In the late 1970’s it was standard practice for the leaseholder covenant (promise) to pay service charges for services, repairs, maintenance, improvements, insurance or the landlords’ costs of management, to be enforced by the freeholder issuing forfeiture proceedings through the County Court (costing the leaseholder both the lease and the property).
Today this is no longer standard practice and forfeiture is now far more difficult to deploy regardless of the seriousness of any breaches committed by leaseholders.
A breach can take a number of forms in that it can be:
- Implicit: This means that a party simply does not honour his obligation.
- Explicit: Where the party in breach announces his intention not to be bound (repudiation, or anticipatory breach).
- Disablement: If a breach is by disablement it means one party has acted in such a way as to make performance impossible.
- Anticipatory: If a breach is anticipatory, the injured party may seek legal remedies immediately, even if there was originally a time limit on the contract. Moreover, if one party repudiates, the other may demand performance and continue to fulfil his own obligations. He does not have to treat the contract as discharged and in fact he may not be able to).
Before any attempt to apply forfeiture is made, the freeholder needs to establish what kind of breach has been committed. In other words it is capable of being remedied or not?
Those breaches that are capable of remedy (and known as non-continual breaches) are:
- Breach of covenant against sharing possession;
- Breach of covenant not to make alterations or display signs;
- Breach of user covenant;
- Breach of covenant to repair or decorate (see below);
- Non-payment of service charges and ground rent for a particular period (which can be remedied by payment);
- Failure to allow access to the landlord or its agents on notice such as where the freeholder obtains the services of a qualified surveyor who will inspect the flat(s) in question to assess the extent of the breaches.
Breaches that can’t be remedied (and known as continual breaches) are:
- Illegal or immoral use of the property which will only be remedied when the tenant leaves;
- Breach of covenant against underletting;
- Breach of covenant against assigning.
After the freeholder has established the type of breach, the next step is probably the most difficult element of the act of forfeiture because it requires the existence of the lease not to be acknowledged in any way, shape or form.
There are 3 components to waiver which are:
- 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.
There is also the issue of potential acts of waiver (whether committed expressly or by conduct), which 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 but once non-continuing breaches have been waived, they cannot be relied upon as a ground for forfeiture in the future.
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.
It also cannot be commenced or a s146 Notice served unless there has been:
- A final determination of the issue by way of an application to the LVT;
- The tenant has admitted the breach;
- A court in any proceedings, or an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement, has finally determined that the breach has occurred.
Once it has been determined by the FTT that the leaseholder is required to pay the outstanding amounts then prior to forfeiture, (whether by peaceable re-entry which is the right of the freeholder to terminate a lease by taking physical possession of the premises or whether by court proceedings) the freeholder is required to serve a notice under s146 of the Law of Property Act 1925 (restrictions on and relief against forfeiture of leases and under-leases) but not earlier than 14 days from the final determination.
More on serving a forfeiture notice can be read here.
FORFEITURE AND THE LAW COMMISSION
In 2006 the Law Commission put forward a proposal for forfeiture reform, Lawcom Property and Trust – Termination of Tenancies Report that suggested that the current law of forfeiture should be abolished and replaced with an entirely new statutory scheme. This was because the only protection leaseholders have against forfeiture is through the amendments made to the 1996 Housing Act requiring evidence of reasonableness of arrears of service charges – there are no other statutory defences, although there is the court’s power to grant relief.
In their response, the British Property Federation wanted the process simplified and were broadly supportive of the Law Commissions recommendations for commercial property. On the other hand they said that they could not support the principle of the abolition of forfeiture unless it was satisfied that there were effective alternatives. They believed that the right provides the only certain solution to the reputable landlord in event of arrears or other breaches.
However, LEASE felt that the rights of forfeiture were completely inappropriate to modern residential leasehold ownership and too open to abuse by the unscrupulous landlord. They also considered it questionable approaching the 21st century for the situation to remain whereby a landlord with perhaps no more than a 5% equity in the building could, by manipulation of the law be in a position to deprive an owner-occupier of his home, leaving him not only homeless but with the continuing burden of still having to pay the mortgage!
Every so often there are high profile cases in the media where leaseholders have had forfeiture used against them by the big players in the leasehold sector. Such cases are pretty abhorrent and in part why there are still calls for it to be abolished. I personally feel however that we should be extending our horizons to look at how we deal with those leaseholders who are not only continually and deliberately in breach of their leases (financial, repairs and consent breaches) but who are also renting out their properties, whether privately or on council-led schemes for housing the homeless.
The conveyancing process still leaves a lot to be desired with a lot of the leasehold information still not being divulged and there are significant weaknesses with the ‘due diligence’ allegedly carried out when it comes to placing vulnerable tenants in properties with no visible means of support and, to make matters worse, placing them with landlords who have earned the press description of ‘rogue’. Our own personal experience of this can be read in ‘Our First Landlord and Tenant Nightmare’, ‘Our Second Landlord and Tenant Nightmare’ and ‘Our Third Landlord and Tenant Nightmare’.
Working within the leasehold sector with the majority of our 22 flats being sublet and the potential loss of this last vestige of power I may have in tackling these leaseholder landlords would take away my ultimate tool in attempting to remedy such breaches when all other attempts have failed. It must not be removed on the single avenue of blameless leaseholders being shafted, disgusting though it most certainly is.
This stance has of course upset a number of leaseholders on certain forums who remind me that when such situations are judged in open court, and a breach of the lease is so serious as to merit forfeiture, then a reasonable amount of time must be given to repair any breach.
More important, if a property is forfeited, as a result of a breach that costs £20,000 and is sold for £180,000, it is unfair that the leaseholder loses the entire £180,000. They should be refunded £160,000 . It gives the freeholder an unfair advantage, and actually encourages them to escalate disputes. Like we have the time or the inclination!
Now, whilst I don’t have an issue with the principle of waiver, the use of it for certain individuals on our block will only give rise to yet more delaying tactics, rather than being seen as an opportunity to remedy those breaches.
They deliberately flout every property law and lease covenants and it remains my belief that people such as I describe deserve to lose their asset when they believe that no amount of legislation can touch them.
Not to mention when it’s not just the leasehold covenants that are breached but the requirements of legislation when subletting a property at the same time!
It is the law that allows such situations to happen and therefore it is the law that must be properly written. If forfeiture is totally removed then leaseholders will be no better off when they find that their block deteriorating because the managing agent or RMC freeholder have had their teeth well and truly extracted!