‘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

Oldham v Tanna – Service on the registered proprietor’s address at the land registry – Is this good service?

Oldham Metropolitan Borough Council v Tanna [2017] EWCA Civ 50

This is a planning case, but it may well be of interest to those dealing with the service of notices.

Ordinarily the address for service, certainly, for 1993 Act matters, is the address shown on the service charge or ground rent demand in accordance with sections 47 and 48 of the Landlord and Tenant Act 1987.

Different considerations apply if the landlord is ‘missing.’

However what Tanna seems to be saying is that, (for planning cases certainly) that service on the registered proprietor’s address as shown at the land registry will be sufficient.

It can only be a matter of time before the point is taken in a leasehold reform case.

For full details of the case see http://www.bailii.org/ew/cases/EWCA/Civ/2017/50.html

The Facts

The case concerned the service of a notice under section 215 of the Town and Country Planning Act 1990 (‘TCPA’) on a Mr Tanna.

Mr Tanna was the registered proprietor of a run down and derelict former nursing home. The local authority wished to serve notice on the basis that the amenity of their area was adversely affected by the condition of the property. This would then pave the way for the local authority to demolish the property and reclaim the cost from Mr Tanna.

Legal Background

The legal issues related to the service of notice under section 215 of the TCPA. Service may be effected at a person’s ‘last known address’ (section 233(2) of the Local Government Act 1972, or ‘by leaving it at the last known place of abode of that person, or where a service address has been given by that person at that address’ (section 329(1)(b) of the TCPA.

The Issue

In this case the local authority served notice on Mr Tanna by serving the address shown in the proprietorship register at the land registry. The local authority also served other addresses, although Mr Tanna sought to argue that he was not resident at the address that had been served. Accordingly, the court had to determine whether service had been effected by serving on the address shown in the proprietorship register.

The Law

At first instance in the county court the judge had found that service had not been effected properly and that the council’s officer should have taken further steps including contacting all council departments and emailing Mr Tanna to seek confirmation of an address for him.

The Court of Appeal rejected this suggestion and reviewed the provisions relating to the address for service that appear in the proprietorship (ownership) register at the land registry.

The previous provisions were contained in rule 315(1) of the Land Registration Rules 1925, the relevant provisions are now contained in Rule 8 of the Land Registration Rules 2003 (‘LRR 2003’). These provide that the proprietorship register must contain an address for service.

Rule 198 of the LRR 2003 states that anyone who will be a registered proprietor must give an address for service ‘to which all notices and communications’ may be sent. The requirement is also to give ‘an address for service which is a postal address, whether or not in the United Kingdom.’

The Decision

The Court of Appeal allowed the appeal by the local authority. It did so because in its view service had been validly effected by serving the address in the proprietorship register. In this particular case, as the property itself was unoccupied, serving this address made sense.

The Court also added that the land registry address itself would not be enough if the person serving the notice had been given a more recent address. If that was the case this address should be served also. However, the onus is on the registered proprietor to keep his address up to date.

The Court of Appeal stated that in seeking to serve a notice like this the obligations on the part of the person serving ‘to make reasonable enquiries’ goes no further than searching the proprietorship register, unless they are aware of a more recent address or place of abode.

Comment

There are strong policy grounds for arguing that a local authority should not be frustrated in carrying out its objectives by a ‘technicality’ or a person who avoids service of a notice by not providing an up to date address or being hard to find.

The provisions of Section 215 clearly relate to difficult situations and possibly (as was the case here) abandoned property. In these sorts of cases information can be hard to find and there is good reason for saying that service on the last ‘known’ address is valid if sent to the registered address.

Would the policy considerations be the same, if this were a leasehold reform case? I suspect that tacitly a court might feel that given the expropriatory nature of the enfranchisement legislation that the consequences of deemed service would be harsh.

In addition, if this case truly supported this proposition in enfranchisement terms then the missing landlord procedure would be a lot easier – deemed service on the registered proprietor’s address being sufficient.

Surely, this cannot be what parliament intended, as the 1993 Act and 1987 Act have provisions that will assist in dealing with absentee or non-performing landlords.

However, the case does raise a very interesting point.

Mark Chick

16^th 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 telephone 020 7631 4141 or email: leasehold@bishopandsewell.co.uk

The Housing White Paper has some interesting themes but sets some pretty ambitious targets. 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/590463/Fixing_our_broken_housing_market_-_accessible_version.pdf

Are we really going to be Fixing our Broken Housing Market ?

My thoughts on the main themes affecting long leasehold appear below (the details of the exact paragraphs in the consultation appear in my earlier post).

New leasehold houses and ground rents –
Stopping increasing and onerous payments on leasehold houses  

How will this be achieved in practice? Banning the creation of all leasehold houses probably won’t work as this wouldn’t help cover situations with ‘overlap’ or ‘undercut’ with adjoining property. 

Perhaps leasehold ‘houses’ could be deemed to be ‘flats’ (in the legal sense) that just happen to look like houses. That would then allow the service charge legislation to apply. 

There could perhaps then also be a restriction on creating any leasehold house at a ground rent.

Some of the problems of new leasehold houses have been well documented. 

See the articles below….

http://www.thisismoney.co.uk/money/mortgageshome/article-3088134/The-great-divide-Buy-165-000-house-left-road-outright-buy-one-right-don-t.html

https://www.google.co.uk/amp/s/amp.theguardian.com/money/2016/oct/29/new-builds-house-buyers-leasehold-property-trap?client=safari

What are the advantages of leasehold in this sort of situation?

The need to impose maintenance obligations in shared estates remains and leasehold is an attractive solution from the legal point of view as this makes the collection of common cost contributions easier. 

However, this could be achieved by the use of ‘rentcharges’ and/ or deeds of covenant on each individual transfer. 

This is how the maintenance arrangements and management charge are usually dealt with in existing freehold developments with shared estate roads and other facilities.
So, would all of this need primary legislation? – The answer is a resounding ‘yes’ and therefore it would also require a significant amount of parliamentary time.

Ground rents that review at short periods and that have significant increases

The review periods for ground rents are clearly an area where the ‘consumer legislation’ could be used to some effect. 

Options presumably include:-

• Banning the creation of new ground rents in any new residential lease.
• Restricting the frequency of reviews – perhaps to every 20 years – and then also imposing a cap or limit on the rent level that can be set.

This is contentious as it potentially will restrict freedom to contract and might have unintended consequences for shorter term Lettings with a premium.

One solution could be a ban on rents that equate to more than a certain fraction of the open market value of the property with a certain (assumed) lease term say 125 years and no rent. 

Examples of the problems that can be caused by escalating ground rents ….

https://www.google.co.uk/amp/s/amp.theguardian.com/money/2016/nov/05/ground-rent-scandal-engulfing-new-home-buyers-leasehold?client=safari

This would avoid the situation where homeowners end up with an unsaleable asset because of a combination of poor advice and clever drafting.

‘Whether and how to invigorate commonhold’ 

That is an interesting statement in itself. 

It is often said that there are more books written about commonhold than commonhold developments and no doubt this may be true. Not making it compulsory was of course its failing. 

It would be a bold political move, but legislating to make all new developments of flats commonhold could be a solution. 
Anyone remember this BBC news item from 2005?

http://news.bbc.co.uk/1/hi/business/3675612.stm

What about the valuation impact?

If commonhold were made compulsory for new builds then there could be a ‘backlash’ in valuation terms against those living with existing ground rent landlords as these assets would instantly get more valuable. Accordingly, the impact on the Enfranchisment cost for all remaining residential leaseholders would need to be considered as a point of policy. 

What would a ‘two tier’ system or market look like, with some properties commonhold and others not? 

Perhaps that is the biggest reason why commonhold has not taken off to date – namely that people do not like change and no developer wants to ‘go first’ when there is no incentive (or compulsion) to do so.

So, will it really happen?

The pressure of other legislative requirements may well mean that whilst the White Paper suggestions on long leasehold are very well intentioned in my view they may not fully progress. This is likely to be because of other demands on parliamentary time from numerous quarters and not least because of other ‘small’ matters that the government currently have to deal with such as Brexit. 

Mark Chick 

This article being general in nature is not a substitute for legal advice. If you require legal advice please visit www.bishopandsewell.co.uk or email: leasehold@bishopandsewell.co.uk

The governent has just published its Housing white paper.

There current press and parliamentary interest in leasehold has brought leasehold issues into the spotlight and the recent stories about escalating ground rents and also leasehold houses in particular are an area where government is going to look to intervene 

In particular see the paragraphs below:

Leaseholders

4.36 The Government will act to promote fairness and transparency for the growing number of leaseholders. Leasehold has been a traditional part of the housing market in this country but there are areas where urgent reform may be needed, particularly when buying a house on a leasehold basis. New leasehold houses can be marketed at a reduced price compared to freehold. But some purchasers are not aware at the point of sale that the associated costs of buying a new leasehold house can make it more expensive in the long run. Some freeholds and ground rents of leasehold houses are sold on and traded, with leaseholders left in the dark, and facing increasing and onerous payments. This is not in consumers’ best interests.

4.37 In particular, ground rents with short review periods and the potential to increase significantly throughout the lease period may not be offering a fair deal. We are absolutely determined to address this. We will therefore consult on a range of measures to tackle all unfair and unreasonable abuses of leasehold.

4.38 We will consider further reforms through the consultation to improve consumer choice and fairness in leasehold, and whether and how to reinvigorate Commonhold. We will also work with the Law Commission to identify opportunities to incorporate additional leasehold reforms as part of their 13th Programme of Law Reform, and will take account of the work of the All-Party Parliamentary Group on Leasehold and Commonhold.

There is quite a lot of food for thought here and is good to see that government are prepared to intevene to stamp out abuses. 

In addition to regulation and legislation as I and several of my ALEP colleagues have been saying for a number of years, part of the solution is also better education for professionals and leaseholders so that consumers are better informed.

It will be interesting to see how the debate develops and how much parliamentary time will be available to devote to these issues given other pressures such as the Brexit negotiations.

Mark Chick

Mark Chick is a solicitor dealing with leasehold issues. This note (being very general in its nature) is not a complete statement of the law in this area. It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.

If you require legal advice please visit www.bishopandsewell.co.uk