Section 81 of the Housing Act 1996 applies to forfeiture for non-payment of service or administration charges payable in respect of dwellings. It prevents landlords from forfeiting a lease unless the tenant has admitted that the service or administration charge is payable, or a court or tribunal has determined that it is.
Stemp v 6 Ladbroke Gardens Management Ltd [2018] UKUT 375 (LC); [2018] PLSCS 215 concerned a building that was in disrepair. The landlord needed £38,000 from the owners of every unit in the building to carry out the requisite repairs – but Mr and Mrs Stemp refused to pay the first instalment due when it was demanded from them. So the landlord started the legal proceedings that would enable it to forfeit their lease. It won; the tenants paid up and the repairs were done.
However, that was not the end of the dispute because the landlord had incurred legal costs in the course of the proceedings, which it sought to recover from the tenants pursuant to a covenant in their lease. But they were unwilling to make any further payment to the landlord. So the parties went back to the tribunal, which decided that the tenants were liable to contribute £26,382 towards the landlord’s costs, ruling that this was a reasonable administration charge. However, the tenants continued to resist payment, arguing that the landlord had waived its right to forfeit before incurring any costs.
Can a landlord waive the right to forfeit while the statutory fetters in section 81 apply? The Upper Tribunal decided that it can. The landlord had known that the right to re-enter had arisen and was able to make an unequivocal choice between forfeiting or continuing the tenant’s lease before it was actually in a position to exercise its right to forfeit. So the question was: had the landlord waived its right to forfeit in this case?
The judge refused to be swayed by emails addressed to the tenants as “Dear Leaseholders”, describing these words as “convenient phraseology”. But what of the fact that the tenants were included in the landlord’s consultation about the repairs to the building? The judge accepted that the landlord had been in an impossible position. Landlords must consult tenants before undertaking major works (failing which tenants’ contributions to the cost of the work are limited to £250). There was no reserve fund. So the landlord needed to collect the service charge to comply with its repairing obligations – and could not be expected to postpone the work in breach of its repairing covenants, or risk becoming insolvent if the tenants did not have to contribute more than £250.
The judge took a similar approach to the landlord’s request for access to the tenants’ flat to carry out work required by a fire safety enforcement notice. It could not ignore its responsibilities and the possibility of criminal proceedings if it did nothing. So the landlord’s actions must be considered in the context of the steps that it was taking to enforce its right to forfeit the tenants’ lease.
But the landlord’s demand for payment of a further instalment of the tenants’ service charge was another matter. The service charge was reserved as rent and the demand could only be regarded as being consistent with the lease continuing. So the landlord had waived its right to forfeit. However, that did not prevent the landlord from recovering costs incurred before the date of the demand, totalling £10,766.
Allyson Colby is a property law consultant
