An important Court of Appeal decision about forfeiture rights

Background

An RTM company of a block of flats in Thamesmead, London alleged that one of their lessees was in breach of a covenant by using their flat for business purposes and allowing their sub-tenant to cause nuisance and annoyance to other residents of the block. The RTM company applied to the FTT for the determination of the breach.  The FTT struck out the application citing the lack of jurisdiction to deal with the RTM company’s application. The reason given was that the application was, effectively, a part of the forfeiture process which an RTM company does not have the power to initiate.  It was determined that the RTM company must make any such application to the relevant County Court rather than the FTT.  The RTM company’s appeal to the Upper Tribunal was dismissed, resulting in this further application to the Court of Appeal.

The argument

The RTM company’s representative argued that it was entitled to exercise the landlord’s right to apply to the FTT under section 168(4) of the Commonhold and Leasehold Reform Act 2002 (the “Act”) which states:

“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”.

The argument was two-fold:

Firstly, it was argued that enforcement of lease covenants is within the scope of ‘management’ for the purposes of section 96 (5) of the Act which states that all ‘management functions’ under the lease come under the RTM company remit.

Secondly, and in the alternative, the RTM company has the right to enforce the so-called ‘untransferred covenants’ pursuant to s100 (2) of the Act which states as follows:

“Untransferred tenant covenants are enforceable by the RTM company, as well as by any other person by whom they are enforceable apart from this section, in the same manner as they are enforceable by any other such person”

The argument was, therefore that this section provides the landlord and the RTM company with equal entitlement to enforce lease covenants by making an application to the FTT.

Court of Appeal decision

Lord Justice Lewison was unconvinced about the first argument that the enforcement of covenants comes under the remit of ‘management’, as if that were correct, the power to enforce covenants would be transferred to the RTM company entirely, leaving the landlord unable to enforce the covenants directly.  Lord Justice Lewison stated: “it would take very clear language to deprive a landlord of its ability to enforce a covenant of that nature’’.

In respect of the second argument relating to section 100 of the Act, the Court of Appeal stated that the express power given to the RTM company to enforce lease covenants ‘in the same manner’ as the landlord included not only the remedies, but also the forum in which the issues were decided.  The only restriction on an RTM company and, reserved for the landlord alone was the exercise of forfeiture.

The court further disagreed that the application made by the RTM company was on the ‘forfeiture side of the line’ (as stated by the Upper Tribunal).  Whilst the application under section 168(4) was a precursor to forfeiture, it was a ‘discrete and separate step’ and the FTT, in any case, had no power to deal with any forfeiture action – this would have to be at  County Court.

Comment

Applying to the FTT rather than a County Court is advantageous for an RTM company in that the FTT has the necessary property expertise, adopts a more flexible approach with less formality and is, in general, a ‘no-costs’ jurisdiction meaning the parties do not have to worry about the adverse costs orders (subject to some exceptions).

The decision clarifies and confirms the scope of an RTM company’s powers under the Act.  Only the landlord will have the right to pursue forfeiture action, but an RTM company will be able to apply for and  obtain determination for a breach of lease, which will then be for the landlord to enforce.

Our Property Disputes team is highly experienced in landlords and RTM companies about their rights, particularly when it comes to forfeiture and/or other breaches of leases. If you need to understand more in relation to our rights about this issue, please get in touch with Chi Collins.