By a judgment dated 23rd February 2017 the Court of Appeal has in the case of Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89 upheld an appeal against the decision of the Upper Tribunal (Lands Chamber) (UT) which stated that a Right to Manage (RTM) company was not entitled to acquire the RTM. In doing so, the Court considered the right approach in failing to comply with the requirements of the legislation which introduced Right to Manage.

The Right to Manage scheme

Part 2 Chapter 1 of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) sets out the process for achieving Right to Manage.

Subject to certain exceptions, leaseholders of flats in mainly residential buildings are entitled to take over the management of their building. This right can only be exercised through membership of an RTM company. The claim is made by giving a formal notice of claim (the Claim Notice) to: the landlord(s) of the premises, any other party to the lease (not including the leaseholder), and any manager.

The RTM company must first serve formal notice of invitation to participate (“NIP”) on any leaseholders who are not already members of the company or agreed to become members.
If enough leaseholders are willing to participate, the RTM company may serve the Claim Notice but not less than 14 days after a NIP has been given to each person required to be given it.
Three issues had come before the Upper Tribunal (Lands Chamber) (the UT).

  1. Saturday/Sunday issue

    The NIP must specify ‘at least 2 hours on each of at least 3 days (including a Saturday or Sunday or both) within the seven days following that on which the notice is given’ as the times when the articles of association of the RTM company may be inspected.-s78 (5) (b) of the 2002 Act.

    The notice had specified three days being a Monday, Tuesday and a Wednesday. Accordingly, it had not specified a Saturday or Sunday.

    The UT decided that the notice failed to comply with requirements of the 2002 Act and moreover had not complied substantially since it was an important part of the RTM scheme that the articles should be made available for inspection on at least one day at the weekend.

  2. Intermediate landlord issue

    The UT had decided that the Claim Notice should have been served on the intermediate landlord of one of the flats in the building. The UT said this was fatal to the validity of the Notice, even though it was accepted that it was extremely unlikely that the landlord would have any management responsibilities as it looked as if the lease formed some part of an equity release scheme.

  3. Signature issue

    The Claim Notice was signed by Mr. Joiner being a director of the company which was the company secretary to the RTM company

    There is no requirement in the 2002 Act that a claim notice be signed by the RTM company. or indeed an explicit requirement that it be signed by anyone in particular.

    The landlord’s argument fastened on the words in the prescribed form of Claim Notice:

    ‘Signed by authority of the company.

    [Signature of authorised member or officer]’

    The UT decided that if a company signs the Claim Notice on behalf of the RTM company the signature would have to meet the requirements of s44 of the Companies Act 2006.

    By s44 a company is regarded as having signed a contract if it

    • Affixes its common seal;
    • Signs by two authorised signatories;
    • Signs by a director of the company in the presence of a witness who attests the signature.

    The UT agreed that the Claim Notice was not signed in accordance with s44 but the signature could be accepted as Mr. Joiner’s own signature and was one by a person with authority to sign the Claim Notice on behalf of the RTM company.

The RTM company appealed to the Court of Appeal who addressed each of the issues as follows-

  1. Saturday/Sunday issue

    The RTM company did substantially comply with the requirements. Qualifying tenants were given the right to have a copy of the articles on payment of a modest fee, and there were two validly specified days on which they could be physically inspected. In fact, there was also a third day (albeit not at the weekend). The absence of one day at the weekend for a possible (and probably theoretical) physical inspection of the articles was a trivial failure of compliance.

    A failure by the RTM company to comply precisely with the requirements for a notice of intention to participate does not automatically invalidate all subsequent steps; and the particular failure would not have done so in this case.

  2. Intermediate landlord issue

    The primary persons affected by the acquisition of the right to manage are those with management responsibilities, an important point. It is true that an intermediate landlord with no management responsibilities will lose the sole right to give consents under the lease. But he retains the right to be consulted and also has the right to object. He also retains the right to enforce covenants in the lease (including any rights of forfeiture). 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, simply and cheaply, to acquire the right to manage; and to avoid both duplication of effort and administrative untidiness once it has been acquired. A further concern of the Government, described in paragraph 86 of its consultation paper in 2000 (Commonhold and Leasehold Reform), was that, if the function of granting approvals under a lease remained in the hands of a landlord, there would be:

    “the possibility that an unscrupulous or malevolent landlord might seek to abuse powers over assignment and sub-letting to grant tenancies only to undesirable tenants who would be willing to cooperate in frustrating the right to manage.”

    Consequently the Court of Appeal held that a failure to serve a claim notice on the intermediate landlord of a single flat with no management responsibilities (as defined) does not invalidate the notice.

  3. Signature issue

    The court rejected the argument advanced by the landlord that the signature of Mr. Joiner did not comply with the requirements of the Act. The court went on to say that if it was wrong on the signature issue it would not hesitate to confirm that the consequences of non-compliance were not fatal to the notice’s validity where the Claim Notice was signed by someone actually authorised by the RTM company to sign it.

The significance of the judgment

The judgment indicates that claims for right to manage should not be defeated because there are relatively minor mistakes in the procedure that is being followed.

Paragraph 77 of the judgment is worth noting since it extends an invitation to Government to look into reform in this area –

“I have drawn attention to the Government’s policy that the procedures should be as simple as possible to reduce the potential for challenge by an obstructive landlord. That policy has not been implemented by the current procedures which still contain traps for the unwary. This is, we were told, the third attempt by the RTM company to acquire the right to manage Elim Court. The Government may wish to consider simplifying the procedure further, or to grant the FTT a power to relieve against a failure to comply with the requirements if it is just and equitable to do so. Otherwise I fear that objections based on technical points which are of no significant consequence to the objector will continue to bedevil the acquisition of the right to manage”

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