David Whitney: Lease Forfeiture
David Whitney is a Solicitor at specialist Landlord and Tenant law firm PainSmith Solicitors who are described by Chambers and Partners as “a rarity in the UK as a true landlord and tenant boutique”. They are widely acknowledged as the leaders in the field, are accredited to the Law Society Lexcel and the Investors in People standards and provide training and legal services to “an impressive range of real estate clients”.
David also contributes to the PainSmith Landlord and Tenant Law Blog.
For this article David provides a general overview of forfeiture, a tricky subject that gives rise to many questions.
The basic position is that the Landlord and the Leaseholder have a contract between themselves. This will contain various obligations upon each party. Most leases will then have a clause which provides that if a Leaseholder breaches one of their obligations (these are usually referred to as covenants) then the Landlord can re-enter. This is what is known as forfeiture which in simple terms means that the lease ceases to exist.
Given residential leaseholds often have a high value this can be a pretty draconian step and for that reason it has been heavily regulated by a long list of statutes.
1) Starting Point
The starting point is that when a Landlord becomes aware of a potential breach they need to urgently consider whether they wish to enforce the covenants under the lease. If a Landlord is aware (or ought to be aware) of a breach and then does anything to recognise the lease continues such as demanding and/or accepting service charges or ground rent then it may be said they have waived the right to forfeiture. Waiver is when the Landlord is said to have accepted the lease is still valid and in place and that he is not taking issue with the breach. This means that they may not then be able to rely upon this breach to bring forfeiture proceedings (other actions may still be available).
Certain types of breaches for one off events can be easily waived if the Landlord inadvertently demands rent etc. Breaches such as a breach of a repairing covenant are known as continuing breaches as each day the property is in disrepair the breach occurs and so it is harder to waive these breaches as the lease is continually being breached. Care should always be shown by the Landlord and each breach should be considered carefully and if in doubt, whilst investigating, the Landlord should not do anything which could be said to amount to a waiver by accepting that the lease continues.
Under section 168 of the Commonhold and Leasehold Reform Act 2002 a new requirement was introduced before forfeiture proper could be started. This provided that unless there has been an admission of the breach by the tenant then a determination was required by a court, under an arbitration agreement or by a tribunal. The Act at section 168(4) expressly gave a jurisdiction to the leasehold valuation tribunal (“LVT”) to determine that a breach of covenant or condition in the lease had occurred. A Landlord will therefore need to adduce evidence to substantiate the breach. This evidence will need to be tested by the Tribunal or the Court and the Landlord can elect which route they wish to adopt. Obvously the evidence required depends on the breach and so for claims such as one of unlawful alterations or breach of the tenants repairing covenant expert evidence such as that from a surveyor may be required. For nuisance claims this will be witness statements of fact and possibly diary logs from local authority officers or police reports. It is often believed that the LVT route can be quicker and more cost effective than the courts where considerable delays can be experienced.
Once a Landlord has such a determination they may then serve a Notice seeking forfeiture which is required under section 146 of the Law of Property Act 1925 and such notices are often simply known as an “S.146 Notice”. This notice requires the Landlord to state full particulars of the breach (usually today by reference to the prior determination of the breach), and if it can be remedied requiring the Leaseholder to remedy the breach and to pay compensation for the breach. A reasonable period of time for dealing with the notice must be given as well as providing details of the lease, the full names and addresses of the Landlord and Leaseholder and details of where the Leaseholder can serve any documents etc. If the breach complained of relates to breach of a repairing covenant then the Leasehold Property (Repairs) Act 1938 may apply. For long leases this restricts the right to forfeit. Specific reference needs to be made in a S146 Notice to which this Act applies.
The Leaseholder may then themselves apply to the Court for what is known as relief from forfeiture or if the notice is not complied with the Landlord may apply to the Court for an Order that the lease has been validly forfeited as a result of the breach and the service of the S 146 Notice. Generally the Landlord will also seek an order that they are entitled to vacant possession of the property given that the Protection from Eviction Act 1977 will apply since residential premises are involved. An order by the courts is discretionary and the court may order relief from forfeiture on terms appropriate to the individual case but usually involving the payment of the Landlords costs. Relief from forfeiture is when the court accepts that the lease has been forfeit but reinstates the lease upon certain specific terms such as payment of damages, costs and any other terms the court thinks fit.
Most leases will contain a provision specifically referring to the recovery of costs for taking steps to forfeit and section 146(3) of the Law of Property Act 1925 also contains provision allowing recovery of the Landlords costs. Where a contractual right exists this is often said to be on an indemnity basis meaning that all the Landlords reasonable costs are recoverable and not just the standard costs which a court normally allows.
In practice today given the three stage process involved, it is usual for terms to be reached between the Landlord and Leaseholder prior to an application to the court. Also given the breach will have already have been determined prior to the forfeiture application the court will not be looking at the breach itself but whether it has been remedied (if capable of being) or if it is reasonable for the lease to be forfeit. It will be for the Leaseholder to argue that they should be granted relief.
Given that forfeiture results in the lease ceasing to exist, Landlords are required at each and every step to give notice to anyone with an interest in the property of which they are aware (or ought to be aware) such as mortgagees.
The process is complicated and has various pitfalls for the unwary. The LVT determination route is seen as being an effective method of taking to task Leaseholders who are not complying with covenants under their lease. Simply making the application to the LVT often causes Leaseholders to sit up and take stock of the situation. It is important that Landlords take proper advice on their own individual situation to determine the best route to follow and to avoid any argument over waiver.
Disclaimer: Ths article is not to be construed as legal advice. For further information on this and any other leasehold matter please contact:
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