Problems often arise in residential property matters from the jurisdictional division between the First-tier Tribunal and the county court. Elizabeth Dwomoh takes a look at one such case.
Key point
- Section 100(2) of the Commonhold and Leasehold Reform Act 2002 confers the power on an RTM company to apply to the FTT for a determination that a breach of covenant or condition under section 168(4) has occurred
The flexible deployment of judges to sit in both the First-tier Tribunal and the county court was introduced to try to address some of the problems that arose from the division of jurisdiction between the two forums in respect of residential property cases. Yet jurisdictional conundrums still arise. In Eastpoint Block A RTM Co Ltd v Otubaga [2023] EWCA Civ 879; [2023] EGLR 32, the Court of Appeal was asked to consider whether a right to manage company was entitled to apply to the FTT under section 168(4) of the Commonhold and Leasehold Reform Act 2002 for a determination that the lessee was in breach of covenant or condition.
The key statutory provisions
Section 168 restricts a landlord’s power to serve a notice under section 146(1) of the Law of Property Act 1925 to forfeit a lease for breach of covenant or condition. Unless a tenant admits the breach or the same is determined in court proceedings or by an arbitral tribunal pursuant to a post-dispute arbitration agreement, a “landlord” can apply under section 168(4) to the FTT for a determination that a breach of covenant or condition in the lease has occurred.
On acquiring the right to manage, an RTM company takes over the “management functions” of the landlord under section 96 of the 2002 Act. Expressly excluded from the transfer of rights are the “functions relating to re‑entry or forfeiture”.
Section 100 of the 2002 Act deals with the enforcement of tenant covenants. In particular, section 100(2) provides that “untransferred tenant covenants”, for example, those covenants not encompassed under section 96, can be enforced by both the RTM company and the landlord. Under section 100(3), an RTM company is expressly excluded from exercising “any function of re-entry or forfeiture”.
The problem in context
Pointer Close was a block of flats in Thamesmead, London SE28. Eastpoint Block A RTM Co Ltd acquired the right to manage the block. Akehinde Otubaga was a long leaseholder of a flat in the block.
The company alleged that Otubaga had breached the user covenant in his lease by permitting his subtenant to run a business from the flat, and also to cause serious nuisance and annoyance to other residents in the block. The company made an application to the FTT under section 168(4) for a determination that Otubaga was in breach of covenant.
The company’s application was struck out. The FTT determined that the application was not for the enforcement of covenants, but was part of the process of forfeiture. An RTM company under the statute could not exercise the right to forfeit a lease – only a landlord had such power.
The Upper Tribunal (Lands Chamber) upheld the FTT’s decision, but on different grounds. It found that, when an RTM company acquired the right to manage, it did not become a landlord. An application under section 168(4) could only be exercised by the “landlord”.
Desirable…
As observed by the Court of Appeal, there were good practical reasons for an RTM company to be able to make an application under section 168(4) of the 2002 Act. An RTM company that was in day-to-day control of a block was in a better position to give evidence as to what had been occurring in the block. Further, even in cases where forfeiture was envisaged, there may be good reasons why the RTM company should make the application to the FTT.
As in the present case, where the alleged breaches related to the daily conduct of the lessee and his subtenant, the company, rather than the landlord, would be in a far better position to prove the case. Once the company secured a determination that a breach had been committed, it was open to the landlord to serve a section 146 notice and pursue any subsequent proceedings.
…and permissible
The Court of Appeal found that the reference to “landlord” in section 168(4) did not preclude an RTM company from making an application for a determination that a breach had occurred. The FTT had accepted that an RTM company had the right to enforce the covenant in the same manner as the landlord by virtue of section 100(2). Further, the covenants which Otubaga allegedly breached fell within the definition of “untransferred tenant covenants” in section 100(4).
The real question, as identified by the Court of Appeal, concerned whether the company was precluded from exercising that right by virtue of section 100(3). It was not. In making the application, the company was not “exercising a function of re-entry or forfeiture”. Although a determination under section 168(4) may be a step towards forfeiture, that was not its sole function. An applicant might also apply for a determination as a precursor to seeking an injunction or damages. The applicant in those circumstances would not be exercising a function of forfeiture in asking the FTT to make such a determination.
What the company was seeking to do was not only desirable, but permitted by statute.
Elizabeth Dwomoh is a barrister at Lamb Chambers
