An RTM company failed to serve a claim notice on an intermediate landlord as required under section 79(6)(a) of the CLRA 2002. The Supreme Court held this failure rendered the transfer voidable, not void, and dismissed the appeal since the tribunal had already approved the scheme and the landlord suffered no substantive prejudice.
Background
The property at 164 Tudor Road, Leicester (‘the Property’) comprised 237 self-contained student bedsit flats, three larger flats, and communal areas. The freehold was held by Premier Ground Rents No 3 Ltd. The appellant, A1 Properties (Sunderland) Ltd, held the communal areas under four 999-year leases from the freeholder and had underlet them to a management company, Tudor Studios Management Company Ltd, at market rents totalling £30,600 per annum. The appellant’s leases conferred no management responsibilities upon it.
The respondent, Tudor Studios RTM Company Ltd, was incorporated by qualifying tenants for the purpose of acquiring the right to manage the Property under Chapter 1 of Part 2 of the Commonhold and Leasehold Reform Act 2002 (‘the CLRA’). On about 23 March 2020, the respondent served a claim notice under section 79 on the freeholder and the management company, but failed to serve a claim notice on the appellant, which was a landlord on whom section 79(6)(a) required a claim notice to be served. The First-tier Tribunal found the omission to be inadvertent. The Management Company served a counter-notice challenging the claim, and the respondent applied to the FTT for a determination that it was entitled to acquire the right to manage. The FTT joined the appellant as a party and ultimately held that the failure to serve the claim notice on the appellant did not invalidate the claim, following the Court of Appeal decision in Elim Court RTM Co Ltd v Avon Freeholds Ltd [2018] QB 571. The Upper Tribunal dismissed the appellant’s appeal, considering itself bound by Elim Court, and granted a leapfrog certificate for direct appeal to the Supreme Court.
The Issue(s)
Two issues arose on appeal:
- Whether a failure to serve a claim notice on a landlord as required by section 79(6)(a) of the CLRA will always invalidate the acquisition of the right to manage by the RTM company.
- If not, whether the failure to serve in this particular case—where no attempt at service was made, as distinct from Elim Court where an attempt was made but failed—nevertheless invalidated the purported acquisition.
The Parties’ Key Arguments
The Appellant’s Arguments
The appellant contended that failure to comply with section 79(6)(a) was always fatal to the validity of the RTM process. It relied on the express saving provisions in the CLRA (sections 78(7), 79(7), 81(1) and (2)) as showing, by implication, that failures to comply with other procedural provisions were intended by Parliament to invalidate the process. It further submitted that the dispensation in section 79(7) for persons who ‘cannot be found or whose identity cannot be ascertained’ was the sole route for excusing non-service, and that there was a material distinction from Elim Court since no attempt at service was made. The appellant also argued that the ease with which a RTM company could start fresh proceedings pointed toward strict compliance.
The Respondent’s Arguments
The respondent contended, in line with Elim Court, that the failure did not invalidate the claim. The scheme had proceeded to a determination by the FTT, the appellant had been joined as a party and had the opportunity to advance objections, and the tribunal had approved the scheme on its merits.
The Court’s Reasoning
The Soneji Framework
The Supreme Court (Lord Briggs and Lord Sales, with whom Lord Hamblen, Lord Leggatt and Lord Stephens agreed) held that the appropriate starting point was the approach laid down by the House of Lords in R v Soneji [2006] 1 AC 340. The correct question is whether it was a purpose of the legislature that an act done in breach of a procedural provision should be invalid. This requires examination of the consequences of non-compliance, the purpose served by the requirement, and the specific facts of the case.
“The point of adoption of the revised analytical framework in Soneji was to move away from a rigid category-based approach to evaluating the consequences of a failure to comply with a statutory procedural requirement and to focus instead on (a) the purpose served by the requirement as assessed in light of a detailed analysis of the particular statute and (b) the specific facts of the case, having regard to whether any (and what) prejudice might be caused or whether any injustice might arise if the validity of the statutory process is affirmed notwithstanding the breach of the procedural requirement.”
Qualification of Osman v Natt
The Court considered that the two-category approach adopted in Osman v Natt [2015] 1 WLR 1536 required qualification. That decision had suggested that in a second category of cases involving the acquisition of property rights, a notice must be either wholly valid or wholly invalid, with no middle ground of substantial compliance. The Supreme Court held that this was too rigid and inconsistent with the principled approach in Soneji:
“We therefore consider that in the present statutory context Osman v Natt needs to be considered and applied with some caution, particularly in its suggestion that cases where it becomes necessary to infer the intended consequences of non-compliance can for that purpose be divided into distinct and watertight categories and its apparent suggestion (para 31) that in the second category the possibility of a middle position as identified in Soneji between outright validity or outright invalidity is excluded.”
Analysis of the CLRA Scheme
The Court conducted a detailed analysis of the statutory structure. It noted that section 79(7) dispensed with the requirement to serve a claim notice on persons who ‘cannot be found or whose identity cannot be ascertained’, including truly invisible landlords whose very existence was unknown. Parliament had provided parallel solutions: where no stakeholder could be found, the RTM company applied to the tribunal under section 85; where some but not all could be found, the scheme could proceed without regard to those who were invisible. The Court held that section 79(7) was wide enough to cover landlords whose very existence cannot be discovered.
Crucially, the Court reasoned through three hypothetical cases. In ‘Case B’, where a visible landlord was entitled to but not given a claim notice, and the scheme proceeded without tribunal scrutiny, the landlord would be deprived of the right to make a valid objection—an outcome Parliament could not have intended. In ‘Case C’ (the present case), however, the scheme had been tested by the tribunal and found to be compliant, and the appellant had in fact been joined as a party and had the opportunity to present objections. In those circumstances, the appellant had lost nothing of value.
Voidable, Not Void
The Court concluded that the appropriate legal characterisation was that failure to serve a claim notice renders the transfer of the right to manage voidable, not void:
“We consider that the simplest way to provide a legal formula to give effect to Parliament’s intention as to the consequences of the failure to give a claim notice to a visible landlord or other stakeholder under section 79(6) flowing from analysis in accordance with the approach in Soneji is that the failure renders the transfer of the right to manage voidable, at the instance of the relevant landlord or other stakeholder who was entitled to, but not given, a claim notice, but not void.”
The transfer becomes voidable unless or until the tribunal approves the scheme as the outcome of a dispute. If the scheme is approved by the tribunal, and the affected landlord had the opportunity—or at least the substantive grounds of objection were considered—no prejudice results and Parliament cannot be taken to have intended the scheme to fail.
The Test for Invalidation
The Court formulated the test as follows:
“In our view, in evaluating whether a procedural failure under the regime has the effect of invalidating the process, the question to be addressed is whether a relevant party has been deprived of a significant opportunity to have their opposition to the making of an order to transfer the right to manage considered, having regard to (a) what objections they could have raised and would have wished to raise and (b) whether, despite the procedural omission, they in fact had the opportunity to have their objections considered in the course of the process leading to the making of the order to transfer the right to manage.”
Application to the Facts
The Court held that the distinction urged by the appellant between a failed attempt at service (as in Elim Court) and no attempt at all was not significant in terms of the Soneji analysis. Equally, contrary to the approach in Elim Court, the absence of management functions on the part of the appellant was not the critical point. The determinative feature was that the tribunal had made a determination pursuant to section 84 on the objections available, and the appellant had in fact participated in those proceedings.
Practical Significance
This decision is of considerable importance for the operation of the right to manage regime under the CLRA. It establishes that a failure to serve a claim notice on a landlord under section 79(6)(a) does not automatically render the RTM process void. Instead, the transfer is voidable at the instance of the affected party. Where the tribunal has scrutinised and approved the scheme—particularly where the affected landlord has in fact participated—the procedural omission will not invalidate the transfer. This significantly reduces the scope for landlords to defeat RTM claims on purely technical procedural grounds.
The judgment also qualifies the approach in both Osman v Natt and Elim Court, confirming that the flexible, context-sensitive Soneji framework applies rather than rigid categorisation. It emphasises that Parliament’s purpose was to enable tenants to acquire the right to manage simply and cheaply, and that procedural requirements should not be construed as traps for the unwary or as affording unwarranted opportunities for obstruction. The Court left open the question of what the effect might be where a RTM company deliberately chose not to serve a known landlord in order to circumvent the statutory procedure.
Verdict: The appeal was dismissed. The Supreme Court held that the failure to serve the claim notice on the appellant did not invalidate the respondent RTM company’s acquisition of the right to manage, since the tribunal had approved the scheme and the appellant had participated in the proceedings. The transfer of the right to manage was voidable, not void, and in the circumstances there was no basis for setting it aside.
Source: A1 Properties (Sunderland) Ltd v Tudor Studios RTM Company Ltd [2024] UKSC 27
