Once more unto the breach – Marchitelli v 15 Westgate Terrace Ltd (2020) UKUT 192 (LC)

On the 18 June 2020, the Upper Tribunal (UT) handed down its decision in Marchitelli v 15 Westgate Terrace Ltd (2020) UKUT 192 (LC) which considered the sufficiency of the evidence before the First-tier Tribunal (Property Chamber) (FTT) in determining whether there had been a breach of a covenant not to permit or suffer in or upon the property any illegal or immoral act and gave guidance as to the importance of providing a clear determination of the nature and the extent of a breach for the purposes of section 146 of the Law of Property Act 1925.

Background

A lease of Flat 1, 15 Westgate Terrace, London SW10 was first granted to the appellant, Ms Marchitelli’s, predecessor in May 1975 and was extended by a new grant for a term of 999 years on 16 April 2008.

The landlord had brought an application pursuant to s168(4) of the Commonhold and Leasehold Reform Act 2002 for a declaration as to a breach of the following regulation in the Fourth Schedule of the lease, amongst others, by Ms Marchitelli:

“Not to do or permit or suffer in or upon the Demised Premises or any part thereof any illegal or immoral act or any act or thing which may be or may become a nuisance or annoyance or cause damage to the Lessors or the tenants of the Lessor or the occupiers of any part of the Building.”

It was claimed by the landlord that Ms Marchitelli had let the property to a cousin who used the property for the purposes of a brothel. It was not alleged that Ms Marchitelli had been involved in these activities but rather that her tenant was doing so and that, despite repeatedly being advised of these activities, she refused to acknowledge the issue or take any action to prevent it from continuing.

At the hearing before the FTT, the following evidence was given on behalf of the landlord:

• Mr Foley was the leaseholder of a ground floor flat. He had sub-let his property to two young women, and claimed that he had received multiple complaints from them of disturbances late at night by visitors wishing to be admitted to Ms Marchitelli’s property. It was said that visitors would often ring the doorbell to his property in the mistaken belief it was Ms Marchitelli’s and that on one occasion his tenants had been propositioned for sex.
• Mr Hugelshofer was the leaseholder of a first floor flat. His evidence concerned complaints made to Ms Marchitelli about the noise of people going up and down the staircase between midnight and 7am and that he believed Ms Marchitelli’s property was being occupied by a Natalie Ferraz and that he formed the view it was being used as a brothel. Mr Hugelshofer alleged that he had spoken to the tenants of Flat 4, and that they had found material on the internet advertising Ms Ferraz’s services as a transsexual escort and he inferred that these services were being offered from Ms Marchitelli’s property. A few months later, Mr Hugelshofer contends that a number of people occupied the property who were described as “a number of different individuals, usually transvestites or woman dressed like prostitutes.” Upon his complaints to Ms Marchitelli’s agent, Mr Torino, not being taken seriously, Mr Hugelshofer complained directly to Ms Marchitelli of “older men in suits with young girls walking upstairs to your flat every day.” Finally, Mr Hugelshofer complained that he had begun to work abroad in August 2018, returning to his property only on weekends but that the tenants of the ground floor flat and a friend who stayed at his property continued to complain of noise from visitors to Flat 1.
• Mr Reid was the landlord’s managing agent. His evidence added little to the above allegations but confirmed that Mr Hugelshofer had notified him that Flat 1 was being used as a brothel. A camera had then been set up to record the common parts but it failed to take any footage as it had not been working properly.

Ms Marchitelli gave evidence in response that she had been introduced to Mr Torino by a friend and that he “appeared to be a reputable agent.” Through Mr Torino’s agency, a Mr Di Bari had been granted an AST of 12 months. Ms Marchitelli claimed to have become aware of the allegations in October 2017 and that she entrusted Mr Torino to deal with the allegations as she had been diagnosed with a serious illness which meant she was undergoing treatment during that time. Ms Marchitelli denied the property was being used as a brothel and contended that she had “instructed [Mr Torino] to take legal steps to recover possession of the premises and the AST was ended. Subsequently, [Mr Di Bari] and anyone he allowed to enter the premises, ceased to occupy the premises in or around late September/early October 2018.”

The First-tier Tribunal decision

As to the allegation that Ms Marchitelli had permitted or suffered the use of Flat 1 in breach of covenant, the FTT held that “apart from contacting Mr Torino it appears that she had taken few active steps to resolve the situation or to rid the property of its difficult sub-tenant.”

The FTT further found that “although there is no direct evidence before the Tribunal of any act of flagrante delicto, the circumstantial evidence that the property was being used as a brothel or for business purposes or an immoral purpose is considerable and comprises:

• Evidence of numerous male visitors during the night;
• Complaints of noise and nuisance by other occupiers;
• The identification of the occupier as Natalie Ferraz;
• A parcel being addressed to Natalie Ferraz at Flat 1;
• Internet advertisements for Natalie Ferraz, a transvestite, offering services of a sexual nature to men.”

As such, the FTT was satisfied that there had been a breach of covenant and a made a determination to that effect.

The appeal

Two main grounds of appeal were advanced on behalf of Ms Marchitelli:

• On the evidence before the FTT, the landlord was incapable of discharging the evidential burden of proving such a serious allegation.
• Even if the FTT was entitled to conclude on the evidence that the flat was being used as a brothel, the FTT had not made a finding that Ms Marchitelli had permitted the use or suffered it to be continued. Therefore, she could not be said to have committed a breach of covenant.

As to the first ground, Ms Marchitelli “did not dispute … in essence, the factual situation on which the applicant relies” but it was contended that the FTT had approached its analysis of the situation with a mistaken appreciation as to the extent of the dispute, especially in light of the FTT’s criticisms of her evidence and the suggestion that as a former solicitor, Ms Marchitelli ought to have understood the seriousness of the allegations against her and provided accurate and substantiated evidence.

The UT reconsidered the reasoning of the FTT and was satisfied that there was sufficient material before the FTT upon which an inference could be drawn, even from circumstantial evidence, that Flat 1 was being used for prostitution. This ground of appeal was therefore dismissed.

As to the second ground, there was no dispute between the parties as to the meaning of a covenant not to “permit of suffer” premises to be used in a particular way. The UT referred to Berton v Alliance Economic Investment Co [1922] 1KB 742 for the principles of what had to be shown to establish a breach by a covenantor namely:

“It is clear that a person under a covenant not to use premises in a particular way cannot commit a breach of the covenant except by his own act or that of his agent. The same is true of a covenant not to permit. The user in one case and the permission in the other must be something which can be predicated of the defendant or the defendant’s agent. It is not sufficient to show that the premises have been used in a way which would constitute a breach of the covenant; it must further be shown that the user is by the defendant or his agent, or that it is permitted by the defendant or his agent….

…Whether that is a breach of the covenants is the same question as whether the appellants have omitted to take some step which it was reasonable for them to take in view of the facts and circumstance”

The UT reaffirmed that the above passage from Berton supported two propositions critical to the issues in this case, namely:

• A tenant may be guilty of a breach of this covenant by its agents actions, on the assumption the agent’s functions included management of the property.
• When determining whether the tenant has omitted to take reasonable steps, all the facts and circumstances must be taken into account and the question for the FTT is “whether a reasonable person in the position of the tenant would have taken steps to prevent the prohibited use which the tenant failed to take.”

The issue here was that the FTT had not made any express finding that Ms Marchitelli had permitted or suffered the use of Flat 1 for the purpose of prostitution. Equally, the UT was not satisfied that such a finding could be inferred from vague passages of the judgment as to do so would not enable the landlord to serve a valid section 146 notice. The UT referred to Neuberger LJ’s consideration in Akici v L R Butlin Ltd [2006] 1 WLR 201 of the requirements for a valid section 146 notice and the reference to Lord Parmoor’s speech in Fox v Jolly [1916] 1 AC 1 in which it was said as follows:

“I think that the notice should be construed as a whole in a common-sense way, and that no lessee could have any reasonable doubt as to the particular breaches which are specified.”

Secondly, the UT was concerned that if the FTT decides not to make specific findings of fact when determining a breach, the County Court will be left with an “impossible task” when trying to determine whether to forfeit a lease or grant relief from forfeiture. The UT considered that

“it is essential that the County Court is in a position, from the FTT’s decision, to assess the seriousness of the breach, the culpability of the appellant, and the appropriate response to an application for relief against forfeiture. If that degree of certainty is not achieved it may be necessary for the County Court to rehear the evidence which has already been presented to the FTT.”

In this case, no findings of fact had been made against Ms Marchitelli as to what she did or didn’t do or the effect of the steps that she took. Similarly, the FTT did not specify what the “few active steps” which it was satisfied that Ms Marchitelli had taken comprised of or why there were insufficient.

In addition, whilst there was evidence that Mr Torino failed to take steps to control what was going on in Flat 1, and Ms Marchitelli could have been fixed with his knowledge as her agent, the FTT made no findings as to the extent of Mr Torino’s knowledge or his responsibility and these were significant omissions by the FTT.

As such, although there was evidence from which relevant findings of fact could have been made, the FTT failed to do so and therefore the second ground of appeal was allowed.

Given the failures by the panel to properly consider the evidence, the UT remitted the decision to be heard by a differently constituted panel. However, the UT did not disturb the finding that Flat 1 had been used for prostitution and therefore, unless the parties reached an agreement, it would be for the new FTT panel to consider whether Ms Machitelli or Mr Torino permitted or suffered this use to occur.

Comment

Whilst fact specific, this decision reinforces the importance for determinations to be as specific as possible to allow for the service of a valid section 146 notice. A failure to obtain specific determinations from the FTT may undermine the whole purpose of such a determination and cause significant difficulties when attempting to enforce in the County Court.

Moreover, in cases involving such covenants, it is clearly not sufficient for an applicant to simply establish that a property has been used in breach of a provision on use. Rather, it will be necessary to show that a lessor’s actions or inactions were sufficient to amount to a permitting or suffering of the particular use in question.

Finally, the decision operates as a useful reminder that a lessee can be fixed with its agent’s acts or omissions and it is not therefore a defence to such an application for a lessee to claim that its agent was responsible for the management of the property in question. However, as above, any such findings must be specifically made by the tribunal to be used for the purposes of section 146 and forfeiture.

This article was first published in Thomson Reuter’s Practical Law Property Litigation Column.