“Voidable…But Not Void’ A New Paradigm for Non-Compliance with Statutory Procedure? (A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co. Ltd – 2023)

In a significant decision, the Supreme Court has this week dismissed an appeal where failure to serve a claim notice on a landlord was found not to invalidate the transfer of the right to take over management of a block of student flats, providing an indication of the trajectory of future decisions approaching non-compliance with statutory procedure.

Background

A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co. Ltd [2023] concerned a block of student accommodation, of which the appellant, A1 Properties, was an intermediate landlord but held no responsibilities for the building’s management. An RTM company was formed by qualifying leaseholders and the RTM claim notice given to the freeholder and management company, but not the appellant.

The management company served a counter-notice, stating that the RTM company had not complied with s.79(6) of the Commonhold and Leasehold Reform Act 2002 as a result of it not having served the claim notice on the appellant. The RTM company applied to the First-tier Tribunal for a determination as to whether RTM rights had been acquired, citing the decision in Elim Court RTM Company Limited v Avon Freeholds Limited [2017] that failure to serve notice on the appellant did not invalidate the RTM claim. The freeholder and management company were joined into the application, as well as the appellant.

The FTT concluded that the appellant’s absence of management responsibilities was a deciding factor, finding that the RTM company’s failure to serve notice on the appellant did not invalidate the claim. A1 Properties appealed to the Upper Tribunal. The Upper Tribunal held that it was bound by the Court of Appeal’s ruling in Elim Court, where it was held that it was not fatal to fail to serve a Claim Notice on an intermediary landlord if they had no management obligation and dismissed the appeal. A1 Properties appealed to the Supreme Court via the “leapfrog” procedure.

The Decision

Crucially, the Supreme Court dismissed the appeal, finding that the failure to serve on A1 Properties was not fatal to the RTM Claim. However, the Supreme Court held that the Court of Appeal’s reasoning in Elim Court was incorrect. Whether a party had management obligations was not the critical factor, the correct question to be addressed was whether a relevant party has been deprived of a significant opportunity to have their opposition to the right to manage considered.

Two things should be considered” (a) what objections they could have raised and would have wished to raise and (b) whether, despite the procedural omission, they in fact had the opportunity to have their objections considered in the course of the process leading to the making of the order to transfer the right to manage”

The Appellant had no objections it would have wished to raise outside of its omission and the Management Company’s counter notice had allowed for its omission to previously be considered. Furthermore, the Appellant’s right to become a member of the RTM Company was not dependent on being given a Claim Notice. The Appellant had not been deprived of any property or contractual rights.

Advice

The reasoning behind Elim Court is no longer good law. Landlords should be mindful before issuing counter notice on the basis of procedural omission if they have not been deprived of the right to have their opposition considered. If there is no objection outside of a procedural omission it is unlikely to be fatal to the RTM Claim.

Summary

The Supreme Court dismissed the appeal, finding that the RTM company’s failure to serve the claim notice on the appellant was not fatal, the appellant had lost nothing of significance. There was no substantive objection they could have raised outside of the procedural omission. The outcome is also significant in that it clearly demonstrates a shift in reasoning when considering strict adherence to statutory requirements in notices. We will continue to watch – and report on – how this decision impacts future decisions on non-compliance with statutory procedure.

Read the decision here: A1 Properties (Sunderland) Ltd (Appellant) v Tudor Studios RTM Company Ltd (Respondent) (nationalarchives.gov.uk)