In this legal update, we look at the recent case heard in the Court of Appeal of Avon Freeholds Limited -v- Cresta Court E RTM Company Ltd [2025] Civ 1016.  This case relates to the procedure for a right to manage company (“RTM”) to acquire the right to take over the management of a block of flats and, in particular, what happens when a qualifying tenant isn’t served with notice of invitation to participate in the right to manage claim.

 Right to manage - the basic procedure

The right to manage is governed by Part 2 (Chapter 1) of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”) and a brief summary of the basic steps a RTM needs to take in order to exercise the right to manage is set out below.  More detail on this can be found in our Legal Update Exercising the Right to Manage.

1. Once the RTM has been set up, before exercising its right to manage, it must first have served a notice of invitation to participate (also known as a 'participation notice') on all “qualifying tenants” who are not already members of the RTM or agreed to be, inviting them to join the RTM. In essence, a “qualifying tenant” is a leaseholder under a long lease (longer than 21 years);

2. The RTM is then to serve a notice of claim on the landlord and any management company, stating that the RTM intends to acquire the right to manage;

3. The landlord or management company can respond to the notice of claim with a counter-notice and if they dispute the RTM’s entitlement to acquire the right to manage, they should state so in the counter-notice;

4. Where entitlement to exercise the right to manage is disputed, the RTM must apply to the First-Tier Tribunal (Property Chamber) ("FTT"), for a determination that it was so entitled, within two months of the counter notice.

Background

Cresta Court E RTM Company Ltd (“the RTM Company”) gave notice of its claim to the freeholder landlord, Avon Freeholds Limited (“the Freeholder”), by way of a claim notice, to acquire the right to take over the management of a block of flats.  

However, prior to making this claim, the RTM Company failed to serve a participation notice on the leaseholder of Flat 17. This was because, at that time (and also at the date the claim notice was served), the lease for Flat 17 (which was undoubtedly a “long lease”) had not yet been registered with Land Registry. Nor had the leaseholder agreed to become a member of the RTM Company before notice of participation was served.

The Freeholder therefore served a negative counter-notice to the notice of claim, on the basis that the claim notice was invalid due to the failure on the part of the RTM Company to serve the participation notice on this particular qualifying tenant.

As a result of the negative counter-notice, the RTM Company applied to the FTT seeking a determination that it was, on the relevant date (e.g. the date the claim notice was given), entitled to acquire the right to manage the premises.

Decision of the FTT

The FTT rejected the RTM Company’s argument that the leaseholder of Flat 17 was not a “qualifying tenant” when the claim was made, due to her lease not being registered at Land Registry (and therefore they were not required to serve her with a participation notice). The FTT decided “that a qualifying tenant for the purposes of the right to manage legislation can include the holder of a completed but as yet unregistered lease”

However, the FTT did not agree with the Freeholder that the claim notice was invalid due to the failure of the RTM Company to serve the participation notice on a leaseholder (who was otherwise a qualifying tenant but) whose lease was not registered.  The FTT maintained that the RTM Company had no knowledge that the lease existed (if it was not registered) and as “the only way in which it would know about the lease - in the absence of its having been informed about the existence of the lease - is by following up a note on the freehold title about pending applications”, then the failure to serve the participation notice did not invalidate the claim notice.

The FTT therefore dismissed the Freeholder’s challenges to the claim notice and upheld the validity of the claim notice. 

Decision of the UT

The Freeholder appealed to the Upper Tribunal (“the UT”) the FTT’s decision that the failure to serve the participation notice did not invalidate the right to manage claim. Additionally, the RTM Company cross-appealed the FTT’s decision that the leaseholder of Flat 17 was a “qualifying tenant” for the purposes of the 2002 Act (who was then required to be served with a participation notice).

The UT agreed with the FTT’s decision that the leaseholder of Flat 17 was a qualifying tenant (and so dismissed the RTM Company’s cross-appeal), despite the lease not yet being registered with Land Registry.

The UT also agreed with the FTT’s decision that the RTM Company’s failure to serve the participation notice on Flat 17 did not invalidate the claim.  The UT decided that “the acquisition of the right to manage was not prevented by the failure to give her a notice of invitation to participate” and therefore dismissed the Freeholder’s appeal.

Decision of the Court of Appeal

Both issues were again appealed, to the Court of Appeal (“the CoA”).

Issue 1 - whether the leaseholder of Flat 17 can be considered a qualifying tenant?

The CoA agreed with the UT on the first point, that an equitable tenant (e.g. whose lease is not yet registered) is a qualifying tenant.

Issue 2 - validity of the claim notice

The CoA did not agree with the UT on this issue. 

The CoA found that the failure to serve the participation notice on the leaseholder of Flat 17 did invalidate the claim notice. 

The CoA provided the following reason for maintaining that the claim notice was invalid.  The requirement to give a participation notice is prescribed by section 78 of the 2002 Act, and under Section 79(2) “The claim notice may not be given unless each person required to be given a notice of invitation to participate has been given such a notice at least 14 days before”.  Therefore, as the participation notice is a pre-condition to a valid claim notice being served, non-compliance with this statutory requirement will invalidate the notice of claim served.

As a result, the RTM Company would need to start over and serve a new notice of claim.

What this means for RTM companies

This case serves as a warning to RTMs to ensure that they strictly follow the correct procedures set out in the 2002 Act and rectify any errors made in that procedure where possible, to avoid potentially costly litigation. Where any (or potential) procedural failures are identified in the counter-notice in response to the claim notice, the advice will generally be to rectify any (or potential) errors and serve a new claim notice.

In any case, specialist advice should always be taken to assist with any right to manage claims, and certainly where a RTM is faced with a negative counter-notice.

Disclaimer

This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above.  The Legal Update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

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