Summary

An underlessee who had sold her flat and removed all her belongings from it was in breach of a covenant not to part with possession of the flat without the lessor's prior written consent. Such consent had not been unreasonably withheld as the purchaser of the property was also the sole director of the right-to-manage company which was entitled to grant consent pursuant to the Commonhold and Leasehold Reform Act 2002 but he had failed to give the requisite 30 days' notice to the lessor in accordance with s.98(4) of that Act.

Facts

A lessee of a flat appealed against a determination that she had breached the terms of her underlease by parting with possession of her flat to the second respondent (W) without the consent of the first respondent lessor.

The appellant held the flat on a long lease which contained a covenant not to sublet or part with possession of the flat except with the lessor's prior written consent. Since the management of the property had been taken over by a right-to-manage (RTM) company, the Commonhold and Leasehold Reform Act 2002 s.98 and s.99 provided for the necessary consent to be sought from that company instead of from the lessor. The appellant exchanged contracts with W, who was at that time the sole director of the RTM company, for the sale to him of her flat. The contract included a special condition that W would take responsibility for obtaining consent to the assignment. Despite the provisions of s.98(4) of the Act, the RTM company did not give notice to the lessor of the proposed assignment because W perceived that the lessor would object unreasonably and delays would arise. On 29 July 2015, the appellant purported to complete the assignment in return for the purchase price paid by W and moved out with all her possessions. The lessor objected to the assignment and the title to the underlease remained registered to the appellant at HM Land Registry. The lessor applied to the First-tier Tribunal under s.168(4) of the Act and obtained the determination under appeal.

The issues were (1) whether the appellant had parted with possession of the flat as a matter of law; and (2) if so, whether she had been entitled to do so without the consent of the RTM company on the basis that such consent had been unreasonably withheld.

Held

(1) Parting with possession - The appellant had, in both form and substance, parted with possession of the flat to W on the completion date. She had removed all her belongings from it and had never returned. Therefore, the parties understood and intended that the flat no longer belonged to the appellant and that she had done all that was expected of her under the contract by way of completion. That substantive intention, although not determinative, was relevant. However, the transfer of the underlease did not operate at law until the registration requirements had been met. Since they were not met, the appellant retained legal ownership of the underlease and held it on trust for W. Accordingly, although the appellant enjoyed the powers of an absolute owner, she held those powers for W's exclusive benefit and was completely excluded from the legal possession of the flat for all personal purposes. She had no right to exercise the powers in any way which constituted a breach of trust as between herself and W. After the execution of the transfer on 29 July 2015, W had the right to exclude all others, including the appellant, from the property. That was the hallmark of the right to possession, Clarence House Ltd v National Westminster Bank Plc [2009] EWCA Civ 1311 followed. The appellant had therefore parted with possession of the flat on that date, Horsey Estate Ltd v Steiger [1899] 2 Q.B. 79 considered. That amounted to a breach of covenant unless the RTM company's consent had been unreasonably withheld (see paras 83-93 of judgment).

(2) Consent not unreasonably withheld - By virtue of documents within W's knowledge and possession as the sole director of the RTM company, it was clear that the appellant had sought its permission for the assignment of the underlease. Since the RTM company was subject to the prohibition in s.98(4) that it must not grant consent to the proposed assignment without having given 30 days' notice to the lessor, and such notice had not been given, it could not be argued that consent to the assignment had been unreasonably withheld. Even if it was possible for the RTM company to have unreasonably withheld its consent, W was its sole director and was thus personally responsible for its actions, including the failure to give notice (paras 95, 98, 103-104).

Appeal dismissed