Another Game of Forfeits

Last year I wrote about an unusual case where an order to forfeit a long lease of a flat was made – the case of Malik v McCadden. Forfeiture is the nuclear option, when a court allows a landlord to bring a lease to an end without any compensation to the tenant, and allows them to sell it again to somebody else – normally because the tenant hasn’t been paying the rent or service charges. I commented at the time that you very rarely get as far as forfeiting long residential leases, and that the courts are very much against making forfeiture orders, and require landlords to jump through a lot of hoops in order to get one. More details are set out in my piece on Malik if any of you want to look them up.

Well, here’s another case about forfeiture, and this time it’s in the Court of Appeal, not just the County Court, as most of them are. It’s Golding v Martin [2019]EWCA Civ 446, and like Malik it shows the dangers of not responding to legal action being taken by your landlord. However, it also shows the danger of acting for a landlord and not checking up on the procedural requirements if you are trying to do something at all out of the ordinary.

The Facts

Ms Martin was the lessee of a flat in Sidcup, on a long lease that had been extended in exchange for a substantial premium. It had the usual clauses providing for a service charge, reserved as rent, and allowing forfeiture if the rent was 21 days in arrears. She moved to Majorca in 2003 leaving the flat unoccupied, and not leaving a forwarding address for her landlord. Mr Golding acquired the freehold in 2012 and caried out extensive refurbishment of the block containing the flat. He served a demand for the service charges at the flat and when this was not paid got a decision from the FTT that Ms Martin’s share of the cost was nearly £12,000 but was unable to recover this from her. He was in communication with her brother, a surveyor and some solicitors, but still had no address for Ms Martin. So he got a money judgment and issued proceedings for forfeiture. Ms Martin was unaware of these proceedings and so did not attend the hearing on 15th July 2016 when an order for posession was made.

This is where things started to go wrong for the landlord.

The Law

Most possession claims in the County Court are brought in respect of Assured Tenancies, or Assured Shorthold Tenancies, and are not brought by way of forfeiture but under the express provisions of s7 or s21 of the Housing Act 1988. This however was a long lease and so the order is made under s138 County Courts Act 1984. It’s a long complicated provision and all set out here, but in essence it provides that an order for possession must be suspended to allow payment of the arrears and costs for a period to be fixed by the court (but for at least 4 weeks). T can apply for this time to be extended, and can even apply for relief from the forfeiture (under s138(9A)) for up to 6 months after possession is taken by L. So forfeiture is very much a last resort, only to be granted when all other options are exhausted.

The Hearings

The DDJ clearly didn’t realise that there was a prescribed form of words for his order and made an order stating that the lease held in respect of the flat be forfeited and possession be granted to L. And L’s solicitors can’t have noticed the problem either. So there was no period before possession was given, and no relief if the arrears and costs were paid before then. As there is a prescribed form of order set out in an Act of Parliament this order was clearly very defective indeed.

Mr Golding took possession of the empty flat shortly after the hearing and it was sold on to a third party in 2016 or early 2017. However, shortly before the 6 month period for applying for relief under s138(9A) expired Ms Martin got to hear of the order and applied to set it aside under r39.3(5) CPR.  This provides:

(5) Where an application is made [to set aside an order] by a party who failed to attend the trial, the court may grant the application only if the applicant—

(a) acted promptly when he found out that the court had exercised its power … to enter judgment or make an order against him;

(b) had a good reason for not attending the trial; and

(c) has a reasonable prospect of success at the trial.”

The DDJ hearing the application accepted a) and b) but denied c) on the grounds that relief against forfeiture is not technically “success” as there was no defence to the possession claim as such.

HHJ Luba, in the County Court at Central London allowed the appeal, and the CA agreed with him, but only after a lot of very technical argument about whether the hearing on 15th June 2016 was a “trial”, whether the order was a nullity or merely one that should be set aside, and whether relief from forfeiture was indeed “success”. So they all go back to the County Court for a fresh hearing of the possession claim. I hope the flat is worth all this expense, and wonder what is going to happen to the new owners following the sale in 2016/17.

And the Moral?

You have got to know what you are asking for, and when things might be about to cause you problems. Don’t expect a busy DJ to know the form of words in anything other than a run-of-the-mill case. Look up the legislation and bring along a copy.

But again, don’t leave your valuable flat and go off to Spain for 13 years without leaving an address for your landlord, or a very reliable agent, as problems arise from time to time and they are much easier to deal with if you know about them at the time.

Forfeiture is a minefield. If you remember this I’ve done some good.

PS – Since writing this there has been a more detailed report (as ever) on the Nearly Legal blog, if you want more bells and whistles.

 

 

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This is No Game of Forfeits

I tell my clients that you can mess the courts about, but you cannot (and must not) ignore them. And if you do, then unpleasant things are bound to happen to you. This is a salutary tale.

The Times reported on Saturday 15.9.18 the sad and unusual case of Malik v McCadden. I can’t give you a link because of their paywall. But the brief facts are that McC bought a long lease of the upper floor of a house in North London from M (who lived on the ground floor) for some £518,000 in 2016. The lease appears to have contained the usual clauses prohibiting structual alterations without consent, but shortly after completion McC seems to have carried out substantial alterations including resiting the gas boiler, removing fixtures, rendering the outside, removing floorboards and installing a new central heating system, bathroom and kitchen.  He did not ask for consent for any of this.

The building work was disruptive to M, and McC had removed carpets, in breach of the lease, making the floors noisy. He also failed to pay his share of service charges for insurance and management.

M tried to get access to the flat to see what exactly was going on but was refused on 5 occasions, and correspondence was ignored. So M had to go to court and ask the court to bring McC’s lease to an end – to forfeit it. This is the nuclear option, because it means the tenant loses the property without any compensation, and the landlord can sell it again to someone else. The law has therefore imposed a large number of restrictions on doing this.

It isn’t as easy as just issuing a summons. Before issuing the landlord has to serve  notice under s146 Law of Property Act 1925. This warns the tenant of the breach, requires them to rectify it, and to pay the landlord compensation, and gives the tenant a reasonable time to do so. The only time this isn’t needed is if the rent is in arrears, which wasn’t the case here.

But you can’t even serve a s146 notice without a determination by a court or tribunal that the tenant is in breach unless they admit it – s168 Commonhold & Leasehold Reform Act 2002. So M applied to the First Tier Tribunal (Property Chamber) – the old LVT – for the appropriate decision. The FTT sent out their directions, advising McC to take legal advice, and arranging a site-inspection. McC ignored these, and didn’t let the FTT in. They went ahead with their proceedings and decided in November 2017 that the breaches of the lease were serious, and that a s146 notice could be served. They advised McC to take advice. He continued to ignore them.

The s146 notice was served, nothing further happened and so the landlord issued proceedings in the County Court at Willesden asking for forfeiture and possession, and this was served and listed, no doubt many weeks ahead.

Now, the courts have always treated the power to forfeit a lease as being just a form of security for the landlord, and will grant relief from forfeiture if the tenant applied for it and gives suitable undertakings to put things right, or pay the arrears of rent or service charges if applicable, and pay the landlord’s costs of having to go so far. This is a very old power, pre-dating even the Law of Property Act 1925, and the courts will nearly always grant it, or possibly give an adjournment for the tenant to get themselves organised, or make an order but postpone it for say 6 months to let the tenant sell the property, because they don’t want to push the nuclear button any more than most landlords want to ask for it to be pushed. However, a tenant has to ask for relief in order to get it, and it appears that McC didn’t attend the hearing and so an order was made in August 2018  bringing the lease to an end and giving possession to M.

This is pretty disastrous for McC. He has probably* lost a flat worth some £600,000 (according to The Times article) and M has a windfall, and the prospects of a better neighbour to boot. But the case has been reported, and covered in this blog, because it is so very unusual for things to go so far. Virtually all cases of this sort come to an end after the FTT decision that the tenant is in breach, or when the s146 notice tells the tenant that the landlord is seriously going for possession, or at the very latest when the proceedings are issued, and the tenant makes an application for relief, which nearly always succeeds. But if you do nothing, don’t attend the hearings, and don’t take advice (or possibly don’t listen to the advice you are given) then it will certainly lead to tears by bedtime.

The tenant’s explanation – that he was unaware of the FTT proceedings, and unable to defend the County Court proceedings after being let down by lawyers – must be weighed against the fact that the FTT decided that he knew about the proceedings, and that the County Court would have been satisfied that he had been served with the s146 notice, and the court proceedings before making its order.  He is unfortunate in that he doesn’t have a mortgagee. They normally wade in with gusto if there is any risk to their mortgage security, paying arrears, applying to be joined into the case and asking for relief themselves, as well as harrying the tenant to get things resolved without delay.

Can you blame the landlord, M? Well, what else could they do to protect their investment, and ensure that the tenant sticks to the terms of the lease? This is the way leases work, and normally – probably in 99 cases out of 100 – you don’t get an order for forfeiture. I have never actually come across a forfeited long residential lease, although I have got pretty close on occasions, in more years than I care to remember acting for landlords, and tenants, in this field.

And the reason for the probably*? Well, it is still possible to apply for relief even after the order has been made, although the tenant will need to get on with things, and admit that they are in breach in the ways that the FTT decided, and give credible undertakings to put things right. Given McC’s history, this doesn’t look too promising.

There is a good, and more detailed, piece on this by Nearly Legal, and lots of comments on Twitter and elsewhere. It is really one for the records.