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Forfeiture for non-payment of service charges
Last month, we ran a workshop in Chambers exploring the law and procedure of forfeiting a long lease of service charges. In fact, it was so popular that we ran it twice!
Attendees, and others who could not attend, asked us for follow-up notes. This Bulletin is intended as a follow-up for those who attended the workshop, and as a general practice note for those of you who missed it.
What is Forfeiture, and Why is it Useful?
The lease must contain a clause giving the landlord a right to forfeit in the even of a breach of the lease (often the words “a right to re-enter” are used: this is the same thing as “right to forfeit”).
If the landlord is a private owner, unconstrained by rules about the disposition of land (unlike a local authority,) a successful forfeiture will lead to the recovery of a valuable asset, which can be re-sold on a new long lease, without having to account to the leasehold for the profit sale.
Because of the risk to the leasehold of losing the property without compensation, a genuine threat of forfeiture (on good legal grounds) almost always results in the leaseholder remedying their breach of the lease: usually, paying the debt that is owed, plus the landlord’s legal costs (so long there is a costs clause in the lease). If the property is mortgaged, the mortgage company will usually pay off the debt if the leaseholder does not, in order to avoid forfeiture and the loss od its security.
But forfeiture is an ancient, “self-help” remedy, putting enormous power in the hands of the landlord, and therefore these days the process is a series of complex technical hurdles, and lose the effect of a genuine threat of forfeiture.
The claim is a claim for possession under CPR Part 55, and it is safest to prepare full Particulars of Claim rather than using the N1 19 form (which is badly suited to forfeiture claims).
The Particulars will need to include the following (non-exhaustive) points:
A witness statements must also be prepared, setting out the evidence relied on, which must be filled and served at least 2 clear days before the return hearing.
A draft order should also be prepared, setting out the details of the lease, the amount in the admission or determination, the interest and the costs claims, and also including a standard “relief from forfeiture” paragraph, allowing the leaseholder to pay off the debt within 28 days in order to avoid the possession order taking effect.
The forfeiture process very, very rarely results in the forfeiture of a lease. Either the technicalities are not complied with and the claim fails, or the leaseholder (or his mortgage company) pays off the debt, or the Courts grants “relief from forfeiture”-giving the leaseholder more time to pay off the debt, even after the final order is made.
The cards are stacked against landlords: judges hate making possession orders in forfeiture proceedings, which are often based on small sums of money, and result in the loss of a very valuable asset with no compensation. If they can find any fault in the procedure, they will refuse to make the order.
Before embarking on the process of forfeiture, therefore it is worth considering what the landlord is really trying to achieve: forfeiture is not necessarily the best way of remedying breaches of a long lease.
If you would like us to discuss an aspect’s of this complex procedure, please do get in touch – we will be happy to assist.
This practice note has been written by Angela Piears and Iris Ferber, tenants at 42 Bedford Row who regularly undertake service charge work in the County Court, the High Court and the First-Tier Tribunal.
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