Forfeiture is real and the Court will grant it!
6th December 2018
6th December 2018
Forfeiture is probably the most powerful and important remedy available to a landlord. Despite that, we find for the large part that many landlords and agents we work with don’t think that forfeiture is attainable or a real option where a residential leaseholder has breached the terms of their lease. They see it as a ‘mythical’ remedy that, whilst it exists, is not seen very often in reality. Many see the difficulties and statutory restrictions on forfeiting a residential lease, and conclude that “it will never happen”.
Those assumptions are very much incorrect. Although forfeiture is a rare outcome, not least because in the vast majority of cases the very threat of forfeiture is enough to see the breaches complained of remedied either by the leaseholder or their mortgage lender (in the case of monetary claims) well before forfeiture is exercised, it is still very much a viable remedy. This is particularly so where a leaseholder is unable to remedy the breach complained of, or is simply unwilling to do so and ‘burying their head in the sand’ by not engaging in the process.
In this update we aim to remind you of the remedy of forfeiture by reference to some recent cases that we have dealt with at KDL Law and which, on each occasion, have resulted in forfeiture.
The right of forfeiture
Forfeiture is a landlord’s right, in certain circumstances, to bring the lease to an end and regain possession of the premises. In order to be exercised, the right to forfeit must be expressly reserved in the lease and any contractual or statutory pre-conditions required to effect forfeiture, must be complied with. In relation to monetary breaches (e.g. non-payment of rent or service charges) owing on residential premises, a landlord can only forfeit the lease if the amount owed for ground rent, service charges or administration charges (or a combination of them) is more than £350; or, if the amount is less than £350, if any part of that, has been outstanding for more than three years.
It is most important for landlords and their agents to ensure that they preserve the right of forfeiture and it is not ‘waived’ in any way. Waiver can occur when the landlord (or their agent) undertakes any action which recognises the continuing existence of the lease once the landlord has knowledge of the breach. In this regard, we refer to our June 2018 Legal Update “When leaseholders are in breach - some Do’s and Don’ts” which gives more information on the concept of waiver.
Obtaining a possession (forfeiture) order
We are instructed daily on behalf of residential landlords and managing companies, who are seeking to recover money from defaulting leaseholders or to remedy other, non-monetary breaches. These may include unlawful subletting or unauthorised alterations to premises, for example. Although the legal action we take is all in contemplation of the landlord’s right of forfeiture, it is rare for these cases to end up at a forfeiture hearing for the simple reason that forfeiture is extremely bad news for the lessee.
In the past 18 months, however, we have been involved in two cases which have resulted in forfeiture. Both cases related to non-payment of charges due under the terms of leases; in one case ground rent and in the other case service charges. In both cases, there was no mortgage secured on the property. One of the leaseholders was simply unable to pay the debt to our client; the other was unwilling to accept that he owed it despite a determination of the County Court to that effect.
In relation to outstanding service charges, many landlords will be familiar with the process. Before forfeiture can occur, the landlord has to obtain a determination (either from the County Court or First Tier Tribunal) that the service charges were payable. The leaseholder failed to make payment of the arrears in accordance with the determination, therefore a section 146 notice was served, giving the leaseholder 14 days to make full payment of the arrears and legal costs. In default of full payment, a claim for possession (forfeiture) was commenced and in that case a possession order was made. In the case of outstanding ground rent, provided that the statutory thresholds are met, a claim for possession (forfeiture) could be commenced immediately, without a prior determination of the Court or Tribunal.
It is important to say that in both cases the landlords were reluctant to proceed with forfeiture action. However, this was the most effective option for our clients to recover the sums lawfully due to them, either by the leaseholders remedying the breaches or the clients recovering possession of the premises.
The leaseholders were encouraged at every stage to seek independent legal advice, given the seriousness of the action being taken and the consequences for them of an order for possession being granted. Not only would the leaseholders be ordered to vacate the premises if the Court accepted the claim for forfeiture, they would lose any financial interest in the property also. The interest in the property would revert back to the landlord, who would be entitled to let or sell the property as they see fit.
In both cases, the Court granted our clients’ claims and made orders forfeiting the leases and requiring the leaseholders to give up possession of the premises. The leaseholders were both given a final ‘bite at the cherry’ and opportunity to pay the arrears before the orders for possession took effect.
In addition, in the case relating to rent arrears, the leaseholder had a further period of 6 months after the eviction to apply to the Court for ‘relief’ from forfeiture to reinstate the lease. Relief is granted at the discretion of the Court and typically only where the leaseholder can make full payment of the arrears and the landlord’s legal costs. The leaseholder did not make such an application and the property reverted back into our client’s ownership. In the other and most recent case, it remains to be seen if the leaseholder will make payment or if the client will be entitled to proceed with eviction.
As is clear from the above, forfeiture is a real remedy and the Court will grant it where appropriate. Legal advice should, however, always be taken on the correct process to be followed in any given case, as forfeiture is a complex area and rife with traps for the unwary.
Should you have any questions in relation to the above, then please do not hesitate to contact Kevin Lever on Kevin.Lever@kdllaw.com or 01435 897 297.
This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.
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