Introduction

The case of Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Company Ltd ([2023] EWCA Civ 616) addressed a critical interpretation of the Commonhold and Leasehold Reform Act 2002 ("the 2002 Act"). The central issue revolved around whether a shared ownership lease granted for a term exceeding 21 years qualifies as a "long lease" under section 76 of the 2002 Act, regardless of the tenant's shareholding percentage. The appellants, Avon Ground Rents Limited, challenged the decision that recognized shared ownership leases over 21 years as "long leases," even when tenants had not staircased to full ownership.

The parties involved were:

• Appellant: Avon Ground Rents Limited, the freehold owner of Canary Gateway in London.
• Respondent: Canary Gateway (Block A) RTM Company Ltd, an RTM company seeking management rights.

Summary of the Judgment

The Court of Appeal upheld the decision of the Upper Tribunal, affirming that shared ownership leases exceeding 21 years are indeed "long leases" under section 76 of the 2002 Act, irrespective of whether tenants have acquired a 100% share. This interpretation mandates that tenants with such leases are "qualifying tenants," thereby entitling them to participate in the management of their premises. The appeal by Avon Ground Rents Limited was consequently dismissed.

Analysis

Precedents Cited

The judgment extensively referred to three significant cases to interpret the definition of a "long lease":

• Brick Farm Management Ltd v Richmond Housing Partnership Ltd [2005] EWHC 1650 (QB): Addressed the meaning of "long lease" within the 1993 Act, clarifying that shared ownership leases inherently exceed 21 years and thus fall under "long leases."
• Richardson v Midland Heart Ltd [2008] L&TR 31: Determined that a shared ownership lease with a 50% share does not constitute a "long lease" under section 76 of the 2002 Act, as the total share did not reach 100%.
• Corscombe Close Block 8 RTM Co Ltd v Roseleb Ltd [2013] UKUT 81 (LC): Concluded that tenants with shared ownership leases exceeding 21 years, even with less than 100% shares, do possess "long leases," thereby qualifying as tenants eligible for management rights.

While Brick Farm and Corscombe Close supported the broad interpretation of "long leases," Richardson presented a contrasting view. However, the Court of Appeal ultimately aligned with the reasoning in Corscombe Close, favoring an inclusive approach.

Legal Reasoning

The Court engaged in statutory interpretation of section 76 of the 2002 Act, which outlines the criteria for a lease to be considered "long." The provision includes various paragraphs (a) through (f), each serving as an alternative gateway for classification.

The appellant's primary argument was that section 76(2)(e) limits shared ownership leases to those where the tenant holds a 100% share, thereby excluding leases with lesser shares from being "long leases." However, the Court interpreted the "or" conjunction in section 76(2) to mean that each paragraph operates independently as an alternative. Thus, even if section 76(2)(e) does not apply, a lease could still qualify under section 76(2)(a) by exceeding 21 years.

The judges emphasized the natural and grammatical reading of the statute, asserting that Parliament did not intend to narrow the definition by adding specific conditions unless explicitly stated. Therefore, shared ownership leases over 21 years meet the "long lease" criteria regardless of the tenant's shareholding.

Impact

This judgment has significant implications for the leasehold sector, particularly in relation to shared ownership schemes. By affirming that leases over 21 years are "long leases" regardless of the tenant's ownership percentage, the decision:

• Enhances the rights of tenants with shared ownership leases to participate in the management of their buildings.
• Clarifies ambiguities surrounding the interpretation of "long leases," providing clearer guidance for future RTM (Right to Manage) claims.
• Potentially increases the number of "qualifying tenants" eligible to form or join RTM companies, thereby impacting property management dynamics.

Complex Concepts Simplified

Shared Ownership Lease

A shared ownership lease allows tenants to purchase a share of a property's leasehold interest while paying rent on the remaining share. Over time, tenants can increase their ownership share, a process known as "staircasing."

Long Lease

Under the 2002 Act, a long lease is defined primarily as a lease exceeding 21 years. Other conditions can also qualify a lease as "long," such as those granted under specific housing acts or those with perpetual renewal covenants.

Qualifying Tenant

A qualifying tenant is an individual who holds a lease that meets the "long lease" criteria. These tenants have the right to participate in the management of their building by forming or joining an RTM company.

Right to Manage (RTM) Company

An RTM company is a collective of leaseholders that can assume responsibility for managing their residential building without needing the landlord's consent or proving the landlord's fault.

Conclusion

The Court of Appeal's decision in Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Company Ltd serves as a pivotal interpretation of the 2002 Act's provisions regarding "long leases" and "qualifying tenants." By affirming that shared ownership leases exceeding 21 years qualify as "long leases" irrespective of the tenant's shareholding percentage, the judgment broadens the scope for tenants to exercise their management rights. This decision not only clarifies statutory ambiguities but also reinforces tenants' empowerment in property management, aligning with the legislative intent to facilitate greater tenant participation and autonomy.

Moving forward, property owners, RTM companies, and leaseholders must consider this precedent in their lease agreements and management strategies to ensure compliance and to leverage the expanded rights granted to qualifying tenants.