Can a Right to Manage Company pursue a leaseholder for breaches of their lease?
Yes – in the recently decided case Eastpoint Block A RTM Co Ltd v Otubaga [2023] EWCA Civ 879 the Court of Appeal has determined that they can.
The Claimant was a right to manage company (RTM) that had taken over the management of a block of flats from the landlord. They originally lodged their application in October 2021 with the First Tier Tribunal (FTT) seeking a determination that the leaseholder, Mr. Otubaga, had breached the terms of his lease by using the flat to conduct business and to allow a subtenant to cause nuisance to others in the block, pursuant to section 168(4) of the Commonhold and Leasehold Reform Act 2002.
The FTT dismissed the original application on the basis that they had no jurisdiction to consider the application as the RTM company were not the ‘landlord’ for the purposes of the Act. Section 168(4) states that ‘a landlord’ may apply for a determination.
The RTM company lodged an appeal with the Upper Tribunal which dismissed the appeal confirming that the RTM company was not a landlord and only a landlord can bring breach determination applications under the Act.
The RTM company then appealed to the Court of Appeal. The CA disagreed with the previous decisions on the basis that enforcement of covenants was part of the landlord’s management functions that were transferred to the RTM company under section 96 and therefore held that a RTM company can apply to the FTT under section 168(4) of the Act for a determination whether a flat leaseholder is in breach of covenant.
Section 100(2) of the Act confirms that “untransferred tenant covenants are enforceable by the RTM company, as well as by any other person by whom they are enforceable apart from this section, in the same manner as they are enforceable by any other such person”. However, section 100(3) goes on to state that the RTM company may not exercise any function of re-entry or forfeiture.
In giving judgment, Lewison LJ noted that ‘untransferred covenants’ must mean those covenants that are outside the scope of section 96.
It was held that:
- Section 100(2) gives a RTM company a right to enforce untransferred covenants in the same manner as the landlord, including action for damages for breach of covenant or for an injunction restraining the breach or for a claim for a section 168 (4) determination by the FTT.
- The express power given to the RTM company to enforce covenants is not only the remedies but also the forum where those remedies or issues are decided.
- Although an FTT application for determination is a necessary pre-condition to exercise a right of forfeiture, it is not, itself a proceeding for forfeiture. The only remedy the RTM company cannot exercise is forfeiture.
Giving the RTM company the right to pursue an application in the same way as the landlord, the FTT provides a good forum for applications with its less formal procedure than the county court. RTM companies are involved in the management and therefore have the necessary evidence to support the application that its landlord may not be so familiar with. This will be a welcome relief to most landlords who will only need to engage in the process if forfeiture proceedings are then required.
Amanda Nudds specialises in residential lease matters and acts for both landlords, right to manage companies and tenants and so if you have any queries you wish to discuss, please contact Amanda directly on 01328 852804.
