Leasehold enfranchisement – Right to manage – Qualifying tenants – Appellant freeholder appealing against decision of Upper Tribunal concerning respondent company’s entitlement to acquire right to manage blocks of flats – Whether “shared ownership lease” granted for term of more than 21 years was “long lease” for the purposes of Commonhold and Leasehold Reform Act 2002 even if tenant’s share was less than 100% – Appeal dismissed
The appellant was the freehold owner of Canary Gateway, St Anne Street, London E14. The development comprised two blocks. Block A contained 97 flats, 17 of which were subject to a head lease in favour of a housing association (MHT) and underlet on separate shared ownership leases for terms greater than 21 years. Five of the shared ownership tenants had “staircased” (ie, increased their shares) to 100%. The other flats were either leased to MHT and underlet to social rent tenants or leased under conventional long residential leases.
The respondent was an RTM company established to acquire the right to manage Block A pursuant to the Commonhold and Leasehold Reform Act 2002. It purported to serve notices of invitation to participate on qualifying tenants who neither were nor had agreed to become members of the respondent, as required by section 78 of the 2002 Act.
The appellant contended that MHT should have received a notice because tenants with shared ownership leases with interests of less than 100% were not “qualifying tenants” under section 76(2)(e) of the 2002 Act; in any event, MHT was a qualifying tenant. The respondent argued that tenants with leases “for a term of years certain exceeding 21 years” qualified under section 76(2)(a) of the 2002 Act.
The Upper Tribunal (UT) concluded that shared ownership leases for terms exceeding 21 years were “long leases” within section 76 even where the tenants had not “staircased” to 100%: [2020] UKUT 358 (LC); [2020] PLSCS 235. When the respondent reapplied for the right to manage, the appellant argued that that decision was wrong. That was the single issue on appeal.
Held: The appeal was dismissed.
(1) The 2002 Act carried into effect a proposal published in a government consultation paper that people with leases of flats should be given a new right to take over the management of their building without having to prove shortcomings on the part of the landlord and without payment of compensation. A qualifying tenant for the purposes of making a claim included a tenant under a long lease.
Sections 76 and 77 of the 2002 Act specified what was a long lease, which included a shared ownership lease granted in pursuance of the right to buy conferred by Part V of the Housing Act 1985 where “the tenant’s total share is 100%” (section 76(2)(e)); or where it was granted in pursuance of that Part of that Act as it had effect by virtue of section 17 of the Housing Act 1996 (the right to acquire) (section 76(2)(f)).
The “or” between section 76(2)(e) and (f) of the 2002 Act meant that those paragraphs were alternatives, and that the “or” was also intended to apply more generally. There was no question of a lease “granted for a term of years certain not exceeding 21 years” within section 76(2)(a) also having to fall within one or other of paragraphs (b) to (f). The various paragraphs represented a series of gateways. A lease would be a “long lease” if any of paragraphs (a) to (f) was in point. That suggested that a shared ownership lease for a term of more than 21 years would be a “long lease” whether or not the tenant had a 100% interest: that was in keeping with paragraph 13 of the consultation paper which led to the enactment of the 2002 Act.
(2) In the end, it was the language parliament had chosen to use which had to be the primary guide, both to purpose and detailed application. In any case, the thrust of paragraph 13 of the consultation paper was to the effect that the legislation which was being proposed should borrow from the Leasehold Reform, Housing and Urban Development Act 1993. The right to manage was to be exercisable by “qualifying tenants, as defined in the 1993 Act”, which included a tenant under a long lease. The paragraph could not be taken as a reliable guide to whether it was intended that a shared ownership lease for more than 21 years which would naturally fall within section 76(2)(a) of the 2002 Act would be a “long lease” only if the tenant had a 100% interest: Settlers Court RTM Co Ltd v FirstPort Property Services Ltd [2022] UKSC 1; [2022] PLSCS 5; [2022] 1 WLR 519 considered.
(3) The fact that paragraphs (d), (e) and (f) might be rendered of little importance if any lease for a term in excess of 21 years was deemed a “long lease” under paragraph (a) did not matter. Parliament was intending to provide for particular circumstances which were uniformly likely to occur infrequently, if at all. It was not significant that the vast majority of right to buy, shared ownership, rent to mortgage and right to acquire leases would fall within section 76(2)(a).
Further, as to the policy underlying section 76, tenants with long shared ownership leases who had not staircased to 100% would still have an obvious interest in how the premises were managed, the more so since they would typically pay full service charges. As such, parliament might have been expected to have intended them to be able to participate in management issues.
(4) Accordingly, a tenant with a shared ownership lease “granted for a term of years certain exceeding 21 years” had a “long lease” within the meaning of section 76 of the 2002 Act regardless of whether the tenant had a 100% interest. Hence, every shared ownership tenant in Block A was a “qualifying tenant” for the purposes of the 2002 Act. Parliament could not be taken to have intended to restrict the unqualified ambit of section 76(2)(a) of the 2002 Act by adding a paragraph purporting to widen rather than to narrow the definition of “long lease”: Brick Farm Management Ltd v Richmond Housing Partnership Ltd [2005] EWHC 1650 (QB); [2005] 3 EGLR 57; Richardson v Midland Heart Ltd [2008] PLSCS 205; [2008] L&TR 31 and Corscombe Close Block 8 RTM Co Ltd v Roseleb Ltd [2013] UKUT 81 (LC); [2013] PLSCS 60; [2013] L&TR 16 considered.
Justin Bates and Katherine Traynor (instructed by Scott Cohen Solicitors) appeared for the appellant; Mark Loveday and James Castle (instructed by Jobsons Solicitors) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Co Ltd
