Factual and Procedural Background
The First-tier Tribunal (Property Chamber) (Residential Property) determined on 30 January 2020 that the Respondents, two Right to Manage (RTM) Companies, were entitled to acquire the right to manage various blocks of flats located on St Anne Street, London E14, pursuant to claim notices dated 6 April 2019 under Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002 (the 2002 Act). The Appellant freeholder challenged the validity of the claim notices on the basis that notices of invitation to participate had not been served on an intermediate landlord, Metropolitan Housing Trust Limited (MHT), who held headleases and sub-let flats on short leases, contending that this failure invalidated the claim notices.
The Tribunal found that MHT was not a qualifying tenant under the 2002 Act and that even if it were, failure to serve notices on MHT did not invalidate the claim notices. The Appellant was granted permission to appeal on the issue of MHT's status and the effect of non-service of notices, but not on whether tenants under shared ownership leases with less than 100% ownership were qualifying tenants, an issue previously decided by this Tribunal.
The properties in question comprised seven blocks of flats split between two self-contained buildings for statutory purposes. Some flats were let directly to qualifying tenants on long leases, while others were let to MHT under headleases and then underlet to tenants under shared ownership or social rent leases. Notices of invitation to participate were served on qualifying tenants but not on MHT.
Legal Issues Presented
- Whether tenants under shared ownership long leases with less than 100% ownership are qualifying tenants under the 2002 Act.
- Whether an intermediate landlord who sub-lets flats on short leases, such as MHT, is a qualifying tenant or whether there is no qualifying tenant for such flats.
- Whether failure to serve a notice of invitation to participate on MHT invalidates the claim notices served by the RTM Companies.
Arguments of the Parties
Appellant's Arguments
- Notices of invitation to participate should have been served on MHT as the intermediate landlord for flats under shared ownership and social rent leases.
- The failure to serve such notices invalidates the claim notices.
- The natural reading of section 76(2)(e) of the 2002 Act is that only shared ownership leases where the tenant's share has staircased to 100% are qualifying long leases.
- Parliament intended the categories of long leases under section 76(2)(a)-(f) to be mutually exclusive, excluding shared ownership leases with less than 100% ownership from qualifying.
- Allowing a landlord to be a qualifying tenant conflicts with the statutory scheme, the voting provisions of RTM companies, and statutory definitions.
Respondents' Arguments
- Tenants under shared ownership leases with less than 100% ownership are qualifying tenants as their leases qualify under section 76(2)(a) as leases granted for more than 21 years.
- MHT, as an intermediate landlord, is a qualifying tenant of the socially rented flats and should have been served notices of invitation to participate for those flats.
- The statutory scheme allows a person to be both landlord and qualifying tenant in respect of different interests, and there is no prohibition on such persons being qualifying tenants.
- Failure to serve notices on MHT does not invalidate the claim notices because the claim notices confer rights on landlords that are equal or superior to those of qualifying tenants.
- Voting provisions in the RTM companies' articles do not preclude landlords who are qualifying tenants from membership or voting rights.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney-General [1983] 1 All ER 288 |
Demonstrated existence of shared ownership leases outside statutory schemes. |
Used to illustrate types of shared ownership leases relevant to statutory interpretation. |
| R v Immigration Appeal Tribunal, ex parte Jeyeantham [1999] 3 All ER 231 |
Procedural fairness principles in statutory interpretation. |
Referenced to distinguish types of statutory compliance tests. |
| Brick Farm Management Ltd v Richmond Housing Partnership Ltd [2005] EWHC 1650 (QB); [2005] 1 WLR 3934 |
Interpretation of long lease definition including shared ownership leases. |
Supported the view that shared ownership leases with less than 100% ownership can be long leases. |
| R v Soneji [2006] 1 AC 340 |
Principles of statutory interpretation regarding procedural requirements. |
Applied to clarify the nature of statutory compliance. |
| Richardson v Midland Heart Ltd [2008] L & TR 31 |
Whether a shared ownership lease with less than 100% ownership qualifies as a long lease. |
Distinguished and not followed due to incomplete consideration of statutory provisions. |
| Corscombe Close Block 8 RTM Co Ltd v Roseleb Ltd [2013] UKUT 81 (LC) |
Held that shared ownership leases with less than 100% ownership are long leases for 2002 Act purposes. |
Followed as binding precedent on the issue of qualifying tenants under shared ownership leases. |
| Avon Freeholds Ltd v Regent Court RTM Co Ltd [2013] UKUT 213 (LC) |
Whether failure to serve notice of invitation to participate invalidates claim notice. |
Rejected substantial compliance test; held full compliance required to avoid invalidity. |
| Osman v Natt [2014] EWCA Civ 1520; [2015] 1 WLR 1536 |
Approach to statutory non-compliance affecting property rights. |
Applied as binding authority for interpreting consequences of non-compliance. |
| Triplerose Ltd v Mill House RTM Co Ltd [2016] UKUT 80 (LC); [2016] L & TR 23 |
Validity of a notice of invitation to participate missing prescribed information. |
Held that omission of essential information invalidated the notice, preventing valid claim notice. |
| Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89; [2018] QB 571 |
Consequences of failure to serve notices on qualifying tenants and landlords. |
Held failure to serve a landlord with claim notice did not invalidate it; applied test of statutory purpose. |
Court's Reasoning and Analysis
The Court began by addressing the first issue of whether tenants under shared ownership leases with less than 100% ownership are qualifying tenants under the 2002 Act. It rejected the Appellant's argument that only 100% ownership shared ownership leases qualify. The Court found the natural meaning of section 76(2) to be additive, meaning a lease can qualify as a long lease if it falls under any of the listed categories, including leases granted for more than 21 years (section 76(2)(a)), regardless of whether it also qualifies as a shared ownership lease under section 76(2)(e). The Court relied on the Corscombe Close decision and the persuasive reasoning of Stanley Burnton J in Brick Farm Management, concluding that all shared ownership lessees in Edgemere House were qualifying tenants.
On the second issue, the Court considered whether MHT, as an intermediate landlord of socially rented flats, was a qualifying tenant. It concluded that MHT was the qualifying tenant for these flats under section 75, as no disqualifications applied. The Court rejected the argument that a person cannot be both a landlord and a qualifying tenant, finding no statutory prohibition and emphasizing that the statutory scheme accommodates such dual status. The Court analyzed the RTM Companies (Model Articles) Regulations 2009 and found no reason to interpret the voting provisions as excluding landlords who are qualifying tenants from membership or voting rights. It also noted practical and policy considerations supporting its conclusion, including the need to avoid undermining the right to manage by excluding those with substantial capital interests.
Regarding the third issue, the Court examined whether failure to serve a notice of invitation to participate on MHT invalidated the claim notices. Applying the binding authority of Elim Court and Osman v Natt, the Court emphasized that the right to manage confers a property or similar right and that statutory compliance consequences must be determined by statutory interpretation. It distinguished prior cases applying a substantial compliance test as inapplicable to this context. The Court found that section 79(2) expressly prohibits serving a claim notice unless each qualifying tenant has been given a notice of invitation to participate at least 14 days prior, indicating that failure to serve such notice invalidates the claim notice. The Court acknowledged the practical ease of serving notices on qualifying tenants and the significance of the notices in providing information and democratic participation. It rejected the Appellant's contention that failure to serve MHT did not prejudice qualifying tenants, concluding that Parliament intended strict compliance to protect the statutory scheme.
The Court also noted the Law Commission's proposals to abolish the requirement for notices of invitation to participate due to their limited practical purpose and potential for abuse, but emphasized that until such legislative changes occur, RTM companies must comply scrupulously with the statutory requirements.
Holding and Implications
The Court ALLOWED THE APPEAL.
The Court held that:
- Tenants under shared ownership long leases with less than 100% ownership are qualifying tenants under the 2002 Act.
- MHT, as intermediate landlord of socially rented flats, is a qualifying tenant and should have been served notices of invitation to participate in respect of those flats.
- Failure to serve a notice of invitation to participate on all qualifying tenants, including MHT where applicable, invalidates the claim notices served by the RTM Companies.
The direct effect of this decision is that the claim notices served by the RTM Companies are invalid due to non-compliance with the notice requirements. The appeal overturns the First-tier Tribunal's conclusion on these points. The Court did not establish new legal principles beyond interpreting existing statutory provisions and applying binding precedent. The decision underscores the importance of strict compliance with procedural requirements in the exercise of the right to manage under the 2002 Act.