Lord Justice Lewison:
- It is a melancholy fact that whenever Parliament lays down a detailed procedure for exercising a statutory right, people get the procedure wrong. This is one such case. The main issues on this appeal from the decision of the Upper Tribunal (Martin Rodger QC, Deputy President) are whether alleged defects in the procedure followed by Elim Court RTM Company Ltd in purported exercise of the no-fault right to manage under the Commonhold and Leasehold Reform Act 2002 resulted in the failure of its attempt to invoke that right. In a closely reasoned decision the UT held that they did. The decision of the Upper Tribunal is at [2014] UKUT 397 (LC); [2015] L & TR 3.
The genesis of the statutory scheme
- Parliament first created a right for lessees to ask for a landlord to be stripped of its right to manage blocks of flats in the Landlord and Tenant Act 1987. This required the lessees to establish fault on the part of the landlord. If they succeeded in doing so then the court had the power to appoint a manager whose duties would be specified in the court order. These were usually limited to matters connected with service charges. The process was difficult for lessees and engendered many disputes between landlords on the one hand and lessees on the other.
- Following lengthy consultation the Government published a further consultation paper in August 2000: Commonhold and Leasehold Reform. This is the genesis of what ultimately became the right to manage. The Government's view was that the leasehold system was heavily weighted in favour of landlords and that "abuses continue to flourish causing misery and distress to leaseholders." The proposals were:
"…intended to redress the uneven balance between landlords and leaseholders, and give leaseholders a greater degree of control over the management of their homes which reflects the substantial investment they have made. They are also intended to prevent unreasonable or oppressive behaviour by unscrupulous landlords, and would provide flexibility to tackle any new forms of abuse that may arise in the future."
- Section 2.1 of the consultation paper explained the thinking behind the right to manage:
"The Government proposes to give leaseholders of flats a new right to take over the management of their building without having to prove shortcomings on the part of the landlord and without payment of compensation. This reflects the fact that the leaseholders normally have by far the greatest financial interest in the building. At present, the freehold of a block of flats can be acquired for a few thousand pounds whereas the value of the flats themselves may be hundreds of thousands of pounds. The Government does not consider it right that landlords should have complete control over management when they hold such a relatively small stake in the building."
- In order to ensure democratic management, management functions would be carried out by a defined corporate structure with prescribed memorandum and articles of association. In section 3 Chapter 1 of the consultation paper the Government commented on the process under the Landlord and Tenant Act 1987:
"The process is adversarial and leaseholders may be at a disadvantage against an obstructive landlord who can afford the best professional advice and representation."
- Accordingly the Government decided to introduce a right to manage without the need to prove fault. Paragraph 10 of that chapter stated:
"The procedures should be as simple as possible to reduce the potential for challenge by an obstructive landlord. …At the same time, the legitimate interest of the landlord in the property should be properly recognised and safeguarded."
- The consultation paper went on to discuss requirements for standardising the memorandum and articles of association of RTM companies. It then discussed the procedure to be followed. There was to be a notice inviting participation; a claim notice served on the landlord and the opportunity for the landlord to serve a counter-notice. In relation to the latter the paper said:
"We propose to provide that a counter-notice could only be served on the grounds of non-compliance with one or more of the specific qualifying criteria. It would be legitimate to object, for example, on the grounds that not enough of the qualifying tenants were members of the company, that the Memorandum and Articles did not meet the prescribed requirements, or that more than 25 per cent of the property was in non-residential use. Vaguer objections, such as suggestions that the company members did not have the resources or skills required to manage the block successfully, would not be legitimate, and such a counter-notice would not be valid. We are concerned that landlords may seek to serve spurious counter-notices, and are considering whether a prescribed form which sets out the grounds for objection might help to prevent this happening."
- Although the Government's intention was that the procedures should be as simple as possible, the procedures that have in fact been laid down have not eliminated scope for dispute. As the Deputy President observed in Triplerose Ltd v Mill House RTM Co Ltd [2016] UKUT 80 (LC); [2016] L & TR 23:
"Small and apparently insignificant defects in notices, or failures of strict compliance, are relied on again and again by landlords seeking to stave off claims to acquire the right to manage and to avoid the resulting losses of control and of other benefits."
The statutory scheme
- The proposals put forward in the consultation paper eventually found their way into Part 2 Chapter 1 of the Commonhold and Leasehold Reform Act 2002. The two-stage process (invitation to participate followed by claim notice) is what the Act now requires. Section 78 (1) requires the notice inviting participation to be served on all qualifying tenants who are not members of the RTM company and have not agreed to become members. A qualifying tenant is one who holds a long lease; and where there is a chain of long leases of the same flat the tenant who is furthest down the chain is the only qualifying tenant: section 75 (6). The contents of the notice are prescribed by section 78 as follows:
"(2) A notice given under this section (referred to in this Chapter as a "notice of invitation to participate") must—
(a) state that the RTM company intends to acquire the right to manage the premises,
(b) state the names of the members of the RTM company,
(c) invite the recipients of the notice to become members of the company, and
(d) contain such other particulars (if any) as may be required to be contained in notices of invitation to participate by regulations made by the appropriate national authority.
(3) A notice of invitation to participate must also comply with such requirements (if any) about the form of notices of invitation to participate as may be prescribed by regulations so made.
(4) A notice of invitation to participate must either—
(a) be accompanied by a copy of the articles of association of the RTM company, or
(b) include a statement about inspection and copying of the articles of association of the RTM company.
(5) A statement under subsection (4)(b) must—
(a) specify a place (in England or Wales) at which the articles of association may be inspected,
(b) specify as the times at which they may be inspected periods of at least two hours on each of at least three days (including a Saturday or Sunday or both) within the seven days beginning with the day following that on which the notice is given,
(c) specify a place (in England or Wales) at which, at any time within those seven days, a copy of the articles of association may be ordered, and
(d) specify a fee for the provision of an ordered copy, not exceeding the reasonable cost of providing it.
(6) Where a notice given to a person includes a statement under section (4)(b), the notice is to be treated as not having been given to him if he is not allowed to undertake an inspection, or is not provided with a copy, in accordance with the statement.
(7) A notice of invitation to participate is not invalidated by any inaccuracy in any of the particulars required by or by virtue of this section."
- The powers contained in section 78 (2) (d) and section 78 (3) were exercised by the Right to Manage (Prescribed Particulars and Forms) (England) Regulations 2010 ("the Forms Regulations"). Equivalent regulations were made for Wales. The Forms Regulations prescribe many additional pieces of information that must be included in the notice of invitation to participate; and also prescribe a form for that purpose. Regulation 8 (1) says that a notice of invitation to participate "shall be in the form set out in Schedule 1". The prescribed form terminates as follows:
"Signed by authority of the company,
[Signature of authorised member or officer]
[Insert date]"
- A claim notice is given under section 79. Section 79 (2) provides:
"The claim notice may not be given unless each person required to be given a notice of invitation to participate has been given such a notice at least 14 days before."
- Section 79 (6) (a) provides that the claim notice must be given to each person who is:
"landlord under a lease of the whole or any part of the premises"
- Section 112 (2) defines "lease" as including a sub-lease; and section 112 (3) provides that "landlord" shall be construed accordingly. The claim notice must also be given to each party to such a lease other than the landlord and tenant (e.g. a management company) and also to any manager appointed under the Landlord and Tenant Act 1987. In addition a copy of the claim notice (rather than the notice itself) must be given to every qualifying tenant of a flat: section 79 (8).
- Section 79 (6) provides:
"(7) Subsection (6) does not require the claim notice to be given to a person who cannot be found or whose identity cannot be ascertained; but if this subsection means that the claim notice is not required to be given to anyone at all, section 85 applies."
- Section 85 applies where the RTM company "cannot find, or ascertain the identity of, any of the persons to whom the claim notice would be required to be given by [section 79 (6)]". In that event the RTM company may apply to the First Tier Tribunal ("the FTT"), formerly the Leasehold Valuation Tribunal, for an order that it is to acquire the right to manage.
- The Forms Regulations also prescribe a form for the claim. Regulation 8 (2) says that claim notices "shall be in the form set out in Schedule 2". As in the case of the notice of invitation to participate it terminates:
"Signed by authority of the company,
[Signature of authorised member or officer]
[Insert date]"
- An RTM company is defined in section 73 (unfortunately the Act refers to it by the unpronounceable abbreviation "a RTM company"). The appropriate authority has a duty to make regulations about the form and content of its articles of association; and the RTM company may adopt those regulations as its articles of association: section 74 (2) and (3). But the regulations may provide that the prescribed articles have effect whether or not they are adopted by the RTM company: section 74 (4). A provision in the RTM's articles of association that is inconsistent with the regulations has no effect: section 74 (5). Regulations prescribing the contents of the articles of association of an RTM company are contained in the RTM Companies (Model Articles) (England) Regulations 2009. Equivalent regulations for Wales were made in 2011. Regulation 2 (1) provides:
"The articles of association of a RTM company shall take the form, and include the provisions, set out in the Schedule to these Regulations."
- Section 81 (2) provides (in summary) that if members of the RTM company named in the claim notice are not qualifying tenants, that does not invalidate the notice provided that there were enough members of the RTM company who were qualifying tenants on the relevant date.
- The persons upon whom the claim notice has been served (and no one else) are entitled to serve a counter-notice: section 84 (1). Since qualifying tenants are only given a copy of the claim notice, rather than the notice itself, they are not entitled to serve a counter-notice. The counter-notice will either admit the RTM company was entitled to acquire the right to manage or it will allege:
"that, by reason of a specified provision of the Chapter, the RTM company was not … so entitled."
- If a counter-notice denying the RTM company's right to manage is given, the RTM company may apply to the FTT (or in Wales the LVT) to determine its entitlement: section 84 (3). If no counter-notice is given, or all counter-notices admit the right, the RTM company acquires the right to manage automatically: section 90 (2), (3). In other words there must be unanimity that the RTM company is entitled to acquire the right to manage or a determination to that effect by the FTT. In the event that the procedure has been correctly followed, management functions which a person who is landlord under a lease of the whole or any part of the premises has under the lease are instead functions of the RTM company: section 96 (2). In addition the RTM company will be the person who grants approval under the leases to such things as assignments or subletting and the making of alterations (section 98) and, concurrently with the landlord, enforcing covenants in the leases (section 100).
The facts
- I can take the facts from the decision of the Upper Tribunal. Elim Court is a block of flats at Elim Terrace, Plymouth. Elim Court RTM Company Ltd is an RTM company established to acquire the right to manage Elim Court. The Right to Manage Federation Ltd is its company secretary, although when acting in that capacity it employs the trading name "RTMF Secretarial". Mr Dudley Joiner is a director of that company. Avon Freeholds Ltd owns the freehold interest in Elim Court.
- On 23 May 2012 the RTM company served notices of invitation to participate on those qualifying tenants of Elim Court who were not already members. The notice was in a statutorily prescribed form. Paragraph 2 of the notice was in the following terms:
"The Company's Articles of Association may be inspected at RTMF Secretarial, Eden House, Riverway, Uckfield, East Sussex, TN22 1SL between 10am and midday on Monday 28 May, Tuesday 29 May and Wednesday 30 May 2012 (see Note 2 below). At any time within the period of 7 days beginning with the day after this notice is given, a copy of the Articles of Association may be ordered from RTMF Secretarial, on payment of a fee of £5 (see Note 3 below)."
- Note 2 (which is part of the prescribed form) stated that the times specified for inspection must be periods of at least 2 hours on each of at least 3 days (including a Saturday or Sunday or both). Uckfield is nearly 250 miles from Plymouth.
- The notices of invitation to participate were served on the tenants of all 40 flats at Elim Court. The certificate of posting relied on by the RTM company to prove service records that the material sent to flat 37 was addressed to "Simmons & ReAssure". The reference to "ReAssure" was to a life issurance company, formerly known as Windsor Life Assurance Company Ltd, which holds an intermediate long lease of flat 37 granted on 2 July 2009.
- On 3 June 2012 the RTM company served a claim notice on Avon Freeholds Ltd in the form required by the 2010 regulations. It was signed by Mr Joiner in the following form:
"Signed by authority of the company -
[manuscript signature of Mr Joiner]
RTMF Secretarial, Company Secretary."
- Avon Freeholds Ltd served a counter-notice disputing the RTM company's entitlement to acquire the right to manage on a number of different grounds. These included:
i) That the notices of invitation to participate failed to comply with section 78(5)(b) of the 2002 Act because the company's Articles of Association were not said to be available for inspection on a Saturday, a Sunday or both.
ii) That the claim notice was invalid because the signature by RTMF Secretarial did not comply with section 44 of the Companies Act 2006.
iii) That the claim was invalid because no claim notice had been given to ReAssure, which was a landlord of flat 37 and therefore, by virtue of section 79(6) of the 2002 Act, was a party to whom the claim notice ought also to have been served.
- By a decision given on 19 September 2012 a Leasehold Valuation Tribunal of the Southern Rent Assessment Panel determined that the RTM company had not acquired the right to manage. The LVT agreed that the notice of invitation to participate had failed to comply with section 78(5)(b) which it took to be mandatory. That provision not having been complied with, and for that reason alone, the procedure adopted by the RTM Company did not follow the statutory requirements and its claim failed.
- The LVT did not accept that the claim notice had been inadequately signed. It was satisfied that Mr Joiner had had the authority of the RTM company to sign the notice and it considered that to be sufficient. At paragraph 57 of its decision it said this:
"The standard claim form does not require the person signing it to state their capacity, and the fact that Mr Joiner had identified himself as being associated with RTMF Secretarial, the company secretary, was unnecessary. Had he signed the form without noting his position then there would have been no question about the adequacy of his signature, and it seems unreasonable to conclude that the addition of that information should render the signature, and so the form, invalid."
- As to the service of the claim notice on the intermediate landlord the LVT was satisfied that the notice had not been received by ReAssure but held in paragraph 63 of its decision that:
"Whilst it would undoubtedly have been better to have sent such a notice to the company's address as shown on the Land Registry Title Certificate, it is reasonable to assume that there would have been some obligation on the occupiers under the occupational lease to forward a copy to the company, and any failure to do so would not have been the responsibility of the applicant."
- On that basis the LVT held that the claim to acquire the right to manage had not been invalidated by a failure to serve the intermediate landlord.
- The UT considered three issues:
i) Whether a notice inviting participation is required by section 78(5)(b) of the 2002 Act to inform non-participating tenants that the RTM company's articles of association are available for inspection on 3 days at least one of which must be a Saturday or Sunday, and, if that question is answered affirmatively, whether the consequence of non-compliance with the requirement is fatal to the whole right to manage procedure or may be overlooked ("the Saturday/Sunday issue").
ii) Whether the disputed claim notices purported to be signed by a company and, if they did, whether that signature was ineffective for failing to comply with section 44, Companies Act 2006; if the signature was ineffective, whether the notice was nonetheless a good notice for the purpose of section 79 of the 2002 Act and, if it was not, whether its deficiencies were fatal to the whole procedure or might be overlooked ("the signature issue").
iii) Whether the claim notice at Elim Court was served on the intermediate landlord and, if it was not, whether service on the intermediate landlord was required and, if it was, whether the failure to serve the intermediate landlord was fatal to the whole right to manage procedure or whether the deficiencies in service could be overlooked ("the intermediate landlord issue").
- The UT concluded:
i) On the Saturday/Sunday issue that the notice inviting participation was required to offer facilities for inspection on a Saturday or Sunday.
ii) On the signature issue that the claim notice was validly signed by Mr Joiner.
iii) On the intermediate landlord issue that service of the claim notice on the intermediate landlord was a necessary step; and that it had not been served.
- The UT went on to consider the consequences of non-compliance. It held:
i) The failure to offer facilities for inspection on a Saturday or Sunday was fatal to the validity of the notice inviting participation and that failure alone precluded the RTM company from claiming the right to manage.
ii) The failure to serve the claim notice on the intermediate landlord was likewise fatal to the validity of the claim.
- Accordingly the RTM company had not been entitled to acquire the right to manage.
The Saturday/Sunday issue
- The UT's reasoning on the Saturday/Sunday issue was as follows:
"40. On examination of the words of section 78(5) I note in particular that any 7 day period starting with the date on which a notice is given will necessarily contain both a Saturday and a Sunday. If the words "including a Saturday or Sunday or both" were omitted, there would be no possibility of doubt that the opportunity for inspection could be made available on any of those 7 days, including both working days and days at the weekend. The words cannot therefore have been included to provide "clarification" that inspection at the weekend was permissible and their only purpose can have been to restrict the freedom of the RTM company to make inspection available on days of its choosing.
41. The reason for that restriction is obvious: it is to ensure that all tenants have a realistic opportunity to inform themselves concerning the constitution of the RTM company in which they are being invited to participate. The inclusion of a Saturday or a Sunday promotes that objective by making it more likely that tenants who work on the usual working days will be able to inspect the documents personally. The statutory language is inept if its purpose was to make clear that the days selected for inspection may include non-working days. Had that been the intention the draftsman would surely have said so specifically or, at the very least have included the reference to Saturday's or Sunday's in a different place i.e. "on each of at least 3 days within the 7 days (including the Saturday and Sunday) beginning with a day following that on which the notice is given."
- The UT did not give Elim permission to appeal against this conclusion; but the application for permission to appeal was made (or renewed) before us.
- Mr Jacob, appearing pro bono for Elim (for which I am very grateful), argued that the words "including a Saturday or Sunday or both" were merely permissive. This was the view that had been taken by the LVT in Farnborough Road (Calloway House) RTM Co Ltd v Sinclair Gardens Investments (Kensington) Ltd (1 May 2013). First, the words "including a Saturday or Sunday or both" appeared in parentheses which is a common way of designating matters of secondary importance. Second, there are no imperative words within the parenthesis such as "must" or "at least." The Act might have said, for example, "which must include a Saturday or Sunday or both" or "including at least one day on the weekend." Although it may be that the opportunity to inspect the articles of association at the weekend could be seen to be for the benefit of the qualifying tenants, it was also in the interest of the RTM company, allowing it the flexibility of permitting inspection at the weekend if it wished to.
- Attractively as those submissions were presented I would reject them. Within section 78 (5) is the requirement that the notice of invitation to participate must specify a place "(within England and Wales)" where the articles may be inspected. It cannot be doubted that the offer of a place of inspection outside England or Wales would fail to comply with that requirement. It must, I think, be accepted that in the case of many blocks of flats it may be more convenient for inspection to take place outside England and Wales. If qualifying tenants of a block of flats in Morpeth are offered a place of inspection in Edinburgh rather than Penzance they may well prefer the former to the latter. But the words of the statute are, in my judgment, clear. So I do not think that any weight can be given to the fact that the disputed words appear in parentheses. Nor do I consider that the absence of imperative words within the parentheses themselves is significant. The whole of section 78 (5) is governed by the word "must" which appears before the lettered paragraphs. The parenthesis in section 78 (5) is immediately preceded by the phrase "at least" which in my view also governs the parenthesis. If, for example, qualifications for an educational course require "at least five GCSEs (including Maths and English)" I do not think that it would be understood as meaning that Maths and English were optional. I cannot see any justification for departing from the ordinary and natural meaning of the words.
- I agree with the UT that the purpose of the requirement to include a Saturday or Sunday is to facilitate inspection of the articles by working tenants. I agree also with the UT that any period of seven days would necessarily have included a Saturday and a Sunday; and that without the parenthesis it would have been optional for the RTM company to have offered facilities for inspection on one or other (or both) of those days. The purpose of the parenthesis must, therefore, have been to restrict that freedom.
- Although I would grant permission to appeal on this question I would dismiss this ground of appeal. I will consider the consequences of this non-compliance in due course.
The intermediate landlord issue
- The UT's conclusion that the claim notice ought to have been served on ReAssure as an intermediate landlord of flat 37 is not challenged. The only issue is what consequences attach to that failure.
The signature issue
- The UT held that signature of the claim notice by Mr Joiner was compliance with the statutory requirements which did not require that the claim notice be signed by the RTM company itself. The prescribed form of claim notice (which is the only place where a requirement of signature is to be found) simply required that the notice be signed "by authority of" the RTM company. By a Respondent's Notice Mr Bates, who is a seasoned warrior in the trench warfare over the right to manage, sought to uphold the ultimate decision that Elim was not entitled to acquire the right to manage by reviving the unsuccessful argument that Mr Joiner's signature was inadequate compliance.
- The argument presented by Mr Bates is technical in the extreme. Section 79 (3) requires that the claim notice must be given by the RTM company. As Sir Stanley Burnton said in Newbold v Coal Authority [2013] EWCA Civ 584, [2014] 1 WLR 1288 at [58]:
"If I ask my personal assistant to type up a notice to quit in my name, and to post it, the notice is given by me, not by my personal assistant. If I ask her to sign it in my name or expressly on my behalf, and to post it, it remains a notice given by me. It is not a notice given by her."
- There is no requirement in the Act itself that a claim notice be signed by the RTM company. Nor is there any such explicit requirement in the Forms Regulations. Indeed there is no explicit requirement that the claim notice be signed by anyone in particular. The existence of such a requirement is therefore inferential. The argument thus fastens on the words in the prescribed form:
"Signed by authority of the company,
[Signature of authorised member or officer]"
- Within the square brackets, so runs the argument, there are only two classes of authorised signatories: (a) an authorised member of the company and (b) an authorised officer of the company. Mr Joiner was not a member of the RTM company. It was not in dispute before the UT that Mr Joiner was in fact authorised to sign the claim notice on behalf of the RTM company. It was however, accepted both in the LVT and the UT that Mr Joiner was a director of the RTM company (LVT at [50] and [56]; UT at [55]) and hence was an officer of the RTM company. Mr Bates confirmed that before us.
- But the alleged defect is that Mr Joiner was not the company secretary. The company secretary was itself a company (The Right to Manage Federation Ltd). It follows, that in order for that authorised officer of the RTM company to have signed the notice The Right to Manage Federation Ltd itself must have signed it. Mr Joiner was no more than a director of the officer of the RTM company. Consequently his signature alone was not enough because it did not satisfy the requirements of section 44 of the Companies Act 2006. Since he purported to sign the notice on behalf of The Right Manage Federation Ltd, the notice must be treated as not having been signed by an authorised officer of the RTM company.
- The UT dealt with that issue as follows:
"In the Elim Court case the position is a little more complicated because the words which appear after Mr Joiner's name are "RTMF Secretarial, Secretary". It is less easy to regard those words as a description of Mr Joiner himself and they suggest that he was signing as a representative of RTMF Secretarial. No indication is given in the claim notice as to who or what RTMF Secretarial is and in particular it is not obvious that it is a limited company. In fact RTMF Secretarial is a trading name of Federation Limited which was the company secretary of the Elim Court RTM Company. As Mr Joiner's signature neither purported to be that of a company, nor could as a matter of law be that of a company, I accept Mrs Mossop's argument that the claim notice was in fact signed by an individual, Mr Joiner, who was an authorised member or officer of the RTM Company, authorised to give the claim notice on its behalf."
- I reject this argument for the same reasons as the UT rejected it. In addition, where a notice is capable of two interpretations, one of which will lead to the conclusion that it is valid, and the other to the conclusion that it is invalid, the former interpretation should be preferred.
The consequences of non-compliance
(a) The general approach
- I do not think that it can be seriously questioned that the courts have moved away from classifying statutory requirements as either "mandatory" or "directory." As Etherton C observed in Natt v Osman [2014] EWCA Civ 1520; [2015] 1 WLR 1536 at [25]:
"That approach is now regarded as unsatisfactory since the characterisation of the statutory provisions as either mandatory or directory really does no more than state a conclusion as to the consequence of non-compliance rather than assist in determining what consequence the legislature intended."
- Natt v Osman is the most recent authoritative consideration of the applicable principles. It is binding on us for what it decided. In analysing the cases Etherton C drew a distinction between two broad categories at [28]:
"(1) those cases in which the decision of a public body is challenged, often involving administrative or public law and judicial review, or which concern procedural requirements for challenging a decision whether by litigation or some other process, and (2) those cases in which the statute confers a property or similar right on a private person and the issue is whether non-compliance with the statutory requirement precludes that person from acquiring the right in question."
- In the first category, substantial compliance could be good enough. But in the second category he said at [31]:
"The Court of Appeal cases show a consistent approach in relation to statutory requirements to serve a notice as part of the process for a private person to acquire or resist the acquisition of property or similar rights conferred by the statute. In none of them has the court adopted the approach of "substantial compliance" as in the first category of cases. The court has interpreted the notice to see whether it actually complies with the strict requirements of the statute; if it does not, then the court has, as a matter of statutory interpretation, held the notice to be wholly valid or wholly invalid."
- The outcome in such cases does not depend on the particular circumstances of the actual parties, such as the state of mind or knowledge of the recipient or the actual prejudice caused by non-compliance on the particular facts of the case: see [32]. The intention of the legislature as to the consequences of non-compliance with the statutory procedures (where not expressly stated in the statute) is to be ascertained in the light of the statutory scheme as a whole: see [33]. Where the notice or the information which is missing from it is of critical importance in the context of the scheme the non-compliance with the statute will generally result in the invalidity of the notice. Where, on the other hand the information missing from the statutory notice is of secondary importance or merely ancillary, the notice may be held to have been valid: see [34]. One useful pointer is whether the information required is particularised in the statute as opposed to being required by general provisions of the statute. In the latter case the information is also likely to be viewed as of secondary importance. Another is whether the information is required by the statute itself or by subordinate legislation. In the latter case the information is likely to be viewed as of secondary importance. In this connection it must not be forgotten that while the substantive provisions of a bill may be debated clause by clause, a draft statutory instrument is not subject to any detailed Parliamentary scrutiny. It is either accepted or rejected as a whole. A third is whether the server of the notice may immediately serve another one if the impugned notice is invalid. If he can, that is a pointer towards invalidity.
- The first issue that arises under this head is whether a claim notice which, if effective, would transfer the right to manage from the landlord to the RTM company falls within the first or the second of the two broad category of case to which Etherton C referred, or whether it falls outside each of those categories. Mr Jacob referred us to the decision of the FTT in Upcross Gardens 10-28 RTM Co Ltd v Wallace Estates Ltd CAM/ooMC/2015/0012 in which the FTT held (although without any significant reasoning) that a right to manage case did not fall within the second of the two categories. It is, I think, clear that the acquisition of the right to manage falls outside the first category as formulated by Etherton C because it is not a challenge to a decision of a public authority. It is a right asserted against a private person. Although it does not involve the acquisition of a property right, the formulation of the second category of case extends to "similar" rights.
- In Triplerose Ltd v Mill House RTM Company [2016] UKUT 80 (LC), [2016] L & TR 23 the UT (Martin Rodger QC, Deputy President) considered this question. At [12] he pointed out the consequences of the acquisition of the right to manage:
"…the acquisition of the right to manage affects not only the members of the RTM company but also qualifying tenants who are not members, their immediate and superior landlords, managing agents and contractors engaged to undertake the management of the premises or to provide other services. On the acquisition of the right to manage each of these categories of interested party loses the benefit of contractual rights without compensation, and, in the case of tenants, agents and contractors, without the right to be informed of, or to be joined as a party to, the RTM company's claim before the tribunal for a determination of its entitlement to acquire the right. If the procedural requirements laid down by the 2002 Act are properly implemented the right to manage is acquired by operation of law, and the entitlement to custody of substantial sums of money and the responsibility for the performance of important obligations are transferred to the RTM company. It is therefore apparent that if there is any doubt or uncertainty about the procedural integrity of a right to manage claim, significant problems may arise in the management of premises."
- Having referred to a number of cases including Natt v Osman the Deputy President said at [33]:
"It seems to me to be quite clear that the acquisition of the right to manage under the 2002 Act falls into the second category of procedures considered by the Chancellor in Natt v Osman i.e. those which confer a property or similar right on a private person, for which compliance with the strict requirements of the statutory scheme is essential and substantial compliance is simply not good enough. Although it is true that no interest in land is created or transferred by the acquisition of the right to manage, the same policy of providing certainty in relation to the existence, acquisition and transfer of property interests is fully engaged in the circumstances I have described in paragraph 12 above."
- I agree. However, it does not follow that if a case falls within the second category every defect in a notice or in the procedure, however, trivial, invalidates the notice. As Etherton C pointed out even if there is no principle of substantial compliance the court must nevertheless decide as a matter of statutory construction whether the notice is "wholly valid or wholly invalid". In considering the question of validity, although the court should not inquire into the question whether prejudice had been caused on the particular facts of the actual case (Osman at [32]) that does not mean that prejudice in a generic sense is irrelevant. 7 Strathray Gardens Ltd v Pointstar Shipping & Finance Ltd [2004] EWCA Civ 1669, [2005] HLR 20, is an example of a case falling within the second category where a failure to comply with the literal requirements of regulations was not fatal to the validity of a counter-notice. The point in that case was whether a counter-notice was defective on account of a failure to say whether the property in question was or was not included in an estate management scheme. In fact it was not. Arden LJ said at [52]:
"In certain circumstances it requires a negative statement. In other circumstances it requires a positive statement. In my judgment, a mere negative statement cannot have been intended to be mandatory. There can be no possible prejudice to the tenants or their nominee purchaser if that information is excluded. On the other hand, it is possible to think of a situation where the inclusion of a negative statement could be actually misleading and thus potentially prejudicial to tenants, and that situation is where there is a scheme, similar in effect to an EMS, affecting the premises under earlier legislation, for example the Leasehold Reform Act 1967."
- Newbold v Coal Authority was also treated in Osman as a category 2 case: Osman at [31]. In Newbold Sir Stanley Burnton said at [70]:
"Finally, it may be that even non-compliance with a requirement is not fatal. In all such cases, it is necessary to consider the words of the statute or contract, in the light of its subject matter, the background, the purpose of the requirement, if that is known or determined, and the actual or possible effect of non-compliance on the parties."
- Nothing in Osman casts any doubt on this approach. In this case it must also be recalled that the persons (and the only persons) entitled to object to the exercise of the right to manage are the landlord (or landlords), a party to a lease who is neither landlord nor tenant, or a court appointed manager. As Mr Jacob submitted, in the majority of cases these are persons who are likely to have management responsibilities in the sense defined in section 96 (5). In the light of the general policy described in the consultation paper, the focus must be on whether Parliament intended that a landlord (or other person entitled to serve a counter-notice) could successfully contend that the defect in the relevant notice was fatal to its validity.
- Mr Bates argued forcefully that landlords need certainty. Their interests are immediately affected, and one result of the acquisition of the right to manage may be that they have to hand over large amounts of money in the shape of uncommitted service charges to the RTM company. They cannot take the risk that many years down the line someone will challenge the validity of the acquisition of the right to manage. There is undoubted force in this argument but it cannot be carried too far. Taken to its logical conclusion it would mean that any deviation from a prescribed procedure would invalidate the whole procedure. But it is clear from Osman, where the category 2 cases are all cases in which the policy of providing certainty justifies the requirement of precise compliance (see Osman at [32]), that not every failure to comply invalidates the notice or procedure as the case may be. Moreover in a case, like this one, where a dispute is resolved through the process laid down by the Act the outcome of the dispute will itself provide certainty. Lastly, there may be a distinction to be drawn between a failure to satisfy jurisdictional or eligibility requirements on the one hand, and purely procedural requirements on the other. That was certainly part of the Government's policy as set out in the consultation paper which said at para 52:
"We propose to provide that a counter-notice could only be served on the grounds of non-compliance with one or more of the specific qualifying criteria. It would be legitimate to object, for example, on the grounds that not enough of the qualifying tenants were members of the company, that the Memorandum and Articles did not meet the prescribed requirements, or that more than 25 per cent of the property was in non-residential use. Vaguer objections, such as suggestions that the company members did not have the resources or skills required to manage the block successfully, would not be legitimate, and such a counter-notice would not be valid."
(b) The Saturday/Sunday issue
- It might be questioned what the purpose is of the right to carry out a physical inspection of the RTM company's articles of association given that:
i) They must be in a prescribed form; and
ii) The recipient has the right to obtain a copy of them on payment of a modest fee.
- Mr Bates suggested that one reason might be that a qualifying tenant might wish to check the extent of the premises in question. However, the model articles require no more than the name and address of the premises to be given, and that information is contained in the invitation to participate itself.
- Although it may not be legally relevant, on the facts of this particular case it is difficult to imagine why anyone would make a round trip of nearly 500 miles to inspect the articles personally rather than paying £5 for a copy.
- It might also be questioned what difference it makes to the landlord (who is the only person objecting) whether or not a potential member of the RTM company has or has not had the opportunity to inspect the articles of association provided that, when the claim notice was served, there were in fact sufficient qualifying tenants who were members of the RTM company to make it eligible to claim the right to manage. Section 81 (2) of the Act gives a steer in that direction. It is quite unrealistic to view a landlord who fiercely resists the acquisition of the right to manage as being in some way the guardian angel of the qualifying tenants.
- In addition article 26 of the prescribed articles of association provides that any qualifying tenant may apply to become a member of the RTM company. Article 26 (6) says that upon the directors' being satisfied as to a person's application and entitlement to be a member they must register that person as a member of the company. Thus even if a potential member of the company has not received a notice of invitation to participate in the correct form he or she can apply later to become a member of the RTM company either when given a copy of the claim notice or at any time thereafter; and the directors have no power to refuse the application. Since a landlord may also become a member of the RTM company after it acquires the right to manage, Parliament clearly envisaged that the number of members of the RTM company may change with the passage of time.
- At [99] the UT attached some importance to section 78 (6) which treats the notice inviting participation as not having been given in certain circumstances. However, that consequence only arises where the tenant has not been allowed to inspect or given a copy of the articles of association "in accordance with the statement" (i.e. in accordance with the statement in the notice inviting participation). In other words, the consequence applies only where the RTM company fails to do what it has said it will do. I would not place reliance on that sub-section in deciding what consequences follow from a failure to comply fully with the requirements of section 78 (4) (b).
- As Mr Jacob submitted the RTM company did substantially comply with the requirements. Qualifying tenants were given the right to have a copy of the articles on payment of a modest fee, and there were two validly specified days on which they could be physically inspected. In fact there was also a third day (albeit not at the weekend). The absence of one day at the weekend for a possible (and probably theoretical) physical inspection of the articles was, in my judgment, a trivial failure of compliance.
- I would therefore hold, in respectful disagreement with the UT, that a failure by the RTM company to comply precisely with the requirements for a notice of intention to participate does not automatically invalidate all subsequent steps; and the particular failure would not have done so in this case.
(c) The signature issue
- If I am wrong about the signature issue, I would have no hesitation in saying that the consequences of non-compliance are not fatal to the validity of the notice if the claim notice is signed by someone who is actually authorised by the RTM company to sign it. As I have said, there is no requirement for signature in the Act itself; nor is there any such explicit requirement in the Forms Regulation. I do not accept that if there is an inferential requirement contained within the rubric of the prescribed form Parliament must have intended a failure to comply precisely with that requirement would invalidate the notice.
(c) The intermediate landlord issue
- Mr Bates' argument, which succeeded before the UT, was that an intermediate landlord is one of the class of person entitled to serve a counter-notice objecting to the exercise of the right to manage. Although the grounds upon which an objection can be sustained are very limited, a failure to serve an intermediate landlord deprives him of that statutory right. Absent the service of a counter-notice the RTM company automatically acquires the right to manage. This applies not only to management functions as defined in section 96 (5) but also to the right to give consents under provisions of the intermediate lease. Accordingly even though a particular intermediate landlord may not have management functions relating to the repair, maintenance or insurance of the block there are still potentially important rights of which it would be at least temporarily divested.
- The UT drew attention to another feature of the statutory scheme at [105]:
"The second important feature of the scheme, in this regard, is the provision which has been included in section 79(7) and section 85 for protecting the interests of landlords who cannot be found or whose identity cannot be ascertained. No notice of claim is required to be served on such a landlord, but an application must be made to the first-tier tribunal which will consider the procedure which has been adopted and satisfy itself of the integrity of the claim. Parliament clearly did not intend that a claim should succeed without any external scrutiny. It would be inconsistent with that approach for a claim to succeed in circumstances where a landlord of part of the premises, whose identity and interest are apparent from information publicly available at the Land Registry, has no knowledge of the making of the claim."
- However, in my judgment the UT misdescribed the nature of this aspect of the statutory scheme. Section 79 (7) applies where the effect of landlords being untraceable means that the claim notice is not required to be "given to anyone at all". It does not apply where a claim notice is given to some landlords but not others. Likewise section 85 applies only where the RTM company cannot find "any of the persons" to whom the claim notice should be given. We must take it, therefore, that the mere fact that a claim notice was not given to all those entitled to receive one would not invalidate the claim notice without more. I do not therefore agree with the UT that there is inconsistency between a claim succeeding where the claim notice has not been served on all those entitled to receive one and the provisions applicable where no one has been served. Parliament has specifically considered the case in which, at least in some circumstances, a claim notice has been given to some landlords but not all of them and has decided that that does not invalidate the claim. It cannot therefore be said that giving a claim notice to everyone entitled to receive it is necessarily an essential feature of the statutory scheme.
- Mr Jacob argued that the lease held by ReAssure was an "equity release" transaction and should be treated on the same footing as a mortgage. Although notice is required to be given to a mortgagee under the Landlord and Tenant Act 1987, there is no similar requirement under the provisions relating to the right to manage. It can therefore be inferred that Parliament attached little if any importance to service of a claim notice on a person with an interest like that of ReAssure. There was precious little evidence about the nature of the "equity release" in this case. However, as I understand it, the paradigm example of an equity release is where a homeowner sells his interest in his home in return for a lump sum and a right to remain in residence until his death. Under this kind of arrangement the buyer acquires the substantive interest. It is not merely a security interest. I do not, therefore, accept the analogy with a mortgagee. If Mr Jacob's argument is right, it would apply to all intermediate landlords who do not have management functions as defined in section 96 (5).
- At this point I consider that Mr Jacob's submission that the primary persons affected by the acquisition of the right to manage are those with management responsibilities is important. It is true that an intermediate landlord with no management responsibilities will lose the sole right to give consents under the lease. But he retains the right to be consulted and also has the right to object. He also retains the right to enforce covenants in the lease (including any rights of forfeiture). The transfer of an intermediate landlord's non-management functions under an intermediate lease is, in my judgment, ancillary to the primary objective of the legislation which is to enable an RTM company, simply and cheaply, to acquire the right to manage; and to avoid both duplication of effort and administrative untidiness once it has been acquired. A further concern of the Government, described in paragraph 86 of the consultation paper, was that, if the function of granting approvals under a lease remained in the hands of a landlord, there would be:
"the possibility that an unscrupulous or malevolent landlord might seek to abuse powers over assignment and sub-letting to grant tenancies only to undesirable tenants who would be willing to cooperate in frustrating the right to manage."
- I would hold that a failure to serve a claim notice on the intermediate landlord of a single flat with no management responsibilities (as defined) does not invalidate the notice.
- There was some discussion, in the course of the hearing, of the possibility that a failure to serve a claim notice on a person entitled to receive one might be a procedural defect which that person could waive ex post facto. I would provisionally reject Mr Bates' argument that the right to serve a counter-notice is given to landlords as a class with the result that none of them could waive a failure to serve. First, the right to receive a claim notice is given to each landlord individually. Second, each landlord individually must decide whether or not to serve a counter-notice. Third, in general a person who has the benefit of a statutory right may renounce it, unless there is a public interest in that right which precludes him from doing so. Fourth, section 106 contains limited and targeted prohibitions on contracting out, which do not apply to landlords. My view is, however, provisional because (a) we did not have full argument on the topic and (b) in any event this point does not arise on the facts of this case and is not within the ambit of this appeal.
Result
- Accordingly, I would allow the appeal.
- I have drawn attention to the Government's policy that the procedures should be as simple as possible to reduce the potential for challenge by an obstructive landlord. That policy has not been implemented by the current procedures which still contain traps for the unwary. This is, we were told, the third attempt by the RTM company to acquire the right to manage Elim Court. The Government may wish to consider simplifying the procedure further, or to grant the FTT a power to relieve against a failure to comply with the requirements if it is just and equitable to do so. Otherwise I fear that objections based on technical points which are of no significant consequence to the objector will continue to bedevil the acquisition of the right to manage.
Mrs Justice Proudman:
- I agree that the appeal should be allowed for the reasons given by Lewison LJ.
Lady Justice Arden:
- I also agree.
