Landlord and tenant – Breach of covenant – Insurance – Costs – Covenant requiring respondent leaseholder to insure in joint names with appellant landlord – Appellant seeking determination that respondent in breach of covenant – First-tier Tribunal refusing to make determination and ordering appellant to pay contribution towards respondent’s costs – Appellant appealing – Whether breach of covenant occurring – Whether appellant behaving unreasonably in conduct of proceedings – Appeal allowed
In 1983, the then freeholder granted a 99-year lease of the upper maisonette at 14 Folkestone Road, London, a mid-terrace Victorian house on three floors divided into a ground floor flat and an upper maisonette. In the following year it granted a lease of the ground floor flat for the same term.
The appellant and her husband acquired the lease of the maisonette in 1988. In 1992, the appellant alone acquired the freehold of the building, subject to the residential leases. In 1999, the respondent acquired the lease of the ground floor flat. Both parties let their flats to tenants.
For more than 20 years, the appellant complained to the respondent about her and her tenants’ suggested failures to comply strictly with the terms of the lease of the ground floor flat. 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 covenant. The appellant alleged failure to repair the common parts of the building; failure to insure the demised premises in accordance with para 17 of the third schedule to the lease; and permitting tenants to obstruct the entrance way by placing rubbish bins there contrary to para 7 of the fourth schedule.
The FTT refused to make a determination under section 168(4) in respect of any of the allegations. It made an order for costs against the appellant under rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013. The FTT took the view that she had behaved unreasonably in connection with the application and required her to pay £35,841 as a contribution towards the respondent’s costs. The appellant appealed.
Held: The appeal was allowed.
(1) This was a case in which a leaseholder who had undoubtedly been in breach of covenant had been unwilling to make a timely admission. The FTT had erroneously refused to make a determination that a breach had occurred on grounds that the breach had been waived or remedied. The allocation of functions between the FTT and the county court in residential breach of covenant cases might sometimes be inconvenient but it was the policy of section 168(4) of the 2002 Act which the FTT was required to apply and which it should not seek to circumvent. It was clear on the face of the statute that the FTT’s only task was to determine whether a breach of covenant had occurred. Before the right to forfeit a breach of covenant could be waived, a breach of covenant first had to have been committed. It was the determination of that prior question which had been allocated by statute to the FTT. Whether any breach had been remedied, or the right to forfeit for that breach had been waived, were not questions which arose under its jurisdiction: Atherton v MB Freeholds Ltd [2017] UKUT 497 (LC); [2018] EGLR 9 and Bedford v Paragon Asra Housing Association Ltd [2021] UKUT 266 (LC); [2021] PLSCS 180 followed.
In the present case, the FTT was wrong to refuse to make a determination because it considered the breach had been remedied by the date of the hearing. Nor was there anything in section 168 which supported the respondent’s submission that the FTT was restricted to considering whether a breach of covenant existed at the date of the application. There was no justification for refusing to make a determination that a breach had occurred simply because the breach might have been remedied, or the right to forfeit had been waived. The FTT had no jurisdiction over either of those matters.
(2) The FTT was also wrong to refuse a determination that the respondent’s omission to obtain cover against loss of rent was a separate breach of covenant. The appellant had explained in her statement of case what breaches she maintained had been committed, and a failure to obtain insurance against loss of rent was not mentioned. The FTT could properly have refused to make a determination on the basis that the point was not before it. But, having allowed the allegation to be made, the FTT ought to have determined that the absence of cover for loss of rent in the policy was a breach.
The appeal was therefore allowed and the tribunal would substitute a determination under para 168(4) on both breaches. A breach of para 17 of the third schedule occurred for the whole of the period when the insurance was not in joint names.
(3) The FTT’s decision to make an order under rule 13(1) was based on a flawed assessment of the relevant considerations and took account of irrelevant considerations. The tribunal could not be satisfied that the FTT would have made the same order for the payment of more than £35,000 in costs if it had come to the correct conclusion about the breach of the insurance covenant.
The FTT could not properly have made an order requiring the appellant to pay all of the respondent’s costs. However, the appellant’s conduct in bringing the application before the FTT was unreasonable in some respects and it was appropriate to order that the appellant pay part of the respondent’s costs. The alleged breaches of covenant had been minor, no real damage had been suffered and there had never been any realistic prospect of a forfeiture, yet the appellant’s refusal to deal reasonably with the respondent and her insistence on precise compliance with the terms of a poorly thought out lease had had substantial financial repercussions for the respondent. It was appropriate to make an order for costs not only to reimburse expenditure by the respondent but also to discourage the appellant from a repetition of the same conduct.
The jurisdiction under rule 13(1)(b) was flexible and the amount which might be awarded need not be limited to the costs caused by the unreasonable conduct. Nevertheless, a causal relationship between the unreasonable behaviour which was found to have occurred and costs which had been incurred should be taken into account. The appropriate order was that the appellant contribute £10,000 towards the respondent’s costs.
Carl Fain (instructed by Southgate & Co) appeared for the appellant; Grant Armstrong (instructed by YVA Solicitors) appeared for the respondent.
Eileen O’Grady, barrister
