A shift on RTM procedural compliance – Supreme Court’s landmark decision

Earlier in the summer, the Supreme Court handed down a landmark judgment in the case of A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27. This case considered how the courts should approach non-compliance with statutory rules where the statute is absent of consequences for failure to adhere.

The legislation under the spotlight in this case was the Commonhold and Leasehold Reform Act 2002 (the CLRA 2002). The act permits qualifying leaseholders to acquire the management function of their building by serving notice on their current freeholder, (or relevant intermediate landlord/ management company).

A1 Properties (Sunderland) Ltd were the appellant in this case. They were the intermediate landlord of a block serving as student accommodation. A1 Properties did not hold any management responsibilities. Tudor Studios RTM served its claim notice on the freeholder and the management company of the building but in a deliberate step, not A1 Properties.

The management company who had been served with the notice, objected to Tudor Studios’ claim. Tudor Studios made the decision to apply to the tribunal to have their entitlement determined.

The first-tier tribunal together with the upper tribunal followed the court of appeal’s decision in the case of Elim Court RTM Co Ltd v Avon Freeholders Ltd [2018] QB 571. This case had previously established that parliament’s intention was that the failure to serve notice on a landlord who held no management functions should not invalidate an RTM claim. Although it is acknowledged that often the intermediate landlord may often lose some rights as a result of the claim, the losses would be considered ancillary to the main objective of the legislation, – which is the right for RTM companies to obtain management rights in a cost effective and efficient manner. The purpose of the legislation was not defeated by the failure to serve the claim notice on the intermediate landlord.

A1 Properties appealed the decision of the first-tier tribunal and upper tribunal to the Supreme Court and argued that the earlier case of Elim Court was wrongly decided, or in the alternative, to determine that the intentional non-service of the notice on A1 Properties should invalidate Tudor Studios’ claim.

The Supreme Court dismissed the appeal unanimously and held that the failure to serve the claim notice on A1 Properties did not invalidate Tudor Studios’ claim. The decision in Elim court was upheld, although the reasoning was criticised.  The court opined that where legislation does not provide any specific consequences for non-compliance (as in the case with the CLRA 2002), the court must look at the impact of the failure to comply on the party affected by the procedural omission and consider what consequence of non-compliance is most appropriate. On this basis, a court must be particularly mindful of any loss of opportunity or prejudice caused to a party. A failure to serve a claim notice under section 79(6) deems the transfer of the right to manage “voidable” but not “void”.  This in turns means that the claim will not automatically be invalidated where a procedural error has been established. In this particular case, A1 Properties did not suffer a loss of opportunity to make objections.

Although this particular case deals with a right to manage claim, the decision will potentially have significant implications on the scope of other notices served in property proceedings and in accordance with statutory and contractual rules – especially where consequences for non-compliance are not clear.

The decision will be welcomed by qualifying leaseholders across the country as it will prevent freeholders from being able to fight off an RTM claim strictly due to statutory procedural non-compliance. Landlords should also be mindful that procedural irregularities alone may not be sufficient to challenge the validity of any claim.

How we can help

If you are considering a right to manage claim or you are a landlord who has been served with a notice, please get in touch with the team today.