Bedford v Paragon Asra Housing Ltd (LANDLORD AND TENANT – BREACH OF COVENANT – shared ownership lease) (2021) UKUT 266

An interesting Upper Tribunal appeal decision on whether the Tribunal can proceed to make a determination of breach of lease under section 168 Commonhold and Leasehold Reform Act 2002 where there has been a waiver of the breach by the applicant landlord.

In this case, Mr Bedford had a shared ownership lease from Paragon Asra. The lease prohibited subletting. Mr Bedford had sublet the whole of the flat without consent since (as it turned out) 2011.

Within a year of acquiring the lease Mr Bedford decided that he would like to move temporarily to the United States of America to pursue his ambition to be selected to represent that country in the 2011 Rugby World Cup.  In October 2010 he sought Paragon’s permission to sublet the property for a year while he did so.  He gave a specific assurance that he would resume occupation of the property at the end of 2011 and permission was granted to him by Paragon on that understanding.

Mr Bedford did not return to live at the property at the end of 2011 and it now appears that he has sublet the property continuously since 2010.  He is likely to have made a substantial profit; in 2018 he was subletting the property at a rent of £1,215 per month at a time when the rent he paid to Paragon was only £463.50 per month.  I was informed that he has continued to sublet the property despite the commencement of proceedings by Paragon.

Paragon only found out about the subletting in August 2018, notified by Mr Bedford’s mortgage lender. Mr B was in rent arrears. In November 2018, Paragon began Housing Act 1988 possession proceedings. In early 2020, investigators for Paragon established that there was subletting at that point. In May 2020, Paragon decided to forfeit for breach. However, they had been demanding and receiving rent from Mr Bedford between August 2018 and May 2020.

Paragon brought an application in the First Tier Tribunal for a determination of breach of lease under s.168(4) CLRA 2002. Mr B applied in those proceedings for them to be struck out as an abuse, frivolous and vexatious, on the basis that the proceedings

served no purpose because the right to forfeit the lease had been waived by Paragon’s acceptance of rent with full knowledge that Mr Bedford was subletting the property.  The sole purpose of an application under section 168, 2002 Act was to secure a determination that a breach had occurred as a prelude to the service of notice under section 146, 1925 Act and the commencement of forfeiture proceedings.  In circumstances where Mr Bedford had a defence that the breach of covenant had been waived, the pursuit of the application by Paragon was, he contended, an abuse of process.

The FTT dismissed that application on the basis that i) forfeiture was not the only purpose for an application for determination of breach of lease, and ii) the FTT did not have jurisdiction to determine whether waiver had taken place (distinguishing Swanston Grange (Luton) Management Ltd v Langley-Essen (2008) L & TR 20 and Stemp v Ladbroke Gardens Management Ltd (2018) UKUT 375 (LC)). It proceeded to find a breach of lease at some point between 2011 and September 2018.

Mr Bedford appealed the dismissal of the strike out application, on similar arguments –

The sole purpose of section 168 proceedings was as a precursor to forfeiture and the involvement of the FTT was unnecessary if any other remedy was sought.  If the purpose of an application under section 168 was to secure a determination of breach which could then be used to seek a remedy other than forfeiture, that would involve using the process of the FTT in a way which was significantly different from the ordinary and proper use of that process.

And on jurisdiction

It was necessary for it to decide whether the right to forfeit had been waived in order to determine the application to strike out.

The Upper Tribunal did not agree. The UT noted that Mr Bedford did not actually make a submission that waiver was indisputable, referring instead to a waiver being ‘plainly arguable’ or ‘strongly arguable’, and that Paragon disputed waiver for any subsequent breaches after August 2018.

On the primary points

I do not accept that the availability of alternative remedies for the breach of covenant was an irrelevant consideration in the FTT’s assessment of whether the application was an abuse of process.  On the contrary, it was highly relevant.  The most obvious alternative remedy that a landlord might seek in the face of a persistent breach of covenant by its tenant would be an injunction compelling the tenant to comply, either by requiring that he terminate the current sub-tenancy or by prohibiting any future sub-letting.  Mr Gallivan also referred to the possibility of a claim for compensatory damages on a negotiating basis, as had been directed, for example, by Lightman J in Crestfort v Tesco [2005] L & TR 20 where commercial premises had been sublet in breach of covenant.

Either of these remedies, an injunction or damages, could be sought by Paragon in proceedings in the County Court in which the primary remedy sought was forfeiture.  Damages could be sought in addition to forfeiture and an injunction as an alternative to forfeiture.  A waiver of the right to forfeit for the breach would not provide a defence to either type of claim (although waiver might be relevant to the exercise of the Court’s discretion to grant an injunction if no further breach has been committed since Paragon last demanded rent).  Whichever remedies Paragon chose to pursue it would be essential for it first to be determined whether a breach of covenant had occurred; if it wished to forfeit it was essential that the determination of breach be made by the FTT.  Unless it could be seen when the determination proceedings were commenced that the right to forfeit had indisputably been waived, and that a defence of waiver was guaranteed to succeed in the County Court, it is quite impossible to regard the determination proceedings as abusive.  

On the jurisdiction issue, this was rather by the by, given that the primary argument on abuse of process had failed. It was not further necessary to make findings on waiver even if that were possible. The detailed facts were not clear. Mr Bedford had only provided facts on one tenancy for a sublet, from 1 September 2018 for a year term, and the subsequent facts and current position were not in evidence. There could be no finding on waiver in any event where the relevant facts, and Paragon’s knowledge of those facts, were not sufficiently established to make a clear finding on waiver.

Appeal dismissed. Paragon was free to serve a s.146 notice and if it chose, to begin forfeiture proceedings. Any defence of waiver could be raised in those proceedings.

Comment

I think this is right on the ‘other remedies point. While s.168 – headed “No forfeiture notice before determination of breach” –  makes a determination of breach a necessary precondition for service of a s.146 notice and subsequent forfeiture proceedings, and the Tribunal’s power to make such a determination originates solely from s.168(4), I don’t think that the Tribunal’s ability to determine a breach can be said to be wholly reliant on a landlord’s intention to forfeit. It is not a condition for such an application that the landlord makes clear its intention to forfeit. (Although this might, of course, have an impact in terms of some contractual costs clauses in leases and the landlord’s entitlement to those costs).

But it does appear that the Tribunal has jurisdiction to decide on whether there is a waiver where such a determination is necessary for the issue that is properly before it. In Swanston, the issue was whether the landlord had waived the right to rely on the lease clause at all, and in Stemp, it was whether the costs of forfeiture proceedings could be claimed by the landlord as an administration charge.