‘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.

13 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

    • Oh well…easy come easy go. Generally, stupidity can’t be used as a defense, but it would actually have worked at Willesden CC if he’d argued the case in a claim for relief…but Mr M was clearly too stupid to realise even this. And now he’s asking the public to give him money to help him get his flat back…gosh… where did I put my wallet…?

  3. [Edited by NL to remove abuse.]

    That courts can let a rapacious landlord grab upwards of £600,000 of assets of a leaseholder is downright criminal. Yes, yes: the law let the courts do it, so it ‘cannot’ be criminal. Balderdash. If the law allows a forfeiture that earns the landlord such a windfall, then that law just has to be struck down, because it is the prima facie example of an unjust (better: ‘insane’) law. Also:

    Giles Peaker’s account gives the impression that Mr McCadden was just not willing to listen to the good advice of the First Tier Tribunal or of the Willesden County Court. Really? It seems to me that these courts, and […] Dr Malik, took no account of: 1. Mr McCadden’s illness; 2. Mr McCadden’s absence in Scotland, where he was looking after his gravely ill father; 3. Mr McCadden’s probable lack of familiarity with forfeiture laws, which, I understand, do not exist in Scotland to threaten people’s right to the real estate they have bought and renovated.

    Clearly, Mr McCadden was not a competent defendant. No court looked into why that was so. No court attempted to help him understand that he is on the point of losing his massive asset, indeed, all he owns. All appeared to help […] Dr Malik grab that asset. She now has the £600,000 he paid her for the flat just two years before she grabbed it back from him, having given him enough time to spend some £1000s on renovating it. So, in hardly more than two years, she got possession of upwards of £1,200,000 of Mr McCadden’s, and left him destitute. […] And is our court system happy with itself?

  4. Clearly, Mr McCadden was not a competent defendant. A Scotsman, he probably did not know of the draconian English forfeiture law. In any case, that courts can let a landlord grab upwards of £600,000 of assets of a leaseholder is downright criminal. Yes, yes: the law let the courts do it, so it ‘cannot’ be criminal. But if the law allows a forfeiture that earns the landlord such a windfall, and on the excuse of a tiny-scale breach of lease terms, then that law just has to be struck down, because it is the prima facie example of an unjust (better: ‘insane’) law.

    The issue was petty: Mr McCadden did not ask the freeholder’s permission to renovate. And if he had, and been denied permission? The very idea that a lease provision like this can survive a court is dismaying. What a presumption it is that the freeholder retains such a level of supervisory sway over a piece of real estate for the use of which she was given the substantial sum of £600,000! Why could not the County Court have ordered a modification of this clause of the lease? This would have been much the more sensible alternative to letting the freeholder get possession of upwards of £1,200,000 of Mr McCadden’s assets in the space of a mere two years. Imagine the number of rogue freeholders now rubbing their hands together with glee at the prospect of selling a flat for £600,000, then forfeiting it once it is renovated. What a killing, eh!

    The picture might have been different if Mr McCadden had made life miserable for his neighbours with continuous deafening noise, unhygienic habits, streams of unsavoury visitors, etc. Then the situation might have been seen as the courts resorting to any excuse to free a residential neighbourhood of his presence. But all he did was renovate, and incidentally, create some dust and alleged ‘cracking’. No. Sorry, Mr Peake: There is no excusing these courts. They are guilty of a serious travesty of justice.

  5. Sophie, thank you for your two tirades. Unfortunately they don’t match the facts. Mr McCadden did receive the proceedings and, on his own account, sought legal advice. I rather suspect he either didn’t like the advice he received, or wasn’t willing to pay for it.

    I’m not sure that ‘being Scottish’ stops one being competent. I don’t think that would be likely to be a successful defence.

    The First Tier Tribunal certainly did attempt to warn Mr McCadden that he was at risk of losing the property, both in the directions order and at para 37 of the decision. He chose to ignore this.

    If Mr McCadden had raised his alleged illness or reason for being in Scotland with the Tribunal or the Court, then those reasons could have been considered. But he didn’t. And clearly was at the property at times.

    As I said in the post, forfeiture is a draconian remedy. It is also extremely rare that it happens, because there are a lot of safeguards and legal rights in place to enable to leaseholder to avoid forfeiture.

    Beginning the forfeiture process is also the only remedy available to the freeholder for dealing with the leaseholder’s breach of lease, so there is little option but to go that route.

    I think this is something that should certainly be reformed, as I said in the post. That will take legislation.

    However, it remains that for a leaseholder to actually have their lease forfeited takes a remarkable degree of deliberate inaction on their part, not just being Scottish.

    • I wrote: ‘A Scotsman, he probably did not know of the draconian English forfeiture law.’ So I did not say that he is an incompetent defendant because he is Scottish. And, given that the ‘freehoder/leaseholder’ distinctions and the incredible ‘forfeit’ licence are uniquely English, no-one but the English are even inclined to believe that such nonsense can stand in law, let alone expect that they could fall foul of it to the tune of losing all their (sizeable) real-estate assets. Look at it however you like, but the Alice-in-Wonderland timbre of the Willesden County Court’s decision makes it inescapably an insane decision.

      ‘The First Tier Tribunal certainly did attempt to warn Mr McCadden that he was at risk of losing the property’
      I have recently had cause to hunt up a view LVT/FTT case reports. In the light of the sheer stupidity of some of them, I think that, like Mr McCadden, I might myself have just dismissed its ‘threat of losing’ as more garbage talk. On a sane person’s perspective, that is all it can be. (The abberative behaviour here was not Mr McCadden’s; it was the courts’ for their improbable keenness to take ‘breach’ in this case seriously.)

      ‘Beginning the forfeiture process is also the only remedy available to the freeholder for dealing with the leaseholder’s breach of lease …’

      Curious, isn’t it, that share-of-free-hold lessees can do without this this one-and-only remedy. Yet they, too, have leases. It’s just that those leases are compiled by reasonable people, not by ‘you have to ask me for permission’ types. Asking for permission to renovate is reasonable when there is the danger of structural damage, or damage to another’s property. It is ludricrous when there is no such danger. Why are you not considering that, Mr Peake? The County Court judge in this case could easily have resolved this matter by ordering the silly lease provision at issue to be varied, or better still, struck out. There is no need to wait for parliament to establish sense in a case like this.

      What you neglect to emphasise, Mr Peake, is that Mr McCadden’s ‘breach’ was to renovate his flat, during which he caused no more nuisance than dust and a few plaster crackings. It should really not take parliament to legislate that this cannot be considered a breach that can cost a person in his position £600.000. An intelligent judge is perfectly capable of reaching that conclusion. (Of course, there are judges, and the Tribunals ones are foremost among them, who champion the rights of freeholders against leaseholders. That is the avenue where big money lives.)

      Finally: I know, Mr Peake, that your prime purpose is to warn leaseholders against ignoring the courts, no matter what. But even so, you do often come over as an apologist for the courts and the freeholder in this matter. Hence my tirades. Thank you for accommodating them.

    • So, as far as I understand you, you are saying that because i) someone chooses not to look into the relevant law, and ii) chooses to dismiss express warnings by the FTT, they shouldn’t be held responsible for what happens. This is not an attractive argument.

      Freehold management companies (your ‘share of freehold lessees’) certainly do use the forfeiture procedure when faced with a lessee who is in breach of lease and refuses to stop or correct it.

      Most leases will forbid a leaseholder from carrying out structural alterations without consent. This is simple common sense as it affects the whole building. And no lease permits the leaseholder to alter parts that are not demised to them. That was what Mr McCadden did. There were new holes cut through the external wall, which did not belong to Mr McCadden. There was indeed nuisance and damage to the other flat.

      Your suggestion that somehow the court should take it upon itself, off its own bat, to vary a lease is, I’m afraid, laughable. There was no-one there to ask for such a thing, as Mr McCadden didn’t take part. There are, in any event, strict rules about the variation of leases, which depend on necessity, not the convenience of one party. If Mr McCadden wanted to vary lease terms, he should have approached the freeholder in the first place, not just ignored the terms.

      Mr McCadden could have avoided forfeiture with relative ease. It may have involved obtaining retrospective consent, correcting some of the acts of trespass to the external fabric of the building and paying some damages and costs. This could have been done at any time from before the issue of the Tribunal application. That he failed to do so has the appearance of a wilful act and deliberate decision not to participate. I have no idea why you keep making increasingly ridiculous excuses for this.

      Faced with a finding of breach, no correction of it and no participation by the defendant, the court basically had no option but to grant forfeiture.

      You fundamentally misunderstand the role of the courts and tribunals. That is dangerous. They are there to implement the law, not to come up with a solution off their own bat. Your suggestion that a perfectly valid claim in law should be struck out because the court should decide off its own bat that it is objectionable is, with all due respect, a total misconception of what the courts are for and do.

      Reform will take legislation, and your tirades will make no difference to that fact, not least because it is clear that you have no idea about the legal process. If standing up for actual meaningful change over ill-informed foot stamping makes me an apologist, then I do not apologise for it. People should be properly informed and understand the actual position.

  6. I put it to you, Mr Peaker, that ‘ill-informed foot stamping’ is much the healthy approach to insane legislation and to courts that will accommodate it. That behaviour, widely indulged, will bring on the requisite legislation much sooner than will your informed apologetics.

    ‘Your suggestion that a perfectly valid claim in law should be struck out …’

    I did not suggest that the claim should be struck out. I suggested that the court should have brought down an order to strike out the lease provision that enabled the freeholder to bring this case. Big difference.

    ‘Freehold management companies (your ‘share of freehold lessees’) certainly do use the forfeiture procedure when faced with a lessee who is in breach of lease and refuses to stop or correct it.’

    Is there a provision of any statute, or any case law, that would confirm the above? Certainly, the company can force a sale of a member’s shares/the flat for failure to contribute to the upkeep of the company’s property. But forfeiture? Nope. That is a singular feature of the weirdo freeholder/leaseholder relationship. That this impossible-anywhere-else relationship is protected by the law in England and Wales is a nasty blight on the face of this jurisdiction. (As I think I said earlier: beyond this part of the world, people are disinclined to believe that the law accommodates a piece of brigandry like the freeholder/leaseholder relationship.

    ‘I have no idea why you keep making increasingly ridiculous excuses for this.’ I do not see what I say as ridiculous excuses. I excuse Mr McCadden’s behaviour because it is the intuitively obvious behaviour of someone not conditioned by the uniquely unfair, defiant of natural law, excessively immoral freeholder/leaseholder relationship that is sanctioned by law in this jurisdiction.

    ‘Your suggestion that somehow the court should take it upon itself, off its own bat, to vary a lease is, I’m afraid, laughable.’ I should not be laughable. It is the court that is uniquely capable of bringing down an order for lease variation. I this case, the appropriate order would have been one that corrects the freeholder’s impression that her leaseholder can renovate his flat internally only with her permission.

    ‘There were new holes cut through the external wall, which did not belong to Mr McCadden.’ That was for his re-siting of the position of the boiler, no? Well, that can be done, because construction laws allow it, by a plumber installing a boiler. E.g., the existing bolier might not have been correctly placed with regard to contemporary flu-installing regualtions. But all this is trivial. Any offence of Mr McCuddens is far too small to merit the forfiture of his £6,000 property.

    • Oh Sophie, your last comment said there was no need for legislation. And starting from a position of completely not understanding what needs to change won’t get anywhere. Instead, people will lose their properties.

      No, the court can’t strike out a lease provision, by and large. And it certainly can’t of its own decision, without anyone making a case as to why. I’ll say this again, because it is clearly not sinking in. The court cannot do that. It is not an option that is open to it on a forfeiture claim. It has no power to do so.

      You also don’t understand the structure of a freeholder management company in which the leaseholders have shares. The company is the freeholder. The leaseholders are still leaseholders. The company can forfeit a leaseholder’s lease, even if that leaseholder is also a shareholder in the company. The fact that the leaseholder has a share in the freehold management company makes precisely zero difference to the legal position.

      And lastly, the leaseholder has no right or power to damage parts of the property that do not belong to them. This is trespass. Construction law doesn’t allow it.

      I very, very much hope that no-one else out there is taking advice from you, because it will cause them nothing but pain and loss. I think this conversation ends here.

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