Bedevilling the Right to Manage – What did Parliament intend? - Dewar Hogan

Bedevilling the Right to Manage

What did Parliament intend?

Bedevilling the Right to Manage – What did Parliament intend?

Bedevilling the Right to Manage – What did Parliament intend?

Last month (February 2017) in Elim Court RTM Co Ltd v Avon Freeholds Ltd, the Court of Appeal expressed concern that the current RTM procedures contain various traps and stated that the Government may wish to consider simplifying the procedure or granting the First Tier Tribunal a power to grant relief in respect of a failure to comply with the requirements if it is just and equitable to do so.  Otherwise, the court pointed out, objections based on technical points which are of no significant consequence to the objector will continue to bedevil the acquisition of the right to manage.

Last year in Triplerose Ltd v Mill House RTM Company, the Deputy President of the Upper Tribunal likewise noted that small and apparently insignificant defects in notices or failures of strict compliance are relied on again and again by landlords seeking to stave off claims to acquire the right to manage and to avoid the resulting loss of control and other benefits.

The Court of Appeal and the Upper Tribunal are telling us in a succession of recent decisions that whilst generally the procedure in a right to manage claim must be strictly adhered to, the consequences of a failure to comply with the statutory provisions have to be considered in the context of what Parliament plainly sought to achieve by the legislation.

Parliament intended to redress the balance between freeholders and lessees by giving the latter a greater degree of control over the management of their homes, in which they had made a substantial investment compared to the relatively small investment a freeholder might have made. Consequently, the right to manage without the need to prove fault was introduced (alongside the already existing route to appoint a manager where the landlord was doing it badly or not at all). However, the procedure Parliament chose was not as simple as it was expected to be and the courts are now becoming increasingly critical of the technical challenges that are more and more frequently being made by freeholders.

In Elim itself, Lord Justice Lewison considered 3 questions:

First, whether the notice was validly signed. While there is no requirement in the legislation for the notice to be signed by the RTM company or indeed by anyone in particular, the prescribed form of notice required a signature by either a member or an officer of the RTM company. In this case the notice had in fact been signed by someone who was an officer of the RTM company, but he had purported to do so not in that capacity but in his capacity as company secretary of another company, which was itself the company secretary of the RTM company. LJ Lewison noted that this argument was ‘technical in the extreme’ and dealt with it robustly. The gentleman was an officer of the RTM company and authorised by that company. He’d signed the notice, and that was that. In general, notices should be construed if possible so as to give them validity.

Secondly, whether the failure to serve a claim notice on an intermediate Landlord (which had no management responsibilities) invalidated the notice. LJ Lewison concluded that it did not. Although the intermediate Landlord will lose the sole right to give consents under the lease it retains the right to be consulted and also the right to object and enforce covenants in the lease. The transfer of an intermediate Landlord’s non-management functions under the intermediate lease is ancillary to the primary objective of the legislation, which is to enable the RTM company, simply and cheaply, to acquire the right to manage.

Lastly, whether non-compliance with the requirement of section 75(5)(b) of the 2002 Act to inform non-participating tenants that the RTM company’s articles of association are available for inspection on 3 days at least one of which must be a Saturday or Sunday was fatal to the whole right to manage procedure or whether it might be overlooked. LJ Lewison concluded that the RTM company had substantially complied with the requirements; the tenants had a right to have a copy for a modest fee, there were two validly specified days on which they could be physically inspected and there was also a third day (albeit not a weekend). Moreover, the provision was for the benefit of the tenants, not for the landlord who was posing as the ‘guardian angel’ of the tenants as part of its fierce resistance to their attempts to obtain the right to manage. LJ Lewison found the absence of one day at the weekend was a trivial failure of compliance and therefore does not automatically invalidate all subsequent steps.

As leaseholders, it is important to get the notice right to minimise the risk of any challenges. Adhering to the strict letter of the legislation is the only way to avoid lengthy and expensive arguments about the validity of notices and compliance with procedures. If there is a challenge to the notice it may be advisable simply to re-serve, perhaps without prejudice to the first notice (unlike the enfranchisement legislation, there is no period for which the tenants need to wait before making a second attempt).

As freeholders, it is important to realise that the Tribunal and the courts are becoming increasingly unsympathetic with technical challenges and therefore the risks of arguing that a notice is invalid are increasing. However, until the government introduces the discretionary power to excuse strict compliance with the procedure technical challenges may still be an effective tool if the landlord is determined to preserve its own management for as long as possible.