Breach of Covenant: Evidence required to demonstrate a breach of covenant in forfeiture proceedings (Marchitelli v 15 Westgate Terrace Ltd – 2020)

Where a landlord wishes to forfeit a lease on grounds of breach of covenant, what evidence is sufficient in order to determine the nature and extent of the breach?

The Background

In Marchitelli v 15 Westgate Terrace Ltd [2020], a long lease was held by the appellant tenant of a flat in London. The lease contained a covenant on the part of the tenant “Not to do or permit or suffer in or upon the Demised Premises…any illegal or immoral act or any act or thing which may be or may become a nuisance or annoyance or cause damage to the Lessors or the tenants of the Lessor or the occupiers of any part of the Building.”

The Landlord had brought an application to the First-tier Tribunal (FTT) under s168(4) of the Commonhold and Leasehold Reform Act 2002 seeking a declaration that the lessee was in breach of this covenant; alleging that the tenant had in fact sublet the property to a relative, who was in turn using the premises as a brothel.

It was agreed that the tenant herself had not been involved in the actions which amounted to a breach, but the Landlord averred that she had nevertheless failed to prevent it from continuing.

The appellant submitted that she had trusted her agent with the management of the property, particularly following her diagnosis with a serious illness. Upon being made aware of the breach, she alleged to have instructed the agent to terminate the subletting arrangement and recover possession of the premises.

The First-tier Tribunal Decision

The FTT held that there was significant circumstantial evidence that the breach complained of, had occurred, despite a lack of direct evidence of the misuse of the property and made a determination to that effect.

The tenant appealed the FTT decision on two grounds; namely, that the landlord had failed to discharge the evidential burden in proving the breach and that the evidence presented was insufficient to establish that the tenant had permitted or allowed the breach to continue and as such, she could not be held to have breached the covenant.

The Appeal Decision

The Upper Tribunal (UT) found in favour of the landlord on the first ground of appeal, agreeing with the FTT that although the evidence was predominately circumstantial, sufficient evidence had been presented to infer that the property was being used for a purpose that breached the aforementioned lease covenant.

In considering the second ground, the UT gave regard to Berton v Alliance Economic Investment Co [1922] and reaffirmed that that the actions of an agent could still result in a tenant’s breach of covenant, and that the appropriate question for the FTT to consider was ‘whether a reasonable person would have taken steps to prevent the prohibited use which the tenant failed to take’.

Ultimately, the UT found that no finding of fact had been reached in respect of the appellant’s actions, or indeed lack of action, and that the FTT had not given sufficient explanation as to why it had decided that the appellant and her agent had not taken sufficient steps. The second ground of appeal was allowed in favour of the appellant. This matter was remitted back to the FTT, to be heard by another panel, who were to reconsider whether the appellant had breached the user covenant.

Advice and action

Although fact-specific, the case highlights that when considering a breach of covenant where it is not the tenant directly committing the breach, it may not be sufficient to merely establish that a breach has occurred. Rather, there is a need to establish that the tenant has permitted or suffered to permit the breach, either through its own actions or its lack of action.

It also reaffirms that a tenant can be held liable for the actions of its agent.

In addition, it highlights the importance of ensuring that a determination is specific and make an express finding of breach so as to enable a Landlord to serve a valid Section 146 Notice. Failure to do so could result in significant difficulties in the event that the Landlord later wishes to enforce the Section 146 Notice via forfeiture proceedings. The County Court, in assessing the forfeiture claim, must be able to rely on the certainty of a decision from the FTT to conclude the seriousness of the breach, the culpability of the appellant and the appropriate response to an application for relief from forfeiture.