Court of Appeal confirms shared owners are entitled to apply for the right to manage their block

The Court of Appeal has confirmed that a shared ownership lease granted for more than 21 years is a ‘long lease’ for the purposes of the right to manage legislation, irrespective of the size of the tenant’s share in the property.

In Avon Ground Rents Ltd v Canary Gateway (Block A) RTM Company Ltd [2023] EWCA Civ 616, the Court rejected an appeal by the landlord (Avon) who argued a group of 12 shared ownership leaseholders were excluded from participating in the statutory right to manage (RTM) scheme as they did not own 100% of the leasehold interest in their property.

The dispute was between the freeholder of a development in Canary Wharf (Avon) and a group of leaseholders who have been attempting to acquire the right to manage their block since 2019.

The relevant block is made up of 97 flats known as Block A. 17 of those flats are let to Metropolitan Thames Valley Housing (MTVH) on a headlease and then, in turn, sublet on shared ownership leases. The remaining flats in Block A are either leased to MTVH and underlet to social rent tenants or leased under long residential leases.

Avon opposed the 2019 RTM application made by the leaseholders of Block A to acquire the right to manage their block on grounds that tenants with shared ownership leases who had interests of less than 100% were not ’qualifying tenants’ as defined in right to manage legislation and that the ‘notice of invitation to participate’ should have been given to MTVH. Avon therefore argued that the statutory process was not properly followed.

In 2020, the Upper Tribunal ruled that the 12 leaseholders had ‘long leases’ for the purposes of the legislation and were thus ‘qualifying tenants’ but found that the leaseholders’ application to acquire the RTM failed for other reasons.

In 2021, the leaseholders applied again to acquire the right to manage Block A but Avon opposed the second application as well. The leaseholders’ application was upheld by the First Tier Tribunal in 2022, but Avon lodged an appeal focusing on whether shared ownership residents were entitled to apply for the right to manage.

The appeal centred on whether a ‘qualifying tenant’ needed to have a long lease of over 21 years and whether shared ownership leases, where the leaseholder had not yet ‘staircased’ their interest to 100%, fell within the definition of a ‘long lease’. Lord Justice Newey held that a shared ownership lease for more than 21 years, whatever the percentage interest held, will be a ‘long lease’ for the purposes of the RTM legislation.

Avon’s appeal was dismissed meaning the leaseholders have acquired the right to manage their block directly.

In 2020, the Law Commission said the current right of shared ownership leaseholders to claim the right to manage was unclear and that case law in relation to leaseholders who had not staircased to 100% was ‘conflicting’. This clear decision of the Court of Appeal has helpfully cleared up that confusion surrounding the rights of shared ownership residents.

Given shared ownership leaseholders pay full service charges and have a vested interest in how their block is run, this is a positive result. It is also a timely decision given the provisions of the recently issued Renters (Reform) Bill which contains provisions which make it clear that shared ownership leases are not to be treated as Assured Shorthold Tenancies as they have been treated since 1997.

With this in mind, it seems the direction of travel is that Shared Owners are to be treated on par with full long leaseholders which will only increase the demand for the product.

For more information, please contact Mark Foxcroft or Jatinder Bhamber.

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