7 Strathray Gardens Ltd. v Pointstar Shipping & Finance Ltd & Anor

Whether non-compliance with a statutory notice requirement invalidates the notice depends on the substance, purpose and legislative context of that requirement, rather than on the word “shall” alone. A requirement may be mandatory in some circumstances and directory in others.

A requirement in Leasehold Reform (Collective Enfranchisement) (Counter-notices) (England) Regulations 2002 to state whether premises are within an estate management scheme is self-standing. Where the true answer is that there is no such scheme, omission of the negative statement does not invalidate an otherwise accurate and effective counter-notice. The information is beneficial but not essential to the collective-enfranchisement process, and its omission causes no possible prejudice to the tenant or nominee purchaser.

The tenant-controlled nominee purchaser served a collective-enfranchisement notice under the Leasehold Reform, Housing and Urban Development Act 1993. The freeholders’ counter-notice admitted the claim but omitted the statement required by regulation 4 of the 2002 Regulations as to whether the premises were within an estate management scheme. The premises were not within such a scheme.

HHJ Cooke in the Central London County Court held that the omission made the counter-notice invalid. He therefore held that the nominee purchaser could acquire the interests on the terms proposed in the initial notice. The landlords appealed. The central issue was whether omission of the required negative statement was mandatory, so as to invalidate the counter-notice, or directory only.

1. Appeal allowed. Arden LJ, with whom Jacob LJ and Ward LJ agreed, held that the landlords’ counter-notice remained valid despite omitting the statement that the premises were not within an estate management scheme.

2. Regulation 4 of the Leasehold Reform (Collective Enfranchisement) (Counter-notices) (England) Regulations 2002 was made under section 99(6) of the Leasehold Reform, Housing and Urban Development Act 1993. It was a self-standing requirement. It was not to be read as if inserted into section 21(3), and the judge had therefore erred in treating it as part of the statutory group of requirements in that subsection.

3. The question was the consequence of non-compliance, determined by legislative intention in the context of the statutory scheme. Applying the approach in Petch v Gurney [1994] 3 All ER 731, the court considered the requirement’s substance and purpose. The fact that information was obtainable elsewhere did not alone make a requirement directory. Parliament could require information to be supplied at the notice stage for tenants’ benefit.

4. However, the 2002 Regulations did not supply essential machinery for collective enfranchisement. The discussion material described the information as beneficial, not essential. Regulation 4 imposed two mutually exclusive requirements: a positive statement where a section 70 scheme existed and a negative statement where it did not.

5. The court decided only the latter situation. Omission of a negative statement could not prejudice the tenants or nominee purchaser. A negative statement could even be misleading where a similar scheme under earlier legislation affected the premises. The negative-statement requirement was therefore directory, and its omission did not trigger the consequences under section 25.

6. The Human Rights Act argument did not arise. Arden LJ and Ward LJ expressed no view on a possible damages claim for wasted expenditure. Jacob LJ added, obiter, that such a claim might be available in negligence or for breach of statutory duty.

• Court of Appeal (Civil Division) Allowed the landlords’ appeal and held that the counter-notice was valid despite the omitted negative statement.
• Central London County Court HHJ Cooke, on 12 February 2004, held the counter-notice invalid and entitled the nominee purchaser to acquire the interests on the terms of the initial notice.