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07/03/2021

Not that flexible.

Croydon London Borough Council v Kalonga (2021) EWCA Civ 77

This is the Court of Appeal judgment of Croydon’s appeal from the High Court decision that we noted here. The issue was what was required for determination of a flexible tenancy during the fixed term and whether a forfeiture clause was required. The detailed factual background and the High Court’s findings are in the earlier post. Suffice it to say that Croydon had sought possession during the fixed term of a flexible tenancy by serving a notice seeking possession on grounds 1 and 2 Schedule 2 Housing Act 1985. In the possession claim, Croydon had served a reply to defence stating that it did not rely upon forfeiture as a ground of possession. The possession claim was dismissed in the High Court.

The issues for the Court of Appeal were:

i) the meaning of “a tenancy for a term certain but subject to termination by the landlord” in section 82(1)(b) of the 1985 Act. Section 82(1) reads:

82.(1) A secure tenancy which is either—
(a) a weekly or other periodic tenancy, or
(b) a tenancy for a term certain but subject to termination by the landlord,
cannot be brought to an end by the landlord except as mentioned in subsection (1A).

As the Court of Appeal decided, this went to the issue of whether a forfeiture clause was required, as “a periodic tenancy could only be brought to an end by obtaining an order for possession, while a fixed term tenancy could only be brought to an end by obtaining an order for termination pursuant to a forfeiture clause (whereupon a periodic tenancy would come into effect”, and subsection 82(1A)(a) – a possession order – did not apply. Rather 82(1A)(b) and 82(3) applied – thus:

(3) Where a secure tenancy is a tenancy for a term certain but with a provision for re-entry or forfeiture, the court shall not order possession of the dwelling-house in pursuance of that provision, but in a case where the court would have made such an order it shall instead make an order terminating the tenancy on a date specified in the order and section 86 (periodic tenancy arising on termination of fixed term) shall apply.

So, a forfeiture clause was needed, because both a termination order by way of forfeiture and a possession order against the arising periodic tenancy were required.

ii) Was a s.146 notice required?

The Court of Appeal said yes.

Such a tenancy agreement can only be brought to an end by the route specified in section 82(1A)(b), that is to say, pursuant to section 82(3). Section 82(4) is clear that, where applicable, a notice under section 146 of the 1925 Act must be served. As counsel for the Tenant pointed out, there is nothing to stop a landlord from serving a notice under section 146 and a notice under section 83(1)(a) of the 1985 Act, and then bringing proceedings both for termination of the fixed term tenancy and possession against the periodic tenancy which will then arise.

iii) Did Croydon’s tenancy agreement contain a forfeiture clause?

The High Court had found that the tenancy agreement did not contain what could be a forfeiture clause. The Court of Appeal agreed:

It is common ground that a forfeiture clause must satisfy the test laid down by Fox LJ giving the judgment of the Court of Appeal in Clays Lane Housing Co-Operative Ltd v Patrick (1984) 17 HLR 188 at 193:
“… a right to determine a lease by a landlord is a right of forfeiture if (a) when exercised, it operates to bring the lease to an end earlier than it would ‘naturally’ terminate; and (b) it is exercisable in the event of some default by the tenant.
The reference to ‘natural’ termination in this definition means in the case of a lease for a fixed term, the contractual expiry date …”

The Landlord contends that at least clauses 3 and 10 of the Tenancy Agreement constitute forfeiture clauses. The judge did not accept this. As she concisely put it at (22): “the service of a notice seeking possession or the application to the court for a possession order is not the same thing as the exercise by a landlord of its right to determine the tenancy agreement before the end of the fixed term in the event of default by the tenant”.

Notwithstanding the arguments to the contrary advanced by counsel for the Landlord, I agree with this.

Appeal dismissed

Comment

This has been going on for some time – we first noted the argument about forfeiture almost exactly seven years ago – but what this judgment means is as follows:

A flexible tenancy can only be ended during the fixed term by both a) terminating the fixed term by way of forfeiture, and b) a possession order on the periodic tenancy that then arises.

This can be done at the same time, by service of s.146 notice and NSP at the same time and by possession proceedings for both termination and possession.

But – crucially – forfeiture requires a forfeiture clause in the tenancy agreement. If that is missing, as here (and doubtless other council flexible tenancy agreements) then the tenancy cannot be ended during the fixed term.

We did always say flexible tenancies were a silly idea. And it is one that has likely rebounded on those few councils who adopted the idea with enthusiasm.

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.

17 Comments

  1. Tim

    So if a landlord has a forfeiture clause and gives s146 notice due to rent arrears, this must have waiver implications? I was thinking there’s nothing stopping the landlord from continuing to take money for the arrears, but there can’t be any ongoing demand for rent, and that would presumably mean the landlord would have to notify UC/HB to say there was no ongoing rent liability. Does that sound right?

    Reply
    • Giles Peaker

      Yes, though could also seek ongoing use and occupation charges in the forfeiture claim, I think. And use and occupation charges are covered by HB (though not, I think, UC).

      Reply
      • J

        The waiver problem is flagged up by Andrew Dymond in the Journal of Housing Law article that really started this hare running.

        Reply
      • Tim

        UC will usually pay housing costs if you call them use and occupation charges, but not mesne profits. This used to be in the DWP’s guidance in the ADM but it was removed a couple of years ago. It doesn’t generally matter whether they actually are mesne profits or use and occupation charges, or even a licence fee because nobody in UC seems to know very much about housing law. If you call a fork a spade then UC will pay you for your spade.

        If the s146 notice terminates the fixed term, and this creates a periodic secure tenancy, then perhaps waiver for payment of rent doesn’t come up because the rent is not being paid on the fixed term tenancy, but on the periodic secure tenancy?

        Reply
        • J

          I don’t think the fixed term is terminated until the termination order is actually made though.

        • Giles Peaker

          But forfeiture takes effect on issue of possession claim. Agree the s.146 doesn’t terminate the fixed term.

        • Tim

          Thanks, J. I was wondering whether it was the s146 or the subsequent order that ended it – i.e. whether the court order was just confirmation that it had ended. I’ve only ever been involved in one forfeiture case so I know basically nothing. Clearly there’s a fundamental conceptual difference between NSP and s146 notice and the proceedings that follow on from them. Does the termination order end the fixed term from the date of the s146 notice or from the date of the order, or some other date? If it’s the former then can the landlord argue that from the s146 date they are demanding rent on the periodic secure tenancy?
          I’m thinking about the nightmare of explaining this to UC, but I’m coming to realise it’s not going to be an issue because a) as long as we believe there is still some liability (whether for U&O or a periodic secure) there’s no need to contact UC, and b) flexible tenancies around here don’t have a forfeiture clause.

        • Giles Peaker

          Forfeiture takes effect when a possession claim is issued, so conceptually, a termination order made would have to be with effect from issue of claim. But date of termination order is when the periodic tenancy would arise. So, you know, it is a bit of a mess.

          As no say, no forfeiture clause at least means not having to worry about this ;-)

  2. Katie Kiely

    My local council are saying that the requirement to serve a S146 notice only applies if taking action for ASB and not if it is for rent arrears only. Would you agree? I can’t find anything to support this contention, but it may be that I am missing something.

    Reply
      • J

        Ah, but remember that s.146(11), LPA 1925 says you don’t need a s.146 notice for rent… so… maybe it is right?

        Reply
        • Giles Peaker

          Ah, true, not a long lease for CLRA 2002 purposes. So, yes, no s.146 required. In which case, service of possession claim (for termination) takes effect as forfeiture.

          But would require forfeiture clause in tenancy agreement to provide for forfeiture if rent unpaid for X days, say, I think?

          (Also, s.146 required for any non-rent breach, not just ASB)

        • J

          Yes. You always need a forfeiture clause. In all non-rent cases you also need a s.146 notice.

        • Tim

          That must be right. A s146 notice is only an essential part of the process for s82 where s146 notice applies – see para 63 of the judgment. So no s146 notice is required for rent arrears forfeiture but there still has to be a forfeiture clause. Does that breathe life back into the question of the interactions between waiver and rent liability and benefit entitlement and landlords perhaps needing to be careful about what they tell HB or UC? When does forfeiture apply if no s146 notice is required?

        • Giles Peaker

          As before, forfeiture is on service of claim form. Any rent demand for rent due after LL aware of breach could/likely would amount to waiver.

  3. Tim

    So where rent is due weekly, does that mean that forfeiture could never be based on more than a week’s rent? And doesn’t that make relief quite easy?
    For example, the landlord demands the rent every Monday. By Tuesday they know if the tenant hasn’t paid so they are immediately aware of the breach. If they demand rent the following Monday, that waives the last week’s breach? At some point the landlord would have to notify the tenant that they were not accepting rent any more, but a use and occupation charge (and I think they would have to let HB/UC know about this decision). But if the tenant paid the missing week’s rent, they would get relief from forfeiture?
    So even if the flexible tenancy had a forfeiture clause, it would be basically impossible to use it if the ongoing rent was being paid (even if you called it a use and occupation charge)?

    Reply
    • Giles Peaker

      Or there is a fresh breach weekly. You might waive the previous breach (though not the arrears) by demanding rent again, but each failure to pay rent will be a breach. Any payments made by T can be set against the previous arrears (unless expressly hypothecated by the tenant), so relief likely to need payment of full arrears.

      Use and occupation charges should not be demanded before forfeiture (service of the claim) as otherwise risks waiver.

      Reply

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