RTM companies are entitled to apply for a s.168(4) determination in the FTT: Eastpoint Block A RTM Company Limited v Akehinde Olufunlola Otubaga

Amanda Gourlay and Annie Higgo represented the successful appellant in the Court of Appeal in Eastpoint Block A RTM Company Limited v Otubaga [2023] EWCA Civ 879, instructed by Greg Lazarev of Lazarev Cleaver LLP.  This case has confirmed that RTM companies are entitled to apply for a s.168(4) determination in the FTT.

The question before the Court

The Court of Appeal was required to decide whether RTM companies may apply to the First-tier Tribunal (the “FTT”) under s.168 of the Commonhold and Leasehold Reform Act 2002 for a determination that there has been a breach of covenant.

The law

S.168 prohibits a landlord from forfeiting a lease without a determination that there has been a breach of covenant – or an admission of breach. It entitles a “landlord under a long lease of a dwelling” to apply to the FTT for such a determination.

Section 96 transfers “management functions” to RTM companies, for sole exercise by those companies. RTM Companies are not however permitted to exercise any “function relating to” forfeiture.

Section 100 allows RTM companies to enforce “untransferred tenant covenants” in the same way that a landlord may enforce those covenants, but again, prevents them from exercising any “function of forfeiture”.

Background

In this case, Eastpoint Block A RTM Company Limited (“the RTM Company”) applied to the FTT under s.168 for a determination that the leaseholder was in breach of covenants prohibiting her from causing a nuisance and/or from using her flat for the purposes of a business.

In the FTT, whilst Judge Sheftel recognised that RTM companies may be able to apply for a determination by virtue of s.100 of the 2002 Act, he nonetheless struck out the application. In his view, the RTM Company had no standing to make the application because it was expressly precluded from exercising any function relating to or of forfeiture.

The Upper Tribunal (Martin Rodger KC) dismissed the RTM Company’s appeal on different grounds:

• an RTM company was not “the landlord under a long lease of a dwelling” for the purposes of s.168(4), and
• a determination under s.168 was “clearly on the forfeiture side of the line”.

The Court of Appeal’s judgment

In the Court of Appeal, the RTM Company argued that it was entitled to exercise the landlord’s rights, without itself being a landlord.

The argument was advanced in two ways.

First, that the enforcement of the covenants in question fell within the scope of the management functions transferred to the RTM Company under s.96 of the 2002 Act.

Secondly, and alternatively, that s.100 gave the RTM Company the right to enforce “untransferred covenants”, including the covenants allegedly breached in this case.

Lewison LJ, with whom Black and Andrews LJJ agreed, gave the lead judgment.

He held that s.96(2) of the 2002 Act appeared to limit a landlord’s ability to enforce covenants that were part of the management functions of the RTM Company. In that case, much clearer language than “management” was needed to deprive a landlord of the ability to enforce the covenants at issue.

The Court gave the second line of argument a warmer reception.

Lewison LJJ held that the word “landlord” in s.168(4) was not an obstacle to the RTM Company making an application under s.168(4), because s.100(2) of the 2002 Act gave the RTM company the right to enforce untransferred covenants “in the same manner” as a landlord.

The only restriction on the enforcement of those untransferred covenants was that an RTM Company could not exercise any function of forfeiture. Lewison LJ found that the express power given to the RTM company to enforce covenants “in the same manner” as the landlord was capable of encompassing both the remedies involved and the forum in which those remedies or issues are decided.

As to whether an application under s.168(4) was “on the forfeiture side of the line”, Lewison LJJ held that although an application under s.168 was a necessary precondition to forfeiture, it was a distinct, separate step from forfeiture. A “landlord” may be motivated to apply for a s.168 determination for a variety of reasons, such as concluding a dispute with a lessee with the benefit of a judicial determination, or as a prelude to obtaining a judgment from the county court for an injunction or damages. Further, the FTT has no jurisdiction to entertain an action for forfeiture.

Accordingly, the appeal was allowed and the case remitted to the FTT for a determination of whether Ms Otubaga was in breach of covenant.

 

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