Upper Tribunal Clarifies Assignee Liability for Landlord Costs in Lease Extension Case under Leasehold Reform Act 1993

Citation: [2024] UKUT 2 (LC)
Judgment on

Introduction

The Upper Tribunal (Lands Chamber) case of Gray’s Inn Investments Limited v Sally Claire Jolleys ([2024] UKUT 2 (LC)) traverses the contours of s.60 of the Leasehold Reform, Housing, and Urban Development Act 1993, particularly focusing on the liability for costs incurred by a landlord after a tenant’s notice for lease extension under s.42 is served. This analysis delves into the decision rendered by Upper Tribunal Judge Elizabeth Cooke and highlights the legal principles and interpretations underpinning the case.

Key Facts

Gray’s Inn Investments Limited (the appellant) sought costs from Sally Claire Jolleys (the respondent), who was assigned the benefits and burdens of a s.42 notice for lease extension following the sale of the property involved. The original notice had been served by a Mr. Ian Warburton, and upon his sale of the property to Ms. Jolleys, the rights and obligations arising from the notice were assigned to her. The issue arose when Ms. Jolleys did not pursue the lease extension, and the notice was considered withdrawn under s.53 of the 1993 Act, leading to the landlord’s application for costs under s.60 of the Act. The First-tier Tribunal (Property Chamber) (FTT) ruled Ms. Jolleys not liable, which prompted the appeal.

The case examined the interplay between sections 42, 43, and 60 of the 1993 Act. Section 42 sets the notice procedure for lease extension initiation. Section 43 deals with the transferability of rights and obligations consequent to such a notice, particularly emphasizing that these rights and obligations would fall on the assigns of the lease in a manner akin to contractual obligations (ss.43(1) and (2)).

Key principles examined included:

  • Section 60 Liability: Section 60 outlines the tenant’s liability to redress reasonable costs incurred by the landlord due to actions pursuant to the notice, although costs incurred in FTT proceedings are excluded (s.60(5)).

  • Assignee Liability: Section 43 indicates that assignees inherit the liabilities associated with the notice, essentially treating references to ‘the tenant’ in this chapter as including their assigns (s.43(2)).

  • Indemnity and Assignment: The deed of assignment between Mr. Warburton and Ms. Jolleys contained an indemnity clause, specifying Ms. Jolleys’ undertaking to indemnify Mr. Warburton against costs arising from the notice. However, the Upper Tribunal underlined the separability of this indemnity from Ms. Jolleys’ direct liability to the appellant, which is created by statute.

  • Construction of Statutory Provisions: The Tribunal corrected the FTT’s interpretation of s.60(1), noting the closing words do not mean that the assignee’s liability for the landlord’s costs requires express stipulation in the transfer agreement but rather are an exception outlining certain circumstances where costs might not be recoverable.

The Tribunal also made reference to Hague on Leasehold Enfranchisement, which provided some guidance on interpreting the pertinent legal provisions.

Outcomes

On appeal, the Upper Tribunal allowed the appeal, setting aside the FTT’s decision on the basis of a misinterpretation of sections 60 and 43 of the 1993 Act. The Upper Tribunal held that Ms. Jolleys, as the assignee, was liable for the appellant’s costs under s.60 up until the notice was considered withdrawn, except for those incurred within the FTT proceedings.

Conclusion

The Upper Tribunal judgement in Gray’s Inn Investments Limited v Sally Claire Jolleys elucidates the statutory obligations that befall an assignee of a lease upon inheriting a s.42 notice. In reaffirming the reach of s.60 liability to such an assignee, the Tribunal brought clarity to the matter of cost liabilities in leasehold enfranchisement transactions, reinforcing the inherent connection between assignment benefits and the correlative responsibilities that come with them under the Leasehold Reform, Housing and Urban Development Act 1993.

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