Right to Manage: Whether shared ownership flats were ‘qualifying tenants’ in an RTM claim (Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Co Ltd – 2023)

Could flats held under shared ownership leases, where owners had not staircased ownership to 100%, be classed as qualifying tenants for the purposes of a Right to Manage claim?

The background
In Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Co Ltd [2023], the subject development comprised two residential blocks in London, of which Avon Ground Rents was the freeholder. Leaseholders in one block, which contained 97 flats, formed an RTM company and wished to acquire the right to manage the block via the statutory mechanism.
17 flats within the block were held on shared ownership leases, of which 5 had staircased to full 100% ownership when the RTM claim was made.
The Commonhold and Leasehold Reform Act 2002 requires that only ‘qualifying tenants’ holding long leases for terms of more than 21 years should be invited to participate in the RTM company and process. Specifically, s.76(2)(e) of the CLRA 2002 states that a shared ownership lease is a ‘long lease’ when the tenant’s total share is 100%.
The freeholder in this application argued that those shared ownership leases where tenants had not staircased to 100% did not constitute long leases, and therefore were not qualifying tenants for the purposes of the CLRA 2002. The First-tier Tribunal and the Upper Tribunal both disagreed, finding that those leases did still qualify because, although the tenant had not staircased to 100%, the lease terms were for more than 21 years. Avon appealed again to the Court of Appeal.

The decision
The Court of Appeal upheld the Upper Tribunal’s decision, dismissing the freeholder’s appeal and finding that a shared ownership lease for a term of more than 21 years, even where the leaseholder had not staircased to the full 100%, fell within the provisions of the CLRA 2002 and as such should be classed as a qualifying tenant.
The RTM company’s argument stated that the CLRA 2002 provisions at s.76(2) defining types of long leases are all means by which a tenant can qualify for the purposes of an RTM claim. A shared ownership lease where the tenant had not staircased to the full 100% could still qualify by a different route, in this case by the lease term exceeding 21 years.
The Court of Appeal agreed.

Advice and action for landlords
The impact of this decision may be far-reaching for landlords and freeholders, bringing many more leaseholders who potentially qualify as a ‘qualifying tenant’ for the purposes of the CLRA 2002 into RTM claims.
Shared ownership leaseholders with leases of over 21 years should be brought into RTM processes by both RTM companies and freeholders, even where staircasing has not reached 100%.