The acquisition of the right to manage by an RTM company is process driven.  The process starts with a notice inviting participation which is given by the RTM company to all qualifying tenants (who aren’t already members of the RTM company).

After the notice inviting participation, the next step in the process is service of a claim notice on the landlord, together with any named management companies and any Tribunal appointed manager.

A copy of the claim notice must also be given to each qualifying tenant.

Section 81 of the Commonhold and Leasehold Reform Act 2002 contains supplementary provisions.  In particular, pursuant to section 81(3) where any premises have been specified in a claim notice, no subsequent claim notice which specifies the premises (or any premises containing or contained in the premises) may be given so long as the earlier claim notice continues in force.

The purpose of section 81(3) is to stop more than one claim notice to be running at any one time.

Section 86 deals with the withdrawal of a claim notice.  Section 86(1) enables an RTM company to withdraw a claim notice at any time.  It does so “by giving a notice to that effect”.

Section 86(2) sets out the categories of persons to whom the notice of withdrawal must be given.  These are:

  1. landlord
  2. management company
  3. Tribunal appointed manager
  4. qualifying tenants

But what happens when an RTM company withdraws their first claim notice, and serves a second claim notice before they’ve even told the qualifying tenants about the withdrawal of the first claim notice?  Is this a breach of the Commonhold and Leasehold Reform Act 2002, and what are the consequences?  Is it fatal to the RTM company’s ability to acquire the right to manage based in their second claim notice?   These were the matters under consideration by the Court of Appeal in Eastern Pyramid Group Corp SA v Spire House RTM Co Ltd.

Background

On 18th March 2019, the RTM company served a claim notice seeking to exercise the right to manage.

On 29th April 2019, the landlord served a counter notice contending that the first notice did not comply with a number of provisions of the 2002 Act.

After this, the RTM company wrote two letters.  The first was dated 17th June and addressed to the landlord.  It was received by the landlord on 18th June.  By its letter, the RTM company purported to withdraw the first claim notice and serve a second claim notice (in which the defects in the first notice were corrected).

The second letter was dated 18th June and addressed to all qualifying tenants. By this letter, the RTM company notified the qualifying tenants about the withdraw of the first claim notice and gave them a copy of the second claim notice.

The landlord served a counter notice in response to the second claim notice, alleging that the notice was invalid on various grounds.  Before the Court of Appeal, the landlord argued that the purported withdrawal of the first claim notice on 18th June was ineffective because it had not been given to the qualifying tenants.  Therefore, argued the landlord, the first claim notice was still in effect on 18th June.  And if the first claim notice was still in effect on 18th June, because of the operation of section 81(3) of the 2002 Act, no subsequent claim notice can be given while an earlier claim notice is in force.

Decision on appeal

The landlord’s argument was that, in accordance with section 86 of the 2002 Act, a notice of withdrawal must be given to both the landlord and to the qualifying tenants.  The notice of withdrawal was given to the qualifying tenants, but not until 19th June.  In the view of the landlord, this was too late to save the second claim notice.

The Upper Tribunal had accepted that there had been a failure to comply with the 2002 Act, but that the failure was not fatal to the RTM company’s acquisition of the right to manage.

The Court of Appeal agreed with the landlord that the RTM company had breached the terms of the 2002 Act by its failure to serve the qualifying tenants with the notice of withdrawal.  But, said the Court of Appeal, this was the beginning of the analysis rather than the end.  And the Court’s task was then to assess the importance of the requirement that had been breached.

The Court considered that there was a difference in importance between giving notice of withdrawal to the landlord (or managers), as compared to the qualifying tenants.

The main practical purpose of the notice of withdrawal is to alert the landlord to the fact that the claim notice to which it applies has been abandoned.  As the Court put it, “the landlord is the person who needs to know“.

By contrast, the service of notice of withdrawal on the qualifying tenants “is simply a matter of information.  It has no other purpose”.

Accordingly, and even though there had been a failure to comply with the 2002 Act, the failure was not fatal to the success of the second claim notice.