In July this year, judgment in the case of Avon Freeholds Ltd v Cresta Court E RTM Company Ltd [2025] EWCA Civ 1016 was handed down in the Court of Appeal.
The case involved a self-contained property which formed part of a building. The respondent gave notice to the appellant (freeholder of the building) that it intended to acquire the right to manage the property. The appellant gave a counter-notice contesting the respondent’s entitlement. The respondent made an application challenging the claim notice on the basis that no notice of invitation to participate had been given to the leaseholder of one of the flats. The respondent claimed that failure to serve notice on one of the leaseholders meant the claim notice was invalid. The Upper Tribunal (“UT”) did not agree.
The Court of Appeal unanimously allowed the landlord’s appeal against the UT decision that the right to manage its block of flats by a right-to-manage company had been acquired.
The Court of Appeal did however agree with the UT on the point that an equitable tenant (a tenant under a valid contract but not a lease following formal requirements) of a long lease in the “registration gap” (the gap between completion of a purchase of land and its registration at Land Registry), where there is no corresponding legal tenant, is a “qualifying tenant” pursuant to the Commonhold and Leasehold Reform Act 2022 (the “Act”).
The Court of Appeal found both the First-tier Tribunal and the UT to be wrong in finding that a failure to serve a qualifying tenant with a notice inviting participation (a “Notice”) prior to the claim notice did not invalidate that right.
The appeal dealt with two main questions:
- Was the lessee under a newly granted long lease, not yet registered at HM Land Registry and therefore effective in equity only, a “qualifying tenant” within the meaning of the Act?
- If yes, did the failure to serve the relevant tenant with Notice invalidate the claim notice subsequently served by the right to manage company.
The Court of Appeal answered “yes” to both of the above whereas the judge in the UT answered “yes” and “no” respectively.
1. Qualifying Tenant Status
The Court of Appeal agreed with the UT that the tenant who held an equitable lease, due to the registration gap, met the criteria to be considered a qualifying tenant under the Act. The Court supported the view that when a flat is let on an equitable lease and no formal legal lease exists, the tenant is a qualifying tenant so long as the definition of “long lease”, as set out in the Act, is met.
This interpretation was supported by s112(2) of the Act which includes “an agreement for a lease or tenancy” within the broader definition of “lease”. It was said to be illogical for a tenant to qualify during the period between exchange and completion but not between completion of the lease and registration at HM Land Registry.
2. Effect of Failing to Serve a Notice
Referencing the Supreme Court’s reasoning in the case of A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co Ltd [2024] UKSC 27, the Court of Appeal disagreed with the UT and reversed the decision. The Court of Appeal concluded that the right to manage company’s failure to serve a Notice on the equitable tenant did invalidate the claim notice meaning the whole statutory process needed to start again.
This reiterated s79(2) of the Act which states that, if a qualifying tenant does not receive a Notice in accordance with s78(1) of the Act, the claim notice is not valid. Failure to serve all required Notices at least 14 days before the claim notice is served on the landlord renders that claim notice void and incurable.
The judge highlighted that when statute explicitly outlines the consequences of failing to meet a procedural requirement, courts are not required to interpret or determine the consequences of that failure. It is sufficient that there has been non-compliance to render the claim notice invalid.
Points to Note
- An equitable lessee can be a qualifying tenant in accordance with the Act. S27 of the Act states “where the property is let on an equitable lease and no registered legal lease exists, the equitable lessee will still be considered a qualifying tenant, provided there is a “long lease””.
- The information shown at HM Land Registry may not be sufficient to conclude a right to manage company’s investigations as to the extent of qualifying tenants.
- Failure to serve a Notice on every qualifying tenant within the statutory timeframe invalidates any subsequent claim notice. If a claim notice is invalidated, the right to manage company must restart the process.
- Information requests made pursuant to s82 of the Act should be used and further on-site enquiries may need to be made prior to commencing the right to manage process.
Link to the full Court of Appeal judgment
Contact details
eleanor.tordoff@tyrlaw.co.uk +44(0)7908 190547 +44(0)113 322 8240
