Flat-Living.co.uk Legal update
be relieved if the leaseholder pays all outstanding service charges, place, the objective of the RMC must be to try and recover its costs
together with the landlord’s costs of the proceedings. The result being, from the defaulting leaseholder. Recovering these costs as part of the
where forfeiture is available, that it is the defaulting leaseholder, not the service charge (which will only be possible if the leases make clear
service charge fund or the landlord, who ultimately bears the landlord’s provision for it) is very much a second best outcome: in this eventuality,
reasonable costs of any enforcement proceedings. each leaseholder, including the defaulting leaseholder, will be liable to
pay their proportionate share of the landlord’s costs. This is unfair and
MAKe no provision likely to be a source of resentment among those leaseholders who
have paid their service charge in the first place.
The conventional form of a lease is not designed to operate in the now
Unfortunately, ensuring that the enforcement costs only fall on the
common circumstances where forfeiture is not readily available. A typical
defaulting leaseholder is not always be possible to fully achieve. A
lease will either make no provision at all for the recovery of the landlord’s
strategy is to try to get into the position to either forfeit the lease, or at
legal and other costs of enforcement, or else, the lease will only provide
least to serve a section 146 notice as soon as possible after it becomes
for the landlord’s costs of enforcement to be recovered from the service
clear that the leaseholder is, without good reason, refusing to pay.
charge, rather than borne solely by the defaulting leaseholder.
In order to forfeit a lease for the non-payment of service charges
If legal costs cannot be avoided by avoiding litigation in the first
(unless the lease reserves the service charge as rent or additional rent),
a notice under section 146 of the Law of Property Act 1925 (the LPA)
must first be served on the tenant. Section 146(3) of the LPA imposes an
obligation on the leaseholder to pay the “reasonable costs and expenses
properly incurred by the lessor in the employment of a solicitor and
surveyor or valuer or otherwise in reference to any breach giving rise to
the right of re-entry or forfeiture”. Hence, the earlier the landlord can get
to the stage of validly serving a section 146 notice (and if need be taking
the ultimate step of forfeiting the lease) the better in terms of maximising
the costs that can be recovered from the defaulting leaseholder.
However, there are hoops to be negotiated. Section 168 of the
Commonhold and Leasehold Reform Act (the 2002 Act) imposes
various statutory pre-conditions to serving a section 146 notice:
• the complained of breach has been finally determined
by the LVT; or
• the tenant has admitted the breach; or
• the breach has been the subject of a determination by
a court, or an arbitral tribunal in proceedings pursuant
to a post dispute arbitration agreement.
In cases, where the lease reserves the service charge as rent and
provides that it is recoverable as if rent, there is no need to serve
a section 146 notice as a precursor to forfeiture proceedings in the
event of non-payment. However, such service charges nevertheless
fall within the statutory definition of “service charges” (section
18(1) of the L & T Act 1985) and are therefore subject to statutory
protection. Consequently, forfeiture of the lease for non-payment
of service charges reserved as rent is subject to the restrictions
on forfeiture that are imposed by section 81 of the Housing Act
1996. These largely mirror the requirements of section 168 of the
2002 Act.
Case Study: Pullman Court, London
The difficulties can be leaseholders were up-to-date case. The final hearing before The LVT’s determination
illustrated by the recent LVT with their service charge the LVT extended over six was endorsed by the County
decision in Pullman Court payments. days, required expert evidence Court on application to the
(Claim No. LON/00AY/ County Court proceedings and resulted in the RMC County Court (which was
LSC/2008/0354: decision dated were brought against the incurring considerable legal opposed by R, who had
16th April 2009). PC is a block leaseholder (R) who owed the costs. costs awarded against him).
of approximately 200 flats. It most, including undisputed Largely by reason of the Consequently, in the event of
has a RMC. The RMC had been elements of the service action (or inaction) of the continued non-payment by R
badly let down by its former charge, such as the costs of former managing agents, in all of the means of enforcing
managing agents. insuring. The County Court failing, without good reason, County Court judgement
A very small minority of entered judgment against R to ensure compliance with the debts, including forfeiture,
leaseholders, whose number for the unpaid insurance and service charge consultation remain open to the RMC
included members of the transferred the balance of the procedure, the LVT held that company. Similarly, it is now
previous board of the RMC claim to the LVT. some elements of the arrears open to the RMC to serve
(who had appointed these A small number of were irrecoverable. However, section 146 notices and, if need
former managing agents) leaseholders joined the the balance of the arrears was be, to forfeiture the leases
were in significant service proceedings before the LVT determined by the LVT to be should the arrears and costs
charge arrears. However, most and, essentially, adopted R’s properly due and payable. not be paid.
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