The Ultimate Power of the Freeholder
The greatest power of the freeholder when leaseholders breach the terms of their lease (whether the breach is financial or that of disrepair) is forfeiture, i.e. the taking back of the lease (and the property) from the leaseholder before its natural expiration.
Legislation has made the act of forfeiture much harder with Governments introducing considerable measures to protect leaseholders from being faced with both the threat and the real action of forfeiture because it used to be carried out arbitrarily for the most minor of lease breaches. As a result the freeholder got the return of an asset that far outweighed any breaches the leaseholder may have made.
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.
TYPE 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.
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.
But what is waiver?
Waiver is the reason it is essential to decide which breach has been committed and it has 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.
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.
LEASEHOLD LIFE’S EXPERIENCE
Whilst I accept that the amount of arrears on my block may pale into insignificance against those of other leaseholders who have been at the mercy of large corporate landlords, (which we are not) I am unconcerned about the potential loss of both the lease and therefore the property to any leaseholder landlord who flouts legislation. This is why instead of forfeiture being abolished I believe we should be extending our horizons.
I work across both the leasehold and the PRS sector as the majority of flats on my block are sublet. Because of this I look to specifically target the use of forfeiture toward a) those leaseholders who deliberately fail to pay service charges (well and truly outside those reasons defined by legislation and for years on end) and b) where ‘rogue landlords’ not only risk the lives of their tenants, surrounding residents and that of the building by breaching health and safety requirements but who also allow their tenants (and visitors) to commit anti-social behaviour (including violence).
To give an example I have one such individual in particular who I believe should lose his property. Not only has he only flouted every legal requirement in the book regarding service charges and disrepair issue but has refused to obtain a landlord license, another legal requirement. I am pressing for this to be rectified but having been advised of the steps involved in the process, he could remain in illegal operation for many more months without one!
He has tried to sell the property (under the radar) more times than I care to remember but since we secured a charging order on the property he has not pursued this avenue. As a delaying tactic, he even went so far as to start the statutory lease extension process but failed to defend his position on the arrears at the FTT so now our company solicitors can add their fees to the list!
The latest stunt is to install a gas boiler using an installer that is not Gas Safe Registered and at the moment the HSE are after him too.
And when another leaseholder landlord assaults the freehold RMC Director (my partner) because he is under continual pressure to do things properly then would I like such people to lose their assets? You bet I would!
I agree with those who say that if a lease breach is judged in open court (as opposed to a closed court which has been known to happen) than a reasonable amount of time must be given to repair any breach. However, (and again based on my experience) why give yet more chance to remedy through waiver when it’s only going to be used as yet another delaying tactic with no resolution?
If forfeiture is totally removed then leaseholders will be no better off when they find their block deteriorating because the freeholder has had its teeth well and truly extracted!
So not only must forfeiture be kept but the circumstances under which waiver is deployed should also be re-constructed!