Following on from yesterday’s post by J on the CMA report (with its approach to the ‘AST Trap’) and from someone helpfully pointing out something that should have been completely obvious to me in the first place, I’ve re-written my old post on the leasehold assured shorthold tenancy issue. The key change is on the impact of s.7(6)(b) Housing Act 1988, which requires the tenancy agreement (here the lease) to specify the grounds of possession which may be relied upon to terminate a fixed term assured tenancy.
The upshot is as follows:
The key question is whether the lease specifies the schedule 2 grounds. For most ‘accidental’ ASTs, where a provision for increasing the ground rent has taken it above the AST threshold, this seems highly unlikely to be present. It is also not at all clear whether this was understood by those drafting leases for new sales where the ground rent is or would become over the AST threshold either, so new leases may or may not contain the reference to the schedule 2 grounds. But caution is needed – Artesian Residential Investments Ltd v Beck  EWCA Civ 1033 held that a clause permitting forfeiture by re-entry on rent arrears of 14 days was sufficient for ground 8 to be relied upon, and such a clause is very common indeed.
If the lease does not specify that it may be ended on one or more of the Schedule 2 grounds (with regard to Artesian), the landlord is largely, to coin a phrase, stuffed. Forfeiture is not available, but nor are the Schedule 2 grounds. For arrears of ground rent and service charge, the only option is a money claim (which may eventually result in a charging order and order for sale). For other breaches of lease, a damages claim in breach of contract, and/or injunction may be an option but only where the landlord has been caused some form of loss, with no subsequent threat of forfeiture being possible. The leaseholder’s tenure is about as secure as one could possibly get – more secure than a usual long lease.
If the lease does specify the schedule 2 grounds (or a clause sufficient to engage the ground, as per Artesian), however, the leaseholder’s tenure is far less secure than a usual long lease and, with the mandatory grounds, there is no possibility of relief from forfeiture. On the discretionary grounds, technically there is no relief from forfeiture, but the court has a discretion on whether to make an order and the terms of such an order.
But – and it is a huge but – all of this only applies where the situation satisfies the requirements of an AST. That is not just the rent level, but that the tenant occupies the property as their only or principal home. This status can come and go. A leaseholder who sub-lets for a while will lose AST status for that time, but the lease will again become an AST if they move back in. For the time the lease is not an AST, all the usual rules and risks of forfeiture apply.
This is a mess.