UK: Forfeiture - 8 Of The Hardest Questions Answered?

Last Updated: 24 July 2012
Article by Peter Levaggi

1 - Once a lessee under a lease of a dwelling falls into arrears of service charges and a lessor becomes aware and commences action to obtain a determination do further service charge demands, sent prior to obtaining the determination, waive the right to forfeit ?

Yes this would waive any right to forfeit the lessor had retained in respect of the arrears in relation to which it was taking action.

By way of example, if a lessor was taking action against a lessee for non payment of service charges due for the March quarter and sent a demand for the June quarter this act would waive the right to forfeit in respect of the March quarter as the action would constitute the lessor indicating that they anticipated that the contract (i.e. the lease) was and would be continuing.

2 - In the large majority of leases, a lessor does not have the right to take forfeiture action in respect of a breach of lease within the "grace" period i.e within a period of 21 days from the date the breach occurred. Can the right to forfeit therefore be waived during this period?

No. A right to forfeit cannot be waived unless or until the right has a) arisen and b) the breach has come to the attention of the lessor. If a lease does not allow for the right to forfeit to arise within a period of 21 days from the date of the breach, the lessor cannot waive its right during this period.

By way of example, if a lessee fails to make payment of the March quarter rent on the day they fall due (i.e. 25 March) and the lease provides that no forfeiture action can be taken within 21 days of the date of the breach, the lessor would not waive its right to forfeit by accepting part payment of the rent at any time up to and including 15 April.

3 - Is the right to forfeit waived upon service of a Notice under Section 6 of the Law of Distress Amendment Act 1908 [allowing a Head Landlord to recover rent arrears from a Subtenant] or upon receipt and acceptance of part payment of rent made by a sub tenant following service of such a Notice?

A Section 6 Notice relates to arrears of rent due pursuant to a lease. Accordingly, if a Section 6 Notice is served the right to forfeit in respect of the sums due to the date of service of the Notice is waived. Accordingly, acceptance of payments from the sub tenant can be accepted.

However, if a subsequent quarter rent falls due after the service of the Notice, the right to forfeit would be regained in respect of those sums if they are not paid. If the sub tenant tenders further payments pursuant to the Section 6 Notice these can be accepted without waiving the right to forfeit but solely on the basis that they are appropriated to the arrears due pursuant to the Notice and not to subsequent charges.

4 - Can the right to forfeit be waived during the reasonable period allowed for remedy of a Notice served pursuant to Section 146 of the Law of Property Act 1925?

It is arguable that the right to forfeit can be waived during the remedy period allowed under a Section 146 Notice and, as such, care should be taken to ensure that no action taken by the lessor can be deemed to be a waiver of the right to forfeit.

5 - Is the right to forfeit in respect of subsequent arrears waived upon acceptance of payment of an older period of arrears?

No, not if the payment is properly appropriated. If rent arrears are due for the March quarter and, if by the June quarter, further sums would have fallen due if the lessor had not elected to take forfeiture action, if a lessee tenders payment of the older arrears (e.g. where a court determination has been obtained in relation to a residential long lease) and payment of this older sum is accepted by the lessor this would not waive the right to forfeit in respect of the June quarter charges (save that they would still have to be demanded in order to fall due and owing). If the lessee tendered payment of a sum and did not indicate what this sum related to, a lessor, in order to retain its right to forfeit in respect of June quarter charges, should inform the lessee that the sums were being accepted as payment of the determination (i.e. they would have to appropriate the sums to that determination). However if the lessee sought to appropriate the sums to June quarter charges (despite these not having been demanded) and these sums were accepted by the lessor, the right to forfeit in respect of the March quarter sums (in relation to which the determination had been obtained) would be waived.

However, the June quarter charges would, of course, not fall to be properly due and owing until demanded. Accordingly, on acceptance of sums appropriated to the determination, the lessor would be required to demand the June quarter charges before action could be taken to forfeit the lease for non payment.

6 - Does a Section 146 Notice have to be served when the breach relates to service charge arrears reserved as rent?

Section 146 of the Law of Property Act restricts a lessor's ability to forfeit a lease unless a Notice has been served on the lessee in respect of the breach of covenant. However, Section 146 (11) expressly excludes non payment of rent. As such, it has long been held that there is not a requirement for a Section 146 Notice to be served in respect of any charges which, within the lease, are reserved as rent. This position was reinforced in the case of Escalus Properties Limited –v- Robinson [1996].

Section 18 (1) of the Landlord and Tenant Act 1985 recognises that that leases could treat service charges as rent but that not all leases would. Further, Section 81 of the Housing Act 1996 does not impose on the lessor a requirement to serve a section 146 Notice in respect of service charges reserved as rent. This would appear to add force to the argument that Section 146 Notices are not required in circumstances where charges are reserved as rent.

However, this stance has been brought into question by the comments of Sir Andrew Morritt in the case of Freeholders of 69 Marina St Leonards on Sea –v- Oram [2011] EWCA Civ 1258; [2012] HLR. 12 (CA (Civ Div)) which suggest that even in cases where charges are reserved as rent, the landlord must serve a Section 146 Notice before it can forfeit the lease.

On this basis it would be prudent to Section 146 Notices to be served even where the service charges are reserved as rent.

7 - When is parting with possession a continuing breach and when is it a once and for all breach?

Generally, parting with possession is a once and for all breach. Accordingly, unauthorised subletting and unauthorised assignment are once and for all breaches. The parting of possession being a transfer of possession. However, a distinction needs to be made between parting with possession and sharing possession. In sharing possession a lessee does not transfer possession of the property and as such unlawful sharing of possession would be a continuing breach.

8 - On peaceable re-entry if there are a large number of occupiers within the Property (i.e. serviced offices and hotels) is it possible to take possession without dispossessing all serviced occupants?

The entire property must be repossessed and the occupiers excluded from the property to achieve forfeiture by way of peaceable re-entry. There are ways to do this whilst retaining the benefit of subleases or contracts for any licensees. The period of exclusion can be relatively short and then allowing occupiers back into occupation on renewed contracts with the head landlord. The same principle applies to hotels.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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