The case of Elim Court RTM Company Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89 establishes a new approach in the treatment of technically defective right to manage claims by leaseholders.
The intention of Parliament, as highlighted in Elim, was to create a simple procedure by which qualifying tenants of flats collectively could acquire the management of their building, in order to reduce the potential for challenge by obstructive landlords. What has evolved is the converse. Obtaining the right to manage, which on the face of it, is a no fault, staged procedure, complete with prescribed forms and company articles with no compensation payable, has become riddled with technicalities resulting in invalid claims.
The Elim case goes some way to readdress this balance, reversing the decision of the Upper Tribunal which was perpetuating the strict and technical approach. The case addresses three statutory requirements:
• That the articles of association of the right to manage company (RTM company) should be available for inspection by the qualifying tenants of the claim on a Saturday, Sunday or both;
• The signature requirements of the claim notice, and
• The requirement to serve the claim notice on intermediate landlords.
In considering these points, the Court focussed on the consequences of non-compliance and who would be prejudiced by it. Although potentially far reaching, the judgment is to some extent fact specific.
On the first point, the purpose of providing company articles for inspection by non- members of the company at the weekend, was to allow for inspection outside normal working hours, clearly not something that affects the landlord. A failure to offer such inspection was not considered fatal to the validity of the claim. This was on the basis that a qualifying tenant can become a member of the RTM company at any time on application, the articles are in prescribed form and a copy could be ordered for a fee. Also, in passing, but specific to the case, the place for inspection was 250 miles from the property.
On the second point, the signature requirements of a claim notice are not specified in the legislation other than in the prescribed forms. The forms simply require a signatory authorised by the RTM company. Strict company execution requirements were, therefore, held not to apply and as long as the signatory to the notice was authorised by the RTM company, the claim would be valid.
The third point is more fact specific and should be considered of more limited application. The legislation requires the RTM company to serve all landlords of the premises. The purpose of this is to ensure all those with an interest in the property are aware of the claim and that the management responsibilities will be changing, this being especially relevant where an intermediate landlord of a property has management liabilities under the lease. However in Elim, the Court looked at the circumstances of the intermediate landlord and the consequences of not being served. The Intermediate landlord's interest was over only one flat and they had no management responsibilities. Whilst accepting that the intermediate landlord should have been served, the only consequence to them in the acquisition of the management by the tenants would be the loss of the right to give consents under the lease. The failure to serve them with the claim notice didn't invalidate that notice.
An important statement in the judgment, dictates the approach going forward to some extent, "Where a notice is capable of two interpretations, one of which will lead to the conclusion that it is valid, and the other that it is invalid, the former interpretation should be preferred". The tribunal judges may, therefore, look for a way to validate notices and procedural defects, which may in itself stave off applications from landlords seeking to invalidate claims.
Whilst Elim does not mean that deviation from the detail of the statutory procedure will always be acceptable, it is a step towards ensuring the intended purpose of the right to manage is upheld.
