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Property Update: Waiver of right to forfeit

From time-to-time, we are asked to advise landlords, management agents and block managers about forfeiture of a residential and how they can avoid waiving the landlords’ right to forfeit a lease.

Forfeiture is a way by which a landlord can terminate a residential lease in the event of default by the tenant of any of the provisions contained within the lease (which must be set out expressly within the lease) and these are sometimes known as forfeiture clauses or rights of re-entry clauses. The statutory legal framework relating to forfeiture, is governed by the Law of Property Act 1925 (LPA 1925).

A lease can be forfeited in two ways:

First, provided that there is a right of re-entry, a landlord can peaceably re-enter. This is not without its risks, such as committing a potential criminal offence under section 6 of the Criminal Law Act 1977, where a person who without lawful authority, uses or threatens violence for the purpose of securing entry on the premises.

Second, by serving a valid section 146 notice under the LPA 1925 and, issuing proceedings for an order in the county court in circumstances where the notice has not been complied with.

Waiver is a legal term which describes an act done which distinguishes a party’s right to legally enforce a right it has.

Where there has been a breach of lease, that landlord can elect to accept the breach by terminating the lease by way of forfeiture. Alternatively, if the breach is remedied within the time-frame stipulated in the section 146 notice, elect for the lease to continue as if the breach(es) had not occurred.

The key features of waiver are:

  • landlord must have knowledge of a breach (which extends to his management agent); and
  • the landlord must know that the right to forfeit has arisen; and
  • recognises the existence of the lease despite the right to forfeit; and
  • communicates recognition to the tenant (i.e. by sending a service charge or rent demand).

In Stemp v 6 Ladbroke Gardens Management Limited [2018] UKUT 375 (LC), which is an Upper Tribunal case (and therefore binding on the county court and First-tier Tribunal) the tribunal were asked to decide on waiver of the right to forfeit a lease of a residential property. This case involved a claim to recover legal costs arising out of previous proceedings between the parties and the First-tier Tribunal. In earlier proceedings, the landlord had sought a determination pursuant to section 27A of the 1985 Act that the sums in respect of a project of major works, were payable. The First-tier Tribunal determined that the sum demanded was payable by the tenant in full and the tenant paid the sums demanded. This application for determination was expressly said tot be made in contemplation of forfeiture of the tenants’ lease. It is important to note that any determination under section 27A of the 1984 Act must be done so in contemplation of forfeiture of the tenant’s lease.

The tenant appealed to the Upper Tribunal on the basis that the First-tier Tribunal had no jurisdiction to decide this point. The parties agreed that the First-tier Tribunal did have jurisdiction to determine whether the right to forfeit the lease had been waived and that the First-tier Tribunal ought to have determined this point at first instance. Accordingly, the proceedings before the Upper Tribunal took place as a rehearing of the issue whether and, if so, when the landlord had waived the right to forfeit the lease.

The tenants submitted that the right to forfeit had been waived by:

  1. The landlord’s agents addressing them as ‘leaseholders’ in various communications (which were sent to all of the flats) regarding fire risk assessments and other safety issues in the block;
  2. Service of consultation notices relating to major works;
  3. Seeking access to the flat under the terms of the lease; and,
  4. Demanding payment of an account service charge, reserved by the lease as rent.

For the landlord’s part it was submitted that there was no such waiver, making it clear that it was contemplating forfeiture of the lease. In that context, the communications set out above (said the landlord) was no more unequivocal. Moreover, it was submitted that until the landlord had obtained determination from the First-tier Tribunal as to the service charges owing, it had no right to forfeit the lease as:

  1. Such a determination was a pre-requisite to the exercise of the right to forfeiture (by section 81 of the Housing Act 1996); and
  2. Until a determination had been made by the FTT, the landlord did not know how much, if anything, was owed by the tenant.

The Upper Tribunal disagreed with the landlord’s submissions that the right to forfeit the lease cannot be waived before the landlord was in a position to exercise the right to forfeit under section 81 of the Housing Act 1996. It also disagreed with the submission that there could be no waiver before the determination of the First-tier Tribunal as to the sums due. It is possible for the landlord, knowing the relevant facts but not the eventual decision of the court, to waive the right to re-enter.

Stemp has been cited in a number of cases involved waiver of right to forfeit. Landlords, their agents and those who are property practitioners, should take extreme care in proceeding, as if the right to forfeit is waived, the landlord will also lose its right to recover its legal costs incurred in contemplation of a forfeiture under a section 146 clause within the lease.

We would always recommend landlords, their agents and managers, to take advice from our specialist solicitors in our property litigation team.

We can provide expert legal support surrounding landlord and tenant issues, including leases and disputes – as well as providing commercial and residential property conveyancing. For more information, please click on the links provided, or contact us directly on 01603 620508 for a no-obligation chat.

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This article was produced on the 1st June 2022 by our Litigation & Dispute Resolution team for information purposes only and should not be construed or relied upon as specific legal advice.