Section 168 determinations, waiver and shared ownership

The case
On 12 October 2021 the Upper Tribunal (Lands Chamber), in Bedford v Paragon ASRA Housing Limited [2021] UKUT 266 (LC), rejected an appeal against the refusal of the First-tier Tribunal to strike out as an abuse of process the Housing Association’s application for a section 168 determination that the tenant of a shared ownership lease had breached a covenant therein prohibiting sub-letting.

Remember that by section 168(1), Commonhold and Leasehold Reform Act 2002,

“(1)A landlord under a long lease of a dwelling may not serve a notice under section 146(1) of the Law of Property Act 1925 (c. 20) (restriction on forfeiture) in respect of a breach by a tenant of a covenant or condition in the lease unless subsection (2) is satisfied.

(2)This subsection is satisfied if—

(a)it has been finally determined on an application under subsection (4) that the breach has occurred,

(b)the tenant has admitted the breach, or

(c)a court in any proceedings, or an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement, has finally determined that the breach has occurred.”

Appellant’s case
The tenant’s argument was that Paragon had waived the breach such that the application was obsolete:

14. Despite being aware of the breach of covenant by subletting Paragon appear not to have taken a decision to forfeit Mr Bedford’s until May 2020 and it continued to collect rent by monthly direct debit between December 2018 and May 2020.

17. The basis of the application to strike out the proceedings was said to be that they 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.

First instance decision
The First-tier Tribunal did not accept it would be a “futile exercise” to make a determination of breach because forfeiture was not the only remedy available to Paragon (e.g. they may seek damages and/or an injunction). In any event the tribunal said it did not have the jurisdiction to determine the question of waiver of the forfeiture in this case. 

Upper Tribunal decision
Martin Rodger QC, Deputy Chamber President, dismissed the appeal:

(a) Alternative remedies46. 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.

[see also paragraph 47 of the judgment]

(b) Determination of waiver – “48. As for the second ground of appeal, Miss Cattermole is obviously correct in her submission that, in principle, the FTT could have determined whether the right to forfeit had been waived as part of its consideration of the application to strike out.  It was neither necessary nor strictly correct to approach the question as raising a matter of jurisdiction.  But that does not take the appeal very far. Even if I was to take the view that the FTT had erred by suggesting that it did not have jurisdiction to consider the issue of waiver, its decision not to strike out was obviously correct because the proceedings were plainly not an abuse of process.   Neither the detailed facts nor the application of the law to those facts was clear.  Although Mr Bedford made a lengthy witness statement in relation to the allegation of breaches of covenant and in support of his application to strike the proceedings out, he did not include any detail of the subletting itself.  Nor did the submissions prepared by counsel say any more than that “the property is sub-let” and only the 2018 tenancy agreement (which had expired in 2019) was exhibited.  Until the facts about the breaches themselves are established it cannot be ascertained whether the Paragon had sufficient knowledge of those facts to amount to waiver, and until it can clearly be seen that there has been a waiver it cannot be suggested that the proceedings were an abuse of process.

[see paragraphs 28-32 of the judgment re jurisdiction]

Modern shared ownership leases are assured tenancies:

(a) until the purchased share has been staircased to 100%, and until then

(b) for so long as the tenant/one of joint tenants live there as their only or principal home.

The permanent loss of security of tenure brought in by the Prevention of Social Housing Fraud Act 2013 by reason of sub-letting/parting with possession of the whole of the demised premises does not apply to shared ownership leases and so security of tenure can be ambulatory (section 15A, Housing Act 1988).

It follows that if security of tenure has been lost then forfeiture, and not the notice seeking possession approach, is the landlord’s route to recovering possession in a sub-letting case.

That is the context in which this appeal has to be seen.

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