©Katrina Yates, April 2013
Long Leases: Forfeiture and other Modes of Determination – the Nuts and Bolts
1.
Introduction
1.1
First of all, I should probably explain what I mean by “long leases” in this context. I’m
talking about residential leases granted for a term certain of more than 21 years1. The
common law does not treat such leases differently and the general law applies to this
sub-species of lease as it does to any. However, the reason for lumping them together
in this talk is because Parliament has intervened in some respects when it comes to
the determination of such leases.
1.2
This talk is designed to do two things: first, to provide an overview of the modes and
methods of determining long leases, which hopefully will act as a quick reference
point in the future; secondly, to focus in more detail on two particular issues that arise
in this context – statutory continuation of long leases, and statutory restrictions on
forfeiture. The first issue hardly ever comes up, and the second will be encountered
regularly, but it is important to be prepared for both.
2.
The Main Modes of Determination of Long Leases
2.1
Leaving aside specialist statutory modes such as compulsory purchase, there are four
principal ways in which long residential leases may be determined:
2.1.1 Surrender;
1
The definition of a “long lease” varies according to the particular statute: see the Landlord and Tenant Act
1954, Part I; the Leasehold Reform Act 1967, section 1(1) & 3; the Local Government and Housing Act 1989,
Schedule 10, paragraph 2; the Leasehold Reform, Housing and Urban Development Act 1993, Part I, and the
Commonhold and Leasehold Reform Act 2002, section 167(5), incorporating sections 76 – 77. However, all of
the definitions are united by applying to residential leases with terms of 21 years or more, and, for present
purposes, it is convenient to deal with them together.
1
©Katrina Yates, April 2013
2.1.2 Merger;
2.1.3 Effluxion of time; and
2.1.4 Forfeiture.
3.
Surrender
3.1
There are no special rules for the surrender of long leases, so the common law
principles apply.
3.2
Surrender occurs when the tenant yields up the term to his immediate reversioner.
Both must be party to the surrender. That means it is not possible for a sub-tenant to
surrender to the head landlord. However, the tenant and the sub-tenant can both
surrender to the head landlord, and that will take effect as a two-stage surrender:
surrender from subtenant to tenant/mesne landlord, followed by surrender from the
tenant/mesne landlord to the head landlord2.
Where the lease is vested in two or
more tenants jointly, the surrender will only be effective if all of the tenants join in 3.
3.3
By virtue of section 100(1) of the Law of Property Act 1925 (the “LPA”), a mortgagor or
mortgagee in possession may accept a surrender of any lease of the whole or part of
the mortgaged land; that is, unless the mortgagee deed between the parties provides
otherwise. A key statutory purpose of section 100(1) is to enable the grant of a lease
authorised by section 99 of the LPA4, or by the mortgage deed itself.
2
Paramounr v Yardley (1579) 2 Plowd 539 at 541.
Leek and Moorland Building Society v Clark [1952] 2 AC 288.
4
The best bits of section 99:
(1) A mortgagor of land while in possession shall, as against every incumbrancer, have power to make
from time to time any such lease of the mortgaged land, or any part thereof, as is by this section
authorised.
(2) A mortgagee of land while in possession shall, as against all prior incumbrancers, if any, and as
against the mortgagor, have power to make from time to time any such lease as aforesaid...
3
2
©Katrina Yates, April 2013
3.4
Part of a demise can be surrendered5, but it is impossible to surrender only part of the
term6.
3.5
Surrender may be effected either expressly or by operation of law.
Express Surrender
3.6
To surrender long leases expressly, you need a deed. This is due to section 52(1) of
the LPA, which provides that:
(1)
All conveyances of land or of any interest therein are void for the purpose of conveying or
creating a legal estate unless made by deed.
Surrender is a form of conveyance by which the tenant re-vests the premises back in
the landlord for the whole term. That is confirmed by the very wide definition of
“conveyance” in section 205(1)(ii) of the LPA7. The simple way to remember this rule
is that if something must be created by deed, then any subsequent dealings must
usually also be carried out by way of a deed.
3.7
It is not safe to try to get away with a surrender that is simply in writing and signed by
the parties. That method is only possible with leases for a term not exceeding three
years at the best rent that can reasonably be obtainable8.
3.8
The surrender of a registered lease should be notified to the Land Registry, together
with evidence to satisfy the Registrar that the estate has determined9.
In the cases of mortgages created after the commencement of the LPA, agricultural or occupation leases can
granted for up to a term of up to 50 years; building leases, for terms of up to 999 years (section 99(3)).
5
Allen v Rochdale Borough Council [2000] Ch 221.
6
Burton v Barclay (1831) 7 Bing 745 at 757.
7
Section 205(1)(ii): “Conveyance” includes a mortgage, charge, lease, assent, vesting declaration, vesting
instrument, disclaimer, release and every other assurance of property or of an interest therein by any
instrument, except a will...
8
See sections 53(1) and 54(2) of the LPA.
9
Land Registration Rules 2003, rule 79.
3
©Katrina Yates, April 2013
Surrender by Operation of Law (AKA Implied Surrender)
3.9
Section 52(2) “does not apply to... – (c) surrenders by operation of law, including
surrenders, which may, by law, be effected without writing”.
3.10 Implied surrender, or surrender ‘BOL’, occurs when the tenant redelivers possession
of the demised premises and the landlord accepts the redelivery unequivocally.
3.11 It therefore takes two to tango:
Tenant redelivers possession + Landlord accepts it = Surrender BOL
3.12 Surrender BOL is based upon an estoppel. In other words, both landlord and tenant
have acted in a way that is inconsistent with the continuation of the lease, such that
both are estopped from asserting that the lease continues. The unequivocality of the
conduct of both parties is critical.
3.13 Other ways in which a surrender BOL may typically be brought about are as follows:
3.13.1 Tenant returning keys to the Landlord, who accepts them with the intention of
changing possession of the premises. The return of the keys is an offer to
surrender by the Tenant, which must be accepted by the Landlord through his
consent, either at the time, or by later taking possession in such a manner as to
estop him from denying that the lease has been brought to an end10.
10
Oastler v Henderson (1877) 2 QBD 575, CA; Proudreed Ltd v Microgen Holdings plc [1996] 1 EGLR 89, CA; Cf:
Relvok Properties Ltd v Dixon (1972) 25 P & CR 1, CA, a forfeiture case, where the landlord changing the locks
to protect the security of the abandoned premises was insufficient to amount to the taking of possession.
4
©Katrina Yates, April 2013
3.13.2 Granting a lease to a third party, with the tenant’s consent. The grant of a new
lease is consistent only with the surrender of the old one, provided that the
tenant gives up possession to the new tenant at about the time the new lease
is granted11.
3.13.3 Granting a new lease to the same tenant. Again, the grant and acceptance of a
new lease that is to commence during the term of the old lease presupposes
that the previous lease has been surrendered12. An agreement to grant a lease
is unlikely to be sufficient to effect the surrender, unless the terms of the
contract suggest otherwise13.
3.13.4 Variation of the terms of the lease. A variation may or may not result in
surrender, depending upon the nature of the variation, and the parties’
intentions.
A variation that can only be achieved by the creation of a new
term would result in surrender e.g. extending the term of the lease can only
be achieved by surrender and re-grant; and, although there are some contrary
authorities, it is usual to assume that adding a further tract of land to the
demise will operate as a surrender and re-grant BOL14.
Apart from those
examples, and absent special circumstances, it is usually assumed that the
parties do not intend to end their existing relationship.
3.14 Being based upon estoppel, the actual intention of the parties is irrelevant to
surrender BOL. In the recent case of Artworld Financial Corporation v Safaryan [2009]
EWCA Civ 303, the Court of Appeal affirmed the trial judge’s finding that the appellant
landlord had accepted surrender of the lease, notwithstanding the fact that the
landlord’s solicitors were insisting in correspondence that the lease continued. The
11
Lyon v Reed (1844) 13 M & W 285 at 309.
President and Scholars of Corpus Christi College, Oxford v Rogers (1879) 49 LJQB 4.
13
Turner v Watts (1928) 97 LJKB 403, CA.
14
Jenkin R Lewis & Son Ltd v Kerman [1971] Ch 477, CA; Friends Provident Life Office v British Railways Board
[1996] 1 All ER 336, CA; Cf: Fredco Estates v Bryant [1961] 1 WLR 76, CA.
12
5
©Katrina Yates, April 2013
landlord held the property on trust for the Tatanaki family, but had granted a three
year lease to the Safaryans. The Safaryans returned the keys to the landlord, who
then retook possession and occupied the property while works of redecoration were
being carried out to the Tatanaki family’s taste. For Jacob LJ, “Going in and living in
the property is in effect taking it over and treating it as your own, which is inconsistent
with the continuance of a lease” (at [25]).
3.15 The surrender vests the estate immediately in the landlord and the accrual of rent
ceases15. The tenant remains liable for any breaches of covenant pre-dating the
surrender16.
Where there is a subtenant, the tenant/mesne landlord’s surrender
does not destroy his/her rights, since “a person cannot be adversely affected by an
agreement or an arrangement to which he is not a party”17. The surrender is instead
treated as a grant to the head landlord, subject to the subtenant’s rights18.
4.
Merger
4.1
There isn’t very much to say about merger. It is the converse of surrender, in that the
tenant holds onto the lease and acquires the reversion; or a third party acquires both.
Its effect is that the lease is absorbed into the reversion and is extinguished. Again,
there are no differences in the applicable principles for long leases.
4.2
In brief, merger occurs where:
4.2.1 The two estates unite in the same person without any intervening estate19.
4.2.2 The person in whom they unite shall hold them both in the same right or
capacity. So, for example, if the tenant holds the lease as his own, but holds
15
Southwell v Scotter (1880) 49 LJQB 356.
Torminster Properties Ltd v Green [1983] 2 All ER 457.
17
It is res inter alios acta: Barrett v Morgan [2000] 2 AC 264 at 271, per Lord Millett.
18
Pleasant (Lessee of Hayton) v Benson (1811) 14 East 234 at 238.
19
Burton v Barclay (1831) 7 Bing 745.
16
6
©Katrina Yates, April 2013
the reversion in his capacity as an executor or administrator, then there is no
merger20.
4.2.3 There is an intention to merge the two estates.
4.3
There used to be separate rules for merger at law and merger in equity, but the
distinction was abolished long ago21. The common law now reflects equity in that
there can be no merger at law or in equity if it is intended that there shall be none22.
In the case of registered leases, the tenant must make the necessary application to the
Land Registry to close the Registered Title to the Lease23. A common counterindicator of such an intention is the failure to do so, and it is a way of checking
whether the merger was intended.
4.4
Where there is a sublease, it used to be the case that merger of the head landlord’s
interest with the mesne landlord’s left the sublease in existence, but destroyed the
covenants in it. Section 139 of the LPA intervened, such that the head landlord
becomes the immediate reversioner of the sub-lessee, and is entitled to the benefit of
those covenants24.
5.
Effluxion of Time
5.1
At common law, the lease simply ends at midnight on the last day of the term25.
5.2
However, in the context of long leases, the common law rule does not apply. This is
by reason of section 186 and Schedule 10 of the Local Government and Housing Act
20
Chambers v Kingham (1878) 10 Ch D 743.
By section 25(4) of the Supreme Court of Judicature Act 1873, as re-enacted by section 185 of the LPA.
22
LPA, section 185: “There is no merger by operation of law only of any estate the beneficial interest in which
would not be deemed to be merged or extinguished in equity”.
23
See Land Registry Practice Guide 26, Section 4.1: cancellation of notice of lease from the reversionary title
(form CN1); closure of the registered leasehold estate A (form AP1); for merger of the leasehold title as part of
the application for first registration of the reversionary estate (form FR1).
24
PW & Co v Milton Gate Investments Ltd [2004] Ch 142.
25
Re Crowhurst Park [1974] 1 WLR 583.
21
7
©Katrina Yates, April 2013
1989 (the “LGHA”), which provides for security of tenure on the ending of long
residential tenancies and certain customised modes of determination.
Local Government and Housing Act 1989
5.3
This is the ‘won’t happen often, but watch out for it’ part of the talk.
5.4
Most tenants of long residential leases will have extended their leases, acquired the
freehold, or given up possession on or by the term date, such that that the security of
tenure provisions in the LGHA have no relevance. For those who do not take those
courses of action, section 186 kicks-in. There is very little published commentary on
this topic, so here is my two-penneth’s worth.
5.5
The overall scheme of section 186 and Schedule 10 is to deem that the long residential
tenancy continues until terminated in accordance with the Act. Unless the landlord
obtains possession on specified grounds, upon the termination of the long tenancy an
assured tenancy is created by statute. Provision is made to enable the parties to
negotiate for an assured tenancy, with the long tenancy continuing in the meantime.
The parties can refer any disagreement as to the terms of the assured tenancy to a
Rent Assessment Committee (“RAC”)26.
Section 186
5.6
Section 186(1) pithily provides that:
Schedule 10 to this Act shall have effect (in place of Part I of the Landlord and Tenant Act 1954)
to confer security of tenure on certain tenants under long tenancies and, in particular, to
establish assured periodic tenancies when such long tenancies come to an end.
26
Subject to Parliamentary approval, the RAC and the LVT will soon form part of the new Property Chamber of
the First Tier Tribunal. On 15 March 2013, the Ministry of Justice announced that the appointment of Siobhan
McGrath as the President of the Property Chamber is likely to take place on 1 July 2013.
8
©Katrina Yates, April 2013
5.7
By virtue of section 186(2), Schedule 10 applies to long tenancies at low rent, as
defined in Schedule 10, entered into after 1 April 199027.
Schedule 10
5.8
A “long tenancy at low rent” is a tenancy granted for a term of years exceeding 21
years, whether or not subsequently extended by the parties or by any enactment, but
excluding any tenancy which is, or may become, terminable before the end of the
term by a notice given to the tenant28. “Low rent” usually means that the maximum
rent payable is £1000 per annum (in Greater London) or £250 (elsewhere), although
there are some other variations on a theme29.
5.9
Schedule 10 only applies to a long tenancy of a dwelling where what is called the
‘qualifying condition’ is satisfied; namely, that the circumstances (i.e the property let,
the use of that property, and all other relevant matters) are such that, if the tenancy
were not at low rent, it would at that time be an assured tenancy within the meaning
of Part I of the Housing Act 198830. The premium and the term are also inserted into a
formula to establish whether the qualifying condition is satisfied31.
5.10 The heart of Schedule 10 is the security of tenure provision at paragraph 3(1):
27
Section 186(2). By section 186(3), long tenancies entered into prior to the commencement of the LGHA
continued to be subject to Part I of the Landlord and Tenant Act 1954 until 15 January 1999. The old regime
under the 1954 Act conferred upon the tenant a tenancy subject to the Rent Act 1977. The applicability of the
LGHA regime across the board coincided with the commencement of the Housing Act 1988, and the creation
of assured tenancies thereby.
28
Schedule 10, paragraph 2(3).
29
Schedule 10, paragraph 2(4): “Low rent” means either (a) no rent is payable, or (b) where the tenancy is
entered into after 1 April 1990 (otherwise than where the dwelling house had a rateable value on 31 March
1990 in pursuance of a contract made before 1 April 1990), (i) if the dwelling is in Greater London, the
maximum rent payable is £1000 or less per year and (ii) £250 per year if the dwelling is elsewhere, or (c) where
the tenancy is entered into before 1 April 1990, or where the dwelling had a rateable value on 31 March 1990,
is entered into on or after 1 April 1990 in pursuance of a contract made before that date, and the maximum
rent payable is less than two-thirds of the rateable value of the dwelling on 31 March 1990 .
30
Schedule 10, paragraph 1(1).
31
R=
P × I____
−T
1− (1 + I)
Where P = the premium paid, and T = the term. R must exceed £25,000 for the
qualifying condition to be met. At any time within the period of 12 months preceding the term date an
uncertain landlord can apply to Court under paragraph 1(3) for a declaration that Schedule 10 does not apply.
9
©Katrina Yates, April 2013
A tenancy which, immediately before the term date, is a long residential tenancy shall not
come to an end on that date except by being terminated under the provisions of this Schedule,
and, if not then so terminated, shall subject to those provisions continue until so terminated
and, while continuing by virtue of this paragraph, shall be deemed to be a long residential
tenancy (notwithstanding any change in circumstances).
5.11 Where a tenancy continues by reason of paragraph 3(1), it continues at the same rent
and on the same terms as before the term date32.
5.12 So, how can a long residential tenancy be terminated? This depends on whether the
termination is to be effected by the landlord or by the tenant. The tenant simply has
to give one month’s notice in writing to his or her immediate landlord, either before
the term date, or at any time afterwards33. There is no prescribed form. The tenant’s
right to terminate trumps the landlord’s, in that, even if the landlord has taken steps
to end the tenancy and the tenancy has elected to retain possession (of which more in
a moment), the tenant can serve notice and end the tenancy sooner34. Simple.
5.13 As would be expected, termination is a little more convoluted for the landlord. The
landlord can terminate the long residential tenancy by notice in a prescribed form
served on the tenant, specifying the date at which the tenancy is to come to an end,
being either the term date or a later date. The idea is to give the tenant one last
chance to consider extending the lease, or acquiring a new one, or enfranchising. The
landlord has the choice between two notice procedures:
5.13.1 Notice proposing an assured tenancy, which proposes an assured tenancy to
take the place of the long residential tenancy on suggested terms35. The notice
must be in the prescribed form, which is Form 1 of the Long Residential
Tenancies (Principal Forms) Regulations 1997 (the “Forms Regulations”)36.
32
Schedule 10, paragraph 3(3).
Schedule 10, paragraph 8(1), (2).
34
Schedule 10, paragraph 8(3).
35
Schedule 10, paragraph 5(a).
36
SI 1997/3008, regulation 3(1)(a) and the Schedule.
33
10
©Katrina Yates, April 2013
5.13.2 Notice to resume possession, which notifies the tenant that the landlord
proposes to take possession proceedings on certain grounds (see further
below) 37. The prescribed for is Form 2 of the Forms Regulations38.
5.14 Timing is everything. Either form of notice must be served not less than six months,
nor more than twelve months, before the termination date specified in the notice 39.
5.15 The landlord has to get the content right too. With Form 1, the notice will not have
effect unless it does the following:
5.15.1
Proposes an assured monthly periodic tenancy of the dwelling and a rent for
that tenancy. The rent must be high enough to ensure that the proposed
tenancy is not a tenancy at low rent any more.
5.15.2
States that the other terms of the tenancy shall either remain the same as
those of the long residential tenancy that existed immediately before it was
terminated40; or, if the landlord chooses, he has the right to propose terms
different from the implied terms41.
5.15.3
Invites the tenant, within the period of two months beginning on the date on
which the notice was served to notify the landlord in writing whether the
tenant wishes to remain in possession42.
5.16 A Form 2 notice will not have effect unless:
5.16.1
It seeks written notification of whether the tenant is willing to give up
possession as mentioned in paragraph 4(5)(b).
37
Schedule 10, paragraph 5(b).
SI 1997/3008, regulation 3(1)(b) and the Schedule.
39
Schedule 10, paragraph 4(1).
40
Schedule 10, paragraph 4(5)(a).
41
Schedule 10, paragraph 4(6).
42
Schedule 10, paragraph 4(7)(a).
38
11
©Katrina Yates, April 2013
5.16.2
It states that if the tenant is not willing to give up possession at the term date
of the long residential tenancy, the landlord proposes to apply to court for
possession of the property on one or more of the grounds in paragraph
5(1)43. Those grounds are: (a) Ground 6 of Schedule 2 to the Housing Act
1988 (the “1988 Act”) and those in Part II of Schedule 2 to the 1988 Act, with
some adjustments, except Ground 16; (b) that the landlord proposes to
demolish or reconstruct the whole or a substantial part of the premises, or (c)
that the premises or part of them are reasonably required by the landlord for
occupation as a residence for himself or specified members of his immediate
family44.
5.17 So if the landlord successfully jumps through all of those hoops, when does the long
tenancy actually end, and what, if anything, takes its place?45
5.18 If Form 2 was served, then the landlord has to apply to court for possession quick
smart. If the tenant elected to retain possession, then the landlord has 2 months from
that date in which to do this.
If the tenant did not so elect and the qualifying
condition is fulfilled on the date of service of the landlord’s notice, then the landlord
has 4 months beginning with the date of such service. The court cannot entertain a
possession claim if those time limits are not met46. The court’s power to order
possession is either mandatory or discretionary, depending on the particular grounds
specified in the landlord’s notice47.
43
Schedule 10, paragraph 4(5)(b).
Schedule 10, paragraph 5(1)(a) – (c).
45
Schedule 10, paragraph 9(3). Note that if the ‘qualifying condition’ is not fulfilled, then the tenant simply
has no right to retain possession unless he or she has elected to do so; but, even then, there is no right to
retain possession if the qualifying condition is not met on the termination date
46
Schedule 10, paragraph 13(2).
47
Schedule 10, paragraph 13(3) – (7): reflecting its classification in the HA, ground 6 is mandatory; any of the
relevant grounds in Part II of Schedule 2 to the HA are discretionary, and subject to the requirement of
reasonableness; the ground in paragraph 5(1)(c) is subject to weighing up the hardship of the order between
the landlord and tenant; the redevelopment ground in paragraph 5(1)(b) is mandatory.
44
12
©Katrina Yates, April 2013
5.19 If Form 1 was served, then assuming that the qualifying condition is met, in the
simplest case the long tenancy ends on the date of termination specified in the
notice48. The LGHA abhors a vacuum, so in its place an assured periodic tenancy is
implied by reason of paragraph 9(1). The implied assured tenancy takes effect in
possession on the date following the date of termination and is deemed to have been
granted by the person who was the landlord under the former long residential
tenancy49. The periods of the tenancy are deemed to be monthly, beginning on the
day following the date of termination, and the rent and other terms are determined in
accordance with paragraphs 10 to 12.
Again, in the simplest case, the tenant just
accepts the terms of the assured tenancy proposed in the landlord’s notice; the long
residential tenancy terminates on the specified date, and the statutory assured
tenancy commences on the following day on the landlord’s terms50.
5.20 However, things are rarely simple; particularly if the tenant makes use of a provision
entitling him or her serve a counter-notice within the period of two months beginning
on the date of service of Form 1, by which he or she can propose a different rent and
different terms51. The tenant’s notice must be in the prescribed form, which is Form
4 of the Forms Regulations52. The landlord then has another choice to make:
5.20.1 He can accept the tenant’s proposals, in which case the assured tenancy will be
a combination of the tenant’s terms and the landlord’s terms, in so far as the
latter does conflict with the tenant’s terms53.
5.20.2 Alternatively, within the period of two months beginning with service of the
tenant’s notice, the landlord can refer the notice to a RAC54 by an application in
the prescribed form55. If there is a dispute about terms other than the rent,
48
Schedule 10, paragraph 4(4)(b).
Schedule 10, paragraph 10.
50
Schedule 10, paragraph 10(1)(b).
51
Schedule 10, paragraph 10(1)(a).
52
Regulation 3(d), Schedule 1.
53
Schedule 10, paragraph 10(2)(b).
54
Schedule 10, paragraph 10(2)(a).
55
The Forms Regulations, regulation 3(e), Schedule 1, Form 5.
49
13
©Katrina Yates, April 2013
and also a dispute about the rent, the RAC determines those issues, but deals
with the rent last of all56. The rent is determined by considering the monthly
rent at which the dwelling might reasonably be expected to be let on the open
market by a willing landlord under an assured tenancy57.
5.21 None of this prevents the parties from varying any term of the assured tenancy by
agreement58, or from agreeing the terms themselves before the assured periodic
tenancy takes effect in possession.
If a referral has already been made before
agreement has been reached, the RAC must have regard to the agreed terms59.
5.22 Once all of that is sorted out60, then the long residential tenancy terminates in
accordance with paragraph 4(2), as follows:
5.22.1 Where a landlord’s notice has been served and an application has been made
to the RAC61, the effect of the landlord’s notice is to terminate the tenancy at
the expiry of the period of three months beginning with the date on which the
application is finally disposed of62.
5.22.2 “Finally disposed of” means the earliest date by which the proceedings on the
application, including any appeal, have been determined and the time for
further appealing has expired. If the referral to the RAC is withdrawn or an
appeal abandoned, “finally disposed of” means the date of that event63.
5.23 Once the assured period tenancy has kicked-in, then it is governed by the 1988 Act.
The only way it can be determined is if one or more of the grounds for possession in
56
Schedule 10, paragraph 11.
Schedule 10, paragraph (6)(d).
58
Schedule 10, paragraph 11(9).
59
Schedule 10, paragraph 12(2).
60
Paragraph 6 can be useful when dealing with this protracted process. The landlord may propose an interim
monthly rent on Form 3 of the Forms Regulations at any time between the date the landlord’s notice is served
and the termination date. The interim rent applies only while the long residential tenancy is continued by
virtue of Schedule 10. The tenant can refer the proposed interim rent to the RAC for determination.
61
Other than application for the determination of an interim rent, under paragraph 6.
62
Schedule 10, paragraph 4(4).
63
Schedule 10, paragraph 4(3).
57
14
©Katrina Yates, April 2013
Schedule 2 of the 1988 Act is made out, adopting the usual procedure under CPR Part
55.
6.
Forfeiture
6.1
Last, but certainly not least, is forfeiture.
This is a drastic remedy for some act of
default by the tenant in respect of his or her obligations under the lease, which ends
the lease prior to the ‘natural’ term date64.
Does the Landlord really want to forfeit?
6.2
Before getting to the legal nuts and bolts, it is important to consider a preliminary
issue. Any landlord considering forfeiture should pause to take stock and consider
whether forfeiture is really a good idea.
Different considerations apply in the
residential context, where the long lease at low rent was granted at a premium, as
opposed to the commercial. The landlord needs to decide whether he or she really
wants vacant possession, or whether the priority is actually to compel the current
tenant to comply with the covenants in the lease. Applying for an injunction, or
levying distress may well be preferable. Another option in the residential context
would be to report the tenant to the mortgagee bank, which is likely to want to stepin and remedy the problem in order to protect its security.
Is the Landlord able to forfeit?
6.3
If the landlord is intent on forfeiting, then the first step is to construe the Lease. The
right to forfeit for breach of covenant is not implied65, so there must be express
64
Clays Lane Cooperative Ltd v Patrick (1984) 49 P & CR 72 at 78, per Fox LJ.
The position is probably different if an event happens, which is specified in a condition subject to which the
term was created (see Freeman v Boyle (1788) 2 Ridg Parl Rep 69 at 79).
65
15
©Katrina Yates, April 2013
provision for it. The tendency is for a literal or strict approach to construing the
proviso for re-entry66, with any ambiguity likely to be resolved in favour of the
tenant67.
6.4
Three pre-conditions must be satisfied in order to forfeit:
6.4.1 The triggering event giving rise to the right to forfeit must have occurred 68.
The landlord must consider carefully what evidence there is for the breach of
covenant has occurred, and that the proviso for re-entry extends to it.
6.4.2 All necessary procedural steps must have been complied with.
6.4.3 The right to forfeit must subsist, and not have been waived by doing an act
consistent only with the continuation of the lease prior to exercising the right.
6.5
Waiver is a real danger area for any landlord wishing to forfeit a lease.
The right to
forfeit, when it arises, gives the landlord a choice as to whether or not he will take
advantage of it.
If the landlord acts in a manner which is consistent only with his
having chosen not to forfeit, then he irrevocably waives his right to forfeit, even if he
was not aware of the legal consequences of making the choice69. In other words:
Actual knowledge by the landlord of the relevant breach
+
Unequivocal acts by the landlord, which are only consistent with the lease continuing
+
66
Doe D Lloyd v Powell (1826) 5 B & C 308 at 313.
Doe d Sir Abdy v Stevens (1832) 3 B & Ad 299 at 303.
68
While the usual principles of interpretation are applicable, the courts take a two-stage approach: first,
ascertaining the meaning of the proviso for re-entry, and then testing whether, on the facts, the right to forfeit
was triggered: Bristol Corporation v Westcott (1879) 12 ChD 461 at 465, CA.
69
Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 at 883; Osibanjo v Seahive
Investments [2009] 1 EGLR 32, CA.
67
16
©Katrina Yates, April 2013
Communication of that recognition that the lease is continuing to the tenant
=
Waiver of the right to forfeit
6.6
There is a lot to say about waiver since the right to forfeit can be waived in so many
different ways depending on the particular breach of covenant, and there is
insufficient scope to do the topic justice in this talk. Suffice it to say, you need to be
on your guard about it, and my two top tips are:
6.6.1 The risk runs from the date that the right to forfeit arose, until it is exercised,
but not after. Exercise great caution during the ‘danger period’.
6.6.2 As a general rule of thumb, never ever demand or accept rent during the
danger period70.
6.7
Note that once an initial notice has been served under the Leasehold Reform, Housing
and Urban Development Act 1993, the landlord is unlikely to be able to forfeit the
lease of any flat held by a participating member. Theoretically the right to forfeit is
retained71, but if the landlord wants to effect forfeiture, he will have to seek the
permission of the court72, and that will only be forthcoming if the court is satisfied that
the member is a participating member solely, or mainly, to avoid the consequences of
a breach of his lease73.
Prelude to a Forfeiture: the Procedural Steps Needed
6.8
Apart from when you are dealing with non-payment of rent, you cannot forfeit the
lease without first serving a notice pursuant to section 146 of the Law of Property Act
70
See Osibanjo, above, and Thomas v Ken Thomas Ltd [2007] 1 EGLR 31, CA, for the trouble you can get into.
Leasehold Reform, Housing and Urban Development Act 1993, Schedule 3, Part I, paragraph 6(2).
72
1993 Act, Schedule 3, Part 1, paragraph 7(1).
73
Paragraph 7(2).
71
17
©Katrina Yates, April 2013
1925 (the “LPA”). If this were a talk about commercial forfeiture, I would proceed
directly to talk about the nitty-gritty of such notices. However, with residential long
leases, you need to watch out for a raft of other legislative restrictions that apply
before you even get to that point.
Restrictions on the Right to Forfeit for Breach of Covenant other than of the Covenant to
Pay Rent
6.9
Supposing your client’s tenant has breached a covenant in the lease, which prohibits
the carrying out of illegal activities on the premises. No matter how flagrant or
outrageous the breach, the landlord of a long lease of a dwelling is not entitled to
serve a section 146 notice in respect of a breach by a tenant of a covenant or
condition in the lease unless the following conditions are satisfied:
6.9.1 It has been finally determined on an application by the landlord to the LVT that
the breach has occurred.
6.9.2 OR the tenant has admitted the breach.
6.9.3 OR a court in any proceedings, or an arbitral tribunal in proceedings pursuant
to a post-dispute arbitration agreement, has finally determined that the breach
has occurred74.
6.10 Since there is not much chance of the tenant admitting to the breach, your client is
going to have to wait for a further 14 days after the date of the determination before
serving his or her section 146 notice.
Restrictions on Forfeiture for Arrears of Rent and Service Charges
74
CLRA, section 168(1), (2).
18
©Katrina Yates, April 2013
6.11 The landlord will not be able to forfeit for non-payment of rent or service charges,
without satisfying the conditions imposed by the CLRA, the Landlord and Tenant Act
1987 (the “1987 Act”), and the Housing Act 1996 (the “1996 Act”).
Rent
6.12 What if your over-enthusiastic client landlord wants to forfeit the long residential
lease because the tenant has not paid £200 of rent for one year after it fell due. Can
he? The short answer is, no. Section 167(1) of the CLRA prevents the landlord from
exercising the right of re-entry or forfeiture for failure by the tenant to pay an amount
consisting of rent, service charges or administration charges (or a combination of all
three) unless the unpaid amount:
6.12.1 Exceeds the prescribed sum. At the moment this is £350.
6.12.2 OR consists of, or includes, an amount which has been payable for more than
the prescribed period. Currently, that period is 3 years75.
6.13 As an advisor to a residential landlord, it is also important to check that the rent has
lawfully become due before even contemplating forfeiture:
6.13.1 The first thing to check is whether the landlord has given the tenant a notice
under the CLRA, in the prescribed form and containing prescribed
information76, relating to the payment77. Principally, the notice must state the
amount due; the date the tenant is liable to pay, and the date that the tenant
would have been liable to pay it under the lease, if different78.
75
Rights of Re-entry and Forfeiture (Prescribed Sum and Period) (England) Regulations 2004, SI 2004/3086.
Landlord and Tenant (Notice of Rent) (England) regulations 2004, SI 2004/3096.
77
CLRA, section 166(1).
78
CLRA, section 166(2).
76
19
©Katrina Yates, April 2013
6.13.2 The second matter to check applies equally to any tenant of premises of, or
including, a dwelling, which are not held under a tenancy to which the Landlord
and Tenant Act 1954 applies. By reason of section 48 of the 1987 Act, rent
does not fall due unless the landlord has provided the tenant with an address
in England and Wales at which notices, including notices in proceedings, must
be served on the landlord by the tenant. At least the effect of such a notice is
retrospective: all previous arrears become due upon its service79.
Service Charges and Administration Charges
6.14 This time your client is furious about a large amount of arrears of service charges and
is itching to forfeit the lease. Even if the service charges are reserved as rent under
the lease80, your client will have to bide his time.
6.15 Section 81 of the 1996 Act, as amended by the CLRA, prevents the landlord from
forfeiting a lease of premises let as a dwelling for non-payment of services charges or
administration charges81 unless:
6.15.1 It is finally determined by (or on appeal from) a leasehold valuation tribunal or
by a court, or by an arbitral tribunal in proceedings pursuant to a post-dispute
arbitration agreement, that the amount of the service charge or administration
charge is payable by him82.
79
Lindsey Trading Properties Inc v Dallhold Estates (UK) Pty Ltd (1995) 70 P & CR 332,CA.
That is because of the wide meaning of “Service charge”, which is defined in accordance with section 18(1)
of the Landlord and Tenant Act 1985, which provides that: ““service charge” means an amount payable by a
tenant of a dwelling as part of or in addition to the rent— (a) which is payable, directly or indirectly, for
services, repairs, maintenance, improvements or insurance or the landlord's costs of management, and (b) the
whole or part of which varies or may vary according to the relevant costs”.
81
Defined in accordance with Part 1 of Schedule 11 to the CLRA and (in summary) means additional sums
payable in respect of approvals under the lease; the provision of information and documents; a failure by the
tenant to make a payment by the due date, and in connection with an alleged breach of condition or covenant.
82
1996 Act, section 81(1)(a).
80
20
©Katrina Yates, April 2013
6.15.2 OR the tenant has admitted that the amount outstanding is so payable83.
6.16 The matter is finally determined if the time for appealing against the LVT’s decision
has expired and no appeal has been made; or, if the determination is appealed and is
not set aside, at the date the appeal is determined, or the expiry of time for bringing a
further appeal (if any); or, by being abandoned or otherwise ceasing to have effect84.
6.17 Once the amount outstanding has been determined by the LVT, the right to forfeit
cannot be exercised for a period of 14 clear days, beginning with the day after that on
which the decision of the court or arbitral tribunal is given85.
6.18 If there is, in reality, no dispute about the amount of service charges outstanding, then
you will probably get away with a quick LVT determination on the papers. If, however,
what is underlying all of this is a fundamental dispute as to the reasonableness of the
service charge86, then you probably have a full LVT hearing on your hands.
6.19 Also, before you get too carried away, check that your demands contain the
information prescribed by section 47 of the Landlord and Tenant Act 1987; in
particular, the landlord’s name and address. If not, you can always correct and reserve the demands, provided that you are within the time limits imposed by section
20B of the Landlord and Tenant Act 198587.
Costs Consequences
6.20 Currently the main drawback of any proceedings before the LVT is that the Tribunal
has a very limited jurisdiction to make costs orders: the power only arises in rare
cases, where an application has been dismissed and that party has, in the opinion of
the Tribunal, acted frivolously, vexatiously, abusively, disruptively, or otherwise
83
Section 81(1)(b).
Section 81(3) and (3A).
85
Section 81(2).
86
Landlord and Tenant Act 1985, section 19.
87
There is an 18 month time limit. The tenant will not be liable for the sums in demand that relate to a charge
incurred more than 18 months before the demand is served on the tenant, unless within that period the
tenant was given written notice that those costs had been incurred.
84
21
©Katrina Yates, April 2013
unreasonably in connection with the proceedings88. The power to award costs is likely
to be slightly broader once the LVT becomes part of the First-Tier Tribunal (Property
Chamber), with ‘unreasonableness’ becoming the main test89; but, nevertheless, an
award of costs will probably remain the exception, rather than the rule.
6.21 On the other hand, once forfeiture proceedings have been determined by the court,
the general practice is to award indemnity costs to the landlord, whether or not relief
from forfeiture is ultimately granted. This practice has been doubted in the House of
Lords90; however, the general principle that the landlord should not be left out of
pocket as a result of the proper steps he has taken to protect his legitimate interests
persists91, and is now pretty firmly established92.
6.22 Particularly if the lease contains some comprehensive costs provisions, it is worth
attempting to claw back as costs of the litigation the costs incurred from complying
with the statutory obligations to obtain a determination from the LVT before
exercising the right to forfeit.
Section 146 Notices
6.23 So, once you have obtained your LVT determination, then you get to section 146
notices. As I have said, you only need to serve a section 146 notice if you are forfeiting
for breach of a covenant other than the covenant to pay rent93.
This means the
obligation to service a section 146 notices applies where there has been a breach of
the covenant to pay service charge; and recent Court of Appeal authority says that this
88
CLRA, Schedule 12, paragraph 10(1), (2).
See Rule 11, as described in the Consultation on the proposed First Tier Tribunal procedure:
http://www.justice.gov.uk/downloads/about/moj/advisory-groups/tpc-pc-consultation.pdf
89
90
Billson v Residential Apartments Ltd [1992] 1 All ER 141 at 150, per Lord Templeman.
Fairview Investments Ltd v Sharma (14 October 1999, unreported), CA; as cited from, and approved in,
Forcelux Ltd v Binnie [2009] EWCA Civ 1077.
92
Patel v K & J Restaurants [2011] L & TR 6, CA.
93
LPA, section 146(11).
91
22
©Katrina Yates, April 2013
remains the case, even if the service charge is reserved as rent under the lease94. The
purpose of the notice is to give the tenant a formal warning and an opportunity to
consider his position (particularly whether to admit the breach; whether it is capable
of remedy, and/or whether compensation should be offered) before the lease is
forfeited95.
6.24 In order to be effective, the section 146 notice must:
6.24.1 Specify the breach complained of – and enough detail needs to be given here
to direct the tenant with reasonable certainty to the matters complained of 96.
6.24.2 If the breach is capable of remedy, require the tenant to remedy it – although
the landlord does not have to tell the tenant how to do this97.
6.24.3 Require the tenant to make compensation in money for the breach – although,
funnily enough, a notice will not be invalidated by a failure to state this 98.
The right to forfeit can only be exercised if the tenant fails, within a reasonable time
thereafter, to remedy the breach (if it is capable of remedy) and to make
compensation to the satisfaction of the landlord. There is no prescribed form.
6.25 I could write an entire seminar on the law relating to remediable and irremediable
breaches.
For ‘nuts and bolts’ purposes, the general rule of thumb is that the law
normally looks to the consequence of the breach to determine whether or not it is
94
Freeholders of 69 Marina, St Leonards on Sea v Oram [2011] EWCA Civ 1258, at [11] – [12]. The Chancellor,
with whom Hooper LJ and Rafferty LJ agreed, drew a distinction between the recoverability of ‘service charge’
as rent under a particular lease, and the definition of ‘service charge’ for the purposes of the legislation: s. 18
of the Landlord and Tenant Act 1985 defines ‘service charge’ is an amount paid by the tenant “as part of or in
addition to rent... which is payable directly or indirectly for services”; hence, there could be no treating service
charge as rent for the purposes of s. 146.
95
Horsey Estate Ltd v Steiger [1899] 2 QB 79 at 91, per Lord Russell of Killowen, CJ.
96
Fletcher v Nokes [1897] 1 Ch 127.
97
Piggott v Middlesex County Council [1909] 1 Ch 134.
98
Lock v Pearce [1893] 2 Ch 271 at 276, per Lord Esher MR: “... it seems to me that the meaning of the section
is that the breach must be remedied if it can be, and there must be compensation besides that, if there is
anything for which to compensate. I go further, and say that the lessor need not, if he does not want any
compensation, ask for it. If he does not want compensation, why should he ask for what he does not want?”
23
©Katrina Yates, April 2013
remediable: a covenant not to do something without consent can never fully be
undone because it is a once and for all breach, but if the mischief caused can be
removed or undone, then the breach is usually treated as remediable99.
However,
watch out for breaches of covenants not to assign or sub-let without consent, which
appear still to be treated as irremediable100; but the point is not entirely free from
doubt, and you will need to consider this carefully as and when it arises.
6.26 To help to ensure your client’s notice is valid, the following tips are worth
remembering:
6.26.1 A notice is invalid if it does not require the tenant to remedy a breach that is
remediable101; but it is not invalid if it requires a tenant to remedy an
irremediable breach. For safety’s sake, the landlord cannot usually go wrong if
he uses the catch-all formulation in his section 146 notice, namely, that the
tenant “... is required to remedy the breach, if it is capable of being remedied”.
6.26.2 If there is any doubt as to the validity of the section 146, the landlord can serve
another one, which is served under cover of a letter expressing that the
enclosed notice is, “Without prejudice to the validity of any and all section 146
notices that have been, or may be, served”.
6.26.3 Do not be in too much of a rush to press on with the forfeiture. The section
146 notice will also be invalid if it allows the tenant insufficient time to remedy
the breach between service of the notice and effecting the forfeiture. You will
need to consider what is reasonable carefully, according to the particular facts
and circumstances of the case.
99
Savva v Houssein (1996) 73 P & CR 150; Expert Clothing Services & Sales Ltd v Hillgate House Ltd [1986] CH
340 at 355.
100
Savva again (on assignment); and Scala House and District Property Co Ltd v Forbes [1974] QB 575, CA (on
sub-letting).
101
Expert Clothing Service & Sales v Hillgate House [1986] Ch 340, CA.
24
©Katrina Yates, April 2013
6.27 The notice may be served in accordance with section 196 of the LPA (as augmented by
the Recorded Delivery Service Act 1962), or under the common law rules and subject
to any specific provisions in the lease. Your options are therefore: leaving it at the
premises; posting it by registered post or recorded delivery; or personal service.
Effecting the Forfeiture
6.28 The landlord of a long residential lease may only forfeit by the service of court
proceedings. Do not even think about forfeiture by peaceable re-entry: it is entirely
outlawed in the residential context102.
6.29 Since forfeiture is effected by the service of the proceedings103, it is important to
ensure the following:
6.29.1 The claim form and particulars of claim must be served on the tenant for the
time being, or his authorised agent, such that the landlord’s intention to forfeit
is communicated to the tenant104.
6.29.2 The proceedings must be served on an address, and by a method, which
satisfies Part 6 of the CPR.
102
Protection from Eviction Act 1977, sections 1 – 3. A civil action for damages can result from an unlawful
peaceable re-entry against any residential occupier: Housing Act 1988, sections 27 and 28.
103
Canas Property Co Ltd v KL Television Services Ltd [1970] 2 QB 433, CA.
104
Jones v Carter (1846) 15 M & W 718.
25
©Katrina Yates, April 2013
6.29.3 The claim must be unequivocally one for forfeiture. If you, for example, pair it
with a claim for an injunction to restrain a breach of covenant, the landlord’s
intention to forfeit is not clearly conveyed to the tenant.
6.30 The procedural formalities for possession claims, imposed by CPR Part 55, must also
be observed. In particular:
6.30.1 The claim form must state that the premises are residential.
6.30.2 When forfeiting for arrears of rent, the full details required by Practice
Direction 55A must be included: the amount due; the payments made in the
past two years; the daily rate of “rent”105 and interest; the previous steps taken
to recover the arrears of rent, and relevant details about the defendant’s
circumstances106.
Relief from Forfeiture
6.31 Again, I could write an entire seminar on this topic, but for ‘nuts and bolts’ purposes
here are the essentials, in brief.
6.32 When forfeiting for breach of covenant other than for the payment of rent, note that:
6.32.1 The court’s jurisdiction is primarily drawn from section 146(2) of the LPA.
6.32.2 The tenant technically can apply for relief from forfeiture as soon as the
section 146 notice has been received107. Once the claim has been issued, the
tenant has until the time the landlord has recovered possession to apply for
105
In fact, the daily rate is technically mesne profits (damages for trespass) once the lease has been forfeited,
but no one appears to have told the Rules Committee about that.
106
Paragraph 2.2.
107
Pakwood Transport Ltd v 15 Beauchamp Place Ltd (1977) 36 P & CR 112, approved in Billson v Residential
Apartments Ltd [1992] 1 AC 494.
26
©Katrina Yates, April 2013
relief108. With long residential leases, since the landlord can only proceed by
way of action in court, the procedure open to the tenant is to counterclaim
relief from forfeiture.
6.32.3 The court’s discretion to grant relief from forfeiture is unfettered, save that it
must be exercised judicially and having regard to all the circumstances 109,
including the parties’ conduct110.
6.33 When forfeiting exclusively for non-payment of rent, different rules apply depending
on whether the proceedings have been commenced in the High Court or in a county
court. The default position is that possession claims are started in the county court for
the district in which the land is situated (unless exceptional circumstances justify
starting the claim in the High Court)111. With a long residential lease, it is most
unlikely that the High Court would ever be appropriate, so I shall focus on the county
court rules.
6.34 The county court jurisdiction is governed by sections 138 and 139 of the County Courts
Act 1984. The essential things to remember are:
6.34.1 If the tenant pays into court not less than five clear days before the hearing all
the rent in arrear and the costs of the action, the action shall cease and the
tenant holds the land according to the lease, without any new lease being
granted112. In other words, the lease is automatically restored.
108
Billson again.
Egerton v Esplanade Hotels London Ltd [1947] 2 All ER 88.
110
Tenants who take bad points when defending claims for forfeiture can find that it counts against them:
Shirayama Shokusan v Danovo (No. 4) [2005] 44 EG 134. Proceed with caution.
111
CPR 55.5(1); Practice Direction 55A, paragraphs 1.1 – 1.4.
112
Section 138(2).
109
27
©Katrina Yates, April 2013
6.34.2 If the claim does not cease and at the hearing the court is satisfied that the
landlord is entitled to enforce his right to forfeit, the court is obliged to order
possession at the expiration of such period as the court thinks fit. However,
the possession cannot be ordered at the expiration of a period of less than 4
weeks from the date of the order113. Anything less generates a void order114.
6.34.3 The tenant automatically achieves relief from forfeiture if he pays all the rent
in arrear and the costs of the action within the specified period of 4 weeks 115.
In effect “rent in arrear” means the actual rent arrears, any other sums due
and interest (if reserved as rent in the lease), and the mesne profits that have
accrued since the date of service of the proceedings. The costs, as already
discussed, will usually be assessed on the indemnity basis.
6.35 A possession order must be made in the N27 form, which has been created specifically
to give effect to the mechanism of automatic relief in section 138. A possession order
in any other form will be void116. Once the Court has served the possession order, do
scrutinise its terms carefully: it is remarkable how many draft N27 orders, lovingly
prepared by counsel, and approved by a grateful Judge at the hearing, are magically
converted into useless N26 orders by the court staff.
7.
Conclusion
7.1
If there is one lesson to take away from this talk, it is this: determining a long
residential lease, whichever way you slice it, is a bit of a kerfuffle. However, I hope
that this talk has provided something of a route-map through the mine-field.
15 April 2013
113
Section 138(3).
Spurgeon v Gentles [1971] 3 All ER 902, CA.
115
Section 138(5).
116
Spurgeon v Gentles [1971] 3 All ER 902, CA.
114
28
©Katrina Yates, April 2013
KATRINA YATES
LANDMARK CHAMBERS
This seminar paper is made available for educational purposes only. The views expressed in it
are those of the author. The contents of this paper do not constitute legal advice and should
not be relied on as such advice. The author and Landmark Chambers accept no responsibility
for the continuing accuracy of the contents.
29