Forfeiture - s168

Introduction

Section 168(4) of the Commonhold and Leasehold Reform Act 2002

This section provides that a landlord under a long lease of a dwelling may not serve a notice under section 146(1) of the Law of Property Act 1925 (restriction on forfeiture) in respect of a breach by a tenant of a covenant or condition in the lease unless the provisions of subsection (2) are satisfied:

"(2) This subsection is satisfied if—

(a) it has been finally determined on an application under subsection (4) that the breach has occurred,

(b) the tenant has admitted the breach, or

(c) a court in any proceedings, or an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement, has finally determined that the breach has occurred.

(3) But a notice may not be served by virtue of subsection (2)(a) or (c) until after the end of the period of 14 days beginning with the day after that on which the final determination is made.

(4) 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.

(5) But a landlord may not make an application under subsection (4) in respect of a matter which

(a) has been, or is to be, referred to arbitration pursuant to a post-dispute arbitration agreement to which the tenant is a party,

(b) has been the subject of determination by a court, or

(c) has been the subject of determination by an arbitral tribunal pursuant to a post-dispute arbitration agreement.

The appropriate tribunal in England is, generally, the First Tier Tribunal, and in Wales the Leasehold Valuation Tribunal (sub.s (5)).

Whether lessee “permitted or suffered” a breach of the lease?

Guidance on approach Tribunal should take

Marchitelli v 15 Westgate Terrace Ltd

[2020] UKUT 192 (LC)

Summary

The Upper Tribunal gave guidance to First Tier Tribunals regarding their approach to s168 determinations and how findings of fact ought to be made.

Facts

The Respondent landlord issued an application under s168(4) of the Commonhold and Leasehold Reform Act 2002 following concerns that the Appellant lessee’s tenants were in breach of covenants in the headlease by running a brothel. The lessee had appointed a third party to manage the property and claimed to be unaware of any such activity in the flat.

Issues

The Tribunal had to consider whether:

  • There was sufficient evidence to establish that the Appellant’s flat was being used as a brothel; and
  • The Appellant permitted or suffered the use of the flat for prostitution?

First instance

The FTT accepted that there was no direct evidence of illegal activity in the property. However, it held that there was enough circumstantial evidence to suggest that it was being used as a brothel, or for business purposes or an immoral purpose, in contravention of the user covenant in the lease.

The FTT gave little consideration to the Appellant’s evidence that she had been seriously ill during the time of the alleged breach and had instructed her agent to look into the issue. Rather, it found that she had “taken few active steps to resolve the situation”.

Decision on appeal

The Upper Tribunal held that the FTT was entitled to make a finding on the circumstantial evidence. Whilst it was conceded that there was no direct evidence of the property being used as a brothel, the considerable evidence to support this conclusion justified the inference being made. The appeal on this ground was therefore dismissed.

As to the second ground of appeal, the Martin Roger QC relied on Berton v Alliance Economic Investment Co [1922] 1 KB 742 to establish whether the Appellant had “permitted or suffered” the breach by the tenant. It put forward two key propositions in issue in the case, namely:

(i) A tenant may be guilty of a breach of covenant consisting of or permitting or suffering a prohibited a use if the use has been permitted or suffered by the lessee’s agent; and

(ii) All the facts and circumstances must be considered when determining whether a tenant has omitted to take all reasonable steps.

A key issue for the Respondent was that the FTT had not made an express finding that the Appellant had permitted or suffered the use of her flat for prostitution. Such a serious breach of covenant could not be inferred from generalised statement, as the purpose of proceedings under section 168(4) of the 2002 Act is to establish the breaches complained of so that a valid section 146 Notice can be served under the 1925 act.

In accordance with Akici v L R Butlin Ltd [2006] 1 WLR 201, in order for a valid section 146 notice to be served, no lessee could have reasonable doubt as to the particular breaches specified.

Further, unless the FTT makes specific findings of fact as to the alleged breaches and the tenant’s part in it, the County Court cannot determine whether to forfeit a lease or grant relief against forfeiture. As the FTT made no findings of fact as to the Appellant’s knowledge of the breach of covenant, the Upper Tribunal allowed the appeal on this ground and the matter was remitted the matter back to the FTT for further consideration.

Comment

This decision is a useful reminder of the importance in ensuring that s168 determinations are as specific as possible in order for subsequent s146 Notices to be valid. Moreover, it reinforces the notion that in such cases relating to covenants, it is not sufficient to establish that there has been a breach. Rather, there has to be clear evidence to show that a lessor’s actions or inactions were such as to permit or suffering that use to occur.

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