A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd

Where legislation does not prescribe the consequence of breaching a procedural requirement, the court must identify the consequence which best fits the statutory structure and purpose. It must consider the practical effect of non-compliance, including any lost opportunity, prejudice or injustice.

Under the right-to-manage regime in the Commonhold and Leasehold Reform Act 2002, failure to serve a claim notice on a landlord who could be found or identified makes the transfer voidable at that landlord’s instance, rather than automatically void. The decisive inquiry is whether the landlord lost a significant opportunity to advance a substantive objection. A transfer remains effective where the statutory tribunal process has determined entitlement and the omitted landlord had no unexamined objection of substance. Other stakeholders cannot use an omission affecting that landlord to defeat the transfer.

Tudor Studios RTM Company Ltd sought to acquire the statutory right to manage a student accommodation building. It served claim notices on the freeholder and management company but not on A1 Properties (Sunderland) Ltd, an intermediate landlord of communal areas which was entitled to notice under section 79(6)(a) of the Commonhold and Leasehold Reform Act 2002.

The First-tier Tribunal joined the intermediate landlord and determined that the omission did not invalidate the claim. The Upper Tribunal dismissed the landlord’s appeal in [2023] UKUT 27 (LC), regarding itself as bound by Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89. It granted a leapfrog certificate for an appeal to the Supreme Court.

The issues were whether non-service on a landlord always invalidated the acquisition process and, if not, whether the omission did so on the facts of this case.

1. Disposition. The appeal was dismissed unanimously. Lord Briggs and Lord Sales gave the judgment, with which Lord Hamblen, Lord Leggatt and Lord Stephens agreed.

2. The correct approach was that in R v Soneji [2005] UKHL 49. Where legislation does not expressly state the consequences of procedural non-compliance, the court must construe the statutory scheme as a whole. It must identify the purpose of the requirement and assess the consequences of non-compliance in the particular case, including prejudice and injustice. The former mandatory-directory classification supplies no adequate shortcut. Substantial compliance may describe the result of this analysis, but is not an independent test.

3. Parliament ordinarily intends reasonable certainty in property and contractual rights and a fair opportunity to object before those rights are removed or materially qualified. Those considerations remain part of the wider purposive inquiry. They do not invariably require strict compliance or automatic invalidity.

4. Section 79(7) of the Commonhold and Leasehold Reform Act 2002 covers stakeholders whose existence cannot be discovered as well as known stakeholders whose identity or whereabouts cannot be ascertained. Its test is objective. Where a stakeholder could have been found or identified, the dispensation does not apply, irrespective of whether the failure was inadvertent, negligent or deliberate. The court did not decide the effect of a separately proved deliberate attempt to defeat the statutory machinery.

5. Failure to serve a visible stakeholder under section 79(6) renders the transfer of the right to manage voidable at that stakeholder’s instance, but not void. The transfer is voidable unless and until the tribunal approves it through a route authorised by the statutory scheme. The central inquiry is whether the affected stakeholder lost a significant opportunity to have its opposition considered. This requires attention to the objections it could and would have raised and whether those objections were nevertheless considered.

6. An omission does not invalidate the transfer where the affected stakeholder had no substantive objection, or its objection was considered during the statutory process. Other persons properly served receive no windfall right to rely on an omission affecting somebody else. An affected stakeholder left outside the process may seek declaratory relief or, where appropriate, judicial review in the High Court. Delay, waiver or other unconscionable conduct may defeat the equitable right to avoid.

7. The tribunal had determined every objection available to the appellant, which had also participated in the proceedings. It therefore lost nothing of significance. The result in Elim Court RTM Co Ltd v Avon Freeholds Ltd was correct, but its emphasis on the omitted landlord’s lack of management functions was disapproved. Whether service had been attempted was immaterial. Both Osman v Natt and Elim Court RTM Co Ltd v Avon Freeholds Ltd required qualification accordingly.

1. United Kingdom Supreme Court: In A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27, the court unanimously dismissed the appeal. It affirmed the transfer’s effectiveness but qualified the reasoning in the leading Court of Appeal authorities.
2. Upper Tribunal (Lands Chamber): In [2023] UKUT 27 (LC), the tribunal dismissed the landlord’s appeal, holding itself bound by Elim Court RTM Co Ltd v Avon Freeholds Ltd. It granted a leapfrog certificate for appeal to the Supreme Court.
3. First-tier Tribunal (Property Chamber): By a preliminary decision dated 9 June 2022, the tribunal held that failure to serve the intermediate landlord under section 79(6)(a) of the Commonhold and Leasehold Reform Act 2002 did not invalidate the right-to-manage claim.