What is forfeiture?
Almost every lease of a residential flat will contain a provision within it which allows the landlord to enter the flat to bring the lease to an end if a leaseholder defaults on any of its covenants in the lease. This mechanism or process is called “forfeiture”.
What are the common situations where the landlord can bring your lease to an end?
Obviously, not paying the ground rent. The landlord can also bring a lease to an end if the leaseholder breaks a covenant or condition of the lease.
The common law draws a distinction between forfeiture for breach of covenant to pay rent and forfeiture for breach of other covenants such as breach of the leaseholders repairing obligations, the sub-letting provisions etc.
In the past, the power to bring the lease to an end was often thought to be exercisable by “peace-able re-entry”. In modern times however, due to the protections afforded under the eviction legislation, forfeiture is now almost always exercised by applying to the Court for a Possession Order.
Over the years, for many landlords forfeiture became a convenient way to enforce a leaseholder’s obligations which had the power to create serious injustice; leaseholders stood to lose their investment which was often out of proportion to the damage suffered by the landlord. To remedy this perceived in-balance of power, The Common hold and Leasehold Reform Act 2002 has now tightened-up the rules governing when a freeholder can issue proceedings for forfeiture.
Section 146 Notices
Where a landlord wishes to bring a lease to an end because a leaseholder has breached a covenant, other than one to pay Rent, the landlord will usually be required to serve a notice called a “Section 146 Notice”, on the leaseholder. This notice must detail the breach of covenant and give the tenant a reasonable period of time in which to remedy it. Only if the tenant fails to remedy the breach within that time, is the landlord permitted to commence forfeiture proceedings to bring the lease to an end.
Breach of Covenant to Pay Rent
The new accounting provisions as set out in the Common hold and Leasehold Reform Act 2002 has determined that forfeiture proceedings cannot be commenced for breach of covenant to pay Rent until (i) the rent has been formally demanded by the landlord and (ii) for non-payment of ‘small amounts’ of rent, service charge or administration fees where those amounts that have been outstanding for a ‘small period’.
The Regulations have defined a “small amount” as being £350.00 and a “small period” is defined as a period of three years. The small amount cannot be made up of penalties for non-payment, such as late payment charges, interest or legal costs. It is clear therefore that in order for forfeiture proceedings to commence for non-payment of rent the debt must be greater than £350.00 and outstanding for over three years.
Breach of Covenant to Pay Service Charges and or Other Breaches of Covenants
Where the lease does not define service charge as “Rent” or where the landlord wishes to bring the lease to an end for other breaches of other covenants in the lease that are not Rent, matters have now become even more complex.
The Common hold and Leasehold Reform Act 2002 introduced further safeguarding provision which now prevents a landlord from commencing proceedings for forfeiture unless and until (i) the breach of lease covenant has been determined by either a Court or Leasehold Valuation Tribunal or (ii) the breach has been admitted by the leaseholder.
Even then, even once a formal Determination has been obtained, the landlord further prevented from exercising the right of forfeiture until 14 days after the decision of the Court or Leasehold Valuation Tribunal has elapsed. Matters may also further be delayed to take into account the appeals procedures.
Conclusion:
Forfeiture is a very complicated area of the law. It is further complicated by the Doctrine of Waiver (if the landlord does something to indicate that it regards the lease as still continuing then the landlord is deemed to have waived the breach). The Common hold and Leasehold Reform Act 2002 has now also turned the entire process into a long and protracted affair.
These days forfeiture rarely happens as the Courts / Leasehold Valuation Tribunals are reluctant to take away someone’s home and most breaches of lease covenant are capable of remedy.
Nevertheless, forfeiture still does happen on occasion! To avoid unnecessary heartache - it is just best to observe and comply with the lease covenants.
Related links: Forfeiture of lease