Long leases and forfeiture

Yes, I am going on about long leases again – and this time both houses and flats are involved. I am sure that we are all sick and tired with (often ill-informed) comments in the press about long leases and ground rents but are also awaiting with dread the Government’s proposals as to how they are going to solve the whole leasehold problem. More work and more worry for conveyancers is almost certain!

But one thing that does seem to have taken a back seat 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.  I was discussing this with a colleague and she commented that it was, in reality, a non-issue as ‘no one has ever heard of a long lease being forfeited’. If this is true – and I certainly have never come across a forfeiture – then why do landlord’s (or their conveyancers) keep putting forfeiture clauses in leases? Is it just a threat to keep tenants in line and make sure they comply with their obligations? I do remember when Commonhold was invented by the Government to do away with all leasehold problems – and what a success that was – that this was one of the criticisms of it – that the lack of this ultimate threat might make enforcement of covenants difficult. But if forfeiture is never used anyway …??

Speaking of Commonhold – and digressing for a moment – if we are getting rid of long leases, what was so wrong with Commonhold? I have never understood why some (but by no means all) lenders refuse to lend on it – which is why conveyancers can’t recommend a developer to use it. Why not just find out the lenders’ issues and put those right?

Anyway, back to the plot – forfeiture! Before a landlord can forfeit any lease, other than for non-payment of rent, a notice under s 146 of the LPA 1925 must be served. This must specify the breach and require it to be remedied within a reasonable time. Only if it is not remedied (or is incapable of being remedied) can forfeiture proceed. However, in the case of a long residential lease, s 168 of the Commonhold & Leasehold Reform Act 2002 provides that no s 146 notice can be served unless and until the tenant has admitted the breach or a court or tribunal has determined that there is a breach.

Looking for something else recently in the list of Tribunal decisions on the BAILII website, I was surprised to see three recent decisions relating to forfeiture, three cases where a landlord was seeking a declaration under s 168 that the tenant was in breach of covenant, three cases where a landlord was at least threatening forfeiture of a long residential lease. To be fair, one of these was a case of a freeholder suing the management company that had a head lease of the whole block, but the other two were in relation to home owners themselves. One of the other two cases  (98a Wimborne Road – Poole : Midland : Birmingham (Forfeiture) [2018] EWLVT CHI_LV_FFT_00HP_0044 (19 January 2018)) involved breaches of covenants to allow access to view the state of repair, to keep the premises in repair, not to do anything which might invalidate the insurance policy on the property and to keep the garden cultivated. The other case (Flat 3804 Arena Tower 25 Crossharbour Plaza – Tower Hamlets : London (Forfeiture) [2018] EWLVT LON_LV_FFT_00BG_0105 (16 January 2018) ) was in relation to the breach of a covenant not to keep a dog without the landlord’s consent. In all cases the Tribunal made an order that there was a breach.

Whether these leases were actually forfeited we will probably never know, but the point I really want to make (at last!) is whether in the usual type of flat or house lease, a landlord is actually able to forfeit at all.

Conveyancers will be aware that unfair terms in consumer contracts have long been invalid – and long residential leases will usually be consumer contracts. These were defined originally in the Unfair Terms in Consumer Contracts Regulations 1999, and now replaced by the Consumer Rights Act 2015. If a lease was granted to a tenant intending to sub-let – a buy to let transaction – then the tenant would not be a consumer as he/she is in the business of subletting. Further, leases granted pre 1999 will not be caught by the rules, but those granted since then are.

The basic definition of an unfair term is:

“A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer”

Note the requirement of a term not being individually negotiated. As conveyancers will be well aware most flat leases are proffered by developers on a take it or leave it ‘we won’t change anything’ basis. Does not the forfeiture clause cause a ‘significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer’?

And even if the whole clause is not ‘unfair’, i.e. it is fair that a landlord should be able to terminate for breach of covenant, it is then arguable that the wording of the forfeiture clause itself will usually fall foul of the legislation. The standard forfeiture clause reads something like:

(1) THE Landlord may re-enter the property or any part of it if—

(a)          payment of all or part of any instalment of rent is twenty-one days in arrear (whether or not formally demanded), or

(b)          the Tenant has failed to observe or perform any lease covenant.

But this is completely misleading – and therefore unfair. The landlord cannot re-enter the property for non –payment of rent within 21 days etc – rent is only due if the prescribed form of notice has been served. And even if it has, the landlord cannot just ‘re-enter’; a court order is needed. And for payments other than rent, then the s 168 procedure and then serving a s 146 notice as mentioned above has to be complied with. No mention of any of this in the forfeiture clause.

It was not unusual in the bad old days for long leases not to include a forfeiture clause, so why do we bother now?

Today's Conveyancer