Failure to Notify Tenant Did Not Invalidate RTM Claim

In a ruling that will be welcomed by leaseholders who are seeking to take over the management of the building in which they live, the Supreme Court has ruled that a failure to comply with procedural requirements in the Commonhold and Leasehold Reform Act 2002 did not invalidate a right to manage (RTM) claim.

Leaseholders of flats in a building containing 20 flats had incorporated an RTM company for the purpose of acquiring the right to manage the premises. The company had failed to give a notice of invitation to participate (NIP) to a leaseholder who was not, and had not agreed to become, a member of the company, as required by Section 78(1) of the Act. However, she agreed to become a member five days after the company gave the freeholder notice of its RTM claim.

The freeholder disputed the RTM company’s entitlement to acquire the right to manage because it had not complied with Section 78(1) and had not given an NIP to all qualifying tenants at least 14 days before giving the claim notice, as required by Section 79(2). The company applied to the First-tier Tribunal (FTT) for a ruling that its RTM claim was valid.

The FTT found that the leaseholder who had not been served the NIP was a qualifying tenant, even though her leasehold title had not been registered until after the claim notice was served. However, the RTM company’s failure to give her an NIP did not invalidate the claim notice. That decision was upheld by the Upper Tribunal (UT) but was subsequently overturned by the Court of Appeal. The Court accepted that the failure to serve one of the qualifying tenants with an NIP within the time limit in Section 79(2) rendered the claim notice void, so that an RTM claim based on it could not succeed. The company appealed to the Supreme Court.

The Court rejected the freeholder’s interpretation of Section 79(2) as meaning that, in the event of non-compliance with Section 78(1), any purported claim notice given is invalid. The Court observed that, if the claim notice were invalid for all purposes, the landlord could not give a valid counter-notice and the RTM company could not invoke the FTT’s jurisdiction to determine its entitlement to acquire the right to manage. Furthermore, the procedural requirements were clearly designed to benefit qualifying tenants. If failing to comply with them resulted in the claim notice being void, the transfer of the right to manage could be defeated by those not intended to benefit. Those considerations supported the view that neither Section 78(1) nor Section 79(2) was intended to affect the validity of the claim notice. That interpretation did not render those provisions toothless, as Section 107 gives the FTT a discretionary power to order compliance.

The Court drew a distinction between the conditions specified in the Act for the entitlement to acquire the right to manage and the procedural steps that must be taken by an RTM company to implement that entitlement. The Court concluded that only objections concerning an RTM company’s satisfaction of the entitlement conditions could be raised by counter-notice. The appeal was allowed.