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The £350 forfeiture threshold

5th October 2020

As many of you will know, when a Leaseholder is in breach of the terms of their lease a Landlord can look to use the remedy of forfeiture as a means of obtaining either resolution of the breach, or possession if the Leaseholder is minded not to comply. Forfeiture results in the determination of the lease with the full property value reverting to the Landlord.

We have provided in previous Legal Updates advice around forfeiture and the various aspects and requirements of it and waiver. Of reference are those from June 2018 “When leaseholders are in breach - some Do’s and Don’ts”, December 2018 “Forfeiture is real and the Court will grant it” and February 2019 “The deeper perils of waiver!”. In this update we focus on the requirement in any action for forfeiture relating to a debt under the lease that the debt on which the action is based must be for a minimum of £350 and the consequences this can have in respect of conduct and costs if that threshold is not met.

Forfeiture Requirements

In order for an action to be legitimately taken in or in contemplation of forfeiture, the following conditions must be satisfied:

  1. There must be an express 'forfeiture clause' in the lease providing for re-entry by the Landlord and specifying under what circumstances that can occur;

  2. Where the breach is non-payment of charges forfeiture cannot be used unless and until either the Leaseholder has admitted that the sum is payable, or there is a final determination of a Court, Tribunal or Arbitrator to that effect;

  3. Forfeiture proceedings can only be used against a Leaseholder of residential premises for unpaid ground rent, service charges or administration charges where the amount owed (separately or in total) is more than £350, or any element of it has been outstanding for more than three years.

  4. The right of forfeiture must still exist in respect of the breach claimed. The right of forfeiture can be waived at any time by the Landlord (as those acting on his behalf including his agents or other representative - see June 2018 Legal Update “When leaseholders are in breach - some Do’s and Don’ts” and our February 2019 Update “The deeper perils of waiver!”). An action in contemplation of forfeiture can therefore be prejudiced if, following the breach by the leaseholder, the Landlord (or his agents) does something to recognise the lease and thereby waive the forfeiture right.

Right of forfeiture attaches to the last demand so beware the £350 threshold

The right of forfeiture arises each time a valid demand for service charge or ground rent is raised and not paid, providing that that last demand is for a charge of £350 or more. A note of caution is relevant here though because, in raising a demand the Landlord will recognise the continuance of the lease and thus any new demand will amount to an act of waiver in respect of any arrears (or other ‘once and for all’ breach) present at the time of that demand. It is therefore necessary to consider before demands are served whether there is a breach (monetary or non monetary) present for which the Landlord would wish to retain its forfeiture right (see below the point in relation to legal costs recovery).

It is also pertinent to note that the Landlord’s right of forfeiture is connected only to that last demand because in serving that demand, and thus recognising the continuance of the lease, any right to forfeit for an earlier breach (including arrears) is waived. This may not be an issue where the latest demand is for a sum exceeding £350. However, if that latest demand does not exceed that £350 threshold - for instance is for rent which is often for less than that sum or an administration fee perhaps charged for a reminder letter in respect of current or past arrears - then that last demand will prevent action in contemplation of forfeiture irrespective of the total sum outstanding even where that exceeds £350, or an element of it is over three years in age.

Legal cost recovery - a cautionary note

If legal action is commenced for unpaid service charges/ground rent where the last demand on the Leaseholder’s account is less than £350 (even if the collective amount is far greater than that), this may prejudice the ability to recover costs in reliance upon the contractual legal cost recovery clauses in the lease insofar as those are incumbent upon those costs being incurred in contemplation of forfeiture.

Conclusion

It is imperative that, before instructing solicitors, Landlords and their agents ensure that the right of forfeiture has not been, and is not thereafter, waived, however innocently, as not only will waiver adversely affect enforcement options for the Landlord, but it can, and often will, have an adverse effect on the ability to recover costs. For further information do read the “Do’s and Don’ts” set out in our Legal Updates from June 2018 and February 2019 for guidance on how to act (or not!) when either the Landlord or its agent become aware of a breach by a Leaseholder that may give rise to an action costs.

For more information, please contact Susan Fox, Senior Litigation Executive, on 01435 897297 or susan.fox@kdllaw.com.

Disclaimer

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. If you have received this update in error or wish to unsubscribe from future updates then please email us at info@kdllaw.com.



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