[2024] UKUT 371 (LC)

Where a lease included a covenant by the tenant to indemnify the landlord against any liability in respect of legal obligations, but did not include an express covenant by the tenant that it would comply with all legal obligations pertaining to the property, was such a covenant nevertheless to be implied into the lease? That is the main issue in this appeal from a decision of the First-tier Tribunal, Property Chamber (the FTT).

The appellant, Assethold Ltd, is the tenant under a headlease for a term of 999 years of the upper floors of a building in Barking Road, Plaistow. The respondent, Interface Properties Ltd, is the owner of the freehold of the building and the appellant’s landlord.

Neither of the parties was an original party to the headlease, which was granted in 2006. The appellant took a transfer of the unexpired term in 2017. By that time the first and second floors of the building had long since been divided into four flats each of which had been demised by a long sub-lease in 2007. Each of those sub-leases has subsequently been assigned. The respondent acquired the freehold in 2018.

The four flats were created without the benefit of planning consent. In 2010, before either of the parties or any of the current leaseholders became interested in the property, the local planning authority began enforcement action. It served enforcement notices on all those with interests in the building requiring that the use of the upper floors as four separate dwellings cease and that the upper floors be returned to a single flat. An appeal against that notice is believe to have been dismissed by a planning inspector in 2011 but the notices have never been complied with.

In October 2022 the respondent applied to the FTT for a determination under section 168 of the Commonhold and Leasehold Reform Act 2002 (the 2002 Act) that there had been a breach of covenant. The basis of the application was an allegation that, by failing to comply with the enforcement notice, the appellant had breached an implied term in the headlease.

In its decision handed down on 6 September 2023 the FTT determined that the headlease included an implied covenant by the tenant that it would at all times comply with “legal obligations” as that expression is defined in the headlease. The relevant definition is in clause 1.17 and provides:

“Legal Obligation” means any obligation from time to time created by any Enactment or Authority which relates to the Property or their use and includes without limitation obligations imposed as a condition of any Necessary Consent

With the exception of the Property, none of the capitalised words used in the definition of Legal Obligation was itself defined elsewhere in the headlease.

The FTT also determined that the implied term had been breached by the appellant in that it had carried out unauthorised conversion works and had permitted the upper floors of the building to be used in breach of the enforcement notice.

Permission to appeal the FTT’s decision was granted by this Tribunal. The grounds of appeal are that the FTT was wrong to imply a term into the headlease that the tenant would comply with legal obligations and wrong to find that the appellant had breached any such obligation. The FTT had refused to grant the appellant’s request for orders under section 20C, Landlord and Tenant Act 1985 and paragraph 5A, of Schedule 11, 2002 Act, protecting it against any obligation to contribute to the respondent’s costs of the proceedings through a service charge or administration charge and the appellant was also granted permission to appeal against that part of the decision.