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Forfeiture restrictions



Breach of covenant

No forfeiture permitted until breach determined - county court jurisdiction

Section 168 of the Commonhold and Leasehold Reform Act 20012 (as amended) provides that a landlord may not serve a s146 notice until the breach has been agreed or determined. See the section for more details.

Cussens v Realreed
[2013] EWHC 1229

The County Court has jurisdiction under s15 County Courts Act 1984 to make a declaration that a tenant is in breach of covenant. This declaration is effective for the purposes of s168 Commonhold and Leasehold Reform Act 2002. Further the court can make the normal order for costs notwithstanding that the LVT has concurrent jurisdiction.



Service charge cases - restriction on forfeiture

Mohammadi v Anston Investments Ltd [2003] EWCA Civ 981

Section 81 of 1996 Act

Section 81 of the Housing Act 1996 (prior to the amendement by s170 of the Commonhold and Leasehold Reform Act 2002) provided as follows:
    (1) A landlord may not, in relation to premises let as a dwelling, exercise a right of re-entry or forfeiture for failure to pay a service charge unless the amount of the service charge-
      (a) is agreed or admitted by the tenant, or
      (b) has been the subject of determination by a court or by an arbitral tribunal ..
    (2) Where the amount is the subject of determination, the landlord may not exercise any such right of re-entry or forfeiture until after the end of the period of 14 days beginning with the day on which the decision of the court or arbitral tribunal is given.
Facts

This case highlights the importance of s81. T had refused to pay the service charges because of a dispute over disrepair and claimed damages for disrepair. L counter-claimed for forfeiture based on non-payment of ground rent and the service charges. Save for a small sum the trial judge dismissed T's claim and gave judgment for L in the sum of £297 arrears of rent and £8,511.26 arrears of service charges. He also made an order for possession and made relief conditional on payment of all the arrears of rent and service charges including those that had accrued since the counterclaim less the small sum he awarded by way of damages to T (£25,077).

Service of the counterclaim would on normal principles operate as a forfeiture. However, T did not admit or agree the arrears and there had been no determination. T therefore sought to rely on s81. L's argument was that the section had not been adequately pleaded. It was referred to in a re-re-amended claim but not in any detail. The judge agreed with L and T appealed.

Held

The pleading was sufficient but that in any event it was probably not necessary to plead the section to rely upon it:
    "In this situation one should perhaps start not with the tenant's pleading but with the lessor's. Arguably the lessor ought, in obedience to s81, not to make any claim at all for a forfeiture founded on asserted but legally undetermined service charges. If so, it is not obvious why a lessor who chooses to ignore s81 should be able to secure possession from a tenant who, perhaps through ignorance or neglect, enters no defence or defends without pleading the statute - especially when counsel for the lessor will be professionally obliged at trial .. to draw the court's attention to s81". (Sedley LJ, para 44).
The result in the case was that L could only forfeit on the basis of the non-payment of ground rent and T was entitled to relief on payment of that small sum (under s138(3) of the County Courts Act 1984).

However, the good news for L was that a money judgment was given for the arrears of service charges including all those that had arisen since the right of re-entry (i.e. the service of the counterclaim):
    "[L] made an unambiguous claim for mesne profits including service charges quantified in accordance with the lease. In the twilight period between re-entry and the determination of the [L's] counterclaim, the claim was properly and conventionally expressed as a claim for mesne profits. By clause 2(2)(j)(ii), the lessor was not obliged to operate the contractual machinery in the lease. They had to prove their claim evidentially and they did so. [T] had every opportunity to contest the amount of the claim, but did not do so. [L is] entitled to judgment for mesne profits, including the determined amount of the service charges, or, if the lease is reinstated as a result of operative relief, to exactly the same sum under the lease." (May LJ, para 37).
Note

Section 81 is now in slightly different form having been amended by s170 of the Commonhold and Leasehold Reform Act 2002). In force in England on 28 February 2005 (see the 5th commencement order) and in Wales on 31 May 2005 (the 3rd Welsh commencement order.


Small sums outstanding

Rights of Re-entry and Forfeiture (Prescribed Sum and Period) (England) Regulations 2004 (SI 2004/3086)
Rights of Re-Entry and Forfeiture (Prescribed Sum and Period)(Wales) Regulations 2005 (SI 1325; W 100)

Section 167(1) of The Commonhold and Leasehold Reform Act 2002 provides that a landlord under a long lease of a dwelling may not forfeit for failure by a tenant to pay an amount consisting of rent, service charges or administration charges (or a combination of them) unless the unpaid amount exceeds the prescribed sum or consists of, or includes, an amount which has been payable for more than a prescribed period. The prescribed sum is £350 and the prescribed period is 3 years. Thus, a landlord may not forfeit for a sum of £350 or less unless it is outstanding for a period of more than 3 years. In force in England on 23 November 2004; Wales 31 May 2005.


No forfeiture until breach proved

Limited issue

Re 19 Snowdrop Street
[2008] EW Lands
LRX/153/2007

In considering applications under section 168 of the Commonhold and Leasehold Reform Act 2002, (application by landlord to prove a breach prior to service of a section 146 notice) the Leasehold Valuation Tribunal should not consider whether the breach has been remedied or whether the landlord has suffered loss thereby but only whether an actionable breach has occurred. Whether the breach had been remedied and / or whether the landlord had suffered loss are matters for the court on an application for relief or in an action for damages.


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