It is the Housing Act 1996 and especially the Commonhold and Leasehold Reform Act 2002 that make it unlawful for freeholders to start proceedings for small debts, with specific legislation under s167 of the 2002 Act preventing the freeholder from forfeiting leases for service charge arrears (including ground rent and administration charges) where a) the outstanding amount is £350 or less and b) no part of it has been outstanding for more than 3 years.
Forfeiture is also not possible in any of the following situations:
- Against a Rent Act protected tenant;
- Against an Assured tenant and an Assured Shorthold tenant under the Housing Act 1988;
- Against a long leaseholder of a house who is claiming to enfranchise under the Leasehold Reform Act 1967
- RMC’s set up via Right to Manage or through tri-party leases because these companies do not own the freehold.
Types of Breach
Before approaching the First Tier Tribunal, the freeholder has to establish what kind of breach has been committed pf which there are two types: continuing and non-continuing.
Examples of ‘continuing’ breaches are:
- Non-payment of ground rent or service charges;
- Breaches of user restriction;
- Breach of a prohibition against sharing of occupation;
- Prolonged immoral use (irremediable);
- Bankruptcy of an person or insolvency of a limited company, (except if this were later nullified by the court (irremediable);
On the other hand, breaches that have been held to be non-continuing include:
- Unauthorised alterations;
- Unauthorised sub-letting (irremediable);
- Unauthorised assignment (irremediable);
- Non-payment of service charges and ground rent for a particular period;
- Failure to allow access to the landlord or its agents on notice.
Once the act of forfeiture has been decided upon, if the freeholder continues to acknowledge the existence of the lease, the act of waiver can occur of which there are three components:
- The freeholder has knowledge of the breach;
- The freeholder recognises that the lease remains in existence;
- The freeholder communicates the recognition of the lease to the leaseholder.
Potential Acts of Waiver
Whether committed expressly or by conduct, potential acts of waiver include:
- The granting of consents;
- The serving of statutory notices;
- An injunction sought against a covenant breach;
- Arrangements made to inspect the premises;
- Offering to accept or negotiate a surrender of the lease;
- Continuing to send service charge and ground rent demands.
However if communication with the leaseholder (or any representative) cannot be avoided, it must be conducted on a ‘without prejudice’ basis. This includes the sending of service charge and ground rent demands and chasing letters for payment that are required to be carefully worded in order not to incur waiver. There should also be no discussions of future payments with either party, not even on a ‘without prejudice’ basis.
With the committing of continuing breaches, the leaseholder may still be able to get relief of waiver if he applies for it. For example, the non-payment of ground rent or service charges could be remedied by payment.
Once non-continuing breaches have been waived, they can never again be relied upon as a ground for forfeiture.
Note: Waiver does not extend to unknown or future breaches and waiver on one occasion does not operate as a general waiver for continuing breaches in the future.
SERVING A s146 NOTICE
Once it has been determined that the leaseholder is required to pay the outstanding amounts then a s146 Forfeiture Notice will be issued, specifying the following:
- The breach complained of;
- The requirement for it to be remedied (if capable);
- The amount of compensation to be paid (unless the landlord waives this).
The Notice can only be served after 14 days from the final determination and must also be served on anyone else with an interest in the property. This is because forfeiture of a lease involves the destruction of all rights that feed off it, so sub-lessees, mortgagees, assignees and occupiers all stand to lose their interests in the premises.
The freeholder must allow a reasonable period of time (usually 3 months) for compliance and if the breach is remedied then forfeiture is not applicable. If the breach is not remedied within a reasonable time the court has the discretion to grant relief to allow more time for remedy, provided the leaseholder has applied for it. Even if it is granted then the freeholder can continue to proceed with enforcing forfeiture at any time before possession has actually been taken.
Affected parties can also apply for relief against forfeiture and the Court has a broad power to grant it. Typically, a sub-tenant will have to make good his landlord’s defaults and to enter into a new lease with the head landlord that contains the same duties as his landlord owed: this can often involve taking on new rent and repairing duties if the sub-tenant wishes to remain in the premises.
Having said that, the freeholder will usually seek an order that they are entitled to vacant possession of the property because where the property is lawfully occupied as a dwelling, the premises cannot be re-entered without a court order under the Protection from Eviction Act 1977, applicable to both owner-occupiers and subtenants.