‘Renovations’ and Forfeiture – Don’t do this!

The Times reports on a story of forfeiture of a residential lease (paywall or limited free access). I’m noting this not because of any particular legal complications, but because it is one of the relatively rare examples where forfeiture actually happened. It is also because I got a lot of responses expressing astonishment that such a thing could happen when I tweeted the story, and it struck me that it could do with a bit of explanation.

Mr McCadden had bought a lease of the upper floor flat of a two storey terrace in North London for about £518,000 in 2016. The freeholder, Dr Malik, lived in the lower flat. After purchasing, Mr M apparently decided to carry out some changes.

Going by the subsequent Tribunal proceedings, these included putting new holes through the exterior wall for a re-sited gas flue (too close to a gutter), removing the landlord’s fixtures, and rendering a front wall outside the demise. Floorboards had been removed, a new central heating system, bathroom and kitchen had been installed. The works took place over some 18 months.

Mr M had not sought consent for these works. Written consent for structural alterations or removing fixtures was required under the lease.

Mr M had removed carpets from the flat – the lease required it to be carpeted.

Mr M failed to give access for an inspection (a lease obligation) on 5 requested appointments (and subsequently).

The works also caused dust, staining and cracking to Dr Malik’s flat, as well as other disruption. Mr M had left building waste and rubble in the front garden for months. The lease required him not to cause a nuisance to other occupiers in the building.

Lastly, Mr M had not paid his 50% share of service charges for building insurance and management for two years.

Given Mr M’s failure to respond, Dr Mailk applied to the First Tier Tribunal (Property Chamber) for a) a determination of breach of lease under s.168(4) Commonhold and Leasehold Reform Act 2002 and for a determination that the service charge was payable.

For those not accustomed to leasehold law, I should explain that while most leases contain a clause allowing the freeholder to forfeit the lease by re-entry on breach of lease (in the same way as commercial leases), this cannot simply be done. First, for everything except rent arrears, there must be a determination of a breach of lease by a court or tribunal – s.168 Commonhold and Leasehold Reform Act. Hence this application. (We’ll come to the subsequent steps below). The only exception is if the tenant has admitted the breach.

The FTT in its directions advised Mr M to seek legal advice. Mr M did not engage with the Tribunal. The Tribunal attempted a pre-arranged inspection. They were not given access, although Mr M apparently came to the flat and hour and half later and removed things. Mr M did not attend the hearing.

In November 2017, the Tribunal found various breaches of lease – as set out above – and (after some deductions) unpaid service charges. The Tribunal decision noted that the breach of lease was serious and again recommended that Mr M seek legal advice.

It appears that Mr M did nothing in consequence.

The next step after the court or tribunal determination of breach of lease is required by s,146 Law of Property Act – that is service of a ‘S.146 notice‘ specifying the breaches complained of and, if remediable, that the breach is remedied within a set time. The Times story is silent on this, but it must have been done in view of what happened next. Mr M did nothing in consequence.

Dr Mailk then applied for forfeiture and a possession order to Willesden County Court.

Now a tenant leaseholder can apply for relief from forfeiture at any time after service of a s.146 notice. It is a discretionary remedy, so it is up to the court to decide whether to grant it. Usually, an undertaking to cease or remedy the breach, plus payment of the freeholder’s costs, will result in relief being granted (or payment of the arrears, if it is an arrears of rent or service charge case, plus costs).

Mr M did not apply for relief from forfeiture or participate in the County Court proceedings. The County Court made an order for forfeiture and for possession.

From the Times story, Mr M

said that he was not aware of the tribunal hearing because he was living in Scotland at the time, looking after his father who was seriously ill. He has insisted that the works were minimal, and disputed the service charges. He also said he had been unable to defend the forfeiture and possession orders after being let down by lawyers.

This does not accord with the Tribunal findings on Mr M knowing about proceedings, but there we are.

On the County Court proceedings, Mr M said

he had been unable to defend the forfeiture and possession orders after being let down by lawyers.

(I’ll be honest, I read that as either he didn’t want to pay them, or he didn’t accept their advice. In any event, that wouldn’t stop him defending.)

Now it may still be possible for Mr M to apply from relief from forfeiture – though the principles in Forcelux Ltd v Binnie [2009] EWCA Civ 854 (our note) would apply. (And s.138 County Courts Act 1984 on post possession applications for relief only applies to rent arrears cases). But you aren’t going to get relief if you just keep on denying that there has been a breach when a court of tribunal has determined that there has been…

People in my twitter feed have been scandalised that one could lose a valuable lease completely through forfeiture. It is indeed quite shocking. But there are some key things to realise here:

i) This is, with some limited exceptions, the only way for freeholders to enforce breaches of lease covenant. There is no other mechanism (save an injunction in certain circumstances). Court or tribunal determination, section 146 notice, then possession claim. This is not a quick process and affords multiple opportunities for the leaseholder to dispute the breach and/or to rectify it.

ii) It takes a combination of grim determination and denseness to reach the point of losing the lease through forfeiture. Relief can easily be sought and will usually be granted – precisely because of the ‘windfall’ issue – assuming that the leaseholder will be willing to remedy the breach and pay costs.

iii) Mortgage lenders (there wasn’t one here) have to be notified of proceedings. And they will very much step in if their security is threatened.

Even where there has been a flagrant and ongoing breach, the courts will usually bend over backwards to assist the leaseholder. For example, Ashley Gardens Freeholds Limited v Linda Marinelli Landor noted here, where despite finding repeated breaches of a previous undertaking not to use the flat for short lets (and two previous FTT decisions on breach for that reason), the court gave the leaseholder 6 months to sell before a possession order took effect.

Forfeiture is a draconian remedy, which can (rarely) result in a huge windfall for the freeholder. It is, as things stand, also the only remedy the freeholder has for ongoing breach of lease. That is a lot of reform waiting to happen…

 

 

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Housing law - All, Leasehold and shared ownership, leases and others, Possession.

4 Comments

  1. The piece sets out how the law should apply. The problem is in practice things do not always work as they should. Sometimes leaseholders find a less than optimal solicitor, sometimes they misunderstand the myriad of complex leasehold law, sometimes the courts mess up.

    It is true that some judges will work very hard to find a reason to grant relief from forfeiture but occasionally some don’t.

    It’s perhaps also too easy to think that lawyers would have sorted out the problem when in reality when most people find themselves in this situation they believe they do not have the funds to defend themselves or pay the premium needed for a “good” lawyer. Most leaseholders are not even likely to know who the “good” lawyer might be given that this may be the first time they have ever been to court.

    There may be many things the leaseholder got wrong in this case but perhaps the courts failed in a number of ways and in particular failed to understand why the leaseholder had not properly engaged. The Tribunal exonerates itself by explaining they told the leaseholder to engage but did they explain the potential consequences if he did not. We have just had a case where neither the courts or the tribunal or the leasholders solicitor explained anything about the risk of forfiture. The leaseholder got to the end of the 168 decision part of the process and though at most they would face a CCJ and the courts provide a payment plan based on affordability..

    The tragedy is that lawyers have not argued more strongly for the implementation of the Law Commission’s work on an alternative termination of the tenancy proposals where there is no windfall. However there are perhaps too many lawyers who make an invome from advising landlords how best to start down the draconian route that leads to forfeiture knowing their client’s lease guarantees their fees?

    It should perhaps also be remembered that the Times who covered the story is writing for a general audience. While the Times may have omitted some of the legal detail it is no different to this article which seems to make no attempt to understand the non-legal background to the story and why things may have gone so wrong?

    • Martin
      First off, this is a report on judgment, not journalism. The non-legal background is not particularly relevant, and this is not journalism. Where judgements, like the FTT’s, make reference to parties conduct, that has been included. If there are reasons (beyond those stated in the Times piece) for why the leaseholder did not engage, those may support a Forcelux v Binnie application.

      Second, I would be whole-heartedly for reform, as the post says. Lawyers have indeed supported the Law Commission’s proposals. I would be one of them. That there is no appetite in Government for large scale leasehold reform is not the fault of lawyers (you may have noticed that they don’t listen to us on anything much.)

      Third, you speculate an awful lot on ‘maybe the courts doing something wrong in this case’. There is not the slightest indication that they did. It is not the FTT’s job to warn parties of the potentially serious consequences of their actions (or inactions), but nonetheless, the FTT did, both at the start of the proceedings and in the decision itself – you can read it and see, the FTT spelled out precisely the possible consequences.

      I’d agree that is the freeholder is potentially pursuing forfeiture, this should be made clear by them/their representatives at the s.168 decision stage. It would be poor practice not to.

      What you don’t address – and which the post makes clear – is that there is no other practical option for a freeholder faced with ongoing breach of lease where the leaseholder refuses to remedy. I can’t imagine any freeholder’s lawyer advising them that they would actually get forfeiture. It very rarely happens. Unless there is substantial reform that addresses means to enforce on breaches of lease, freeholders have no other option.

  2. Pingback: This is No Game of Forfeits – Coventry View

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