It is possible for a landlord, during the period in which he is prevented from exercising his right of re-entry by the Housing Act 1996 s.81, to waive the right to forfeit a lease for non-payment of service charges.
This position has been established by the Upper Tribunal (UT) recently in the case of Stemp v 6 Ladbroke Gardens Management Limited (2018) UKUT 375 (LC).
It is an important decision as it clarifies to some extent the law on waiver of the right to forfeit and also to some extent what does not amount to waiver.
The basic facts are that the lease was a long lease demising a residential maisonette in a listed building. It contained covenants by the lessees to pay service charges covering repairs and maintenance which were reserved as rent by the lease, and to pay by way of administration charges any costs incurred by the lessor in contemplation of forfeiture proceedings under the Law of Property Act 1925 s.146. By 2016 the building was in substantial disrepair and the lessor sought to carry out repairs. To cover the cost it demanded £37,942 from the lessees by way of service charges payable in two instalments. It made the demand for the first instalment in March 2016, and the demand for the second in September 2016.
After non payment of the first demand the lessor applied to the First Tier Tribunal (FTT) for determination of the lessee’s liability to pay the service charges in question. This was the first step towards preparation and service of a s.146 notice because under the Housing Act 1996, s.81 it could not serve a s.146 notice until the tenant had accepted or the FTT had determined that the charges were properly payable.
In December 2016 the FTT determined the sum payable as being in accordance with the sums demanded which were subsequently paid in full.
In March 2017, the lessor sought to recover by way of an administration charge £43,969 in costs it had incurred in connection with its application to the FTT.
The lessees resisted, arguing that the costs had not been incurred in contemplation of forfeiture proceedings because in September 2016, after issuing the FTT application, the lessor had waived its right to forfeit by serving the second demand being a demand for rent.
The lessor argued that it could not waive the right to forfeit for non-payment of a service charge until the FTT had determined (or the lessee had conceded) that the sum demanded was properly payable.
The FTT held that it had no jurisdiction to decide whether there had been any waiver, and went on to find that £26,381 (60%) of the lessor’s costs had been incurred in contemplation of forfeiture proceedings and was recoverable as a reasonable administration charge.
The Lessees appealed and the UT held that:-
In conclusion the FTT, having re-heard the matter, only awarded 60% of the costs incurred up to 3rd September 2016, being the date at which the right to forfeit was waived, in the sum of £10,766.
This decision emphasises the need for landlords to tread very carefully when seeking a determination of sums due as a precursor to serving a s.146 notice in particular where they are dependent on a s.146 costs clause only for recovery of costs.
Long leasehold properties have recently been on the receiving end of negative publicity in the wake of the leasehold house scandal. The Leasehold Knowledge Partnership Campaign believes that there are 100,000 families trapped in houses that are virtually unsellable because of rising ground rents.
In December 2018, 21,044 leasehold properties were sold  and submitted for registration at Land Registry which was 24% of all properties sold that month so, despite the recent focus, leasehold property is common, and likely to stay for the foreseeable future.
Holding a leasehold interest is not, in itself, a problem: Flats, in particular, are usually leasehold to enable covenants imposed on ownership to be enforceable against subsequent owners. Restrictive covenants governing noise, nuisance and upkeep of shared facilities are essential in a building containing flats and each flat will be bound by the same covenants. Problems arise with leasehold when there is no compelling reason for a leasehold structure and where the ground rent payable has moved away from a nominal rent to a level which is or will become unsustainable – such as a ground rent of thousands of pounds annually.
Even where leasehold ownership is desirable, the disadvantage is that a lease is a decreasing asset and will have to be handed back to the landlord at the end of the term, remains. Once a lease has less than 70 years left, many high street lenders will not lend on the property, restricting prospective purchasers to those who are not dependant on mortgage finance.
A lease can be extended by paying a premium to the landlord. Flat owners who have owned the property for more than 2 years have a statutory right to a lease extension so the landlord cannot refuse to grant it. The lease will be extended by 90 years and the ground rent reduced to zero (a peppercorn) so extending the lease can be a mechanism for getting rid of an escalating ground rent although unfortunately for those properties worst affected by very high and frequently doubling ground rents, the cost of extending may be prohibitive.
If your property is leasehold and you want advice on the terms of your existing lease or options for extending your lease, or you are considering buying a leasehold property and want to know if the lease is going to cause issues in the future, then please don’t hesitate to contact SLC Solicitors. We are a law firm for clients with high expectations. We provide specialist services in leasehold law nationwide and combine creativity and flexibility with our unrivalled expertise to deliver results.
The basic position is that for claims which have been allocated to the Small Claims Track, usually with a monetary value of less than £10,000, the Court will not order a party to pay fees or expenses to the other party, subject to certain exceptions.
One of those exceptions is if the Court thinks a party has behaved unreasonably.
The question of what constitutes unreasonable behaviour was considered recently in the case of Dammermann v Lanyon Bowdler Solicitors (2017). In short, the Court considers whether rejection of a reasonable offer by one of the parties during the course of proceedings could amount to unreasonable behaviour. Usually, a party that rejects a reasonable offer can expect to be penalised by the Court and find itself subject to an adverse Costs Order. However, in the context of this case, the rejection of what was perhaps considered to be a reasonable offer was not automatically considered to be evidence of unreasonable conduct as the Court took into account a number of other material factors to the case.
The question therefore is whether this case sets a precedent that the rejection of a reasonable offer on its own will ever justify a finding of unreasonableness. This should not be considered to be the “golden rule” and each case is likely to be determined on its own facts.
One must never ignore the general principle that the Small Claims Court procedure is designed so as not to deter individuals from pursuing claims without legal representation or for fear of receiving an adverse Costs Order.
There is clearly a difference in claims which may be considered ‘optimistic’ to claims where litigation is pursued unreasonably. On the other hand however, this does not mean that you should be put off from seeking costs if your opponent’s conduct is such that it is clearly inappropriate.
Depending upon which side of the table you sit, the threat of a costs order for unreasonable conduct can still be a useful tool in your negotiating armoury.
For further advice on small claims disputes or recovering costs, please contact our Litigation Process Team on 0333 0300 200 or email email@example.com.
As we have mentioned in a prior article (link below) it is essential that a Landlord making a “relevant disposal” of a building containing flats should comply with the requirement to offer the tenants the interest first (by serving a section 5 notice on them) as they have a right of first refusal under the Landlord and Tenant Act 1987 (“the Act”).
For the Right of First Refusal (RFR) to exist the building must:
The requirements apply to all “relevant disposals” BUT the RFR only applies where the tenants’ immediate landlord is selling, so where there is an intermediate landlord, the freeholder could dispose of their interest without invoking RFR.
Creation of a new head lease, sale of the reversion and a disposal of common parts of the property ALL constitute a “relevant disposal” for the purposes of the Act.
Where the disposal is subject to a contract the disposal occurs on the date of the contract and NOT on completion of the sale.
The legislation does however provide for some disposals to be exempt including (but not limited to)
WHERE LAND IS HELD BY A COMPANY
In respect of the last point, a company is “associated” with another company within the meaning of the Companies Act if one company holds a majority of the voting rights in it OR is a member of that company and has the right to appoint or remove the board of directors.
A tenant who receives notice that a disposal is exempt for this ground should investigate at Companies House whether the companies are in fact “associated”. Simply having the same directors will not be sufficient.
Currently if a landlord in a qualifying building wants to avoid the provisions of the Act he must:
If these steps are followed, the disposal will not be a “relevant disposal” for the purposes of the Act as transaction (2) above was exempt and in transaction (3) only the shares in the company, not the property itself was transferred. However, this must be treated with extreme caution. Transfer (3) must take place after the transfer of the land. A landlord must take particular care that – where they have entered into an agreement with a purchaser for the sale of the shares conditional on the purchase of the land – at the time of the transfer the landlord must not be deemed to hold the shares in a fiduciary capacity for the purchaser. If this fiduciary capacity exists then the disposal would not be to an associated company and would be a “relevant disposal” for the purposes of the Act.
SLC solicitors have recently been involved in a case where a landlord company transferred a qualifying property to an individual “on trust” for an associated company and argued that this met the exemption criteria. Unfortunately the case settled before being tested at court. However, if the landlord has an associated company available to it, then it would seem a safer option to transfer the property directly to that company, rather than risk reliance on the provisions of a trust to ensure that the transaction fell within the exemption to the Act.
A landlord who does not comply with the requirements of the Act commits a criminal offence and is subject to a Level 5 fine on conviction. The tenants’ remedy is to compel the new landlord to transfer the property to them for the same terms as the original sale – including the purchase price -and time only starts to run from when the tenants became aware that the RFR applied to the transaction.
The purchaser of a freehold property where RFR is likely to apply should therefore insist on evidence that RFR has been complied with and serve notice on the tenants as soon as possible stating that RFR applied to the transaction or risk being compelled to give up the property to the tenants later.
If you would like advice on the Right of First Refusal please contact Leanne Donoghue, Property Solicitor at SLC Solicitors: firstname.lastname@example.org.
In Willow Court Management Company (1985) Ltd v Alexander  UKUT 290 (LC) the Upper Tribunal (Lands Chamber) (UT) gave guidance on Rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013. In three conjoined appeals the UT considered, for the first time, how the Tribunal should exercise its discretion to award costs pursuant to Rule 13 and in particular when costs should be awarded where a party has acted unreasonably in bringing, defending or conducting proceedings.
In each of the appeals the First-tier Tribunal (FTT) had found unreasonable behaviour and awarded costs pursuant to Rule 13(1)(b). In Willow Court Management Company (1985) Ltd v Alexander, the management company had not properly implemented the contractual procedure for determining the service charge, notwithstanding this having been explained in previous tribunal decisions. The FTT found this to have been unreasonable and Mrs Alexander was awarded £13,095 plus VAT as a contribution towards her costs.
In Sinclair v 231 Sussex Gardens Right to Manage Ltd, the FTT found that Miss Sinclair had behaved unreasonably by failing to pay her service charges, defending herself on what was considered to be spurious grounds, unsupported by sufficient evidence, and in general, behaving unreasonably. She had been ordered to pay £16,800 towards the costs incurred by the right to manage (RTM) company.
In Stone v 54 Hogarth Road London SW5 Management Ltd, Mr Stone had withdrawn his application for a determination of the service charge shortly before it was due to be heard by the FTT. The FTT was satisfied that he had had reasonable grounds for commencing his application but nevertheless considered that he had acted unreasonably in not withdrawing the application at an earlier stage, after concessions had been made by the landlord and when fewer costs would have been incurred. Mr Stone was ordered to pay £2,260.80 towards the costs incurred by his landlord.
The UT allowed all three appeals (setting aside the order for costs in each case), stating that the standard of behaviour expected of parties in tribunal proceedings ought not to be set at an unrealistic level. The Tribunal then proceeded on giving general guidance on how the tribunal should approach Rule 13 applications.
The UT held that when exercising any power under the 2013 Rules, the tribunal had to give effect to the overriding objective, namely dealing with cases justly and fairly. The UT set out a three stage test:-
Firstly, the tribunal must first assess (as an value judgment and not as the exercise of its discretion) whether the conduct complained of is objectively “unreasonable”.;
Secondly, if the conduct meets the “unreasonable test” threshold, the tribunal must consider whether, in the exercise of its discretion, and taking account of all relevant factors, it is appropriate to make a cost order.
Thirdly, if the tribunal considered that it is appropriate to award costs the tribunal must, as a further exercise of discretion, consider the form and quantum of the costs award.
The UT stressed that each case would turn on its own facts. However, “rule 13(1)(a) and (b) should both be reserved for the clearest cases and that in every case it will be for the party claiming costs to satisfy the burden of demonstrating that the other party’s conduct has been unreasonable”.
The UT held expressly that a party does not have to show “causation”; thus a party would not have to establish a causal nexus between the costs incurred and the behaviour to be sanctioned.
The UT held that the standard of reasonable conduct between represented parties and unrepresented parties would differ, recognising that legal advice was often only available at a disproportionate cost to litigants in the tribunal.
The behaviour of an unrepresented party with no legal knowledge should be judged by the standards of a reasonable person who does not have legal advice. The fact that a party “acts without legal advice” is therefore relevant at the first stage of the inquiry. This may also be relevant, to a lesser extent, in the second and third stages.
Parties, especially unrepresented parties, should be assisted to make sensible concessions and abandon less important points, or where appropriate, their entire claim. Such behaviour should not be discouraged by the fear that it will be treated as an admission that the abandoned issues were unsustainable and ought never to have been raised (and thus would arguably be justification for a claim for costs).
In a more recent case, Matier v Christchurch Gardens (Epsom) Ltd  UKUT 56 (LC), the Upper Tribunal (UT) considered whether to uphold a cost order under rule 13(1)(b) of the Property Chamber Rules 2013 (Rule 13) against a litigant in person (M) on the basis that he acted unreasonably in conducting proceedings.
The First-tier Tribunal (FTT) determined proceedings between M and M’s landlord (C) concerning payment of a service charge. It then granted C a cost order against M under Rule 13 on the basis that M had acted unreasonably in conducting proceedings by:
The UT upheld the costs order. In doing so, it was heavily influenced by M’s failure to follow the FTT’s directions about the preparation of submissions and hearing bundles. The UT held that:
The UT made clear that similar cases will turn on their facts. It noted that where a litigant in person acts in good faith in their defence (even if misconceived), this would rarely amount to unreasonable conduct. However, this case is a powerful reminder to litigants that acting inconsistently with tribunal directions may lead to an adverse costs order.
As you will now be aware the new PAP comes into effect on 1st October 2017 and applies to any business claiming payment of a debt from an individual.
The PAP will require far more information to be provided to debtors in the initial Claim letter, together with an Information Sheet and Reply Form.
The main impact of the PAP will be the fact that it potentially has a very detrimental effect on debtor days as it sets out timescales to which we have to adhere before taking recovery action through the Courts.
If the Protocol is not adhered to there will no doubt be penalties imposed by the Courts. At present the nature of any such penalties is unknown but they could strike out the claim, reduce or disallow interest or disallow costs.
Initial Information to be Provided in Letter of Claim:
The Letter of Claim should contain the following information where it arises from a Lease:
In practical terms this means that the Land Registry title will be required before the initial letter is sent to identify the date and parties to the Lease.
The Letter of Claim will be far more detailed in terms of the information provided and it has to be accompanied by the Information Sheet and Reply Form. These are standard form documents. The Information Sheet sets out what steps the Debtor has to take upon receipt of the Letter of Claim and the timeframes for doing so and the Reply Form gives various options for responding to the Letter of Claim, offering payment or raising a dispute.
This is the part of the PAP which is likely to cause most difficulty to our clients in terms of recovery of arrears.
The time frames which apply are as follows:
Our Proposals as to Recovery Process:
We are seeking to put in place the PAP by the end of August so that there is a seamless transition to this process within our existing process.
The main issue here is how the PAP affects each client’s debtor days and recovery process.
Our suggestion to minimise the impact of the PAP is as follows:
This process should minimise the impact on debtor days. Obviously, where we receive a dispute at present this increases debtor days so we do not consider that the receipt of a dispute will increase debtor days above their current level.
The PAP states that we should give a further 14 days notice to the debtor of our intention to issue a claim if no agreement has been reached after a Reply has been received. We do not yet know whether the Court would penalise the creditor if this 14 days final notice is not given. It is not, at this time, our intention to give this further 14 days notice prior to issuing a claim but we are happy to do so if you would prefer to give the debtors a final notice before issue.
These are our initial thoughts as to how the new PAP can be implemented with the least impact on debtor days fro clients but we will be working closely with all our clients to ensure that a process is in place which suits their requirements.
If you have any queries or comments, please do not hesitate to contact Charlotte Collins on 01743 260121.
These are incredibly interesting and tumultuous times politically and economically but also within the property sector.
Traditional markets such as those in the leasehold and ground rent world and also the residential sales and rental market seem to be about to go through some considerable changes from market pressures and also parliamentary scrutiny.
It is reported today that a fifth of estate agents could go out of business. Research from accountancy firm Moore Stephens suggests the growth of online rivals could leave one in five estate agents at risk of going out of business, with almost 5,000 agents showing signs of financial distress. It warns that with higher staff and property costs, traditional agents are struggling to compete with online challengers such as eMoov, Tepilo and Purplebricks. Mike Finch of Moore Stephens said: “Traditional high street estate agents’ profit margins are being squeezed from both sides, from cut-price online competitors to their larger counterparts on the high street who are forcing them to up their spending or give up the race.” The report comes in a week where Countrywide and Foxtons reported declines in profit.
Last week also saw an increase in reporting on the leasehold ground rent sector as evidenced in particular by parliamentary and media scrutiny of the way in recent years that ground rents have been attached to houses (and of course flats) and the formulaic way in which those ground rents increase periodically over the life time of a lease to appear to make the ground rent disproportionate to the value of the property. Only last week The Guardian reported that the communities secretary, Sajid Javid, had outlined plans to ban developers from selling new-build houses in England as leasehold, and restrict ground rents on new flats to as low as zero. The newspaper went on to describe how victims of the so called ground rents scandal are demanding ministers go further in tackling unfair abuses of the leasehold system, amid claims that as many as 100,000 existing homeowners remain trapped in properties that are “unsellable”.
Neil Shearing, legal services consultant of SLC Solicitors, says “there will need to be some out of the box thinking from a broad strand of property entrepreneurs and investors. Markets that were once a secure and long term investment and relatively recession proof are now under some pressure. Within the leasehold sector there will always be a thriving and competitive marketplace for those interested in block management and service charge work and relationships with ground rent investors will remain in place and I expect will continue to thrive. However, certainty of ground rent incomes will now be a subject of interest and scrutiny and it would not surprise me if there was to be a consolidation of the market place by very large institutional investors once a clearer idea of the returns for this sector are known. That will take time but as we have seen in the private rented sector the emergence of institutional investors replacing smaller traditional investors has taken place over a very short period.”
Whatever happens next, and all of the above is without factoring in economic and political events such as Brexit and the possibility of increased inflationary pressures and interest rate rises, SLC Solicitors will continue to support its clients across the leasehold and private rented sectors and will react to the prevailing circumstances of the time and adapt and enhance its services to maximise and protect our clients’ interests at all times.
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 were made on the 26th March 2015. They introduced a change in the law whereby from the 1st April 2018, it will be unlawful to privately let residential and commercial properties with an EPC rating of ‘F’ or ‘G’, unless one of the exemptions detailed below applies.
It is important to note that the Regulations will not apply to properties that are not required to have an EPC or where a property is let for a period of less than 6 months or for a term of more than 99 years.
What are the Exemptions?
Relevant Energy Efficiency Improvements – applicable if a landlord can demonstrate that there are no energy efficiency improvements that can be made or where all the available energy efficiency improvements have been undertaken and the property still falls below an EPC rating of ‘E’.
Third Party Consent Refused – applicable if a tenant, superior landlord or local authority refuse consent or such consent is subject to conditions that cannot be reasonably complied with.
Reduction in Value – applicable if an independent surveyor confirms energy efficiency improvements would result in a reduction of more than 5% of the market value of the property.
Temporary Exemption (Landlord Forced into a Letting) – compliance with the Regulations is postponed for 6 months where:
If one of the exemptions applies, it must be registered in the PRS Exemptions Register. Failure to register an exemption will lead to it being ineffective. An exemption must be re-registered every 5 years.
Timescale for Compliance – Residential Properties
From the 1st April 2018, Landlords cannot grant a new tenancy or let the property as a result of an extension or renewal of an existing tenancy.
From the 1st April 2020, Landlords cannot continue to let the property.
Timescale for Compliance – Commercial Properties
From the 1st April 2018, Landlords cannot grant a new tenancy or let the property as a result of an extension or renewal of an existing tenancy.
From the 1st April 2023, Landlords cannot continue to let the property.
Penalties for Non-Compliance – Residential Properties
The total penalty imposed must be no more than £5,000.00.
Penalties for Non-Compliance – Commercial Properties
The Regulations do not provide for the minimum EPC rating to be reduced at any time in the future however it is likely to be considered to meet the UK’s carbon reduction targets for 2020 and 2050. The Secretary of State is under an obligation to review the operation and effect of the Regulations at intervals of no more than 5 years i.e. the first review must be conducted by 2020.
Advice for Landlords
It is imperative you begin an immediate review of your portfolio to identify any properties that fall into the ‘F’ and ‘G’ EPC ratings.
Once the relevant properties have been identified, it must be considered whether any exemptions will be applicable. If not and energy efficiency works are required, you will need to consider whether the terms of the tenancy allow the landlord to enter the property to carry out works. Careful planning is essential to ensure works coincide with regular maintenance or void periods.
SLC Solicitors is ready to provide expert advice and assistance in minimising the potential impact of these Regulations on your portfolio of properties.
If you would like to discuss the changes further, please contact us on 0333 0300 200 or email email@example.com with your queries.
On 1st October 2017, a Pre-Action Protocol for debt recovery claims will come into force.
The Pre Action Protocol applies to any business, including sole traders and public bodies, claiming payment of a debt from an individual, including a sole trader.
The Pre Action Protocol does not apply to business to business debts, that is unless the debtor is a sole trader.
What is the aim of the Pre Action Protocol (PAP)?
The aim of the PAP is to:
What do you need to know?
The impact of these changes could have a dramatic impact on a business’s cash flow. You may need to re-consider your credit control policies to prevent any unnecessary delay. This may include the ‘tightening’ up of your procedures and enforcement of stricter time limits.
We would recommend an early referral to solicitors so that the clock can start to run sooner rather than later as this will inevitably assist cash flow if the debt is paid promptly following receipt of a Letter of Claim from solicitors.
For further guidance on this pre-action protocol, please do not hesitate to contact our Process Litigation Team on 0300 0200 300, or email us on firstname.lastname@example.org.
It is not uncommon for tenants to want to make changes to their property during their ownership perhaps to maximise the space available or to accommodate changes in family life. The extent to which tenants can make those changes will depend on whether the lease contains absolute or qualified covenants; absolute covenants prohibit alterations completely and qualified covenants relate to alterations which are not allowed save with the landlord’s consent. Our bulletin dated 14 February 2017 deals with this more fully.
If you do want to make alterations to your flat, obviously the first step should be to check whether such alterations are allowed under the lease and whether you need your landlord’s consent. If you undertake work on your property without the requisite consent then you are exposed to a breach of lease claim.
Work such as internal redecoration does not usually need the landlord’s consent. However, alterations involving changes to the fabric or structure of the building, external redecoration or changing around of rooms which involve plumbing changes (eg bedroom to a bathroom/kitchen) will usually require landlord’s consent which is provided for in a Licence to Alter.
The Licence to Alter should protect the interests of both the landlord and the tenant. As such, some of the points it should cover are:
The Licence to Alter will often require the involvement of both the landlord’s and tenant’s own solicitors to agree a final draft. However, from a tenant’s point of view, obtaining a Licence will mean that a breach of lease for unauthorised alterations can be avoided and it will also provide security to a new buyer should the tenant wish to sell. If you have any further queries, please contact one of the team on email@example.com.