Right to manage: What happens when your service game fails?

Key points A failure to give a claim notice to a relevant landlord under section 79(6 rendered the acquisition of the right to manage voidable A relevant person whose property or contractual rights were to be removed or significantly curtailed by the acquisition process should have a fair opportunity, during the course of the process, to have any substantive arguments in opposition heard Does an RTM company’s failure to serve a claim notice on a relevant landlord invalidate its claim to acquire the right to manage? Elizabeth Dwomoh shares the Supreme Court’s answer. Under the Commonhold and Leasehold Reform Act 2002, qualifying tenants of a block of flats can acquire the right to manage their block through a right to manage company. As part of the process, a notice of claim must be served, among others, on each person who is a landlord under the lease of the whole or any part of the building (section 76(6)(a) of the 2002 Act). The important question that arose in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co Ltd [2024] UKSC 27; [2024] PLSCS 148 was whether an RTM company’s failure to serve a claim notice on a relevant landlord under the lease invalidated the acquisition process. The conundrum The 2002 Act is silent as to what sanction, if any, is to be imposed on an RTM company that fails to comply with section 76(6)(a). In Elim Court RTM Co Ltd v Avon Freeholders Ltd [2017] EWCA Civ 89; [2017] PLSCS 46, where an invalid attempt at service was made on the landlord, the Court of Appeal determined that the acquisition process had not been invalidated. The Court of Appeal focused on the main purposes of the regime; namely, the right to manage. It determined that the failure to serve a claim notice on an intermediate landlord with no management powers did not defeat the main purpose of the 2002 Act. In reaching its decision, the Court of Appeal relied on the case of Osman v Natt [2014] EWCA Civ 1520; [2015] EGLR 11. The background Tudor Studios RTM Co sought to acquire the right to manage 164 Tudor Road, Leicester – student accommodation comprising 237 bedsit flats and three larger flats. On 23 March 2020, it served notice on both the freeholder and management company of the building, but it failed to serve it on A1, which was a relevant landlord for the purposes of section 76(6)(a). On 4 May 2020, the management company served a counter-notice objecting to Tudor Studios RTM Co’s claim. It also required Tudor Studios RTM Co to prove that a claim notice had been served on A1. Tudor Studios RTM Co subsequently applied to the First-tier Tribunal for a determination that it was entitled to acquire the right to manage. The FTT subsequently joined A1 to the proceedings. The FTT found that the failure to serve the claim notice on A1 did not invalidate Tudor Studios RTM Co’s claim. In reaching its decision, the FTT determined that it was bound by Elim Court. A1 appealed to the Upper Tribunal (Lands Chamber), but it too felt bound by the decision in Elim Court and dismissed the appeal. A1 appealed to the Supreme Court using the “leapfrog” procedure. First principles When evaluating whether a procedural failure under a statutory regime invalidated the process, the Supreme Court relied on R v Soneji [2005] UKHL 49. It determined the question that had to be addressed was whether a relevant party had been deprived of a significant opportunity to raise their objection or their opposition to the acquisition. If no substantive objection could have been raised or their objection had, in fact, been considered during the course of the process, no loss had been suffered as a consequence of the procedural failure. The inference that had to be drawn in such circumstances was that parliament could not have intended that the right of acquisition would be invalidated, notwithstanding the omission. The Supreme Court observed that a relevant landlord who had not been served with a claim notice, but who potentially had a valid substantive objection, could still apply to the High Court to have its objections heard. The Supreme Court determined that the best way to give effect to parliament’s intention as to the consequences of a failure to give a claim notice to a relevant landlord under section 79(6), and in accordance with the guidance in Soneji, was that the failure rendered the acquisition of the right to manage voidable. It remained as such until the FTT approved the acquisition following the resolution of the dispute as to entitlement. Note of caution The Supreme Court sounded a note of caution in respect of the decision in Elim Court. Although it found it was correctly decided, the court found that it was not correct to say that an intermediate landlord who had no management powers should have their right to participate ignored. The correct approach was that a person whose property or contractual rights were to be removed or significantly curtailed by the acquisition process should have a fair opportunity, during the course of the procedure, to have any substantive arguments in opposition heard before the process was determined. Elizabeth Dwomoh is a barrister at Lamb Chambers Image © Pexels/Sevenstorm