Landlord and tenant – Breach of covenant – Shared ownership lease – Unlawful subletting – Respondent landlord applying for determination of breach of covenant – Appellant tenant raising defence of waiver by acceptance of rent with knowledge of breach – First-tier Tribunal (FTT) refusing application to strike out proceedings – Appellant appealing – Whether respondent waiving right to forfeit – Appeal dismissed
In 1983, a lease was granted of 5 St Stephens Cottages, a two-bedroom terraced house in Kingston-upon-Thames, for a term of 99 years on a shared ownership basis. A premium was paid representing 25% of the market value of the property and a rent agreed representing 75% of its rental value. The lease included an absolute covenant not to underlet.
The appellant acquired the lease in November 2009. In October 2010, the appellant sought the respondent’s permission to sublet the property for a year. Permission was granted on the specific assurance that the appellant would resume occupation at the end of 2011. In fact, the appellant continued to sublet the property.
The respondent housing association acquired the freehold in 2017. In 2018, the respondent served a notice of intention to seek possession in respect of arrears of rent of £1,125. Despite becoming aware of the breach of covenant by subletting, the respondent did not decide to forfeit the appellant’s lease until May 2020 and continued to collect rent by monthly direct debit.
The respondent applied under section 168(4) of the Commonhold and Leasehold Reform Act 2002 for a determination that the appellant had repeatedly breached the terms of the lease by subletting the property. It said that it had been unaware that the appellant was subletting after expiration of the original one-year permission until they were alerted to the breach in 2018.
The appellant applied under rule 9(3)(d) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 to strike out the proceedings because the right to forfeit the lease had been waived by the respondent’s acceptance of rent knowing that the appellant was subletting the property. The FTT refused the application. The appellant appealed.
Held: The appeal was dismissed.
(1) Under rule 9(3)(d) of the 2013 Rules, the FTT had power to strike out the whole or part of proceedings if it considered them to be frivolous or vexatious or otherwise an abuse of the process of the tribunal.
Striking a case out as an abuse of process was not to be done lightly. In deciding whether or not to exercise the power, the tribunal had to examine the circumstances of the case scrupulously to ensure that to strike out the claim was a proportionate means of achieving the aim of controlling the process of the tribunal and deciding cases justly. First, the tribunal had to determine whether the claimant’s conduct was an abuse of process; secondly, if it was, the tribunal had to exercise its discretion whether or not to strike out the claim. At that second stage, the usual balancing exercise, and in particular consideration of proportionality, became relevant: Summers v Fairclough Homes Ltd [2012] UKSC 2 and Cable v Liverpool Victoria Insurance Co Ltd [2020] EWCA Civ 1015 followed.
(2) Where a tenant committed a breach of covenant giving rise to the right to forfeit the lease, the landlord might forfeit the lease or affirm its continuation. There was an important distinction when considering the issue of waiver in the context of a breach of covenant. Waiver of the right to forfeit was not the same as waiver of a breach of covenant. The former depended on the principle of election and only barred one remedy, leaving the landlord’s right to damages intact. The latter depended on the inference of consent, and barred all the landlord’s remedies in respect of the breach in question. Neither of those kinds of waiver would prevent the landlord from relying on the covenant in respect of subsequent breaches: Faiz v Burnley Borough Council [2021] EWCA Civ 55; [2021] PLSCS 19 followed.
By section 148(1) of the Law of Property Act 1925, any waiver by a lessor of the benefit of any covenant extended only to the breach to which the waiver specifically related and did not operate as a general waiver of the benefit of the covenant.
(3) The FTT’s jurisdiction under section 168 of the 2002 Act, was to determine whether a breach of covenant had occurred. Before the right to forfeit for a breach of covenant could be waived, a breach of covenant must first have been committed. It was the determination of that prior question which had been allocated by statute to the FTT. Determining whether a covenant had been waived was a different matter from determining whether the right to forfeit for a particular breach of the covenant had been waived.
Waiver could not be relied on as a defence to a section 168 application. The FTT had jurisdiction only to determine whether a breach had occurred and not whether the tenant had a defence to a subsequent claim to forfeit the lease on the basis of that breach.
(4) The availability of alternative remedies for the breach of covenant was a relevant consideration in assessing whether the application was an abuse of process. The most obvious alternative remedy in the face of a persistent breach of covenant would be an injunction compelling the tenant to comply, either by requiring him to terminate the current sub-tenancy or by prohibiting any future subletting. There was also the possibility of a claim for compensatory damages on a negotiating basis. A waiver of the right to forfeit for the breach would not provide a defence to either type of claim, although waiver might be relevant to the exercise of the court’s discretion to grant an injunction if no further breach had been committed since the respondent last demanded rent.
The FTT’s decision not to strike out was correct because the proceedings were plainly not an abuse of process. Neither the detailed facts nor the application of the law to those facts were clear. Until the facts about the breaches were established, it could not be ascertained whether the respondent had sufficient knowledge of those facts to amount to waiver; and it could not be suggested that the proceedings were an abuse of process.
Accordingly, the respondent was free to serve notice under section 146 of the 1925 Act and, if it chose, to commence forfeiture proceedings. The appellant could then raise the issue of waiver in its proper place, as a defence to the forfeiture claim.
Rebecca Cattermole (instructed by Direct Access) appeared for the appellant; Terence Gallivan (instructed by Devonshires LLP) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Bedford v Paragon Asra Housing Ltd
