Breach of Covenant: Whether an RTM Company could exercise a landlord’s right to apply to the First-tier Tribunal (Eastpoint Block A RTM Company Ltd v Otubaga – 2023)
The Court of Appeal considered an appeal in a breach of covenant case, specifically as to whether an RTM Company enjoyed the rights of a landlord to make an application to the First-tier Tribunal under s.168(4) of the Commonhold and Leasehold Reform Act 2002.
The background
In Eastpoint Block A RTM Company Ltd v Otubaga [2023], the appellant right to manage company managed a block of flats within which the respondent occupied a flat under a long lease. The appellant made an application to the First-tier Tribunal for a determination as to whether the respondent had breached two covenants contained in the lease.
S.168(4) of the Commonhold and Leasehold Reform Act 2002 provides that:
“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 FTT struck the application out. Finding that it did not have jurisdiction to consider the application, the FTT stated that the application was part of the forfeiture process which an RTM Company could not exercise in the tribunal. Instead, such an application should be made to the County Court rather than to the FTT. The appellant argued that the FTT did have jurisdiction, and appealed.
The decision
The Court of Appeal found in favour of the appellant, allowing the appeal. The Court considered whether the RTM Company was entitled to make the application to the FTT, rather than a landlord.
The Court addressed two key arguments raised by the appellant, which suggested that an RTM Company should be able to make the application in the FTT:
- That enforcement of covenants fell within the scope of ‘management’ under s.96 of the 2002 Act; and
- That the RTM Company had the right to enforce ‘untransferred covenants’ under s.100(2) of the 2002 Act, ie. those covenants which fell outside the scope of s.96.
Addressing the first argument, the Court considered the provisions of s.96(5), which defined activities comprising ‘management functions’ as services, repairs, maintenance, improvements and insurance, with ‘management’ also referred to. The appellant argued that its application constituted ‘management’ under the rights it had acquired, with the consequence of this being that the landlord would therefore be unable to enforce the covenants itself, having transferred the rights to do so to the RTM Company.
The Court of Appeal found that this argument did not stand up. The term ‘management’ was not sufficiently clear to remove from a landlord its right to enforce lease covenants which would be important to it in protecting the fabric of the building.
Considering the second issue, the appellant argued that its application for enforcement of covenants could be made by either itself as the RTM Company or by the landlord. It contended that it had submitted its application in the same manner as the landlord, an argument which was rejected by the FTT.
Under s.100(2) of the 2002 Act, the RTM Company enjoyed the right to enforce covenants in the same manner as the landlord, other than the right to bring an action for forfeiture. The Court of Appeal agreed that this included the right to bring an action for breach of covenant, and specifically included a claim for a declaration of breach of covenant.
The RTM Company was not restricted as to the court in which it could choose to pursue an action, meaning that the FTT had jurisdiction to hear the application. The FTT had stated that it considered the application to fall under the forfeiture process and could not therefore hear it, but the Court of Appeal disagreed, finding that the declaration was just that: simply a declaration, which would have to be enforced through separate proceedings. The appeal was allowed.
Advice and action for landlords
This decision will be of interest to landlords and managing agents, as well as RTM Companies, in determining the parties entitled to bring proceedings against a leaseholder for actions such as breach of covenant, and the forum where those proceedings may be brought.
Although the right to pursue an action for forfeiture remains with the landlord, the RTM Company is nevertheless able to bring an application for determination in the First-tier Tribunal ‘in the same manner’ as a landlord, which a landlord may then enforce.
The Court of Appeal allowed the appeal. The RTM Company enjoyed the right to enforce covenants in the same manner as the landlord, other than the right to bring an action for forfeiture, and the First-tier Tribunal had jurisdiction to hear the application.
