Landlord and tenant – Administration charge – Legal costs – Respondent landlord claiming as administration charge costs incurred for preparation and service of notice for forfeiture – Respondent issuing proceedings in county court claiming service charges and ground rent – First-tier Tribunal deciding administration charges reasonable and payable – Appellant appealing – Whether proceedings for money judgment for unpaid service charges constituted waiver of right to forfeit for failure to pay charges – Appeal dismissed
The appellant was the tenant of flat 7, 154 Gloucester Terrace, London W2, under a long lease granted in 1982. The respondent company owned the freehold of property comprising 67 flats at 142-168, Gloucester Terrace and 9-15, Westbourne Terrace Mews, London W12; the flats were all held on long leases and each of the tenants was a shareholder in the respondent.
The appellant’s lease contained provision for the tenant to pay service charges and ground rent. It also contained a covenant by the tenant at clause 3(g): “To pay all costs charges and expenses (including solicitors’ costs and surveyors’ fees) incurred by the lessor for the purpose of or incidental to the preparation and service of a notice under section 146 … of the Law of Property Act 1925 notwithstanding forfeiture may be avoided otherwise than by relief granted by the court”.
In October 2021, solicitors wrote to the appellant stating that he was indebted to the respondent for £13,431.05 in respect of service charges, reserve fund contributions and ground rent; the letter confirmed that the solicitors were instructed with a view to serving a notice under section 146 of the 1925 Act.
The respondent issued proceedings against the appellant in the county court claiming service charges and ground rent. The appellant challenged the reasonableness and payability of the service charges.
The First-tier Tribunal (FTT) decided that the sum of £15,363 would be reasonable and payable by the appellant if demanded as an administration charge pursuant to clause 3(g) of the lease. The appellant appealed.
Held: The appeal was dismissed.
(1) The effect of section 81 of the Housing Act 1996 was that, where service charges had not been paid, in breach of covenant, a landlord could not go straight to the service of a section 146 notice as a prelude to forfeiture proceedings. It first had to obtain a decision that the charges were payable.
Section 81 expressly provided for the landlord to obtain that decision from a court or tribunal. So, whilst the usual course of action was to apply to the FTT, in its jurisdiction pursuant to section 27A of the Landlord and Tenant Act 1985, for a determination that the charges in question were reasonable and payable, the landlord might equally apply to the county court for a declaration to that effect, as in Cussens v Realreed Ltd [2013] EWHC 1229; [2013] PLSCS 10.
The question in this appeal was whether it was equally open to the landlord to apply to the county court for a money judgment, or whether that would amount to a waiver of the right to forfeit for the breach. There was no direct authority on the point and nothing in the textbooks. However, the appellant argued that the respondent by seeking a money judgment in the county court had elected to pursue that remedy instead of forfeiting the lease.
(2) The corresponding provision to section 81 of the 1996 Act, relating to forfeiture for breaches of covenant other than failure to pay a service charge, was section 168 of the Commonhold and Leasehold Reform Act 2002. Like section 81, it envisaged that the decision that the landlord needed before it could serve a section 146 notice could be obtained from either the FTT or the county court.
In Cussens, which concerned breaches of a covenant relating to the use of a flat, and the source of the county court’s jurisdiction to make a declaration that the covenant had been breached, the Court of Appeal pointed out that one way the landlord could obtain the determination it needed, pursuant to section 168, was to bring an action in damages for breach of covenant.
The point of obtaining a determination of breach under section 168 was as a prelude to forfeiture; the court regarded a declaration as equally effective for that purpose, and likewise an action for damages: it did not regard an action for damages, in that context, as a waiver of the right to forfeit.
(3) London Borough of Tower Hamlets v Khan [2022] EWCA Civ 831 was an appeal arising from failure to pay service charges. The landlord (as in the present case) had issued proceedings in the county court for a money judgment for service charge arrears in order to obtain the determination needed pursuant to section 81 of the 1996 Act. The issue before the Court of Appeal was the extent of the costs recoverable pursuant to a clause very similar to clause 3(g) in the present appeal, and waiver was not an issue; but there was no suggestion that the issue of the county court proceedings might amount to a waiver of the right to forfeit.
In Woodfall, Landlord and Tenant, it was stated at paragraph 17.097 that the act relied on as constituting waiver had to amount to a recognition of the continued existence of the tenancy.
In Cornillie v Saha [1996] EGCS 21; (1996) 28 HLR 561, for example, a flat had been sublet in breach of covenant, the landlord issued proceedings to enforce his right to access the flat in question, and that was found to be an unequivocal demonstration that the landlord regarded the lease as continuing and therefore waived the right to forfeit. Here, by contrast, the landlord had not done that.
The letter before claim made the landlord’s intention clear, and the landlord made no demands for rent or service charges after that. Had it done so, it would have waived the right to forfeit for the failure to pay the service charges falling due earlier, but that did not happen.
(4) It was curious that the point had not arisen before. But it was significant that in Khan the point was not taken and did not trouble the Court of Appeal. Moreover, an action for damages for a breach of a covenant other than one to pay service charges did not appear to amount to waiver of the right to forfeit for that breach.
Accordingly, the pursuit of a money judgment for service charges was not a waiver of the right to forfeit for failure to pay those charges.
The appellant appeared in person; Daniel Wand (instructed by William Heath & Co Solicitors) appeared for the respondent.
Eileen O’Grady, barrister
