Golding v Martin (2019) EWCA Civ 446
It seems to be a bit of a thing, buying a leasehold flat, then leaving it unoccupied, moving abroad and forgetting about rent and service charges. Semi-fortunately for the leaseholder in this second appeal, the outcome was different to this previous example of doing that, but still the outcome is a bit of a mess. The appeal is also an illustration of the risks of forfeiture for the freeholder, because it is complicated and the results of getting it wrong can be, well, a bit of an expensive mess like this.
Ms Martin held the lease of a flat in Sidcup, which had been extended for a substantial premium. Service charges were reserved as rent and there was a forfeiture clause if rent was unpaid for 21 days.
In 2003, Ms M went to live in Majorca. She left no forwarding address and her brother dealt with matters. In 2012, Mr G became the freeholder. He refurbished the block, and served a service charge demand on the flat. Ms M’s brother disputed how much of the cost of that fell to the service charge, and in the end, in February 2016, the FTT held Ms M’s liability “was £11,794.66. At some point it appears that a money judgment for that sum was given by the county court at Bromley.”
Mr G’s solicitors had also repeatedly asked solicitors instructed by Ms M’s brother for her address for correspondence, but it was not forthcoming.
In June 2016, Mr G brought forfeiture proceedings. On 15 July 2016, a Deputy District Judge made a possession order – the terms of which we’ll come back to – and on 23 August 2016, Mr G took possession of the empty flat. On 17 October 2016, he gifted a new lease of the flat to his daughter. His daughter subsequently sold the new lease to a third party.
In early December Ms M learned of the existence of the order; and on 23 January 2017 she applied to have it set aside under CPR Part 39.3 (5). On 23 February 2017 the period of six months from the date of Mr Golding’s resumption of possession expired, this being the period for relief from forfeiture.
At first instance on Ms M’s application, the DDJ held:
i) Ms Martin had acted promptly in seeking to set the order aside once she learned of its existence;
ii) She had a good reason for not attending the hearing; but
iii) She did not have a good prospect of success at trial. She had no defence to the claim for possession. Although she could have applied for relief against forfeiture, that was not a defence to the claim for possession.
On appeal to a circuit judge, HHJ Jan Luba QC held that the DDJ was right on points i) and ii), but that if the tenant has a reasonable prospect of obtaining relief against forfeiture at a hearing following the setting aside of the possession order, that counts as “success at the trial”. The possession order should be set aside.
Mr G appealed to the Court of Appeal.
Mr G argued that relief from forfeiture was not ‘success at trial’. However, Ms M argued, by respondent’s notice (of the arguments allowed to proceed) that the possession order was defective with the consequence that Ms Martin was entitled to have it set aside as of right.
This was a new ground from Ms M, not argued below. However, as it went to the jurisdiction of the county court, the ground was allowed to proceed and thus fell under the exceptions to the rule of ‘no new ground of law not argued below’ in Pittalis v Grant (1989) QB 605.
The issue was that the possession order simply stated
“The lease [held] in respect of Flat 7 … under Land Registry Title Number [the number is given] be forfeited and that possession of the flat be granted to the Claimant.”
Section 138(3) of the County Courts Act 1984 provides, on forfeiture:
(a) the action does not cease under subsection (2); and
(b) the court at the trial is satisfied that the lessor is entitled to enforce the right of re-entry or forfeiture,
the court shall order possession of the land to be given to the lessor at the expiration of such period, not being less than 4 weeks from the date of the order, as the court thinks fit, unless within that period the lessee pays into court or to the lessor all the rent in arrear and the costs of the action.
The possession order did not provide for possession after a four week (or longer) period, it was, in effect, possession forthwith. It did not give the lessee time to avoid forfeiture, automatically, by payment of arrears and costs within the specified period.
It followed that the possession order as made was not one the county court had the power to make, and it must be set aside. (It did not matter whether it was a nullity or must be set aside, the effect was the same.)
On the issue of whether relief from forfeiture could be success at trial, though strictly obiter, given the finding made already, there was precedent that relief from forfeiture was to be considered as a form of equitable counterclaim, or defence, though now made statutory. (Liverpool Properties Ltd v Oldbridge Investments Ltd (1985) 2 EGLR 111 and Sambrin Investments Ltd v Taborn (1990) 1 EGLR 61 ). As such, as per Forcelux Ltd v Binnie (2009) EWCA Civ 854, whether conceived as counterclaim or defence, it would be counted as success at trial.
In his judgment HHJ Luba QC said at:
“… the question is whether the tenant can obtain such succour from the court as will avoid [the] order for possession causing the loss of the tenancy.”
If the answer to that question was “yes”, then the tenant would achieve “success”. We agree.
The rules on forfeiture are strict. This is for the protection of the leaseholder, who runs the risk of losing a valuable interest in land for relatively minor breaches, and to give the leaseholder the opportunity to avoid the freeholder/superior lessee from obtaining an unmerited windfall.
If the strict rules aren’t complied with (and that includes specifying the correct details of the order sought from the court), then things like this can happen.
As Ms M’s application succeeded and the possession order was set aside, the original possession claim will now go to a further hearing. If Ms M obtains relief by payment of arrears and costs (though not, it is likely, the costs of the appeals which will be for Mr G to pay Ms M), as seems likely, then Mr G is in a highly difficult position.
The sale of the new lease to the third party by Mr G’s daughter is highly unlikely to be undone, but creating (and selling) a new lease within the 6 month period provided for under s.138(9A) County Courts Act 1984 is to say the least foolhardy. There is always the possibility of an application for relief within that time.
(9A) Where the lessor recovers possession of the land at any time after the making of the order under subsection (3) (whether as a result of the enforcement of the order or otherwise) the lessee may, at any time within six months from the date on which the lessor recovers possession, apply to the court for relief; and on any such application the court may, if it thinks fit, grant to the lessee such relief, subject to such terms and conditions, as it thinks fit.
Assuming that Ms M obtains relief, then Mr G’s errors are likely to turn out to be very expensive ones.