Whilst forfeiture is a useful and effective remedy for Landlords, it is vital for Landlords and their agents to ensure that, once they are aware of a breach, they do nothing that might inadvertently waive the right to forfeit for it.

Waiver can occur when the Landlord (or their agent) undertakes any act which recognises the continued existence of the lease following knowledge of the breach. In our June 2018 Legal Update “When leaseholders are in breach - some Do’s and Don’ts” and our December 2018 Legal Update “Forfeiture is real and the Court will grant it”, we gave more information on forfeiture and waiver. Click on the highlighted text to read that Updates.

The adverse effects of waiver were highlighted in the recent decision in Stemp and Anor v 6 Ladbroke Gardens Management Limited 2018) UKUT 375 (LC). This case consisted of an appeal to the Upper Tribunal (“UT”) from a decision of the First-tier Tribunal (“FTT”) that Mr Stemp, the Leaseholder,  (“T”) should pay legal costs incurred in a previous action by 6 Ladbroke Gardens, the Landlord, (“LL”) for the recovery of unpaid service charges due from T. 

The Action for Arrears

On 15 March 2016 the LL served a demand on T for advance service charges payable on 1 April 2016. T did not pay and thus the LL made an application to the FTT on 29 April 2016 for a determination. That action was in contemplation of the LL’s right of forfeiture for the arrears.

On 3 September 2016 and despite the above action the LL, by its agent, served on T a further demand in respect of service charges due in advance on 1 October 2016.

On 16 December 2016 the FTT made a determination that the full sum demanded in both 1 April and 1 October were due from T.  Following that determination (which did not include any element of costs) T paid the sum due in respect of the 1 April and the 1 October demands.

Recovering costs

The LL then sought to recover from T the costs incurred in the proceedings which had led to the determination.  The LL served a demand dated 6 March 2017 for the sum of those costs, £43,969.96. T elected not to pay, and so the LL made an application to the FTT for a determination ordering T to pay the costs incurred.

T argued that, in serving on 3 September 2016 the demand for the 1 October charges due (and other correspondence), the LL had waived the right to forfeit for non-payment of the 1 April 2016 demand and thus that the costs incurred in the litigation in that matter could not be said to have been incurred in contemplation of forfeiture, and therefore were not due at all. The FTT determined (wrongly) that there had been no waiver and that T should pay some of the LL’s costs (which it assessed at 60% of those incurred).

The Upper Tribunal’s (“UT”) decision on appeal

T appealed the decision of the UT on grounds including whether the LL’s right to forfeit had been waived, when that had occurred and whether that affected T’s liability for costs. It is worth remembering here that the LL has already incurred £44k in costs and would now incur further costs in dealing with the appeal.

The UT held that a demand could amount to a waiver and considered that, as the demand raised on 3 September 2016 in respect of charges due on 1 October had been made in circumstances where the LL knew of the facts giving rise to a right to forfeit, the 3 September demand amounted to a waiver of the right to forfeit for the March 2016 Service Charges.   Therefore the LL was only able to recover the amount of reasonable costs incurred prior to 3 September 2016, the date of the demand effecting waiver, and not any costs incurred thereafter. The effect of this was to limit the LL’s ability to recover only £10,766.00 of the £43,969.96 originally sought and, of course, none of the costs that the LL incurred in dealing with the appeal.

Conclusion

The above case shows why it is imperative to ensure that the right of forfeiture is not waived, however innocently, as not only will waiver adversely affect enforcement options for the Landlord but it can, and often will, have a catastrophic effect on the ability to recover costs.

We list below the Do’s and Don’ts and the all important Golden Rule from our June 2018 Legal Update as further guidance on how to act (or not!) when either the Landlord or its agent become aware of a breach by a property owner that may give rise to an action and costs.

Do’s and Don’ts

The Do’s 

• DO mark your file in breach as soon as you become aware of the breach, even where the client has yet to appoint solicitors, so that no demands can be sent 

• DO ensure that any direct payments received are placed in a suspense account and instructions sought from the client before processing 

• DO suspend all demands and the ability to send correspondence to or serve notices* on the lessee 

• DO react if the lessee reports an issue to you with the flat or the building but seek the client’s or their lawyer’s advice before responding to the lessee 

• DO refer questions received from the lessee to the client’s lawyers, once they have been appointed

 The absolute Don’ts 

• DON’T leave the matter unattended until the client has appointed solicitors 

• DON’T accept any payments, other than the full balance (including costs and interest) tendered where the breach is only monetary 

• DON’T accept any payments where the breach includes a non monetary issue 

• DON’T raise demands of the lessee ** 

• DON’T treat ‘non service charge matters’ as not relevant to the waiver issue

• DON’T agree a payment plan without first checking with the client or the lawyers that what you are seeking to do does not compromise the client’s enforcement rights and includes all costs and interest that the client is able to recover.

  The Golden Rule 

If in doubt - ask the lawyer first and only then act  

-*  If the client has commenced, or needs to commence, section 20 consultation then it is very important that you speak to the client’s lawyers before carrying on with that process or electing to leave the offending lessee out. 

-**  Consider with the client or their lawyers whether it is prudent to serve, in place of withheld demands for accruing service charges, notices pursuant to section 20B of the Landlord and Tenant Act 1985 in respect of those sums so as to protect the client’s right to recover those charges later. 

For more information, please contact Susan Fox, Senior Litigation Executive, on 01435 897297 or susan.fox@kdllaw.com.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole. 

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