Marchitelli v 15 Westgate Terrace Ltd (2020) UKUT 192 (LC)

An Upper Tribunal appeal of an FTT decision that the leaseholder, Ms M, was in breach of lease, and specifically a restriction

“Not to do or permit or suffer in or upon the Demised Premises or any part thereof 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.”

15 Westgate had brought an application to the FTT for determination of breach, alleging that Ms M’s flat was let to a tenant who was using or allowing it to be used as a brothel between October 2017 and October 2018. The letting was allegedly arranged by a Mr Flavio Torino, a contact or agent of Ms M. The allegation was not that Ms M was using the flat as a brothel, “but that her tenant was doing so; the complaint against the appellant was that she had refused to acknowledge what was going on in her flat or to take steps to prevent it.”

A couple of leaseholders and the managing agent gave evidence.

The leaseholder of the ground floor flat gave evidence – at the relevant time his tenants were two young women.  “Mr Foley’s evidence concerned complaints he had received from his tenants about disturbances caused late at night by visitors wishing to be admitted to the appellant’s flat on the top floor; these visitors would ring the door-bell of Flat 4 in the mistaken belief that it was the address they sought.  On at least one occasion the tenants were said to have been propositioned for sex by a late-night caller.” As the director of the freehold company, this leaseholder had also emailed Ms M’s agent, Mr Torino about the occupants if Ms M’s flat repeatedly.

The leaseholder of a first floor flat gave evidence which “concerned complaints he had made to the appellant about the noise of people going up and down the staircase between midnight and 7.00am, beginning in October 2017 but becoming worse during November and December.  Eventually he came to believe that Flat 1 was occupied by a person calling themselves Natalie Ferraz.  Post addressed to a person of that name, at Flat 1, was delivered to the building. Mr Hugelshofer recorded that, in the early hours of 16 December 2017, he had confronted the occupier of Flat 1, whom he took to be Natalie Ferraz, and who appeared to him to be a transvestite.  He formed the view on that occasion that the flat was being used as a brothel.

Mr Hugelshofer continued

that he had spoken to the tenants of Flat 4, and that they had found material on the internet advertising Natalie Ferraz’s services as a transsexual escort. Mr Hugelshofer inferred that those services were being offered at the appellant’s flat, although the salacious screenshots which he exhibited to his witness statement did not mention any specific address. According to Mr Hugelshofer Natalie Ferraz left the flat on 27 January 2018.

A few months later, in April, the flat was said to have become occupied by what Mr Hugelshofer described as “a number of different individuals, usually transvestites or woman dressed like prostitutes”. He informed the appellant on 29 April 2018 and in May and June he complained to her agent, Mr Torino, about the misbehaviour of her tenants: “the prostitutes, the brothel, the noise, the dirt, the parties, the rubbish.” When his complaints appeared not to be taken seriously by Mr Torino Mr Hugelshofer again contacted the appellant, who was in hospital, informing her of a regular traffic of “older men in suits with young girls walking upstairs to your flat every day”. He asked the appellant to put pressure on her agent to change the tenants.

Mr Hugelshofer also said in his statement that the tenant of Flat 1, Mr Di Bari, had threatened him on 17 July 2018 and that he had reported the matter to the police. He had begun to work abroad in August 2018 and generally returned to his flat only at weekends but, he said, the tenants of the ground floor flat had confirmed to him that problems with noise from visitors to Flat 1 had continued. A friend of Mr Hugelshofer, staying at his flat during the week of 23 September 2018, had reported to him that she had heard people going up and down the stairs to Flat 1 every night. Screenshots of Mr Hugelshofer’s text messages to the appellant and Mr Torino were exhibited to his witness statement.

The managing agent had installed CCTV, but it didn’t work, which was more or less the extent of his evidence.

Ms M’s evidence was that

she had been introduced to Mr Torino by a friend and that he had “appeared to be a reputable agent”. Mr Torino had identified Mr Di Bari as a new tenant but, contrary to the impression gained by Mr Hugelhofer, the appellant said she was not related to either Mr Torino or Mr Di Bari (it appears the cousin who had occupied the flat had moved out, leaving a friend in residence, but it is not clear whether that friend was Mr Di Bari). Through Mr Torino’s agency Mr Di Bari had been granted an assured shorthold tenancy for a term of 12 months. The appellant did not have a signed copy of this document and exhibited only an unsigned copy to her witness statement; no explanation was offered why this document was dated 8 July 2018 and was for a term of 12 months from that date when Mr Di Bari was said to have taken occupation in September 2017.

The appellant explained that she had become aware of complaints relating to her flat in October 2017. At that time Mr Torino “was still managing the premises for and on my behalf”. She had entrusted dealing with the situation to him because she had been diagnosed with an extremely serious illness in August 2017 and had then been undergoing treatment. The remainder of the appellant’s statement asserted that she has seen no “compelling evidence” that prostitution had taken place at her flat; she denied that the premises were used as a brothel or that she had consented to, or permitted, such use. On the contrary, she maintained, she had “instructed Mr Torino to take legal steps to recover possession of the premises and the AST was ended. Subsequently, Mr Di Bari and anyone he allowed to enter the premises, ceased to occupy the premises in or around late September/early October 2018.” She said she had been in hospital at that time but a friend had confirmed personally to her that Mr Di Bari had gone.

The FTT had found:

Although there is no direct evidence before the Tribunal of any act of flagrante delicto, the circumstantial evidence that the property was being used as a brothel or for business purposes or an immoral purpose is considerable and comprises:

· Evidence of numerous male visitors during the night;

· Complaints of noise and nuisance by other occupiers;

· The identification of the occupier as Natalie Ferraz;

· A parcel being addressed to Natalie Ferraz at Flat 1;

· Internet advertisements for Natalie Ferraz, a transvestite, offering services of a sexual nature to men.

The FTT also said on:

the allegation of permitting or suffering the use of her flat in breach of covenant, the FTT said only that, while she maintained that she had done all she could to resolve the situation, “apart from contacting Mr Torino it appears that she had taken few active steps to resolve the situation or to rid the property of its difficult sub-tenant”.

The breach of lease was found.

Ms M appealed to the Upper Tribunal.

The Upper Tribunal accepted that there was sufficient evidence for the FTT to find that the property was being used as a brothel.

the appellant’s complaint in her first ground of appeal is not that the FTT failed to give adequate reasons for its decision; it is that the evidence could not substantiate the conclusion it reached. If that complaint had been made out, it would have been determinative of the whole application and would have led to its dismissal, whatever the inadequacies of the FTT’s decision. As it is, however, each of the matters identified in paragraph 19 of the FTT’s decision was the subject of evidence. Taken together they provided material from which the inference could be drawn that the flat was being used for prostitution. I therefore dismiss the first ground of appeal.

The second ground was the FTT right to find that the appellant permitted or suffered the use of the flat for prostitution?

This was more fruitful for Ms M.

Berton v Alliance Economic Investment Co (1922) 1KB 742, 759 had held that for breach to be found by the covenantor:

“It is clear that a person under a covenant not to use premises in a particular way cannot commit a breach of the covenant except by his own act or that of his agent. The same is true of a covenant not to permit. The user in one case and the permission in the other must be something which can be predicated of the defendant or the defendant’s agent. It is not sufficient to show that the premises have been used in a way which would constitute a breach of the covenant; it must further be shown that the user is by the defendant or his agent, or that it is permitted by the defendant or his agent.”

and that

“Whether that is a breach of the covenants is the same question as whether the appellants have omitted to take some step which it was reasonable for them to take in view of the facts and circumstances.”

However, the FTT had not made any express finding that the appellant had permitted or suffered the use of her flat for prostitution. Nor could a vague finding be inferred from the decision, because it was necessary for a s.146 notice that the actual breach be clearly specified.

The same degree of transparency is required of a determination of breach by the FTT. Without it the landlord will not be able to serve a sufficiently specific section 146 notice.

And

Unless the FTT makes specific findings of fact concerning the breach and the tenant’s part in it, the County Court will face an impossible task when it is required to determine whether to forfeit the lease or to grant relief against forfeiture. It is essential that the County Court is in a position, from the FTT’s decision, to assess the seriousness of the breach, the culpability of the appellant, and the appropriate response to an application for relief against forfeiture. If that degree of certainty is not achieved it may be necessary for the County Court to rehear the evidence which has already been presented to the FTT. That is not what section 168 contemplates and would render it pointless.

In this case, the FTT had not made any findings of fact about what Ms M did or didn’t do, or the effects of the steps she took. It did not say what “the few active steps” she took were or why they weren’t sufficient, or those taken , or not taken, by her agent, Mr Torino. Further:

A version of events less favourable to the appellant, and which the evidence was also capable of supporting, is that the appellant handed over the management of her flat to Mr Torino and that, whatever her state of knowledge, he knew perfectly well what it was being used for. Mr Hugelshofer’s encounter with Mr Torino and a person he took to be a transvestite prostitute emerging from the flat in September 2018 might support that inference. It may be that Mr Torino chose to take no steps to control what was going on or did so only in response to intense complaints before allowing the previous use of the flat to resume once those complaints had died down. The findings of the FTT are silent on what Mr Torino knew or did.

On the appellant’s evidence Mr Torino was her agent. She may therefore be fixed with his knowledge and the evidence may justify the conclusion that by her agent permitting or suffering a prohibited use the appellant herself was in breach. A breach of that nature would be very different from one arising out of a failure by the appellant to take steps which it was reasonable to expect her to take, and might have different consequences for the terms on which relief against forfeiture might be granted. But the FTT made no findings as to the extent of Mr Tornio’s knowledge or his responsibility either for facilitating what was going on in the flat or preventing it. Nor did the FTT give itself any relevant direction concerning his role. Those were significant omissions although, in the FTT’s defence, neither party appears to have considered the significance of Mr Torino’s status as the appellant’s agent.

As the FTT had not made any specific findings of fact as to Ms M’s breach, the appeal was allowed and the matter remitted to the FTT for a differently constituted panel to consider.

Comment

This is a key reminder on breach of lease matters. It is not sufficient to establish a breach of lease on use of the property, it is necessary to establish that the lesse’s actions (or inactions) were such as to be and act, or, particularly where there is a sub-lessee, amount to permitting the use. That may be a failure to take steps, but that must be established, in particular in the face of evidence of reports of the offending use. That said, the lessee cannot hide behind an agent, they will be fixed with the agent’s (in)actions, but then the agent’s lack of steps must also be established.