Waiver of right to forfeit in Stemp case
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:-
- The FTT had jurisdiction to decide whether, and if so when, the right to forfeit had been waived.
- The lessor did not have to await the FTT’s s.27A decision before being able to waive the right to forfeit. It was sufficient that the arrears had arisen and that the landlord was aware that it potentially had the right to forfeit the lease even though the precise amount payable was not at that point determined.
- The correct approach to determining whether there had been a waiver was to consider objectively whether the landlord’s act was so unequivocal that it could only be regarded as being consistent with the lease continuing. The demand for service charges reserved as rent in September 2016 was sufficient to amount to waiver on its own; it being settled law that a landlord who, with knowledge of the right to forfeit, accepts or even demands rent waives that right to forfeit. The UT also held that even if this was wrong, the demand was so unequivocally consistent with the lease continuing as to amount to a waiver: the lessor was demanding a substantial sum, reserved as rent, to put the building into a proper state of repair for the future. This satisfied the test that it is necessary “to consider objectively whether in all the circumstances the act relied upon as constituting waiver is so unequivocal that when considered objectively it could only be regarded as being consistent with the lease continuing (Greenwood Reversions Ltd v World Entertainment Foundation Ltd (2008) H.L.R. 31 para 30).
- However the UT rejected arguments that (i) correspondence sent by the lessor in mid-2016 referring to the lessees as leaseholders was sufficient to amount to waiver: they were in fact leaseholders and the phraseology was convenient. (ii) The fact that the lessor had consulted the lessees about the proposed repairs was not sufficient either, the lessor was bound by its repairing covenants. (iii) Nor was it sufficient that the lessor had relied on the covenants in the lease regarding fire safety arrangements and allowing it entry. At that time, the lessees continued to be leaseholders and the lessor continued to have responsibilities regarding the state of the building.
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.