Landlord and tenant – Breach of covenant – Right to manage – Appellant RTM company applying for determination whether respondent in breach of covenant in lease – First-tier Tribunal (FTT) failing to determine application for lack of jurisdiction – Upper tribunal upholding decision – Appellant appealing – Whether RTM company entitled to apply to FTT under section 168 of Commonhold and Leasehold Reform Act 2002 for determination whether lessee of flat in breach of covenant – Appeal allowed
The appellant was a right to manage (RTM) company which acquired the right to manage a block of flats in Thamesmead in south-east London.
The respondent occupied one of the flats under a long lease. In October 2021, the appellant applied to the First-tier Tribunal (FTT) for a determination under section 168(4) of the Commonhold and Leasehold Reform Act 2002 that the respondent was in breach of two of the covenants in the lease of his flat by using the premises to conduct a business and by permitting a subtenant to cause nuisance to other tenants and occupiers of the block.
Section 168(4) provided: “A landlord under a long lease of a dwelling may make an application to the appropriate tribunal for a determination that a breach of a covenant or condition in the lease has occurred”.
An issue arose whether an RTM company, which had acquired the right to manage under the 2002 Act, was entitled to apply to the tribunal for a determination under section 168(4).
The FTT decided that it was not so entitled and struck out the application on the grounds that it had no jurisdiction to consider it. The Upper Tribunal upheld that decision: [2022] UKUT 319 (LC); [2022] PLSCS 196.
The appellant appealed. The key issue was whether the right conferred on an RTM company under section 100(2) of the 2002 Act was precluded by section 100(3) which prevented an RTM company from exercising “any function of re-entry or forfeiture”.
Held: The appeal was allowed.
(1) Section 100 of the 2002 Act dealt with the enforcement of tenant covenants. Section 100(2) gave the RTM company the right to enforce the covenant “in the same manner” as the landlord.
That would include an action for damages for breach of covenant or an injunction restraining a breach; and a claim for a declaration that the lessee was in breach of covenant. The only remedy that the RTM company could not exercise was that of forfeiture.
An action for damages for breach of covenant or for an injunction restraining breach would have to be started in the county court. But if there were any issues about whether a breach had been committed, the county court would almost certainly wish to transfer those issues to the FTT pursuant to section 176A of the 2002 Act.
The court’s power of transfer to the FTT, however, was limited to cases where there was a question which the FTT would have jurisdiction to decide “on an application” to the tribunal under the 2002 Act.
(2) It was difficult to discern a policy reason why parliament would have intended a radical difference in available dispute resolution mechanisms where the county court was able to transfer the question whether there had been a breach of covenant to the FTT if the action had been brought by the landlord, but not if it had been brought by the RTM company, because it would not have had jurisdiction on an application made by the RTM company.
Moreover, in a case where it was alleged both that service charges had not been paid and that there were other breaches of covenant, the service charge aspects of the claim could be transferred to the FTT, but whether other breaches had been committed could not. Clearly, that would complicate proceedings.
(3) The express power given to the RTM company to enforce covenants “in the same manner” as the landlord was capable of encompassing not only the remedies involved, but also the forum in which those remedies or issues were decided.
The only restriction, in section 100(3), related to the exercise by the RTM company of functions of re-entry or forfeiture.
On the face of it, section 100(2) operated to confer on the RTM company a right which it would not otherwise have (because it was not a landlord) to make an application that the landlord could make under section 168(4) for a determination by the FTT that there had been a breach of covenant.
The key issue was whether section 100(3) precluded the exercise of that right.
Whereas section 96(6) excluded from the exclusive transfer to the RTM company of “functions relating to re-entry or forfeiture,” section 100(3) precluded the RTM company exercising the “function of re-entry or forfeiture”.
That suggested a narrow interpretation of section 100(3).
(4) Although section 168(1) was concerned with paving the way to a forfeiture, an application to the FTT under section 168(4) was not, itself, a proceeding for forfeiture.
It might be a necessary precondition to the exercise of a right of forfeiture, but it was a discrete and separate step. The mere fact that the FTT had found the existence of a breach of covenant might itself persuade the tenant to cease the activities complained of or remedy the breach without the need for further action.
Alternatively, it might be the prelude to obtaining a county court judgment for an injunction or damages; or a charging order; or enabling the landlord to serve notice under section 146 of the Law of Property Act 1925 and forfeit the lease.
A determination under section 168(4) was no more than a declaration that a breach had taken place and could not without more be enforced in the county court. An application to the FTT alone could not result in a forfeiture.
The FTT had no jurisdiction to entertain a forfeiture action; and no jurisdiction either to make an order for possession or to grant relief against forfeiture.
Proceedings for forfeiture had to be pursued, if at all, in the county court. Nor did the FTT have the power to consider whether a right to forfeit for breach of covenant had been waived or whether a breach had been remedied, in which case there was no question of a subsequent forfeiture: Kyriacou v Linden [2021] UKUT 288 (LC); [2021] PLSCS 197; [2022] L & TR 19 and Termhouse (Clarendon Court) Management Ltd v Al-Balhaa [2021] EWCA Civ 1881; [2021] PLSCS 214; [2022] 1 WLR 1529 considered.
Amanda Gourlay and Annie Higgo (instructed by Lazarev Cleaver LLP) appeared for the appellant. The respondent did not appear and was not represented.
Eileen O’Grady, barrister
Click here to read a transcript of Eastpoint Block A RTM Co Ltd v Otubaga
