The approach to non-compliance: Supreme Court unanimously rules that failure to serve a statutory notice on a landlord did not invalidate a right to manage claim

Summary

The Supreme Court has delivered its judgment in the second ever “leapfrog” appeal from the Upper Tribunal (Lands Chamber) in the case of A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27. The Court dismissed the appeal and found that the failure to serve a claim notice on a landlord did not prevent the transfer of the right to manage under the Commonhold and Leasehold Reform Act 2002 (the “CLRA”).

Importantly, the Supreme Court confirmed the appropriate approach in cases of statutory procedural non-compliance, where the statute is silent as to the consequences of the failure. Statutory non-compliance has previously been considered by the Court of Appeal in the case of Elim Court RTM Co Ltd v Avon Freeholds Ltd, which similarly held that failure to serve a claim notice will not always invalidate the RTM company’s acquisition of the right to manage. The judgment upholds the decision in Elim Court but makes notable distinctions from its reasoning and instead confirms the approach developed in public law, chiefly in R. v Soneji [2006] 1 A.C. 340 (HL) (“Soneji”) is the appropriate starting point.

 Background

The residential leaseholders of Tudor Studios sought to exercise rights to manage their building, a former factory converted into student accommodation, pursuant to the CLRA.

This would enable Tudor Studios RTM Company Ltd, the company formed by the leaseholders for this purpose, to “step in” to the shoes of the management company at Tudor Studios and carry out management functions such as insuring the building or carrying out repairs.

The process to exercise this right includes the service of a series of statutory notices, the claim notice being required to be sent to every person who is “a landlord under a lease of the whole or any part of the premises”.

A1 Properties (Sunderland) Limited owned four leases in Tudor Studios, being of the common room, the laundry, the gym and the reception area. Each of the leases is sublet to the current management company. Accordingly, it was a “landlord under a lease of…part of the premises” and should have been served with the claim notice. That notice was not however served upon it and accordingly it contended that the right to manage had not been acquired.

Supreme Court Judgment

Lord Briggs and Lord Sales gave judgment (with whom the other Justices agreed) and found:

• A landlord’s right to participate cannot be dismissed because they are an intermediate landlord with no power of management (and thus the reasoning in Elim Court was incorrect).
• In the absence of express consequences of non-compliance in the relevant legislation, the Court is to consider the structure of the statute and whether any (and what) prejudice may arise from the breach of the procedural requirement.
• The focus of this assessment should be on the person directly affected by the failure and whether they have been deprived of an opportunity to object.  Accordingly, a landlord who has been given such an opportunity cannot rely on a failure to give another landlord that opportunity to argue that the claim should fail.
• The critical point in the case is the First-tier Tribunal had heard the objections to the claim and determined that the claim succeeded. Had the Appellant received notice, the outcome would not have changed and accordingly, it was not prejudiced.
• Parliament did not intend that failure to serve a claim notice on these facts should invalidate the claim to acquire the right.
• The failure to provide a claim notice complying with statute renders the transfer of the right to manage voidable but not void. It is liable to be set aside by the relevant landlord or stakeholder who was entitled to, but did not receive, a claim notice unless and until the tribunal approves the scheme.
• Consideration on whether there has been “substantial compliance” with a statutory requirement is not the correct approach in determining what Parliament intended.
• There is no distinction between the approach in public and private law as the Court applied the statutory construction established in Soneji to assess Parliament’s intention as to the consequences of non-compliance.
• The Courts are to use ‘some caution’ when applying the reasoning in Natt v Osman, which suggested that the Soneji approach can be distinguished in a private law context.

The full judgment can be found here.

CMS comment

The case, although arising from a right to manage claim, is a significant decision on the service of property notices and the effects of non-compliance with statutory procedure to acquire a right in the private law context.

It will be pertinent to all litigants where non-compliance may serve to invalidate a procedure, where the relevant legislation is silent on the effects of non-compliance. The decision may initially be welcomed by tenants seeking to exercise the right to manage as there appears to be less scope for landlords to thwart the transfer of the right on procedural grounds. That said, there will be remaining uncertainty and opportunities for disrupting claims outside of these specific facts. Parliament’s intention under the Soneji approach and the degree of prejudice both being areas where parties may find themselves embroiled in litigation. 

Article co-authored by Preeti Bhavra, Trainee Solicitor at CMS