Strict Invalidity of RTM Claim Notices for Participation-Notice Breaches and the Inclusion of Equitable Lessees as “Qualifying Tenants”
Commentary on Avon Freeholds Ltd v Cresta Court E RTM Company Ltd [2025] EWCA Civ 1016

1. Introduction

The Court of Appeal’s decision in Avon Freeholds Ltd v Cresta Court E RTM Company Ltd addresses two long-running sources of uncertainty under Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002 (“CLRA 2002”):

1. Whether an unregistered but completed long lease—effective only in equity until registered—confers “qualifying tenant” status on the lessee.
2. Whether failure to serve a statutory notice of invitation to participate (“participation notice”) on such a qualifying tenant automatically invalidates a subsequent claim notice served by the right-to-manage (“RTM”) company.

The Respondent RTM company sought to acquire management of a self-contained part of Cresta Court, West London. Avon, the freeholder, resisted on the basis that the RTM company failed to serve a participation notice on Ms O’Connor, the (unregistered) long-lease tenant of Flat 17. Both the First-tier Tribunal (“FTT”) and Upper Tribunal (“UT”) held that Ms O’Connor was a qualifying tenant but that the omission did not invalidate the claim notice. The Court of Appeal unanimously reversed that second limb, crystallising two key principles that now govern all RTM applications.

2. Summary of the Judgment

• Equitable Lessees as Qualifying Tenants: Where no registered (legal) lease exists, the holder of a completed but unregistered long lease is a qualifying tenant for the purposes of ss 75–79 CLRA 2002. If both legal and equitable leases coexist, the legal lessee is the qualifying tenant (UT reasoning upheld).
• Bright-Line Invalidity for Participation-Notice Failure: By virtue of s 79(2) CLRA 2002 and the Supreme Court analysis in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co Ltd [2024] UKSC 27, any failure to serve all required participation notices at least 14 days before the claim notice renders that claim notice a nullity. The defect is not merely voidable and cannot be cured retrospectively.
• Outcome: The Court declared the claim notice invalid. The RTM company must restart the statutory process (which, ironically, could have been done within days once Ms O’Connor became a member).

3. Analysis

3.1 Precedents Cited

The Court’s reasoning sits within a tapestry of prior authorities:

1. A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co Ltd [2024] UKSC 27
   Introduced the “two-stage Soneji analysis” for statutory non-compliance only where Parliament has not expressly dictated the consequence. The Court of Appeal relied heavily on paras 67-69, treating s 79(2) as a statutory bright-line rule.
2. R v Soneji [2006] 1 AC 340
   House of Lords authority on when procedural breaches invalidate statutory acts. Used as a template but deemed inapplicable where Parliament’s language is explicit.
3. Assethold Ltd v 7 Sunny Gardens Road RTM Co Ltd [2013] UKUT 0509
   Held that, on death of a qualifying tenant, their personal representatives (legal lessees) become the qualifying tenants—reinforcing primacy of legal ownership when both legal and equitable interests coexist.
4. Sinclair Gardens Investments (Kensington) Ltd v Oak Investments RTM Co Ltd [2005] RVR 426 & Avon Freeholds Ltd v Regent Court RTM CO Ltd [2012] L&TR 23
   Earlier Lands/Upper Tribunal cases suggesting some procedural lapses might not invalidate a claim notice. Now effectively superseded on participation-notice failures.
5. 159-167 Prince of Wales Road RTM Co Ltd v Assethold Ltd [2024] EWCA Civ 1544
   Clarified that an equitable purchaser of the freehold is not a “landlord” under ss 79(6) & 88 during the registration gap, but distinguished from equitable lessees; therefore not inconsistent with the present decision.

3.2 Legal Reasoning

The Court’s approach unfolded in two parts.

(a) Status of Equitable Lessees

• Statutory hinge: s 75(2) (qualifying tenant) + s 112(2) (definition of “lease” includes agreements for lease). Since an agreement for lease is an equitable lease (Walsh v Lonsdale), Parliament must have contemplated some equitable interests.
• Construction against absurdity: Excluding equitable leases where no legal lease exists would arbitrarily disenfranchise tenants and frustrate RTM in new-builds or during Land Registry delays.
• Principled compromise: Where both legal and equitable leases coexist, the legal lessee prevails (avoids uncertainty). Where only an equitable lease exists, that lessee is qualifying.

(b) Consequence of Missing a Participation Notice

• Textual command: s 79(2) – “The claim notice may not be given unless…” – unequivocal.
• A1 Properties para 69: Supreme Court expressly cited s 79(2) as an instance where Parliament itself stipulates the consequence; therefore no scope for judicial discretion under Soneji.
• Logical corollary: A notice “that may not be given” is void ab initio; it cannot merely be voidable.
• Rejection of UT’s “voidable at tenant’s instance” analysis: UT mis-categorised para 69 as obiter; CA held it part of ratio and, in any event, correct.

3.3 Impact

This judgment will reverberate across residential leasehold management:

1. Higher Compliance Burden on RTM Companies
   • Meticulous identification of all qualifying tenants, including those in the “registration gap”, is now essential.
   • Expect greater use of s 82 information requests and on-site enquiries before serving a claim notice.
2. Strategic Leverage for Landlords
   • Landlords may scrutinise participation-notice compliance as a threshold defence, confident that any breach is fatal.
   • Could incentivise earlier dialogue between landlords and leaseholders to avoid abortive costs.
3. Land Registry Delays Highlighted
   • The decision exposes practical risks posed by Land Registry backlogs. Developers and conveyancers may accelerate registration to protect purchasers’ statutory rights.
4. Clarificatory Precedent
   • Harmonises conflicting UT/FIT precedents; provides a clear rule of law, reducing litigation on the point.
5. Legislative Implications
   • Parliament may face pressure to introduce a limited dispensation power (akin to s 79(7)) for participation-notice failures, balancing tenant protection with procedural certainty.

4. Complex Concepts Simplified

Right to Manage (RTM)

A statutory right allowing a majority of long-leaseholders in a building to take over management functions from the landlord without proving fault.

RTM Company

A limited company, formed by leaseholders, whose sole object is to acquire and exercise the RTM. It must follow strict procedural steps.

Claim Notice

The formal document served on landlords and certain others stating the RTM company’s intention to assume management on a specified future date.

Participation Notice

A statutory “invitation to participate” (s 78) that must be served on every non-member qualifying tenant at least 14 days before the claim notice.

Qualifying Tenant

Broadly, the long-leaseholder (over 21 years) of a flat. Post-judgment, this includes an equitable lessee only where no registered legal lease exists.

Legal vs. Equitable Lease

A legal lease is registered and enforceable at law. An equitable lease arises from a specifically enforceable agreement or from a completed but unregistered disposition; enforceable in equity pending registration.

Registration Gap

The period between completion of a registrable disposition (e.g., grant of a >7-year lease) and the date the Land Registry completes registration. Rights exist only in equity during this gap.

Soneji Analysis

A judicial test for deciding whether breach of a statutory procedure invalidates the act. Not engaged where Parliament has expressly set the consequence (as in s 79(2)).

5. Conclusion

The Court of Appeal has drawn two clear, bright lines in RTM jurisprudence:

1. An equitable lessee is a qualifying tenant only where no registered legal lease exists; where both exist, legal title prevails.
2. Failure to serve every required participation notice within the statutory timeframe voids the entire claim notice; the RTM company must restart the process.

These principles fortify procedural certainty but demand enhanced diligence from RTM promoters. While protective of individual leaseholder rights, the ruling also arms landlords with a potent technical defence. Stakeholders should anticipate more rigorous pre-claim investigations, possible legislative refinement, and, above all, the enduring maxim that when Parliament has spoken in “clear and unambiguous” terms, the courts will enforce the letter of the statute.