Section 166 Commonhold and Leasehold Reform Act 2002 (“s.166 Notice”) sets out that a prescribed form must be used when demanding Ground Rent. Our January 2019 Legal Update “Rent Demands - How to ensure that they are valid” (see here) provided guidance on the requirements of how to correctly complete a s.166 Notice. Today we focus on the importance of getting that right and the implications if you don’t.

In Cheerupmate2 Limited v Calce [2018] EWCA Civ 223 there had been a failure to serve a Tenant with the s.166 Notice, the consequence of this was that the s.166 Notice was invalid.

Background

In 1997 Mr Calce acquired an Underlease. Cheerupmate2 Ltd (the “Landlord”), became Mr Calce’s Landlord in March 2015.

The Underlease provided for Ground Rent of £2 per year, payable half-yearly on 15 March and 29 September. On 12 March 2015, the Landlord sent a letter informing Mr Calce that it was his new Landlord and enclosed what was intended to be a s.166 Notice in respect of unpaid Ground Rent from 25 March 2010 up to and including 25 March 2015, totalling £11. The Landlord required payment by 20 April 2015. Mr Calce didn’t pay and so the Landlord took possession of the property by peaceable re-entry on 21 April 2015.

In the first instance, the First Tier Tribunal found that the purported forfeiture was not valid and the Landlord appealed to the Upper Tribunal (“UT”).

The Appeal

The UT considered 3 issues and the Landlord needed to succeed on all 3 for its appeal to be successful.

The First Issue

A Tenant with a long residential lease is only liable to pay Ground Rent if a demand is made in accordance with section 166 Commonhold and Leasehold Reform Act 2002. The s.166 Notice must, among other things, include notes to the Tenant as set out in the Schedule to the Tenant (Notice of Rent) (England) Regulations 2004.

The Landlord had used old wording which had been amended in 2011. The meaning of this wording is identical but the new wording is much clearer for the Tenant to understand the position.

The Second Issue

The Underlease allowed the Landlord to forfeit for rent that was in arrears for 2 years or more.

The UT had to consider whether the 2 years ran from the due date, as stated in the s.166 Notice, or from when the amounts were due under the lease.

The Third Issue

Section 167 Commonhold and Leasehold Reform Act 2002 provides further protection to Tenants from forfeiture. This section provides that forfeiture cannot be obtained unless the arrears are more than £350, or consists of, or includes, an amount that has been outstanding for more than 3 years.

The Landlord claimed to have forfeited on the second ground that a part of the £11 had been due for more than 3 years. The UT considered whether liability for Ground Rent is delayed until a s.166 Notice is served and the consequences of non-payment further delayed by 3 years from that date, or whether the statute merely delays the point at which Ground Rent is payable but any consequences are left unaffected. So, if the Ground Rent was already overdue by 3 years, then the moment the s.166 Notice is served the Ground Rent becomes payable.

The UT’s Decision

On the first issue, whilst technical defects in notices should not invalidate them where their meaning remains clear, the notes for the Tenant are an important element to understand the position. The use of the old wording was therefore found to render the s.166 Notice invalid. This was enough to dispose of the appeal, but the UT addressed the remaining issues.

On the second and third issue, the UT found that both the time periods as stated in the lease (2 years) and the statute (3 years) ran from the payment date as specified in a s.166 Notice, rather than the due date under the lease. As a result, the Landlord was not permitted to forfeit until 3 years had elapsed from the due date specified in the s.166 Notice.

Conclusion

This case clearly shows the statutory protection afforded to long residential Tenants. It reminds Landlords of the need to be fully compliant with the terms of their Tenant’s lease and statute, should they wish to obtain forfeiture of a Tenant’s lease.

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

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