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The Upper Tribunal (Lands Chamber) has handed down a crucial judgment on the right to manage with wide-reaching implications for both landlords and tenants, holding that an equitable tenant in the ‘registration gap’ is a “qualifying tenant” and restricting the circumstances in which landlords can mount a procedural objection to an RTM claim. A copy of the judgment is available here.
The first issue concerned whether the lessee under a newly granted long lease, not yet registered at HM Land Registry and therefore effective in equity but not at law, was a qualifying tenant within the meaning of the Commonhold and Leasehold Reform Act 2002. The First-tier Tribunal held that the lessee was a qualifying tenant by reference to section 112(2) of the Act, which defines “lease” as including an agreement for a lease – being an equitable lease. This was challenged by the respondent RTM Company on appeal to the Upper Tribunal, which submitted that “long lease” in section 75 can only be a legal lease.
As argued by the appellant freeholder this is a very important issue with real life consequences, not just of interest to property lawyers. It would be inconsistent with the policy of the legislation to narrow down the availability of qualifying tenant status because that would deprive people of a valuable right. This is particularly the case if delays at HM Land Registry continue. Section 112(2) puts it beyond doubt that these tenants should be included; it is trite law derived from Walsh v Lonsdale (1882) that an agreement for a lease is an equitable lease. An equitable agreement is not necessarily an agreement (or a contract) for a lease, but an unregistered lease during the ‘registration gap’ is nevertheless an equitable lease.
The Upper Tribunal upheld the decision of the FtT on this point, holding that “long lease” in section 75(2) is capable of including both legal and equitable leases. However, this is qualified by the words “where the context permits” in section 112(2). Where there is both a legal lease and an equitable lease (whether in the sense of an agreement for a lease, or of a granted lease that is registrable and has not yet been registered), the context does not permit that the equitable lessee is the qualifying tenant. In those circumstances the qualifying tenant is the legal lessee.
The second issue concerned whether the failure to serve this unregistered lessee, a “qualifying tenant”, with a notice of invitation to participate (“NIP”) invalidated the claim notice served by the respondent RTM Company.
Qualifying tenants are required to be given a NIP (section 78) and a claim notice may not be given unless each person required to be given a NIP has been given that NIP within a specified time period (section 79(2)). The FtT held that the failure to give this equitable qualifying tenant a NIP prior to serving the claim notice did not invalidate the RTM claim. In so holding the FtT did not follow the binding decision of the Upper Tribunal in Avon Ground Rents Limited v Canary Gateway (Block A) RTM Company Limited [2020] UKUT 358 (LC) distinguishing it on the basis that it would be too difficult to identify this equitable tenant.
On appeal the Upper Tribunal held that the FtT was correct in its result, but not for the reasons given. The Tribunal applied the recent Supreme Court decision in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] 3 WLR 601 and held that, even though section 79(2) clearly provides the consequence of failing to serve a qualifying tenant with a NIP, the subject RTM claim was only voidable and not void. The qualifying tenant directly affected by this procedural failure had not herself challenged the validity of the claim, it was the appellant freeholder who sought to take advantage of this. It would not be in accordance with Parliamentary intention to allow a freeholder to challenge the claim on this basis. Only this qualifying tenant could have the claim notice declared void. As she had not, the right to manage is not prevented.
This represents a dramatic change from the law both as stated in Canary Gateway and, arguably, by the Supreme Court in A1 Properties. Historically it has only been where the statute is not clear on a consequence that it is permissible to decide validity or invalidity by reference to considerations of the specific factual circumstances and the statutory scheme as a whole. An example of such a case is the failure to serve all landlords with a claim notice, as addressed in A1 Properties itself. Consequently, it appears that the circumstances in which freeholders can object to the right to manage in future will be dramatically restricted, as presumably they will rarely be the party “directly affected” by a procedural failure in the A1 Properties sense.
Justin Bates KC and Sophie Gibson represented the appellant freeholder.
