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Residential leases – waiver of right to forfeit

A recent Upper Tribunal decision reiterates the importance of considering the issue of waiver in respect of a landlord’s right to forfeit a long residential lease and in relation to the recovery of costs under the terms of the lease.

In Stemp and Another v 6 Ladbroke Gardens Management Ltd [2018] UKUT 375 (LC), the Upper Tribunal considered whether a landlord had waived the right to forfeit for non-payment of service charges during a period where the landlord could not have actually forfeited the lease due to statutory restrictions.

In particular, Section 81 of the Housing Act 1996 prevents a landlord from forfeiting a residential lease unless the amount payable has been determined by the First Tier Tribunal or admitted by the leaseholder. Similarly, under Section 27A of the Landlord and Tenant Act 1927, any party can apply to the First Tier Tribunal for a declaration that the sum sought by the landlord by way of service charge is reasonable and payable.

In Stemp, the landlord required funds to undertake extensive repairs to the building. It served a service charge demand for the first instalment of the required funds in March 2016. The Appellants did not pay and the landlord sought to put itself in a position where it could forfeit the lease and made an application under Section 27A of the Landlord and Tenant Act 1927 for a determination that the sum demanded was reasonable and payable.

A further service charge demand for the second instalment of the required funds was served in September 2016.

The First Tier Tribunal reached its decision in relation to the landlord’s application concerning the March 2016 demand in December 2016; it held that the sum demanded was reasonable and payable. The Appellants then paid the sums due and the repairs were carried out.

In March 2017, the landlord served the Appellants with a demand for payment of the costs it incurred in relation to the application to the First Tier Tribunal; the lease permitted the landlord to recover costs incurred in contemplation of forfeiture proceedings.

The Appellants argued that they did not have to pay it because the landlord had not incurred costs in contemplation of forfeiture proceedings as, in September 2016, it had waived the right to forfeit by demanding the second instalment of the service charge for the repair works.

The matter reached the Upper Tribunal and the landlord argued that it could not waive the right to forfeit for non-payment of service charges until the First Tier Tribunal had determined that the sum demanded was properly payable.

The Upper Tribunal disagreed and decided that it was possible for the landlord to waive the right to forfeit during a period in which it was prevented from exercising the right to forfeit by the statutory restrictions referred to above. In particular, the Upper Tribunal held that in September 2016, the landlord knew that the Appellants were in breach (for not paying the March 2016 demand) but made a further demand in September 2016 which waived the right to forfeit. It therefore followed that the landlord was unable to recover costs incurred after September 2016 as such costs would not have been incurred in contemplation of forfeiture proceedings.

This decision reiterates the importance of considering waiver of the right to forfeit not only in its own right but also when considering the issue of recoverability of costs incurred in contemplation of forfeiture of a residential lease.

JMW Solicitors can provide expert advice in respect of forfeiture proceedings, waiver and the recoverability of costs incurred in contemplation of forfeiture proceedings.

For more information contact Dafydd Jones on 0161 838 2829 or dafydd.jones@jmw.co.uk.

Dafydd Jones is an Associate in the Real Estate Litigation Team.

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