Forfeiture Of Leases – What Do We Tell Clients?

Well, there’s a coincidence! I had started writing an article with the above title before I saw the newspapers this weekend. So now we have the horror story of Mr McCadden who had lost his leasehold flat worth £600,000 due to the lease being forfeited as he had redecorated his flat! Of course, the facts are slightly more complicated than that – but we will come onto that in a moment. But it does make the point I was going to make for me – are conveyancers telling buyers of leasehold properties enough about the risks of forfeiture?

I know that conveyancers are sick of articles about what we should be telling clients about leaseholds but BBC Wales has also recently reported that ‘a number of legal firms are investigating cases across Wales and England to obtain compensation for buyers who bought leaseholds without their conveyancers advising them of the implications’ of owning a leasehold . A solicitor at one of the firms involved feels it ‘may be bigger than the PPI scandal.’ There was then the usual crop of house buyers who claim that the terms of their leasehold was not made clear to them when they bought. One stated ‘We didn’t realise the implications of what a leasehold was and that was never explained to us. If someone explained to us you need to pay this £150 a year and then potentially down the line we can put you into financial ruin, then we might not have bought it’.

But one thing that does seem to have taken a back seat – until Mr McCadden came along! is the fact that with a leasehold title there is the risk of the house or flat owner losing their land altogether because of the landlord’s right to forfeit the lease for breach of covenant. A draconian remedy if ever there was one.  But do we explain this to clients?

Before a landlord can forfeit a residential lease, under s. 168 of the Commonhold & Leasehold Reform Act, the tenant must have admitted the breach, or a court or Tribunal must have determined that there is a breach and there have been numerous cases before the First Tier Tribunal recently in which landlords have sought to obtain a declaration that there has been a breach of covenant by a tenant.

Of course, it is probably the case that the landlord is more concerned about the tenant remedying the breach rather than forfeiting the lease, but the risk is still there. So we have had, for example, various cases concerning Airbnb lettings. Such lettings will be in breach of a covenant to use only as a private residence or dwellinghouse – AirBnb occupiers do not live there.

A quick look at Tribunal cases does show other examples of landlords making applications to establish breaches of covenant. So in 24A Ashgrove Road, Ilford [2017] EWLVT LON_LV_FFT_00BC_0069 a breach of a covenant to insure a maisonette in the joint names of the landlord and the tenant was alleged. The property was insured, but only in the tenant’s name. Even though the landlord’s interest was noted on the policy and the tenant gave evidence that he could not obtain a policy in joint names, the First Tier Tribunal held that there was a breach of the covenant.

In Upper Maisonette 8 Recreation Way, Merton [2017] EWLVT LON_LV_FFT_00BA_0055 the Tribunal granted a landlord’s application that there had been breaches of covenants by the tenant of another maisonette to maintain the garden and to maintain and repair the property itself.

In Bank Flat, 4 North Street, Bourne, Lincolnshire [2017] EWLVT MAN_LV_FFT_32UG_0010 the lease term was to allow the landlord to enter and view the state of repair on giving seven days’ notice. The tenant had refused to allow the landlord access over a lengthy period without any adequate reason for doing so and the Tribunal determined that he was thus in breach.

And just one final example. In Apartment 26, The Beeches, Liverpool [2017] EWLVT MAN_LV_FFT_00BY_0006 a covenant not to keep pets without consent was held to have been broken, even though the dog in question only stayed overnight occasionally.

But having got such an order, before forfeiture can occur, the landlord must then serve a notice under s. 146 LPA 1925 requiring the breach to be remedied within a reasonable time. If it is remedied then there can be no forfeiture; if not the landlord can then proceed to get a further court order to forfeit. But even at that stage relief against forfeiture is readily ordered by the court if the tenant undertakes to remedy the breach at that late stage.

Malik v McCadden [2017] Case Reference LON/ 00AE/LSC/2017/ 0376

The First Tier Tribunal found as follows:

“(i) The Respondent has repeatedly failed to grant the landlord access to inspect the demised flat;

(ii) the Respondent has carried out unauthorised structural alterations and removed landlord’s fixtures without consent; and

(iii) The Respondent has caused a nuisance to the occupants of the ground floor flat.

These are serious breaches and the next step will be the Applicant to apply to the County Court to forfeit the lease, The Respondent is advised to seek legal advice at the earliest opportunity”.

Mr McCadden claims he was let down by his lawyers; the Tribunal found: “The Tribunal is satisfied that the Respondent has taken an informed decision not to engage with these proceedings”

Mr McCadden’s flat was on the first floor of a two story house, the ground floor being occupied by Dr Malik, the freeholder. The works in question included putting new holes through an exterior wall for a re-sited gas boiler flue and removing the landlord’s fixtures. Floorboards had been removed; a new central heating system, bathroom and kitchen had been installed. The works took place over some 18 months. Mr McCadden had not sought consent for these works even though this was required under the lease. He had removed carpets from the flat – the lease required it to be carpeted and he had failed to give access for an inspection (a lease obligation) on 5 occasions. The works also caused dust, staining and cracking to Dr Malik’s flat. Building waste and rubble had been left in the front garden for months. The lease required him not to cause a nuisance to other occupiers in the building.

Instead of feeling sorry for the tenant, perhaps we ought to have sympathy with Dr Malik having had to endure all this disturbance for such a lengthy period!

But the point I wish to make is that when acting on a purchase of leasehold property, whether a house or a flat, conveyancers do need to emphasise to clients that in buying the property they will be bound by the various obligations set out in the lease and if they don’t, that they could lose their home. Even though the risk of a lease actually being forfeited may be very slight, the stress and inconvenience of having to resist applications under s. 168 of the 2002 Act cannot be ignored, even if the application were to be unsuccessful. And of course, any such dispute would have to be revealed in the Property Information Form to a prospective buyer. We seem to be reviewing every aspect of what we tell leasehold buyers, let’s do make clear the risk of losing everything.

And just one further point. If the threatened Government reforms of leasehold include the abolition of forfeiture, just how will people in Dr Malik’s position be able to enforce breaches of leasehold covenants in future? I do remember when Commonhold was invented by the Government to do away with all leasehold problems that this was one of the criticisms of it – that the lack of this ultimate threat might make enforcement of covenants difficult.

 

 

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