A few quick notes on some leasehold related cases.
A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd (2024) UKSC 27
The Commonhold and Leasehold Reform Act 2002 stipulates that a Notice of Claim for Right to Manage must be served on “each person who is a landlord under a lease of the whole or any part of the premises”.
But there is no provision in the CLRA as to what happens if a notice of claim is served on some, but not all landlords. The SC notes that “In light of the absence of any simple means of checking who all the landlords are, there is a real chance that this situation could arise in a significant number of cases. ”
The question was what the consequences of such a failure were and whether the notice of claim was invalid.
The Court of Appeal in Elim Court RTM Co Ltd v Avon Freeholds Ltd (2017) EWCA Civ 89; [2018] QB 571 had previously held that such a failure did not invalidate the notice of claim. This case was a leap frog appeal from the Upper Tribunal, with the landlord seeking to argue that the notice of claim was invalidated.
The Supreme Court differed from the Court of Appeal’s conclusions in Elim Court. It held that this was a distinct situation to those envisaged in the provisions on absent or ‘invisible’ landlords in the CLRA provisions, which gave specific solutions in those cases. But, in the absence of a clearly specified penalty (the invalidity of the notice, for example) Parliament’s intention needed consideration.
take the present case (“case C”). Three stakeholders are entitled to be given a claim notice: the Freeholder, the Management Company and the appellant. The Freeholder and the Management Company are given a claim notice, the Management Company serves a counter-notice raising objections and in the light of that the RTM company applies to the tribunal for a determination pursuant to section 84(3), but the appellant is not given a claim notice. The tribunal rules against those objections and, leaving aside the breach of the obligation to give a claim notice to the appellant, there is no other objection to the validity of the scheme. Is it Parliament’s intention that a scheme which the tribunal has in fact scrutinised and approved can be invalidated (with the consequence that the RTM company is required to pay costs and start again, or simply give up) merely because the appellant has been deprived of the opportunity to give a counter-notice, which could not have included a valid objection to the scheme?
But on the other hand, where there was a ‘visible’ landlord who was not served with a notice of claim, their right to serve a valid counter notice should not be overridden.
The conclusion was that a failure to serve a notice of claim on a relevant landlord or stakeholder made the notice voidable, not void. It would be voidable on the application of the non-served party unless or until the scheme was approved by the Tribunal.
We consider that the simplest way to provide a legal formula to give effect to Parliament’s intention as to the consequences of the failure to give a claim notice to a visible landlord or other stakeholder under section 79(6) flowing from analysis in accordance with the approach in Soneji is that the failure renders the transfer of the right to manage voidable, at the instance of the relevant landlord or other stakeholder who was entitled to, but not given, a claim notice, but not void. It is voidable unless, or until, the tribunal approves the transfer scheme, as the outcome of the resolution of the dispute as to entitlement caused by a counter-notice by a person actually given a claim notice, or as the result of an application by the RTM company under section 85. If the scheme is disapproved by the tribunal, the RTM company will have to start again in any event. (…)
In our view, in evaluating whether a procedural failure under the regime has the effect of invalidating the process, the question to be addressed is whether a relevant party has been deprived of a significant opportunity to have their opposition to the making of an order to transfer the right to manage considered, having regard to (a) what objections they could have raised and would have wished to raise and (b) whether, despite the procedural omission, they in fact had the opportunity to have their objections considered in the course of the process leading to the making of the order to transfer the right to manage. If there was no substantive objection which they could have raised or would have wished to raise, they have lost nothing of significance so far as the regime is concerned and the inference is that Parliament intended that the transfer of the right to manage should be effective notwithstanding the omission. If their objection has in fact been considered in the process, even though the claim notice was not served at the proper time, again they have lost nothing of significance so far as the regime is concerned and the inference as to Parliament’s intention is the same.
But the right to seek to void the notice of claim was solely that of the affected non-served party.
There is no good reason to suppose that Parliament intended that a person which has not itself been affected by a procedural omission in relation to another should acquire, by a windfall, a power to thwart the operation of the statutory process which it would not otherwise have enjoyed.
Appealed dismissed.
Avon Freeholds Ltd v Cresta Court E RTM Company Ltd (LANDLORD AND TENANT – RIGHT TO MANAGE – can a tenant under a long equitable lease be a qualifying tenant – construction of s.79(3) Commonhold and Leasehold Reform Act 2002 and the effect of procedural failings) (2024) UKUT 335 (LC)
The Upper Tribunal held that an equitable leaseholder (where they had purchased the newly granted lease, but title was not yet registered at the Land Registry, so there was no legal lessee), was a qualifying tenant for the purposes of the Commonhold and Leasehold Reform Act 2022 provisions on right to manage.
As such, the RTM company should have delivered an invitation to participate to that leaseholder. The freeholder had argued that the RTM claim notice was deficient because of that failure, as it did not meet the requirements of section 79(2) CLRA 2002
However, following the Supreme Court decision in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd (2024) UKSC 27 (see above), the previous Upper Tribunal decision in Avon Ground Rents Limited v Canary Gateway (Block A) RTM Company Limited (2020) UKUT 358 (LC) – that the requirements of section 79(2) were to be strictly interpreted – was not to be followed.
Even though in A1 Properties, the Supreme Court had noted that non-compliance with s.79(2) had clear statutory consequences, the UT interpreted ‘not valid’ as not meaning ‘invalid’, but voidable at the instance of the tenant who did not receive the notice of invitation.
That had not happened here, indeed the tenant had become a member of the RTM Company. It was not open to the freeholder to take advantage of the procedural failure on behalf of the tenant.
Lea & Ors v GP Ilfracombe Management Company Ltd (2024) EWCA Civ 1241
The Court of Appeal considered the application of Rule 13 costs in the Tribunal. The FTT and UT had refused Rule 13 costs applications by the appellant leaseholders, following an FTT decision that a £2.4 million service charge demand by the respondent management company was neither payable nor reasonable.
The Court of Appeal declined to lay down general guidelines as to what amounts to ‘unreasonable conduct’ under Rule 13.
However, “it is an impermissible gloss on the rule, and potentially much too restrictive, to elide unreasonable conduct with vexatious or harassing behaviour.”
In this case, the Court of Appeal returned to
the substantive conclusions of the FtT. In my view, they speak from themselves. They demonstrate that, to all intents and purposes, the original service charge demand by GPIMC was an abuse of the process: a claim for a huge sum of money that was unsupported by anyone, unjustified by any independent documentation, and known by its creator, Mr Gubbay, to be invalid. Unsurprisingly, the claim failed in its entirety. In such circumstances, the bringing of the claim by GPIMC in the first place, and its conduct throughout the FtT proceedings, would prima facie appear to have been unreasonable.
After running through elements of the factual findings, the Court of Appeal found that there was no reasonable explanation of the conduct of the claim given to the Tribunals. The FTT had then erred by failing to properly address if there was in fact a reasonable explanation. It had apparently treated the costs application as a matter of discretion, which was wrong. Whether the conduct was unreasonable was a question of objective fact.
Moreover, that the matter was apparently ‘straightforward’ was not a factor in whether it was unreasonable to bring it.
While the management company had argued before the Court of Appeal that the FTT proceedings had had the benefit to both sides of deciding on the meaning of various lease clauses, that did not go to the reasonableness of these proceedings. There could have been an application under s.27A(3) for a determination as to recoverability, that was not done here.
Further, the management company had brought the claim the next day after serving the demands. It was simply after the money.
Indeed, on one view, the proceedings were fundamentally deficient because there had not been time for a dispute to crystalise in respect of the service charges before the proceedings were commenced. That ultimately made no difference, of course, because GPIMC recovered no monies at all.
The management company could not hide behind the FTT’s attempts to be helpful in offering comments on lease clauses.
GPIMC are effectively saying to the appellants: “Well, although these particular heads of claim were never reasonable nor justified, we should not have to pay your costs in defending these claims at a tribunal because most of them were not due under the lease either, and now you know that.” It is, with respect, an absurd contention.
The FTT had failed to ask itself the questions identified in Ridehalgh v Horsefield & Anr (1994) Ch 205, and Willow Court Management Co (1985) Limited v Alexander (2016) UK UT 290 (LC), and failed to take account all relevant matters.
It fell to the Court of Appeal to make a fresh decision rather than remit. The management company was ordered to pay all the appellants’ costs of the FTT proceedings, to be assessed if not agreed.