Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017]:

Whether minor failures to follow statutory procedure invalidated an RTM claim

The background

The Appellant RTM company served a notice of claim pursuant to the statutory notice procedure set down for the acquisition of the right to manage. The RTM company was established by residents of Elim Court, a block of flats in Plymouth, and notices of invitation to participate together with claim notices were served. The freeholder Respondent served a counter-notice with an objection to the claim within which it stated that the statutory procedure had not been correctly followed.

The Appellant sought determination in the Leasehold Valuation Tribunal, which held in favour of the Respondent, stating that the statutory procedure had not been complied with and therefore the Appellant was not entitled to acquire the right to manage. The Upper Tribunal agreed, and the Appellant brought a further appeal in the Court of Appeal.

The law

Part 2 of the Commonhold and Leasehold Reform Act 2002 contains provisions for the acquisition of the right to manage, including the requirement for a notice of invitation to be served by the company on those qualifying tenants who are not already members. After a period of 14 days, claim notices may be served on parties such as landlords of leasehold interests within the relevant property.

A number of issues were to be determined by the Court of Appeal:

• The Articles of Association of the company must be made available for inspection by those who have received a notice of invitation, and the notice must state where and when they can be inspected or ordered. The parties disputed whether the Articles needed to be made available on a weekend day, as the Appellant’s notice provided only for weekdays. S.78(5) of the CLRA 2002 stated that the notice must: “..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)…”;
• The Respondent claimed that one signatory on the notice had signed as a company and not as an individual; this signature was therefore invalid as to sign on behalf of a company requires the signatures of two directors or for one signature to be witnessed; and
• The Appellant had omitted to serve notice on an intermediate landlord of one of the flats. The intermediate landlord was an equity release company and was not otherwise involved in the management of the property but the Appellant had nevertheless not followed in its entirety the statutory procedure.

The Appellant’s argument centred on the grounds that none of these breaches or omissions were of sufficient seriousness to invalidate its claim.

The third point is of particular interest, and the Court of Appeal referred to the decision in Osman v Natt [2015] which discussed the distinction between:

• cases challenging the decisions of public bodies which often involve consideration of administrative law, public law or judicial review; and
• cases involving the non-compliance by a private body or individual of a statutory requirement.

In its judgment, the Court of Appeal placed the situation in Elim Court in the latter category, meaning that, in principle, the notice is wholly invalid where a statutory procedure is not followed.

The decision

The Court of Appeal held that the Appellant was required to make Articles of Association available on a Saturday or Sunday; tenants who worked during the week needed to have the opportunity to review all relevant information at a time that was convenient for them. The effect of the wording in brackets contained in s.78(5) of the 2002 Act required the party serving notice to make Articles available on a weekend day. However, in this case the Appellant had offered to issue postal copies and the Court concluded that this issue was trivial.

The Respondent’s arguments relating to the signature of the claim form were dismissed. No statutory requirements for the claim form to be signed are contained within the Act and the Court took the view that, where there are two conflicting interpretations regarding the validity of a claim notice, it is preferred to regard the document as valid.

The Court of Appeal, in considering the third point regarding the omission of service on the intermediate landlord, regarded the purpose of the statutory provisions as to allow landlords, third parties to leases and managers to object to the claim, each of whom is likely to hold some responsibility for management of the property. On this basis, failure to serve the notice on the intermediate landlord was not fatal to the Appellant’s claim; the intermediate landlord, in this case of a single property, held no management responsibilities and was unaffected by the right to manage.

The appeal was allowed, entitling the Appellant to acquire rights to manage the property.

JB Leitch comments on the decision:

“The Elim Court case will be of significant interest to landlords of residential developments. It is further evidence that the Courts are likely to adopt a purposive approach to the interpretation of the right to manage legislation and that the Courts are unlikely to allow minor and inconsequential instances of procedural non-compliance to invalidate right to manage claims.”