Advice needed about forfeiture of lease (leaseholder in arrears)

by Readers Question

11:02 AM, 15th October 2014
About 4 years ago

Advice needed about forfeiture of lease (leaseholder in arrears)

Make Text Bigger
Advice needed about forfeiture of lease (leaseholder in arrears)

Background:

One of my rental flats has a shared freehold. There are only 4 flats and 4 leaseholders/joint freeholders, including myself.

All four flats are currently let to tenants under ASTs.

No ground rent is payable.

As leaseholders, we are all supposed to pay a £500 pa maintenance charge. One of the leaseholders/joint freeholders has been constantly in arrears with this since at least 2011, and owes the freehold trust well in excess of the £350 minimum required under the Commonhold and Leasehold Reform Act 2002 to begin forfeiture proceedings.

The property has required considerable maintenance works over the past few years, a large proportion of which I’ve paid for personally, on behalf of the freehold trust.

Because I am in credit to the trust (which they acknowledge) I haven’t made maintenance payments for the past 4 years, but as stated, neither does one of the other leaseholders – at least only sporadically, and this person most definitely isn’t in credit.

The trust therefore has only had £1000 pa paid to it over the past 3 years. As a result, it is now in arrears and is unable to pay a large outstanding bill.

The leaseholder who owes the money owns at least one other property, mortgage free, which is worth a lot more than the flat, and a business.

The manager of the trust has been threatening the leaseholder in arrears with approaching his mortgage company to pay the outstanding debt and add it to the mortgage. However, after reading some previous posts on 118 on this subject, particularly comments from Chris Amis, I am wondering if forfeiture might be the better option, but after looking into it, I have some serious reservations.

Questions:

I only have an overview of the procedure required under the 2002 Act, which is basically to prove the leaseholder is in breach of obligations, the easiest way being by small claims procedure (MCOL), then serve Section 146 notice on the leaseholder, allowing 14 days after Court judgement.

However, I gather that in reality this isn’t so straightforward, for example with courts reluctant to grant forfeiture, and appeals by the defendant. I am also concerned about the Doctrine of Waiver whereby anything the landlord does or doesn’t do that suggests the lease is still in existence can waive the forfeiture – I’m thinking in this instance of the leaseholder’s tenant, who we have no quarrel with and certainly wouldn’t want evicted, but would allowing the tenancy to continue (which was granted under the lease) be acknowledging the lease’s continuation, and therefore invoke the Doctrine?

I would therefore like to know if anyone has ever done this, particularly where the flat has been sublet to a tenant, and what was the outcome?

Also, would it perhaps be more cost effective and quicker to approach the leaseholder’s mortgage company, as the trust manager intends BUT at the same time advising them that if the trust does not get satisfaction by a certain date, forfeiture proceedings will be started? At the moment, cost is an issue for the trust and the joint freeholders, so this is another factor in choosing to go to the mortgage company and not start legal proceedings.

Many thanks in advance for your advice – please get back to me if you need to clarify anything first.

As a footnote, I’d like to add: this is the downside to shared freeholds, which are all well and good if there’s plenty of money to pay maintenance, but not otherwise. In my experience, a well run and fair traditional management company is much better for a small freehold.

Many thanks

Mandy

forfeiture of lease



Comments

Ollie Cornes

12:19 PM, 15th October 2014
About 4 years ago

There's absolutely no excuse for a leaseholder not paying their dues and the freehold has quite significant powers to force payment.

First, make sure you have properly demanded what is due. It sounds like what is due is service charges, and so you must formally demand it. My understanding is that if it is not properly formally demanded according to the process required by law, it is not due. So get your demand paperwork in order. The Leasehold Advisory Service web site provides details on how to do that and the statutory information you need to include.

Once that's done and they've still not paid, send a statement and a copy of the demand to the leaseholder's mortgage company. Most lenders take this very seriously and may well pay it, but they have their own rules about what criteria need meeting before they pay - the amount, the period it's gone unpaid etc. The threat of you doing this may encourage the leaseholder to cough up - by failing to pay his service charges he is breaching the terms of his mortgage, which may in turn invalidate insurance.

If the lender route doesn't work, then I'd instruct solicitors. It's highly likely the leaseholder is liable for all collection fees. Check with the lawyers, but they should be able to claim all their fees off the leaseholder. One firm that does a lot of this work is Bradys. I've not used them so cannot recommend based on my own experience. I nearly used them, and they told me they would expect my leaseholder to pay all the fees.

I am a landlord and had a leaseholder (in a split house) who wouldn't pay. He ignored all demands. It was only when I threatened to bring in a law firm that he asked for a payment arrangement as he took legal advice and was told he needed to pay me now, or pay even more later.

Annoying as this leaseholder sounds, remember that the end-game is to get everyone contributing. As long as they play ball and take responsibility that's all you need. I'd try hard to avoid getting into a war or taking it personally. Some people are just dicks sometimes and need to be pulled back into line.

Mandy Thomson

13:40 PM, 15th October 2014
About 4 years ago

Reply to the comment left by "Ollie Cornes" at "15/10/2014 - 12:19":

Hi Ollie

Thanks for this. I've just checked the Leasehold Advisory Service website, which states that demands for maintenance must be in writing, but doesn't state whether this includes email. I'd also like to clarify if it's always necessary to include the summary of rights and obligations with every demand?
As far as I'm aware, our trust manager simply sends the leaseholder emails, with a statement of the trust's accounts. For one thing, until I investigated yesterday, we didn't even have this individual's home address, and even his tenant had to ask us how to contact him, which is not only disgraceful but illegal (in the absence of a management agent acting).

Ollie Cornes

13:48 PM, 15th October 2014
About 4 years ago

It sounds like you have not correctly served the demand. I suppose it's possible the leaseholders knows this and that's why he's not paid. If it's not valid legally he can probably ignore it. As far as I'm aware the leaseholder rights and obligations must be included with a demand or it is not valid. Do note there is also a cut-off time, after which you cannot make a demand for service charge, ie if the demand is served very late it's not valid either. I can't remember the period but it's something like two or three years.

I'm a leaseholder at a number of properties and every single service charge demand I receive has the rights and obligations attached. It looks like you need to confirm the owner's address, re-serve the demand, and if no response go to lender, and if no joy lawyers.

The one I dealt with was a total pain and dragged on for a year, but once I knew what needed doing it was actually very easy to get paid. I mucked up the demands, so re-served everything and that combined with a threat of lawyers was enough. I had previously succeeded in getting paid by their lender. You are almost certain to get the money off him as a leaseholder's obligations are very clear and almost impossible to avoid.

People like him deserve to be saddled with collection costs.

Mandy Thomson

14:47 PM, 15th October 2014
About 4 years ago

Reply to the comment left by "Ollie Cornes" at "15/10/2014 - 13:48":

Thanks again, Ollie. I've checked the Leasehold Advisory website, plus that of a firm of solicitors who do enfranchisement work, and the deadline to serve demand is 18 months from the date the charge was incurred.

However, it occurs to me that the arrears in our case are the regular maintenance payments specified under the lease, and each leaseholder is aware of the requirement to pay this; could it therefore be argued that the leaseholder should have reasonably known he had to pay his regular maintenance payments, as opposed to additional works that he might not necessarily have been aware of?

For the benefit of anyone else reading this, here is the link to the summary of rights and obligations on the lease advice service site: http://www.lease-advice.org/publications/documents/document.asp?item=13

Ollie Cornes

16:55 PM, 15th October 2014
About 4 years ago

I'm not familiar with payments of that sort, but they do sound like service charges to me. It sounds like any sensible person would know these fees are due, but when someone fails to make the payments there's little option but to force them. Perhaps you can get some free initial advice from a law firm, who can clarify what you need to serve, on the basis if the leaseholder still doesn't play ball you can instruct them to go after them.

I have calendar reminders set up to email me when demands need sending out, and being organised like that makes it simpler to monitor and make sure the right payments are made. For me I have to also demand £10 ground rent twice a year and it's a faff doing paperwork for relatively small amounts, but it's fairly efficient when organised properly.

I own the entire freehold and there are two leaseholders. I am one of them too, and there's another leaseholder. I like the idea of selling them half the freehold, but I dread the prospect of setting up a trust or company to hold it, and as you've rightly said the management is not insignificant.

Mandy Thomson

17:11 PM, 15th October 2014
About 4 years ago

Reply to the comment left by "Ollie Cornes" at "15/10/2014 - 16:55":

Thanks for all your advice, Ollie. I made an enquiry into the notice issue with the solicitors you recommended, and will post when they get back to me.

I don't think I'll ever grumble again when I get service demands from the management company of my other flat!

Ollie Cornes

17:14 PM, 15th October 2014
About 4 years ago

Managing a block is tedious, but it's usually possible for the freeholder or their agent to levy management fees to cover the work involved - many are quite profitable. So if the effort doesn't match the income maybe it's worth levying a few quid a year to cover it. It's not in anyone's interests that a leaseholder is causing problems like that, it's hard enough managing a block, repairs, money etc anyway without that.

Good luck!

Mandy Thomson

20:25 PM, 17th October 2014
About 4 years ago

Update for the benefit anyone with an interest in this subject: I made an enquiry with a firm of solicitors and they gave me the following advice.

The freeholder should firstly serve full formal notice on the leaseholder, at their current home address. By law, this must include the summary of rights and obligations under the 2002 Act.

If the leaseholder doesn't respond after a reasonable time (usually 14 days), don't go to the lender, but start a money claim online (MCOL). I asked why and was told that as most lenders are tightening their belts, they will expect the freeholder to jump through every legal hoop before they even think of paying, and will string out the proceedings for as long as possible - I was told this could be a year, possibly more.

Once the court serves notice of proceedings on the leaseholder, they have 14 days to submit their defence. Of course, if they don't defend the claim, the judgement will then automatically go in the freeholder's favour.

14 days after the judgement, the freeholder can then serve section 146 notice on the leaseholder, and if they still won't pay under that, the freeholder should approach the mortgage provider, who is then likely to pay as a valid section 146 has been issued, and they will want to protect their interest.

Of course all this is assuming that proper notice, containing the summary of rights and obligations, has been served on the leaseholder, at their current postal address; the amount owed is at least £350 and the arrears go back no further than 18 months, and there are no other complications, such as being unclear about who to serve notice on (e.g. an agent), not having the leaseholder's address or anything that could imply the continuation of the lease to the leaseholder after service of section 146 notice (doctrine of waiver). If there are, advice from a firm of enfranchisement solicitors should be sought.

Gary Nock

8:30 AM, 18th October 2014
About 4 years ago

Summary of Rights and Obligations has to be served with all and any demands for service charges. Failing to enclose this is THE only reason why a leaseholder can refuse to pay. Although when it is served any protection afforded by a failure to serve is lost and amounts become due. But also beware that if they are more than 18 months old then you as the Freeholder cannot claim them back. The Notice of Rights and Obligations has to be in the prescribed format, in a certain font size ( I think its 10) and be up to date. Many freeholders make reference in the notice to LVTs or Leasehold Valuation Tribunals. This is an incorrect notice as it is now First Tier Tribunal. I have used this personally to be awkward with a Freeholder who thought he could bully me with demands etc until his solicitors pointed out the invalidity of the Notice. Also please note that if any work has exceeded the Section 20 limit of £250 per flat and has not gone through the consultation process then again you will struggle to legally demand the service charge.

Mandy Thomson

9:37 AM, 18th October 2014
About 4 years ago

Reply to the comment left by "Gary Nock" at "18/10/2014 - 08:30":

Thanks, Gary - that's very helpful!

1 2

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Open Letter to Landlords and Shelter

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More