Long Leases and forfeiture – Again!

Long Leases and forfeiture – Again!

In February this year, I wrote about the various protections given to owners of long leasehold houses against their lease being forfeited for breach of the covenants in the lease. But I have been reminded that I did not deal with forfeiture for non-payment of the ground rent. And the case that was drawn to my attention relates to a long lease with a yearly ground rent of £2.00 (yes Two Pounds!) and arrears amounting to the enormous sum of £11.00!

Cheerupmate2 Ltd v Calce [2017] UKUT 377 (TCC) (Judge Elizabeth Cooke)

The case involved an appeal from a decision of the Land Registration Division of the First Tier Tribunal. The landlord company – and what a name for a landlord – had applied to Land Registry to close the registered leasehold title of the tenant due to the lease having been forfeited. The tenant objected and the matter was referred to the Tribunal. Judge Michell found that there had been no effective forfeiture – and therefore that the lease continued to be in existence. This decision was upheld by the Upper Tribunal.

The facts of the case are rather strange. The lease in question was a 900 year underlease of land in Hyde, Greater Manchester with a ground rent of £2 per year, payable half yearly. The premises demised by the lease were described as being a dwellinghouse, but apparently, there is now no house on the land. However, both parties agreed that the various protections relating to forfeiture of residential leases were applicable. It was a failure to comply with these protections that rendered the forfeiture invalid.

The first protection is section 166 of the Commonhold & Leasehold Reform Act 2002. Under this, ground rent under a long lease of a dwelling will not be payable unless demanded. Further, the notice must be in the prescribed form and must:

• specify the amount due and
• specify the date the tenant must make payment;
• specify the date it was due under the lease, if different; and
• contain any further information which may be prescribed.

The date on which the tenant has to make payment must be at least 30 days, but not more than 60 days after the day on which the notice is given. This cannot be before the due date under the lease.

The landlord, in this case, had purported to serve such a notice but unfortunately had used an old version of the form. The form was specified by 2004 Regulations, but these had been amended by further regulations made in 2011. The defect in the notice was that one of the notes to the leaseholder on the form followed the pre-2011 amendment wording. The wording was part of the explanatory notes for the leaseholder rather than the notice itself but the Tribunal held that the notes for the tenant were an important element in the notice. Although the meaning of the two notes was identical, the pre-2011 wording was difficult to understand, which is presumably why they changed it. The amended wording was much clearer. The notice was thus invalid and this rendered the forfeiture ineffective. That was enough to decide the appeal, but the Upper Tribunal went on to consider the other issues arising in the case as well.

Ironically, the note in question referred to the second protection given against forfeiture for non-payment of rent. Section 167 of the Commonhold and Leasehold Reform Act 2002 provides that there can be forfeiture only if either the arrears exceed a particular amount (currently £350) or the rent has been in arrears for more than three years. The issue was as to the calculation of the 3 year period. When did it run from – when the rent was due under the lease or when it was due under the s. 166 notice? The purported notice had been served in March 2015 and demanded payment of rents due under the lease from 25 March 2010 until March 2015, the payment date being 20 April 2015. Was some rent in arrears for 3 years?

The FTT had held that the rent contractually due in 2010 was not payable until the date specified in the s. 166 notice i.e. 20 April 2015 and so no rent was in arrears for 3 years. The Upper Tribunal agreed with this interpretation of the Act and the purported forfeiture would have been ineffective under this ground, even if the s. 166 notice had been valid.

On the facts of this case, the landlord had peacefully re-entered the land on 21 April 2015, the s. 166 notice having been ignored by the tenant. Here, where apparently there was no house on the land, this was lawful. However, let us not forget one further protection for residential tenants. Landlords cannot enforce a right of entry or forfeiture of a dwelling let on lease, and in which anyone is lawfully residing, otherwise than by court proceedings; see s. 2 Protection From Eviction Act 1977. It would also be a criminal offence under s. 1 of that Act

One wonders why the landlord wanted possession of this piece of land. It has certainly proved to be an expensive wish as, in addition to its own costs, it will have to pay the tenant’s costs. And the tenant will also have a claim for damages for trespass against the landlord if loss could be proved. But the case does remind us that the very small ground rents in these old leases should not be ignored. There might be other landlords out there who do use the correct s. 166 notice and can get the three years’ calculation correct. The rent may be nominal, but clients should be warned to pay up or risk much stress and worry, at the least.

Paul Butt, Consultant at Rowlinsons Solicitors

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