directly to the Supreme Court (SC) who could then consider whether Elim Court, and therefore the earlier decisions in the current case, was correctly decided.
Supreme Court decision
The SC also held that the RTM company’s failure to serve the claim notice on A1 Properties did not invalidate the transfer of the right to manage, but it reached this conclusion by a different route.
The SC considered that the ordinary expectation must be that persons whose property rights are to be taken away should have a fair opportunity to raise arguments of substance. The fact that an intermediate landlord may not have any management powers did not, therefore, mean that their right to participate in the process could be ignored.
The correct approach in a case where there is no express statement about the consequences of non-compliance with a statutory requirement is to consider the whole of the structure within which the requirement arises and ask what consequence of non-compliance best fits the structure as a whole.
The focus should be on the purpose served by the requirement in light of an analysis of the particular statute, and the specific facts of the case and the prejudice or injustice that might be caused if the process is affirmed notwithstanding the breach.
Ultimately, the emphasis should be on the consequences of non-compliance and whether Parliament can fairly be taken to have intended total invalidity.
Applying this approach to the CLRA 2002, the question was whether the failure to serve the notice on a relevant party means that they have been deprived of a significant opportunity to have their opposition considered, having regard to (i) the force of the objections they could have raised and would have wished to raise, and (ii) whether, despite the procedural omission, they in fact had the opportunity to have their objections considered. The focus is on the party directly affected by the procedural omission.
In this context, the SC considered that a failure to give a claim notice to one of the landlords renders the transfer of the right to manage voidable, not void. That is, the claim will still be valid but could be set aside at the instance of the person who was not served. The failure does not render the claim notice automatically void/invalid from the outset.
If the person who has not been served could not have raised a substantive objection anyway, they will have lost nothing and the SC considered that the inference should be that Parliament will have intended that the transfer of the RTM should still be effective notwithstanding the omission.
Similarly, if that person’s objection has in fact been considered during the process, even though they were not properly served, again they will have lost nothing such that the inference should be that Parliament will have intended that the transfer should be effective.
The key point in this case was that the FTT had sanctioned the validity of the RTM claim under the statutory framework in the knowledge of the objections that were available to the party that had not been served.
That party (A1 Properties) had also been joined to the FTT proceedings and had therefore had the same opportunity to participate that it would have had if it had been given a claim notice in the first place.
The approach that the SC has set out provides guidance as to how the Courts and tribunals should in the future deal with other situations in which a party fails to comply with a requirement under a statute but where the legislation does not specify what the consequences of that failure should be.
Given that much of our law is drafted in this way, the SC’s judgment is significant.
The case would not of course have been necessary had the RTM company served A1 Properties to begin with.
