Repossession of Leasehold Property
1st Nov 2018
2018 saw one of the most extreme cases of property forfeiture. A £600,000 apartment was seized in London after the owner had made ‘home improvements.’ The individual failed to seek approval for these changes from the freeholder, a crucial term stated within the lease. The case has now sparked calls for a reform in the legislation that allows freeholders to take back the property if lease terms have been breached. While the practice can be a help to landlords when dealing with nuisance individuals, it can be quite a worry for leaseholders.
What is Forfeiture?
This is the ability for freeholder to terminate the lease due to defaults on its covenants. Depending upon the reason for doing so, it can be actioned with immediate effect or following a period of notice. The freeholder must first be able to establish the basis of their right to do so, which is normally by relying upon a specific clause within the lease.
Procedures must be adhered to before a lease can be forfeit. The landlord must first ensure the clause relied upon covers the breach in question as well as exercising any preconditions beforehand. This includes serving a ‘Section 146’ notice upon the leaseholder, stating they have breached the lease, a possible remedy and a request to action the solution or pay monetary compensation within a stated time period. Subsequent failure by the leaseholder to remedy the breach will then be followed by forfeiture, however, no occupied property can be repossessed without a court order.
Forfeiture Conditions
For the proceedings of forfeiture to be available to a freeholder, the following conditions must be satisfied:
- There must be a ‘forfeiture’ clause within the lease specifying under what circumstances it may occur.
- In cases of unpaid sums, the charges must amount to more then £350 and/or have been outstanding for more than three years.
- Forfeiture cannot be used for non-payment of service or administration charges (excluding interest), unless the leaseholder has admitted it is payable or a final determination has been made by court, a First Tier Tribunal or arbitrator.
When proceeding with the forfeiture process, the freeholder should ensure they do not demand/accept sums from the leaseholder. By doing so, they allow the lease to continue and are accepting any breaches.
Common situations for repossession include:
- Non-payment of ground rent.
- Breaching lease conditions
Gaining Back Control of the Property
There are a few ways that the freeholder may take back possession of the property. The most common is application to the Court for a Possession Order. Even though it is a more lengthy and costly process, it less problematic than ‘peaceable re-entry.’ A difficult route due to the protection now given to leaseholders under eviction legislation. An example of ‘re-entry’ is changing the locks when the residents have vacated the premises. The freeholder must ensure the safety of any possessions remaining on the premises to avoid any claim for damaged/lost goods.
Relief from Forfeiture
Leaseholders have a right to apply to the court for relief of forfeiture. This means that the individuals may still be able to remain within the property even if a right of forfeiture has already been established. Relief can also still be granted even if the freeholder has already ‘re-entered’ the premises.
In many cases, forfeiture creates a great injustice. Leaseholders can be subject to the loss of their investment, a sometimes out of proportion penalty compared to the damage suffered by the freeholder. The Commonhold and Leasehold Reform Act 2002 introduced safeguarding provisions preventing freeholders from issuing such proceedings unless conditions have been met.
Forfeiture is an extremely complicated process and all cases are treated individually. It can also be either a useful or daunting prospect depending on whether the individual is a leaseholder or freeholder. With this is mind, it is within each of the parties best interests to always adhere to any obligations set out within the lease.