Author : Lee Harle
The Upper Tribunal had agreed with the First Tier Tribunal's stance that RTM meant Right to Manage and therefore didn't have the authority to seek a lease breach determination under Section 168 of the CLRA or Commonhold and Leasehold Reform Act 2002. The RTM Company appealed. The summer 2023 Court of Appeal verdict, overturned the previous decisions and disagreed with the Upper Tribunal's view, and ruled in favour of the Right To Manage company.
Background and Importance
Section 168 of the CLRA places constraints on landlords serving notice under Section 146 of the Law of Property Act 1925 (as a precursor to lease forfeiture) until a breach is determined by a tribunal or admitted by the lessee. The Housing Act 1996's Section 81 contains a similar provision for service charge non-payment breaches. So, either a Court or Tribunal is needed to determine a breach before forfeiture action can be started.
An RTM Company takes over the management responsibilities from the landlord after i5 has acquired the right to manage under Section 96 of the CLRA. However, a RTM Company lacks the power to forfeit leases due to its absence of proprietary interest, this impacts how it can enforce tenant covenants contained in the lease.
Specifically, in the case of Eastpoint Block, an RTM Company Limited v Otubaga (2023) EWCA Civ 879, the RTM company sought a Section 168 determination for a lease breach. The alleged breach was the lessee's business use of the premises and a subtenant's disruptive behaviour. The Upper Tribunal had earlier supported the First Tier Tribunal's stance that the RTM company lacked jurisdiction under Section 168 since it wasn't considered a landlord as stipulated in the section.
The Court of Appeal's verdict highlighted that the Court didn't find the enforcement of the lease terms to fall under the RTM company's management functions as per Section 96 of the CLRA. The Court pointed out the prohibition for landlords from undertaking actions allowed to the RTM company under Section 96, except with the latter's agreement. This led the Court to believe that the landlord's inability to enforce a breach, while the RTM company could, might not be justified, as the landlord had a stake in the property. The Court also addressed Section 100(2), which empowers the RTM company to enforce un-transferred tenant covenants.
The Court of Appeal's interpretation of Section 168(4), highlighted that the term "landlord" didn't preclude RTM companies from making applications. It underlined the RTM company's power to enforce similarly to the landlord (minus forfeiture). The Court of Appeal rejected the idea that a Section 168 application inherently leaned toward forfeiture proceedings. It stated there were practical and policy reasons for allowing RTM companies to enforce breaches through Section 168 applications. In conclusion, the Court of Appeal has supported RTM Companies' and it is clear they now can enforce lease breaches through Section 168 of the CLRA. This Court decision is crucial, considering the specialist jurisdiction of the tribunal in determining residential lease breaches.
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