Elim Court Rtm Company Ltd v Avon Freeholds Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Mrs Justice Proudman,Lady Justice Arden |
| Judgment Date | 23 February 2017 |
| Neutral Citation | [2017] EWCA Civ 89 |
| Docket Number | Case No: C3/2014/4028 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 February 2017 |
[2017] EWCA Civ 89
Lady Justice Arden
Lord Justice Lewison
and
Mrs Justice Proudman
Case No: C3/2014/4028
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (LANDS CHAMBER)
The Upper Tribunal Lands Chamber
LRX252013
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Winston Jacob (instructed by Bar Pro Bono Unit) for the Appellant
Mr Justin Bates (instructed by Scott Cohen Solicitors) for the Respondent
Hearing dates: 15 and 16 February 2017
Approved Judgment
It is a melancholy fact that whenever Parliament lays down a detailed procedure for exercising a statutory right, people get the procedure wrong. This is one such case. The main issues on this appeal from the decision of the Upper Tribunal (Martin Rodger QC, Deputy President) are whether alleged defects in the procedure followed by Elim Court RTM Company Ltd in purported exercise of the no-fault right to manage under the Commonhold and Leasehold Reform Act 2002 resulted in the failure of its attempt to invoke that right. In a closely reasoned decision the UT held that they did. The decision of the Upper Tribunal is at [2014] UKUT 397 (LC); [2015] L & TR 3.
The genesis of the statutory scheme
Parliament first created a right for lessees to ask for a landlord to be stripped of its right to manage blocks of flats in the Landlord and Tenant Act 1987. This required the lessees to establish fault on the part of the landlord. If they succeeded in doing so then the court had the power to appoint a manager whose duties would be specified in the court order. These were usually limited to matters connected with service charges. The process was difficult for lessees and engendered many disputes between landlords on the one hand and lessees on the other.
Following lengthy consultation the Government published a further consultation paper in August 2000: Commonhold and Leasehold Reform. This is the genesis of what ultimately became the right to manage. The Government's view was that the leasehold system was heavily weighted in favour of landlords and that "abuses continue to flourish causing misery and distress to leaseholders." The proposals were:
"…intended to redress the uneven balance between landlords and leaseholders, and give leaseholders a greater degree of control over the management of their homes which reflects the substantial investment they have made. They are also intended to prevent unreasonable or oppressive behaviour by unscrupulous landlords, and would provide flexibility to tackle any new forms of abuse that may arise in the future."
Section 2.1 of the consultation paper explained the thinking behind the right to manage:
"The Government proposes to give leaseholders of flats a new right to take over the management of their building without having to prove shortcomings on the part of the landlord and without payment of compensation. This reflects the fact that the leaseholders normally have by far the greatest financial interest in the building. At present, the freehold of a block of flats can be acquired for a few thousand pounds whereas the value of the flats themselves may be hundreds of thousands of pounds. The Government does not consider it right that landlords should have complete control over management when they hold such a relatively small stake in the building."
In order to ensure democratic management, management functions would be carried out by a defined corporate structure with prescribed memorandum and articles of association. In section 3 Chapter 1 of the consultation paper the Government commented on the process under the Landlord and Tenant Act 1987:
"The process is adversarial and leaseholders may be at a disadvantage against an obstructive landlord who can afford the best professional advice and representation."
Accordingly the Government decided to introduce a right to manage without the need to prove fault. Paragraph 10 of that chapter stated:
"The procedures should be as simple as possible to reduce the potential for challenge by an obstructive landlord. …At the same time, the legitimate interest of the landlord in the property should be properly recognised and safeguarded."
The consultation paper went on to discuss requirements for standardising the memorandum and articles of association of RTM companies. It then discussed the procedure to be followed. There was to be a notice inviting participation; a claim notice served on the landlord and the opportunity for the landlord to serve a counter-notice. In relation to the latter the paper said:
"We propose to provide that a counter-notice could only be served on the grounds of non-compliance with one or more of the specific qualifying criteria. It would be legitimate to object, for example, on the grounds that not enough of the qualifying tenants were members of the company, that the Memorandum and Articles did not meet the prescribed requirements, or that more than 25 per cent of the property was in non-residential use. Vaguer objections, such as suggestions that the company members did not have the resources or skills required to manage the block successfully, would not be legitimate, and such a counter-notice would not be valid. We are concerned that landlords may seek to serve spurious counter-notices, and are considering whether a prescribed form which sets out the grounds for objection might help to prevent this happening."
Although the Government's intention was that the procedures should be as simple as possible, the procedures that have in fact been laid down have not eliminated scope for dispute. As the Deputy President observed in Triplerose Ltd v Mill House RTM Co Ltd [2016] UKUT 80 (LC); [2016] L & TR 23:
"Small and apparently insignificant defects in notices, or failures of strict compliance, are relied on again and again by landlords seeking to stave off claims to acquire the right to manage and to avoid the resulting losses of control and of other benefits."
The statutory scheme
The proposals put forward in the consultation paper eventually found their way into Part 2 Chapter 1 of the Commonhold and Leasehold Reform Act 2002. The two-stage process (invitation to participate followed by claim notice) is what the Act now requires. Section 78 (1) requires the notice inviting participation to be served on all qualifying tenants who are not members of the RTM company and have not agreed to become members. A qualifying tenant is one who holds a long lease; and where there is a chain of long leases of the same flat the tenant who is furthest down the chain is the only qualifying tenant: section 75 (6). The contents of the notice are prescribed by section 78 as follows:
"(2) A notice given under this section (referred to in this Chapter as a "notice of invitation to participate") must—
(a) state that the RTM company intends to acquire the right to manage the premises,
(b) state the names of the members of the RTM company,
(c) invite the recipients of the notice to become members of the company, and
(d) contain such other particulars (if any) as may be required to be contained in notices of invitation to participate by regulations made by the appropriate national authority.
(3) A notice of invitation to participate must also comply with such requirements (if any) about the form of notices of invitation to participate as may be prescribed by regulations so made.
(4) A notice of invitation to participate must either—
(a) be accompanied by a copy of the articles of association of the RTM company, or
(b) include a statement about inspection and copying of the articles of association of the RTM company.
(5) A statement under subsection (4)(b) must—
(a) specify a place (in England or Wales) at which the articles of association may be inspected,
(b) specify as the times at which they may be inspected periods of at least two hours on each of at least three days (including a Saturday or Sunday or both) within the seven days beginning with the day following that on which the notice is given,
(c) specify a place (in England or Wales) at which, at any time within those seven days, a copy of the articles of association may be ordered, and
(d) specify a fee for the provision of an ordered copy, not exceeding the reasonable cost of providing it.
(6) Where a notice given to a person includes a statement under section (4)(b), the notice is to be treated as not having been given to him if he is not allowed to undertake an inspection, or is not provided with a copy, in accordance with the statement.
(7) A notice of invitation to participate is not invalidated by any inaccuracy in any of the particulars required by or by virtue of this section."
The powers contained in section 78 (2) (d) and section 78 (3) were exercised by the Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2010 ("the Forms Regulations"). Equivalent regulations were made for Wales. The Forms Regulations prescribe many additional pieces of information that must be included in the notice of invitation to participate; and also prescribe a form for that purpose. Regulation 8 (1) says that a notice of invitation to participate "shall be in the form set out in Schedule 1". The prescribed form terminates as follows:
"Signed by authority of the company,
[Signature of authorised member or officer]
[Insert date]"
A claim notice is given under section 79. Section 79 (2) provides:
"The claim notice may not be given unless each person required to be given a notice of invitation to participate has been given such a notice at least 14 days before."
Section 79 (6) (a) provides that the claim notice must be given to each person who is:
"landlord under a lease of the whole or any part of the premises"
Section 112 (2)...
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