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Getting it right

Sam Madge-Wyld discusses the court’s approach to failure to comply with the right to manage procedure in Elim Court

8 June 2017

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Chapter 1 of part 2 of the Commonhold and Leasehold Reform Act 2002 gives long leaseholders of flats the right to establish and join a ‘right to manage (RTM) company’ through which – if sufficient leaseholders join – they may take over management of their building. Assuming that there is sufficient participation, the RTM company may serve a claim notice on any landlord, informing them that it intends to acquire the right to manage. A landlord who receives a claim notice may serve a counter-notice if they wish to oppose the claim.

The right has proved popular with leaseholders who have become dissatisfied with the cost and standard of management being provided by the landlord or management company responsible for managing the block. It has, however, proved equally unpopular with certain landlords who worry about the loss of control and that the overriding concern of leaseholders acquiring the right to manage will be to keep costs to a minimum at the expense of managing the block properly.

As a result, although there are no grounds that need be proved for the right to be acquired, it has become common for landlords to oppose leaseholders’ entitlement to acquire the right by arguing that either the premises do not qualify (for example, because the building is not structurally attached) or the statutory process for acquiring the right has not been complied with.

Non-compliant claim notice

In Elim Court RTM Company Ltd v Avons Freeholds Ltd [2017] EWCA Civ 89, the Court of Appeal heard an appeal by the RTM company against a decision of the Upper Tribunal (Lands Chamber) that it had not acquired the right to manage because it had not served an intermediate landlord with the claim notice and had failed to make the notice available for inspection on either a Saturday or Sunday. As a result, it had failed to comply with section 78(2) of the 2002 Act, the result of which was that the claim notice was invalid.

Lord Justice Lewison, giving the judgment of the Court of Appeal, upheld the decision of the Upper Tribunal that such failures were in contravention of the Act, but allowed the appeal on the basis that such failures did not invalidate the claim notice. This was because not every defect in the statutory procedure would invalidate the notice.

In this case, the failure to make a notice available on a weekend was a trivial failure of compliance which did not invalidate the notice. Nor did the fact that the claim notice was not served on the intermediate landlord, as the transfer of an intermediate landlord’s non-management functions under an intermediate lease is ancillary to the primary objective of the legislation, which is to enable an RTM company to acquire the right to manage.

‘Trivial failures’

The basis for the decision is easy to understand in its wider context. There had been substantial compliance with the statutory scheme and there were no substantive reasons for why the right should not be acquired. In short, there had been no prejudice to the landlord.

That said, in Natt v Osman [2014] EWCA Civ 1520, Sir Terence Etherton held that in cases, such as this one, in which a statute confers a property or similar right on a private person and the issue is whether non-compliance with the statutory requirement precludes that person from acquiring the right in question, the question of prejudice to the parties is irrelevant. Nothing less than strict compliance with the statute will suffice unless it can be shown that it was not parliament’s intention that the failure to comply with a particular part of the statute would invalidate the notice, for example where the failure is inconsequential and ancillary to the right being claimed.

In Elim Court, Lewison LJ was able to find for the RTM company by holding that the ‘trivial failures’ were of secondary importance and would not have been intended by parliament to invalidate the notice.

It does, however, beg the question: what other parts of the right to manage process are trivial and do not need to be complied with? In the absence of any certainty, any decision of the First-tier Tribunal will invariably give rise to an appeal and further litigation.

Accordingly, as it is unlikely, notwithstanding Lewison LJ’s suggestion, that parliament will have time in the near future to simplify the right to manage process, RTM companies would be wise to take heed of the comments of Martin Rodger QC in Triplerose Ltd v Mill House RTM Co Ltd [2016] UKUT 80 (LC). He reminded RTM companies that any defect in procedure can often be easily repeated if not properly implemented first time around, which would avoid the need to pursue a claim that is likely to be defended vigorously by the landlord keen to avoid the loss of control and other benefits.

 

Sam Madge-Wyld is a barrister at Arden Chambers specialising in housing, landlord and tenant, property, and local government law

@ArdenChambers

www.ardenchambers.com

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Property Landlord & Tenant Residential

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right to manage