Welcome to the fourth edition of RED Alert of 2024.
Also featuring in this month's update:
A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27
The Supreme Court recently handed down a pivotal judgment in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27 marking the second "leapfrog" appeal from the Upper Tribunal to the Supreme Court. The case examines an issue which regularly arises in the context of statutory interpretation: when a statute outlines a procedural framework for exercising a statutory right but does not specify the consequences of non-compliance, how should courts interpret Parliament's intent?
Facts
This case centred around the right to manage regime under the Commonhold and Leasehold Reform Act 2002 (the CLRA 2002) which allows qualifying leaseholders to acquire management rights over their premises without fault by serving a claim notice on the freeholder, any management company and any intermediate landlords (s.79(6)(a)).
The appellant, A1 Properties (Sunderland) Ltd (A1 Properties) was an intermediate landlord of a number of leases in a student accommodation block although it had no management responsibilities. When making its claim under s79 CLRA 2002 the respondent, Tudor Studios RTM (Tudor Studios), served its claim form on the building's freeholder and the management company but (seemingly deliberately) failed to serve a copy on A1 Properties. The management company raised certain objections to the Respondent's application which led the Respondent to seek a determination that it was entitled to manage from the Tribunal. As part of the Tribunal proceedings, it came to light that the Respondent had not served A1 Properties with the claim notice.
Both the First-tier Tribunal and the Upper Tribunal adhered to the principle established by the Court of appeal in Elim Court RTM Co Ltd v Avon Freeholders Ltd [2018] QB 571 that failing to notify intermediate landlords who lack management responsibilities does not invalidate an RTM claim. While the intermediate landlords might lose significant rights as a result), these losses were considered ancillary to legislation’s primary goal: enabling RTM companies to acquire management rights simply and cheaply.
A1 Properties consequently appealed directly to the Supreme Court to argue either for overturning Elim Court or asserting that intentional non-service should invalidate Tudor Studios' claim.
Legal Context
The foundational principles for addressing this issue were laid out by the House of Lords in R. v Soneji [2006] 1 A.C. 340 (HL). The House of Lords held that the focus should be on understanding the consequences of non-compliance and whether Parliament intended such non-compliance to lead to total invalidity.
However, the application of the House of Lords' decision in Soneji has not been straight forward as it related to public law statutory procedures rather than private property or similar rights. The Court of Appeal had previously suggested in Osman v Natt [2015] 1 WLR 1536 that there might be distinctions between public law—where substantial compliance could suffice—and private law statutes conferring property rights, where strict adherence might be required.
Supreme Court’s Decision
Ultimately, the Supreme Court unanimously dismissed the appeal and held that the failure to serve the claim notice on A1 Properties did not invalidate Tudor Studios' claim.
Whilst the Court elected to uphold the decision Elim Court, it criticised its reasoning. Specifically, it disagreed with disregarding an intermediate landlord’s right to participate if they lacked management responsibilities. Instead, it held that, where the statute in question does not provide any specific consequences for non-compliance as with the CLRA 2002, the court must evaluate the impact of this failure on the party affected by the procedural omission, in particular with regard to any loss of opportunity or prejudice caused. It follows that any failure to give a claim notice under s79(6) renders the transfer of the right to manage "voidable" but not "void" meaning that it will not automatically be invalidated due to the procedural error. In circumstances where the Tribunal had approved validity of Tudor Studios' RTM scheme and (although not determinative) A1 Properties had not lost the opportunity to make objections as it was joined to the FTT proceedings, the claim was valid.
Our Comment
Whilst this case deals with a right to manage claim, the decision will undoubtedly have far-reaching consequences for other property notices served pursuant to statutory procedures which are silent on the ramifications of non-compliance. The RTM company in this case were triumphant, however the decision highlights the importance of ensuring that all procedural steps have been undertaken if only to avoid potentially costly litigation.
Tenants will nevertheless welcome the Supreme Court's decision, which makes it harder for landlords to prevent a right to manage claim going ahead purely on procedural grounds. On the other hand, in light of this case, landlords should take note that procedural irregularities may not be sufficient to challenge the validity of any claim and regard should be given to the prejudice which they have suffered as a result.
If you are looking for advice on the right to manage process, please get in touch with a member of the team.
