A number of statutory restrictions are placed on a landlord’s right to forfeit a residential lease. In particular, section 81 of the Housing Act 1996 (the 1996 Act) prohibits a landlord of residential leasehold premises from exercising a right of re-entry or forfeiture for non-payment of service or administration charges unless the amount payable has been determined by a tribunal or court or admitted by the tenant. The question, therefore, is whether a landlord can waive the right to forfeit for a forfeitable breach of covenant during the period of a statutory moratorium on the exercise of such a right. The Upper Tribunal (Lands Chamber) (UT) had to determine this question in Stemp and another v Ladbroke Gardens Management Ltd [2018] UKUT 375 (LC); [2018] PLSCS 215.
The dispute
Sinty Stemp and Tiffany Stemp were long lessees of a maisonette in a building located at 6 Ladbroke Gardens. The freehold of the building was vested in 6 Ladbroke Gardens Management Ltd (6LGM), the management company owned by the lessees. The building was in substantial disrepair and funds were required from the lessees to put the building in repair.
Pursuant to clause 2(vi) of the lease, the Stemps covenanted to pay all costs and charges (including legal costs and surveyor’s fees) incurred by the landlord in or in contemplation of any proceedings in respect of the maisonette under section 146 of the Law of Property Act 1925 (the 1925 Act) or in preparation and service of a notice thereunder, notwithstanding that forfeiture was avoided otherwise than by relief granted by the court.
In March 2016, 6LGM’s agents sent the Stemps a written demand for payment of the first instalment of on-account maintenance charges due under the terms of the lease (the relevant demand). Payment was due by 1 April 2016. The Stemps refused to pay. In accordance with the terms of the lease, after the expiry of 21 days, 6LGM commenced proceedings to forfeit the lease.
In December 2016, the First-tier Tribunal (FTT) determined that the sum demanded was reasonable. The Stemps paid the amount claimed in the relevant demand and the second on-account instalment demanded by 6LGM on 3 September 2016 (the second demand). Due to the payments, 6LGM ceased forfeiture proceedings, but sought to recover its costs of the December 2016 proceedings. It did so by way of an administration charge pursuant to clause 2(vi) of the lease. The Stemps refused to pay the costs.
On 1 June 2017, 6LGM applied to the FTT to determine if the costs were payable and reasonable. The Stemps argued that 6LGM had waived its right to forfeit the lease for non-payment of the relevant demand and therefore it had not incurred any significant costs.
The FTT found costs of £26,381.98 to be reasonable and payable pursuant to clause 2(vi) of the lease. The FTT also determined that it did not have jurisdiction to decide the waiver point. The Stemps appealed.
Effect of a statutory moratorium
Due to the statutory fetter placed by section 81 of the 1996 Act, 6LGM argued that it was not capable of exercising the right to re-enter at any material time. The UT categorically rejected this argument. It held that it was possible for a landlord to make an unequivocal choice between two inconsistent rights prior to being in a position immediately to exercise each of them.
To suggest that a landlord was unable to waive a right to re-enter because some other fetter on exercising the right of re-entry, for an irremediable breach, had not been worked through was not correct. The position could differ where the breach was remediable. In the case of a remediable breach, until a notice served under section 146 of the 1925 Act had expired the right to forfeit would not arise. Acceptance of rent due during the currency of the section 146 notice would not amount to a waiver of the right to forfeit for the breach even after the expiry of the section 146 notice.
Considering Yorkshire Metropolitan Properties Ltd v Co-operative Retail Services Ltd [1997] PLSCS 102, the UT also dismissed the argument that a right to re-enter for non-payment of the relevant demand could not be waived until the FTT had determined the amount owing. A landlord may serve a section 146 notice based on an alleged breach of covenant, only for the tenant to dispute the alleged breaches. In such circumstances, it was still possible for a landlord, who was aware of the relevant facts, but not the ultimate decision of the court, to waive its right to re-enter.
The waiver
The UT found that the second demand amounted to a waiver of the right to forfeit for non-payment of the relevant demand. Any such payment due by way of the service charge was expressly reserved as rent in the lease. The second demand constituted a waiver of the right to forfeit and constituted an unequivocal act that the lease was continuing.
The Stemps’ reliance on communications from 6LGM’s agents referring to them as “Dear Leaseholders” did not objectively constitute an unequivocal act of waiver. The Stemps at the material time were leaseholders and this was a “convenient phraseology” used by the agents.
Further, consultation with the Stemps in relation to the major works proposed and the request for access to their maisonette to comply with a fire safety enforcement notice did not constitute unequivocal acts of waiver. In both situations 6LGM was in an impossible position due to its contractual and statutory obligations. Failure to comply would result in it being in breach of those obligations and facing serious financial consequences and the risk of criminal proceedings.
Costs of £10,766 were deemed reasonable and a recoverable administration charge.
Key points
- A landlord can waive the right to forfeit while a statutory moratorium applies
- The First-tier Tribunal had jurisdiction to determine whether a landlord had waived the right to forfeit for non-payment of a demand
- Compliance with the consultation requirements for major works and a request for access to comply with a fire safety enforcement notice did not amount to unequivocal acts constituting a waiver of a landlord’s right to forfeit
Elizabeth Dwomoh is a barrister at Lamb Chambers
