Landlord and tenant – Breach of covenant – Costs – Appellant freeholder obtaining determination under section 168 of Commonhold and Leasehold Reform Act 2002 that respondent lessee in breach of covenants in lease – Appellant appealing against decision of First-tier Tribunal making orders preventing appellant from recovering costs of proceedings by way of service or administration charges – Whether appellant entitled to costs claimed – Appeal dismissed
The appellant was the freeholder of Amethyst House in Milton Keynes, where the respondent held a long lease of a flat which required her to keep her property in repair and give prior notice of any works to the landlord. In November 2021, a plumber attended the flat to replace some pipe work. In the course of his work, a pipe fractured and water flooded the building causing £30,000-worth of damage.
In February 2022, the appellant demanded from the respondent service charges for the following quarter. From that point onwards, it waived its right to forfeit her lease for breaches of the covenants to repair and to give notice.
In March 2022, the appellant applied to the First-tier Tribunal (FTT) for a determination under section 168 of the Commonhold and Leasehold Reform Act 2002 that the respondent was in breach of covenants in her lease. The FTT found in the appellant’s favour. The pipes were within the respondent’s demise and she was in breach of her covenant to keep her flat in repair. Further, she was in breach of the covenant to give notice of the works, although she was unaware of her obligation to do so.
The respondent applied to the FTT for orders under section 20C of the Landlord and Tenant Act 1985 and paragraph 5A of schedule 11 to the 2002 Act to prevent the appellant from exercising the contractual right to recover the costs of the section 168 proceedings by way of service or administration charges. The FTT noted that the respondent was in breach of covenant but had not been negligent and it had not been shown that, if she had given notice, any action would have been taken to prevent the flood and damage. The right to forfeit the lease had been waived before the application to the FTT. The proceedings were misguided and the costs unreasonably incurred. The appellant appealed.
Held: The appeal was dismissed.
(1) A landlord could not forfeit a lease for breach of covenant unless it first served notice under section 146 of the 1925 Act. Section 168 of the 2002 Act provided that such a notice could not be served unless either the breach of covenant was admitted, or a court or tribunal had determined that the breach of covenant had occurred. An application could be made to the FTT under section 168(4) for such a determination, as the first step towards forfeiture and therefore also towards claiming in the county court any of the other remedies (in particular damages and/or an injunction) that were available as an alternative in proceedings in which forfeiture was the primary remedy: Bedford v Paragon Asra Housing Association Ltd [2021] UKUT 266 (LC); [2021] PLSCS 180 considered.
(2) Costs were in the discretion of the FTT and the Upper Tribunal (UT) would not interfere with the decision unless it fell outside the range of decisions open to the FTT in the exercise of that discretion. That said, it was unusual for orders under section 20C and paragraph 5A to be made where the landlord had been successful in the proceedings. Such orders were not costs orders that followed the event. They were an interference with the landlord’s contractual right under the lease, to which the parties had signed up, and very careful thought had to be given to preventing the landlord from exercising its rights under the lease even where it had been unsuccessful.
The appellant’s case rests primarily on the decision in Bedford v Paragon Asra Housing which was not about orders under section 20C and paragraph 5A. The question there was whether proceedings under section 168 of the 2002 Act should be struck out because the right to forfeiture had been waived; the UT held that the FTT had correctly decided that the proceedings were not abusive and should be struck out, because other remedies remained available to the landlord.
(3) In the present appeal the question was whether, having brought proceedings under section 168(4), the landlord should be able to exercise its contractual right to recover its costs as service or administration charges. The UT did not agree with the respondent that the FTT decided that the contractual right was not engaged. It did not say so, and the point was not argued on that basis. Rather, it made a discretionary decision that the landlord should be prevented from exercising its right because the proceedings were misguided and the costs unreasonably incurred. The appellant was not going to obtain any benefit from the service of a section 146 notice or from forfeiture proceedings, and the section 168 application was not a necessary precursor to the enforcement of paragraph 27 of the respondent’s lease which required her to pay the costs of repairing the building where the repair was necessitated by her act or default. Those were relevant considerations.
(4) The landlord was entitled to bring the section 168 application on the pragmatic basis that success would make the paragraph 27 costs easier to enforce, if enforcement were to become necessary. However, the bringing of a section 168 application for that purpose did not entitle the landlord to its costs under the lease. The landlord’s success in that regard could not be a reason that made it just and equitable for the appellant to exercise contractual rights given to it for a quite different purpose. Putting that to one side, it was easy to see why the FTT was entitled to take the view that, insofar as the proceedings were taken in contemplation of the service of a section 146 notice, they were pointless and it was therefore not fair for the respondent to have to pay the appellant’s costs, despite its contractual right.
The conduct of the parties was equally relevant – both the appellant’s insistence that it intended to take forfeiture proceedings at a time when it had waived the right to do so, which was unmeritorious conduct even if the appellant’s officers were not aware of the waiver, and the fact that the respondent had done nothing wrong because the fault lay with the plumber.
Justin Bates (instructed by Scott Cohen Solicitors Ltd) made written representations for the appellant; Daniel Soar (instructed by Clyde and Co LLP) made written representations for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Avon Ground Rents Ltd v Ward