Mercia Investment Properties Ltd v Northway

Landlord and tenant – Breach of covenant – Application to leasehold valuation tribunal – Costs – Appellant applying to LVT for determination of whether respondent tenant in breach of covenant by failure to notify appellant of assignment of lease within period specified in lease – Such notice sent and cheque for registration fee banked prior to making of application – LVT finding application not vexatious but none the less ordering appellant to pay respondent’s costs – Para 10(2)(b) of Commonhold and Leasehold Reform Act 2002 – Whether LVT having jurisdiction to make such costs order – Appeal allowedIn May 2011, the respondent took an assignment of a lease, the terms of which required the tenant, within one calendar month of any assignment, to produce notice of such assignment to the appellant landlord. The respondent did not send notice to the appellant within that period. In November 2011, the appellant’s managing agent wrote to the respondent, stating that a breach of covenant had occurred by reason of that failure an asking her to admit the breach. A few days later, the respondent sent a notice of assignment to the managing agent, together with a cheque for £132 in respect of the registration fee. The appellant banked the cheque and the amount was debited from the respondent’s account.The appellant applied to the LVT, under section 168(4) of the Commonhold and Leasehold Reform Act 2002, for a determination that there had been a breach of covenant. Contesting the application, the respondent contended that the breach had been rectified by the sending of the notice and cheque and remedied when the appellant presented that cheque to the bank. She submitted that the application should be dismissed as being vexatious and an abuse of process and that the appellant should be ordered to pay her costs.The LVT found that the appellant had waived the breach of covenant when it presented the respondent’s cheque to the bank. Although it refused to make an explicit finding that the proceedings were vexatious or an abuse of process, it stated that they were not far from being so. It disallowed the appellant’s costs and ordered it to pay the respondent’s costs.On appeal, the appellant contended that once the LVT had determined that the application was not frivolous or vexatious, it had no power to award costs since the test under para 10(2)(b) of Schedule 12 to the 2002 Act was not met; moreover, even if the application had been vexatious, any award of costs would have been limited to £500 by virtue of para 10(3)(a) and the LVT would have had no power to make the order it did, which was effectively an unlimited costs order for unspecified costs.Decision: The appeal was allowed. The LVT had erred in making an award of costs in the respondent’s favour in circumstances where, although it had found the appellant’s conduct to be not far short of vexatious or an abuse of process, it had not found it actually to be so. The order was also unlawful in that it was made without reference to the £500 limit imposed by para 10(3)(a) of Schedule 12 to the 2002 Act. The LVT’s costs order was therefore quashed.The appeal was determined on the written representations of the parties.Sally Dobson, barrister