Watch Your Language!
Alexander Campbell considers the Upper Tribunal’s decision in Fairhold Freeholds No. 2 Ltd v Moody [2016] UKUT 311 (LC).
It is commonplace for leases to contain a term requiring a tenant to reimburse their landlord the costs of pursuing them for unpaid rent or other breaches of lease. The Upper Tribunal’s recent decision in Fairhold Freeholds No. 2 Limited v Moody is a reminder that just one word in such a term can make the difference between the landlord being able to recover their costs or not.
Mr Moody, the leaseholder, moved home address but neglected to tell the freeholder and therefore did not receive ground rent demands which were sent to him. When he finally received a letter threatening court proceedings, a £50 administration charge had been added. The freeholder added this charge relying on clause 4.1 of the lease, a clause that the leaseholder would “indemnify” the freeholder against all costs in respect of a breach of covenant.
The First-Tier Tribunal (“FTT”) held that that clause did not entitle the freeholder to add an administration charge for chasing the leaseholder for rent arrears. The FTT decided that the clause was an indemnity clause. An indemnity clause is a clause stating that A agrees to reimburse B costs which B has had to pay C as a result of A’s breach of covenant. Thus the clause gave the freeholder the right to claim from the leaseholder costs which the freeholder had had to pay a third party; it was not a general provision allowing the freeholder to recoup costs of their own which they had expended in chasing the leaseholder.
The Upper Tribunal agreed with the FTT and emphasised that an indemnity clause is defensive in nature i.e. designed to protect the freeholder when it suffers loss to a third party because of the leaseholder’s breach. The Upper Tribunal looked to other clauses in the lease which explicitly entitled the freeholder to recoup through the service charge costs which it had incurred in enforcing specific covenants. The Upper Tribunal decided that if clause 4.1 were a general power allowing the freeholder to recoup all its costs from the leaseholder, then those other specific provisions in the lease would have been unnecessary.
The Upper Tribunal’s decision raises a number of key points for leaseholders. Firstly, always look at the precise wording of the lease – if the provision allowing the freeholder to claim their costs from the leaseholder uses the language of indemnity, it will only allow the freeholder to claim costs which they have had to pay to a third party as a result of the leaseholder’s breach, not costs which they have expended simply by their own efforts in chasing the leaseholder. If there are other clauses in the lease which explicitly provide for specific costs to be claimed back, that will militate against there being a general power in the lease to reclaim costs. Finally, but perhaps not unimportantly, leaseholders should ensure that they provide the freeholder with up-to-date contact details; had Mr Moody done so, the hassle and expense of legal proceedings could have been avoided!
Riccardo Calzavara considers the enforcement of suspended possession orders following a sea change ushered in by the Court of Appeal.
The received wisdom and established practice for quite some time has been that if a tenant who is the subject of a suspended possession order breaches that order, he can expect to receive a warrant for his eviction following an administrative act in the county court (under CPR 83.26) and without any further judicial consideration of the matter (Leicester CC v Aldwinckle (1992) HLR 40, CA at 46; Southwark LBC v St Brice [2001] EWCA Civ 1138; [2002] 1 WLR 1537 at [32]) unless he makes a warrant suspension application. That has been turned on its head in the ex tempore decision of the Court of Appeal in Cardiff CC v Lee (Flowers) [2016] EWCA Civ 1034.
Enforcement
In Lee, the local authority claimed possession of the property on the basis of the appellant’s breaches of tenancy and his causing a nuisance. The court made a possession order suspended on terms that, for two years, he adhere to the terms of his tenancy and not cause a nuisance. The appellant breached that order during its currency, and the local authority sought a warrant of possession by filing form N325.
The appellant’s application to stay the warrant was dismissed by DJ Scannall because it was proved that he had breached the terms of the suspended possession order, and his appeal was dismissed by HHJ Bidder QC who held that notwithstanding the failure to seek permission for a warrant under CPR 83.2 it was proper to remedy the defect by exercise of CPR 3.1(2)(m).
CPR 83.2 provides that a warrant of possession must not be issued without the court’s permission where the order that the landlord seeks to enforce provides that any person is entitled to a remedy subject to the fulfilment of any condition and it is alleged that the condition has been fulfilled. Arden LJ opined that “the purpose of the rule is obviously to provide a layer of judicial protection for a tenant whom the landlord wants to evict” and “clearly CPR 83.2 addresses what might reasonably have been considered to be a weakness of the system, namely that there was no judicial scrutiny [absent any warrant suspension application] of the landlord’s case that the conditions had been breached” (at [3]; see also [23]).
The Court of Appeal therefore held that a landlord wishing to enforce a suspended possession order following his tenant’s breach of any conditions therein had first to apply for permission under CPR 83.2 but that, where he has failed to do so, his breach can be remedied by application of CPR 3.10.
The interesting legal point ought to have been whether CPR 83.2 or CPR 83.26 applied. However, the parties agreed (on the local authority’s concession) that the former is the relevant rule when seeking to enforce a suspended possession order (at [8]). Strictly, the conclusions relating to that provision, not having been the subject of argument nor the focus of the decision, are obiter dicta.
Comment
It is unclear why Arden LJ, giving the only substantive judgment, interpreted CPR 83.2 as she did; it is insufficient to say that this point was conceded, as she stated “I would take the view that [the judge] was clearly right to apply [CPR 83.2] for the reason that he gave” (at [8]).
That rule properly read provides that where a person (the landlord) is entitled to a remedy (possession) which is subject to the fulfilment of any condition, he must prove that he has fulfilled that condition before seeking that remedy. The reading given in Lee renders the rule unrecognisable. It necessitates the following reading: where a person is entitled to a remedy which he may only receive if another person fails to fulfil any condition, he must prove that failure.
It is also unclear why CPR 83.26, which provides that a landlord may enforce an order for the recovery of land by application to the county court for a warrant of possession without giving notice to the tenant, was deemed inappropriate. The basis of the concession is unclear; it is at least arguable that CPR 83.26 applies.
Having come to its ground-breaking conclusion in the first nine paragraphs, the court went on to discuss for a further 25 paragraphs the far less interesting point of how to fix the procedural defect. Broadly, it made the warrant voidable, not void. The court could remedy the defect under CPR 3.1(2)(m) when read with CPR 3.10 (at [10] and [13]). In this case, there had been judicial consideration at the warrant suspension application so there would be no injustice in affording the landlord the requisite permission.
What now?
The courts are clearly – rightly – concerned to ensure that they (whether judicially or administratively) are not sanctioning any eviction which is not in compliance with the rules (see, for example, Secretary of State for Defence v Nicholas [2015] EWHC 4064 (Ch)). Indeed, the principle that a landlord should have to prove the tenant’s alleged breach before enforcing a suspended possession order may be right (consider, for example, s.149 Equality Act 2010 or s.11 Children Act 2004), but not – respectfully – for the reasons given in Lee.
It is true that landlords seeking to enforce a possession order in the High Court must give notice to the tenant of their intention to seek permission to do so (CPR 83.13) so that there may be an argument that the 2014 insertion of CPR 83.2 (Civil Procedure (Amendment No.4) Rules 2014/867) was an attempt to extend that proposition to the county court. That is unconvincing, particularly in the context of CPR 83.26 having been left without amendment. In any event, the making of such policy decisions is a matter for Parliament. The reading given in Lee, the court not having had the benefit of argument, is unprincipled and unreasoned; it is improper for the courts to attempt to import into the county court provisions which do not appear in the CPR (Jephson Homes Housing Association v Moisejevs (2001) 33 HLR 54, CA).
Unless they are inter alia decided per incuriam, decisions of the Court of Appeal are binding on all courts, including the Court of Appeal, save for the Supreme Court (Young v Bristol Aeroplane [1944] KB 718, CA). Absent some attempt to withdraw their concession (CPR 14.1), Cardiff CC are unlikely to seek to appeal to the Supreme Court, particularly given that they were given the relief they sought: an enforceable warrant.
In those circumstances, until the Court of Appeal can be interested in re-hearing a very similar appeal, landlords seeking to enforce a suspended possession order must seek permission before doing so. If they fail to and the tenant brings a stay application, they may get away with a slap on the wrist and a costs order against them for seeking the court’s indulgence under CPR 3.1(2)(m). If, instead, no stay application is brought before the warrant is executed, they might find themselves subject to a claim (or prosecution) for unlawful eviction.
Case Law update: Avon Freeholders Limited v Alexander Garnier [2016] UKUT 477 (LC).
By Jeff Hardman
Summary
The recent decision of the Upper Tribunal (Lands Chamber) in Avon Freeholders Limited v Alexander Garnier [2016] UKUT 477 acts as a useful warning to leaseholders who are considering making a service charge and/or administration charge payment under protest whilst reserving their right to challenge the reasonableness of the sums demanded by the freeholder at a later date.
Relevant facts
Mr Alexander Garnier, being the former leasehold proprietor of 43 Gore House, Drummond Way, London N1 1NR, carried out an installation of a shower cloakroom and associated plumbing to his flat during the summer of 2015; no prior consent to undertake the works had been obtained from the freeholder, Avon Freeholds Limited (“Avon”).
Mr Garnier decided to regularise his position by seeking Avon’s retrospective consent in order to secure the sale of the flat. By email of 3 December 2015, a representative of Avon informed Mr Garnier that there would be a non-refundable consultation fee of £500 plus VAT; however, it was made clear that this payment would not guarantee consent. Mr Garnier replied stating that “That is fine, thank you.”
Mr Garnier paid the fee and, thereafter, sent a series of emails requesting consent in order to progress the sale of the flat. Avon responded, confirming that retrospective consent would only be provided if Mr Garnier agreed to pay a further £1,000.00 plus VAT in respect of legal costs together with a consent fee of £5,000.00.
Mr Garnier was initially reluctant to pay the sums demanded; however, under pressure to complete the sale of the flat, he sent an email to Avon on 21 December 2015 stating:
“This really does need to be done today (I will lose the sale if we wait until the new year), so I will make the £6,200 payment now, that’s fine. If I send this now via faster payment, can the documentation be started and sent today?
Thank you”
First-tier Tribunal Decision
An application was submitted to the First-tier Tribunal pursuant to paragraph 5(1) of Schedule 11 to the Commonhold & Leasehold Reform Act 2002 to determine whether an administration charge was payable and, if so, how much.
The Tribunal rejected Avon’s contention that Mr Garnier’s email constituted an agreement; rather, it was made under duress and did not have the effect of ousting the jurisdiction of the Tribunal (para. 5(4) of Schedule 11 to the 2002 Act). The Tribunal noted that a tenant is not taken to have agreed or admitted any matter simply by reason only of having made a payment (para. 5(5)).
The Tribunal, having decided that it had the requisite jurisdiction, went on to consider the reasonableness of the administration charge for retrospective consent and determined that the amount payable was £1,500.00 plus VAT.
Appeal to the Upper Tribunal
On appeal, the Upper Tribunal concluded that the FTT had wrongly applied the relevant law; the appellant landlord applied no wrongful or illegitimate threat against the leaseholder. It was noted that Mr Garnier could have sought consent prior to undertaking the works rather than wait until a time when he was in the course of selling his flat. He was bound by his agreement – “that’s fine” – to accept the amount of payment and could not rely upon para. 5(5) to subsequently challenge the reasonableness of the amount demanded.
Comment
Although mere payment will not automatically mean that a tenant is taken to have admitted the pay-ability and/or reasonableness of an administration charge demanded, a leaseholder should be careful not to inadvertently reach an agreement with a landlord through correspondence. It was open to Mr Garnier to make the payment without any comment or make the payment expressly under protest. In either case, the simple act of making payment would not have been taken as constituting any agreement or admission in respect of the payment.
Justin Bates of Arden Chambers represented the Appellant.
Arden Chambers is a leading set specialising in property, housing, local government and planning. Arden Chambers has a strong and experienced team who provide a full range of services for freeholders and leaseholders in relation to residential property including enfranchisement, lease extension, right to manage and service charge disputes. Chambers has extensive experience of FTT litigation and advisory work, with members appearing both in the FTT and Upper Tribunal on a regular basis.
