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May 6

Repossession Of Leasehold Property

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The termination of a lease before its natural expiration, repossession of property, relief from forfeiture, and the advantages of initiating dispute resolution processes at the earliest stages are critical considerations in property management. Understanding the general conditions governing lease termination allows landlords and tenants to navigate potential conflicts effectively. Similarly, comprehending the legal avenues for repossession and relief from forfeiture ensures that property rights are upheld within the bounds of the law. Moreover, early negotiation and resolution of disputes offer significant benefits, including cost savings, preservation of relationships, and timely resolution of issues, thereby promoting a harmonious and efficient property management environment.

 

Termination before the end of the lease

Terminating a lease before its scheduled end usually hinges on agreement between the freeholder and leaseholder or results from the leaseholder’s violation of lease terms. Whether it’s a mutual decision or due to breaches, ending a lease prematurely requires careful consideration and adherence to legal procedures.

Repossessing a property as a freeholder is only viable if forfeiture proceedings are outlined in the lease agreement and the leaseholder commits a breach, such as non-payment of ground rent or service charges. Forfeiture acts as a legal avenue for freeholders to evict leaseholders who fail to comply with lease conditions, ensuring property rights and obligations are upheld

Understanding the conditions and procedures for terminating a lease or repossession is essential for both freeholders and leaseholders to navigate potential disputes effectively. By adhering to lease terms and addressing conflicts promptly, parties can mitigate risks and maintain a harmonious landlord-tenant relationship.

 

General conditions for forfeiture

For a freeholder to initiate forfeiture proceedings, several conditions must be met:

  • The lease agreement must include a forfeiture clause outlining the circumstances under which forfeiture can occur.  
  • Unpaid amounts, such as ground rent, service charges, or administration fees, must exceed £350 in total or have remained outstanding for over three years.
  • There should be no pending arbitration appeal related to the same issue.

In cases of non-payment of service or administration charges, forfeiture isn’t applicable unless the leaseholder acknowledges the payment’s necessity or a court, First-tier Tribunal (Property Chamber), or arbitrator issues a final determination.

A default judgment for unpaid service charges constitutes a conclusive determination under section 81 of the Housing Act 1996, treating the issue as resolved between the parties involved.

These provisions vary depending on whether the breach pertains to rent or other charges, or breaches of other lease terms.

 

Non-rent breaches

In the event of breaching a lease term, excluding non-payment of rent or service charges or irremediable breaches, the freeholder must issue a section 146 notice of forfeiture to the leaseholder, allowing them a chance to rectify the situation—an essentially cautionary measure.

  • The breached lease term in question.
  • A directive for the leaseholder to rectify the breach, if feasible.
  • The amount of compensation sought by the freeholder, if applicable.

Before initiating forfeiture proceedings, the freeholder must comply with section 168 of the Commonhold and Leasehold Reform Act 2002, necessitating either the leaseholder’s admission of the breach or its substantiation, with the First-tier Tribunal (Property Chamber) authorized to determine such breaches.

Upon receiving the section 146 notice, the leaseholder must rectify the breach and settle any compensation owed within a reasonable timeframe, tailored to each case’s circumstances. Notably, serving a section 146 notice is contingent upon the landlord’s right of re-entry arising as stipulated in the lease. Additionally, repossession of an occupied property requires a court order, although vacant residential properties may be repossessed without one.

 

Rent breaches

If rent remains unpaid, a formal forfeiture notice isn’t necessary. Instead, the freeholder must serve a rent demand notice to the leaseholder in the specified format. Following the notice period, a grace period must transpire before the landlord can exercise the right to forfeiture, with the duration dictated by the lease terms.

Forfeiture enforcement is contingent upon the freeholder securing a possession order from the court, a prerequisite before repossession proceedings can commence.

 

Waiver

A waiver occurs when one party relinquishes a right, preventing them from claiming it later. In the context of a lease breach covered by a forfeiture clause, the freeholder can choose to either pursue forfeiture proceedings or waive their right to do so.

Waivers can be either express or implied. An implied waiver arises when the freeholder, aware of a breach, takes actions indicating the lease’s continuation, such as demanding or accepting rent. However, the waiver is only effective if the landlord demands or accepts rent due after becoming aware of the breach.

 

Relief from forfeiture

When a leaseholder receives a notice of forfeiture or forfeiture has happened, or if the freeholder intends to pursue court eviction proceedings, the leaseholder can seek “relief from forfeiture” from the court.

 

Rent arrears

In county court proceedings, automatic relief is granted if all arrears and action costs are paid into court at least five days before the hearing. If relief isn’t sought, any possession order must allow four weeks for the leaseholder to pay arrears plus costs. Full payment within this period results in automatic relief. Similar provisions apply to High Court actions.

For lease forfeitures due to arrears, county court applications for relief have a six-month time limit. In a case involving a non-resident leaseholder’s tenants, the High Court ruled that the six-month limit ran from the landlord’s county court possession claim date, not the warrant execution. Although not bound by the six-month restriction, the High Court considered this limit in deciding whether to grant relief on out-of-time applications.

 

Other breaches

Courts may grant relief from forfeiture for various breaches. Each case is treated individually, with courts typically inclined to grant relief upon breach remedy, allowing time for remediation based on case specifics. If the landlord can be restored to a pre-breach position through payment, relief is usually ordered on conditions.

Failure to obtain relief results in a possession order, compelling the leaseholder to vacate the premises. Mortgagees and others with a property interest, like sub-tenants, face complexity in forfeiture cases and should seek legal advice upon forfeiture risk awareness.

 

Court costs

The lease commonly permits landlords to transfer court proceeding expenses to leaseholders via service charges. Leaseholders have the option to petition the county court or First-tier Tribunal (Property Chamber) to exclude specific costs from service charges.

If leaseholders prevail in court or tribunal proceedings, it may be deemed unfair for them to bear the landlord’s costs through service charges.

 

Disputes with the freeholder

Given the repercussions of forfeiture, leaseholders may reconsider withholding rent amid disputes with the freeholder. If rent is withheld, the freeholder could initiate forfeiture or legal actions, compelling the leaseholder to pay the outstanding rent.

Failure to pay may result in the leaseholder losing the property and any accrued equity, along with potential liabilities for interest and the freeholder’s expenses in most scenarios.

 

Preventing forfeiture

In numerous instances, when a mortgage company has extended a loan secured against a leasehold property facing forfeiture proceedings, it may appoint receivers to settle outstanding amounts on the lease, averting forfeiture and safeguarding its investment. Any payments made are typically appended to the mortgage.

It’s advisable for both the freeholder and leaseholder to seek resolution through negotiation prior to seeking intervention from the First-tier Tribunal (Property Chamber) or courts. Early legal counsel is recommended to mitigate escalating costs and interest and prevent entrenchment of positions.

 

 

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Tags

Non-rent breaches, Rent breaches, Repossession Of Leasehold Property, Termination before the end of the lease


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