Written by Tatsiana Rudzko, Solicitor at Bishop & Sewell.
A leaseholder is generally required to pay various charges under the terms of their lease, which may include any or all of the following: service charges, ground rent, administration charges, management costs, legal and other fees and a contribution to a reserve fund, with all such sums being payable in the proportions and within the periods that are specified in the lease.
As a general rule, however, all of these charges, fees and costs must be reasonable in amount and must also be reasonably incurred (this does not apply to ground rent).
Service charges would normally cover the costs of those services that the landlord is obliged to provide under the terms of the lease, which may include, but are not limited to, general maintenance and repairs, buildings insurance, lifts, porters, costs of heating and lighting the common parts of the building, cleaning and decorating the common parts of the building etc.
The demands for service charge / ground rent that is payable by the leaseholder under the terms of the lease must be in writing, must contain the landlord’s name and address and must comply with statutory rules, otherwise it is not a legally valid demand. This includes the requirement for a landlord to provide a formal summary of the leaseholder’s rights and obligations. Landlords should be aware that there is a prescribed form for demanding ground rent, which must comply with the terms of the lease and provide between 30 and 60 days’ notice of the required payment. Ground rent is not required to be paid by a leaseholder until it has been formally and properly demanded by the landlord.
Recovering service charges / ground rent
If the service charge / ground rent is not paid in the proportions and within the period specified by the lease, and in accordance with the proper written demands served by, or on behalf of, the landlord may have various remedies available to enforce the leaseholder’s contractual obligations to pay service charge / ground rent. For example, the landlord may start a formal legal process to recover unpaid service charge / ground rent arrears or make the leaseholder comply with the terms of the lease by:
- making a money claim in the County Court;
- applying to the First tier Property Tribunal (“the F-tT”) for a determination of a breach;
- proceeding with forfeiture proceedings / possession under the section 146 of the Law of Property Act 1925; or
- making a court application for injunction / specific performance.
It is options 2 and 3 where the landlord must be very careful not to inadvertently waive its right to the remedy of forfeiture. The remainder of this article will briefly consider option 3 above, being the potential forfeiture / possession remedy that might be available to the landlord.
Forfeiture and waiver of the right to the remedy of forfeit
Firstly, and with specific regard to unpaid ground rent, the potential remedy of forfeiture would only be available to a landlord if the leaseholder owes more than £350 in ground rent (or a combination of ground rent, service charges and administration charges) and has been in arrears for three years or more.
Further, and if a landlord does consider that a certain situation is a breach of lease and warrants forfeiture, the first thing that a landlord has to consider is whether the lease has an express forfeiture provision permitting the landlord to forfeit. If it does, the next thing that a landlord or their managing agent should do is to put the leaseholder’s service charge / ground rent account on hold so that no further written demands for payment are prepared / sent out and no payments are received / processed, this needs to be done so as not to waive the landlord’s right to remedy of forfeiture of the lease. If the landlord is considering court proceeding as per options 1 or 4 above, then it can continue to send service charge / ground rent demands and / or accept payment of service charge / ground rent, and this is because waiver is only applicable to forfeiture.
If considering forfeiture a landlord should be aware that if demands for specific service charges are not demanded within 18 months from when the actual service charge costs are incurred, the landlord may not be able to recover them after that 18 month period has passed.
In usual circumstances, to avoid this a notice pursuant to section 20B of the Landlord and Tenant Act 1985 may be served. However, where a landlord is pursuing the remedy of forfeiture, the service of such a notice would be an act confirming the existence of the lease and that of waiver of the landlord’s right. In the event the landlord proceeds with forfeiture and has not demanded service charges, the landlord may claim the un-demanded sum as damages within the forfeiture proceedings. This may work where the landlord is successful with the claim or where a party makes a claim for relief from forfeiture.
The court will often grant relief from forfeiture in residential property on the condition the party complies with the terms of the lease and pays all sums and costs owing to the landlord.
Conclusion
From a leaseholder’s perspective, it is advisable not to ignore service charge / ground rent demands and most importantly to seek independent legal advice if there is any uncertainty about the service charge / ground rent sums being demanded. By contrast, a landlord should make sure that any service charge / ground rent is demanded in writing, in accordance with the lease terms and statutory rules. If sums are not paid by the leaseholder, the landlord should take urgent independent legal advice at the earliest opportunity to ensure that the most appropriate form of enforcement is taken and it does not inadvertently waive its right to the remedy of forfeiture.
The above is accurate as at 20 July 2021. The information above may be subject to change during these ever-changing times. The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
