Gray’s Inn Investments Limited v Sally Claire Jolleys

Where a tenant assigns a flat together with the benefit of a section 42 notice, the assignee also assumes the liabilities arising from that notice. Accordingly, the reference to the tenant in section 60 of the Leasehold Reform, Housing and Urban Development Act 1993 includes the assignee, so far as the context permits.

The exclusion at the end of section 60(1) concerns particular costs which cannot lawfully be imposed on a purchaser. It does not require an express contractual stipulation before an assignee becomes liable for the landlord’s recoverable costs. Liability extends only to costs incurred before the notice ceases to have effect and excludes costs incurred in proceedings before the First-tier Tribunal.

The appellant landlord had received a section 42 notice from the former tenant of a flat. The flat and the benefit of the notice were subsequently assigned to Ms Jolleys. The proposed lease extension was not completed and the notice was deemed withdrawn under section 53 of the Leasehold Reform, Housing and Urban Development Act 1993.

The landlord applied to the First-tier Tribunal for its costs under section 60. The FTT held that Ms Jolleys was not the tenant by whom the notice had been given and was not directly liable, although she had indemnified the assignor. The central issue on appeal was whether sections 43 and 60 made the assignee liable to the landlord.

1. Appeal allowed. The FTT had misconstrued section 60 of the Leasehold Reform, Housing and Urban Development Act 1993.
2. Section 60 makes the tenant by whom the section 42 notice is given liable for the landlord’s reasonable costs incurred in pursuance of the notice, subject to the statutory exclusions. Section 43(1) provides that rights and obligations arising from the notice enure for the benefit of and are enforceable against assigns to the same extent as contractual rights and obligations. Section 43(2) therefore extends the reference to the tenant in section 60(1) to the tenant’s assignee, so far as the context permits.
3. The closing words of section 60(1) are an exception to the preceding liability. They exclude specified costs which cannot lawfully be imposed on a purchaser. They do not mean that an assignee assumes liability only where the transfer expressly stipulates that the assignee must pay the landlord’s costs.
4. Under section 60(3), liability is confined to costs incurred before the notice ceases to have effect. Section 60(5) excludes costs incurred by a party to proceedings before the First-tier Tribunal.
5. The deed of assignment created an indemnity in favour of the former tenant. It did not determine Ms Jolleys’s direct liability to the landlord, which arose from the combined effect of sections 43 and 60.
6. The FTT’s decision was set aside. The Tribunal substituted a decision that Ms Jolleys was liable to pay the appellant’s costs under section 60. The matter was remitted to the FTT to assess the amount claimed.

• First-tier Tribunal (Property Chamber): By decision dated 26 September 2022, the FTT refused the landlord’s application for costs under section 60 of the Leasehold Reform, Housing and Urban Development Act 1993.
• Upper Tribunal (Lands Chamber): The appeal was allowed. The FTT’s decision was set aside, a substituted decision of liability was made, and assessment of the costs was remitted to the FTT.