The Court of Appeal handed down judgment today in Avon Ground Rents Limited v Canary Gateway (Block A) RTM Company Ltd [2023] EWCA Civ 616, in which it decided that leaseholders of flats on "shared ownership leases" should be able to participate in right to manage claims, even if they have not staircased to 100% ownership.
Due to the near identical wording in the Commonhold and Leasehold Reform Act 2002 (2002 Act) and the Leasehold Reform, Housing and Urban Development Act 1993 (Avon v Canary Gateway (Block A) RTM [2023] EWCA Civ 616 (1993 Act) it also seems clear that shared ownerships leases will also have the right to a lease extension or to participate in a collective enfranchisement of their building as well.
This topic has been the subject of conflicting authorities, and so it is welcome relief to landlords and tenants that the Court of Appeal has clarified the issue.
The disputed issue in this case arose in the context of a claim for right to manage made by certain leaseholders of Block A, Canary Gateway, London E14. 17 out of 97 flats in the block were held on shared ownership leases. Out of those 17, five had staircased to 100%, but the remainder owned a lower percentage.
The 2002 Act allows "qualifying tenants" to participate in right to manage claims and section 75(1) of the 2002 Act says that a "person is the qualifying tenant of a flat if he is a tenant of the flat under a long lease".
Section 76(2) of the 2002 Act then goes on the specify what is a "long lease", and a list of categories of leases from (a) to (f) are given. The relevant two in this case were:
(a) it is granted for a term of years certain exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by or to the tenant, by re-entry or forfeiture or otherwise
and
(e) it is a shared ownership lease, whether granted in pursuance of that Part of that Act or otherwise, where the tenant’s total share is 100 per cent.
It was common ground to the parties in this case that the 12 shared ownership leases that had not staircased to 100% would not qualify under section 76(2)(e). The landlord's position was therefore that they were not qualifying tenants.
The RTM company's arguments were that the shared ownership leases that were not staircased to 100% qualified anyway, as they were simply leases exceeding 21 years, and so qualified under section 76(2)(a).
At first instance Fancourt J preferred the RTM company's arguments, and decided that the shared ownership leases were "long leases" because they exceeded 21 years. The landlord appealed.
Previous Cases
The Court of Appeal had to grapple with the conflicting authorities on the cases.
In Brick Farm Management Ltd v Richmond Housing Partnership Ltd [2005] EWHC 1650 (which concerned the 1993 Act) the judge said that if the landlord's arguments were accepted it would narrow the (similarly worded) provisions in the 1993 Act that included all leases exceeding 21 years, saying it "does violence to the words of section 7 of the 1993 Act". Brick Farm was therefore used as authority since 2005 that shared ownership leases exceeding 21 years were "long leases".
A conflicting decision then appeared in 2008 in Richardson v Midland Heart Ltd [2008] L&TR 31 in which the judge in that case decided the opposite. He determined that if the shared ownership leases that had not staircased to 100%, they were not "long leases" due to the wording of section 76(2)(e).
Finally in 2013 Corscombe Close Block 8 RTM Co Ltd v Roseleb Ltd [2013] UKUT 81 (LC) the judge followed the decision in Brick Farm, albeit that the landlord did not appear in that appeal, and so the point was not fully argued.
Court of Appeal Decision
The Court of Appeal noted the appearance of an "or" between paragraphs (e) and (f) of section 76(2) of the 2002 Act. The Court decided that this meant the paragraphs were alternatives, and so a lease could fall within any of those subparagraphs to be defined as a "long lease".
On that reading it is clear that any lease exceeding 21 years in length will qualify as a long lease.
On the face that would mean the parts of subsection (e) requiring a shared ownership lease to staircase to 100% are irrelevant, unless the shared ownership lease in question is under 21 years in length. That did not deter the Court of Appeal which commented that a shared ownership leaseholder pays service charge and has as much of an interest in the management of their block as any other leaseholder.
The landlord's reliance on the consultation paper published by the Government in 2000 prior to the 2002 Act being enacted was not accepted. The language of the legislation itself is what must be analysed.
The Court of Appeal therefore decided that the natural reading of section 76(2) was that a shared ownership lease exceeding 21 years should be a long lease and therefore a qualifying tenant, regardless of what percentage the leaseholder has staircased to.
The full decision of the Court of Appeal can be read here.
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