Avon Freeholds Limited v Cresta Court E RTM Company Ltd

A lessee under an equitable long lease is a qualifying tenant for the right to manage where no legal lease of the flat exists. Where legal and equitable long leases coexist in different hands, the legal lessee is the sole qualifying tenant.

Failure to give a qualifying tenant a notice of invitation to participate as required by Commonhold and Leasehold Reform Act 2002, section 78, means that no valid claim notice may be given under section 79(2). The resulting defect is nevertheless voidable only at the affected tenant’s instance. A landlord cannot use that tenant’s procedural protection as a windfall objection where the tenant does not challenge the scheme.

The freeholder appealed from the First-tier Tribunal (Property Chamber), which had rejected its challenge to an RTM company’s claim notice concerning Cresta Court. The company had not served a notice of invitation to participate on the lessee of flat 17, whose newly granted 150-year lease had not been registered when the notice and claim notice were served.

The FTT held that the lessee was a qualifying tenant, but that the omission did not invalidate the claim notice because the company did not know of the unregistered lease. The RTM company cross-appealed the first finding.

The central issues were whether an equitable lessee could be a qualifying tenant under the Commonhold and Leasehold Reform Act 2002 and, if so, whether the freeholder could rely on the failure to serve that lessee with a notice of invitation to participate.

1. Appeal dismissed and cross-appeal dismissed. The FTT’s reasoning on the procedural issue could not stand, but its ultimate conclusion was correct.
2. A “lease” for section 75 of the Commonhold and Leasehold Reform Act 2002 may be legal or equitable. Section 112(2), which includes an agreement for a lease, supports that reading. Where a flat is subject only to an equitable lease and that lease satisfies the statutory definition of a long lease, its lessee is the qualifying tenant.
3. The statutory context does not permit an equitable lessee to displace a legal lessee as qualifying tenant. Section 75(5) allows only one qualifying tenant. Treating undiscoverable equitable purchasers or beneficial owners as qualifying tenants whenever a legal lease also exists would make the RTM procedure unworkable. In that situation, the legal lessee is the qualifying tenant.
4. Ms O’Connor held the only lease of flat 17, albeit in equity pending registration. She was therefore a qualifying tenant and was entitled to a notice under section 78.
5. Following A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27, section 79(2) clearly prevents the giving of a valid claim notice until all required notices of invitation have been given at least 14 days earlier. However, the Tribunal declined to follow Avon Ground Rents Limited v Canary Gateway (Block A) RTM Company Limited [2020] UKUT 358 (LC) insofar as it treated the resulting defect as available to any objector.
6. The purpose of the invitation requirement is to protect the qualifying tenant’s opportunity to participate. The claim notice was therefore voidable, rather than wholly void, only at the instance of the tenant who was not served. Ms O’Connor had not challenged the process, had waived the omission, and had become a member of the RTM company. The freeholder could not rely on the omission to defeat the acquisition of the right to manage.

• Upper Tribunal (Lands Chamber): appeal dismissed and cross-appeal dismissed: [2024] UKUT 335 (LC).
• First-tier Tribunal (Property Chamber): held that the unregistered equitable lessee was a qualifying tenant, but that the RTM claim notice was not invalidated by failure to serve her with a notice of invitation to participate: LON/00AJ/LRM/2022/0011.