Some of you may have already read about the case of Marchiteli -v- 15 Westgate Terrace Limited (2020) UKUT 192 (LC) in the press. This is the case in which the First Tier Tribunal (FTT) found that the £1.2m flat owned by Ms Marchiteli (a solicitor) in Chelsea had been used as a brothel. Ms M appealed the decision to the Upper Tribunal (UT) on two grounds, one of which was successful and is of wider importance to any non-monetary leasehold breaches. The matter is now being remitted back to the FTT for a newly constituted panel to consider the specific point in question.

Background

The landlord, 15 Westgate Terrace Limited, commenced proceedings in the FTT for a determination under Section 168 of the Commonhold and Leasehold Reform Act 2002, that Ms M was in breach of her lease. The covenant in particular said to have been breached was a commonly found covenant by a lessee :-

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

The allegations were that the flat was being used as a brothel by Ms M’s subtenant. The sub-tenancy had been arranged by a Mr Torino, who was said to have acted as Ms M’s agent. Evidence was given to the FTT by a number of leaseholders and the managing agents, of complaints about late night disturbances, and regular traffic of older men in suits with young girls walking up to the flat. One leaseholder gave evidence that he came to believe that the flat was being occupied by a Natalie Ferraz, with post being addressed so at the flat address. Material had been found online advertising Natalie Ferraz’s services as a transsexual escort, and the leaseholder inferred that such services were being offered in the flat, and that the flat was being used as a brothel. When Natalie Ferraz then left, the flat was said to have become occupied by “a number of different individuals, usually transvestites or women dressed as prostitutes”. Complaints were relayed both to Mr Torino and to Ms M, who at periods of time was being treated in hospital for a serious illness.

Ms M’s evidence was that she had entrusted Mr Torino to manage the flat, that she had seen “no compelling evidence” that prostitution had taken place at her flat, she denied that the flat was being used as a brothel or that she had consent to, or permitted, such use. Instead, she claimed to have instructed Mr Torino to take action to recover possession of the flat.

Decision of the FTT

The FTT decided that, whilst there was no direct evidence, there was considerable circumstantial evidence that the flat was being used as a brothel or for business purposes or for immoral purpose. This included the evidence of numerous male visitors during the night, complaints of noise disturbances, the identification of the occupier as Natalie Ferrraz and her advertisements online as a transvestite offering services of a sexual nature to men.

The FTT said that, apart from contacting Mr Torino, Ms M had taken few active steps to resolve the situation or to rid the property of its difficult sub-tenant. As a result, the breach of lease was found.

Ms M then appealed to the UT on two grounds, namely :-

1. Whether the evidence before the FTT could substantiate the finding that it reached; and

2. Whether the FTT was right to find that she had permitted or suffered the use of the flat for prostitution.

Decision of the UT

The UT found that there was clear material before the FTT to draw the inference that the flat was being used for prostitution, and therefore dismissed the first ground of appeal.

On the second ground, the UT said that the FTT had not made any express finding that Ms M had permitted or suffered the use of her flat for prostitution. It is not simply enough to establish a breach to show that the premises have been used in a way which would constitute a breach of covenant; it must further be shown that the unlawful use in question is either by the leaseholder (or someone acting as their agent), or that it was permitted by the leaseholder (or their agent).

The UT held that sufficient transparency of the breach complained of was required, in order to enable a landlord to subsequently serve a Section 146 Notice as a precursor to forfeiture action and, in the event of forfeiture proceedings being issued, a Court to subsequently grant relief from forfeiture. The FTT therefore had to be sufficiently clear about the alleged breach and the leaseholder’s part in it.

Whilst Ms M may have been fixed with the knowledge that Mr Torino had about the complaints and any inaction on his part, the FTT made no findings as to the extent of Mr Torino’s knowledge or his responsibility for either facilitating what was going on at the flat or preventing it. Those were significant omissions, said the UT, and the appeal on the second ground was allowed, with the matter being remitted back to the FTT for a newly constituted panel to consider.

Conclusion

This is an interesting and significant decision. It goes to show that, even in the face of clear evidence of a breach in terms of conduct (e.g. nuisance or illegal/immoral use), unless the breach has been clearly identified and determined, a claim will not succeed. This requires careful consideration of the covenant in question and setting out exactly how the leaseholder is said to have breached it.

Here, there was no consideration or determination as to how Ms M had permitted or suffered the flat to be used for prostitution in breach of covenant, notwithstanding the clear evidence that the flat was being used for prostitution. This is an important lesson for those giving evidence and preparing cases for Court or Tribunal.

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