Property litigation weekly update - 11 February 2022


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In this week's bulletin the team discuss a Court of Appeal decision on residential eviction notices and deposits where the landlord is a company and a High Court decision concerning circumstances where a landlord is unreasonable in the context of requests to assign a lease.

Northwood (Solihull) Ltd v Fearns & Ors (2022)

Section 44 Companies Act 2006 (section 44) states a document is validly executed by a company if signed on its behalf by either two directors, a director and company secretary or a sole director if their signature is witnessed.

The case of Northwood (Solihull) Ltd v Fearns & Ors (2022) was the second appeal by the landlord on the issue of whether section 44 applies to the signing of tenancy deposit prescribed information certificates where tenancies are granted by company landlords and the tenant's cross appeal on whether section 44 applies to the signing of a section 8 Notice Seeking Possession (Section 8 NSP).

Incidentally, the first appeal held a Section 8 NSP did not have to comply with the requirements of section 44, however the signing of the deposit prescribed information certificate (certificate) did have to meet the requirements and so could not be signed by a sole director otherwise any section 21 notice served would be invalid.

The facts of Northwood were that the certificate was given by the company on 25 July 2014, on its behalf and signed by Ms Brown, a sole director. At that time the Deregulation Act 2015 (the Act) was not in force and as such the paragraph (g) (vii) of the Housing (Tenancy Deposits) (Prescribed Information) Order 2007 (2007 Order), as it stood at that time, required a certificate to be signed by the landlord. The meaning of a landlord/landlords in any shorthold tenancy was contained in s.212(9) Housing Act 2004 which included reference to a person/persons acting on a landlord's behalf.

In the circumstances, the signature of a person authorised to sign on the company's behalf was acceptable when the certificate was given in 2014 because the landlord was a company.

The Act retrospectively disapplied s.212(9) Housing Act 2004 meaning that a signature which was valid on a certificate pre the Act could become invalid post the Act. However, the CA felt this was not something which should be determined unless there was compelling reason to do so. Amendment to the 2007 Order and the interpretation of Article 2(3)(a) of the 2007 Order subsequently provided that references to "the landlord" should be read as including a person who acts on a landlord's behalf.

The CA found that in relation to a deposit, this extension applies where the initial requirements of an authorised scheme have been complied with by a person acting on a landlord's behalf. Evidently, Ms Brown was not the landlord as that was the company and the only rational conclusion was she was a person acting on behalf of the landlord and accordingly, the certificate remained valid.

The CA also said that in any event, the certificate was 'substantially to the same effect' as the prescribed form permitted by the Housing Act 2004. The information was authenticated on behalf of the landlord by someone authorised to do so and the landlord's appeal was allowed.

In relation to the tenant's cross appeal that the general position is that the signatory of notices has to have authority from the person required to give the notice, i.e. the landlord and section 44 did not apply. The primary legislation governing notice under the Housing Act 1988 does not require signature of anything, it merely requires "service" of a notice by a landlord in a prescribed form. The only error of the landlord's managing agent, Ms Miles, in the Northwood case was that she, as the authorised signatory of the landlord, crossed out the wrong words identifying the capacity she signed the section 8 NSP in and purported to be the landlord.

The CA held that the error did not affect the validity of the notice and the tenant's cross appeal was dismissed.

In conclusion, the Court of Appeal decision removes a technical defence to section 21 possession proceedings in relation to company landlords and the signing of notices making things administratively a whole lot easier.

REQUESTS TO ASSIGN A LEASE – WHEN IS A LANDLORD UNREASONABLE? GABB v FARROKHZAD [2022] EWHC 212 (Ch)

Judgment was handed down in this case by the High Court on 3 February 2022. This court considered the conduct of a landlord, Mr Farrokhza when faced with requests by his tenant, Mr Gabb, to assign his residential lease of a flat on Kensington Park Road, London.

The lease contained the fairly standard provision the tenant was "not to agree to assign or to assign … the demised premises unless [he] shall first obtain … the prior written consent of the Landlord (which consent shall not be unreasonably withheld)", generally referred to as a "fully qualified" covenant. The Landlord & Tenant Act 1988 (1988 Act) imposes certain duties on a landlord in relation to such covenants, including an obligation to give consent (except where it is reasonable not to do so) and an obligation to consider and respond to requests within a reasonable time.

Mr Gabb made various attempts to sell his property by assigning the lease which, he argued, fell through/might fall through as a result of the alleged unreasonable conduct of Mr Farrokhzad in delaying and refusing to consent to the assignment(s). Mr Gabb argued that, as a result of the unreasonable conduct, he was entitled to a declaration he could assign his lease without consent, and to damages to compensate him for losses suffered. He also asked the Court to grant an injunction in respect of Mr Farrokhzad's possible future conduct and 'exemplary' damages.

Mr Farrokhzad's position was that his actions had not been unreasonable and even if they had been unreasonable, there were formal defects in the communications from Mr Gabb in respect of his requests for consent, which he argued invalidated those requests.

The judgment details the various attempts by Mr Farrokhzad to "string the process of giving consent out for as long as possible" which included his unjustified claims of breach of covenant, threats to forfeit the lease and unnecessary requests for financial references (in circumstances where the proposed assignee was a known billionaire, had already provided a reference, and the rent would be 'a peppercorn').

The claim was allowed in part. The Court found that Mr Farrokhzad had "embarked on an extended campaign of delay" and the declaration sought by Mr Gabb was granted and damages awarded to him which included abortive sale costs, council tax and interest on mortgage payments which would otherwise have been avoided had the sale completed.

A few interesting points were raised, as follows:

Effect of finding of unreasonable refusal: A tenant had a right at common law to assign his lease without consent if the landlord unreasonably refused consent, together with the right under section 4 of the 1988 Act to sue the landlord for damages.

"Written and served": Under the 1988 Act, in order to trigger liability on the landlord, a request for consent had to be both written and served. The Court confirmed that a request contained in an email satisfied the requirement for it to be 'written'. Mr Farrokhzad argued the consent request had not been properly served but the court rejected this. Mr Gabb's communications satisfied the requirements of the relevant legislation as they were valid under the terms of the lease, had been received and were understood to be requests.

What is a 'reasonable time' to respond to the request?: What is reasonable will depended on the circumstances of the particular case, including those known to the landlord and tenant at the time of the application, and subsequent events. In this case, what was reasonable was viewed in light of circumstances where Mr Farrokhzad had in fact been aware of the application for a period of about 3 months whilst Tribunal action was ongoing. As such the time by which he ought to have responded following the conclusion of that action was adjusted accordingly.

Requirements of the lease: Mr Farrokhzad argued the relevant clause required Mr Gabb "not to agree to assign" unless consent was first obtained. He argued the words underlined made clear the tenant was required to obtain written consent before agreeing to assign the lease and the very first communication from Mr Gabb's solicitors confirmed an offer had already been accepted. Mr Farrokhzad therefore argued Mr Gabb had not complied with the requirements of the lease. However, the Judge rejected this and said that mere successful negotiation is not an "agreement to assign" in this sense.

Damages under the 1988 Act: The Court did comment that Mr Gabb should have been entitled to the difference in sale value between the 'lost' sale and the 'new' sale in the sum of £50,000, but this did not form part of his claim.

Exemplary damages / Injunction: An award of exemplary damages was appropriate "where a landlord pursued a deliberately obstructive policy designed to prevent the tenant assigning their lease for their own gain, regardless of whether that policy succeeded". However, there was no evidence as to what Mr Farrokhzad's motivations for his conduct might have been, and it was not appropriate to award exemplary damages on "pure guesswork". The Judge refused to grant an injunction requiring Mr Farrokhzad to comply with his duties in respect of any future purchaser and said this was unnecessary given the form of declaration he intended to make (to allow the sale to proceed without consent).

This case provides a useful overview of how requests for consent to assign ought to be handled at each stage. However, it is important to remember that each case of this sort will turn upon its own facts.

Hot off the press

The Leasehold Reform (Ground Rent) Act 2022 received Royal Assent on 8 February. Although regulations will need to be made by the Secretary of State before the provisions of the Act come into force, these are expected later this year. Once the Act is in force, ground rents in all new residential leases (with some limited exceptions) will effectively be abolished.

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