When is a landlord’s right to forfeit waived?

Forfeiture in the context of residential leasehold is not without its critics. It’s a draconian remedy that entitles the landlord to bring the lease to an end and re-enter the property.

For this reason, there are various statutory restrictions that exist in relation to forfeiture of residential leases. The right to forfeit can often be waived. For certain breaches (known as once and for all breaches), the right to forfeit in respect of that breach once lost is lost forever.

One of the questions that I am often asked by clients is whether, and to what extent, they can communicate with leaseholders who have breached the terms of their lease without waiving the landlord’s right to forfeit.

Following the decision of the Upper Tribunal in Stemp and anr v 6 Ladbroke Gardens Management Limited [2018] UKUT 0375 (LC), we now have some guidance on this issue.

 

Background

6 Ladbroke Gardens is a building divided into five units, each held on a long lease.

The leases operate in the usual way in that each leaseholder is required to pay service charge to the landlord and, in return, the landlord is required to maintain, repair, decorate and renew various parts of the building including the main structure, roof and exterior of the building.

The leases also contain the usual clause which requires each leaseholder to pay the landlords costs incurred under or in contemplation of any proceedings under sections 146 and 147 of the Law of Property Act 1925.

By March 2016, and because the building was then in a state of substantial disrepair, the landlord decided to carry out major works to the building so as to remedy the state of disrepair. The works were to be undertaken during service charge year from April 2016.

On 14 March 2016, the landlord’s agents sent the leaseholder a demand for the first half of the contributions, totalling £18,971.72.

Payment wasn’t made.

Accordingly, an application was made to the First Tier Tribunal (Property Chamber) for a determination of liability to pay and reasonableness of service charges. In the Statement of Case submitted on behalf of the Landlord, it was made clear that the application was submitted as the first preliminary step in the preparation of service of the notice pursuant to section 146.

In December 2016, the Tribunal found in favour of the landlord.

The landlord was then minded to recover its costs from the leaseholder, and in March 2017 claimed an administration charge in the sum of £43,969.96. Payment was not forthcoming in relation to that charge either, and therefore a further application was brought to the Tribunal who, in December 2017, determined that the leaseholders were required to pay the admin charge of £26,381.98.

And it’s that decision in relation to the administration charge that the leaseholders appealed..

 

Issues on appeal

The Upper Tribunal granted permission to appeal on two related points.

  1. Whether the FTT had jurisdiction to decide whether the landlord’s right to forfeit for non payment of the demand was waived; and
  2. (If the FTT had jurisdiction) whether the landlord’s right to forfeit for non payment of the relevant demand was in fact waived (and, if waived, when it was waived).

 

Waiver of forfeiture

The Upper Tribunal reminded itself of the earlier decision in Barrett v Robinson

“……. Where a landlord takes steps with the intention of forfeiting a lease [the clause] will only be engaged (so as to give the landlord the right to recover its costs) if a forfeiture has truly been avoided. If the tenant was not in breach, or if the right to forfeit had previously been waived by the landlord, it would not be possible to say that forfeiture had been avoided – there would never have been an opportunity to forfeit, or that opportunity would have been lost before relevant costs were incurred, in those circumstances I do not consider that a clause …… would oblige a tenant to pay the costs incurred by their landlord in taking preparatory steps to the service of a Section 146 Notice”.

The following events were relied on by the leaseholders as examples of when the landlord had waived it’s right to forfeit:

  1. On 26 April 2016 the landlord’s agents sent an email to the leaseholders which was addressed “Dear Leaseholders”.
  2. On 16 June 2016, the landlord sent a further email to the leaseholders again referring to them as “Dear Leaseholders”.
  3. On 17 June 2016, the landlord’s agents wrote to the leaseholders again referring to them as “Dear Leaseholders”.
  4. On 5 July 2016, the landlord’s agent wrote again to the leaseholders referring to them as “Dear Leaseholders”, and enclosing a copy of the fire risk assessment (in which reference was made to the flat front doors which fall within the demise and, therefore, are leaseholders’ responsibility).
  5. By documents dated 5 July 2016, the landlord’s agents served on all leaseholders a formal notice of intention to carry out works.
  6. On 11 July 2016, the landlord’s agents sent a further email to the leaseholders regarding the doors, again making reference to “leaseholders”.
  7. On 13 July 2016, the agents sent an email to the leaseholders by way of further communication regarding the doors, again referring to them as “leaseholders”.
  8. On 27 July, the agents again wrote to the leaseholders as “leaseholders” in relation to the FRA.
  9. On 8 August 2016, the agents sent an email to the solicitors appointed by the leaseholders, reciting a clause in the lease which entitled the landlord to gain access to the flat. A further email was sent on 17 August.
  10. On 23 August, the landlord’s solicitors sent a statement of estimates in relation to the proposed works.
  11. On 3 September 2016, the landlord’s agents sent a service charge demand relating to the second instalment/contribution towards the major works, stating that payment was due on 1 October.

 

Decision of the Upper Tribunal

Before examining each of the acts in turn, the Upper Tribunal reminded itself that the landlord could not waive the right to forfeit prior to 22 April 2016, because the right to re-enter did not arise until that date.

The question for the Tribunal was whether the landlord waived the right to re-enter thereafter, and if so, when that waiver happened.

When considering whether or not there has been waiver, the correct approach is to consider objectively whether, in all these circumstances, the act relied on constituted an unequivocal recognition of the continuance of the lease.

 

Service charge demand

The landlord, via their agent, had made a demand on 3 September for payment due on 1 October. The lease expressly reserved the service charge as rent.

Based on the authorities, where a landlord knows of the fact giving rise to a right to re-enter a demand for rent constitutes a waiver of the right to re-enter.

Accordingly, service of the service charge demand waived the right to forfeit.

Making a demand for payment is clearly inconsistent with the contention that the lease is forfeit, and could only be regarded as being consistent with the lease continuing.

 

“Dear leaseholder” communications

The Upper Tribunal found that communications which used the expression “leaseholders” did not constitute an unequivocal act of waiver.

Comment was made that this was a “convenient phraseology for the [landlord]’s agent to use”.

 

Consultation

The Upper Tribunal had some sympathy with the landlord in this matter, noting that the landlord was bound by the repairing covenants under the lease.

In these circumstances, the Tribunal did not agree that this amounted to waiver.

 

Adherence to covenants

Again, the Tribunal appears to have some sympathy with the landlord on this point, and did not find that the landlord’s reliance on covenants relating to its responsibilities regarding the state of the building amounted to waiver of forfeiture.

Therefore, waiver didn’t happen until the service charge demand that was served on 3 April 2016.

 

The practical impact……

This case was all about the ability of the landlord to recover its legal costs incurred, and the landlord had sought to rely on the clause in the lease which entitles it to recover all costs in contemplation of forfeiture.

But forfeiture had been waived as of 3 September 2016. Which meant that the landlord was not entitled to recover costs incurred on and after that date.

The actual amount the Tribunal allowed the landlord to recover was £10,766.00.

And £10,766 is less than 25% of the initial costs the landlord claimed of £43,969.96.

This case comes as a stark reminder to landlords (and their agents) of the great deal of caution that needs to be exercised when dealing with leaseholders who are in breach of their lease, particularly when that landlord might seek to rely on clauses within the lease to recover its costs.

However likely actual forfeiture may be, the unintended consequences of waiver can be rather costly.

 

 

Cassandra Zanelli

Widely recognised for her expertise in the industry, and listed among the 100 most influential people in residential leasehold management, Cass heads the team at PM Legal Services. Passionate about education and sharing knowledge, she's a regular speaker at conferences, events and seminars, having worked with leading organisations in the property management industry.

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