Last summer, the Supreme Court handed down judgment in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27. The decision considers the consequences of failing to strictly comply with the procedural requirements of the right to manage ("RTM") regime, in circumstances where the governing legislation is silent as to those potential consequences.
Facts and the RTM regime
The proceedings relate to student accommodation in Leicester. The appellant is an intermediate leaseholder of the communal areas of the building with no management responsibilities. The respondent is an RTM company incorporated by the tenants of the building to acquire the right to manage under the Commonhold and Leasehold Reform Act 2002 (the "Act").
The regime is set out in depth in Part 2, Chapter 1 of the Act. In summary, the Act grants tenants the right to take control of the management of their building if certain criteria are satisfied and procedures followed.
Section 79(6) of the Act requires the RTM company looking to acquire the right to manage to serve a claim notice on several specified parties, one of whom is "a landlord under a lease of the whole or any part of the premises" at the relevant date (section 79(6)(a)).
In this case, the respondent failed to serve a claim notice on the appellant (who was a landlord for the purpose of section 79(6)(a) and a person on whom a claim notice should have been served).
The Act does not stipulate what the effect of non-compliance with section 79(6)(a) is.
The Supreme Court's decision
The key question before the court was: what are the consequences of non-compliance with strict procedural requirements where one is seeking to exercise a statutory right?
In answering this question, the court considered several cases, including two of particular importance: Elim Court RTM Company Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89 and R v Soneji [2006] 1 AC 340, where the Court of Appeal and House of Lords respectively determined that non-compliance did not invalidate the claim and order in question.
The present case
In the present case, the Supreme Court dismissed the appellant's appeal and permitted the right to manage to be transferred to the Respondent notwithstanding its failure to serve the claim notice on the Appellant.
However, in doing so, it was critical of the decision in Elim Court. In particular, the court held that it is insufficient to say that one's right to participate in the RTM consultation procedures may be ignored if they are an intermediate landlord with no management responsibility, as had been decided in Elim Court.
The court suggested the correct approach is to:
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firstly, look at the whole structure within which the requirement arises; and
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then ask what consequence of non-compliance best fits the structure as a whole.
The court went on to say that the question to be addressed is whether a relevant party has been deprived of a significant opportunity to have their opposition to the making of an order under the Act considered. Two factors must be borne in mind when considering this question:
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what objections could the relevant party have raised and would have wished to raise; and
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whether the relevant party, despite the procedural omission(s), had the opportunity to have their objections considered in the course of the process leading to the making of the order.
The court found that, in the absence of any substantive objection that the relevant party could have made, or if the relevant party could have made a substantive objection (had there been compliance) but that objection has nonetheless been considered in the process, they have lost nothing of significance so far as the Act is concerned. Therefore, the court held that the inference to be drawn as regards Parliament's intention is that the transfer of the right to manage should be effective notwithstanding the omission.
Wider considerations
Parties should always endeavour to follow the letter of the applicable statutory framework when exercising a statutory right to avoid complications and unnecessary legal cost. However, in circumstances of non-compliance where the framework provides no stipulated consequences, parties can look to the decision in this case for guidance as to the questions to be asked to ascertain whether the non-compliance is fatal.
As regards the Act, the decision will provide comfort to tenants seeking to exercise the statutory right to manage. On the contrary, it may be worrying for landlords who might otherwise seek to challenge an RTM claim solely on procedural irregularities.