More golden eggs

More golden eggs

Apologies for returning yet again to my rant about leasehold rip offs, but as a result of my previous thoughts, a friend has told me of yet another way leasehold landlords (and their solicitors) have found to make easy money. And this time the victims are the conveyancers acting on a leasehold purchase, not the clients.

After my previous rant, a friend told me of a problem her firm had recently had. They had completed the purchase of a leasehold flat for a client but for some reason they had omitted to give notice to the landlord of the new leaseholder and her mortgage lender. Note also that not giving notice of the mortgage is a breach of the CML Handbook – see paragraph 5.14.13 Notice of the mortgage must be served on the landlord and any management company immediately following completion, whether or not the lease requires it.

A silly mistake – and, as events, were to prove, an expensive one.

Three months after the completion of the purchase she got a worried email from the client attaching a copy of a letter received from a firm of solicitors acting for the landlord. It addressed the client by name and explained that they were acting for her landlord and that she was in breach of the terms of the lease as notice of the transfer etc had not been given to the landlord. All regrettably true. But it then went on to say that the landlord had the right to seek forfeiture of the lease because of this failure (not true, as we shall see) and was also claiming damages for its loss.

So what loss had the landlord suffered? Well, the letter recited that the notice fee had not been paid – some £200 for the two notices, transfer and mortgage required – and obviously the landlord was entitled to that under the terms of the lease. But it also went on to claim a further £100 (plus VAT) for the landlord’s expenses incurred in referring the matter to the solicitors and (of course!) the solicitor’s fees – nearly £350 including the VAT! Not bad for obtaining details of the title on-line from Land Registry and writing one letter – although, strangely, when I mentioned this to the friend she said that no disbursement was actually mentioned.

So, as I said, an expensive mistake to forget to give notice, because, of course, the firm was going to have to pay for all this – it was hardly the client’s fault.

Ignoring the amounts claimed here – but is a charge of £100 by the landlord for passing the problem to the solicitors in any way reasonable? – and the intriguing question as to how the landlords knew of the change of ownership – I was more than a little concerned by the tone of the solicitor’s letter worrying the client about forfeiture.

As stated above, what was stated about forfeiture was not actually legally correct. Before a landlord can forfeit for a breach of covenant other than non-payment of rent, a landlord must firstly serve a warning notice under s 146 of the Law of Property Act 1925, advising the tenant of the breach and requiring the tenant to remedy the breach if this is possible. This notice had not and indeed could not be served. The Commonhold & Leasehold Reform Act 2002 enacts as follows:

168 No forfeiture notice before determination of breach

(1) A landlord under a long lease of a dwelling may not serve a notice under section 146(1) of the Law of Property Act 1925 (c. 20) (restriction on forfeiture) in respect of a breach by a tenant of a covenant or condition in the lease unless subsection (2) is satisfied.

(2) This subsection is satisfied if—

(a) it has been finally determined on an application under subsection (4) that the breach has occurred,

(b) the tenant has admitted the breach, or

(c) a court in any proceedings, or an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement, has finally determined that the breach has occurred

So the landlord could not initiate forfeiture until the tenant’s breach had either been admitted of had been judicially determined, neither of which had happened.

Of course, those living in glass houses and breach their obligations to clients shouldn’t throw stones, so it would not have been incumbent on my friend to point out the errors of their ways to these solicitors, but it did remind me of something which may be of more use to conveyancers.

Many old leases contain a stated notice fee that is now often out of date compared to modern fees. So the lease says a £10 fee but the landlord insists on (say) £60. There is no legal obligation to pay more than the lease requires, but if you raise this with the landlord you may get the response that the extra is for providing a receipt for that notice – which the landlord is not obliged to do under the terms of the lease.  But do we actually need to get the notice receipted? Classically it has been the lenders who required this, but this is no longer the case. Going back to CML 5.14.13, it goes on to say ‘Please ensure that you can provide either suitable evidence of the service of notice on the landlord or management company or a receipt of notice.’ So a receipt is now the second alternative; the prime obligation is to provide proof of service.

So why not send the notices by Royal Mail’s ‘Signed For’ service? Unless it is returned ‘undelivered’, then the Certificate of Posting will be ‘suitable evidence’ of service. Might be cheaper than paying the ridiculous fees some landlords want to charge.

Paul Butt

Paul Butt is a retired consultant at Rowlinsons Solicitors.

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