‘Elim Court’ – How wrong is right?

Serving notices has always been a tricky business. The emphasis on getting it right is ultimately a balancing act between what ‘black letter’ compliance might demand and that which the reasonable layperson might expect common sense commerciality to dictate.

This case is interesting, as it really does seem to push the envelope of how wrong you can get it, but still get it right.

That is not to say that it is proposition for the suggestion that all and any faults in a notice can be forgiven, but it does show that the approach that the courts will take when something had gone wrong has shifted over recent years.

The case concerns RTM and so you might argue that different policy considerations apply – this is a ‘no fault’ right to take over the management after all – any failure in the process can be corrected by serving another notice and here are no economic consequences for the landlord as unlike Enfranchisement no property interests are changing hands.

However, I do think that this case will be seized upon as a ‘get out of jail free’ card by those next affected by issues of validity in their notices.

So let’s have a look at the case – the facts are fairly involved but revolve around several issues of non-compliance with statutory obligations under the Commonhold and Leasehold Reform Act 2002 relating to the RTM process. The full version of the case can be found here http://www.bailii.org/ew/cases/EWCA/Civ/2017/89.html

The Issues

These were as follows:

During the RTM process a notice of invitation to participate must be given to all of the potential participants. In addition, notice must be given to the tenants as to where a copy of the articles of association of the company may be inspected. Three days for inspection must be nominated of which at least one must be a Saturday or Sunday. In Elim Court three days were specified but none of them was a Saturday or Sunday.

The court held that the non-compliance with the requirements of the legislation was a trivial failure and would not of itself invalidate the RTM process.

The notice of claim in an RTM case must be signed on behalf of the company. An issue arose as to whether it had been signed by an authorised member or officer. An individual whose status was unclear in fact signed the notice. The person signing (a Mr. Joiner from the Right to Manage Federation), was a member of the RTM company, but his signature bore an identity stamp of ‘RTMF Secretarial.’ The signature requirements of the RTM legislation are strictly that the notice be ‘signed by authority of the company [signature of authorised member or officer].

Mr. Joiner was a member of the RTM Company. However, the stamp implied that the RTMF (a company whose business it is facilitate the RTM process) had signed the notice.

If so, it was the company secretary of Elim Court. However, for it to sign another signature would be required if it were to execute the notice as a deed. Mr. Joiner appears not to have held office within the RTMF. However, if Mr. Joiner was signing on behalf of the RTMF then it was not clear that the notice had in fact been signed by or on behalf of the RTM Company.

The court held, nonetheless that despite the confusion the notice had been validly signed – ‘ where a notice is capable of two interpretations, one of which will lead to the conclusion that it is valid, and the other to the conclusion that it is invalid, the former interpretation should be preferred.’ (Para 48).

The other issue was that the notice had not been served on an intermediate landlord – a strict requirement of the RTM legislation. However, the intermediate landlord in question was the owner of a single reversionary leasehold interest over a flat as part of an equity release scheme. Accordingly, because the intermediate landlord had no direct management responsibilities the court held that service on this entity could be dispensed with.

 The Law

It is worth considering the legal background to the court’s approach in this case.

The law concerning the service of notices has shifted over recent years. For a long time when looking at what had gone wrong with a notice the courts adopted an approach that looked at the distinction between requirements of statute that were ‘mandatory’ and those which were ‘directory’ – failing to comply with a mandatory requirement rendered the notice invalid. This was the position following the case known as Mannai[1]. See http://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKHL/1997/19.html&query=(mannai)

The law has since moved on and the emphasis now is more on what parliament would have intended the consequences of non-compliance to be. In particular, the case of Natt v Osman [2014] EWCA 1520 Civ http://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWCA/Civ/2014/1520.html&query=(natt)+AND+(v)+AND+(osman) provides very useful guidance for leasehold reform cases.

Natt v Osman tells us clearly that in cases such as leasehold reform cases ‘the intention of the legislature as to the consequences of non-compliance with the statutory procedures (where not expressly stated in the statute) is to be ascertained in the light of the statutory scheme as a whole.’ (Para. 33)

Perhaps most telling in the conclusion of the Court of Appeal in Elim are the concluding paragraphs – ‘I have drawn attention to the Government’s policy that the procedures should be as simple as possible to reduce the potential for challenge by an obstructive landlord’ (para.77). There is also the observation that this is the third attempt by the RTM company to take over the management of Elim Court. Lord Justice Lewinson goes on to say that the government may wish to consider simplifying the procedure further.

Elim may well be confined to its facts – as an RTM case, but it is certainly true that RTM ‘just got easier’- has it made a difference in Enfranchisement? – We will have to wait to see.

Mark Chick

23 May 2017

Mark Chick is a specialist leasehold property solicitor and head of the Landlord and Tenant Team at Bishop & Sewell LLP, a firm of solicitors based in Central London.

This note is not designed to be a complete summary of the law in this area and should not be relied upon as such. If you require assistance with legal issues then please take legal advice. For further details, or to speak to one of the Landlord and Tenant Team at Bishop & Sewell LLP visit www.bishopandsewell.co.uk or email: leasehold@bishopandsewell.co.uk

 

[1] Mannai Investment Co Ltd v. Eagle Star Assurance [1997] UKHL 19