RTM Claims and the Registration Gap
In the case of Avon Freeholds Ltd v Cresta Court E RTM Company Ltd, in a unanimous decision, the Court of Appeal has held that an RTM company’s claim notice was invalid. This was due to the company’s failure to serve a notice of invitation to participate on an equitable leaseholder who had completed their purchase but whose title had not yet been registered at HM Land Registry (the well known “registration gap”). This ruling is significant for both practitioners and RTM companies, as extra checks are now essential to ensure the validity of claim notices.
Understanding Right to Manage
The Right to Manage (RTM) under Chapter 1, Part 2 of the Commonhold and Leasehold Reform Act 2002 (CLRA 2002) empowers qualifying leaseholders of flats to assume control over the management of their building through an RTM company, without needing to demonstrate any fault on the part of the landlord. This process is intentionally procedural. By meeting the qualifying criteria and following the prescribed steps, management is transferred. However, any procedural errors can be detrimental.
Qualifying Tenants and the Registration Gap
CLRA 2002 s.75(2) says “a person is the qualifying tenant of a flat if he is tenant of the flat under a long lease.” References to a “lease” can, where context permits, include an agreement for lease (CLRA 2002, s.112(2)). These provisions are central to determining who must be invited to participate and who counts towards the statutory thresholds.
Under the Land Registration Act 2002, a registrable lease (over seven years) does not take effect at law until registered (s.27). Between completion and registration, the buyer holds an equitable lease. That is the “registration gap.” The question for RTM has been whether such an equitable leaseholder is a “qualifying tenant” for the purposes of the s.78 invitation to participate.
The RTM Procedure
Section 78 requires the RTM company, before making the claim, to serve a notice of invitation to on each person who is, at that time, a qualifying tenant. This includes those who are not (and have not agreed to become) members of the RTM company. Section 79(2) then provides that a claim notice may not be given unless each person receives an invitation under s.78 has been given such notice at least 14 days before the claim notice.
Consequence of non‑compliance: As the Court of Appeal has now emphasised, failure to serve the invitation on a qualifying tenant invalidates the claim notice. The remedy is practical, not draconian. Serve the missing invitation, wait for the 14‑day period (or secure the leaseholder’s RTM company membership), and serve a fresh claim notice.
The Court of Appeal Decision
The Court was asked to decide two issues: (1) whether an equitable leaseholder is a qualifying tenant; and (2) whether failure to serve the invitation to participate under s.78 renders the claim notice invalid.
The court held that the equitable leaseholder was within the class Parliament intended to benefit under the RTM regime. The practical reality of taking possession on completion and living there (or sub‑letting if permitted) means such tenants are, for most practical purposes, the “owners” of their flats during the registration gap. This aligns with the statutory language and purpose, as Lord Justice Henderson expressed in the judgement:
“By any normal metric, a tenant under such a lease who has taken possession of the flat on completion and lives there, or perhaps sub‑lets it if authorised to do so, is for most practical and economic purposes the owner of the flat and would naturally so describe himself of herself. Equally, such a tenant is clearly within the class of residential long leaseholders whom the RTM regime enacted in 2002 was intended by Parliament to benefit. If, however, such tenants are excluded from qualifying for a period of arbitrary, and perhaps considerable, length until the formalities of registration are completed by HM Land Registry, the statutory scheme is at risk of being frustrated.”
On the second issue, the court said the language of s.79(2) is clear: the RTM company may not serve a claim notice unless the s.78 invitations have been properly served at least 14 days earlier. A missed invitation, including to an equitable leaseholder, invalidates the claim notice. However, the defect is curable by serving the invitation and starting again (or if the leaseholder becomes a member of the RTM company).
Consequences of the Decision
This decision raises the stakes in the pre‑claim due‑diligence phase. RTM companies and their advisers must identify all qualifying tenants on the date the invitations are served, including those in the registration gap.
Practitioners and RTM Companies need to take extra care as the registration gap remains an issue. Additional checks need to be made on pending Land Registry applications affecting existing leasehold titles and the freehold.
