Flat owners exercising their enfranchisement rights, i.e. to acquire a new lease alone or the freehold collectively, have to protect their position by applying to the Tribunal for it to determine the terms absent an agreement having been reached within a period of six months from the landlord’s counter notice being given.
Negotiations will continue alongside Tribunal proceedings. The Tribunal gives parties the opportunity to have the proceedings held in abeyance for a period of three months to give more time for those negotiations to bear fruit.
There is a potential trap for the unwary however as the three month stay has a string attached, namely that if the parties don’t inform the Tribunal at the end of that time whether settlement has been reached then the flat owners’ protective application may be struck out.
The flat owners appealed the striking out in this case seeking to have their application reinstated. The Tribunal at first instance that had struck out the application rejected the application for reinstatement saying that while striking out may of course prejudice one party (the flat owners) that was justified to ensure the efficient running of the Tribunal in line with its overriding objectives.
The flat owners contended the decision was “unjust, disproportionate and an improper use of the Tribunal’s case management powers and that it didn’t take into account relevant considerations and failed to apply the correct test for relief”.
The Upper Tribunal agreed on the basis that
- striking out had a dramatic consequence for the appealing flat owners in that they would have to wait another 12 months before being able to make a fresh claim (by which time the premium may have moved upwards) and they would incur wasted costs with the landlord;
- the sanction was one-sided in that the landlord in this case would enjoy a boon where the flat owners’ solicitor failed to inform the Tribunal of the position in time;
- the application for relief should have been dealt with in line with the Court of Appeal’s guidance in Denton v TH White Limited [2014] 1WLR3926 which required the Tribunal to consider the seriousness of the breach of the procedural requirement, whether there was a good reason for it and even if there was not whether it would be just to grant relief.
The flat owners succeeded on all these grounds, i.e.:
- the breach was not serious;
- no prejudice or cost was caused to the respondent landlord; and
- it was just to give relief due to the dramatic consequence described.
The Upper Tribunal also pointed out the Tribunal in the first instance applied the wrong test when refusing permission for appeal. Permission should be given where there is a realistic prospect of success, “realistic” meaning “not fanciful” as opposed to there being a likelihood of success. Therefore rather than pre-judging whether the application would succeed on a balance of probabilities it just needed to be satisfied that the prospect of success was more than fanciful.
The outcome of this decision may be for Tribunal directions to be observed less vigorously. Then again, the party who might previously have let time pass hoping to benefit from the other party missing a deadline may now see that there is now no incentive to do so and so perhaps seek to agree matters sooner and help keep the Tribunal informed.