Assethold Ltd v 7 Sunny Gardens Road RTM Company Ltd [2013] UKUT 509 (LC)

IN THE MATTER OF AN APPEAL AGAINST A DECISION
UT Neutral citation number: [2013] UKUT 509 (LC)Venue OF THE LEASEHOLD VALUATION TRIBUNAL FOR THE, LONDON RENT ASSESSMENT PANEL, BETWEEN ASSETHOLD LIMITED Appellant, And, 7 SUNNY GARDENS ROAD RTM COMPANY LIMITED Respondent, Re: 7 Sunny Gardens Road, Hendon, London NW4 1SL, Martin Rodger QC, Deputy President, Decision on written representations, © CROWN COPYRIGHT 2013, The following cases are referred to in this decision:, Brown & Root Technology Ltd v Sun Alliance & London Assurance Co Ltd [2001] Ch 733, Avon Freeholds Ltd v Regent RTM Company Ltd [2013] UKUT 213 (LC), Sinclair Gardens Investments (Kensington) Ltd v Investments RTM Company Ltd LRX/52/2004, DECISION, Introduction
Between
Assethold Ltd7 Sunny Gardens Road RTM Company Ltd
[1]This is an appeal, brought with the permission of the Tribunal (George Bartlett QC, President) against a decision of the Leasehold Valuation Tribunal for the London Rent Assessment Panel (“the LVT”) given on 3 August 2012 on an application under section 84(3), Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) for a determination that the respondent, 7 Sunny Gardens Road RTM Company Ltd, was entitled to acquire the right to manage the building from which it derived its name.[2]The LVT decided that the respondent was entitled to acquire the right to manage notwithstanding the fact that the long leaseholder of one of the three flats in the building, whose name had appeared in the respondent’s register of directors and members (in both capacities), had died before the formation of the respondent. The LVT decided the case on the basis that for as long as the deceased leaseholder remained registered as the proprietor of the lease of one of the flats she remained a qualifying tenant, and that for as long as her name appeared on the company’s register of members it was unnecessary to serve a notice inviting participation or a claim notice on her personal representatives. The appellant challenges each of those conclusions.[3]The respondent has not participated in the appeal and, at the request of the appellant, I have determined the appeal on the basis of written representations. The submissions on behalf of the appellant were settled by Mr Justin Bates of counsel. The facts[4]From the decision of the LVT I take the following facts as the basis of my consideration of the appeal.[5]7 Sunny Gardens Road, Hendon (“the Property”) is a house converted into three flats (referred to as 7A, 7B and 7C). The appellant acquired the freehold in 1989, and by that time each of the three flats was already subject to a long lease for a term of 125 years commencing in 1984.[6]At all material times the registered proprietors of the leases of the three flats were Mrs Foskett (7A), Mr Gould (7B) and Mr Whilby (7C).[7]In about July 2011 the three leaseholders decided to take steps to acquire the right to manage the Property under Part 2 of the 2002 Act. They were advised and represented by a company purporting to specialise in RTM applications. The formation of the respondent RTM company was resolved upon and each of the three leaseholders agreed to become a director and shareholder and to make a contribution towards the costs of incorporation and of the application to the LVT.[8]On 20 September 2011, before any formal steps to bring the project to fruition had been completed, Mrs Foskett died. It is not known whether she left a will, or when or whether probate has ever been granted of her estate.[9]The company advising the leaseholders was not yet aware of Mrs Foskett’s death when, seven months later, it took the steps necessary to incorporate the respondent. It appears that all of the relevant documents were signed by Mrs Foskett before her death, but there was then a delay. The respondent’s memorandum and articles of association, signed by the original subscribers including Mrs Foskett, are dated 23 April 2012 and it was formally incorporated on the following day. Mrs Foskett was listed with her fellow leaseholders as three of the company’s five directors in its register of directors, the same three individuals were recorded in its register of members as its sole shareholders. The company’s articles of association were in the form of the model articles prescribe by the RTM Companies Model Articles (England) Regulations 2009 (“the 2009 Regulations”).[10]No notice under section 78 of the 2002 Act inviting participation in the formation of the respondent was given by the company to any person; it was understood that all those who were eligible had already agreed to become members.[11]A notice under section 79 of the 2002 Act claiming the right to manage the Property was sent by the respondent’s agent to the appellant on 27 April 2012, with copies also going to each of the leaseholders; a counter notice challenging the respondent’s entitlement was duly received from the appellant in return.[12]On 19 June 2012 the respondent applied to the LVT for a determination under section 84(3) of the 2002 Act that it was entitled to acquire the right to manage. It was not until receipt of the appellant’s statement of case in the proceedings before the LVT that the respondent and those promoting the application were made aware of Mrs Foskett’s death. The LVT’s decision[13]The LVT dealt with a number of matters in its decision but the only issue in the appeal concerns the consequences of Mrs Foskett’s death on 20 September 2011.[14]The LVT reminded itself of the relevant statutory provisions, including section 75(2) of the 2002 Act which defines a qualifying tenant as a person who is a tenant of the flat under a long lease. It also drew attention to section 78(1) which requires that before a claim to acquire the right to manage any premises may be made by an RTM company, it must first give a notice inviting participation to each qualifying tenant of a flat in the premises who neither is nor has agreed to become a member of the company.[15]The LVT rejected the submission made on behalf of the appellant that Mrs Foskett ceased to be a qualifying tenant upon her death. At paragraph 27 of its decision the LVT said this:
“We find that at the time when the claim notice was given Mrs Foskett was the registered proprietor and as such she was also the qualifying tenant for the purpose of the Act. Thus we find the claim notice was correctly given to Mrs Foskett…”
[16]Subsequently, when refusing permission to appeal against its decision, the LVT elaborated on this aspect of its reasoning and cited the decision of the Court of Appeal in Brown & Root Technology Limited v Sun Alliance & London Assurance Co Limited [2001] Ch 733 in support of the proposition that the lease remained vested in Mrs Foskett after her death because the legal estate in a lease of registered land does not pass until an assignment is registered at the land registry.[17]The LVT also rejected the appellant’s submission that, following her death, a notice inviting participation ought to have been given to Mrs Foskett’s personal representatives before the service of the claim notice. In paragraph 32 of its decision, the LVT expressed its conclusions as follows:
“We are satisfied that the register of members has been held to be conclusive evidence of membership. We are satisfied that the register of members records that the date of Mrs Foskett’s membership commenced on 24 April 2012. We thus find that Mrs Foskett was a member of the RTM Company on the relevant date when the claim notice was given. …. In these circumstances it was not necessary that a notice inviting participation should have been given to Mrs Foskett prior to the giving of the claim notice because by section 78(1) such a notice is not required to be given to the person who is or who has agreed to be a member of the RTM Company.”
[18]On that basis the LVT decided that the appropriate procedural steps had all be taken and that as a result the respondent was entitled to the exercise the right to manage. The relevant statutory provisions The Commonhold and Leasehold Reform Act 2002[19]Chapter 1 of Part 2 of the 2002 Act makes provision for the acquisition of rights in relation to the management of premises to which the chapter applies by a company, known as an RTM company, controlled by the qualifying tenants of flats forming part of the premises. The rights which are to be acquired and exercised in accordance with those provisions are referred to collectively as “the right to manage”.[20]Section 74 makes provision for the membership of RTM companies. Section 74(1) provides:
“The persons who are entitled to be members of a company which is a RTM Company in relation to premises are – (a) qualifying tenants of flats contained in the premises, and (b) from the date on which it acquires the right to manage (referred to in this Chapter as the “acquisition date”), landlords under leases of the whole or any part of the premises.”
[21]Section 75 identifies qualifying tenants and provides, so far as it relevant, as follows:
“75 Qualifying tenants (1) This section specifies whether there is a qualifying tenant of a flat for the purposes of this chapter and, if so, who it is. (2) Subject as follows, a person is the qualifying tenant of a flat if he is tenant of the flat under a long lease.”
A long lease is defined in section 76 and includes a lease granted for a term of years certain exceeding 21 years.[22]It is the policy of the Act that membership of an RTM Company should be open to all qualifying tenants. To that end section 78(1) provides as follows:
“78 Notice inviting participation (1) Before making a claim to acquire the right to mange any premises, a RTM Company must given notice to each person who at the time when the notice is given – (a) is the qualifying tenant of a flat contained in the premises, but (b) neither is nor has agreed to become a member of the RTM Company.”
Such a notice is referred to as a notice of invitation to participate and, amongst other things, is required by section 78(2) to inform recipients of the company’s intention to acquire the right to manage and to invite them to become members of the company.[23]Claims to acquire the right to manage are commenced by giving notice under section 79, which, so far as is relevant, provides as follows:
“79. Notice of claim to acquire right (1) A claim to acquire the right to manage any premises is made by giving notice of the claim (referred to in this Chapter as a “claim notice”); and in this Chapter the “relevant date”, in relation to any claim to acquire the right to manage, means the date on which notice of the claim is given. (2) The claim notice may not be given until each person required to be given a notice of invitation to participate has been given such a notice at least 14 days before. (3) The claim notice must be given by a RTM Company which complies with sub-section (4) or (5). (4) If on the relevant date there are only two qualifying tenants of flats contained in the premises, both must be members of the RTM Company. (5) In any other case, the membership of the RTM Company must on the relevant date include a number of qualifying tenants of flats contained in the premises which is not less than one half of the total number of flats so contained. (6) The claim notice must be given to each person who on the relevant date is – (a) landlord under a lease of the whole or any part of the premises, …. (8) A copy of the claim notice must be given to each person who on the relevant date is the qualifying tenant of a flat contained in the premises.”
The Administration of Estates Act 1925[24]The Administration of Estates Act 1925 makes provision for the devolution of real property on death. So far as relevant, section 1 provides as follows:
“1. Devolution of real estate on personal representative (1) Real estate to which a deceased person was entitled for an interest not ceasing on his death shall on his death, and notwithstanding any testamentary disposition thereof, devolve from time to time on the personal representative of the deceased, in like manner as before the commencement of this Act chattels real devolved on the personal representative from time to time of a deceased person.”
[25]By section 9(1) of the 1925 Act it is provided that “Where a person dies intestate, his real and personal estate shall vest in the Public Trustee until the grant of administration.” Land Registration Act 2002[26]Section 27 of the Land Registration Act 2002 makes provision for registrable dispositions of estates in land. Certain dispositions of a registered estate must be registered if they are to take effect at law and not merely in equity, but there is an important exception to that principle relevant to this appeal. Section 27 provides, so far as relevant, as follows:
“27. Dispositions required to be registered. (1) If a disposition of a registered estate or registered charge is required to be completed by registration, it does not operate at law until the relevant registration requirements are met.

(b) …”

Discussion[27]The LVT based its conclusion that Mrs Foskett remained the qualifying tenant of her flat after her death on the fact that she continued to be shown as the registered proprietor by the Land Registry. The decision of the Court of Appeal referred to by the LVT when refusing permission to appeal, Brown & Root Technology Ltd v Sun Alliance & London Assurance Co Ltd , concerned the effect of section 22 of the Land Registration Act 1925, rather than section 27 of the Land Registration Act 2002 which had replaced it by the time of these events. The effect of section 22(1) of the 1925 Act was that although as between the assignor and assignee of a lease the equitable title to the lease was capable of passing by virtue of a specifically enforceable contract to assign the lease, the transfer of the legal title to the lease did not occur until the entry of the transferee as the proprietor of the estate on the register. The effect of section 27(2)(a) of the Land Registration Act 2002 is very similar. A transfer of a registered estate (including a transfer of a leasehold estate) is required to be completed by registration and it does not operate at law until the relevant registration requirements are met. By section 27(5)(a), however, a transfer by operation of law on the death of an individual proprietor is excepted from the general rule that registrable dispositions do not operate at law until registration is complete.[28]The effect of sections 1(1) and 9(1) of the Administration of the Estates Act 1925 was that on Mrs Foskett’s death, the leasehold interest in her flat passed by operation of law either to the executors of her will, if she left one, or to the Public Trustee if she did not. That disposition took effect by operation of law without the need for any transfer and, critically, without the need for registration (see Megarry & Wade: The Law of Real Property, eighth edition, (2012), para 7-109).[29]To be the qualifying tenant of a flat a person must be a tenant of that flat. The “tenant” referred to in section 75(1) of the 2002 Act is the person in whom, for the time being, the legal estate created by the lease is vested. As the LVT correctly observed, the 2002 Act is not concerned with beneficial interests. At the relevant time the qualifying tenants of flat 7A were therefore Mrs Foskett’s personal representatives (the executors or administrators of her estate) or, in the event of her intestacy, the Public Trustee.[30]As far as membership of the respondent is concerned, Mrs Foskett herself was not a member at any time because membership of an RTM company is conditional on retaining the status of qualifying tenant under section 75 of the 2002 Act (see Article 26(2)(a) of the schedule to the 2009 Regulations). A member who at any time fails to satisfy the requirements for membership, including the requirement to be a qualifying tenant, ceases to be a member of the company with immediate effect (Article 27(1)). It therefore seems to me that whatever her desire before her death, Mrs Foskett could not be a member of the respondent company on its incorporation.[31]The LVT’s suggestion that the register of members is conclusive evidence of membership of a company overstated the position. By section 127 of the Companies Act 2006 the register of members is only prima facie evidence of matters recorded in it. In this case the prima facie evidence provided by the register was clearly defeated by the copy of Mrs Foskett’s death certificate which the LVT had before it. Taken together with the company’s articles of association the death certificate was conclusive that, at the date on which the respondent was incorporated, Mrs Foskett could not be a member.[32]Mrs Foskett herself had agreed to become a member of the respondent, but that agreement had been procured at least seven months before the claim notice was given on 27 April 2012. There does not seem to me to be any basis to suggest that the benefit of her willingness to become a member was itself property comprised in Mrs Foskett’s estate capable of passing to her personal representatives on her death. The personal representatives were qualifying tenants but were not members of the respondent company. It follows that they were entitled to receive a notice of invitation to participate under section 78(1).[33]I therefore agree with the submission made on behalf of the appellant that section 78(1) of the 2002 Act was not complied with in this case because no notice of invitation to participate was given to Mrs Foskett’s personal representatives before the claim notice was served on the appellant.[34]As qualifying tenants, the personal representatives were also entitled to receive a copy of the claim notice. A copy of that notice was sent by the respondent’s agent to each of the leaseholder’s of the three flats and one such notice was addressed to Mrs Foskett at Flat 7A. It is not known whether this copy of the claim notice came to the attention of Mrs Foskett’s personal representatives, but whether it did or not, I am inclined to think that the effect of section 111(5) of the 2002 Act was that the requirements of section 79(8) were satisfied. An RTM company may give a notice to a qualifying tenant of a flat contained in the premises at the flat itself, unless it has been notified by the qualifying tenant of a different address in England and Wales at which such notices can be given. A notice addressed to Mrs Foskett at Flat 7A would, it seems to me, be a good notice for the purpose of communicating with her personal representatives, although they were not named in the notice and may not even yet have been appointed.[35]It therefore seems to me that the sole error in the LVT’s reasoning was in its conclusion that Mrs Foskett remained the qualifying tenant of flat 7A despite her death, so obviating the need for a notice of invitation to participate to be served on her personal representatives. Consequences[36]In his submissions on behalf of the appellant, Mr Bates suggests that the real issue in this appeal is as to the effect of the respondent’s failure to comply with the requirement to give a notice of invitation to participate to the personal representatives. He rightly drew attention to the recent decision of the Tribunal (Sir Keith Lindblom, President) in Avon Freeholds Limited v Regent RTM Co Ltd [2013] UKUT 213 (LC) . The President there analysed the relevant jurisprudence concerning the consequences of non-compliance with statutory requirements. The material reviewed included Sinclair Gardens Investments (Kensington) Limited v Holt Investments RTM Company Limited LRX/52/2004 in which the Lands Tribunal (George Bartlett QC, President) rejected the proposition that a failure to observe the requirements of section 78(1) of the 2002 Act was fatal to an application by an RTM Company to acquire the right to manage. The conclusion of that review was, as the President stated in paragraph 39 of his decision, that:
“The right approach here, I believe, is to consider whether the statutory provisions have been substantially complied with, and whether such prejudice has been caused as to undermine the right to manage the process as a whole.”

The President also gave guidance on the assessment of prejudice at paragraph 47 of his decision:

“What one ought to do, I believe, is to ascertain – so far as one can – the true effects of the failure to give notice in accordance with the statutory provisions on all of those affected by that failure. The question here is not whether a significant number of tenants have been prejudiced but whether any or all of the tenants not given notice in accordance with section 111 has been caused such prejudice through the RTM company’s default as to justify denying the RTM company the right to manage. It is necessary to look at the nature and extent of the prejudice to each of those tenants. There may be cases in which one tenant in a very large block has not had notice and significant prejudice to that person can be shown. There may be others in which the tenants of several flats are not served but there is, nevertheless, no such prejudice and the integrity of the process has not been impaired. Each case will turn on its own particular facts.”
[38]Mr Bates invited me, if I was satisfied that the decision of the LVT was wrong, as I am, to remit the issue of prejudice to the LVT for reconsideration. As he pointed out, neither the appellant nor the respondent has yet lead any evidence or made any submissions on that issue.[39]I am not attracted by Mr Bates’ invitation. It seems to me likely to perpetuate the dispute between the parties and to create further potential for protracted appeals in circumstances where the simplest course would be for the respondent to begin again with a new notice inviting participation and a new notice of claim. (Indeed it might well have been sensible for the respondent to have short-circuited the whole of this elaborate dispute by withdrawing the original claim notice and issuing a new one when it was alerted to the issue by the appellant’s statement of case to the LVT).[40]The burden of satisfying the LVT that a defect in compliance with the statutory procedure laid down by the 2002 Act has not caused prejudice falls on the party asserting that the right to manage has successfully been acquired. It was open to the respondent, forewarned of the appellant’s contentions by its statement of case, to adduce evidence that there was no prejudice to the personal representatives of Mrs Foskett, or the other leaseholders. The respondent did not take that opportunity and there seems to me to be no reason why the Tribunal should give it a further opportunity to justify the original defective procedure. Where an RTM Company leads no evidence and presents no argument which would enable a first tier tribunal, or the Tribunal on appeal, to conclude that no relevant prejudice had been suffered, the appropriate course of action will usually be for the request for a determination of entitlement to acquire the right to manage under section 84(3) to be dismissed. That is the course I propose to take in this case. Disposal[41]The appeal is therefore allowed and I substitute for the decision of the LVT a determination under section 84(3) of the 2002 Act that the respondent was not on the relevant date entitled to acquire the right to manage the Property.[42]The consequence of that result is that the respondent is liable to pay the appellant’s costs of the proceedings before the LVT under section 88(3) of the 2002 Act. I will invite further submissions from the parties on the question whether section 88(3), when taken together with section 89(2), has the effect that the costs to which the appellant is entitled include its costs of this appeal.[43]The respondent is free to take such further action as it now may be advised to acquire the right to manage. Martin Rodger QC, Deputy President 15 October 2013

Cited in 5 later judgments